Lincoln Bldg. Servs. Inc. v. Dellwood Dev., Ltd., 5899/12.

• Court: United States State Supreme Court (New York)
• Citation: 54 N.Y.S.3d 610 (Table)
• Docket Number: No. 5899/12.,5899/12.
• Parties: LINCOLN BUILDING SERVICES INC., Plaintiff, v. DELLWOOD DEVELOPMENT, LTD. and Demetrios Delengos, Defendants. Lincoln Building Services Inc., Plaintiff, v. Dellwood Development, Ltd., Defendant.
• Decision Date: 23 February 2017

54 N.Y.S.3d 610 (Table)

LINCOLN BUILDING SERVICES INC., Plaintiff,
v.
DELLWOOD DEVELOPMENT, LTD. and Demetrios Delengos, Defendants.

Lincoln Building Services Inc., Plaintiff,
v.
Dellwood Development, Ltd., Defendant.

No. 5899/12.

Supreme Court, Queens County, New York.

Feb. 23, 2017.

David Bolton, Esq., Garden City, for Plaintiff.

George G. Coffinas, Esq., New City, for Defendant.

TIMOTHY J. DUFFICY, J.

A joint trial of the above-captioned cases was held before this Court, on October 3, 2016, October 4, 2016, October 5, 2016, October 6, 2016, October 7, 2016, October 10, 2016, October 11, October 13, October 14, October 17, October 19, October 20, and October 21, 2016. As this was a bench trial, the Court was both the finder of facts and the determiner of questions of law. The Court considered the testimony of the witnesses, gave weight to that testimony, and generally determined the reliability of the witnesses' testimony (See Horsford v. Bacott, 32 A.D.3d 310, 312, 820 N.Y.S.2d 554 [1st Dept.2006] ). The Court also considered the interest or lack of interest in the case and the bias or prejudice of the witnesses (See People v. Ferguson, 178 A.D.2d 149, 577 N.Y.S.2d 15 [1st Dept.1991). Having reviewed the parties' submissions and upon refection of the evidence submitted at trial, the Court renders the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

In the action, under Index No. 5899/12 (action number one), plaintiff Lincoln Building Services Inc. asserts the following causes of action in its Second Amended Verified Complaint against defendants Dellwood Development, LLC and Demetrios Delengos: breach of contract based upon a promissory note, dated May 30, 2007, (first cause of action); breach of contract based upon a promissory note, dated June 5, 2007 (second); costs and attorneys' fees based upon the promissory notes (third); unjust enrichment (fourth); implied-in-fact contract (fifth); quantum meruit (sixth); breach of implied covenant of good faith and fair dealing (seventh); conversion (eighth); piercing the corporate veil (ninth); and fraud (tenth). In the other action, under Index No. 705630/15 (action number two), plaintiff Lincoln asserts a single cause of action for breach of contract based upon the promissory note, dated May 30, 2007. Both cases were consolidated for purposes of joint trial.

Plaintiff Lincoln Building Services Inc. (Lincoln) is a New York Corporation whose sole shareholder, director and officer is Vasilios Tsimitras (Tsimitras). In 2005, Lincoln was formed for the purpose of entering into the subject transactions. Mr. Tsimitras has own construction company, since approximately 1987. He is also a convicted felon, having pled guilty to grand larceny, in 2006, in connection with a public contract with the New Your State Office of General Services. As a result of that conviction, he was disqualified from obtaining public contracts for a period of five years. He also acted as a private moneylender. He would make his loans in the name of others, usually his niece, Pipitsa Vasilopoulou.

Defendant Dellwood Development, LLC (Dellwood) is a New York limited liability company formed in 2003. From the time of its formation until October 31, 2007, it sole member was Ovad Porat (Porat). Dellwood is engaged in the business of general construction. Its work was almost exclusively limited to the renovation of existing apartment buildings for conversion from low income rental units to condominium units to be purchased by their existing tenants. Dellwood had been contracted for this work by two not for profit entities—SHUHAB Housing Development Fund Corporation (SHUHAB) and UHAB Housing Development Fund Corporation (UHAB). The contracts were managed by the New York City Department of Housing Preservation and Development. Financing was provided by Community Preservation Corp. (CPC), later acquired by the Bank of America.

The contracts that Dellwood had with SHUHAB and UHAB required cash collateral accounts with CPC and the Bank of America. The purpose of the cash collateral account was to provide a source of funds for completion of projects in the event that Dellwood defaulted under the contracts. Cash collateral, in the amount of 10% of the contract price, was required. The funding of the cash collateral account was a condition precedent to being awarded each contract. At the conclusion of each job, assuming there were no defaults on the part of Dellwood, the cash collateral would be returned to Dellwood.

Porat sought to obtain the needed funds for the cash collateral from Simitras at some point in early 2004, because the contracts were lucrative, but Porat did not have the money for the cash collateral. Porat told some each was he needed about $2.5 million for the cash collateral.

In 2005, Lincoln and Dellwood signed a document purporting to be a partnership agreement. However, none of the formalities of a partnership ever transpired between the entities. Hence, the partnership never commenced. Rather, in 2005, Lincoln loaned the sum of $2,580,721 to Dellwood, which was owned at the time by Porat. The loan was made to enable Dellwood to pursue construction contracts worth approximately $24 million by providing security in the nature of cash collateral which Dellwood needed to deposit in order to obtain the public contracts. Before the loan was made Lincoln advised Dellwood that it would need to borrow the money, which Lincoln would, in turn, lend to Dellwood. In consideration for the loan, Dellwood agreed to repay to Lincoln the monies Lincoln loaned, plus the expenses Lincoln incurred to obtain the funds loaned, plus interest at the same rate that Lincoln paid for the monies it borrowed, plus the sum of $1 million, which was to be Lincoln's compensation for making the loan. Dellwood made some of the monthly payments to Dellwood on the loan. Lincoln used the monies Dellwood paid to Lincoln to pay the loans Lincoln had taken to make the loan. However, Dellwood failed to make certain monthly payments to Lincoln and checks from Dellwood to Lincoln were returned by the bank for insufficient funds. Apparently, Dellwood also began to fall behind in its performance of the contracts. As a result, Lincoln became concerned that defaults under the subject construction contracts would be declared and it would not receive repayment of the loan.

In 2007, as a result of the foregoing concerns, Lincoln asked Dellwood to memorialize the loan in writing. In 2007, Dellwood executed a promissory note, dated May 3, 2007, in the sum of $4,454,241, which provided for interest at 15% per annum. The promissory note represented all amounts Dellwood owed to Lincoln as of the date of the promissory note. The promissory note was signed by Ovad Porat on behalf of Dellwood. Porat's signature on the note was notarized by Attorney Elias Fillas. In addition, Dellwood also signed a confession of judgment and assignment agreement. Both Lincoln and Dellwood were represented by counsel with respect to the promissory note and related documents. The promissory note was due and payable to Lincoln upon the sale of the business or shares or interests of Dellwood. Delengos was aware, or should have been aware of the promissory note, by early 2008. Lincoln orally demanded payment of the note, and demanded payment of the promissory note in writing, on November 28, 2012.

On October 31, 2007, Porat sold his membership interest in Dellwood to Delengos, the individual defendant in action number one. Since that time, Delengos has been the sole member of Dellwood. Delengos was represented by his current counsel, George Coffinas, in the transaction. Delengos testified that at the time he purchased Dellwood, he believed that Dellwood owed Lincoln $3,200,000. By January 2008, Delengos was aware of the promissory note between Dellwood and Lincoln, in the sum of $4,454,241. Delengos went to Lincoln to request that it reduce the amount of money which Dellwood owed to Lincoln. In August 2009, Dellwood made a single payment to Lincoln, in the sum of $150,000, on the promissory note. This represented a partial payment of the promissory note. Other than the one payment of $150,000, Dellwood has not made any other payments to Lincoln on the promissory note, triggering the subject lawsuits.

Delengos contradicted himself on material issues several times during the trial, rendering his testimony unbelievable. At his pretrial deposition, he testified that he first became aware of the promissory note, at the beginning of 2008, when he signed the purchase agreement. At trial, he claimed that he first became aware of the promissory agreement in 2012. The Court finds that this testimony is not credible. The Court finds that Delengos was aware of the promissory note when he acquired Dellwood, or he should have been so aware. Dellwood's tax returns for the years 2010 to 2015 acknowledge a loan payable to Lincoln. During 2013, all of the cash collateral which Lincoln had advanced on behalf of Dellwood remained on deposit. The Court also finds it incredible that Mr. Delengos and his attorney would consummate the purchase of Dellwood without performing due diligence in determining its debt liability to Lincoln.

Moreover, the evidence adduced at trial demonstrated that Delengos appropriated corporate funds from Dellwood to his own personal use. He claimed that he had made loans to Dellwood, however Dellwood's tax returns demonstrate that there were no loans made by Delengos to Dellwood. On April 6, 2010, Dellwood...