Opinion
No. 3983/11.
2012-09-10
In the Matter of Probate Proceeding, WILL OF Miguel BRION, Deceased.
Steven Malech, Esq., Wiggin & Dana, New York, for Petitioner. Gilbert Goldman, Esq., New York, for Respondent Stephanie Brion.
Steven Malech, Esq., Wiggin & Dana, New York, for Petitioner. Gilbert Goldman, Esq., New York, for Respondent Stephanie Brion.
Brian DeLaurentis, Esq., Witchel & DeLaurentis, New York, for Respondent Michael Brion.
DIANA A. JOHNSON, J.
The following papers were considered in deciding proponent's motion for a preliminary injunction:
+----------------------------------------------------------------+ ¦Papers ¦Numbered ¦ +-----------------------------------------------------+----------¦ ¦Order to Show Cause and Affidavit ¦1, 2 ¦ +-----------------------------------------------------+----------¦ ¦Affidavit of Michael Brion in Opposition ¦3 ¦ +-----------------------------------------------------+----------¦ ¦Affirmation of Brian DeLaurentis, Esq., in Opposition¦4 ¦ +-----------------------------------------------------+----------¦ ¦Affirmation of Gilbert Goldman, Esq. in Support ¦5 ¦ +-----------------------------------------------------+----------¦ ¦Affidavit of Juan Vila in Support ¦6 ¦ +-----------------------------------------------------+----------¦ ¦Supplemental Affidavit of Michael Brion in Opposition¦7 ¦ +----------------------------------------------------------------+
This is an application by Juan Vilas, temporary administrator and son of the decedent (“Juan”), for a preliminary injunction restraining his brother, Michael Brion (“Michael”), from transferring or diverting business or interfering with the assets of Basonas Construction Corp. (“Basonas”), which is claimed by the temporary administrator to be an asset of the estate.
The decedent was a wealthy businessman in the construction business. He died in Spain on August 2, 2011, survived by three children, Juan, Michael and Estfania Vial (“Stephanie”). A major asset of the estate was the decedent's interest in his construction company, Basonas Construction Corp. (“Basonas”), a New York corporation. Until the transfer in dispute shortly before the decedent's death, the decedent owned 64% of Basonas and Michael owned 36%. Michael is a Vice–President and chief operating officer of Basonas.
On November 12, 2010, the decedent executed a will (the “Will”).
Under the Will, the decedent left his interest in Basonas to Juan, his home on Bay 10th Street, Brooklyn, New York, to Stephanie and his remaining personal property to his three children in equal shares. Juan was named as executor. The original Will was kept by his attorney, Jorge Moreira, Esq. (“Moreira”).
In March, 2011, the decedent, who had terminal cancer, decided to return to Spain, where he was born, for medical treatment. When Michael learned of the execution of the Will, he had a meeting with his father in Miami and, later, in Spain. At the meeting in Spain on June 26, 2011, were his lawyer Moreira, his two brothers and Michael. At the meeting, the decedent allegedly instructed his attorney to destroy the original will and to give Michael his 64% interest in Basonas in exchange for Michael's promise to pay him $10,000/month for life. The decedent died less than two months later.
Moreira returned to New York, where he destroyed the Will. In October, 2011, Juan petitioned to probate a copy of the Will. Michael moved to dismiss the petition on the ground that this Court lacked jurisdiction because the decedent was domiciled in Spain. The motion was denied without determining domicile, since the Court had jurisdiction under SCPA § 206 even if the decedent was a Spanish domiciliary. Juan applied for, and was issued letters of temporary administration.
Juan now brings this application for injunctive relief. Juan alleges that Michael incorporated a wholly owned corporation, Canido–Basonas Construction Corp. (“Canido–Basonas”), in Delaware in March, 2012. Since then, Michael, acting as Vice–President of Basonas, began assigning Basonas' construction contracts to Canido–Basonas. Submitted in support of the application was an assignment of Basonas' contract with 473 Owners Corporation to Canido–Basonas. Juan asks that this Court enjoin Michael from transferring, selling, diverting business from, or otherwise interfering with Basonas' construction contracts.
Michael opposes the application. He alleges that he began working for his father at Basonas in 1990, after receiving a degree in business administration. When their mother died in 2000, he inherited a 28% interest and his sister inherited a 19.5% interest in Basonas. His sister sold her shares to Basonas, increasing Michael's interest in Basonas to 36%, with the decedent owning the remaining 64%.
Michael claimed that by 1999, he was running Basonas for his father and that, as a result of his skill in obtaining and developing customers, the business prospered and expanded from acting as a subcontractor on exterior masonry repairs to acting as a general contractor. He claimed that, as a result the business prospered, with revenues doubling since 1999 and the number of employees growing from 25 to 65, with another 90 working for Basonas through subcontracts.
When he learned of the 2010 Will, he had a meeting with his father in Miami and later in Spain, with the result that his father agreed to transfer his interest in Basonas to him for a payment of $10,000/month until he died. He made two payments before his father died.
He alleged that after his father's death, he attempted meet with his brother and sister about the estate, without success. As a result, he decided to wind down Basonas “to ensure that my brother was not able to benefit from my own work, contracts, skills and profits.” (Michael's Affidavit dated May 21, 2012, paragraph 60). In effectuating his plan, he incorporated Candida–Basonas in April, 2012 and executed, as Vice–President of Basonas, an assignment of Basonas' contracts to Candida–Basonas for 2.4% of the contract price. The employees of Basonas now perform the construction contracts as employees of Candida–Basonas.
Michael argues that the temporary administrator is not entitled to injunctive relief because his decision to liquidate Basonas was a business decision, he cannot be forced to work for Basonas and the temporary administrator has not established the elements for a preliminary injunction, namely, a likelihood of success on the merits, irreparable injury and that the balance of equities favor granting a preliminary injunction.
Discussion
CPLR 6301 provides that a preliminary injunction may be granted “where it appears that the defendant threatens or is about to do ... an act in violation of plaintiff's rights respecting the subject of the action ... and tending to render the judgment ineffectual”. The purpose of a preliminary injunction is to maintain the status quo and prevent the further perpetration of the alleged wrong that would render a judgment ineffectual (Ying Fung May v. Hohi Umeki, 10 AD3d 604 [2d Dept 2004]; Swartx v. Bd. Educ., City of Rochester, 42 Misc.2d 761 [Sup Ct, Monroe County 1954] ).
Michael first argues the application must be denied because there is no action pending in which a preliminary injunction could be granted. However, the initiation of what will likely be a contested probate proceeding establishes a sufficient predicate for the application by the temporary administrator for a preliminary injunction barring the dissipation of claimed estate assets ( see Matter of Kalichman 31 AD3d 1066 [3d Dept 2006] ).
Turning to the merits, the temporary administrator must establish three elements to establish his right to a preliminary injunction: a likelihood of success on the merits, irreparable injury and a balance of equities in his favor (Aetna Ins. Co. v. Capasso, 75 N.Y.2d 860, 862 [1990];Doe v. Axelrod, 73 N.Y.2d 748 1988] ).
The first element is a clear likelihood of success (Blueberries Gourmet, Inc. v. Aris Realty, 255 A.D.2d 348 [2d Dept, 1998] ). Michael argues that the temporary administrator cannot show entitlement to Basonas, since the oral transfer of the decedent's interest in Basonas to him was witnessed by two brothers of the decedent and his attorney. However, the gravamen of the temporary administrator's claim to Basonas is that the transfer was invalid, either as a result of the decedent's lack of capacity or undue influence. If this challenge to the transfer is successful, the decedent's interest in Basonas passes to the estate, to be distributed either under the Will or, if the Will was revoked by its destruction, by intestacy.
Where denial of a preliminary injunction would render the final judgment ineffectual, the degree of proof needed to meet the requirement to show ultimate success on the merits is reduced accordingly ( Republic of Lebanon v. Sotheby's, 167 A.D.2d 615 [2d Dept 1977]; Schlosser v. United Presbyt. Home at Syosset, 56 A.D.2d 615 [2d Dept 1977] ). The mere fact that there might be questions of fact for trial does not preclude the court from exercising its discretion (S.P.Q.R. Co. v. United Rockland Stairs, Inc., 57 AD3d 642 [3d Dept 2008]; Egan v. N.Y. Care Plus Ins. Co., 266 A.D.2d 600 [3d Dept 1999] ).
The record shows a grossly disparate value of the consideration received by the decedent for his 64% interest in Basonas, which Michael values at over $5,000,000, from the amount received, namely the promise to pay $10,000/month for life to a person who was terminally ill and died less than two months later.
If the transfer was a gift, or part gift, Michael has the burden of showing, by clear and convincing evidence of the decedent's donative intent, delivery and acceptance of the gift ( Gruen v. Gruen, 64 N.Y.2d 48 [1986] ). If it was intended as a sale, the stark difference between the value of what the decedent received from what he transferred, combined with the decedent's weakened physical condition and reliance on Michael in operating Basonas, justifies the Court in exercising its discretion to prevent Michael from destroying the value of Basonas until the issues can be determined ( See e.g. Matter of Kalichman, 31 AD3d 1066 [3d Dept 2006]; Matter of Urban, 2007 N.Y. Misc. LEXIS 6124 (Sur Ct, Queens County).
The second element is a showing of irreparable harm. Irreparable harm may be shown by a lack of an adequate remedy at law (Gaynor v.. Rockefeller, 15 N.Y.2d 120 [1960] ). Where “control and management [of the corporation at issue] were at stake, money damages [are] not sufficient (Yemini v. Goldberg, 60 AD3d 935, 937 [2d Dept 2009]; see also Vanderminden v. Vanderminden, 226 A.D.2d 1037, 1041 [3d Dept 1996] ).
Moreover, the right to money damages is not sufficient where it is shown that the applicant does not have a legal remedy that is plain, adequate, complete and as practicable as the equitable remedy. A remedy at law is inadequate where the damages are not capable of measurement, are difficult to determine or involve a long delay in its availability (Board of Educ., City of New York v. Marcus, 63 Misc.2d 268, 272 [Sup Ct, Kings County 1970] ). It is better to prevent the violation of a party's rights at the beginning rather than allow them to be violated and remit the petitioner to his remedy at law, which may be uncertain (Board of Educ., City of New York v. Marcus, 63 Misc.2d 268,supra at 272).
In the instant case, the issues involve the right to majority ownership and control of Basonas. If the temporary receiver is successful, it will be difficult for the temporary receiver to compute and obtain complete relief for Basonas' damages as a result of the assignment of its contracts, making his remedy at law inadequate (Yemini v. Goldberg, 60 AD3d 935, 937,supra ).
The final element is that the balance of equities favors the granting a preliminary injunction. Before granting a preliminary injunction, the Court must balance the hardships incurred if injunctive relief is granted with the harm if it is not. The harm to petitioner must exceed the harm the opposing party will suffer if injunctive relief is granted (Doe v. Axelrod, 73 N.Y.2d 748 [1983],Laro Maintenance Corp. v. Culkin, 255 A.D.2d 560 [2d Dept 1982] ).
In the instant case, enjoining the assignment of Basonas' contracts works no harm to Michael. If, as he claims, he is the sole owner of Basonas as a result of the decedent's sale, he will receive all of the profits of its activities. If, on the other hand, injunctive relief is not granted and the disputed transfer is invalid, the estate will be left with a dry husk of a corporation, possessing only causes of action against Michael and Candido–Basonas to recover its damages.
Michael next claims that, even if the elements for injunctive relief are shown, the Court should not exercise its discretion because it would require him to work for Basonas and violate the courts' traditional reluctance to interfere with internal corporate affairs, citing Matter of Tannenbaum, 20 A.D.2d 808 [2d Dept 1965], affd15 N.Y.2d 829 [1965] ).
Michael's reliance on Matter of Tannenbaum, 20 A.D.2d 808,supra, is misplaced. In Tannenbaum, the decedent and his wife were co-owners of a corporation whose only asset was an exclusive area agency to distribute a certain wholesaler's products. The agency was an oral one and revocable at will. After the testator died, the wholesaler indicated that he was willing to continue the agency with the widow or any firm in which she was active.
The widow elected to continue the business in a new, solely owned corporation. She was one of four executors of the will. The executors liquidated the testator's company, selling the inventory to the widow's new company at its fair market value. On the accounting, objections were raised to the propriety of the transfer. The Surrogate held that the executors should have tried to sell the business as a going concern before liquidating and surcharged them.
On appeal, the Appellate Division, Second Department, reversed. The Appellate Division found that, without the agency agreement, the former corporation was no longer able to continue. The executors could not force the widow to continue to work for the corporation. Since the agency agreement was terminable at will, the only value it had was its tangible property. Therefore, the executors satisfied their fiduciary duty by selling its inventory for fair market value.
Michael's reliance on Tennenbaum ignores critical distinctions with the case at bar. In Tennenbaum, the executors determined to liquidate the business after the widow elected to operate her own business. In the instant case, Michael, under his purported authority as Vice–President, has determined to liquidate the business over the objections of the temporary administrator. In Tennenbaum, the contracts were terminable at will and the franchiser had stated that he would terminate the exclusive franchise if the widow was not operating the company. In the instant case, the contracts remain valid contracts which are assets of Basonas. Michael's unilateral assignment of the contracts to his own company is a breach of his duty to Basonas.
Michael next claims that the Court should not exercise its discretion because of the long standing reluctance of the courts “to interfere by injunction in controversies that touch the internal management of foreign corporations”, citing Powell v. United Assn. of Plumbers and Steamfitters of the United States and Canada, 240 N.Y. 616, 616 (1925). However, as the Court of Appeals held in Powell, the courts have the discretion to act upon “the presence of some urgent need” ( id. At 617). Significantly, the Court in Powell granted an injunction enjoining enforcement of a union resolution alleged to be in violation of the union's constitution until the union's appeal to a convention of its members was voted upon.
In the instant case, Michael's intention to destroy the value of Basonas is such an “urgent need.” For the same reason, his acts are not protected by the business judgment rule. The business judgment rule restrains the courts from inquiring into the actions of corporate directors taken in good faith and in the exercise of their honest judgment (Levandusky v. One Fifth Avenue Apt. Corp., 75 N.Y.2d 530 [1990];Auerbach v. Bennet, 47 N.Y.2d 619 [1979] ). It does not protect directors from acts taken in bad faith (Auerbach v. Bennet, 47 N.Y.2d 619,supra ). In the instant case, Michael admits that he intends to liquidate Basonas to prevent his brother and sister from obtaining any benefit in the event the temporary receiver is ultimately successful in asserting an ownership interest in Basonas.
Michael asks that the Court set the undertaking required upon granting a preliminary injunction be set in the amount of $5,000,000. The temporary administrator argues that this figure is too high, given Michael's claim that the decedent allegedly sold his 64% interest to Michael for $20,000.
The granting of a preliminary injunction requires the temporary administrator to post an undertaking (CPLR 6312[b]; Egan v. N.Y. Car Plus, Inc., 266 A.D.2d 600 [3d Dept 1998] ). The purpose of the undertaking is to compensate the party enjoined for damages incurred by reason of the injunction in the event it is determined that the party seeking the injunction was not entitled to injunctive relief (S.P.Q.R. Co. v. United Rockland Stairs, Inc., 57 AD3d 642 [3d Dept 2008] ). The setting of the undertaking is left to the sound discretion of the court ( S.P.Q.R. Co. v. United Rockland Stairs, Inc, supra; Egan v. N.Y. Car Plus, Inc., 266 A.D.2d 600 [3d Dept 1998] ).
Michael's affidavit states that Basonas had revenues of approximately $10,000,000 and employed 65 employees. The temporary administrator submitted no evidence to refute these claims. Based on the above, the Court, in the exercise its discretion, grants the application of the temporary administrator for a preliminary injunction upon posting an undertaking in the amount of $5,000,000.
This constitutes the decision and order of the Court.