• Venue, Menu and Hebrew: Short Takes on Three Dissolution Cases
  • October 28, 2011 | Author: Peter A. Mahler
  • Law Firm: Farrell Fritz, P.C. - New York Office
  • For every blockbuster court decision there must be hundreds that don't merit a headline. Some of the "lesser" decisions nonetheless add ever-so-incrementally to our knowledge of the law.

    Following are brief summaries of three recent decisions involving corporate dissolution and related disputes. Each decision, in its own small way, carries a lesson that helps lawyers better advise their clients and map their strategies.

    Venue: Matter of Katz (Universal Fabrication Corp.), Mem. Decision, Index No. 2542/11 (Sup Ct Nassau County Sept. 12, 2011)

    Venue means the place where a lawsuit is brought. Corporate dissolution proceedings have their own venue statute, Section 1112 of the Business Corporation Law (BCL), which dictates that they be brought in the judicial district in which the office of the corporation is located. "Office" for purposes of the statute means the county listed in the corporation's certificate of corporation regardless of the actual location of the corporate offices.

    Improper venue is a non-jurisdictional, waivable defect. Section 511(b) of the Civil Procedure Law and Rules (CPLR), which applies generally to all civil lawsuits, requires that the defendant first serve a written demand on the plaintiff to change venue before making a motion. Depending on the plaintiff's response, under the statute the defendant can file a motion to change venue either in the court where the proceeding was brought or in the court where the action should have been brought. Also, when the defendant moves to change venue without making the pre-motion demand, the outcome changes from one as of right to a matter of the court's discretion.

    In the Katz case, a proceeding was filed in Nassau County Supreme Court for dissolution of a corporation whose office is located in Brooklyn. Without making a pre-motion demand to change venue, the respondent filed a motion in the Nassau County proceeding for dismissal on the ground of improper venue. The question presented was whether BCL §1112 trumps CPLR  §511(b) such that a respondent who seeks to change venue in a dissolution proceeding need not comply with the pre-motion demand requirement.

    Katz offers a somewhat equivocal answer. The decision by Nassau County Supreme Court Justice Joel K. Asarch, ordering a transfer of the case from Nassau County to Brooklyn, states on the one hand, "to the extent that CPLR 511 is applicable here and the discretion of the Court is invoked," that the respondent's motion to change venue itself "suffices to give petitioner prompt and early notice of the improper designation of Nassau County as the venue for dissolution" of the Brooklyn corporation. On the other hand, Justice Asarch continues, "the Court believes that giving effect to Business Corporation Law §1112 should trump a technical failure to demand a change of venue prior to the making of the subject motion."

    I suppose the cautious respondent's better approach after Katz is to serve a pre-motion demand to change venue. Otherwise, the respondent at least should be sure to make the motion to change venue promptly at the outset of the case.

    Menu: Pierre v. Ellis, Short Form Order, Index No. 013958/07 (Sup Ct Nassau County June 8, 2011)

    The menu in question belongs to Uncle Crab's Caribbean Restaurant, Inc., a Westbury, Long Island culinary establishment which, in addition to serving up jerk chicken, has now made an appetizer-size contribution to procedural law surrounding enforcement of shareholder buyout agreements reached in settlement of dissolution proceedings.

    In 2007, Emile Pierre as 60% shareholder of the business sued for dissolution, as a result of which the other 40% shareholder, Jarvis Ellis, entered into a settlement agreement to purchase Pierre's shares for $30,000 payable over three years. Ellis consented to entry of a $40,000 judgment which was not to be entered unless he defaulted in payment. The court marked the matter discontinued with prejudice, except for enforcement of the terms of settlement.

    In February 2011, Pierre filed a motion under the old proceeding's caption seeking an order deeming Ellis in default of the settlement agreement. Pierre's motion asked for entry of a money judgment in the amount of almost $20,000 (presumably equal to $40,000 less the payments received) plus his attorney's fees. Pierre also sought an order compelling Ellis to vacate the restaurant and return possession to Pierre. In opposition, Ellis argued that Pierre failed to provide him with access to the corporate books and records or a final statement of account.

    The decision by Nassau County Commercial Division Justice Stephen A. Bucaria, who was not the judge who presided over the 2007 settlement, denies enforcement of the settlement, not on the merits, but on the ground that Pierre is required to bring a new, plenary enforcement action. Here's how Justice Bucaria explains it (some citations omitted):

    A trial court has power to exercise supervisory control over all phases of pending actions and proceedings. Incident to this general authority, a court has discretionary power to relieve parties from the consequences of a stipulation effected during litigation. As a corollary to this power, a court may enforce a stipulation within a pending action or proceeding. "Because of its relative simplicity and lesser burden upon the litigants and the court," a motion within the action or proceeding tends to be the "favored procedural mode" (Teitelbaum Holdings v. Gold, 48 NY2d 51, 55). However, if the stipulation relates to an action which has previously terminated, it must be enforced in a plenary action. Thus, a plenary action is required if the parties have executed an express, unconditional stipulation of discontinuance or have entered judgment in accordance with the settlement.

    Since the 2007 dissolution proceeding was marked discontinued with prejudice, Pierre cannot enforce the settlement by motion in that closed proceeding. Rather, he must start a new, plenary action by filing and serving a summons and complaint.

    The Teitelbaum case quoted in the above passage, decided by New York's highest court in 1979, is quite clear on this point: once an express stipulation of discontinuance or judgment pursuant to settlement is entered, the action is terminated and the court's supervisory powers in the same case also terminate.

    Hebrew: Tornheim v. Blue & White Food Products Corp., 2011 NY Slip Op 07411 (2d Dept Oct. 18, 2011)

    In English, the word "option" as used in a contract generally means a future, enforceable right to compel the other contracting party to convey or perform upon agreed terms. Does the Hebrew word for "option" when used in a contract mean the same thing?

    That was the question presented in the Tornheim case, in which the plaintiff sued for a declaration of his 20% stock ownership in a food products business under a contract written in Hebrew. The contract stated that the plaintiff would be hired as a salaried employee with the "option" of becoming a 20% partner after contributing certain equipment to the business and after working full-time for the business for six months. The phonetic transcription of the Hebrew word for option used in the contract is "haefsharut." The question for the court was whether haefsharut means plaintiff was automatically to become 20% shareholder upon satisfaction of the two conditions, as plaintiff contended, or whether the conveyance of shares was subject to the company's further consent and agreement, as the company contended.

    The trial court conducted a nonjury trial on the issue of the contract's meaning and whether plaintiff satisfied the two conditions. A translator testified on the company's behalf that haefsharut translates as "option" in the sense of "possibility" or "chance." The company also put in evidence a Hebrew-English dictionary corroborating that testimony. The company's witnesses further testified that the equipment provided by plaintiff mostly was not functional and that he worked only part-time during the six-month period.

    The trial court agreed with the company on both issues and dismissed the complaint. Plaintiff appealed to the Appellate Division, Second Department, which last week affirmed the lower court's decision. The appellate court held that, based on the translator's testimony and the dictionary evidence, the trial court had "properly determined that the memorandum was an unenforceable 'agreement to agree'" and that, in any event, other evidence sufficiently demonstrated that "the plaintiff failed to fulfill the conditions precedent underlying the alleged option."

    I imagine upon getting the decision the plaintiff uttered "oy vey," the translation of which is less problematic.