'C (; V) SUPREME COURT - STATE OF NEW YORK IAS TERM PART 18 NASSAU COUNTY INDEX NO. 9620- PRESENT: HONORABLE Justice LEONARD B. AUSTIN Motion RID: 7-30- Submission Date: 11-17- Motion Sequence No. : 001 002/MOT D In the Matter of The Application of GARY D' ANNUNZIO Holder of Fifty Percent of All Outstanding Shares of Albano AlC & Mechanical Service Corp. - against - Petitioner For the Dissolution of ALBANO AlC & MECHANICAL SERVICE CORP., a Domestic Corporation COUNSEL FOR PETITIONER Bailey & Sherman, P. 42-21 Douglaston Parkway Douglaston, New York 11363 COUNSEL FOR RESPONDENT Peter A. Silverstein, Esq. 40 Cuttermil Road Great Neck, New York 11021 Tashlik, Kreutzer, Goldwyn & Crandell 40 Cuttermil Road Great Neck, New York 11021 Respondent. ORDER The following papers were read on Petitioner s application for the judicial dissolution of Albano AlC & Mechanical Service Corp. and Respondent's motion to dismiss this proceeding: Order to Show Cause dated July 19, 2004; Affirmation of Ri chard M. Hendler, Esq. dated July 15, 2004; Affidavit of GarY D'Annuzio sworn to on July 15, 2004; Notice of Motion dated November 9, 2004; Affirmation of Peter A. Silverstein, Esq. dated November 9, 2004; Affidavit of George Albano sworn to on November 8, 2004;
Affidavit of FelixDedalle sworn to on July 17, 2004; Respondent's Memorandum of Law; Affirmation of Peter A. Silverstein, Esq. dated November 16, 2004; Affirmation of Richard M. Hendler, Esq. dated November 15, 2004; Affidavit of Gary D'Annunzio sworn to on November 12, 2004; Affidavit of George Albano sworn to on November 8, 2004; Affirmation of Peter A. Silverstein, Esq. dated November 9 2004; Affidavit of George Albano sworn to on July 19, 2004; Respondent's Answer dated November 8, 2004; Petitioner s Reply dated November 23, 2004; Transcript of proceedings Before Special Referee Frank Schellace dated May 19, 2005. Petitioner, Gary D'Annunzio (D'Annunzio ), seeks the judicial dissolution of Respondent Albano AlC Mechanical Service Corp. ("Mechanical"). D'Annunzio also seeks a preliminary injunction enjoining Respondent's agents including George Albano ("George ) and Donna Albano (" Donna ) (collectively "Albano ) from using corporate funds except in the regular course of corporate business and from using corporate credit cards except for corporate expenses. Procedural Background BACKGROUND Annunzio petitioned for the judicial dissolution of Mechanical. Albano moved to dismiss the petition, pursuant to CPLR 3211 (a)(8), on the grounds that the order to show cause and supporting papers had not been served as directed by the order to show cause and, pursuant to CPLR 3211 (a)(7), on the grounds that the petition failed to state a cause of' action. By order dated March 16, 2005, the Court decided that motion by setting the matter down for a traverse hearing before Special Referee Frank Schellace on April 19
2005. D'Annunzio s application to judicially dissolve Mechanical and Albano s motion to dismiss were held in abeyance pending the outcome of the traverse hearing. The parties appeared before Special Referee Schellace for the traverse hearing on May 19, 2005. During colloquy on the record, Peter A Silverstein, Esq., who was then Respondent's attorney, admitted that he had told this Court in chambers, on July 19, 2004, that he was authorized to and would accept service of the order to show cause and supporting papers on behalf of Mechanical and Albano. Silverstein conceded that he was given copies of the signed order to show cause by court personnel. He asserted that this was insufficient service since copies of the papers were never given to him by Richard M. Hendler, Esq., who was then Petitioner attorney. Based upon these statements, Special Referee Schellace determined that service had been properly made on the Respondent and referred the matter back to this Court. Petitioner has not moved to confirm and Respondent has not moved disaffirm the report of Special Referee Schellace. In view of this, the Court considers the issues involving service fully resolved and that this Court has jurisdiction over this proceeding. Thus, the Court will now hear and decide D'Annunzio s application to dissolve Mechanical and Albano s motion to dismiss. Factual Backaround Mechanical is a domestic corporation incorporated in 1983. Mechanical is in the
business of installing and servicing commercial air conditioning and refrigeration equipment. George and D'Annunzio each own fifty percent (50%) of the shares of Mechanical. From 1987 through the summer of 2005, George and D'Annunzio jointly operated and managed Mechanical' s business. Annunzio alleges that, in or about November 2002, George began to use Mechanical' s funds to pay personal expenses and used a Mechanical charge card to charge personal expenses. D'Annunzio also alleges that George opened a new business that competes with Mechanical. Annunzio asserts that George has frozen him out of the business by locking him out of Mechanical's computer system and denying him access to the corporate checking and bank accounts. George has allegedly opened a new checking account for Mechanical to which D'Annunzio has no access. George has taken the company van which D'Annunzio used for corporate business and placed a lock on the steering wheel preventing D'Annunzio from using the vehicle. George also changed the lock on the doors of the corporate offices and facilities and has not given D' annunzio copies of the keys for the new locks. In the Summer of 2004, George, who was responsible for issuing pay checks stopped issuing weekly paychecks to D'Annunzio. Finally, George sent a letter to D'Annunzio stating that D'Annunzio was being terminated as an employee of Mechanical.
Based upon these actions, D'Annunzio commenced this special proceeding pursuant to Business Corporation Law 911 04-a(1) and (2). D' Annunzio asserts that the George s actions have been ilegal, guily and fraudulent. D'Annunzio further asserts that George has been wasting, looting and diverting corporate assets and opportunities for non-corporate purposes. D'Annunzio asserts that all of these action constitute of breach of George s fiduciary duties to D'Annunzio and Mechanical. George generally denies all of D'Annunzio s allegations. He asserts that although he took these actions, the petition should be dismissed because his actions were justified. On July 1'2, 2004, D'Annunzio transferred $11 000 from Mechanical to his personal account. George asserts that this was done without his consent and constitutes a looting of corporate funds. D'Annunzio concedes that he took the funds. However, D'Annunzio did this only after George has failed and refused issue a pay check to D'Annunzio for three consecutive weeks. D' Annunzio claims that this transfer constituted his three weeks back pay, two weeks of prospective pay and $4 550 owed to him from a corporate savings plan. George asserts that all of his actions were precipitated by D' Annunzio. George claims that, in April or May 2004, D'Annunzio began to work for Piece Management, Inc. Piece ) in New Hyde Park. He asserts that Piece gave D'Annunzio a cell phone. In July 2004, Felix Dedalle, a salesman of a vendor of Mechanical called Piece and asked for D'Annunzio. ; A Piece employee gave Dedalle a cell phone number which Dedalle
called. The phone was answered by a message which indicated that the caller had reached D'Annunzio. George asserts that in March 2004, D'Annunzio began ordering parts from Mechanical' s suppliers which were shipped to his home instead of Mechanical' premises. He also claims that D'Annunzio has been soliciting business from Mechanical' s customers for his new employer. George contends that he has never denied D'Annunzio access to the corporate computers and records. All of Mechanical' s business and financial records are kept on a computer. George kept and maintained these records. He claims that D'Annunzio could not acces this information in the computer because he never bothered to learn how to operate Mechanical' s computer system. George concedes that he and D'Annunzio no longer get along. He claims that Annunzio and he had been trying to amicably resolve their disputes. In fact Mechanical had hired a CPA to value the corporation. Before the parties could resolve their disputes, this proceeding was commenced. DISCUSSION Business Corporation Law 911 04-a permits the holder of twenty (20%) percent of the shares of corporation whose shares are not publicly traded to petition for a judicial dissolution of a corporation when the directors or those in control of the corporation have engaged in ilegal, fraudulent or oppressive conduct towards the petitioner. (Subpar. 1) or when the officers, directors or those controllng the corporation loot,
Index No. 9620,. waste or divert corporate assets for non-corporate purposes (Subpar. 2). Oppressive conduct is generally found when a shareholder has been has been excluded from participation in corporate management for no legitimate business reason or personal animus, where the shareholder/employee has been discharged from employment without cause and thus deprived of salary or where corporate policies have been changed to deprive a shareholder from receiving a reasonable return on his or her investment. See, In re Dissolution of Upstate Medical Associates. P., 292 A. 2d 732 Dept. 2002); Gunzberg v. Art-Lloyd Metal Products Corp., 112 AD. 2d 423 (2 Dept. 1985); and Matter of Weidy s Furniture Clearance Center Co.. Inc., 108 AD.2d 81 (2 Dept. 1985). Annunzio has pleaded sufficient facts of oppression to survive George s motion to dismiss. He alleges that George terminated his employment for no legitimate reason, deprived him of his salary, excluded him from corporate business, deprived him of access to corporate records and excluded him from the corporate premises. George asserts that he had good cause or valid reasons for all of his actions. Annunzio also alleges that George has looted, diverted and wasted corporate assets by using them to pay personal expenses. D' Annunzio alleges that George used a corporate charge card to charge personal expenses. D' Annunzio further alleges that George obtained charge cards from Sunoco and Chase in the corporate name and then permitted his wife and son to use the cards to charge personal expenses. George then used corporate funds to pay for these expenses. D' Annunzio alleges that George hired
Donna, as a part-time bookkeeper for Mechanical, without consulting with him and then he unilaterally raised her salary. When deciding a motion to dismiss made pursuant to CPLR 3211 (a)(7), the court must determine whether pleader has a cognizable cause of action. Guggneheimer v. Ginzburg, 43 N. 2d 268 (1977); and Rovello v. Orofino Realty Co. 40 N. 2d 633 (1979); and Well v. Yeshiva Rambam, 300 AD.2d 580 (2 Dept. 2002). In making this determination, the pleading must be liberally construed. Leon v. Martinez, 84 N.Y. 2d 83 (1994); and Paterno v. CYC. LLC, 8 AD. 3d 544 (2 Dept. 2004). The court must consider all of the facts alleged in the pleading as true and must give the pleader the benefit of every favorable inference which can be drawn from the facts. 511 West 232rd Street Owners Corp. v. JenniferHealty Co., 98 N. 2d 144 (2002); and Sokoloff v. Harriman Estates Development Corp., 96 N. 2d 409 (2001). George s motion to dismiss attacks the merits of D'Annunzio s petition; not its sufficiency. When deciding a motion to dismiss, the court must determine whether petitioner has pleaded a cognizable cause of action; not whether petitioner will ultimately prevail. Jacobs v. Macy s East. Inc., 262 AD.2d 607 (2 Dept. 1999). Annunzio s allegations are sufficient to support his claim for a dissolution of Mechanical pursuant to Business Corporation Law 911 04-a(1) and (2). Thus, Albano motion to dismi s the petition must be denied. Where the shareholders make conflicting allegations regarding the dissolution of the corporation, the court must direct an evidentiary hearing. Matter of Fancy Windows
Index No. 9620 & Doors Mfg. Corp. 244 AD. 2d 484 (2 Dept. 1997). The allegations of D'Annunzio and George are clearly conflicting. Therefore, an evidentiary hearing in necessary. An application to dissolve a corporation is a special proceeding in which discovery is not ordinarily permitted. CPLR 408. However, a reading of the papers demonstrates that some limited discovery is necessary in this matter; particularly and without limitation on the issues of (1) whether George has used corporate funds to pay personal expenses; and (2) whether D'Annunzio began working for Piece and diverting Mechanical' s business to Piece while remaining a shareholder and employee of Mechanical. See, In re Sahara Beach Club. Inc., 3 AD.2d 933 (2 Dept. 1957). The order to show cause contained a temporary restraining order preventing George, Donna or any other employee of Mechanical from using corporate funds except in the ordinary course of business and from using and corporate bank and/or checking accounts or corporate credit cards except in the ordinary course of Mechanical' business. Under the circumstances, the temporary restraining order should remain in place, as a preliminary injunction, pending the determination of this proceeding. The provisions of the temporary restraining order permit Mechanical to continue its business while assuring that corporate funds are not used for non-corporate or improper purposes. Accordingly, it is,
&. ORDERED, that Petitioner s application to dissolve Albano AlC & Mechanical Service Corp is referred to the trial court; and it is further, it is further ORDERED, that Respondent's motion to dismiss this proceeding is denied; and ORDERED, that counsel for the parties are directed to appear for a preliminary conference on December 15, 2005 at 9:30 a. ; and it is further ORDERED, that Respondent and its agents including George Albano and Donna Albano, their employees and those acting concert with them are hereby restrained and enjoined during the pendency of this action from using corporate funds and assets of Mechanical except in the regular course of Mechanical's business and they are further restrained and enjoined from using credit cards issued to Mechanical or its officers and/or employees except in the regular course of Mechanical' s business during the pendency of this action. This constitutes the decision and order of thi urt Dated: Mineola, NY November 23, 2005 ONARD B. AUSTIN, J. ENTEREO 2 C( 2005 U COUNTY NASSA ERK' 5 OFFICE COUNT'l CL