Opinion
Index No. 515075/2023 Motion Seq. No. 3 NYSCEF Doc. No. 54
01-02-2024
NAHUM DAVIDOVICH, individually and derivatively on behalf of Shimha LLC, Plaintiff, v. SHIMHA LLC, DAVID SIMHA, SHIMON LEFKOWITZ, and MEDWAY COUNTRY MANOR, INC. d/b/a MEDWAY COUNTRY MANOR SKILLED NURSING & REHABILITATION CENTER, Defendants,
Unpublished Opinion
DECISION AND ORDER
Hon. Leon Ruchelsman, JSC
The plaintiff has moved seeking to reargue a decision and order dated October IC, 2023 which dismissed the lawsuit based upon the statute of limitations. The defendants oppose the motion to the extent that even if reargument is granted the arguments presented in the prior motion on substantive grounds demands dismissal of the: lawsuit- Papers have been submitted by the parties and arguments held. After reviewing all the arguments this court now makes the following determination.
As recorded in the prior order, according to the Amended Complaint, on May 2, 2014 the plaintiff and defendants Shimon Lefkowitz, David Simha and non-party Larry Goldfarb executed an operating agreement for defendant Shimha LLC for the purpose of acquiring and leasing or selling: property located at 115 Holliston Street in Medway Massachusetts. The plaintiff loaned Shimha LLC one million dollars and maintained a fifty percent interest in the company. Further, On the same day defendant Medway Country Manor Inc., executed a lease of the premises as tenant from Shimha LLC as landlord:. The lease provided for base rent of $80:0,000 plus one percent of Medway's gross operating revenue as defined in the lease itself. Moreover, the. operating agreement provided for monthly payments of $8,333.34 to be paid to the plaintiff until his loan was paid back. Moreover, the operating agreement provided that the plaintiff was to be paid an additional, one: percent of revenue that Medway was required to pay pursuant to the lease.
On December 1, 2016 Shimha entered into a Healthcare Regulatory Agreement with the Department of Housing and Urban Development [hereinafter 'HUD'] which restricted Shimha's distributions. The members of Shimha, including the plaintiff, adopted resolutions permitting the manager of Shimha to make any modifications necessary in any of the contracts to which Shimha is a party, in order tp obtain approval from HUD. Thus, on December 22, 2016 Shimha and Medway amended the lease and removed the revenue payment due the plaintiff each month. This lawsuit was commenced and the plaintiff alleges that the Lease was modified wherein he was denied his valuable monthly payment. He has asserted causes of action for breach of contract, unjust enrichment, breach of fiduciary duty, breach of good faith and fair dealing, a constructive trust and a declaratory judgement.
The motion seeking reargument that the statute of limitations was tolled due to executive and administrative orders in the wake of. the COVZD-19 pandemic is granted. The court will now consider the substantive arguments presented by the defendants seeking dismissal.
Conclusions of Law
In relevant part, CPLR §3211 (a) (1) allows the court to dismiss a Complaint "where documentary evidence definitively contradicts the plaintiff's factual allegations and conclusively disposes of the plaintiff's claims" (id).
On December 22, 2016 the members of Simha LLC including the: plaintiff amended the operating agreement. The vote that was memorialized explained that the U.S. ..Department of Housing.' and Urban Development, issued a firm commitment letter to First American Capital Group Corporation, as lender, to insure a mortgage made by First American in an amount of $11,440, UD.0.00 to Simha. LLC to refinance a loan between Simha LLC and Commerce Bank & Trust Company, (see, Shimba, LLC Vote [NYSCEF Doc. No. 2$]). The Vote further explained that "HUD and Lender require certain actions and agreements, from the LLC in order for Lender to make and HUD to insure the HUD Loan" (id), Thus, the Vote further explained that the members "desire to authorize the LLG to take all steps necessary for the LLG to obtain the. HUD Loan from the Lender"' (id) . Critically, the Vote states that "WHEREAS, the Members and managers of the LLC desire to authorize David Simha (the "Manager") in his capacity as a Manager of the LLC to take any and all actions and execute any and all documents necessary for the LLC to secure the HUD Loan with the Lender" (id). The defendants argue there is no evidence the lease agreement required any amendment and thus such amendment was not included within the broad power given to take "all steps necessary" to effectuate the HUD loan.
The agreement between Simha LLC and HUD dated December 1, 2016 does not expressly require the amendments to the lease. The agreement does contain restrictions on certain distributions, however, the defendants have, failed to demonstrate whether those provisions are applicable to the distributions due the plaintiff. For example, the affidavit of David Simha states that "the amendments were made as required by HUD, on or about December 22, 2016" (see, Affidavit of David Simha, ¶28 [NYSCEF Doc. No. 25]) without explaining the precise language in the HUD agreement mandating the amendments to the lease.
Moreover, pursuant to the operating agreement the plaintiff was required to receive $8,333.34 a month as repayment of the one million dollar loan he. furnished... Further, the payments were scheduled to continue until the loan was paid in full. In addition, the plaintiff was entitled to receive a monthly payment, called the 'revenue payment' as well as a 'rent increase payment' both spelled out in the operating agreement, Those two payments were eliminated by the lease amendments and they form the crux of the lawsuit. Thus, the plaintiff has presented sufficient questions of fact, at this juncture, that the defendants breached, the operating agreement and the lease,. Surely, there has been no conclusive disposition of this individual claim. The defendants point out that pursuant to the closing statement (NYSCEF Doc. No. 14) the plaintiff was paid $800,000. The plaintiff does not really address the impact of this, payment. It surely reduces, perhaps to zero, the plaintiff's loan. However, that, payment does not address the plaintiff's claims regarding the revenue payment and the rent increase payment. There are simply too many questions of fact, that foreclose a summary determination at this time.
Turning to the second and third causes of action seeking unjust enrichment, it is well settled that a claim of unjust enrichment is not available when it duplicates or replaces a conventional contract or tort claim (see, Corsello v. Verizon New York Inc., 18 N.Y.3d 777, 944 N.Y.S.2d 732 (2312). As the court-noted "unjust enrichment is not a catchall cause of action to be used when others fail" (id). Therefore, Since there is a valid claim for breach of contract, the motion seeking to dismiss the unjust enrichment causes of action is granted.
Concerning the fourth cause of action alleging a breach of fiduciary duty, it is well settled that when a claim for breach of a fiduciary duty is merely duplicative of a breach of contract claim, where they are based on the same facts and seek the same damage then the breach of fiduciary claim cannot, stand (Pacella v. Town of Newburgh Volunteer Ambulance Corps. Inc., 164 A.D.3d 809, 83 N.Y.S.3d 246 [2d Dept., 2018]). In this case the cause of action alleging any breach of a fiduciary duty is identical: to the breach of contract claim, namely that the defendants improperly amended the lease and operating agreement. Consequently, even if this cause of action would to timely commenced, it is still duplicative. Therefore, the motion seeking to dismiss the fourth cause of action is granted.
The fifth cause of action alleges a breach of the covenant of good faith and fair dealing. Likewise, this cause of action is duplicative of breach of contract when based upon the same facts, and circumstances. (see, Fuoco Group LLP v. Weisman & Co., CPAs, ___A.D.3d__, ___N.Y.S.3d___, 2023 WL 8440794 [2d Dept., 2023]). Therefore, the motion seeking to dismiss this cause of action is granted.
The, sixth and seventh causes of action allege derivative claims for breach of contract and breach of a fiduciary duty. In Serine v. Lipper, 123 A.D.3d 34, 994 N.Y.S.2d 64 [1st Dept., 2014] the court explained that to distinguish a derivative claim from a direct claim the court must engage in two inquiries. First, whether any harm was suffered by the corporation or an individual stockholder and whether the corporation or the individual stockholder would receive the benefit of any recovery. As the court stated "if there is any harm caused to the individual, as opposed to the corporation., then the individual may proceed with a direct action. On the other hand, even where an individual harm is: claimed, if it is confused with or embedded in the harm to the corporation, it cannot separately stand" (id). Thus, where the alleged injury affects all shareholders not just the plaintiff then the action is derivative and not direct (Vaughan v. Standard General L.P., 154 A.D.3d 581, 63 N.Y.S.3d 44 [1st Dept., 2017]).
The derivative breach of contract claim asserts that "Defendant MEDWAY has failed and refused to pay Owner LLC the full amount of rental payments due under the terms of the 2014 Lease, including all Past Due Rent, despite due demand" (see, Amended Complaint, ¶71 [NYSCEF Doc. No. 19]). That allegation is difficult to comprehend because pursuant to the lease amendments the rental payments actually increased. In opposition to the motion the plaintiff explains that even though the rent, increased from $808,000.00 to $936,135.00 "the Lease Amendment also removes entirely the Rent increase Payments and Revenue Rent Payments. Had the 1% bi-yearly Rent Increase Payments applied going, forward, Base Rent would be $816,080.00. starting 2018, $824,420.80 starting 2020, $832,483.21 starting 2022, and $840,808.04 starting in 2024. If the annual revenue of MEDWAY exceeds $10 million, the Revenue Rent: Payments would then exceed $130,000.00, and total rent payable under to original Lease would exceed lump sum Base Rent payments under the Amended Lease- In ten more years, the Revenue Rent Payments of $50,000.00 or more would make total rent payable under the original Lease terms more than lump-sum Base Rent payments under the Amended Lease (Base Rent being $849,216.12 in 2026, $892,534.67 by 2036, and $928,775.16 by 2046)" (see, Affirmation in Opposition, ¶31 [NYSCEF Doc. No. 41]) . Thus., there really is no basis to conclude a breach of contract occurred in this regard.. Even considering plaintiff's optimistic, growth projections the annual rent of $936,135.00 would not happen until after 2046. Furthermore, the guaranteed increased yearly rent is far more significant than possibilities of earnings growth. For that very reason the members voted to make these changes. Indeed, the plaintiff himself voted to do whatever was necessary to secure the HUD mortgage. While the plaintiff did not specifically vote for a rental increase, the benefits of such increase are readily obvious. In fact, the plaintiff may be barred from instituting a derivative action asserting a breach of contract when he voted for the very changes he now asserts on behalf of the corporation. In any event, the amended complaint fails to allege any damages with any definitiveness that could possibly flow to the corporation, Therefore, the motion seeking to dismiss the two derivative causes of action is granted.
The next cause of action is for a constructive trust. A constructive trust may be imposed when property has been acquired under such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest therein (Plumitallo v. Hudson Atl. Land Co., 74 A.D.3d 1038, 903 N.Y.S.2d 127 [2d Dept., 2010]). The amended complaint asserts that "SIMHA, in collusion with MEDWAY and the other. Individual Defendants,, grossly abused this position of trust by failing to collect rent from MEDWAY due under the Lease and by purporting to amend and effectively reduce the rental payments due under the Lease for no consideration and in transparent breach of the Operating Agreement" (see, Amended Complaint, 94 [NYSCEF Doc. No. 19]). First, there can be no derivative claim in this regard because the rental amounts were not reduced, on the contrary, they were increased. To the extent such allegations are individual, there was no fiduciary relationship nor any promise made between the plaintiff individually and the defendants. Therefore, the plaintiff cannot establish any constructive trust. Moreover, where a complaint intermingles derivative and individual claims within single causes of action the complaint must be dismissed without prejudice (Billig v. Schwartz, 191 A.D.3d 547, 136 N.Y.S.2d 715 [1st Dept., 2021]). Therefore, the motion seeking to dismiss this cause, of action is granted.
The last cause of action seeks a declaratory judgement. It is well settled that, "a motion, to dismiss' the complaint in an action for a declaratory judgment 'presents for consideration only the issue of whether a cause of action for declaratory relief is set forth, not the question of whether the plaintiff is entitled to a favorable declaration'" (DiGiorgio v. 1109-1113 Manhattan Avenue Partners LLC, 102 A.D.3d 725, 958 N.Y.S.2d 417 [2d Dept., 2013]). The basis for this cause of action is the allegation the defendants had no authority to: amend the Lease and operating agreement in the manner they did to reduce payments to the plaintiff. Those allegations are precisely the allegations contained in the breach of contract cause of action. Therefore, this cause Of action is duplicative and consequently dismissed (Moghtaderi v. Apis Capital Advisors, 205 A.D.3d 504, 169 N.Y.S.3d 36 [1st Dept., 2022]).
Thus, the motion seeking to: dismiss all the causes of action except for the first cause of action alleging breach of contract is granted.
So ordered.