FILED NEW YORK COUNTY CLERK 06/19/2017 0627 PM INDEX NO. 651715/2017 NYSCEF DOC. NO. 18 RECEIVED NYSCEF 06/19/2017 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK IAS PART - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x Index No. 651715/17 TOBSK, LLC, -against- Plaintiff, MICHAEL G. ZAPSON, DAVIDOFF, HUTCHER and CITRON, LLP, Defendants. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x AFFIRMATION IN OPPOSITION TO MOTION AND IN SUPPORT OF CROSS-MOTION Randall S. D. Jacobs, an attorney admitted to practice in the State of New York and under the penalty of perjury, affirms as follows INTRODUCTION 1. I submit this affirmation both (i) in opposition to Defendants Michael G. Zapson and Davidoff Hutcher & Citron, LLP s (the Defendants ) motion to dismiss (the Motion ) the complaint pursuant to CPLR 3211(a)(10) and, (ii) alternatively, in support of the Plaintiff TOBSK, LLC s ( TOBSK or Plaintiff ) Cross-Motion for leave to amend the Complaint herein (the Cross-Motion ) to add another party defendant. 2. The Cross-Motion is made in the alternative because Plaintiff contends that the closing escrow agreement (the Closing Escrow Agreement ) among the parties made the addition of the third party to this action completely unnecessary. However, should the Court agree with Defendants on this issue, in the alternative, Plaintiff contends that dismissal is not appropriate remedy and leave to amend the Complaint should be granted to Plaintiff to add the third party. 1 of 9
FILED NEW YORK COUNTY CLERK 06/19/2017 0627 PM INDEX NO. 651715/2017 NYSCEF DOC. NO. 18 RECEIVED NYSCEF 06/19/2017 I. OPPOSITION TO MOTION TO DISMISS 3. Contrary to the description of the underlying transaction offered by Defendants in their Motion, TOBSK contends that this case is even simpler than Defendants narrative admits. In fact, the Closing Escrow Agreement dated November 20, 2013 intentionally did not provide either of the following terms or conditions a. authorizing Defendants to refuse to deliver the remaining escrowed funds (the Escrow Funds ) to Plaintiff upon receipt of (i) proof that a C/O was issued by the NYC Department of Buildings for an Eating and Drinking Establishment with legal use of the basement for the Premises located at 89 McDougal Street, New York, New York.... (Emphasis added), and b. authorizing return of the remaining Escrow Funds to the depositor, PPF Holdings, LLC ( PPF ) for any reason. 4. The reason for this unusual construction of the Closing Escrow Agreement was that, as stated in the precatory language thereof, PPF, the Buyer, had already taken possession and control of the business sold by the Seller, as of November 20, 2013, the date of the Closing Escrow Agreement and the Seller had accepted release of $80,000 of the Escrow Funds in exchange therefore. The purchase and sale transactions between Plaintiff TOBSK and PPF was then, a fait accompli and could not be undone. 5. The only remaining executory portion of the Closing Escrow Agreement was the delivery of the certificate of occupancy ( C/O ) specified in the third paragraph from the top of the first page of the Closing Escrow Agreement and release of the remaining Escrow Funds. -2-2 of 9
FILED NEW YORK COUNTY CLERK 06/19/2017 0627 PM INDEX NO. 651715/2017 NYSCEF DOC. NO. 18 RECEIVED NYSCEF 06/19/2017 6. Therefore, there was no need for language providing for a return of the Escrow Funds to PPF nor any additional performance other than the only condition to release of the remaining Escrow Funds receipt of.... proof that a C/O was issued. See Paragraph 3 of the Closing Escrow Agreement, a copy of which is attached hereto as Exhibit A. 7. Conversely, upon taking possession and control of TOBSK s business sold to PPF, the Buyer had no further interest in nor standing to object to any action or inaction by the Escrow Agent, Defendants Michael G. Zapson and Davidoff Hutcher & Citron, LLP, unless the required C/O was not delivered to them. 8. In fact, under well settled law, once TOBSK delivered the required C/O to the Escrow Agent, full performance of the condition of the Escrow required the Agent to deliver the Escrow Funds to the performing party.. See National Union Fire Ins. Co. Pittsburgh, Pa. v. Proskauer Rose Goetz & Mendelsohn, 165 Misc.2d 539, 634 N.Y.S.2d 609 [Sup.Ct. New York County 1994] 9. As a result of the foregoing, upon delivery of the C/O by Plaintiff TOBSK to the Escrow Agent Defendants on February 28, 2017, the Closing Escrow Agreement was fully performed by Plaintiff and Defendants were obligated to deliver the remaining Escrow Funds to Plaintiff as agreed. The Closing Escrow Agreement requires no other performance of any kind to release of the remaining Escrow Funds therefore precluding any objection by PPF. 10. As a matter of law, TOBSK contends that ownership of the Escrow Funds by PPF terminated the on February 28, 2017 when the condition precedent to release of the Escrow Funds was satisfied to the express letter of the Closing Escrow Agreement. A copy of my letter to -3-3 of 9
FILED NEW YORK COUNTY CLERK 06/19/2017 0627 PM INDEX NO. 651715/2017 NYSCEF DOC. NO. 18 RECEIVED NYSCEF 06/19/2017 Defendants enclosing the C/O required and demanding release of the remaining Escrow Funds dated February 28, 2017, is attached hereto as Exhibit B. 11. Moreover, Defendant Zapson response admits an apparent direct violation of his fiduciary duty as an Escrow Agent for both PPF and TOBSK by simply refusing to release the Escrow Funds because I have been advised that a dispute exists with regard to the monies held in escrow. I have been directed not to release the monies in escrow. Emphasis added. A copy of Zapson s responsive letter dated March 21, 2017 is attached hereto as Exhibit C. Neither of those responses satisfied his duty. 12. Clearly, Defendant failed to exercise his fiduciary duty to act in good faith to determine whether or not the express condition to release of the Escrow Funds had been satisfied. Defendant simply improperly took instructions from PPF which directed him not to release the Escrow Funds without any cause. Upon delivery of the subject of the escrow to the escrow agent, the escrow agent becomes the fiduciary of both parties and owes them the highest kind of loyalty. Muscara v. Lamberti, 133 A.D.2d 362, 363 (2d Dep t. 1987). See National Union Fire Ins. Co. Pittsburgh, Pa. v. Proskauer Rose Goetz & Mendelsohn, 165 Misc.2d 539, 634 N.Y.S.2d 609 [Sup.Ct. New York County 1994] ). The purpose of an escrow 1 is to assure the carrying out of an obligation already contracted for and in furtherance of the obligation the promisor deposits money, goods, or documents to an escrow agent who agrees to part with it only on a specified condition (Id.). 1 For an instrument to operate as an escrow there must be a) an agreement as to the subject matter and delivery of the same; b) a third-party depositary; c) delivery of the subject matter to a third party conditioned upon the performance of some act or the happening of the event; and d) relinquishment by the promisor (Id.). Further, the interest of ownership remains in the person depositing property into escrow until the conditions of the escrow agreement are fulfilled (Id.). (Emphasis added). -4-4 of 9
FILED NEW YORK COUNTY CLERK 06/19/2017 0627 PM INDEX NO. 651715/2017 NYSCEF DOC. NO. 18 RECEIVED NYSCEF 06/19/2017 13. An Escrowed must make an independent determination of compliance with the condition, except under circumstances where compliance is beyond the Escrowed 's ability to do so. In that event he may be required to bring an action for a court determination of compliance Lindley v. Robillard, 208 Misc. 532, 144 N.Y.S.2d 33 (1955); Corpus Juris Secundum, Escrow p. 990 and cases cited therein). 14. The Closing Escrow Agreement delivered to the Defendants was clear and unambiguous and there can be no doubt to whom the remaining Escrow Funds belong since PPF already took possession and control of TOBSK s sold business. However, if the escrow agent was uncertain as to whether PPF or TOBSK was entitled to payment, it has been long settled law that it had available a remedy in the nature of interpleader by which it could have deposited the fund into court and been relieved of further liability to the parties. See, e.g., Supreme Lodge K. & L. of Honor v. Stapf, Sup., 160 N.Y.S. 1051 (Albany County Sup. Ct. 1916). 15. There is no statutory requirement that a party to an escrow agreement be joined in any action on the agreement. Herein, the party that Defendants claim is necessary had no further duty to perform and had no stated right to recover the Escrow deposit in the event of default by TOBSK. Consequently, Plaintiff asserts that PPF is not a necessary party to this action as it has no interest in the outcome of this litigation. 16. Thus, Defendants breached their fiduciary duty to TOBSK by failing to abide by the terms of the Closing Escrow Agreement and release the Escrowed Funds upon receipt of the required C/O. (See e.g. Leon v. Martinez, 84 N.Y.2d 83, 614 N.Y.S.2d 972, 638 N.E.2d 511). -5-5 of 9
FILED NEW YORK COUNTY CLERK 06/19/2017 0627 PM INDEX NO. 651715/2017 NYSCEF DOC. NO. 18 RECEIVED NYSCEF 06/19/2017 17. As a result, TOBSK contends that PPF is no longer a necessary party to this action and need not be added as a party herein. Defendants Motion to Dismiss should be denied in all respects. 18. CPLR 1001 provides procedure for dealing with claims of necessary parties having been omitted, as follows Necessary joinder of parties a. Parties who should be joined. Persons who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected by a judgment in the action shall be made plaintiffs or defendants. When a person who should join as a plaintiff refuses to do so he may be made a defendant. b. When joinder excused. When a person who should be joined under subdivision (a) has not been made a party and is subject to the jurisdiction of the court, the court shall order him summoned. If jurisdiction over him can be obtained only by his consent or appearance, the court, when justice requires, may allow the action to proceed without his being made a party. In determining whether to allow the action to proceed, the court shall consider i. whether the plaintiff has another effective remedy in case the action is dismissed on account of the nonjoinder; ii. the prejudice which may accrue from the nonjoinder to the defendant or to the person not joined; iii. whether and by whom prejudice might have been avoided or may in the future be avoided; -6-6 of 9
FILED NEW YORK COUNTY CLERK 06/19/2017 0627 PM INDEX NO. 651715/2017 NYSCEF DOC. NO. 18 RECEIVED NYSCEF 06/19/2017 iv. the feasibility of a protective provision by order of the court or in the judgment; and v. whether an effective judgment may be rendered in the absence of the person who is not joined. (Emphasis added). 19. The Court of Appeals in Red Hook/Gowanus Chamber of Commerce v. New York City Board of Standards and Appeals, 2005, 5 N.Y.3d 452, 459, 805 N.Y.S.2d 525, 528, 839 N.E.2d 878, has required courts to consider all of the five subdivision conditions to a motion to dismiss under this section. 20. Furthermore, the Practice Commentaries under Section 1001 expressly provides If the absentee is a necessary party, the first sentence of subdivision (b) directs the court to order that the person be joined. (If the person ought to come into the action as a plaintiff, but refuses, she can be named as a defendant. CPLR 1001(a) (last sentence).) If for some reason the absentee's joinder is not possible, as, for example, because jurisdiction over the person cannot be obtained or the statute of limitations has expired, the court must move on to stage three and, exercising its discretion, decide whether to allow the action to proceed without the absentee. 21. Accordingly, Defendant s Motion for dismissal seeks inappropriate relief; if the Court determines that PPF is indeed a necessary party notwithstanding its relinquishment of ownership of the Escrow Funds and TOBSK s full satisfaction of the condition for release of the Escrow Funds to Plaintiff, the Court may simply direct that PPF be joined as a party herein. II. PLAINTIFF S CROSS MOTION FOR LEAVE TO AMEND 22. Alternatively, in the event that the Court should nevertheless decide to grant Defendants Motion, Plaintiff hereby Cross-Moves for leave to amend the Complaint to add PPF -7-7 of 9
FILED NEW YORK COUNTY CLERK 06/19/2017 0627 PM INDEX NO. 651715/2017 NYSCEF DOC. NO. 18 RECEIVED NYSCEF 06/19/2017 as a party defendant as set forth in the proposed amended complaint (the Proposed Amended Complaint ) attached hereto as Exhibit D. 23. Leave to amend a pleading should be freely given (CPLR 3025[b]) as a matter of discretion in the absence of prejudice or surprise. Zaid Theatre Corp. v. Sona Realty Co., 18 AD3d 352, 355-356 (1 st Dep t 2005)(internal citations and quotations omitted). The Proposed Amended Complaint does not contain any allegations different from what was previously alleged in the Complaint which has been known to defendants since the outset of the litigation. The only difference would be the addition of Buyer PPF as a party Defendant. 24. Absent prejudice, leave to amend pleadings should be freely given. McCaskey, Davies & Assoc. v New York City Health & Hos ps. Corp, 59 NY2d 755, 757 (1983). As for the merit of the proposed causes of action, leave to amend will be granted as long as the proponent submits sufficient support to show that proposed amendment is not palpably insufficient or clearly devoid of merit. MBIA Ins Corp. v. Greystone & Co, Inc., 74 AD3d 499 (1 st Dep t 2010)(citation omitted). In addition, [o]nce a prima facie basis for the amendment has been established, that should end the inquiry, even in the face of a rebuttal that might provide a subsequent basis for a motion for summary judgment Pier 59 Studios, L. P. v. Chelsea Piers LP, 40 AD3d 363, 365 (1 st Dep t 2007). 25. The Proposed Amended Complaint together with this affirmation in support, are sufficient to provide the evidentiary basis for the pleading. See e. g. MBIA Ins Corp. v. Greystone & Co, Inc, 74 AD3d at 500 (finding that proposed amendment was supported by a sufficient showing of merit through the submission of an affirmation by counsel, along with a transcript of -8-8 of 9
FILED NEW YORK COUNTY CLERK 06/19/2017 0627 PM INDEX NO. 651715/2017 NYSCEF DOC. NO. 18 RECEIVED NYSCEF 06/19/2017 relevant deposition testimony); A &J Concrete Corp. V. Arker, 54 NY2d 870 (1981)(Appellate Division did not err in accepting the verified complaint in lieu of an affidavit of merit). WHEREFORE, Plaintiff TOBSK, LLC respectfully requests Defendants Motion to Dismiss the Complaint be dismissed in its entirety or, in the alternative, that Plaintiff s Cross- Motion to Amend be granted in all respects, and for such other and further relief as may be just and necessary. Dated New York, New York June 19, 2017 RANDALL S. D. JACOBS, PLLC By Randall S. D. Jacobs Randall S. D. Jacobs Office and Post Office Address 30 Wall Street, 8 th Floor New York, New York 10005 Tel. (212) 709-8116 Fax (973) 226-8897 rsdjacobs@chapter11esq.com Attorneys for Plaintiff TOBSK, LLC 9 of 9