SUPREME COURT - STATE OF NEW YORK COUNTY OF NASSAU. Justice. Plaintiff. Defendants.

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1 SCAN SHORT FORM ORDER SUPREME COURT - STATE OF NEW YORK COUNTY OF NASSAU PRESENT: HON. IRA B. WARSHAWSKY Justice. PENNY FERN HART, individually and as former Trustee of the Ronald W. Hart Trust and Beatrice R. Hart Trust TRIAL/IAS PART 14 -against- Plaintiff AMENDED ORDER INDEX NO. : /2006 MOTION DATE: 03/29/2006 MOTION SEQUENCE: 004 RONALD W. HART, BEATRICE HART and DEAN E. HART, individually and as former Trustee of the Ronald W. Hart and Beatrice R. Hart Trust Defendants. The following papers read on this motion: Notice of Motion, Affirmation & Exhibits Annexed... Plaintiff s Memorandum of Law in Support... 2 Memorandum of Law of Defendants Ronald and Beatrice Hart in Opposition... Penny Hart' s Reply Memorandum of Law in Support... This motion by plaintiff for an order pursuant to CPLR 321 I (a)(1) and (7) dismissing the counterclaims of defendants Ronald W. Hart and Beatrice Hart (the Donors) is determined as follows. This action is about the financial growth of Tri-State Consumer Insurance Company, (the Company), the primary asset of Tri-State Consumer of which the two Hart

2 progeny are equal owners by operation of an irrevocable trust. They were made owners in In 1990, or thereabouts, plaintiff worked for the Company. One could say she is responsible for its success, although this is only conjecture. The former owners (the Donors) seemingly disassociated themselves from the businesses they had placed under the tutelage of Dean and Penny Hart. During the years defendant Dean Hart achieved a degree in Ophthalmology and operates a store named Woodbury Optical. The Donors placed few conditions upon their transfer of Tri-State Consumer Company in the trst by which the gift was effected. They directed that Tri-State Consumer remain titled to their descendants. In a separate agreement "Dad" was appointed arbiter of disputes about operation of, inter alia, the Company. Either there were no disputes or they were settled amicably until October of Dean brought suit under Index No /2003, pursuant to BCL g 720, alleging the grievances enumerated in paragraph 23 of that complaint. In brief, Penny is charged with wrong management decisions, and eliminating her brother from participating in such management decisions. Seemingly in each passing week the dispute heated up, degree by degree. Dean was fired, then his salary was stopped; he retaliated by bringing motion after motion and commencing another action, Index No /2005. Before long Penny was fighting from behind the shield of the New York State Department of Insurance regulations which allow or disallow financial activities of the Company. Dean recruited his father. On January 22, 2004, as plaintiff, Dean Hart announced that arbitration before Dad was indicated. Arbitration did proceed, if reluctantly by his sister, Penny, only to be vitiated by the Appellate Division in a decision dated May 16, The court ruled that plaintiff Dean Hart had proceeded too far with his plenary action to then resort to arbitration before an arbitrator who, it is noted purely as a matter of observation, either by design or coincidence, seemed to rule only in favor of the initial protagonist, son Dean. It

3 may be noted that the arbitrator made rulings that inserted himself back into the business and, to an extent, unseated Ms. Hart from her position of authority in the Company. Although it was she who appealed this cour' s confirmation of the arbitration award, in light of the scope of the arbitrator s inquiry, and his proactive decisions, it cannot be said that she failed entirely to honor her promise to have " Dad" settle disputes. However, the predictable remedy of introducing a third person into a dead locked board was thus foreclosed and even though the arbitrator seemed overly concerned for Dean s wellbeing, in theory it was counter weighted by an interest similarly aligned with the other investor that the Company prosper. Plaintiff commenced this action seeking a declaratory judgment that she is, in fact a 50% owner of the shares of Tri-State Consumer Insurance Company. Nobody seriously challenges that fact. However, the defendant Donors' answer to the complaint asserts one counterclaim based upon the following writing: Within 30 days from now (unless mutually extended) we wil enter into an agreement covering various phases of our continuing business relationship both during the life of the trust and thereafter. Such phases shall include any issues raised by either of us. With respect to such issues or any future issues, in the event of disagreement between us, Dad wil be the sole and binding arbiter. The counterclaim asserts that the stock of Tri-State Consumer was transferred to Penny on reliance of her promise to arbitrate before Dad any disagreement with her brother regarding their continuing business relationships. Receipt and beneficial possession of the stock, without fulfillng her promise to arbitrate, results in unjust enrichment, they claim. On this motion to dismiss, the court must determine whether counter-claimants have a viable cause of action not just examine whether one is stated. The parties in their memoranda of law cogently argue legal positions that are irrelevant (the parole evidence rule, consideration, reversionary trusts). The Donors ' trust

4 irrevocably transferred ownership of the shares of TSC to their son and daughter, but allowed them to benefit from the net income after deduction of administration expenses for a period of time. There is no right of reversion in the trusts and they themselves include no agreements re arbitration. The agreement that does speak to arbitration includes no provision for forfeiture of ownership for refusal. The Donors seek relief based on equity and justice, which they claim mandates imposition of a constructive trust in their favor on Penny s shares. It is agreed that equity and good conscience are the touchstones of a constructive trust. Therefore, with its equity-mercy hat in place, the cour examines the problem the litigants face. A decision here is not simply a matter of parsing the elements of a constructive trust. See e. Statler v Merlis. 252 A. 2d 551 (2d Dept 1998). Understanding a constructive trust to be a remedy for wrongful appropriation of propert formerly entrusted, in trust, under circumstances not meant to exclude another s use and enjoyment of the property, be it chattel or real, is instructive. It means a person has something it was not meant for them to keep. The theory does not fit these circumstances. It is not known what was contemplated when Tri-State Consumer was given. What in fact did the Donors intend their children to do? It is impossible to divine what the parents hoped to accomplish by turning over their business to their children when they did. It is now, by any measure, a sad situation. The parties seemingly stared out equal. Now they are not. Dad wants to rectify that situation. By arbitration. But he cannot. Dean chose the road to litigation. The cour cannot now determine that it was Penny who failed to bring a dispute to Dad. To the view of the court the parents are searching for a way to correct, or undo what they have done, now that 15 years of hindsight shows it to have been misguided. Irrespective of the equitable remedy urged upon the court it seems that counter-claimants confuse the court' s ability to do equity with an ability to prevent people from putting

5 themselves in harms way. Cause for the existing situation is not found in the extensive record compiled in these cases. A breach of a promise or obligation does not appear prominently as an explanation. The parties may agree privately to arbitrate their dispute. But what is the dispute?" It is the success of the Company? It is a reluctance to allow the other shareholder to step into a management position in a highly regulated business from which he seemingly has been separated for 15 years? Did either child intend to arbitrate a festering dispute before an arbiter whose solution is to retake control. And, a final introspective question; is this an alleged wrong for which there is no right to an equitable remedy on the record that now stands? It is not a question of the court being merciful or unmerciful. But, rather that the parties have not proposed a remedy that deservedly and fairly redresses a wrong visited upon a party through no apparent fault of his or her own. It is ORDERED that the counterclaims of defendants Ronald W. Hart and Beatrice Hart are dismissed. Insofar as defendants' counterclaims are before the court on a motion to dismiss the court searches the record, CPLR 3211(c), and finds that plaintiffs fourth cause of action for prima facie tort fails to state a cause of action. The missing showing that malevolence was the sole motivating factor in threatening to impose a constructive trust or litigation is simply not present. Lerwick v Kelsey, 24 A.D.3d 931 (3d Dept 2005). According, it is ORDERED that the fourth cause of action is dismissed. Dated: April 19, 2006 ENTERED APR NASSAU COUNTY OOUNTY CLERK' S OFFICE