SHORT FORM ORDER Present: SUPREME COURT - STATE OF NEW YORK HON. STEPHEN A. BUCARIA Justice CAPITAL ONE, N. Plaintiff TRIAL/lAS, PART 3 NASSAU COUNTY INDEX No. 012430/09 MOTION DATE: July 27 2009 Motion Sequence # 001 -against- C. BENJAMIN AUTO SALES, INC. VA VE LEASING, LTD., B. C.A. LEASING LTD., C&A, LLC CHRISTOPHER VITUCCI and ANITA VITUCCI Defendants. The following papers read on this motion: Order to Show Cause... X Affirmation in Support... X Reply Affidavit...... X Memorandum of Law... XX This motion, by plaintiff, for an order: (1 ) Pursuant to CPLR 6301 et seq. enjoining the defendants and each of their principals, employees, representatives, affliates subsidiaries, successors, assigns, and all those acting in concert with and on behalf of them, pending a final judgment in this action, from:
CAPITAL ONE, N. Index no. 012430/09 (a) (b) converting any monies paid or to be paid for sales or leases of the vehicles as identified on the attached Schedule "A" (the "Financed Inventory transferring, leasing, encumbering, disposing of and/or selling any Financed Inventory; (c) interfering in any way with Capital One, N. ' s (" Capital One ) efforts to safeguard and preserve its Financed Inventory; (2) Directing the defendants and each of their principals employees, representatives, affiliates, subsidiaries, successors assigns, and all those acting in concert with and on behalf of them, to: (a) (b) deliver and turn over to Capital One monies paid, or to be paid, on account of the sale or lease of any Financed Inventory; identify in writing the whereabouts of the Financed Inventory and if any of the Financed Inventory was sold leased or otherwise transferred to: identify to whom it was sold, leased or otherwise transferred to; 11. state the consideration paid; and 111. to produce all documents in connection with the sale, lease or transfer of the Financed Inventory; (3) Directing defendants to comply with the affirmative covenants contained in the relevant Agreements, including, but not limited, making the records and books of account regarding the Financed Inventory available for Capital One s inspection and
copying at reasonable times, and to forthwith provide Capital One with access to each of their books and records to perform an audit and inspection of such books and records. (1) Pursuant to CPLR~7102 et seq. directing the Sheriff of any county within the State of New York (or such other authority as may be provided for in any other state) in which the Financed Inventory is found, to: (a) seize that Financed Inventory which is not voluntarily delivered to said Sheriff; and (b) to break open, enter and search for the Financed Inventory at 300 Great Neck Road, Great Neck, NY 11021, or at such other location as the Financed Inventory is located, as may be uncovered by Capital One or the Sheriff; (2) Pursuant to CPLR~7102 et seq. directing defendants: (a) to disclose the location(s) of all of the Financed Inventory; (b) to identify the person(s) or entity (or entities) in possession of the Financed Inventory; (c) to identify the owner of the premises at which the Financed Inventory is located; and (d) to take all steps reasonably necessary to allow Capital One to take possession of the Financed Inventory; and (3) Pursuant to CPLR~7102 et seq. temporarily restraining, enjoining and preventing, amo other things, the sale disposition, lease, encumbrance and/or transfer of the Financed Inventory; Pursuant to CPLR~620 et seq. granting at) order of attachment against the real propert owned by defendants Christopher and Anita and located at: 1) 10 Copper Beach Lane, Lawrence, N ew York, Section 41 Block F Lot 122; and 2) 324 East Lake Drive, Montauk, New York District 300, Section 007., Block 01., Lot 025.000; and directing the indexing of a notice of such attachment in accordance with CPLR ~6216; and Granting such other and further relief as this Court may deem just and proper
is determined as hereinafter set forth. FACTS The defendant B.C. Benjamin Auto Sales, Inc. (" C. Benjamin ) operates an automobile dealership which primarily sells and leases high-end automobiles. On or about May 1, 2008, B.C. Benjamin and the plaintiff entered into a Credit and Security Agreement (the "Agreement"), pursuant to which the plaintiff would provide "floor plan financing for B. C. Benjamin s acquisition of automobiles for resale. As security, B. Benjamin pledged to the plaintiff a security interest in its motor vehicle inventory that was financed by the plaintiff (the "Financed Inventory ). B.C. Benjamin s obligations under the Agreement were guaranteed by Rave Leasing, Ltd., B. A. Leasing Ltd., C&A LLC and Mr. and Mrs. Vitucci. As of June 10 2009, the total amount financed by the plaintiff to B. C. Benjamin was $3 583 877.35. On May 18 2009, defendants' counsel sent plaintiffs counsel Bils of Sale for the various vehicles that were sold out of trust by B. C. Benjamin, which amounted to $1 822 060.00. Due to the defendants ' alleged defaults under the Agreement, the plaintiff accelerated the full amount due under the terms of the Agreement. In addition, the plaintiff now holds titles to the financed vehicles that remain in B. C. Benjamin s inventory. The Plaintiff commenced this action against the defendants on June 25, 2009 seeking a judgment of possession of the collateral, an accounting, and monetary damages excess of $3 583 877. 35 for breach of contract. PLAINTIFF' S CONTENTIONS The plaintiff contends that the defendants have violated their trust and fiduciary responsibilities under the Agreement by sellng vehicles financed by the plaintiff and failng to turn over the sales proceeds to the plaintiff. The plaintiff contends that, based upon audits it performed, B.C. Benjamin had been sellng vehicles out of trust in violation of the Agreement and that B. C. Benjamin may have sold other vehicles out of trust which are unknown to the plaintiff. The plaintiff contends that B.C. Benjamin is in default of the Agreement and the guarantors are in default of their Guaranties because they have failed to pay B.
Benjamin s total obligations due and owing to the plaintiff and failed to turn over the Financed Inventory to the plaintiff. Accordingly, the plaintiff contends that it has an undeniable right to recover its collateral to reduce the defendants ' indebtedness to the plaintiff pursuant to the Agreement and Guaranties. The plaintiff also contends that it has an undeniable right to take possession of the collateral pursuant to Aricle 9 of the UCC for purposes of reducing the defendants' outstanding indebtedness. The plaintiff asserts that the collateral, which has an aggregate fair market value of approximately 746,675. 00 to $3 584 575., is located at 300 Great Neck Road, Great Neck, New York 11021. The plaintiff contends that a preliminary relief in the form of an Order of Seizure is necessary to protect the plaintiffs security interest, especially in light of the defendants' admitted history of sellng vehicles out of trust. The plaintiff argues that it is entitled to a preliminary injunction; that it irreparable harm if the defendants impair or destroy the value of the because the plaintiff bargained for and received a security interest in all financed vehicles; and that denying its request for a preliminary injunction would effectively convert the transaction in issue from a secured loan with fiduciary obligations of the defendants to an unsecured loan. wil suffer plaintiffs collateral Second, the plaintiff asserts that it is likely to succeed on the merits because the Agreement and Guaranties irrevocably and unconditionally require the defendants to pay the plaintiff the full sum of its outstanding debts upon default; that the Agreement requires the defendants to deliver the Financed Inventory to the plaintiff; and that the defendants have no known defenses or meritorious counterclaims to this action. Third, the plaintiff contends that a balance of the equities favors the plaintiff because (1) it is wrongfully being denied its clear right to possession of its collateral and (2) the defendants' sales, and admission of its. out of trust sales, establishes the defendants' unclean hands; and that although the plaintiff now holds original titles to the vehicles left in inventory, the plaintiff asserts that there is a threat of further theft given the defendants' prior history. In addition, during the plaintiff s audits of the defendants the plaintiff asserts that there were a number or original titles at defendants ' premises but the plaintiff later discovered that the vehicles had been previously sold out of trust indicating that the defendants had been engaged in some sort of subterfuge. The plaintiff also contends that its short delay in seeking injunctive relief does not preclude the relief. Thus, the plaintiff asserts that injunctive relief is proper.
CAPITAL ONE, Index no. 012430/09 The plaintiff contends that it is entitled to an Order of Attachment because (1) it has stated a claim for money judgment; (2) it has a probabilty of success on the merits; (3) the defendants have assigned, disposed of, encumbered or secreted propert, or removed it from the state, with the intent to defraud the plaintiff or frstrate the plaintiff collection efforts; and (4) there are no known defenses or counterclaims to its claim. The plaintiff avers that the defendants have sold the plaintiffs Financed Inventory out of trust and have refused to produce financial records showing how the funds were used; and that the Bils of Sale provided by the defendants show that all but two of the sales were to buyers who resided out of state and/or out of the country. The plaintiff contends that the only possible explanation for this fiduciary breach is that the defendants intended to defraud the plaintiff and/or frustrate its collection efforts. Thus, the plaintiff asserts that an Order of Attachment is proper. DEFENDANTS' CONTENTIONS. The defendants contend that the plaintiff wil not suffer irreparable har if it is denied its request for an injunction because the plaintiff has alleged no harm that cannot be compensated by monetary damages. The defendants aver that the plaintiff is fully protected against the risk that other out of trust sales can occur because the plaintiff now holds titles to the vehicles for which they have provided " floor plan" financing to B. Benjamin. The defendants assert that the amount B.C. Benjamin owes to the plaintiff for vehicles sold out of trust has not increased. The defendants argue that because the plaintiff no longer advances "floor plan" financing to B.C. Benjamin, the sums allegedly sold out of trust cannot increase. The defendants also assert that they also offered to provide the plaintiff with a mortgage against certain of their business premises guaranteeing the plaintiff the protection that other out of trust sales would not occur; and that the plaintiff was aware of B.C. Benjamin s inabilty to fulfill certain of its obligations under the Agreement since mid-march and the plaintiffs delay of several months to request an injunction indicates that there is no exigency in the plaintiffs application for injunctive relief. Thus, the defendants contend that the relief is improper. plaintiffs request for injunctive In fact, the defendants contend that they are the ones that wil be irreparably harmed if the Court grants the plaintiffs request for a preliminary injunction; that ifb. Benjamin, as an automobile dealer, is enjoined from transferring, leasing, encumbering, or disposing any of the Financed Inventory, it wil lose customers, be unable to pay its
employees, and be forced out of business; and that a balance of the equities favors the defendants because granting the plaintiff s request for injunctive relief would (1) force B.C. Benjamin out of business and (2) prevent B.C. Benjamin from sellng these vehicles at retail cost, which would economically beneficial to both the defendants and the plaintiff. Further, the defendants argue that the plaintiffs request for preliminary relief requiring the defendants to deliver to the plaintiff monies paid, or to be paid, on account of the sale or lease of any of the Financed Inventory is improper; that the function of a preliminary injunction is to maintain the status quo, not, as the plaintiff is seeking, to determine the ultimate rights of the parties; that the plaintiffs request for a preliminary injunction is also improper for this reason. The defendants assert that by utilzing and applying the standards of other provisional remedies, the plaintiff s application for an Order of Seizure should be denied; that the plaintiff failed to show that it wil be irreparably harmed and is already well protected against the threat of other out of trust sales; and that the plaintiffs request for an Order of Seizure is improper. The defendants aver that the plaintiffs request for an Order of Attachment is improper because the plaintiff failed to demonstrate the existence of one or more grounds provided in CPLR 6201; that the plaintiff is asking the court to imply the necessary fraudulent intent solely from its allegations that B.C. Benjamin has been unable to satisfy its obligations under the Agreement and it sold some of the Financed Inventory to buyers who reside out of the state or the country. The defendants contend that the mere removal assignment or other disposition of propert is not sufficient to establish a fraudulent intent. In addition, the defendants contend that the plaintiff s request for an Order of Attachment is also improper because the plaintiff has submitted no proof that either Mr. or Mrs. Vitucci has assigned, disposed, encumbered, or secreted their own propert, or removed it from the state with the intent to defraud the plaintiff. Also, even though Mr. Vitucci is an interest holder in B.C. Benjamin, the purported secreting and disposing of B.C. Benjamin s assets, which the defendants contend did not occur, would not justify an Order of Attachment inhibiting the assets of Mr. or Mrs. Vitucci. Thus an Order of Attachment is improper.
In reply, the plaintiffs executive vice president notes that the defendants do not deny the relevant underlying facts, i.e., that the relevant documents were executed and that vehicles were sold out of trust in violation of the agreements. He argues that, while payment in full wil make the plaintiff whole, the defendants have breached a serious fiduciary obligation in depriving the plaintiff of security on its loan to the defendants, and without preliminary relief, the plaintiff wil no longer have a secured loan. He further argues that the plaintiff has fully met the criteria for a preliminary injunction. He further argues that the plaintiff s possession of titles for the vehicles offer little protection with the possibilty that the defendants may seek duplicate titles from the Deparment of Motor Vehicles, which he infers from the defendants' prior activity and practice. DECISION To be entitled to a preliminary injunction, the movant must establish (1) a likelihood of success on the merits, (2) irreparable injury absent granting the preliminary injunction, and (3) a balancing of the equities in the movant's favor (see Grant Co. v Sroei 52 NY2d 496, 517; Yine Fune Moy v Hohi Umeki, 10 AD3d 604; htower v Reid, 5 AD3d 440). The purpose of a preliminary injunction is to maintain the status quo and prevent the dissipation of propert that could render a judgment ineffectual (see Yine Fune Moy v Hohi Umeki supra Ruiz v Meloney, 26 AD3d 485, 810 NYS2d 216, 2 Dept., 2006). With respect to the initial criterion, the defendants have carefully avoided disputing that the plaintiff has established a likelihood of success on the merits. Indeed there is no mention of a defense on the merits.
With respect to the criterion that the plaintiff wil suffer irreparable injury absent an injunction, the defendants vehemently argue that what is essentially sought herein is monetary damages. While the plaintiff concedes the essential truth of that assertion, it argues that, given the exigent circumstances, the possibilty of irreparable injury does exist. The intent of a Dealer Floor Plan is to provide the defendants with sufficient capital to finance the purchase, and ongoing purchase of automobile inventory while simultaneously providing the lender with a security interest that wil ensure that the dealer wil fully and promptly repay the loan on a regular basis, the regular basis being as each vehicle is sold, with the requisite payment being made to the lender as agreed to. There is no dispute that there has been a flagrant breach of that agreement, and the defendants owe the plaintiff a considerable sum of money with no clear indication of future repayment. The establishment of this contractual relationship is a secured interest in the defendants inventory, and the agreement, or plan, recognizes that the defendant dealer is the trustee for the bank and is charged with the obligation not to commingle or dispose of the proceeds of each individual sale of a vehicle without the lender s consent. That has been breached on several occasions and constitutes a breach of the defendants fiduciary duty to the plaintiff. The right of the plaintiff herein to an honest and prompt accounting and payment gives rise to the existence of a fiduciary relationship (see Chalasani, generally, v State Bank of India, 235 AD2d 449, 653 NYS2d 2, 2 Dept., 1997), a relationship that is equitable in nature and deserving of preservation by injunctive relief, where the lender is a secured creditor with a legally recognized interest in the borrower s/debtor inventory. (see Credit Aericole Indosuez v Rossiyskiy Bank, 94 NY2d 541, 708 NYS2d 26 2000). Therefore, the plaintiff has satisfied the second criterion. With respect to the third criterion necessary to the establishment of a preliminary injunction, that a balancing of the equities must favor the movant, the defendant B. Benjamin s actions cast the definitive cloud of unclear hands over this relationship, which, when.taken together with the apparent ongoing failure to remit even some payments to the plaintiff, tips the balancing of the equities in favor of the plaintiff. Accordingly, that portion of the application for a preliminary injunction is upon the plaintiffs posting of an undertaking of the sum of $50 000. (see Katz, 38 AD3d 835, 835 NYS2d 203, 2 Dept., 2007). eranted Gerstner v With respect to that part of the plaintiffs application which seeks an order of seizure, in light of the within-granted application for a preliminary injunction, which provides the plaintiff with a measure of protection, this Court, in its discretion denies the
request for seizure pursuant to CPLR Article 71. With respect to the plaintiff s request for an order of attachment, without any demonstrable evidence of the individual defendants' effort to liquidate their real estate assets, and in light of the injunctive relief granted herein, the Court, in its discretion declines to grant such relief. A Preliminary Conference has been scheduled for September 14 2009 at 9:30 a. in Chambers of the undersigned. Please be advised that counsel appearing for the Preliminary Conference shall be fully versed in the factual background and their client' schedule for the purpose of setting firm deposition dates. J; 1 Dated SEP 082009 IS. ENTERED SEP 1 02009 NASSAU COUNTY COUNTY CLERK' S OFFICE