Opinion
25674/09.
Decided March 30, 2010.
Israel Goldberg, Esq., Goldberg Rimberg, PLLC, New York, NY, Attorney for Plaintiff.
Michael Garabedian, Esq., Rayano Garabedian, P.C., Central Islip, New York, Attorney for Defendant Elias.
Jefferey E. Tomei, Esq., The Law Firm of Tomei Associates, P.C.,
Staten Island, New York, Attorney for Defendant Cavale Tonuzi Corp..
Christopher Thompson, Esq., Christopher Thompson Assoc., West Islip, NY, Attorney for Defendant Violette Tonuzi.
Upon the foregoing papers, in this action by plaintiff Georgette Franzone (plaintiff), individually and as a shareholder of Cavale Tonuzi Corp. (Cavale) against defendants Charbel "Charlie" Elias (Elias), Violette Tonuzi (Tonuzi), and Cavale (collectively, defendants), seeking a declaration that a September 10, 2008 Settlement Agreement is in full force and effect as to Elias and Tonuzi, and that Elias is not a shareholder of Cavale, and demanding monetary damages against Elias and Tonuzi for breach of a covenant not to compete contained in the Shareholders' Agreement dated August 18, 1999 and the covenant of good faith with respect to Cavale, Franzone moves, by order to show cause, for an order: (1) enjoining defendants, their agents and/or employees or anyone acting on their behalf or under their direction from precluding or excluding her from entering the premises of Cavale, (2) enjoining Elias and Tonuzi from operating Cavale, managing the day-to-day operations of Cavale, controlling and conducting corporate meetings for Cavale, passing corporate resolutions for Cavale, or taking any corporate action relating to the operation and management of Cavale, including but not limited to the collection of money paid to Cavale by any person or entity, (3) enjoining Elias and Tonuzi from precluding or excluding her from operating, managing, controlling, or taking any corporate action with regard to the operation and management of Cavale, including but not limited to banking transactions of Cavale, and directing Elias and Tonuzi to turn over to her all business records of Cavale and to furnish her with the keys to the locks at the premises of Cavale.
Cavale is a closely held New York corporation formed on or about June 9, 1999. Franzone, Tonuzi, Elias, and Robert Cavale executed a Shareholders' Agreement dated August 18, 1999, which was modified by a Modification of Shareholders' Agreement executed by them in March 2000. Following the departure of Robert Cavale in 2000, his shares were turned back to Cavale, and the remaining shareholders reallocated their respective interests in the business so as to make each of them a one-third owner of the shares of Cavale. Elias became the acting president of Cavale by virtue of his being named vice-president in the August 18, 1999 Shareholders' Agreement.
The business of Cavale is the operation of a hair salon and day spa located at 8209-8211 Third Avenue, in Brooklyn, New York. Cavale had occupied these premises under an April 26, 1999 lease in the name of Robert Cavale Hair Corporation, as the tenant, with Mary Carbone, Frank Corigliano, and Hedda Schachter (the landlords), as the landlords and owners of the real property.
Since Cavale was unable to generate sufficient income, Cavale, Elias, and Tonuzi gave Franzone a promissory note in 2003 in the amount of $162,000 for a loan given by her, and Cavale and Elias gave George F, LLC (of which Franzone is a member) a promissory note in July 2005 in the amount of $220,000 for a loan given by it. In addition, Cavale obtained a loan from Progressive Credit Union, through the Small Business Administration (the SBA loan). The parties personally guaranteed payment of the SBA loan, and Tonuzi put up her family residence, located in New Jersey, as collateral for this loan.
On or about August 29, 2007, Elias, as a 33.33% minority shareholder in Cavale, commenced a proceeding, pursuant to Business Corporation Law § 1104-a, in the Supreme Court, Kings County ( Matter of Elias, Sup Ct, Kings County, index No. 29434/07), seeking the dissolution of Cavale. The petition for dissolution was premised upon Elias' claim that Franzone had committed illegal, fraudulent, and oppressive actions toward him and Tonuzi. Elias sought dissolution on the basis that the major differences of opinion between him and Tonuzi and Franzone regarding the operation of the business made it impossible to make decisions relating to finances, banking, payroll, staffing, bookkeeping, accounting, legal issues, and other day-to-day functions. Thereafter, on or about October 23, 2007, Franzone and George F, LLC commenced two separate actions against Elias and Tonuzi by way of summary judgment in lieu of complaint to recover the sums due under the promissory notes ( George F, LLC v Elias, Sup Ct, Kings County, index No. 40593/07; Franzone v Elias, Sup Ct, Kings County, index No. 40594/07).
On September 10, 2008, the parties entered into a Settlement Agreement in order to settle the three actions and resolve their disputes about the operation of Cavale, its finances, and the rights, responsibilities, and/or liabilities of each party as they relate to Cavale so as to obviate the need for further litigation. The basic premise of the Settlement Agreement was that Franzone was to buy out Elias and Tonuzi, and take control over the business of Cavale.
Paragraph 2 of the Settlement Agreement provided:
"2. Contingency. This Agreement and all terms herein shall be contingent upon the following contingency. Upon satisfaction of said contingency, a closing shall be scheduled within fourteen days to execute any and all necessary documentation and exchange the consideration set forth herein. In the event that the following contingency is not satisfied, this Agreement shall be void" (emphasis added).
The contingency set forth in paragraph 2 of the Settlement Agreement was that Franzone was required to "use commercially reasonable efforts, with the assistance of the [p]arties, which [was] not [to] be unreasonably withheld, to negotiate with the [landlords] to obtain an assignment and five-year extension of the [l]ease." Paragraph 2 of the Settlement Agreement specifically required that the "assignment and five-year extension of the [l]ease to [Cavale] must be obtained by Franzone within sixty days form the date of this [Settlement] Agreement." Under paragraph 2 of the Settlement Agreement, "[t]he [p]arties agree[d] that they w[ould] grant a reasonable extension of time, not to exceed thirty days, to Franzone to obtain the assigment of the [l]ease provided that it c[ould] be demonstrated that bona fide good faith efforts ha[d] been made to obtain said assignment within the prescribed time period and that a final decision on the same [wa]s pending." Paragraph 2 of the Settlement Agreement further mandated that "[a]ny such [request for an] extension of time . . . be made in writing by Franzone and approved in writing by Elias and Tonuzi," and that "consent to such an extension of time [would] not be unreasonably withheld."
Paragraph 13 of the Settlement Agreement provided that Franzone was to use commercially reasonable efforts to satisfy, substitute, or otherwise remove the mortgage against Tonuzi's family residence which served as collateral for the SBA loan, and that such mortgage was to be satisfied, substituted, or otherwise removed within 60 days from the date all parties executed the Settlement Agreement. Tonuzi agreed to grant a reasonable extension of time, not to exceed 30 days, to Franzone to remove or otherwise satisfy the mortgage if it were demonstrated that Franzone had made bona fide efforts to obtain this satisfaction, substitution, and/or removal of the mortgage within the prescribed time and that a final decision was pending, but such request for an extension was required to be made by Franzone in writing.
Paragraph 3 of the Settlement Agreement set forth that "[d]uring the time period pending the satisfaction of the contingency contained in paragraph 2 . . ., the [a]ctions [would] be stayed . . . and the parties [would] continue to work for and on behalf of [Cavale] as provided for in th[e Settlement] Agreement." In addition, in paragraph 3 of the Settlement Agreement, Franzone "agree[d] not to further encumber [Cavale] by loan or other additional indebtedness other than in the ordinary course of business."
Paragraph 4 of the Settlement Agreement provided that upon satisfaction of the contingency contained in paragraph 2 and irrespective of satisfaction of the contingency contained in paragraph 13, Franzone was required to pay Tonuzi a total of $35,000 toward satisfaction of her claims. Of this $35,000 sum, $5,000 was to be paid upon satisfaction of the contingency contained in paragraph 2, another $5,000 was to be paid within 30 days of the first payment, $15,000 was to be paid on or before December 31, 2008, and $10,000 was to be paid on or before June 30, 2009. Paragraph 5 of the Settlement Agreement stated that upon satisfaction of the contingency contained in paragraph 2, the two promissory notes would be deemed and marked satisfied in full by Franzone and George F, LLC as to Elias and Tonuzi.
Paragraph 6 of the Settlement Agreement provided that "[u]pon satisfaction of the contingency contained in [p]aragraph 2 . . . any and all stock in [Cavale] owned by Elias [would] be deemed and marked cancelled." Elias was required to "execute any documents, including but not limited to a corporate resolution, required to effectuate the cancellation and relinquishment of all rights to any and all stock in [Cavale] and all rights to bank accounts, credit card, [and] credit lines of [Cavale] at the closing date referenced in [p]aragraph 2."
Paragraph 7 of the Settlement Agreement provided that "[u]pon satisfaction of the contingency contained in [p]aragraph 2 . . . and the cancellation of Elias' stock [in accordance with p]aragraph 6, all stock in [Cavale would] . . . be held equally by Tonuzi and Franzone," but that Tonuzi's 50% of stock in Cavale would be held in escrow, pending the satisfaction, substitution, and/or removal of the mortgage in accordance with paragraph 13. Upon such satisfaction, substitution, or removal of the mortgage, "any and all stock in [Cavale] owned by Tonuzi [would] be deemed and marked cancelled," and Tonuzi was to "execute any documents, including but not limited to a corporate resolution, required to effectuate the cancellation and relinquishment of all rights to any and all stock in [Cavale] at the closing date referenced in [p]aragraph 2." In the event Franzone failed to satisfy this term in accordance with the time constraints prescribed in paragraph 13, the 50% of Cavale's stock owned by Tonuzi would be immediately released from escrow and returned to her, along with her rights as a shareholder in Cavale.
Paragraph 8 of the Settlement Agreement provided that upon satisfaction of the contingency contained in paragraph 2, a restrictive covenant contained in the Shareholders' Agreement would be deemed amended so as "to allow Elias to work at and/or accept an ownership interest in Spin Salon located at 7802 3rd Avenue" in Brooklyn (a few blocks from Cavale), and to allow Tonuzi "to work at and/or accept an ownership interest in any business entity outside of a two-mile radius of [Cavale's] location for a period of two years." Elias and Tonuzi were permitted to solicit Cavale's current customers contained on an attached list.
Under paragraph 10 of the Settlement Agreement, "[w]ithin two weeks of notice duly given upon satisfaction of the contingency in [p]aragraph 2 . . . Elias and Tonuzi [were to] tender all keys and permanently vacate [Cavale's] premises." However, "in the event the contingency contained in [p]aragraph 13 [wa]s not satisfied, Tonuzi [had the ] right to reenter." In addition, pursuant to paragraph 11 of the Settlement Agreement, upon satisfaction of the contingency contained in paragraph 2, Elias and Tonuzi were to "relinquish all signatory rights on [Cavale's] bank accounts, credit card, debit cards, and credit lines."
Under paragraph 9 of the Settlement Agreement, upon satisfaction of the contingency contained in paragraph 2 and irrespective of the satisfaction of the contingency contained in paragraph 13, Cavale, Franzone, and George F, LLC were to "indemnify, defend and hold Elias and Tonuzi harmless from any and all debts, claims and/or liabilities of [Cavale] incurred in the past, present, or future." Paragraph 12 of the Settlement Agreement provided that upon satisfaction of the contingency contained in paragraph 2, Elias and Tonuzi would release Franzone, George F, LLC, and Cavale from all claims, and Franzone, George F, LLC, and Cavale would release Elias and Tonuzi from all claims, including but not limited to the three actions. Paragraph 18 of the Settlement Agreement stated that upon satisfaction of the contingency contained in paragraph 2, the parties authorized their attorneys to execute and file stipulations of discontinuance of the actions with prejudice.
Under paragraph 20 of the Settlement Agreement, all notices under the Settlement Agreement were required to be in writing. Pursuant to paragraph 23 of the Settlement Agreement, the Settlement Agreement could not be "amended, altered, revised, modified, terminated, or changed except by a subsequent written agreement executed by all [of the p]arties." Paragraph 24 of the Settlement Agreement acknowledged the parties' understanding and agreement that "in connection with the negotiation and consummation of th[e Settlement] Agreement, . . . [the parties were] not relying upon any "statement, representation, or conduct of any other [p]arty to th[e Settlement] Agreement." Paragraph 26 (a) of the Settlement Agreement set forth that the Settlement Agreement "contain[ed] the entire agreement among the [p]arties with regard to the matters set forth [t]herein."
No lease extension was obtained by Franzone within 60 days from September 10, 2008, as was required by paragraph 2 of the Settlement Agreement. Franzone also did not obtain any satisfaction, substitution, or removal of the mortgage against Tonuzi's family residence which served as collateral for the SBA loan within that 60-day time period, as was required by paragraph 13 of the Settlement Agreement.
While Elias' departure from working at Cavale was made contingent upon Franzone's obtaining a lease assignment and five-year extension for Cavale, Elias asserts that Franzone and Franzone's brother, Vincent Franzone, repeatedly requested that he leave Cavale even though the lease assignment and extension had not yet been obtained. Elias stopped working at Cavale on December 20, 2008 and started working at the new salon, Spin Salon, which, as noted above, was located a few blocks away from Cavale's salon. Tonuzi was also allegedly encouraged by Franzone to stop working at Cavale, and she left the salon on or about January 1, 2009.
Elias and Tonuzi started building their own separate salon businesses, while requesting updates from Franzone on the happenings at Cavale. Franzone allegedly only informed them that negotiations for the lease assignment and extension were still ongoing, and did not provide them with any copies of the proposed lease despite Elias and Tonuzi's requests for such lease. Defendants received a letter from Franzone's attorney on November 11, 2008, requesting a 30-day extension to obtain the lease assignment. However, when defendants' counsel inquired as to what progress had been made and why an extension of time was needed, defendants did not receive a response that was satisfactory to them.
Franzone obtained a lease assignment and five-year extension from the landlords to Cavale on January 30, 2009. Elias and Tonuzi claim that they were not informed of this lease assignment and extension. An e-mail from Franzone submitted by Tonuzi reflects that on April 1, 2009, Franzone stated that she still was "handl[ing] the lease negotiation." No closing was scheduled within 14 days of January 30, 2009 or any time thereafter to execute any necessary documentation in accordance with paragraphs 2 and 6 of the Settlement Agreement.
Following their departure from Cavale, Elias and Tonuzi continued to monitor Cavale's banking activities on-line, and were disturbed by the lack of cash deposits into Cavale's corporate account since, historically, Cavale had sizeable cash deposits on a daily and weekly basis. In August 2009, Tonuzi's counsel requested to see the corporate financial books and records of Cavale, and Franzone and Franzone's counsel did not provide them. Shortly thereafter, Franzone prevented Elias and Tonuzi from viewing Cavale's bank records on-line, without their knowledge or consent, so that Elias and Tonuzi could no longer monitor Cavale's banking activities, as they had been doing.
Since Elias and Tonuzi determined that Franzone was not acting in Cavale's or their best interests, as shareholders, Tonuzi called for a Special Meeting of Shareholders of Cavale to be held on September 22, 2009. Franzone received a notice, dated September 11, 2009, of this meeting. Tonuzi appeared at the meeting with a proxy from Elias in which he designated her as his representative to cast all votes. At the meeting, Elias was nominated and elected the president of Cavale.
On September 23, 2009, the day after the September 22, 2009 shareholders' meeting, a corporate resolution of the new board of directors was issued and signed. That corporate resolution authorized Cavale, by its newly elected officers, to: take any and all actions reasonably necessary to immediately terminate the services of Mitchell Green, Esq. (Cavale's corporate counsel), Franzone, and any dissident contractor or employee of Cavale; close any existing bank accounts in the name of Cavale; remove Franzone's authority as a prior officer of Cavale to act on its behalf on any bank account or contract; retain and/or hire new counsel, contractors, and employees for Cavale; and open new bank accounts for Cavale.
Elias discontinued his dissolution proceeding on September 23, 2009.
On September 23, 2009, the same date as the corporate resolution was issued, Tonuzi and Elias resumed physical possession and control of the business of Cavale. Franzone was present when the locks to the doors were removed and new locks were installed in their place. Several so-called "dissident employees," including Franzone, were then terminated and asked to leave the premises. Cavale's existing bank accounts were closed and new accounts were established in accordance with the corporate resolution. All revenue from the salon, including cash, checks, and credit cards, are now being deposited into Cavale's bank accounts and are logged into the web-based accounting system of the business. New corporate counsel, Kenneth Tomei, Esq., has been retained to represent Cavale in this action, as well as in the promissory note actions which are still pending. New accountants have been retained by Cavale to conduct a complete internal audit and review of Cavale's books and finances, but their efforts have been hampered due to Franzone's alleged removal of all of Cavale's books, records, and financial information off-site to her apartment in Brooklyn.
After coming back into possession of the salon, Elias and Tonuzi allegedly discovered that Franzone was diverting all credit card receipts into her own company, G. Lifestyle Salon, instead of having them deposited into Cavale's account. This allegedly resulted in the loss of tens of thousands of dollars in revenue to Cavale. A GRP Funding, Inc. Merchant Agreement also reflects a $79,000 loan that was taken out through GRP Funding, Inc. for Cavale by Franzone, who allegedly represented that she was Cavale's sole owner, at a time when there was a restraining order imposed in the dissolution proceeding which precluded unilateral actions from being taken by corporate officers and shareholders. In addition, Elias and Tonuzi learned that Franzone and Cavale were being sued in an action brought by Lilliana Narbone (Narbone) ( Narbone v Cavale, Sup Ct, Kings County, index No. 10239/09) based on Franzone and Cavale's execution, on December 3, 2008, of a loan agreement and promissory note in Narbone's favor for the principal sum of $100,000 in contravention of paragraph 3 of the Settlement Agreement.
A default notice from the landlords to Cavale, dated September 21, 2009, reflects that Cavale owes $31,463.04 for base rent for July, August, and September 2009, and additional rent items and late payment fees, which Franzone failed to pay. By a Consolidated Statement of Tax Liabilities from the New York State Department of Taxation and Finance dated October 8, 2009, defendants received notification that Cavale owes $52,478.87 in sales taxes from August 31, 2008 through May 31, 2009, which Franzone neglected to pay, and for which Elias, Tonuzi, and Franzone may be held personally liable if they are not paid by Cavale. An October 14, 2009 notice from Progressive Credit Union addressed to Elias informed him that the SBA loan was in delinquent status and was, at that time, four months in arrears with the total amount of $19,875.01 unpaid for the payments that were due in July, August, September, and October 2009. This default in payment places Tonuzi's family residence in jeopardy since, as noted above, it is the collateral for that loan. On December 16, 2009, Progressive Credit Union commenced an action in the Supreme Court, New York County, against Cavale and Franzone, Tonuzi, and Elias, who remain personally liable on the note ( Progressive Credit Union v Cavale, Sup Ct, NY County, index No. 603768/09).
Cavale, while under Franzone's management, also incurred numerous past due bills and bounced checks (as set forth in an itemized list by defendants), including $4,567.56 past due to Con Edison; $2,914.85 past due to the New York City Water Board; $3,149.56 past due to Travelers Insurance; $1,536.29 past due to Verizon telephone; past due payments owed for laundry service, rubbish removal, pest control, and other expenses; payments owed to beauty supply vendors; payments owed to Tri-State Employment Services; and back pay totaling $13,115.25 for September and October 2009 owed to employees of Cavale. Based on Franzone's alleged improper actions while in control of Cavale, defendants have initiated a criminal investigation of Franzone with the New York City Police Department.
On October 9, 2009, Franzone filed this action against defendants, seeking a declaration that the September 10, 2008 Settlement Agreement is in full force and effect as to Elias and Tonuzi, and that, pursuant to paragraph 6 of the Settlement Agreement, Elias is no longer a shareholder of Cavale. Franzone's complaint also seeks monetary damages against Elias and Tonuzi on the grounds that they allegedly breached the restrictive covenant contained in the August 18, 1999 Shareholders' Agreement and the covenant of good faith with respect to Cavale since Elias has opened a competing salon. In Elias' answer to Franzone's complaint, Elias has interposed five counterclaims against Franzone, alleging corporate mismanagement, misappropriation and conversion of corporate funds, unlawful diversion of corporate funds, and waste and mismanagement of corporate funds by Franzone.
In addressing Franzone's instant motion, it is noted that a preliminary injunction is a drastic remedy which will not be granted unless the movant satisfies his or her burden of establishing a clear right to such relief under the law and undisputed facts ( see County of Orange v Lockey, 111 AD2d 896, 897). "[I]n order to prevail on a motion for a preliminary injunction, the movant has the burden of demonstrating (1) a likelihood of ultimate success on the merits, (2) irreparable injury absent the granting of the preliminary injunction, and (3) that a balancing of equities favors the movant's position" ( Walter Karl, Inc. v Wood, 137 AD2d 22, 26; see also Aetna Ins. Co. v Capasso, 75 NY2d 860, 862; W.T. Grant Co. v Srogi, 52 NY2d 496, 517; Berkoski v Board of Trustees of Inc.Vil. of Southampton , 67 AD3d 840 , 844; Tatum v Newell Funding, LLC , 63 AD3d 911 , 912; Gluck v Hoary , 55 AD3d 668 , 668).
Franzone contends that she has shown a likelihood of ultimate success on the merits based on the Settlement Agreement. Franzone argues that the Settlement Agreement is enforceable because during the nine-month period of December 2008 to late September 2009, the parties acted as though it was in effect by substantially complying with it and accepting the benefits of its terms. Specifically, Franzone asserts that in December 2008, Elias and Tonuzi left Cavale, leaving her as the sole person who operated Cavale, and that Elias maintained a business that was in competition with Cavale in accordance with paragraph 8 of the Settlement Agreement.
Franzone's argument must be rejected. While Elias and Tonuzi temporarily left at the urging of Franzone, this could not render the Settlement Agreement enforceable since paragraph 2 of the Settlement Agreement made the Settlement Agreement and all terms contained therein expressly contingent upon the performance of a condition precedent, i.e., the assignment and extension of the lease within the requisite time period, and this condition precedent was never performed.
It is true that "strict enforcement [of settlement agreements] . . . serves the interest of efficient dispute resolution," and "is also essential to the management of court calendars and [the] integrity of the litigation process'" ( IDT Corp. v Tyco Group, S.A.R.L. , 13 NY3d 209 , 213-214, quoting Hallock v State of New York, 64 NY2d 224, 230). However, where agreed upon conditions are not met, the obligations under a settlement agreement do not become enforceable ( see IDT Corp., 13 NY3d at 214).
A settlement agreement is a contract and, as such, it "is to be construed in accordance with the parties' intent, which is generally discerned from the four corners of the document itself"( MHR Capital Partners LP v Presstek, Inc. , 12 NY3d 640 , 645). "Consequently, a written agreement that is complete, [and] clear and unambiguous on its face must be enforced according to the plain meaning of its terms'" ( id., quoting Greenfield v Philles Records, 98 NY2d 562, 569; see also IDT Corp., 13 NY3d at 214).
"A condition precedent is an act or event, other than a lapse of time which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises'" ( Klewin Bldg. Co., Inc. v Heritage Plumbing Heating, Inc., 42 AD3d 559, 560, quoting Argo Corp. v Greater NY Mut. Ins. Co. , 4 NY3d 332 , 337 n 2 [2005] [internal quotation marks omitted]; see also IDT Corp., 13 NY3d at 214; Preferred Mtge. Brokers v Byfield, 282 AD2d 589, 590). Where a plaintiff fails to perform a condition precedent set forth in a parties' agreement, the defendant has no obligation to perform under the contract ( see Klewin Bldg. Co., Inc., 42 AD3d at 560; Preferred Mtge. Brokers, 282 AD2d at 590; Saferstein v Mideast Sys., 143 AD2d 82, 83).
Here, as previously noted, the Settlement Agreement, by its express terms, set forth, in paragraph 2, as a condition precedent, the assignment and five-year extension of the lease within a 60-day period with the possibility of an extension not to exceed 30 days if agreed upon in writing. Thus, since the lease was not assigned until January 30, 2009, Franzone failed to meet the condition precedent for the Settlement Agreement to become enforceable. Indeed, by the express terms of paragraph 2 of the Settlement Agreement, due to the fact that this contingency was not satisfied, the Settlement Agreement was rendered void.
While Franzone relies on the fact that the lease was ultimately assigned on January 30, 2009, she failed to obtain such assignment and extension within the allotted time period and also failed to advise defendants of this assignment and extension of the lease for more than nine months after it was purportedly executed. "Express conditions must be literally performed," and even "substantial performance will not suffice" ( MHR Capital Partners LP, 12 NY3d at 645). Thus, a limited and untimely performance does not constitute performance of such an express condition ( see Klewin Bldg. Co., Inc., 42 AD3d at 560; Preferred Mtge. Brokers, 282 AD2d at 590). Moreover, a closing was never scheduled within 14 days of the assignment of the lease and no documents were executed, as required by paragraph 2 of the Settlement Agreement.
Although Franzone claims to have paid the landlords $60,000 in rent arrears, it is undisputed that Franzone failed to pay rent for the time period of July through September 2009.
Franzone argues that Elias and Tonuzi should be equitably estopped from voiding the Settlement Agreement based on their acting in a manner inconsistent with it being void. This argument is unavailing. Paragraph 23 of the Settlement Agreement specifically provided that there could be no alteration of the Settlement Agreement absent a written agreement executed by all of the parties, and paragraph 24 of the Settlement Agreement explicitly stated that the parties were not relying upon any conduct by any other party with respect to the consummation of the Settlement Agreement.
Additionally, Franzone failed to comply with any of the other requisite terms of the Settlement Agreement. Franzone did not substitute new collateral or remove Tonuzi's property as collateral for the SBA loan in accordance with paragraph 13 of the Settlement Agreement, and, as discussed above, Progressive Credit Union is now suing all of the parties, who remain personally liable on the loan. Franzone also has not cancelled the two promissory notes in accordance with paragraph 5 of the Settlement Agreement, and has not discontinued her pending actions on these notes in accordance with paragraph 18 of the Settlement Agreement. In addition, Franzone has never paid Tonuzi $35,000 toward satisfaction of her claims in accordance with paragraph 4 of the Settlement Agreement. Such lack of performance by Franzone undermines her argument that the Settlement Agreement ever became effective.
Furthermore, pursuant to paragraph 6 of the Settlement Agreement, Elias' stock in Cavale was only to be deemed and marked cancelled upon satisfaction of the contingency in paragraph 2 of the Settlement Agreement and upon Elias' execution of documents required to effectuate the cancellation. This contingency was never satisfied, and Elias' execution of documents never occurred. With respect to Tonuzi, inasmuch as the satisfaction, substitution, and/or removal of the SBA loan pursuant to paragraph 13 of the Settlement Agreement never occurred, Tonuzi maintained her stock in Cavale in accordance with paragraph 7 of the Settlement Agreement and had a right to reenter the premises under paragraph 10 of the Settlement Agreement. Thus, Elias and Tonuzi, as the owners of two-thirds of the shares of Cavale, maintain a controlling interest in the business and reasserted their collective ability to terminate Franzone's management of Cavale on September 22, 2009, following a duly noticed meeting of shareholders and a corporate resolution. Consequently, Franzone has failed to show a likelihood of ultimate success on the merits ( see Tatum, 63 AD3d at 912; Gluck, 55 AD3d at 668).
Franzone also has not shown irreparable injury absent the granting of a preliminary injunction ( see Di Fabio v Omnipoint Communications, Inc. , 66 AD3d 635 , 636-637). A preliminary injunction is not warranted when there is an adequate remedy at law ( see Famo, Inc. v Green 521 Fifth Ave. LLC , 51 AD3d 578, 578; Credit Index v RiskWise Intl., 282 AD2d 246, 247). While Franzone alleges that Elias has violated the restrictive covenant of the Shareholders' Agreement by competing with Cavale, any claimed injuries, if proven, can be fully redressed by monetary damages.
Furthermore, a balancing of the equities does not favor the granting of the preliminary injunction ( see Nassau Roofing Sheet Metal Co. v Facilities Dev. Corp., 70 AD2d 1021, 1022). Franzone has not shown that any injury she is likely to sustain will be more burdensome to her than the harm likely to be caused defendants by the imposition of a preliminary injunction ( see Credit Index, 282 AD2d at 247). Defendants, however, have submitted documentary proof of numerous past due and unpaid rent, bills, and taxes, and unauthorized loans taken under Franzone's management. Such documentary proof supports Elias' counterclaims against Franzone, which allege mismanagement of Cavale, corporate waste, and unlawful diversion of corporate funds.
Furthermore, at the present time, the business of Cavale is fully operational. All of the hairstylists that were previously employed by Cavale have expressed a desire to remain, with Tonuzi and Elias in control of the day-to-day operations of Cavale. Tonuzi is presently at the salon on a daily basis, and Elias provides support as needed, while continuing to operate his own business, formerly known as the Spin Salon, which, as noted above, is located several blocks away from Cavale. Defendants maintain that they are now paying the past due bills of Franzone, which were in arrears under Franzone's management and control of Cavale. Payment of such bills by defendants will inure to the benefit of Cavale and all of its shareholders. Denial of Franzone's request for a preliminary injunction will maintain the status quo by preventing any diversion, loss, waste, or looting of corporate assets by Franzone, and will also result in no demonstrated harm or prejudice to Franzone.
Accordingly, Franzone's motion for a preliminary injunction is denied in its entirety.
This constitutes the decision and order of the court.