Opinion
Index No. 502134/2021 NYSCEF Doc. No. 56
11-02-2022
MARK CHERNOMORDIK, Plaintiff, v. OCEAN SAND DEVELOPMENT, LLC and ALEKSANDER GOLDIN, Defendants,
Unpublished Opinion
DECISION AND ORDER
Hon. Leon Ruchelsman, JSC
The defendants have moved seeking so dismiss the complaint pursuant to CPLR §3211. The plaintiff has filed a cross-motion seeking to amend the complaint. The motions have been opposed respectively. Papers were submitted by the parties and after reviewing all the arguments, this court now makes the following determination.
According to the Complaint,, in April 2007 the plaintiff invested $400,000 thereby purchasing a five percent equity interest in Ocean Sand Development LLC. The entity was established to develop property in the Dominican Republic. The: Complaint asserts that in the ensuing years no development has taken place at all and that the plaintiff has not been paid any interest to which he is entitled pursuant to a letter of understanding executed in 2011. The Complaint alleges four causes of action, namely dissolution, breach of contract, breach of fiduciary duty and an accounting. The defendants have now moved seeking to dismiss the Complaint on the grounds it fails to allege any wrongdoing on the part of the defendants. The plaintiff has opposed the motion arguing the Complaint alleges valid causes of action and moves to amend the complaint. The defendants argue the amended complaint, in any event, likewise fails to allege any causes of action.
Conclusions of Law
It is well settled that upon a motion to dismiss the court must determine, accepting the allegations of the complaint as true., whether the party can succeed upon any reasonable view of those facts (Strujan v. Kaufman & Kahn, LLP, 168 A.D.3d 1114, 93 K.Y.S.3d 334 [2d Dept., 2019]). Further, all the allegations in the complaint are deemed true and all reasonable inferences may be drawn in favor of the plaintiff (Weiss v. Lowenberg, 95 A.D.3d 405, 944 N.Y.S.2d 27 [1st Dept., 2012]). Whether the complaint will later survive a motion for summary judgment, or whether the plaintiff will ultimately be able to prove its claims, of course, plays no part in the determination of a pre-discovery CPLR §3211 motion to dismiss (see, Moskowitz v. Masliansky, 198 A.D.3d 637, 155 N.Y.S.3d 414 [2021]).
First, the motion seeking to amend the complaint is granted. Concerning the causes of action, the first counts seek dissolution. In Matter of 1545 Ocean Avenue LLC, 72 A.D.3d 121, 893 N.Y.S.2d 590 [2d Dept., 2010] the court held that the sole basis for dissolution of a limited liability company were the grounds outlined in Limited Liability Company Law §702, namely judicial dissolution upon proof that it is "not reasonably practicable to carry on its business in conformity with the articles of organization or operating agreement" (id). This is a more stringent standard than the dissolution of an ordinary corporation (Kassab v. Kasab, 195 A.D.3d 830, 145 N.Y.S.3d 836 [2d Dept., 2021]). Thus, the plaintiff must establish that "(1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or (2) continuing the entity is financially unfeasible" (Long Island Medical & Gastroenterology Associates. P.C. v. Mocha Realty Associates LLC, 191 A.D.3d 857, 143 N.Y.S.2d 56 [2d Dept., 2021]). Concerning disagreements among the members "it is only where discord and disputes by and among the members are shown to be inimical to achieving the purpose of the LLC will dissolution under the "not reasonably practicable" standard imposed by LLC § 702 be considered by the court to be an available remedy to the petitioner" (Kassab v. Kasab, 60 Misc.3d 1204(A), 109 N.Y.S.2d 832 [Supreme Court Queens County 2018]).
The operating agreement of the entity provides that its purpose is to "own, lease, develop, manage, and operate the premises located at Caberette, Dominican Republic (the "Property")" (see, Operating Agreement, 'Preliminary Statement' [NYSCEF Doc. No. 43]) and formed the defendant entity to "purchase, lease or otherwise acquire, and to hold, develop, use, lease, licenses, maintain, sell, and otherwise deal with the Property" (id at ¶2.5(a)). Thus, the entity was formed fifteen years ago and the government of the Dominican Republic has rejected plans to- develop the property three times. Therefore, the property has remained undeveloped ever since. The defendants assert that considering the impasse that exists the best option going forward is to "continue to hold the Property with the reasonable expectation that its value will skyrocket if and when the regulatory environment changes, as it tends to do from time to' time in the Dominican Republic" (see. Memorandum of Law in Support, page 3 [NYSCEF Doc. No. 55]). However, that option is so speculative, so abstract and so theoretical and its success is not dependent upon the efforts of any of the parties but upon policy changes in a foreign government. While arguments the entity cannot conduct its business might be premature since the property is still being held by the entity, there can be no question the goal of the entity was not to hold the undeveloped property for such a long period of time. The defendants argue "the Operating Agreement does not even require Ocean Sand to do any development at all" and that the entity "is now holding on to it, biding its time and lying 'dormant' so to speak, until changing market conditions permit a sale or the government finally permits development" (see, Memorandum of Law in Support, page 5 [NYSCEF Doc. No. 55]). There can really be no dispute the entity has been forced to maintain the property in its current undeveloped state due to conditions beyond its control. That does not mean the entity is legitimately pursuing the goals of the operating agreement. Rather, the entity is trying to cope with the best of a bad situation. Therefore, there are surely questions whether the entity can ever achieve the goal of developing the property. Thus, the plaintiff may be able to establish the stated goal of the entity will never be achieved.
The defendants stress that dissolution would destroy any chance of ever recovering initial investments and that really the only option is to wait and hope for the ability to develop the property in the future. While that may be true, as noted, that may never happen. Thus, further discovery and an eventual trial is necessary to evaluate the ability to sell the property, the advantages that may be gained from owning the adjoining properties and the harsh reality the property may never be developed. Therefore, the motion seeking to dismiss the dissolution claim is denied.
The second cause of action is for breach of contract. It is well settled that to succeed upon a claim of breach of contract the plaintiff must establish the existence of: a contract, the plaintiff's performance, the defendant's breach and resulting damages (Harris v. Seward Park Housing Corp., 79 A.D.3d 425, 913 N.Y.S.2d 161 [1st Dept., 2010]). Further, as explained in Gianelli v. RE/MAX of New York, 144 A.D.3d 861, 41 N.Y.S.3d 273 [2d Dept., 2016], "a breach of contract cause of action fails as a matter of law in the absence of any showing that a specific provision of the contract was breached" (id).
On May 1, 2011 the parties entered into a letter agreement that provided that "in order to acquire the additional land, pre-construction deposit you made on December 9, 2007 in the amount of $224,825 was used. In return for the deposit, you will earn an annual interest on $44.9,650 at 10% beginning May 1, 2011. The total amount due to you will be capped at $899,300. The original deposit of $224,825 and $224,825, fee plus accumulated interest shall be paid before distributions of capital and profits of Ocean Sand Development.” (see, Letter dated May 1, 2011 [NYSCEF Doc. No., 45]). The defendants argue that provision did not require interest payments to be made annually and did not require the principal to be paid within ten years. Rather, that letter merely required interest payments at some point and that the payment of principal preceded any payment of profits.
The agreement does indicate that principal must be paid prior to the payment of any profits, however, it clearly provides the investor plaintiff will earn ten percent interest annually beginning May 1, 2011. It is surely tenable that actual annual interest payments was contemplated. It cannot- be said as a matter of law that the only reasonable and possible reading of the agreement was that no such payments were due on an annual basis at all. Surely, there are questions of fact concerning the meaning of the agreement. Therefore, the motion seeking to dismiss the breach of contract cause of action is denied.
The next cause of action is for breach of a fiduciary duty. To succeed on a claim for breach of a fiduciary duty, a plaintiff must establish the existence of the following three elements: (1) a fiduciary relationship existed between plaintiff and defendant, (2) misconduct by the defendant, and (3) damages that were directly caused by the defendant's misconduct (Kurtzman v Bergstol, 40 A.D.3d 588, 835 N.Y.S.2d 644, 646 [2d Dept., 2007], see, Birnbaum v. Birnbaum, 73 N.Y.2d 461, 541 N.Y.S.2d 746 [1989]). The first element, namely a fiduciary relationship is satisfied as plaintiff adequately establishes, and there is really no opposition, that the defendant owed a fiduciary responsibility to the corporation (Greenberg v. Wiesel, 186 A.D.3d 1336, 131 N.Y.S.2d 36 [2d Dept., 2020]).
The second element of misconduct must now be examined. "The duty of care refers to the responsibility of a. . . fiduciary to exercise, in the performance of his or her tasks, the care that a reasonably prudent person would use under similar circumstances" In re Ticketplanet.com, 313 BR 46 (SDNY Bankruptcy Court, 2004), citing Norlin Corp, v. Rooney, Pace, Inc., 744 F.2d 255, [2d Cir. 1984]). In turn, the fiduciary duty of due care, "obligates [fiduciaries] to act in an informed and 'reasonably diligent' basis in 'considering material information'" (Higgins, supra). Lastly, concerning damages, plaintiff must demonstrate that they did in fact suffer financial injury caused by defendant's breach of duty (105 East Second St. Assocs. v. Bobrow, 175 A.D.2d 74 6, 57 3 N.Y.S.2d 503 [1st Dept.,. 19:91]) . To establish the damages component of a claim- for a breach of fiduciary duty, plaintiff is required to show at a minimum, that the defendant's actions were "a substantial factor" in causing an "identifiable loss" (see, (105 East Second St. Assocs. v. Bobrow, supra).
The basis Of any allegation the defendants breached the duty of care is contained in Paragraph 91 of the proposed amended complaint and contains twelve subdivisions. The allegations include that defendant Goldin purchased other parcels of land through another entity called Suncoast without informing the plaintiff and that "Ocean Sand would receive 60% of the income from the Development Project and Suncoast 40%. Goldin thus diverted almost half of Ocean Sand's income and profits to his company Suncoast" (see, Proposed Amended Complaint, ¶91(b) (NYSCEF Doc. No. 52]). Further, it is alleged the defendant Goldin "repositioned" the Ocean Sand lots and decreased their size to enlarge the lots owned by Suncoast and diverted "assets and profits" from Ocean Sand (see, Proposed Amended Complaint, ¶91(d) (NYSCEF Doc. No. 52]). It is further alleged that one of the parcels, namely 48B was purchased by Ocean Sand when it was really purchased by Suncoast. There are further allegations Goldin misrepresented facts in a status report dated February 27, 2017 by claiming permits were still awaiting approval and that the entity had hired a law firm to help with the efforts to obtain such permits. Further, that status report misrepresented the: true owners of Parcel 48B and failed to disclose the purchase of additional parcels by Suncoast. Lastly, the allegations assert that Goldin misrepresented information in its tax returns by including Parcel 48B within its portfolio and misrepresented the liabilities of Ocean Sand.
First, there was no obligation to offer the plaintiff any additional opportunities to invest in any additional parcels and such failure does not constitute the breach of any duty. Moreover, the May 1, 2011 letter specifically states that Parcel 48B was purchased to add value to Ocean Sand's portfolio, thus, such purchase was not secret. Thus, the allegation about the diversion is conclusory, without providing sufficient information about such diversion. In any event, the proposed amended complaint fails to support the contention any diversion took place at all. First, it defies common sense the May 1, 2011 letter would concede a diversion occurred. More importantly, the purchase of Parcel 48B was made for the benefit of Ocean Sand not to undermine Ocean Sand's assets. Moreover, admittedly, there have been no income or profits that could have possibly been diverted. Therefore, all the allegations based upon the purchase,of Parcel 4 8B are speculative and premature since the plaintiff has suffered no damages. The allegations the defendants "repositioned" the lots of the Ocean Sand properties are conclusory and do not explain the nature of such repositioning; Further, the proposed amended complaint fails to explain how any statements contained in any status reports or tax returns constituted a breach of any duty since any such misrepresentations, if they are true, did not cause any damage to the plaintiff. Therefore, the motion seeking to dismiss the third count is granted.
The last count seeks an accounting. It is well settled that "the right to an accounting is premised upon the existence of a confidential or fiduciary relationship and a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest" (see, Palazzo v. Palazzo, 121 AD2.d 261, 50.3 N.Y.S.2d 381 [2d Dept., 1986]) . Since no breach of duty exists the motion seeking to dismiss this cause of action is granted.
So ordered.