FILED: NEW YORK COUNTY CLERK 12/17/ :13 PM INDEX NO /2015 NYSCEF DOC. NO. 54 RECEIVED NYSCEF: 12/17/2015

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1 FILED NEW YORK COUNTY CLERK 12/17/ PM INDEX NO /2015 NYSCEF DOC. NO. 54 RECEIVED NYSCEF 12/17/2015 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X STANG LLC, suing in its own capacity and in the name of and right of HUDSON SQUARE HOTEL, LLC, 489 SOUTHWEST CANAL ST., INC., and AVIHU GERAFI, suing in his individual capacity, Plaintiffs, -against- HUDSON SQUARE HOTEL, LLC, RAFI GIBLY, FOUR BOYS ONE GIRL, LLC, PAOLO MALDINI, BB MAX, LLC, CHRISTIAN VIERI, ROOM 45, LLC, ANDRIY SHEVCHENKO, FIVE BOYS ONE GIRL, LLC, ZINEDINE ZIDANE, Z DREAM, LLC, JOEL BRAVER, HUDSON Index No /2015 CANAL LLC, FRED L. SEEMAN, EDWARD J. BULLARD, JR., and BULLARD LAW GROUP PLLC A/K/A/ BULLARD PLLC, Defendants X HUDSON CANAL LLC S MEMORANDUM OF LAW IN SUPPORT OF EMERGENCY MOTION TO CANCEL NOTICE OF PENDENCY LOEB & LOEB LLP David M. Satnick Tal E. Dickstein 345 Park Avenue New York, New York (212) Counsel for Defendant Hudson Canal LLC PHILLIPS NIZER LLP Jon Schuyler Brooks 666 Fifth Avenue New York, New York (212) Counsel for Defendants Hudson Canal LLC and Joel Braver

2 Defendant Hudson Canal LLC ( Hudson Canal ) respectfully submits this memorandum of law in support of its motion, brought by Order to Show Cause, for an Order, pursuant to CPLR 6501 and 6514, immediately cancelling the Notice of Pendency 1 filed by Plaintiffs against the real property owned by Hudson Canal located at 219/233 Hudson Street a/k/a 489/493 Canal Street, New York, New York and described as Tax Lot 108 of Block 594 on the Tax Map of the City of New York (the Property ), and directing the Clerk of New York County to cancel and discharge said Notice of Pendency. PRELIMINARY STATEMENT As shown below and in the accompanying Affirmation of Joel Braver, managing member of Hudson Canal ( Braver Aff. ), Hudson Canal purchased the Property on September 21, 2015 for the sum of $13,250,000 in an arms-length transaction with Defendant (and nominal Plaintiff) Hudson Square Hotel, LLC ( Hudson Square ) and is therefore a bona fide purchaser for value. Moreover, and most critically for this motion, the sale of the Property from Hudson Square to Hudson Canal was duly and expressly authorized in writing by a majority in interest of the members of Hudson Square, in compliance with Hudson Square s Operating Agreement. Thus, the claims asserted against Hudson Canal, which are based on the allegation that the transfer of the Property to Hudson Canal was somehow unauthorized, are barred by the indisputable documentary evidence. 2 The Notice of Pendency must be cancelled for this reason alone. 1 A copy of the Notice of Pendency is annexed as Exhibit A to the accompanying Affirmation of Tal E. Dickstein, dated December 17, 2015 ( Dickstein Aff. ). 2 A copy of the complaint ( Complaint ) is annexed as Exhibit B to the Dickstein Aff. Plaintiffs assert three claims against Hudson Canal purporting to challenge the sale transaction the Sixth cause of action (id. at ), which seeks a declaratory judgment that the sale of the Property to Hudson Canal LLC is void ; the Seventh cause of action (id. at ), which seeks the imposition of a constructive trust against the Property; and the Ninth cause of 2

3 Furthermore, there is no legitimate basis for the filing of a Notice of Pendency in this action, as Plaintiffs claims are all essentially for money damages, and do not assert any valid right, title or interest in or to the Property itself. Plaintiffs openly admit in their Complaint ( 46) that they relinquished any interest in the Property more than two years ago in exchange for a minority (30%) membership interest in Hudson Square. It is clear from the allegations in the Complaint that Plaintiffs claims all arise out of an internal dispute with the majority members of Hudson Square, the former owner of the Property, in which Hudson Canal has unwittingly become ensnared. It is black letter law that claims for money damages, like those asserted by Plaintiffs here, do not affect the title to, or the possession, use or enjoyment of, real property and therefore cannot support the filing of a Notice of Pendency. CPLR 6501, This emergency motion is brought by Order to Show Cause, because there is an urgent need to cancel the Notice of Pendency. As detailed in the Braver Aff. (at 12-14), after months of negotiations with potential lenders, Hudson Canal only recently secured a financing commitment for $6,725,000, which will terminate if Hudson Canal does not accept the commitment and remit a non-refundable fee to the lender by December 21, See id., 12 & Ex. G ( Financing Commitment ). If the improper Notice of Pendency is not immediately vacated, Hudson Canal will be unable to proceed with the financing transaction and will suffer significant prejudice and financial harm including not only the loss of $6.7 million in financing, but also inevitable defaults on outstanding debt obligations incurred in connection with Hudson Canal s acquisition of the Property, the loss of other substantial out-of-pocket and ongoing expenses associated with maintaining and developing the Property, and the inability to action (id. at ), which seeks a preliminary and permanent injunction enjoining Hudson Canal from encumbering or alienating the Property. 3

4 obtain additional financing on favorable interest rate terms to fund the construction of the condominium development at the Property. (Id. at 13-15). FACTUAL BACKGROUND A. The Hudson Square Joint Venture Plaintiff Avihu Gerafi ( Gerafi ) alleges that, in or about February 2013, he and his childhood friend, Defendant Rafi Gibly ( Gibly ), formed a joint venture with the intent of developing a boutique hotel on the Property, which at the time was owned by Gerafi s whollyowned corporation, Plaintiff 489 Southwest Canal St., Inc. ( 489 SW Canal ). (Complaint ) To that end, Gerafi and Gibly formed Hudson Square in March (Id.) Plaintiff Gerafi caused 489 SW Canal to transfer title to the Property to Hudson Square by deed dated October 9, 2013 for cash consideration of $2,500,000 and a 30% minority membership interest in Hudson Square, to be held by Gerafi s wholly-owned entity, Plaintiff Stang, LLC ( Stang ). (Id. at 46, 57-58; Braver Aff, Ex. A.) Plaintiffs thus admittedly relinquished any and all right, title and interest in and to the Property in exchange for a minority membership interest in Hudson Square more than two years before they filed the improper Notice of Pendency. Gibly is alleged to have agreed to bring investors into the venture in order to finance the development of the Property, in exchange for which Gibly received a 10% membership interest in Hudson Square, to be held by Gibly s entity, Defendant Four Boys One Girl, LLC. (Complaint 45, 53.) Gibly ultimately found four former or current European football (soccer) stars to invest in the Hudson Square entity. Those investors each allegedly agreed to contribute $3 million in exchange for 10% (or 40% in total) of the membership interests in Hudson Square Defendant Paolo Maldini, a member of Defendant BB Max, LLC; Defendant Christian Vieri, a 4

5 member of Defendant Room 45, LLC; Defendant Andriy Shevchenko, a member of Defendant Five Boys One Girl, LLC; and Defendant Zinedine Zidane, a member of Defendant Z Dream, LLC (collectively, the Investor Defendants ). (Id. at 47, ) B. The Hudson Square Operating Agreement In October 2013, Gerafi, Gibly and the Investor Defendants executed the Operating Agreement (Dickstein Aff., Ex. C) to govern the operations of Hudson Square. 3 The Operating Agreement defines the Members of Hudson Square as Paolo Maldini, or an entity created by him, Christian Vieri, or an entity created by him, Rafi Gibly, [] or an entity created by him, Andriy Shevchenko, or an entity created by him, Zinedine Zidane, or an entity created by him, and Avihu Gerafi, or an entity created by him, being hereafter referred to collectively as the Members. (Dickstein Aff., Ex. C, at Preamble.) Exhibit A to the Operating Agreement (Dickstein Aff, Ex. C at Ex. A) identifies the Equity Members and Equity Percentage Interest of Hudson Square as follows Name of Member Percentage Interest Four Boys One Girl, LLC [Gibly] 10% BB Max, LLC [Maldini] 10% Room 45, LLC [Vieri] 10% Five Boys One Girl, LLC [Shevchenko] 10% Z Dream, LLC [Zidane] 10% Stang, LLC [Gerafi] 30% Hudson Square Hotel, LLC 20%* *To be offered to Additional Members Thus, only 80% of the membership interests in the LLC are outstanding, and the 50% membership interests held by the Investor Defendants and Gibly (through their respective LLCs) 3 Plaintiffs refer to the October 2013 First Amended Operating Agreement of Hudson Square as the Operating Agreement. (Complaint 55.) For ease of reference, that same designation will be used herein. A copy of the Operating Agreement is attached as Exhibit C to the accompanying Dickstein Affirmation. 5

6 collectively represented a majority (62.5%) of the outstanding 80% membership interests in Hudson Square. (Id.; Complaint ) 4 The Operating Agreement provides that, unless otherwise stated in this Agreement a majority vote of Members is required for all decision making authority and power, major and/or minor, with respect to the Company... including but not limited to... contracts.... (Dickstein Aff., Ex. C, 8(b)) (emphasis added). The Operating Agreement further provides that the profits of Hudson Square are to be distributed according to each member s respective ownership interest. (Id. at 7, 15.) Notably, although the Operating Agreement requires a unanimous (100%) vote of members for [a] decision involving loans, mortgages, or any form of credit to be obtained from third parties, there is no such unanimity or even a super-majority requirement for the sale of the Property. (Id. at 8(a).) C. The Written Consent of a Majority of Membership Interests of Hudson Square In connection with the sale of the Property to Hudson Canal, the Investor Defendants and Gibly representing a majority of the membership interests of Hudson Square executed a Written Consent, dated September 18, 2015 (Dickstein Aff., Ex. D ). By the Written Consent, Hudson Square expressly ratifie[d], approve[d] and consent[ed] to the sale of the Property to Hudson Canal for $13,125,000 (less than the $13,250,000 actual purchase price) with a closing to take place on September 21, (Id.) The Written Consent also expressly authorized, empowered and directed Defendant Maldini to execute and deliver the documents necessary to consummate the sale on behalf of Hudson Square. (Id.) Maldini s execution of the transfer 4 Alternatively, if the 20% unallocated interests were simply apportioned to each member according to their respective interests in Hudson Square, Gibly and the Investor Defendants would still hold a majority (60%) of the membership interests. 6

7 documents was to be conclusive evidence of [the consenting members ] approval and of Maldini s authority to execute and deliver such documents. (Id.) As authorized and directed by the Written Consent, Hudson Square conveyed title to the Property to Hudson Canal by deed dated September 21, 2015 (see Braver Aff., Ex. E), for good and valuable cash consideration in the amount of $13,250,000 (the Sale ). As explained in the accompanying Braver Affirmation (at 5-11), the Sale was the product of an arms-length negotiation, and Hudson Canal had no notice or knowledge of any alleged intra-company dispute between or among the members of Hudson Square, or any reason to doubt that Maldini was authorized to convey title to the Property on Hudson Square s behalf. Hudson Canal s actions in the months following its acquisition of the Property further evidence its bona fide purchaser status, and the urgent need to cancel the Notice of Pendency. As detailed in the Braver Affirmation (at 12-16), Hudson Canal has invested substantial additional funds to begin development of an 11-story, mixed-use condominium building on the Property, including payments for architectural plans, retention of environmental consultants and counsel, and other out-of-pocket and ongoing expenses. ARGUMENT I. THE NOTICE OF PENDENCY SHOULD IMMEDIATELY BE CANCELLED BECAUSE THE SALE WAS VALIDLY APPROVED BY HUDSON SQUARE The Notice of Pendency filed against the Property is improper and should be cancelled, because the Sale of the Property to Hudson Canal was duly authorized by the requisite action by the majority of membership interests in Hudson Square, as evidenced by the Operating Agreement and the Written Consent, which conclusively negate Plaintiffs assertion that the conveyance of title to the Property to Hudson Canal was somehow unauthorized. 7

8 The Operating Agreement expressly requires a vote of only a majority of members in order to exercise all decision making authority and power, major and/or minor on behalf of Hudson Square (Dickstein Aff., Ex. C 8(b)). 5 But even if Section 8(b) of the Operating Agreement somehow did not apply to the Sale of the Property (which it plainly does), Section 402(d)(2) of the New York Limited Liability Company Law ( LLCL ) provides that, in the absence of a contrary provision in an LLC operating agreement, the sale of all or substantially all of the LLC s assets requires the approval of only a majority in interest of the members having voting rights. LLCL 402(d)(2). 6 Pursuant to the Operating Agreement, the Investor Defendants and Gibly comprise a majority in interest of the members of Hudson Square, holding an aggregate share of 62.5% of the membership interests entitled to vote (50% out of the outstanding 80% membership interests). (Dickstein Aff., Ex. C [Operating Agreement] at Ex. A.) Because the Investor Defendants and Gibly executed the Written Consent which expressly authorized, empowered and directed Maldini to execute documents transferring the Property to Hudson Canal the Written Consent is conclusive evidence that the Sale of the Property to Hudson Canal was duly approved by the requisite majority of membership interests in Hudson Square. Furthermore, there is no question that the sale of the Property was validly approved by the Written Consent, and that there was no need for a formal meeting or prior notice to non- 5 There is no doubt that the members of Hudson Square knew how to impose a super-majority voting requirement for the sale of the company s assets if they wanted to do so, as they included a unanimity requirement for the approval of third-party financing. (Dickstein Aff., Ex. C 8(a)); see First N.Y. Realty Co., Inc. v. Subvoyant Corp., 2010 N.Y. Misc. LEXIS 1616, at *17 (Sup. Ct. N.Y. County Apr. 1, 2010) ( As reflected in item 6 of the contract, First New York knew how to use the word negotiate if that was the term it desired to use in item 1. ). 6 LLCL 102(o) defines majority in interest of the members as the members whose aggregate share of the current profits of the limited liability company constitutes more than one-half of the aggregate of such shares of all members. As noted above, the profits of Hudson Square were allocated in accordance with each member s ownership interest. (Dickstein Aff., Ex. C 7, 15.) 8

9 consenting members. Section 407(a) of the LLCL expressly provides that any action that must otherwise be taken by a vote may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken shall be signed by the members who hold the voting interests having not less than the minimum number of votes that would be necessary to authorize or take such action.... LLCL 407(a). Thus, the sale of the Property was validly approved by the Written Consent, and no prior notice to Plaintiffs was required. See Stulman v. John Dory LLC, Index No /09, 2010 N.Y. Misc. LEXIS 6938, at *5 (Sup. Ct. N.Y. County Sept. 10, 2010) ( The record demonstrates that the majority interests obtained the written consent, as required by LLCL 407(a), and thus, [the LLC] was under no obligation thereunder, to provide notice to [minority member] Stulman prior to the merger. ). 7 In light of the foregoing, Plaintiffs claims purporting to challenge Hudson Canal s title to the Property are facially invalid, were not asserted in good faith, and do not satisfy the requirements of CPLR Accordingly, the Notice of Pendency must be cancelled. See CPLR 6501, 6514(b) ( The court, upon motion of any person aggrieved and upon such notice as it may require, may direct any county clerk to cancel a notice of pendency, if the plaintiff has not commenced or prosecuted the action in good faith. ); cf. Commandment Keepers Ethiopian Hebrew Cong. v. 31 Mount Morris Park LLC, 76 A.D.3d 465, , 908 N.Y.S.2d 1 (1st Dep t 2010) ( Since the buyers were properly declared the record owners of the subject real property and plaintiff s causes of action with respect to its alleged interests therein were dismissed, plaintiff does not have a valid claim against the buyers and the notice of pendency was properly cancelled. ). 7 For the same reasons, Plaintiffs Sixth, Seventh and Ninth causes of action, which purport to challenge Hudson Canal s title to the Property by virtue of the transfer from Hudson Square, are wholly meritless and should be dismissed. 9

10 It should also be noted that Hudson Canal is indisputably a bona fide purchaser for value of the Property, having paid $13.25 million for the Property, and without knowledge or notice of any alleged wrongdoing on the part of the majority members of Hudson Square, and thus its title to the Property is protected under NY RPL Plaintiffs effort to portray this transaction as a fire sale for less than fair value (Complaint 85) is wholly unsubstantiated and belied by an independent appraisal commissioned by The Bank of Princeton, which appraisal valued the Property at $14.1 million. (See Braver Aff., Ex. C.) Nor did Hudson Canal have any reason to believe that Gibly, with whom they had negotiated the purchase, or Maldini, who executed the transaction documents, were somehow not validly authorized to act on behalf of Hudson Square. Indeed, as shown above, Maldini was expressly authorized to effectuate the sale of the Property to Hudson Canal. II. THE NOTICE OF PENDENCY WAS IMPROPERLY FILED BECAUSE PLAINTIFFS DO NOT ASSERT ANY INTEREST IN THE PROPERTY ITSELF The Notice of Pendency was not properly filed in this action because Plaintiffs have no legitimate claim to any right, title or interest in the Property. CPLR 6501 permits the filing of a notice of pendency only where the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property. See 5303 Realty Corp. v. O & Y Equity Corp., 64 N.Y.2d 313, (1984). The New York Court of Appeals has narrowly interpreted the type of action in which a notice of pendency may be used and confined the notice of pendency to cases in which the plaintiff claims a direct interest in the defendant s real property and actions asserting an interest in personal property do not fall within the scope of CPLR Ostad v. 8 RPL 266 states This article does not in any manner affect or impair the title of a purchaser or incumbrancer for a valuable consideration, unless it appears that he had previous notice of the fraudulent intent of his immediate grantor, or of the fraud rendering void the title of such grantor. 10

11 Nehmadi, Index No /10, 2011 N.Y. Misc. LEXIS 1535, at *2 (Sup. Ct. N.Y. County Apr. 8, 2011) (citing 5303 Realty Corp., 64 N.Y. 2d at 321). Moreover, in determining whether an action falls within the scope of CPLR 6501, courts are not bound by the labels a plaintiff assigns to his claim or the relief sought, and instead look to the essence of the plaintiff s claims. Ostad, 2011 N.Y. Misc. LEXIS 1535, at *2, *5 (citing Yonaty v. Glauber, 40 A.D.3d 1193, 1195 (3d Dep t 2007)); 5303 Realty Corp, 64 N.Y.2d at Here, it is evident from the allegations in the Complaint that the essence of Plaintiffs claims is an intra-company dispute in which the majority members of Hudson Square allegedly did not make their promised capital contributions, failed to provide an accounting and other information to the minority member (Plaintiff Stang), and otherwise treated Mr. Gerafi unfairly none of which involves Hudson Canal or title to the Property. At best, only a claim to money damages is alleged (see Complaint 89 (alleging that Plaintiffs Gerafi and Stang have been defrauded by at least $20,000,000 and likely far more )), which does not affect the title, use, possession or enjoyment of real property. Khadka v. Am. Home Mtg. Servicing, Inc., Index No. 3488/2012, 2012 N.Y. Misc. LEXIS 5020, at **10 (Sup. Ct. Queens County Oct. 24, 2012) (cancelling notice of pendency where action sought to recover money damages) (citing CPLR 6501; 5303 Realty Corp., 64 N.Y.2d 313). To the extent the claims in the Complaint are based on Plaintiff Stang s 30% membership interest in the Hudson Square entity, those claims are similarly insufficient to maintain a notice of pendency. 9 It is well-settled that membership interests constitute personal property, and do 9 Although Plaintiffs purport to assert a derivative claim to the Property on behalf of Hudson Square, the essence of Plaintiffs claims is nevertheless an intra-company dispute. In any event, as shown above, any claim challenging the sale of the Property to Hudson Canal is barred 11

12 not, as a matter of law, give rise to any direct interest in real property owned by the entity. See Gen. Prop. Corp. v. Diamond, 29 A.D.2d 173, 175 (1st Dep t 1968) ( [T]he interest of a joint venturer in a venture having to do with realty is not an interest in the realty itself. An action to enforce a claim in regard to a partner s interest in the real property cannot support a lis pendens. ); Ostad, 2011 N.Y. Misc. LEXIS 1535, at *8 (notice of pendency improperly filed where dispute concerns ownership interest in a corporation, even where the sole corporate asset is real property ) (citing Schlesinger v. Schlesinger, No /00, 2002 WL , at *10 (Sup. Ct. N.Y. County 2002)). CONCLUSION For the reasons stated above, and in the accompanying Braver Affirmation and Dickstein Affirmation, Plaintiffs improperly-filed Notice of Pendency should immediately be cancelled under CPLR 6501 and 6514 and vacated as of record. No prior application has been made for the relief requested herein to this or any other Court. Dated New York, New York December 17, 2015 LOEB & LOEB LLP By David M. Satnick Tal E. Dickstein Sara J. Crisafulli 345 Park Avenue New York, NY (212) Counsel for Defendant Hudson Canal LLC by the express written approval of that transaction by the requisite majority membership interests of Hudson Square. 12

13 PHILLIPS NIZER LLP Jon S. Brooks 666 Fifth Avenue New York, New York (212) Counsel for Defendant Hudson Canal LLC and for Defendant Joel Braver NY