Not VerifiedIn one of my first posts on this blog I warned about the dire consequences (i.e., dismissal) of bringing a summary proceeding for corporate dissolution under Article 11 of the Business Corporation Law by filing a petition verified by the petitioner’s attorney rather than by the petitioner, unaccompanied by the petitioner’s sworn affidavit attesting to the merits of the petition’s alleged grounds for dissolution.

What about the other way around, that is, when a respondent opposing a dissolution petition files an answer to the petition verified only by his or her attorney, also unaccompanied by a sworn affidavit of the respondent attesting to the facts offered in opposition to dissolution?

Not surprisingly, the consequences are equally dire — for the respondent, anyway — as illustrated by the court’s recent decision in Matter of Salcedo (Hispanos Car Service, Inc.), 2016 NY Slip Op 31143(U) [Sup Ct Richmond County May 11, 2016], granting a dissolution petition in the absence of “admissible evidence” contradicting the petition’s allegations.

Salcedo involves a corporation that runs a for-hire vehicle service allegedly owned by five individuals. The two petitioners in Salcedo, allegedly each owning one-sixth of the corporation’s voting shares, commenced the dissolution proceeding by filing a petition supported by a sworn affidavit from one of the petitioners who also verified the petition’s allegations. (For those unfamiliar with a verification, it’s a statement sworn before a notary attesting to the truthfulness of the allegations in the accompanying pleading based on the personal knowledge of the affiant. Essentially the verification converts the pleading to an affidavit for evidentiary purposes.)

The petition (read here) alleged that the petitioners were the sole officers and sole signatories on the corporation’s licenses; that no directors have been appointed; that the petitioners were sole guarantors of the corporation’s debts; that the respondents had seized physical control of company’s safe and otherwise excluded petitioners from all financial information even though petitioners continued to operate the business with little assistance from respondents; and that the breakdown in communications and dissension placed the business and its goodwill in “immediate danger of irreparable impairment.”

All in all, the factual allegations in the petition and supporting affidavit were relatively sparse, prone to generalizations, and unsupported by documentation. One can easily imagine a counter-narrative from the respondents at a minimum raising issues of fact requiring an evidentiary hearing on the petition’s dissolution claim.

But that is not what happened in Salcedo, for the simple reason the respondents’ papers opposing the petition consisted solely of a six-page document denominated an answer but in form more akin to an attorney affirmation with the attorney’s verification. In her decision granting dissolution under BCL § 1104-a, Supreme Court Justice Kim Dollard depicted the affirmation in general as “denying the principal allegations in the petition, and asserting mutual misconduct on the part of petitioners.” But then the judge delivered the coup de grâce:

However, having no personal knowledge of the facts, an acceptable excuse for the failure to submit affidavits based on same, or documentary evidence in support of these averments, the affirmation is without probative value. [Citations omitted.]

. . . Moreover, there being no admissible evidence to the contrary, this Court would be loathe to hold that petitioners are not entitled to the relief requested. Respondents’ apparent disinclination to submit probative evidence in opposition to the petition constitutes a clear sign that the continued operation of Hispanos Car Service, Inc. in the present climate is simply unfeasible, and that liquidation is the only viable means of protecting the rights and interests of most, if not all, of its shareholders. The denial of the petition under these circumstances would only expose the shareholders’ investment and any remaining “good will” to an unconscionable loss in value.

The story doesn’t quite end there. Almost a month later, the losing respondents filed a motion to re-argue the court’s decision granting dissolution, in support of which they filed an affidavit from one of the respondents and a proposed amended answer verified by all three respondents. The affidavit alleges that the petitioners own less than the minimum 20% of the corporation’s voting shares required to seek dissolution under BCL § 1104-a, and that one of the petitioners has been working for a competing car service utilizing the corporation’s client list in violation of his fiduciary duty.

The motion to re-argue is scheduled to be heard in early August 2016. We’ll just have to wait and see if it prompts the court’s reconsideration, or if it’s too little too late. Whichever way the court rules, the case serves as an important reminder to the rest of us that summary proceedings for corporate dissolution require the parties on both sides to submit evidentiary materials in support of their contentions, and that an attorney affirmation or a pleading verified by an attorney who lacks personal knowledge of the underlying facts lacks evidentiary status for that crucial purpose.