Reading the post-trial decision by Suffolk County Commercial Division Justice Emily Pines in Nastasi v. Carlino, 2011 NY Slip Op 30626(U) (Sup. Ct. Suffolk County Mar. 8, 2011), one can’t help but be struck by the utter futility of an intense three-year litigation between business partners over a now-defunct company in which the court finds them all at fault and sends them all home empty handed.
Aletto & Nastasi Ltd. ("A&N") was formed in 2004 by shareholders Nastasi (40%), Carlino (40%) and Aletto (20%) to operate a marble and granite sales business including warehouse and showroom in Bohemia, New York. Nastasi managed the business until early 2008 when Carlino and Aletto held a shareholders meeting without proper notice at which they voted to remove Nastasi from management and, as described in the court’s decision, "had him thrown off the property" after they determined that Nastasi was running sales through a separate company wholly owned by Nastasi.
In May 2008, Nastasi filed a petition for judicial dissolution of A&N as an oppressed minority shareholder under Section 1104-a of the Business Corporation Law. Carlino and Aletto responded in kind with their own suit against Nastasi and his separately owned companies seeking an accounting based on Nastasi’s alleged conversion of corporate funds for his own personal use and breach of fiduciary duty.
In October 2008, Justice Pines denied Nastasi’s dissolution petition, finding that "[t]he conclusory allegations of ouster, irreconcilable differences and financial damage to the corporation, are insufficient to demonstrate ‘oppressive conduct’ as to warrant dissolution."
The claims by Carlino and Aletto against Nastasi proceeded to trial before Justice Pines, whose decision last month paints an unflattering picture of bad behavior on both sides. For his part, Nastasi is found to have installed his own, separate company as lessee of A&N’s showroom which he then subleased to A&N at a substantially higher rent. Justice Pines also found that Nastasi kept A&N’s books and records at an office run by one of his other companies; that he prevented Carlino and Aletto from learning A&N’s revenues and expenses over a two-year period; that almost all the invoices for A&N’s sales for the period 2006 through early 2008 were invoiced by Nastasi’s wholly owned company; and that "Nastasi’s testimony with regard to his financial contributions to A&N is simply unfounded and not credible."
Carlino and Aletto also took some lumps. In March 2009, following an eviction proceeding brought by Nastasi’s sublessor company against A&N, Nastasi regained control of the showroom and found that Carlino and Aletto had broken granite, smashed sinks and removed all the fixtures along with the cabinets and tiling. The repair costs subsequently incurred by Nastasi were over $180,000. Justice Pines also discredited their testimony that A&N "never really existed," and she concluded that, because the now-defunct company never made a profit, Carlino and Aletto at most were entitled to "amounts necessary to equalize the respective contributions of the shareholders" and not, as they requested, the return of their investments and loans to A&N which totaled around $450,000.
In furtherance of such equalization, the court calculated Nastasi’s capital contribution shortfall at around $180,000 which, as coincidence would have it, matched the amount he laid out to fix the showroom damage caused by Carlino and Aletto. Justice Pines accordingly found that neither side was entitled to a money judgment against the other. Here’s what she wrote:
On balance, Nastasi breached his fiduciary duty to Aletto and Carlino by allowing his other corporation (Tiffany Manufacturing) to profit at the expense of A&N. Nastasi should have made, but was unable to demonstrate at trial, contributions of between $180,000 and $185,000 to the corporation representing his 40% share. On the other hand, Carlino and Aletto had a fiduciary obligation, once in possession of the showroom, to prevent its destruction and dismantling. Their actions in permitting such destruction also amount to a breach of their fiduciary duty to A&N, and they should have contributed the over $180,000 toward the renovation of the showroom. As A&N is no longer functioning, which counsel for both parties have confirmed with the Court, and it appears to the Court that both Plaintiffs and Defendant owe a defunct corporation approximately equal amounts, the Court finds that neither is entitled to judgment against the other as the defunct corporation will receive no benefit from any influx of funds, when no party seeks to continue its existence. In reaching this conclusion the Court finds credible the testimony of Carlino that he contributed approximately $50,000 other than the specific checks set forth in the record for the set up of the showroom, and the testimony of Nastasi that he and/or his various corporations contributed approximately $180,000 to the restoration of the showroom after he retook possession.
In retrospect it’s easy to say, with such negatives on both sides, that the case should have settled long before trial. Perhaps the parties felt they had more to prove than financial damages, but if so, it seems to me that neither side got what they wanted.