FILED: NEW YORK COUNTY CLERK 04/11/2013 INDEX NO. 654351/2012 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/11/2013 C:\Documents and Settings\Delia\My Documents\Pleadings\Steiner Studios adv. NY Studios and Eponymous Answer (final).wpd SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ---------------------------------------------------------------x NEW YORK STUDIOS, INC. and EPONYMOUS : ASSOCIATES, LLC, Index no. 654351/2012 : Plaintiffs, VERIFIED ANSWER AND : COUNTERCLAIMS v. : STEINER DIGITAL STUDIOS, INC., DOUGLAS STEINER and DAVID STEINER, : Defendants. : ---------------------------------------------------------------x Defendants, STEINER DIGITAL STUDIOS, L.L.C. (s/h/a STEINER DIGITAL STUDIOS, INC.), DOUGLAS STEINER and DAVID STEINER, by their attorneys, GUAZZO & GUAZZO, as and for their Answer to the Complaint, respectfully alleges as follows, upon information and belief: AS AND FOR AN ANSWER TO THE FIRST CAUSE OF ACTION 1. Denies knowledge or information sufficient to form a belief as to the allegations contained in paragraphs 1, 2, 8 and 16 of the Complaint. 2. Denies the allegations contained in paragraphs 3, 4, 6, 7, 12, 26, 27, 28, 29, 30, 32, 33, 34, 36, 37, 38, 39, 40, 41, 42, 47, 48, 49, and 50 of the Complaint. 3. Denies the allegations of paragraph 5 of the Complaint except admits that plaintiffs did not serve a demand to initiate the lawsuit. 4. Denies the allegations of paragraph 9 of the Complaint except admits that plaintiff Page 1 of 18
Eponymous Associates, L.L.C. was and is a limited liability company with its principal place of business within the City and State of New York. 5. Denies the allegations of paragraph 10 of the Complaint except admits that defendant Douglas Steiner resides in the State of New Jersey. 6. Denies the allegations of paragraph 11 of the Complaint except admits that defendant David Steiner resides in the State of New Jersey. 7. Denies the allegations of paragraph 17 of the Complaint except admits that plaintiff Eponymous Associates, L.L.C. was formed on or about April 30, 1999. 8. Denies the allegations of paragraph 18 of the Complaint except admits that an Operating Agreement for plaintiff Eponymous Associates L.L.C. was executed by the parties thereto. 9. Denies the allegations of paragraphs 19, 20, 21, 22, 23, 24, 25, 31, 44, 45 and 46 except to refer the Court to the documents referred to for the full and complete meaning and contents thereof. 10. Denies the allegations of paragraph 35 of the Complaint except to refer the Court to the statute referred to for the full and complete meaning and contents thereof. 11. Repeats, reiterates and realleges each and every denial of each and every allegation contained in paragraph 43 of the Complaint as if set forth at length herein. AS AND FOR AN ANSWER TO THE SECOND CAUSE OF ACTION 12. Repeats, reiterates and realleges each and every denial of each and every allegation contained in paragraph 51 of the Complaint as if set forth at length herein. 13. Denies the allegations of paragraph 52 of the Complaint except to refer the Court to the documents referred to for the full and complete meaning and contents thereof. Page 2 of 18
14. Denies knowledge or information sufficient to form a belief as to the allegations contained in paragraph 53 of the Complaint and refers all issues of the law to the Court. 15. Denies the allegations of paragraphs 54, 55, 56, 57 and 58 of the Complaint. AS AND FOR AN ANSWER TO THE THIRD CAUSE OF ACTION 16. Repeats, reiterates and realleges each and every denial of each and every allegation contained in paragraph 59 of the Complaint as if set forth at length herein. 17. Denies knowledge or information sufficient to form a belief as to the allegations contained in paragraph 60 of the Complaint. 18. Denies the allegations contained in paragraphs 61 and 62 of the Complaint. AS AND FOR AN ANSWER TO THE FOURTH CAUSE OF ACTION 19. Repeats, reiterates and realleges each and every denial of each and every allegation contained in paragraph 63 of the Complaint as if set forth at length herein. 20. Denies the allegations of paragraph 64, 65, and 66 of the Complaint except to refer the Court to the documents referred to for the full and complete meaning and contents thereof. 21. Denies the allegations contained in paragraphs 67, 68, 69, 70, and 71 of the Complaint. AS AND FOR A FIRST AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 22. On or about April 30, 1999, plaintiff New York Studios, Inc. ( NYS ) and defendants entered into an Operating Agreement ( Operating Agreement ) of plaintiff Eponymous Associates, LLC ( Eponymous or the LLC ). 23. The Operating Agreement provides at Article 3.1 that (a) NYS represents and warrants... that:...(ix) All of the statements made under this Agreement...and in all other written materials heretofore furnished to SDS... do not include or contain any untrue statement of Page 3 of 18
a material fact and do not omit to state any material facts required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and at the time they were made, not misleading. To the best knowledge of NYS, after due investigation, there is no material fact which NYS has not disclosed to SDS and the LLC which has had, or could have, a material adverse affect [sic] on the business or prospects of the LLC, including without limitation, the Project. 24. The Project is defined in the Operating Agreement as set forth in the Preamble and Exhibit A thereto. The Project as defined included development of certain portion of the Brooklyn Navy Yard for the purposes, among others, of construction, operating and rental of sound stages for production of motion pictures, televisions programs and other audio or visual work. 25. The materials furnished to defendants in connection with the negotiation and execution of the Operating Agreement contained numerous untrue statements of material facts and omitted materials facts required to be stated therein, which by their omission, made the statements contained in said materials misleading. 26. There were also numerous material facts which NYS had not disclosed to the defendants and Eponymous which could have had, and in fact had, a material adverse effect on the business or prospects of Eponymous, including the Project, as that term is defined in the Operating Agreement. 27. One of the purported assets to have been transferred by NYS to Eponymous under the Operating Agreement was a Non-Recordable Agreement to Enter into a Sublease with Brooklyn Navy Yard Development Corp. ( BNYDC ) made as of March 26, 1988 Page 4 of 18
( Sublease Agreement ). The parties to the Sublease Agreement were BNYDC and Liberty Entertainment Corporation, the Developer under the terms thereof. 28. The owner of the Brooklyn Navy Yard is the City of New York, which in turn, has entered into one or more Master Leases for the Brooklyn Navy Yard to BNYDC, as Master Lessee. 29. Upon information and belief, Liberty Entertainment Corporation was predecessor in interest to NYS. 30. The Sublease Agreement was conditioned upon numerous conditions precedent to closing which were required to be performed by Developer, including that Developer shall have received a firm commitment or commitments for debt and/or equity financing which, in BNYDC s reasonable determination, demonstrate that Developer shall have sufficient funds to finance the construction and completion of the Buildings referred to in the Sublease (the cost of which is estimated, for the purposes of this subparagraph (a), to be no more than One Hundred Ten Million Dollars ($110,000,000.)). 31. The Sublease Agreement was also conditioned upon the consent of the City of New York to the transactions contemplated by the Sublease Agreement. 32. The Sublease Agreement further provided that Developer may not assign this Agreement, or its interest hereunder, without the prior written consent of BNYDC, which consent may be granted or withheld in its sole and absolute discretion. 33. As of the date of execution of the Operating Agreement, and other than the financing contemplated as being provided by SDS, Liberty and/or NYS had not obtained the commitment for any financing for construction for the Project as required by the Sublease Agreement referenced at 30. Page 5 of 18
34. As of the date of the execution of the Operating Agreement, Liberty and/or NYS had not obtained the consent of the BNYDC to any assignment of Liberty s/new York Studio s interest under the Sublease Agreement to Eponymous or to anyone else. 35. Upon information and belief, on or about April 26, 1999, four days prior to the date of the execution of the Operating Agreement, New York City Mayor Rudolph Giuliani reached an agreement in principle to develop the Project with another development group spearheaded by actor Robert DeNiro, Miramax Films co-chairman Harvey Weinstein, and Vornado Realty Trust Chairman Steven Roth and without the participation of Liberty/NYS 36. Upon information and belief, on May 3, 1999, the first business day after the signing of the Operating Agreement, Mayor Giuliani held a press conference, announcing the City s intent to move forward with the DeNiro/Weinstein/Vornado group, to the exclusion of Liberty/NYS. 37. Upon information and belief, as of the April 30, 1999, the date of the Operating Agreement, plaintiff NYS was not ready, willing and able to perform all of its obligations under the Sublease Agreement, and failed to advise the defendants of those facts. 38. As part of its acts of misrepresentation, NYS furnished defendants with a document entitled Private Placement Memorandum of New York Studios, Inc. dated August 10, 1998. NYS represented that this document was prepared for the purposes of NYS attempting to obtain financing for the Project. 39. The Private Placement Memorandum was provided to defendants to induce them to rely on the contents thereof, and is a document which is included in those covered by the Operating Agreement, Article 3.1(a)(ix). Page 6 of 18
40. The Private Placement Memorandum projected gross income for the Project of approximately $59.1 million. 41. Under the facts then existing, the Private Placement Memorandum materially misrepresented a reasonable projected gross income for the Project. 42. The Private Placement Memorandum omitted materials facts required to be stated therein, which, because they were omitted, made the statement as to projected income contained in said materials misleading, to wit, that there was sufficient business then existing or reasonably projected for the services contemplated by the Project to support a projected gross income of $59.1 million for the Project. 43. Plaintiff NYS furnished defendants with a document entitled New York Studios, Inc. Financial Plan dated November 1, 1998. NYS represented that this document was prepared for the purposes of NYS attempting to obtain financing for the Project. 44. The Financial Plan was provided to defendants to induce them to rely on the contents thereof, and is a document which is included in those covered by the Operating Agreement, Article 3.1(a)(ix). 45. The projections for Sales/Net Income, Return on Assets, Utilization Assumptions, projected pricing, projected income, balance sheet, cash flow, revenue, operating returns, and related projections, all omitted materials facts required to be stated therein, which, because they were omitted, made the statements as to Sales/Net Income, Return on Assets, Utilization Assumptions, projected pricing, projected income, balance sheet, cash flow, revenue, operating returns, and related projections contained in said materials misleading. 46. NYS furnished SDS with an Agreement Regarding Utilities dated as of November 1998 Page 7 of 18
under the terms of the Operating Agreement, which was specifically referenced in Schedule 1 thereof as an Asset being transferrred to Eponymous Associates, LLC in connection with the Project. 47. The Agreement Regarding Utilities contained a representation that NYS has received a commitment from Keyspan Energy... under which Keyspan will provide substantial financing to NYS for the acquisition of electrical, heating, ventilating, air conditioning and other equipment. By so stating, the Agreement Regarding Utilities contained untrue statements of material facts and omitted materials facts required to be stated therein, which, because they were omitted, made the statement as to Keyspan Energy s participation in the Project contained in said materials misleading.. Upon information and belief, Keyspan never exected any agreement binding itself to such a commitment. 48. On or about April 21, 1999, NYS furnished SDS with a term sheet which purported to set forth a summary of the business terms of the Project. The term sheet stated: a. The City of New York through the Economic Development Corporation agrees to provide a 40 year loan in the amount of $25 million; b. Union Labor Life Insurance Company will provide an $82 million first mortgage for the Project; c. Keyspan Energy will design and build the energy infrastructure necessary to support the operation of the Project and will finance same, with capital cost estimated at $12 to $18 million. By so stating, the term sheet contained untrue statements of material facts and omitted materials facts required to be stated therein, which, because they were omitted, made the said Page 8 of 18
statements contained in said materials misleading. 49. Upon information and belief, at no time was plaintiff NYS able to obtain the consent of the City of New York, or the NYC Economic Development Corporation to any loan to fund the Project. 50. Upon information and belief, at no time was plaintiff NYS able to obtain the consent of Union Labor Life Insurance Company to $82 million financing for the Project. 51. By these and other actions, plaintiff NYS breached its contract with defendants, as a result of which defendants sustained damages. 52. The conduct set forth above constitute material breaches of the Operating Agreement, by plaintiff NYS, excusing and otherwise voiding any obligation that defendants may have had, or may have, to plaintiffs under the terms of the Operating Agreement. AS AND FOR A SECOND AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 53. Defendants repeat, reiterate and reallege each and every allegation contained in paragraphs 22-52 of the Answer and Counterclaims as if set forth at length herein. 54. The Complaint fails to state a claim or cause of action for which relief may be granted. AS AND FOR A THIRD AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 55. Defendants repeat, reiterate and reallege each and every allegation contained in paragraphs 22-52 of the Answer and Counterclaims as if set forth at length herein. 56. At all times relevant herein, NYS by and through its Chief Executive Office, Louis Madigan ( Madigan ), participated in the day to day operations of Eponymous. 57. At all times relevant herein, NYS by and through Madigan was aware of the fact that no loan from the NYC Economic Development Corporation was ever made to Eponymous in Page 9 of 18
connection with the Project. 58. At all times relevant herein, NYS by and through Madigan was aware that Eponymous never receiving a binding commitment for permanent financing for the Project in the approximate amount of $82 million. 59. At all times relevant herein, NYS by and through Madigan was aware that the sole source of funds for the construction of the sound stages contemplated by Project was funds provided to Eponymous by the defendants. 60. At all times relevant herein, NYS by and through Madigan was aware of the ongoing costs for construction of the sound stages and related facilities of the Project as they occurred. 61. At all times relevant herein, both NYS and Madigan were aware of the fact that as of December 2004, the defendants had invested in excess of $60 million into the Project. 62. On or about January 6, 2005, defendants provided New York Studios, Inc. with a management s report covering the period 1999 through December 17, 2004 which enclosed statements of assets, liability and members capital for approximately the same period. Those statements showed project costs as of December 17, 2004 in the approximate sum of $60 million, and total cash capital contributed by defendant/member SDS in the same sum of approximately $60 million. 63. By letter of October 18, 2007 from New York Studios, Inc. addressed to its shareholders, stated to its shareholders that the Steiners appear to have approximately $60 million invested in the project. 64. Plaintiff, NYS stood by, at all times relevant herein, with full knowledge and with no objection, as defendants invested their own capital into Eponymous for the construction and Page 10 of 18
operation of the Project, and cannot now be heard to complain. 65. The Complaint, and each cause of action contained therein, is barred by the doctrines of waiver and/or estoppel. AS AND FOR A FOURTH AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 66. Defendants repeat, reiterate and reallege each and every allegation contained in paragraphs 22-52 and 56-64 of the Answer and Counterclaims as if set forth at length herein. 67. The Complaint, and each cause of action contained therein, is barred by the doctrine of unclean hands. AS AND FOR A FIFTH AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 68. Defendants repeat, reiterate and reallege each and every allegation contained in paragraphs 22-52 and 56-64 of the Answer and Counterclaims as if set forth at length herein. 69. The Complaint, and each cause of action contained therein, is barred by the doctrine of laches. AS AND FOR A SIXTH AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 70. Defendants repeat, reiterate and reallege each and every allegation contained in paragraphs 22-52 and 56-64 of the Answer and Counterclaims as if set forth at length herein. 71. The Complaint, and each cause of action contained therein, is barred by the applicable statute of limitations. AS AND FOR A SEVENTH AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 72. Defendants repeat, reiterate and reallege each and every allegation contained in paragraphs 22-52 and 56-64 of the Answer and Counterclaims as if set forth at length herein. 73. To the extent that plaintiffs allege that any action taken by any of the defendants was not Page 11 of 18
undertaken in compliance with Article 5.11 of the Operating Agreement, plaintiffs consented and/or ratified and/or unreasonably withheld and/or unreasonably delayed their consent, as a result of which any claim of defendants breach of Article 5.11 is barred. AS AND FOR AN EIGHTH AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 74. The Complaint fails to adequately plead a condition precedent as to Eponymous, namely that plaintiff(s) serve a demand upon Eponymous to initiate the within litigation prior to commencement of suit herein. 75. The Complaint fails to allege with particularity what acts are alleged to have occurred which would create any liability or breach by the defendants. 76. The Complaint fails to allege with particularity why the requisite demand would be futile. 77. As a result of the foregoing, and without more, the Complaint fails to state a cause of action. AS AND FOR A NINTH AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 78. Plaintiffs as set forth more fully in paragraph 32 of the Complaint, misquotes and misrepresents Article 2.5 of the Operating Agreement in asserting that defendants are only permitted to engage in other businesses or activities unrelated to the LLC. 79. The Operating Agreement at Article 2.5 provides that this Agreement shall not prohibit any Member or Manager from conducting other businesses or activities unrelated to the LLC without accounting to the LLC or any other Member, whether or not such other businesses or activities, directly or indirectly, compete with the business of the LLC. Except as provided hereafter, no Member or Manager shall be liable to or accountable to the LLC or any other Member for failure to disclosure or make available to the LLC any business Page 12 of 18
opportunity that such Member or Manager becomes aware of in its capacity as a Member of Manager or otherwise (emphasis supplied). 80. Further, the Operating Agreement provides at Article 5.9(b) that any Manager or Member may engage in or possess an interest in other business ventures or properties of every nature and description, independently or with other others notwithstanding that such business ventures or properties may be in competition with the LLC [Eponymous] or its Property, including, but not limited to, the ownership, financing, leasing, operation, management or development of property similar to the property now and from time to time held by the LLC. Neither the LLC nor any Member have any rights in and to such independent ventures or the income or profits derived therefrom. 81. Plaintiff NYS was fully aware at the time its execution of the Operating Agreement that defendants were regularly and historically engaged in activities which might be competitive with those contemplated under the Operating Agreement. 82. By its execution of the Operating Agreement, NYS consented to defendants engaging in other businesses whether or not they competed with the business of Eponymous and/or NYS. AS AND FOR A TENTH AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 83. All assertions of personal liability against defendants David Steiner and/or Douglas Steiner by plaintiffs are contractually waived under the provisions of Article 5.8 of the Operating Agreement of Eponymous Associates, LLC entered into as of April 30, 1999. AS AND FOR AN ELEVENTH AFFIRMATIVE DEFENSE TO ALL CAUSES OF ACTION 84. Plaintiffs have failed to establish in personam jurisdiction over the person of the defendants, Page 13 of 18
Douglas Steiner and David Steiner, having failed to serve either defendant properly with process. AS AND FOR A TWELFTH AFFIRMATIVE DEFENSE TO THE SECOND, THIRD AND FOURTH CAUSES OF ACTION 85. Plaintiffs have failed to comply with CPLR 3016(b) and have failed to plead the circumstances constituting the wrongs alleged therein with the requisite specificity. AS AND FOR A FIRST COUNTERCLAIM AGAINST DEFENDANT NEW YORK STUDIOS, INC. FOR BREACH OF CONTRACT 86. Defendants repeat, reiterate and reallege each and every allegation contained in paragraphs 22-52 of the Complaint as if set forth at length herein. 87. By these and other actions, plaintiff NYS breached its contract with defendants, as a result of which defendants sustained damages. 88. The conduct set forth above constitute material breaches of the Operating Agreement by plaintiff NYS, excusing and otherwise voiding any obligation that defendants may have had, or may have, to plaintiffs under the terms of the Operating Agreement. AS AND FOR A SECOND COUNTERCLAIM AGAINST DEFENDANT NEW YORK STUDIOS, INC. FOR BREACH OF CONTRACT 89. Article 10.3 of the Operating Agreement provides that the Named Holders (as defined therein) shall at all times own not less than in the aggregate, 67% of all classes of the outstanding capital stock of NYS. 90. Upon information and belief, NYS has permitted one or more individuals to acquire shares of the capital stock of NYS such that the Named Holders (as defined therein) own less than in the aggregate, 67% of all classes of the outstanding capital stock of NYS. Page 14 of 18
91. As a result of the foregoing, NYS has breached its contract with defendants, as a result of which defendants have sustained damages. AS AND FOR A THIRD COUNTERCLAIM AGAINST DEFENDANT NEW YORK STUDIOS, INC. FOR INDEMNIFICATION 92. Article 5.7 of the Operating Agreement provides that (a) the... Members shall indemnify the Managers... against any and all expenses, including amounts paid upon judgments, court costs, counsel fees, and any amount paid in settlement (before or after suit is commenced), actually incurred by the Managers... in connection with the defense or settlement of any claim... 93. The defendants, David Steiner and Douglas Steiner, are Managers of plaintiff Eponymous. 94. Neither defendant David Steiner nor defendant Douglas Steiner has undertaken any actions in bad faith with respects to the affairs of Eponymous. 95. Neither defendant David Steiner nor defendant Douglas Steiner has engaged in willful misconduct with respects to the affairs of Eponymous. 96. Article 5.7(a) of the Operating Agreement further provides that the obligations of the Members may be satisfied by recourse against the Members LLC interest. 97. As a result of the foregoing, defendants David Steiner and Douglas Steiner are entitled to indemnification from plaintiff NYS for any and all expenses incurred by said defendants. 98. Said defendant are further entitled to a charge against distributions due to, or allocation(s) of profits made to, NYS for any and all liabilities of NYS pursuant to said defendants rights to indemnification as demanded hereunder. 99. Said defendant are further entitled to foreclosure of the membership interest of NYS in Page 15 of 18
Eponymous for any and all liabilities of NYS pursuant to said defendants rights to indemnification as demanded hereunder. WHEREFORE, judgment is demanded 1. dismissing the Complaint against defendants STEINER DIGITAL STUDIOS, L.L.C. DOUGLAS STEINER and DAVID STEINER in all respects, 2. granting judgment to the defendants on the first counterclaim, finding plaintiff NYS in material breach of contract, excusing and relieving defendants from any obligations to plaintiffs under the Operating Agreement, and awarding such damages as may be proved at trial; 3. granting judgment to the defendants on the second counterclaim, finding plaintiff NYS in material breach of contract, excusing and relieving defendants from any obligations to plaintiffs under the Operating Agreement, and awarding such damages as may be proved at trial; 4. granting judgment to defendants David Steiner and Douglas Steiner on the third counterclaim, entering judgment against plaintiff NYS in an amount to be determined by the court, entering a charging order against the membership interest of NYS in Eponymous for the amount of the judgment entered herein, and directing foreclosure against the membership interest of NYS in Eponymous in favor of defendants David Steiner and Douglas Steiner for any unsatisfied portion of the judgment entered herein; Page 16 of 18
5. granting defendants costs and disbursements as taxed, and granting such other relief as the court deems just and proper. Dated: New York, NY April 11, 2013 GUAZZO & GUAZZO Attorneys for defendants STEINER DIGITAL STUDIOS, L.L.C., DOUGLAS STEINER and DAVID STEINER S/ Delia M. Guazzo th 711 Third Avenue, 20 floor New York, NY 10017-4031 646/658-0500 TO: Law Offices of Richard Wright PLLC Attn: Richard Wright, Esq. 80 Maiden Ln., Ste 1902 New York, NY 10038 212/430-6000 Page 17 of 18
VERIFICATION Delia M. Guazzo, an attorney duly admitted to practice in the courts of the State of New York, affirms the following under the penalties of perjury. I have read the annexed Answer, know the contents thereof, and the same are true to my knowledge, except those matters therein which are stated to be alleged on information and belief, and as to those matters, I believe them to be true. My belief, as to those matters therein not stated upon knowledge, is based upon the books and records of the defendants and contents of my file. The reason that I make this verification instead of the defendants is that none of the defendants maintain their offices in or are domiciled in the county in which I maintain my offices Affirmed: New York, NY April 11, 2013 S/ Delia M. Guazzo Page 18 of 18