TRIL/IS Par Index No: 11721/05 Motion Seq. No.:OOl

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NASSAU TRANSAERO, INC. -against- Plaintiff BIRI ASSOCIATES CORP., ARA COSTELLO ala ARA ARSLANIAN, TIMOTHY COSTELLO, MARK COSTELLO, CLAIR COSTELLO, STEVEN COSTELLO and KIERA COSTELLO Defendants J( Papers Read on this Motion: Defendants' Notice of Motion Plaintiff s Affirmation in Opposition Defendants' Reply Memorandum of Law Defendants' Memorandum of Law Defendant Arda Arslanian s Reply Affidavit J(J( J(J( J(J( J(J( MICHELE M. WOODAR TRIL/IS Par Index No: 11721/05 Motion Seq. No.:OOl DECISION & ORDER The present dispute arises out of the legal relationships between TRASAERO CORP. TRANSAERO"), Perr Y oungwall, Shell Y oungwall, the various business ventures of Shell Y oungwall and their legal counsel, Robert Costello, a licensed attorney. Robert Costello was employed as corporate attorney for Transaero, Airmotive, and DEC. Robert Costello also acted as the Y oungwall' s personal attorney for approj(imately 25 years. Shell Y oungwall was the sole shareholder of Transaero, Inc., an aviation pars business, until about April 12, 2002, when his son Perr Y oungwall became the sole shareholder. Shell Y oungwall was maried to Shirley Y oungwall, until Shirley commenced divorce proceedings in or about April Robert Costello served as TRANSAERO' s counsel for approj(imately 30 years, when he was released due to a disagreement between the paries and the relationship with the Y oungwall family was severed (see Defendants ' Affrmation in Support of Motion to Dismiss Complaint Strike Portions Thereof, Paragraph 5). The children of Robert Costello: Page 1 of 11

2 TIMOTHY COSTELLO, CLAIR COSTELLO, STEVEN COSTELLO, KIERAN COSTELLO and ARDA ARSLANIAN, Robert Costello s daughter-in-law, are all named in the instant suit. Robert Costello and his children are named in this suit due to the fact that they are shareholders in BIRI ASSOCIATES CORP. BIRI") which allegedly is the corporation which received' unawfl' broker commissions on the life insurance policy of Shirley Youngwall. Perr Y oungwall has instituted four actions against Robert Costello. In the first action referred to as Airmotive Litigation, Perr Y oungwall verified the Amended Complaint on April 22, This action concerns the way in which Perr Youngwall purchased his father stock in TRANSAERO. This action is pending in the Supreme Cour of the State of New York County of New York, IndeJ( No /03. On or about March 24, 2005, Perr Y oungwall fied another lawsuit. This suit was brought against TIMOTHY COSTELLO in this Cour, under IndeJ( No. 4536/05. Here Mr. Youngwall is seeking damages in the amount of$ based on allegations of breaches of confidence. In response to this action, TIMOTHY COSTELLO fied a motion to dismiss which was pending at the time this motion was initiated. (see Defendants ' Affrmation in Support of Motion to Dismiss Complaint Strike Portions thereof, paragraphs 8). The above-referenced motion to dismiss was denied by this Court in a Decision dated Februar The third action was commenced by Perr Y oungwall in this Cour, on behalf of TRANSAERO, on or about July against the children and daughter-in-law of ROBERT COSTELLO. The thrst ofthe Complaint alleges fraud and unjust enrichment with regards to Page 2 of 11

3 the life insurance policy which insured Shirley Youngwall' s life. This policy was owned by the Shirley Youngwall Trust I". Most recently, on or about August , Perr Youngwall verified a Complaint for TRANSAERO against his mother, Shirley Y oungwall. This action under IndeJ( No /05 in this Cour, is alleging that Shirley Y oungwall disclosed confidential information. The present motion concerns the third action above, which was commenced by Perr Y oungwall on behalf of TRANSAERO, against the children and daughter-in-law of Robert Costello. On October 10, 1996, a ten milion dollar life insurance policy for Shirley Y oungwall was issued by Massachusetts Mutual Life Insurance Company, with BIRI acting as the broker of the policy. As a result, BIRI received broker commissions on the policy. The owner of this policy was a trust. This trust was created on August 8, 1996 by Robert Costello and was named the " Shirley Youngwall Trust I". The beneficiar ofthe trst was Perr Y oungwall. The trst was operated and controlled by Robert Costello and Shell Y oungwall. TRANSAERO paid the premiums of the policy from the issuance of the policy until its termination on or about May 30, During the issuance ofthe life insurance policy and the creation of the trust, Robert Costello was acting as counsel for TRANSAERO, Shell Y oungwall, Perr Y oungwall and Shirley Y oungwall. The Complaint alleges three Causes of Action. The First Cause of Action alleges fraud. The Second Cause of Action seeks to pierce the corporate veil of BIRI in order to allow the plaintiff to seek compensation from the individual shareholders of BIRI. The Third Cause of Page 3 of 11

4 Action alleges that the defendants were unjustly enrched as a result of the life insurance policy of Shirley Y oungwall. The defendants have brought this motion to dismiss the Complaint under CPLR 3211(a)(5) on the ground that the plaintiff is bared from maintaining this action by reason of the statute of limitations, under CPLR state a Cause of Action, and under CPLR 3211(a)(7) on the ground that the Complaint fails to 3211(a)(3) on the ground that the plaintiff does not have the legal capacity to sue. In conjunction with seeking dismissal under CPLR 3211, the defendants are also seeking to dismiss the action pursuant to CPLR (b) for failure to state in detail all allegations of fraud. In addition, the defendants seek to strike certain statements of the Complaint under CPLR to NYCRR NY CPLR 3024 (b) and, fuhermore, to seek sanctions against the plaintiff pursuant 3211(a)(5) allows a par to assert that a cause of action may not be maintained against it based on the statute of limitations. Here, the defendants move to dismiss the Complaint as they contend that the statute of limitations has ru. When a par moves dismiss a Cause of Action pursuant CPLR 211(a)(5), on the ground that it is bared by the statute of limitations that par bears the initial burden of establishing the affirmative defense by prima facie proof that the time in which to sue has ej(pired" see Assad v. City of New York 238 AD2d ; quoting Siegel v. Wank 183 AD 2d 456. The present Complaint is based upon fraud allegedly committed by the defendants. NY CPLR 213(8), governs the time within which a fraud action must be commenced, which states: The greater of sij( years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it" NY CPLR 213(8). Page 4 of 11

5 First, this Cour will determine if the plaintiff has timely interposed the fraud cause of action under the sij( year rule. The sij( year statute of limitations under NY CPLR ~213(8) " is measured from the date of the initial breach, regardless of when the damages began to accrue see Welwart Dataware Electronics Corp. AD2d 372, 373. The defendants contend that the statute of limitations rus upon the accrual of the cause of action or two years from the date of actual or imputed discovery (see Defendants ' Reply Memorandum of Law page 4). This Court follows the defendants' statement of the law, which is clearly addressed in case law (see generally Jeffey BB v. Cardinal McClosky Sch. Home for Children 257 AD2d 21; see also Hoffenberg v. Hoffman and Pollok 288 Fsupp2d 527; Mechanical Plastics Corp. v. Rawplug Co. 119 AD2d 641). To determine when the statute of limitations began to ru, with regards to the sij( year rule tur upon the date of the initial breach. Clearly, the ' alleged' fraud was committed when the life insurance policy of Shirley Youngwall was purchased and the ' unlawfl commissions ' were paid to the defendants. The policy was purchased in 1996 and the present suit was brought in July of Clearly there is a nine year gap from the commission of the fraud and the institution of the present suit. The plaintiff alleges that the statute of limitations ran from the last " fact" of fraud. As such the plaintiff states that the last "facts" of fraud occured in the year 2000 when statements were, and when plaintiff sent to plaintiff identifying the agent as defendant BIRI ASSOCIATES CORP. paid those statements (see Plaintif's Affrmation in Opposition Paragraph 25). The plaintiff paid statements on April 10, 2000 and October 10, Therefore, the plaintiff suggests that since the present action was instituted on July 26, 2005, it is within the sij( year period applicable to a fraud Page 5 of 11

6 claim. This Cour finds no merit in the plaintiff s arguent that the statute of limitations rus from the last fact of fraud. Therefore, this Cour will ej(plore the two year discovery rule to determine if this suit can be maintained. NY CPLR ~203(g) further clarifies the method of computing the statute oflimitations under the two year discovery rule. This section states that: where the time within which an action must be commenced is computed from the time when the facts were discovered or from the time when the facts could, with reasonable diligence, have been discovered, or, from either of such times, the actions must be commenced within two years after such actual or imputed discovery or within the period otherwise provided, computed from the time the cause of action accrued, whichever is longer see NY CPLR J203(g). Therefore, the inquiry under the two year discovery rule must be to determine when the fraud was discovered by the plaintiff, or when the facts with reasonable dilgence could have been discovered, whichever is longer. "The test as to when a plaintiff should have discovered an alleged fraud is an objective one (see Prestandrea Stein 262 AD 2d at 622; quoting Watts Exxon Corp., 188 AD 2d 74). (W)here the circumstances are such as to suggest to a person of ordinar intellgence the probabilty that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts his eyes to th facts which call for investigation knowledge of the fraud wil be imputed to him see Prestandrea Stein 262 AD 2d 621, 622. The plaintiff contends that it did not discover the identities of the owners ofbiri until 2005, thus making the claim timely under the two year discovery rule (see Plaintif' s Affrmatio in Oppositon Paragraph 26). only thing plaintiff However, the plaintiff also states in its Affirmation in Opposition that the " Page 6 of 11

7 had before the depositions of TIMOTHY COSTELLO (on Februar 11, 2005) and ROBERT COSTELLO (on April 22, 2005) was suspicion ROBERT COSTELLO might have committed impropriety in this area... (see Plaintif's Affrmation in Opposition Paragraph 26). This statement suggests that prior to 2005, with reasonable diligence, the plaintiff could have discovered the true shareholders ofbiri. However, the plaintiff did not investigate its suspicions of fraud. " A plaintiff may not shut his or her eyes to facts that call for investigation (see Shannon v. Gordon, 249 AD2d (2d Dept 1998)). The defendants submit documentar evidence to support its contention that the plaintiff discovered the alleged fraud well before 2005, as the plaintiff suggests, and that the two year statute of limitations has ru. First, the defendants submit that the alleged " fraud" could have been discovered by the plaintiff with reasonable dilgence in 1996 when the policy was placed because Robert Costello s corporation, BIRI, was the named broker on the policy and ARDA ARSLANIA signed the policy. The name ofthe corporation was not hidden from the Y oungwalls. Shell Y oungwall was the sole shareholder oftransaero at the time and with ' reasonable dilgence ' he could have asked questions or researched the origin of the company. NeJ(t the defendants refer to the sworn affidavit of Vincent Notaroberto, TRANSAERO' Corporate Controller, on October He stated that "Robert Costello knew that the insurance policies had been canceled because he acted as broker in placing them and in canceling them (see Affdavit of Vincent Notaroberto, paragraph 7). Furhermore, Mr. Notaroberto was also deposed on August 31, 2005 in the Airmotive Litigation. He stated that TRANSAERO' s VICE PRESIDENT Anthony Caputo, at the time, knew that Robert Costello acted as the broker for the life insurance Page 70f 11

8 , " policy in 2002 and that the source of his information was most likely Shell Y oungwall (see Vincent Notaroberto Deposition, page 24, lines 14-24). Based on the information above, it is clear that TRANSAERO could have discovered the ' fraud' in 2002, therefore the suit would have had to have been brought in Generally, knowledge or notice of a fact to a corporate officer, director or agent is imputed to the corporation (see Old Republic Ins. Co., Inc. v. Landauer Assoc. Inc US Dist LeJ(is ). What is more if a person has knowledge of facts that would lead a reasonable and prudent individual to make fuher inquiry, that individual is chargeable with the knowledge such an inquiry would have revealed" see Id. In this case, Vincent Notaroberto and Anthony Caputo both had reason to know that Robert Costello acted as the broker for the " Shirley Y oungwall Trust I" life insurance policy. Therefore, the two year discovery rule could have commenced then as well. What is most tellng with regard to plaintiffs knowledge is the verified Complaint in the Airmotive Litigation dated April 22, This Complaint was verified by TRANSAERO' s curent President, Perr Youngwall, on April 22, Perr Youngwall became the sole shareholder and President oftrasaero on April 12, 2002, therefore, at the time of this Complaint, he was acting as TRANSAERO' s President. In this Complaint it states insurance broker on the sale of the life insurance to TRANSAERO" Defendant (Robert Costello) acted as the (see Airmotive Litigation Complaint paragraphs 380 and 387). The complaint goes on in detail to allege the fraud and unlawful broker commissions' that Robert Costello and his company received by acting as a broker for the "Shirley Y oungwall Trust I" life insurance policy (see Airmotive Litigation Complaint Page 8 of 11

9 paragraphs ). The Complaint fuher states that "TRANSAERO and Perr did not know or have any reason to know that the Defendant eared a commssion on the sale the life insurance to TRANSAERO until late 2001" (sic) (see Airmotive Litigation Complaint paragraphs ). In sum, TRANSAERO and its curent President knew of the purorted fraud by at least 2001 and waited until July 2005 to bring this untimely suit, thereby violating the two year discovery rule. This Cour finds that the fraud Cause of Action was not timely interposed either under the sij( year or the two year statute of limitation. Thus, the fraud cause of action must be DISMISSED. As a result of the dismissal of the fraud Cause of Action, the other causes of action seeking to pierce the corporate veil and for unjust enrichment are without merit. In sum the Complaint is DISMISSED in its entirety and the defendants ' motion to dismiss is GRATED. The defendants, in their motion to dismiss, also seek to dismiss the Complaint under NY CPLR ~3211 (a) (7), for failing to state a cause of action; seek to dismiss the action pursuant to NY CPLR ~30 16(b) for failure to state in detail all allegations of fraud; seek to dismiss the complaint under NY CPLR ~3211(a)(3) for lack of standing; and seek to strike portions of the Complaint under NY CPLR 93024(b). This Cour DENIES these requests as moot, due to the fact that the Complaint has been dismissed under NY CPLR 93211(a)(5). Lastly, the defendants seek sanctions pursuant to 22 NYCRR section (a) against the plaintiff. A Cour may impose, at its discretion financial sanctions upon any par or attorney in a civil action or proceeding who engages in frivolous conduct.. (see 22 NYCRR section (a); see also Bello v. New Eng. Fin NY Slip Op 50520U, 12). Conduct is frivolous under 22 NYCRR section 130-1(c) if: (1) it is completely without merit in law and canot be supported by a reasonable Page 9 of 11

10 arguent for an ej(tension, modification or reversal of ej(isting law; (2) it is underten primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or (3) it asserts material factual statements that are false. This Cour has determined that the award of sanctions against the plaintiff for attorneys fees is proper. Specifically, this Cour finds that the plaintiffs manipulation of the facts is so egregious as to warant sanctions. Paricularly, with regard to the plaintiffs' statement that it did not lear about the alleged fraud until July This statement is clearly not tre as controverted by Perr Y oungwall the plaintiff, TRANSAERO' s sole shareholder in the Airmotive Litigation Complaint. Perr Y oungwall verified the Complaint which stated boidly that he knew about the alleged fraud as early as However, Perr Y oungwall waited until July 2005 to bring ths suit on behalf of his corporation, which he began ruing as early as April Similarly, the Vice President and Corporate Controllers oftransaero were aware of the role Robert Costello played with respect the life insurance policy. Their knowledge too, was imputed to the corporation. Thus, this Cour awards the defendants' sanctions in the reasonable amount of attorneys fees ej(pended by the defendants in defending this action. Therefore, the defendants' request for sanctions is GRANTED. In sum, the motion by defendants, BIRI ASSOCIATES CORP., ARDA COSTELLO ala ARDA ARSLANIAN, TIMOTHY COSTELLO, MARK COSTELLO, CLAIR COSTELLO, STEVEN COSTELLO and KIERAN COSTELLO; (1) for an order seeking to dismiss the complaint pursuant to CPLR ~3211(a)(5), on the grounds that the plaintiff is bared from maintaining this action by reason of the statute of limitations is GRANTED; (2) for an order seeking to dismiss the complaint Page 10 of 11

11 ~~~ pursuant to CPLR ~3211 (a) (7), on the grounds that the complaint fails to state a cause of action is DENIED AS MOOT; (3) for an order seeking to dismiss the complaint pursuant to CPLR ~3211 (a) (3), on the grounds that the plaintiff does not have the legal capacity to sue is DENIED AS MOOT; (4) for an order dismissing the action pursuant to CPLR ~3016 (b) for failure to state in detail all allegations of fraud is DENIED AS MOOT; (5) for an order to strike certain portions of the complaint pursuant to CPLR ~3024 (b), as prejudicial and unecessar are DENIED AS MOOT; and (6) for an order seeking to award defendants sanctions pursuant to NYCRR is GRATED. Upon the service and filing of a Note oflssue, together with a copy of this Order within twenty (20) days of the date hereof, a hearing wil be held before this Cour on April 3, 2006, commencing at 9:30 A.M., to determine the amount of the hereinabove awarded reasonable attorney fees. This constitutes the DECISION and ORDER ofthis Cour. DATED: March 2, 2006 Mineola, N. Y. ENTER: HON. MICHELE M. WOODARD rte. \:O f\ssp.\. \N''' c\-e: UN\ soff\ce. Page 11 of 11

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