The pictured courthouse in Mineola, New York, is home to the three judges of the Commercial Division of the Nassau County Supreme Court. They are, in order of seniority on the Supreme Court bench, Justice Stephen A. Bucaria, Justice Ira B. Warshawsky and Justice Timothy S. Driscoll. As someone who constantly monitors newly issued court decisions throughout New York State involving shareholder disputes and the like, I can say with a high degree of confidence that these three, prolific judges generate a greatly disproportionate share of the accessible decisions in business divorce cases.
Whether it’s because there’s something in Nassau County’s water that breeds dissension among business partners, or because these three judges like to write about business divorce cases, or because Nassau County Supreme Court makes more of its trial court decisions available online than other counties, I can’t say. But I can say it provides a great service for attorneys in need of judicial guidance to help navigate and advise their clients through the perilous waters of business breakups.
Without further ado, I give you three recent decisions of interest by the three Justices of the Nassau County Commercial Division.
Justice Warshawsky Orders Arbitration of LLC Dissolution Petition
In a post two months ago I wrote about a Montana Supreme Court decision that denied an application to compel arbitration of an LLC dissolution lawsuit because the arbitration clause in the operating agreement did not specifically mention dissolution, even though it broadly encompassed any dispute concerning “any activity conducted pursuant to” the operating agreement. I also suggested that under New York law the outcome likely would be different.
Justice Warshawsky’s decision earlier this month in Matter of Cusimano (Berita Realty LLC), Short Form Order, Index No. 013147/10 (Sup Ct Nassau County Mar. 2, 2011), reinforces my suggestion. Cusimano is a horrific family dispute, pitting daughter against 90-year old parents and sister against sister, involving two separate proceedings to dissolve a family limited partnership (FLP) and a limited liability company (LLC). In the earlier FLP case, Justice Warshawsky ordered arbitration and, last October, granted daughter Rita Cusimano’s application to depose her elderly parents in aid of the arbitration proceeding (read here).
In the later-filed LLC case, sister Bernadette Cusimano applied to compel arbitration of Rita’s dissolution petition under the operating agreement’s arbitration clause requiring initially mediation by specified outside accountants for the company, and secondarily arbitration by the American Arbitration Association, of “any dispute, controversy or claim arising out of or in connection with this Agreement or any breach or alleged breach hereof.” As related in Justice Warshawsky’s decision earlier this month, Rita opposed arbitration on the ground that the arbitration clause “is narrow in scope and does not encompass a request for an accounting or dissolution as a dispute which is capable of resolution by mediation.”
Justice Warshawsky’s decision rejects Rita’s argument and orders compliance with the arbitration clause’s provisions for mediation followed by arbitration if necessary. In so ruling, Justice Warshawsky lists the several subjects of controversy itemized in the dissolution petition and concludes that they “are directly related to the operation and management of [the LLC], and are appropriately governed by the Arbitration Clause in the Operating Agreement.” His decision also finds noteworthy that the accountants designated as mediators “would appear to be well-positioned to explain the claimed justification for the transactions complained of in the petition.”
Update August 24, 2011: By Order dated August 9, 2011 (read here), Justice Warshawsky confirmed the arbitrators’ February 2011 award in favor of the parents in the family limited partnership case, finding that the daughters each owned only a 4.4527% interest rather than the 50% interest apiece they claimed.
Update July 18, 2012: The Appellate Division, Second Department, today rejected Rita’s appeal from Justice Warshawsky’s September 7, 2011, order confirming an arbitration award that found that the parents are majority owners of the disputed limited partnership, notwithstanding Rita’s argument that the parents are estopped from claiming such ownership based on the partnership’s tax returns. Read the decision here.
Update February 13, 2013: This case never ends. Today, the appellate court issued its latest decision (read here) affirming an order that denied reconsideration of the trial court’s March 2011 order compelling arbitration of the dissolution claim.
Update June 17, 2014: When I said this case never ends, I meant this case never ends. Up popped today an appellate decision (read here) affirming the dismissal of Rita Cusimano’s malpractice lawsuit against her attorneys, claiming they blew the arbitration by failing to offer into evidence the parents’ tax returns which supposedly would have shown the parents did not own any shares.
Justice Bucaria Allows Claims to Enforce LLC Membership Purchase Agreement
Justice Bucaria’s recent decision in Nigro v. Owen Logistics LLC, 2011 NY Slip Op 30447(U) (Sup Ct Nassau County Feb. 14, 2011), denies a motion to dismiss claims for breach of contract and specific performance arising from a disputed agreement by the defendants to convey to the plaintiff membership interests in two LLCs. It’s particularly interesting as a counterpoint to last December’s ruling in the Teutul case of American Chopper fame, in which the appellate court dismissed Paul Sr.’s attempt to enforce against Paul Jr. an imperfect buyout option provision (read here my post on Teutul).
The plaintiff in Nigro alleged that in July 2009 he made a verbal agreement with the three individual defendants to acquire their membership interests comprising 49% and 50% interests in two transport companies organized as LLCs. The plaintiff alleged that he advanced the $550,000 payment price for both companies but that defendants failed to transfer their interests to him. The plaintiff sued for breach of contract and specific performance, among other claims.
In support of dismissal the defendants relied on correspondence dated October 2009, in which defendants’ attorney states that the “proposed” purchase price for one company is “inadequate in view of the accountant’s $2.1 million valuation of the company” and a second letter from plaintiff’s attorney stating that his client made an “initial loan” of $445,000 to one of the companies and then made several additional loans to the company. The second letter also inquires whether the sellers “intend on honoring their prior agreement or whether the new terms contained in your correspondence is the present offer.”
Justice Bucaria’s decision cites Teutul for the principle that “[i]f an agreement is not reasonably certain in its material terms, there can be no legally enforceable contract” and that a “mere agreement to agree, in which a material term is left for future negotiations, is unenforceable.” He also cites an earlier appellate precedent, Marder’s Nurseries, Inc. v. Hopping, 171 AD2d 63 (2d Dept 1991), for the proposition that “a price of ‘fair market value’ may be sufficiently precise, particularly if the parties have agreed that fair market value is to be determined by way of appraisal.”
In Nigro, Justice Bucaria concludes, the material terms as alleged including price are sufficiently certain to support a claim for enforcement at the pleading stage of the case. Here’s what he writes:
The documents before the court suggest that the parties agreed that plaintiff would purchase 49% of Owen Logistics and 50% of Meridian Transportation & Logistics for a price of $550,000, subject to adjustment based upon the accountant’s valuation. Giving plaintiff the benefit of every possible favorable inference, the purchase price was defined with reasonable certainty. Defendants’ motion to dismiss plaintiff’s claims for specific performance and breach of contract on the grounds of a defense founded upon documentary evidence and failure to state a cause of action is denied.
In the balance of his decision, Justice Bucaria dismisses the plaintiff’s claims for fraud, negligent representation and conversion.
Justice Driscoll Seals Complaint Seeking Dissolution of Law Firm
In days of yore, the practical difficulties and costs of accessing court documents from the files of court and county clerks meant that non-newsworthy, private disputes remained, relatively speaking, private. In modern times, the proliferation of online publishing of court decisions, and the advent of electronic filing systems that require all papers to be scanned and stored digitally, give the world instant, free access from anywhere to the pleadings, motions, stipulations, decisions, affidavits and associated evidentiary materials routinely filed in the course of civil litigation.
Such access is great cause for concern in all sorts of business cases, particularly those involving trade secrets or other information of potential value to competitors. Litigants attempt to mitigate the potential harm by entering into court-ordered confidentiality stipulations that, to the greatest extent possible, avoid the filing of sensitive documents and/or require that the sensitive information be filed “under seal”, i.e., accessible only to authorized court personnel, the litigants and their counsel.
Dissolution proceedings involving closely held businesses raise many of these same concerns, as evidenced by Justice Driscoll’s decision earlier this month in Cronin v. Harris, 2011 NY Slip Op 30165(U) (Sup Ct Nassau County Mar. 1, 2011). Cronin involves a father and two adult children, all attorneys, practicing together as Cronin, Cronin & Harris, P.C. specializing in tax certiorari proceedings and condemnation law. One of the children sued for dissolution based on his father’s alleged physical incapacity and mental impairment.
The plaintiff moved for an order to file his complaint under seal asserting as grounds the need to protect and preserve his father’s medical and personal, confidential information and to avoid undermining and adversely affecting the law firm’s welfare, the legal and financial interests of its clients, and the confidence placed in the firm by its clients and adversary counsel.
The rule governing the sealing of court records requires the court to seal records only upon a finding of “good cause” which must take into account “the interests of the public as well as the parties.” (22 NYCRR Section 216.1) In his decision, Justice Driscoll emphasizes that under the rule and case law applying it, “confidentiality is the exception”; that the public presumptively has a “right of access to the courts to ensure the actual and perceived fairness of the judicial system”; that the party seeking to seal documents “must demonstrate compelling circumstances”; and that a finding of good cause “presupposes that public access to the documents at issue will likely result in harm to a compelling interest of the movant, and that no alternative to sealing can adequately protect the threatened interest.”
Justice Driscoll concludes on the facts presented in Cronin that:
good cause exists to permit Plaintiff to file the Complaint under seal, in light of the parties’ shared concerns that public access to the Complaint would potentially undermine and adversely affect the legal and financial interests of CCH’s clients, who are not parties to this litigation. The Court’s review indicates that these concerns are not unwarranted.
In an important caveat, Justice Driscoll states that his decision to seal the complaint is not predicated on shielding the father’s medical and personal information given that (1) such information already is adequately protected by HIPAA restrictions and (2) “the fact that the information regarding [the father] is potentially embarrassing does not, in and of itself, warrant the requested sealing.” For this reason, Justice Driscoll expressly declines to grant a “blanket imprimatur” to file future records under seal, and he directs that each record sought to be filed under seal must first be submitted to the court for its independent review.
Update October 1, 2011: In a Decision and Order dated September 7, 2011, reported at 2011 NY Slip Op 51733(U) (read here), Justice Driscoll grants the plaintiff’s motion to compel his father to undergo an independent physical/medical and mental examination. The decision notes that, despite a flurry of motions, no application to file any papers under seal has been made since the court’s prior ruling described above.