Bonanni v. Horizons Investors Corp.

• Decision Date: 29 January 2020
• Docket Number: Index No. 17029/05,2017–06803
• Citation: 179 A.D.3d 995,118 N.Y.S.3d 137
• Parties: Luciano BONANNI, et al., Respondents-Appellants, v. HORIZONS INVESTORS CORP., et al., Appellants-Respondents, Allan Hausknecht, etc., Respondent, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

179 A.D.3d 995

118 N.Y.S.3d 137

Luciano BONANNI, et al., Respondents-Appellants,

v.HORIZONS INVESTORS CORP., et al., Appellants-Respondents,Allan Hausknecht, etc., Respondent, et al., Defendants.

2017–06803

Index No. 17029/05

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

Argued—December 5, 2019

January 29, 2020

Oquendo Deraco PLLC, New York, N.Y. (Luis A. Gonzalez, Ricardo E. Oquendo, Maria C. Deraco, and Carlos J. Cuevas of counsel), for appellants-respondents Horizons Investors Corp. and Benito Fernandez.

Laurence Shiff P.C., New York, NY, for respondents-appellants.

ALAN D. SCHEINKMAN, P.J., SYLVIA O. HINDS–RADIX, BETSY BARROS, PAUL WOOTEN, JJ.

DECISION & ORDER

In an action, inter alia, to recover damages for breach of contract, the defendants Horizons Investors Corp., Benito Fernandez, and Comprehensive Imaging of New York, PLLC, appeal, and the plaintiffs cross-appeal, from a judgment of the Supreme Court, Suffolk County (Elizabeth Hazlitt Emerson, J.), entered May 10, 2017. The judgment, insofar as appealed from, upon a decision of the same court dated March 9, 2016, made after a nonjury trial, is in favor of the plaintiff MRI Enterprises, Inc., and against the defendants Horizons Investors Corp. and Benito Fernandez in the principal sum of $284,043, is in favor of the plaintiff MRI Enterprises, LLC, and against the defendants Horizons Investors Corp. and Benito Fernandez in the principal sum of $724,814, and directed the defendants Horizons Investors Corp. and Benito Fernandez to provide the plaintiff MRI Enterprises, Inc., an accounting. The judgment, insofar as cross-appealed from, is in favor of the plaintiff MRI Enterprises, Inc., and against the defendant Benito Fernandez in the principal sum of only $284,043, and in favor of the plaintiff MRI Enterprises, LLC, and against the defendants in the principal sum of only $724,814.

ORDERED that the appeal by the defendant Comprehensive Imaging of New York, PLLC, is deemed dismissed pursuant to 22 NYCRR 1250.10(a) ; and it is further,

ORDERED that the judgment is affirmed insofar as appealed from by the defendants Horizons Investors Corp. and Benito Fernandez, and insofar as cross-appealed from; and it is further,

ORDERED that one bill of costs is awarded to the plaintiffs, payable by the defendants Horizons Investors Corp. and Benito Fernandez.

In 2001, the plaintiff Luciano Bonanni, via his wholly owned corporation, the plaintiff MRI Enterprises, Inc. (hereinafter MRI Inc.), together with the defendant Benito Fernandez, via his wholly owned corporation, the defendant Horizons Investors Corp. (hereinafter Horizons), the defendant Solomon Kalish, via his wholly owned corporation, the defendant Adex Management Corp. (hereinafter Adex), and the defendant Allan Hausknecht, a physician, formed the plaintiff MRI Enterprises, LLC (hereinafter MRI LLC), for the purpose of providing magnetic resonance imaging (hereinafter MRI) services to local hospitals. MRI Inc., Adex, and Hausknecht each held a 20% interest in MRI LLC, and Horizons held the remaining 40%. Because medical services cannot be provided by nonphysicians, the members of MRI LLC also formed the defendant Comprehensive Imaging of New York, PLLC (hereinafter CINY), which was 99% owned by Hausknecht and 1% owned by another physician, to provide the medical services to the hospitals.

In April 2005, a dispute arose among the MRI LLC members regarding which MRI scanners should be purchased for use at one of MRI LLC's client hospitals. Although the parties disagree as to what Bonanni said during a contentious meeting, it is undisputed that Bonanni had managed the day-to-day operations of MRI LLC prior to April 2005, and that he was thereafter excluded from management of MRI LLC and Kalish assumed Bonanni's duties. While the parties thereafter discussed the respective rights and duties of Bonanni/MRI Inc. and the remaining members, the remaining members never acquired MRI Inc.'s interest in MRI LLC but nevertheless failed to include MRI Inc. in future distributions.

In July 2005, Bonanni, MRI Inc., individually and as a member of MRI LLC, and MRI LLC (hereinafter collectively the plaintiffs) commenced this action, asserting causes of action, inter alia, alleging breach of contract and conversion, and seeking an accounting. After a nonjury trial, the Supreme Court found that although Bonanni may have resigned as MRI LLC's manager, he did not withdraw MRI Inc. from membership in MRI LLC, and in response, the remaining members chose to "freeze MRI Inc. out" rather than compensate MRI Inc. for its interest in MRI LLC. Based on the evidence, which included analysis by a forensic accountant, the court found that, rather than disbursing future distributions to MRI Inc., the remaining members divided MRI Inc.'s 20% share among themselves such that Horizons received an additional 10% share (50% total) and Adex and Hausknecht each received an additional 5% share (25% total each).

Based upon these findings, the Supreme Court found in favor of MRI Inc. on the causes of action alleging breach of contract, conversion, breach of fiduciary duty, and unjust enrichment. The court also found in favor of MRI LLC on the derivative causes of action alleging misappropriation of corporate opportunities and looting, waste, and misappropriation of assets, concluding that the defendants engaged in self-dealing and other misconduct. In addition, the court found that, as a member of MRI LLC, MRI Inc. was entitled to an accounting of certain payments made by or for MRI LLC and CINY.

Based upon its interpretation of the evidence and calculations, in a judgment entered May 10, 2017, the Supreme Court awarded damages to MRI Inc. in the principal sum of $568,086, payable 50% by Horizons and Fernandez, 25% by Adex and Kalish, and 25% by Hausknecht. On the derivative causes of action, the court awarded damages to MRI LLC in the principal sum of $724,814, payable jointly and severally by all the defendants. The court also directed the defendants to provide MRI Inc. an accounting of certain payments made by or for MRI LLC and CINY. Horizons and Fernandez (hereinafter together the appellants) appeal, and the plaintiffs cross-appeal.

The appellants contend that the judgment was improperly entered by the Suffolk County Clerk rather than the Supreme Court. However, the appellants have waived this contention since they did not move within a reasonable time after the entry of the judgment either to vacate it or have it resettled (see John R. Higgitt, Supplementary Practice Commentaries, McKinney's Cons Law of NY, CPLR C5015:3; David D. Siegel, Practice Commentaries, McKinney's Cons Law of NY, CPLR C5015:3, C5015:6; see also Johnson v. Societe Generale S.A. , 94 A.D.3d 663, 665, 943 N.Y.S.2d 74 ; Deygoo v. Eastern Abstract Corp. , 204 A.D.2d 596, 596–597, 612 N.Y.S.2d 415 ). In any event, under the circumstances presented, the appellants' contention does not require reversal. The judgment directed an accounting, which is a form of equitable relief (see Roslyn Union Free School Dist. v. Barkan , 16 N.Y.3d 643, 650, 926 N.Y.S.2d 349, 950 N.E.2d 85 ; Estate of Calderwood v. ACE Group Intl. LLC , 157 A.D.3d 190, 199, 67 N.Y.S.3d 589 ), and therefore, contained "relief other than for money or costs only" and should have been reviewed by the Supreme Court prior to its entry ( CPLR 5016[c] ). However, since the provision of the judgment directing an accounting conforms to the corresponding portion of the decision after trial, no correction is required (see CPLR 5019[a] ; Kim v. Schiller , 112 A.D.3d 671, 675, 978 N.Y.S.2d 229 ; Spier v. Horowitz , 16 A.D.3d 400, 401, 791 N.Y.S.2d 156 ).

The appellants contend that MRI Inc. is not entitled to an accounting from CINY because MRI Inc. never held a membership interest in CINY. In support of this contention, they argue that there was no de facto merger between MRI LLC and CINY and that CINY was not a successor in interest to MRI LLC. We disagree.

"Generally, ‘a corporation which acquires the assets of another is not liable for the torts of its predecessor’ " ( Shea v. Salvation Army , 169 A.D.3d 1081, 1082, 95 N.Y.S.3d 232, quoting Schumacher v. Richards Shear Co. , 59 N.Y.2d 239, 244, 464 N.Y.S.2d 437, 451 N.E.2d 195 ; see Nationwide Mut. Fire Ins. Co. v. Long Is. A.C., Inc. , 78 A.D.3d 801, 912 N.Y.S.2d 226 ). "However, such liability may arise if the successor corporation expressly or impliedly assumed the predecessor's tort liability, there was a consolidation or merger of seller and purchaser, the purchaser corporation was a mere continuation of the seller corporation, or the transaction was entered into fraudulently to escape such obligations" ( Shea v. Salvation Army , 169 A.D.3d at 1082, 95 N.Y.S.3d 232 ; see Schumacher v. Richards Shear Co. , 59 N.Y.2d at 245, 464 N.Y.S.2d 437, 451 N.E.2d 195 ; Matter of AT & S Transp., LLC v. Odyssey Logistics & Tech. Corp. , 22 A.D.3d 750, 752, 803 N.Y.S.2d 118 ). Accordingly, "[a] transaction structured as a purchase of assets may be deemed to fall within this exception as a de facto merger" ( Matter of AT & S Transp., LLC v. Odyssey Logistics & Tech. Corp. , 22 A.D.3d at 752, 803 N.Y.S.2d 118 ).

"The hallmarks of a de facto merger are the ‘continuity of ownership; cessation of ordinary business and dissolution of the [predecessor] as soon as possible; assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and, continuity of management, personnel, physical location, assets, and general business operation’ " ( id. , quoting Fitzgerald v. Fahnestock & Co. , 286 A.D.2d 573, 574, 730 N.Y.S.2d 70 ; see Energy Coop. of Am., Inc. v. Luigi's Family Bakery, Inc. , 170 A.D.3d 1629, 1629–1630, 97 N.Y.S.3d 372 ). Where the acquired corporation is "shorn of its assets" and becomes a "shell," legal dissolution is not required to support a finding of de facto merger ( Matter of AT...