SUPREME COURT - STATE OF NEW YORK IAS TERM PART 16 NASSAU COUNTY. Justice LEONARD B. AUSTIN ORDER
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1 Sc (X'" SUPREME COURT - STATE OF NEW YORK IAS TERM PART 16 NASSAU COUNTY INDEX NO PRESENT: HONORABLE Justice LEONARD B. AUSTIN Motion RID: Submission Date: Motion Sequence No. : 005,008/MOT D AL YSSHIA ARMSTRONG, Individually and as Corporate Officer and Shareholder of NORTH MANOR ESTATES, INC. Suing in the right of NORTH MANOR ESTATES, INC. Plaintiff and C & A BUILDER ASSOCIATES, INC. Plaintiffs, COUNSEL FOR PLAINTIFF Mona Conway, Esq. 20 Deepdale Drive Huntington Station, New York COUNSEL FOR DEFENDANT Jay I. Yackow, Esq Old Country Road Westbury, New York against - JOSEPH FORGIONE, ARMADILLO SITEWORKS, INC., DF STONE CONTRACTING, LTD., GEORGE HEINLEIN, OWL' S NEST HOMES, INC. and JNL FUNDING CORP. Defendants, ORDER The following papers were read on Defendants motion to dismiss the amended complaint or, alternatively, to add North Manor Estates, Inc. as a Defendant and.. Plaintiff' s cross-motion for sanctions: Notice of Motion dated December 23, 2005; Affidavit of Joseph Forgione sworn to on August 5, 2005; Defendant's Memorandum of Law; Notice of Cross-motion dated August 18, 2005;
2 ARMSTRONG v. FORGIONE et al., Affirmation of Mona Conway, Esq. dated August 18, 2005; Affirmation of Jay L. Yackow, Esq. dated September 9, 2005; Affirmation of Jay L. Yackow, Esq. dated December 16, Defendants move to dismiss the amended complaint or, in the alternative, to join North Manor Estates, Inc. as a party Defendant. Plaintiff cross-moves for sanctions. BACKGROUND Plaintiff Alysshia Armstrong ("Armstrong ), Christopher Stallworth and Defendant Joseph Forgione ("Forgione ) were the shareholders in North Manor Estates Inc. (" North Manor ). The North Manor shareholder agreement states that Armstrong owns 25% of the shares, Stallworth owns 25% and Forgione owns 50% of the shares. Forgione asserts that he now owns two-thirds of the shares of North Manor. The amended complaint alleges that Forgione was the president-treasurer of North Manor. Armstrong was the corporate secretary. Stallworth was the corporate vice-president. Stallworth' s current status with North Manor is unclear. He is no longer a corporate officer. He may no longer own any shares in North Manor. If that is the case it is unclear as to the status of the Stallworth shares. North Manor was incorporated to purchase and develop real property in the Town of Ba yl()n, Suffol C()untY. prop rtyc:()ij ()f()ppr()xiljc:! LC3 upon which condominium units were to be constructed. Armstrong alleges that the condominium units have been constructed on the property and many of the units have been sold. Despite the completion of the project
3 ARMSTRONG v. FORGIONE et al. and the sale of the units, she has not received a distribution of the profits made on the sale of the units. Armstrong alleges that she has been frozen out of the operation of North Manor. She further alleges that Forgione individually, and through his corporate entities Defendants Armadilo Siteworks, Inc. ("Armadillo ), Owl' s Nest Homes, Inc. ("Owl' Nest") and JNL Funding Corp. ("JLN"), has breached his fiduciary duty to North Manor. Armstrong claims that Forgione, individually and through his corporate entities, has used his control of North Manor to divert corporate income from the business, has overcharged North Manor for work performed and/or has siphoned income and profits from North Manor. Armstrong asserts that Forgione has engaged in these schemes to assure that his personal entities make a profit on the construction while depriving North Manor of its profit on the sale of the units. She also alleges that Forgione and/or his corporate entities have sold North Manor assets and retained the proceeds of sale. In addition, Armstrong and her corporation, C & A Builders Associates, Inc. ("C & A Builders ) entered into a joint venture with Forgione and Owl's Nest to develop housing units in Amityville known as Victorian Cove. Armstrong alleges that Forgione c:ijq~ij~c3gr~~9t() quc:lly. share the pr()fjt$. riy gfrqmtq IQPI" llt QfYictQrigQ. Cove. Armstrong claims that, although the housing units have been constructed and sold, she has not received any of the profit realized from the sale of the Victoria Cove units.
4 ARMSTRONG v. FORGIONE, et al. Defendants move to dismiss the amended complaint on the grounds that it fails to state a cause of action or, in the alternative, to join North Manor as a Defendant. Plaintiff cross-moves for sanctions. Armstrong cross-moves for sanctions. DISCUSSION Defendant's Motion to Dismiss Since Defendants moved to dismiss the complaint in toto, and not each specific cause of action, the motion must be denied in its entirety if any of the causes of action is found to be legally sufficient. Anand v. Soni, 215 AD.2d 420 (2 Dept. 1995); and Maritarano Construction Corp. v. Briar Contracting Corp., 104 AD.2d 1028 (2 Dept. 1984). When deciding a motion to dismiss for failure to state a cause of action, the court must determine whether the pleader has a cognizable cause of action and not whether the action has been properly plead. Guggenheimer v. Ginzburg, 43 N. 2d 268 (1977); and Rovello v. Orofino Realty Co., 40 N. 2d 633 (1976); and Well v. Yeshiva Rambam 300 AD.2d 580 (2 Dept. 2002). The court must accept as true all of the facts alleged in the complaint. 511 West 232rd Street Owners Corp. v. Jennifer Realty Co., 98. N 2d 1 4 (200?); and Sokoloff v: Harriman tcit~sdevel()prneljt Co 6N. 409 (2001). The complaint must be liberally construed and the Plaintiff must be given the benefit of every favorable inference which can be drawn from the complaint. Leon
5 ARMSTRONG v. FORGIONE, et al. v. Martinez, 84 N. 2d 83 (1994); and Paterno v. CYC. LLC, 8 AD. 3d 544 (2 Dept ). There is no question but that several of the causes of action plead in the amended complaint allege cognizable causes of action mandating denial of the motion to dismiss. Forgione, as an officer and director of North Manor, owed a fiduciary duty to the corporation and its shareholders. Business Corporation Law S 715 (h). See Lindner Fund. Inc. v. Waldbaum s. Inc., 82 N. 2d 219 (1993); Alpert v. 28 Willam St. Corp. 63 N. 2d 557 (1984); and Busino v. Meachem, 270 AD.2d 606 (3 Dept. 2000). See also, In re Hyman, 320 B. R. 493 (S. Y. 2005); and In re Happy Time Fashions. Inc. 7 B. R. 665 (S. Y. 1980). Corporate directors and officers must act with prudence, fairness, morality and honesty of purpose, with candor and must exercise good judgment in the management of the corporation. Alpert v. 28 Williams St. Corp. supra; The complaint alleges that Forgione engaged in self-dealing, co-mingled funds of North Manor with funds of his other corporations, retained profits and income belonging to North Manor, failed to pay taxes and damaged corporate property. If these allegations are true, and for the purposes of this motion the court must deem them to be true ( Leon v. Martinez supra), " w...".,w'"'., v,.-. c,-" v",,"' Forgione has breached his fiduciary duty to North Manor. Thus, the causes of action for breach of fiduciary duty state cognizable causes of action.
6 ,- ", , ARMSTRONG v. FORGIONE et al. The causes of action seeking the judicial dissolution of Victorian Cove also state valid causes of action. Armstrong alleges that Victorian Cove is a joint venture in which Forgione, Owl's Nest and C & A Builder and she are members. A joint venture is combination of two or more persons or business entities for a specific business venture. See, Natuzzi v. Radady, 177 AD.2d 620 (2 Dept. 1991); and 16 NY Jur2d Business Relationships Since joint ventures are very similar to partnerships, they are governed by partnership law. RC. Gluck & Co. v. Tankel AD.2d 339 (1 Dept. 1961); and 16 NY Jur2d Business Relationships Where a partnership agreement does not state a term of duration, the partnership may be dissolved at any time by any partner (Sanley Co. V. Louis, 197 AD.2d 412 Dept. 1993); and Shandell v. Katz, 95 AD.2d 742 (2 Dept. 1983)) when any of the partners manifests an unequivocal election to dissolve the partnership Assocs. v. Edelman, 241 AD.2d 365 (1 st Dept. 1997); Alessi V. Brozzetti, 228 2d 917 (3 Dept. 1996); Carola V. Grogan, 102 AD.2d 934 (3 Dept. 1984); Cracco v. Cracco, 25 AD.2d 660 (2 Dept. 1966); and Partnership Law 962(1)(b). Dissolution is defined as a change in the relationship of the partners caused by one partner ceasing to be associated in the carrying on of the partnership business. Partnership Law 960. A dissolution of a partnership at will occurs when " - "". "m. ". H.. any of the partners expresses an intent not to continue longer. Bayer V. Bayer, 215 App. Div (1 Dept. 1926). See also Forbes V. Six- S Country Club, 12 AD. 3d 1049 (4 Dept. 2004).
7 ARMSTRONG v. FORGIONE et al. Since the Victorian Cove joint venture agreement does not provide for a duration it is a joint venture at wil which may be dissolved by any member of the joint venture at any time. Armstrong s commencement of this action is clear evidence of her intent to dissolve Victorian Cove. One of the demands for relief requested by Armstrong is the judicial dissolution of Victorian Cove. Accordingly, to the extent that Armstrong seeks the judicial dissolution of Victorian Cove, the complaint states a cognizable cause of action. Most, if not all, of Defendants' arguments regarding the dismissal of the complaint, go to the merits of Plaintiff's claims. When deciding a motion to dismiss, the court must determine whether Plaintiff has a cause of action and not whether Plaintiff will ultimately succeed. Jacobs v. Macy s East. Inc., 262 AD.2d 607 (2 Dept. 1999). Since the complaint states cognizable causes of action, the motion to dismiss the complaint must be denied. Defendants' Motion to Add North Manor as a Party Defendant The corporation to be dissolved is an indispensable party in a shareholder derivative action. See Carruthers v. Jack Waite Mining Co., 306 N. Y. 136 (1953); and Fedoryszyn v. Weiss, 62 Misc. 2d 889 (Sup. Ct. Nassau Co. 1970). Therefore Defendants' motion to add North Manor as a party Defendant must be granted. The caption should thus be amended to reflect the addition of North Manor as a party defendant.
8 ARMSTRONG v. FORGIONE, et al., Plaintiff' s Cross-Motion for Sanctions Sanctions may be awarded against a party who engages in frivolous conduct. 22 NYCRR 130-1, Plaintiff asserts that sanctions should be awarded because Defendants' motion was made primarily to delay or prolong this action. 22 NYCRR (c)(2). The determination as to whether to impose sanctions is one addressed to the discretion of the court. Wagner v. Goldberg, 293 AD.2d 527 (2 Dept. 2002). When deciding a motion for sanctions, the court must carefully weigh and balance between whether the action is taken primarily to delay or prolong the action and the attorney s obligation to zealously represent a client within the bounds of the law, See, 22 NYCRR (DR 7-101); and 22 NYCRR (DR 7-102), While the motion to dismiss was denied, the arguments advance by Defendants were well within the bounds of zealous representation. The fact that the Court determined to deny the motion does not automatically make Defendants' arguments frivolous. Furthermore, Plaintiff failed to name a necessary party to this action. Thus Defendants were required to make a motion to add North Manor as a party. Defendants cannot be sanctioned from a motion to remedy Plaintiff' s error in Accordingly, it is, ORDERED, that Defendants' motion to dismiss the amended complaint is denied; and it is further
9 ARMSTRONG v. FORGIONE, et al. ORDERED, that Defendants shall serve an answer to the amended complaint within twenty (20) days of the date of service of a copy of this Order with Notice of Entry: and it is further ORDERED, that Defendants' motion to add North Manor Estates, Inc. as a party Defendant to this action is granted. The caption is hereby amended to reflect the addition of North Manor Estates, Inc. as a Defendant; and it is further ORDERED, that Plaintiffs' cross-motion for sanctions is denied; and it is further ORDERED, that counsel for the parties are directed to appear for a Preliminary Conference on May 12, 2006 at 9:30 a. This constitutes the decision and Order of the Court. Dated: Mineola, NY March 22, 2006 Hon. LE NARD B. AUSTIN, J. ENTERED COUNTY MA NASSAU COUNTY CLERK' S OFFiCe
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