SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY ---------------------------------------------------------------------x YESHAYA AVERBUCH, : Suing Individually and Derivatively on behalf of LayInn Hospitality, Inc., : Index No. 653343/2016 Plaintiff, - against - : ANSWER TO AMENDED COMPLAINT NEW YORK BUDGET INN LLC, : JBJB ASSOCIATES LLC, 1850 ARON LLC, ISRAEL JERRY POLLAK, JOSHUA KLAPPER, : and ARON WALEWITSCH, Defendants. : ---------------------------------------------------------------------x Defendants New York Budget Inn LLC ( NYBI ), JBJB Associates LLC ( JBJB ), 1850 Aron LLC (1850 Aron), ISRAEL JERRY POLLAK ( Pollak ), JOSHUA KLAPPER ( Klapper ), and ARON WALEWITSCH ( Walewitsch ) (collectively, Defendants ), by Roger J. Bernstein, their attorney, answer the amended complaint of plaintiff Yeshaya Averbuch ( Plaintiff or Averbuch ) filed on August 18, 2016 in this action ( the amended complaint ) as follows: 1. Defendants admit the allegations in paragraph 1 of the amended complaint. 2. Defendants admit the allegations in paragraph 2 of the amended complaint. 3. Defendants admit the allegations in paragraph 3 of the amended complaint. 4. Defendants admit the allegations in paragraph 4 of the amended complaint. 5. Defendants admit the allegations in paragraph 5 of the amended complaint. 6. Defendants deny that NYBI had 65 rooms and admit the other allegations in paragraph 6 of the amended complaint. 7. Defendants deny the allegations in paragraph 7 of the amended complaint. 8. Defendants deny the allegations in paragraph 8 of the amended complaint. 9. Defendants deny the allegations in paragraph 9 of the amended complaint. 10. Defendants deny the allegations in paragraph 10 of the amended complaint, 1 of 13
except admit that Plaintiff and others in his family moved to New York so that plaintiff could be closer to the business. 11. Defendants admit that they have accused Plaintiff of stealing hundreds of thousands of dollars from NYBI and that they have demanded that he surrender an interest in LayInn Hospitality, Inc. ( LayInn ) that was part of the compensation for his services as a manager. Defendants deny the other allegations in paragraph 11 of the amended complaint. 12. Defendants deny the allegations in paragraph 12 of the amended complaint. 13. Defendants deny the allegations in paragraph 13 of the amended complaint, except admit that a demand for a non-competition agreement was part of Defendants negotiations with Plaintiff as to resolving his taking of NYBI monies. 14. Defendants lack knowledge or information sufficient to form a belief as to all of the allegations in paragraph 14 of the amended complaint but aver on information and belief that Averbuch s family is not destitute because Averbuch s wife is the beneficiary of a substantial trust fund. 15. Defendants lack knowledge or information sufficient to form a belief as to the allegations in paragraph 15 of the amended complaint. 16. Defendants deny the allegations in paragraph 16 of the amended complaint, except Defendants admit that Pollak had a conversation with Averbuch about the building at 200 E. 34 th Street in Manhattan at or about the time stated. 17. Defendants admit that Averbuch suggested opening a European-style hostel and admit that Klapper was skeptical about the hostel concept but gave the concept tentative support after meeting with Averbuch. Defendants deny the other allegations in paragraph 17 of the amended complaint. 18. Defendants admit that Averbuch lined up investments from his fellow partners in 2 2 of 13
LayInn for initial financing for conversion and admit that the rest of the initial financing was provided by 1850 Aron LLC. Defendants deny the other allegations in paragraph 18 of the amended complaint. 19. Defendants admit that conversion of the building into a hostel lasted approximately seven months and entailed complete gutting and renovation of the building and installation of entirely new plumbing. Defendants deny the other allegations in paragraph 19 of the amended complaint. 20. Defendants admit that Averbuch maintained a home in New York State during the conversion of the building to a hostel and admit that Averbuch incurred out-of-pocket expenses. Defendants lack knowledge or information sufficient to form a belief as to the truth of the other allegations in paragraph 20 of the amended complaint. 21. Defendants admit that Averbuch oversaw aspects of the conversion without salary pursuant to terms that he had agreed to. Defendants deny the other allegations in paragraph 21 of the amended complaint. 22. Defendants deny the allegations in paragraph 22 of the amended complaint. 23. Defendants admit the allegations in paragraph 23 of the amended complaint. 24. Defendants admit that the hostel opened for business in July of 2012 as the New York Budget Inn. Defendants deny the other allegations in paragraph 24 of the amended complaint. 25. Defendants admit the first sentence in paragraph 25 of the amended complaint and deny the other allegations in paragraph 25 of the amended complaint. 26. Defendants deny the allegations in paragraph 26 of the amended complaint. 27. Defendants deny the allegations in paragraph 27 of the amended complaint, except admit that at a time toward the end of Averbuch s employment by NYBI when Averbuch 3 3 of 13
was only coming to New York one or two days a week he was provided with a Murphy bed. 28. Defendants deny the allegations in paragraph 28 of the amended complaint. 29. Defendants deny the allegations in paragraph 29 of the amended complaint, except Klapper admits that his role (but not his title) was the chief financial officer of NYBI and admits that NYBI had cashbooks that were generally kept in NYBI s offices. 30. Defendants deny the allegations in paragraph 30 of the amended complaint, except admit that NYBI bank statements and credit card statements were mailed to Klapper s New York City residence. 31. Defendants deny the allegations in the first two sentences of paragraph 31 of the amended complaint and lack knowledge or information sufficient to form a belief as to the other allegations in paragraph 31 of the amended complaint. 32. Defendants deny the allegations in paragraph 32 of the amended complaint. 33. Defendants deny the allegations in paragraph 33 of the amended complaint, except admit that Plaintiff and others in his family moved to New York so that plaintiff could be closer to the business. 34. Defendants lack knowledge or information sufficient to form a belief as to the truth of the allegations in paragraph 34 of the amended complaint. 35. Defendants lack knowledge or information sufficient to form a belief as to the truth of the allegation in the first sentence in paragraph 35 of the amended complaint. Defendants admit the allegations in the second sentence of paragraph 35 of the amended complaint. 36. Defendants admit the allegations in paragraph 36 of the amended complaint. 37. Defendants lack knowledge or information sufficient to form a belief as to the truth of the allegations in the first sentence of paragraph 37 of the amended complaint. 4 4 of 13
Defendants admit the allegation in the second sentence of paragraph 37 of the amended complaint. 38. Defendants deny the allegations in paragraph 38 of the amended complaint, except Defendants admit that on August 11, 2015 Aron arrived at the NYBI office and that Aron, the hotel manager, and two other men were there. 39. Defendants admit that Averbuch was told that he had stolen money and that such conduct violated criminal statutes carrying jail sentences as a potential penalty, that Averbuch was told to collect his personal belongings and leave the NYBI office, that Averbuch was the majority owner of LayInn, and that LayInn owns 33.33% of NYBI. Defendants deny the other allegations in paragraph 39 of the amended complaint. 40. Defendants deny that anyone present on August 11, 2015 was identified as a district attorney and admit the other allegations in paragraph 40 of the amended complaint. 41. Defendants admit the allegations in paragraph 41 of the amended complaint. 42. Defendants admit that on at least one occasion not necessarily August 11, 2015 Klapper made statements to Aron the substance of which (but not the exact words) is set forth in paragraph 42 of the amended complaint. 43. Defendants admit that the cashbooks were not in the NYBI offices (because they were in the custody of the forensic accountant) and admit demanding that Averbuch return the money he had taken (the full extent of which was not then known), repay the forensic accounting fees incurred to date, return two years of salary, and surrender the interest in LayInn that had been transferred to him as compensation for manager services. Defendants deny the other allegations in paragraph 43 of the amended complaint. 44. Defendants deny the allegations in paragraph 44 of the amended complaint, except admit that a demand for a non-competition agreement was part of Defendants 5 5 of 13
negotiations with Plaintiff as to resolving his taking of NYBI monies. 45. Defendants deny the allegations in paragraph 45 of the amended complaint. 46. Defendants admit that there was a second meeting with Averbuch on or near the day after August 11, 2015, that Averbuch made various demands, that Aron warned Averbuch that Averbuch s criminal conduct could easily result in a jail sentence, and that Klapper took Averbuch for a walk and made statements to Averbuch the substance of which (but not the exact words) is set forth in paragraph 46 of the amended complaint. Defendants deny the other allegations in paragraph 46 of the amended complaint. 47. Defendants deny the allegations in paragraph 47 of the amended complaint. 48. Defendants admit that Averbuch was not arrested on the Friday in question and deny the other allegations in paragraph 48 of the amended complaint. 49. Defendants deny the allegations in paragraph 49 of the amended complaint. 50. To the extent Paragraph 50 of the amended complaint contains allegations about the terms of the referenced documents, Defendants respectfully refer the Court to the referenced documents for a complete recitation of the statements therein. Defendants deny the remaining allegations of Paragraph 50. 51. To the extent Paragraph 51 of the amended complaint contains allegations about remaining allegations of Paragraph 51. 52. To the extent Paragraph 52 of the amended complaint contains allegations about remaining allegations of Paragraph 52. 6 6 of 13
53. Defendants admit the making of distributions and deny the other allegations in Paragraph 53 of the amended complaint. 54. Defendants deny the allegations in paragraph 54 of the amended complaint. 55. Defendants admit the making of distributions and deny the other allegations in paragraph 55 of the complaint. 56. Defendants lack knowledge or information sufficient to form a belief as to all of the allegations in paragraph 56 of the amended complaint but aver on information and belief that Averbuch and his family did not fall into debt because Averbuch s wife is the beneficiary of a substantial trust fund. 57. Defendants lack knowledge or information sufficient to form a belief as to the truth of the allegations in paragraph 57 of the amended complaint. FIRST CAUSE OF ACTION (Accounting) 58. Defendants incorporate herein and reallege each of their above responses to paragraphs 1 through 57 of the amended complaint as if fully set forth and restated at this point. Defendants deny that Plaintiff is entitled to sue derivatively on behalf of LayInn. 59-60: This Cause of Action has been dismissed and a response to these allegations is therefore not required. SECOND CAUSE OF ACTION (Distribution to Lay Inn) 61. Defendants incorporate herein and reallege each of their above responses to paragraphs 1 through 60 of the amended complaint as if fully set forth and restated at this point. Defendants deny that Plaintiff is entitled to sue derivatively on behalf of LayInn. 62. To the extent Paragraph 62 of the amended complaint contains allegations about 7 7 of 13
remaining allegations of Paragraph 62. 63. Defendants admit the making of distributions and deny the other allegations in Paragraph 63 of the amended complaint. 64. To the extent Paragraph 64 of the amended complaint contains allegations about remaining allegations of Paragraph 64. 65. To the extent Paragraph 65 of the amended complaint contains allegations about remaining allegations of Paragraph 65. 66. To the extent Paragraph 66 of the amended complaint contains allegations about remaining allegations of Paragraph 66, except admit that Plaintiff has not resigned or removed as a manager of NYBI and except that Defendants lack knowledge or information sufficient to form a belief as to the truth of the allegation that Plaintiff has never been convicted of or charged with a felony or crime of moral turpitude. 67. Defendants admit the issuance of a Schedule K-1 tax form to LayInn for 2015 and deny the other allegations in paragraph 67 of the amended complaint. 68. Defendants admit that Plaintiff is making a request for the Court to enter orders with respect to distributions of money but deny that Plaintiff is entitled to make such a request on behalf of LayInn, deny that there is a legal or factual basis for such orders, and deny the other allegations in paragraph 68 of the amended complaint. 8 8 of 13
THIRD CAUSE OF ACTION (Conversion of Funds) 69. Defendants incorporate herein and reallege each of their above responses to paragraphs 1 through 68 of the amended complaint as if fully set forth and restated at this point. Defendants deny that Plaintiff is entitled to sue derivatively on behalf of LayInn. 70. - 75: This Cause of Action has been dismissed and a response to these allegations is therefore not required. FOURTH CAUSE OF ACTION (Advancement and Indemnification of Legal Expenses) 76. Defendants incorporate herein and reallege each of their above responses to paragraphs 1 through 75 of the amended complaint as if fully set forth and restated at this point. 77. To the extent Paragraph 77 of the amended complaint contains allegations about remaining allegations of Paragraph 77. 78. To the extent Paragraph 78 of the amended complaint contains allegations about remaining allegations of Paragraph 78 and note that the legal conclusion therein has been rejected by the Court. 79. Defendants lack knowledge or information sufficient to form a belief as to the truth of the allegations in paragraph 79 of the amended complaint. 80. Defendants admit that Plaintiff is making a request for the Court to enter a direction to NYBI but deny that there is a legal or factual basis for such a direction and deny the other allegations in paragraph 80 of the amended complaint. 9 9 of 13
FIFTH CAUSE OF ACTION (Reimbursement of Manager Expenses) 81. Defendants incorporate herein and reallege each of their above responses to paragraphs 1 through 80 of the amended complaint as if fully set forth and restated at this point. Defendants deny that Plaintiff is entitled to sue derivatively on behalf of LayInn. 82. Defendants deny the allegations in paragraph 82 of the amended complaint. 83. To the extent Paragraph 83 of the amended complaint contains allegations about remaining allegations of Paragraph 83. 84. Defendants admit that Plaintiff is making a request for the Court to enter a direction to NYBI to reimburse Plaintiff but deny that there is a legal or factual basis for such a direction and deny the other allegations in paragraph 84 of the amended complaint. SIXTH CAUSE OF ACTION (Conversion of Domain Names) 85. Defendants incorporate herein and reallege each of their above responses to paragraphs 1 through 84 of the amended complaint as if fully set forth and restated at this point. 86. Defendants deny the allegations in paragraph 86 of the amended complaint. 87. Defendants admit that Plaintiff is making a request for the Court to direct defendants to return ownership of domain names but deny that there is a legal or factual basis for such a direction and deny the other allegations in paragraph 87 of the amended complaint. SEVENTH CAUSE OF ACTION (Breach of Fiduciary Duty/Fraud vis-à-vis Lay Inn) 88. Defendants incorporate herein and reallege each of their above responses to paragraphs 1 through 87 of the amended complaint as if fully set forth and restated at this 10 10 of 13
point. Defendants deny that Plaintiff is entitled to sue derivatively on behalf of LayInn. 89. Defendants deny the allegations in paragraph 89 of the amended complaint. EIGHTH CAUSE OF ACTION (Breach of Fiduciary Duty/Fraud vis-à-vis Averbuch) 90. Defendants incorporate herein and reallege each of their above responses to paragraphs 1 through 89 of the amended complaint as if fully set forth and restated at this point. 91. Defendants deny the allegations in paragraph 91 of the amended complaint. 92. Defendants deny the allegations in paragraph 92 of the amended complaint. 93. Defendants deny the allegations in paragraph 93 of the amended complaint. NINTH CAUSE OF ACTION (Falsified Schedule K-1) 94. Defendants incorporate herein and reallege each of their above responses to paragraphs 1 through 93 of the amended complaint as if fully set forth and restated at this point. Defendants deny that Plaintiff is entitled to sue derivatively on behalf of LayInn. 95. Defendants admit the issuance of a Schedule K-1 tax form to LayInn for 2015 and deny the other allegations in paragraph 95 of the amended complaint. 96. Defendants deny the allegations in paragraph 96 of the amended complaint. 97. Defendants admit that Plaintiff is making three requests for the Court with respect to the K-1 issued to LayInn for 2015 but deny that there is a legal or factual basis for any of these requests and deny the other allegations in paragraph 97 of the amended complaint. AFFIRMATIVE DEFENSES FIRST AFFIRMATIVE DEFENSE The Amended Complaint fails to allege a cause of action by plaintiff Averbuch. SECOND AFFIRMATIVE DEFENSE The Amended Complaint fails to allege the required elements for a derivative cause of 11 11 of 13
action on behalf of LayInn Hospitality, Inc. THIRD AFFIRMATIVE DEFENSE Plaintiff s cause of action alleging fraud is not set forth with particularity as required by CPLR 3016(b). FOURTH AFFIRMATIVE DEFENSE Plaintiff s claims are barred by the doctrine of unclean hands including without limitation the facts that Plaintiff has flagrantly disregarded his fiduciary duties as a manager of the LLC by taking its monies for his personal use without authorization and by utilizing the bank account of an LLC employee as a conduit for attempted concealment of his diversion of LLC monies. FIFTH AFFIRMATIVE DEFENSE To the extent Plaintiff has standing to assert a derivative fraud claim on behalf of New York Budget Inn LLC, he is barred from simultaneously pursuing a personal fraud claim that, if successful, would benefit him but injure New York Budget Inn LLC. SIXTH AFFIRMATIVE DEFENSE Plaintiff has failed to mitigate his alleged damages. SEVENTH AFFIRMATIVE DEFENSE Plaintiff s claims are barred because he has instituted this action in bad faith for the purpose of delaying and impeding NYBI s recovery of the monies embezzled/converted by Plaintiff from NYBI. EIGHTH AFFIRMATIVE DEFENSE Plaintiff s claims for expense reimbursements are barred by the doctrines of waiver and/or laches. NINTH AFFIRMATIVE DEFENSE Plaintiff s claims in equity and claims for equitable relief are barred, in whole or in part, because Plaintiff has an adequate remedy at law. 12 12 of 13
TENTH AFFIRMATIVE DEFENSE Defendants reserve the right to add to their affirmative defenses as additional information becomes available in the course of this litigation. WHEREFORE defendants respectfully pray for the following relief: A. A judgment dismissing all of plaintiff s remaining claims against Defendants, with prejudice; B. A judgment in favor of New York Budget Inn, LLC against Yeshaya Averbuch in the amount of New York Budget Inn LLC s claims against Averbuch for breach of fiduciary duty and of the duty of loyalty in its complaint in New York Budget Inn LLC v. Averbuch, filed at Index No. 652130/2016; C. A judgment awarding Defendants the costs and disbursements of this action and such attorneys fees as Defendants entitled to recover pursuant to the Business Corporation Law and the Partnership Law and the principles underlying derivative litigation; and D. A judgment awarding Defendants such other relief as to the Court may appear just and proper. Dated: New York, New York August 3, 2017 /s/ Roger J. Bernstein Roger J. Bernstein 535 Fifth Avenue, 35th Floor New York, NY 10017 (212) 748-4800 rbernstein@rjblaw.com Attorney for All Defendants 13 13 of 13