Biondi v. Beekman Hill House Apartment Corp.

• Decision Date: 27 May 1999
• Citation: 257 A.D.2d 76,692 N.Y.S.2d 304
• Parties: , Nicholas A. BIONDI, Plaintiff-Respondent, v. BEEKMAN HILL HOUSE APARTMENT CORPORATION, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 304

692 N.Y.S.2d 304

257 A.D.2d 76, Nicholas A. BIONDI, Plaintiff-Respondent, v. BEEKMAN HILL HOUSE APARTMENT CORPORATION, Defendant-Appellant.

Supreme Court, Appellate Division, First Department, New York.

May 27, 1999.

Victor M. Metsch, of counsel (Edward L. Schiff and Thomas V. Juneau, Jr., on the brief, Hartman & Craven, L.L.P., attorneys) for plaintiff-respondent Daniel F. Markham, attorney for defendant-appellant.

BETTY WEINBERG ELLERIN, P.J., JOSEPH P. SULLIVAN, MILTON L. WILLIAMS and RICHARD W. WALLACH, JJ.

SULLIVAN, J.

This appeal presents the issue of whether a director of a corporation is entitled to indemnification under the corporation's by-laws of the sum the director owes as punitive damages under a settlement agreement in an underlying lawsuit, in which, after trial, the director was held liable. The sum due under the settlement agreement represented, as a compromise, only a portion of the punitive damage awards rendered against the director and not any part of the other damage awards, compensatory and for counsel fees, against him. Also at issue is whether, in any event, the jury's findings that the director acted in bad faith and in violation of the civil rights of the successful parties in the underlying action bar him from indemnification pursuant to Business Corporation Law § 721.

In late May 1995, Gregory and Shannon Broome, both attorneys and financially qualified, agreed with Simone Demou, a shareholder and proprietary lessee of defendant, Beekman Hill House Apartment Corp., to sublet her apartment. Ms. Demou advised plaintiff, Nicholas A. Biondi, then the president and a director of Beekman, of her agreement with the Broomes and their financial qualifications. Plaintiff informed Demou that he would meet with Mr. Broome and that a full Board meeting to pass on their sublet application would not be required because the Board would follow his recommendation.

After a June 5, 1998 meeting between plaintiff and Mr. Broome, an African-American, Beekman's managing agent informed Broome that he and his wife would have to meet with the full Board. Prior to that meeting, plaintiff told another director that Broome was a black man; he told another that he felt "uneasy" after meeting Broome and was told by that particular director that "if you feel uneasy because Mr. Broome is black, we will be sued."

At the underlying trial, a federal discrimination action, entitled Broome v. Biondi, et al., brought in the Southern District of New York, Ms. Demou testified that she became concerned about the requirement of a second meeting because the Broomes were qualified and a full Board meeting was unprecedented. She believed that this departure from precedent was racially motivated. She described past incidents in which she believed plaintiff had acted in a similarly prejudiced manner and she suspected that race was a factor in considering the Broomes application because plaintiff was in charge of the approval process. After the Broomes were interviewed by the full Board on June 13, 1995, their sublet application was denied unanimously. In addition, the Board caused a Notice of Default, later rescinded despite plaintiff's objection, to be issued against Demou for "objectionable conduct" under a provision of her proprietary lease. The objectionable conduct consisted of Demou's exploitation of an accusation of racism against plaintiff and the other Board members to compel Board acceptance of the Broomes' application.

On January 30, 1996, plaintiff, using Beekman's corporate counsel as his personal attorney, commenced a defamation action against Demou in Supreme Court, New York County. The Broomes commenced their federal action against Beekman and its directors, including plaintiff, on February 2, 1996, charging, in part, violations of the Federal Fair Housing Act, the New York State Human Rights Law and 42 USC §§ 1981 and 1982. Plaintiff and the other Beekman defendants, alleging injurious falsehood, brought a third-party action against Demou, who removed plaintiff's defamation action to the federal court hearing the Broome matter and counterclaimed against all the Beekman defendants, alleging that their rejection of the Broomes' application, issuance of a Notice of Default and filing of two lawsuits constituted unlawful retaliation against her for supporting the Broomes' application. Demou also counterclaimed for breach of fiduciary duty, breach of contract and tortious interference with the performance of a contract.

After a seven-day trial, the Broome jury returned a verdict against Beekman and its five directors. With respect to the Broomes' claims against plaintiff, the jury found that he violated the Federal Fair Housing Act, 42 USC §§ 1981 and 1982 and the New York State Human Rights Law and held him personally liable, jointly and severally, for $230,000 in compensatory damages and severally liable for $125,000 in punitive damages. Only one other director was held personally liable and the punitive damage award against him was less than one-half of the punitive damage award against plaintiff.

With respect to Demou's claims, the jury found that plaintiff violated the Federal Fair Housing Act and the New York State Human Rights Law by retaliating against her, breached his fiduciary duty to her and tortiously interfered with her sublease agreement with the Broomes. For plaintiff's actions against Demou, the jury assessed $27,000 in punitive damages against him and awarded her $107,000, later reduced by the court to $25,310, in compensatory damages against plaintiff, jointly and severally. The punitive award against plaintiff was more than four times higher than what was assessed against the other directors collectively. After the jury's verdict, the Broomes and Demou moved successfully for an order awarding them attorneys' fees pursuant to 42 USC § 1988 and 42 USC § 3613. The court awarded the Broomes and Demou $479,050.03 and $407,062.77, respectively, for their attorneys' fees and expenses.

During a settlement conference under the auspices of the United States Court of Appeals for the Second Circuit, to which the matter had been appealed, the parties to the Broome action agreed to an oral settlement limiting the liability of plaintiff and the other directors to the respective punitive damage award rendered against each director. Plaintiff, however, failed to comply with his part of the agreement, necessitating a second settlement conference at which his contribution was reduced from $154,000, the full amount of the punitive damage awards against him plus interest, to $124,000, plus interest. This agreement, reduced to writing and signed by plaintiff, provided that "all parties shall provide complete releases ... as to all other parties ... except (1) that [plaintiff] and Beekman shall retain their claims against each other."

Plaintiff failed to make full payment pursuant to the second settlement agreement and reinstated his appeal of the Broome action; the Broomes moved to stay the appeal pending resolution of their state court action against plaintiff to enforce the settlement agreement. Ultimately plaintiff's appeal in the Broome action was dismissed as moot.

In an attempt to obtain indemnification of the damages apportioned against him personally, plaintiff then brought the within action against Beekman, relying primarily upon Article VII of its by-laws. ¹ Beekman moved pursuant to CPLR 3211 to dismiss the complaint, in part, for failure to state a cause of action. The IAS court denied the motion, observing, in part, that the parties' settlement agreement in the federal court action "unequivocally states that [plaintiff] and Beekman 'shall retain their claims against each other.' " In addition, the court held, the agreement "does not mention which damages [plaintiff] is required to pay. The amount that [plaintiff] is required to pay under the [a]greement can be anything from the compensatory damages to the attorneys fees. As such, because [plaintiff] raises an uncertain and disputed jural relation as to present or propose[d] obligations, he states a cause of action." The court's premises for denial of the motion are, respectively, in the first instance, irrelevant and, in the second, factually incorrect. We reverse.

In denying the motion, the IAS court, citing Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17, stated that a "motion to dismiss will fail if 'from [the complaint's] four corners factual allegations are discerned which taken together manifest any cause [cognizable] at law'." The court, however, ignored the fact that it had considered extrinsic evidence in the form of affirmations and exhibits, plaintiff's affidavit and exhibits attached thereto, the settlement agreement, a post-submission letter to the court from plaintiff's counsel, Beekman's complaint against its former counsel in the federal action as...