Marc Lester, Marc Lester Antiques & Brocante, LLC v. Michael Capo, Kenneth Rosenblum, Jerome Mazzeo, & Beaux-Arts Auction, LLC
| Decision Date | 05 February 2016 |
| Docket Number | Index No.: 651134/2014 |
| Citation | 2016 NY Slip Op 30214 (U) |
| Parties | MARC LESTER, MARC LESTER ANTIQUES & BROCANTE, LLC, and BEAUX-ARTS AUCTION, LLC, Plaintiffs. v. MICHAEL CAPO, KENNETH ROSENBLUM, JEROME MAZZEO, and BEAUX-ARTS AUCTION, LLC Defendants. MICHAEL CAPO, KENNETH ROSENBLUM, JEROME MAZZEO, and BEAUX-ARTS AUCTION, LLC, Counterclaim-Plaintiffs and Third Party Plaintiffs, v. MARC LESTER, MARC LESTER ANTIQUES & BROCANTE, LLC, BEAUX-ARTS AUCTION, LLC, JOSEPH J. ASTERITA, and PATRICIA LEE Counterclaim-Defendants and Third Party Defendants. |
| Court | New York Supreme Court |
Motion Date: 10/21/2015
Motion Seq. Nos.: 001, 002, 003
Motion Sequence Numbers 001, 002, and 003 are consolidated for disposition.
Plaintiffs Marc Lester, Marc Lester Antiques & Brocante, LLC ("MLAB"), and Beaux-Arts Auction, LLC (collectively, "Plaintiffs") brought this action asserting various direct and derivative claims against Lester's business partners: Michael Capo, Kenneth Rosenblum, Jerome Mazzeo, and, nominally, Beaux-Arts Auction. LLC (collectively, "Defendants" or the "Capo Parties"). Defendants filed a Verified Answer, Counterclaims and Third Party Complaint1 asserting 19 counterclaims and third party claims against the Plaintiffs and two additional individuals: Patricia Lee, Marc Lester's wife, and Joseph J. Asterita, the attorney who represented the Company during the relevant time-period (collectively, "Third Party Defendants"). Joseph J. Asterita brings a motion to dismiss the claims against him in the Third Party Complaint (Motion Sequence No. 001). Marc Lester and his wife, Patricia Lee, bring a separate motion to dismiss the claims against them in the Third Party Complaint (Motion Sequence No. 002). Finally, Defendants Rosenblum and Mazzeo bring a third motion to dismiss the claims against them in the Complaint (Motion Sequence No. 003),
The Court will address each motion in turn.
On May 7, 2013, Plaintiff Marc Lester and Defendant Michael Capo formed Beaux-Arts Auction, LLC, a New York Limited Liability Company ("Beaux-Arts," or the "Company"). Lester and Capo were the original members of the Company, which operated as an auction house for luxury items such as furniture, paintings, and antiques. Plaintiff Lester caused MLAB - an entity which Lester controlled - to invest $150,000 in Beaux-Arts. Initially, Lester and Capo agreed that they would be the sole managing members of Beaux-Arts. The Company's tumultuous existence culminated in this litigation involving, as it does, over two dozen claims and counterclaims.
The Capo Parties allege that throughout 2013, Lee and Lester made oral and written misrepresentations regarding the Company's financial prospects to mislead prospective investors. In April or May of 2013, prior to the Company's formation, Lee and Lester hosted investors at their home to attract capital for the Company, They allegedly stated that they would raise $1 million in capital, and that the Company's expected gross revenues would grow from $3 million in 2013 to $7 million in 2017. Moreover, Lee and Lester stated that they had extensive experience and connections in the finance world, and that they would tap their connections to accelerate the Company'sgrowth. Specifically, they told investors they had relationships with executives at Sotheby's and Sherry Lehmann, which could lead to millions of dollars in annual sales for the Company. (Third Party Compl. ¶ 27.)
According to Defendants, shortly after the Company's formation, Lee and Lester caused the Company to hire Third Party Defendant Joseph J, Asterita as its attorney. Asterita allegedly drafted Offering Memoranda and other documents that were distributed to several individuals in order to solicit their investments. Defendants allege that Asterita assisted Lee and Lester's fraudulent scheme by knowingly preparing and presenting various documents that contained material misrepresentations. A presentation entitled "Investment Opportunity," dated June 2013, was distributed to prospective investors. (Docket No. 36.) An Offering Memorandum dated September 30, 2013 set forth the terms of a private offering (the "September Memorandum"). (Docket No. 37.) On December 11, 2013, the Company issued a second Offering Memorandum, attaching an exhibit entitled "Operating Agreement" to be executed by the Company's members (the "December Memorandum"). (Docket No. 38.)
The Capo Parties allege that Asterita knew or should have known, as early as October 2013, that the Company was underfunded. Despite this knowledge, Asterita assisted Lester and Lee's allegedly fraudulent scheme by continuing to act as the Company's attorney and drafting the offering documents. In addition, the Third Party Complaint alleges that Rosenblum initially deposited his investment with Asterita, who released it to the Company in December 2013 (with Rosenblum's consent), despiteknowing that the Company would be unable to generate future profits. The Capo Parties generally contend that Asterita included material misrepresentations in the documents he drafted, and that he failed to make any additional disclosures about the Company's finances to the individual investors who reviewed the documents.
Several investors acquired minority membership interests in the Company, Plaintiffs allege that MLAB made a capital contribution to the Company in the amount of $150,000 for its 15% membership interest. Defendant Rosenblum invested $50,000 for a 5% membership interest. Defendant Mazzeo also invested $50,000 for a 5% membership interest. Non-parties Martin Lane and Judith Chessman Beraka invested $100,000 and $50,000, for 10% and 5% membership interests, respectively.
As co-Managing Members, Lester was awarded a 35% membership interest and Capo was awarded a 25% membership interest. The December 2013 Offering Memorandum also provided that for their role as Managing Members, Lester and Capo would be entitled to guaranteed payments of $150,000 per year beginning in 2014.
According to Defendants, after forming the Company, Lester designated Patricia Lee as his contact for the company's business and delegated his responsibilities to her. (Third Party Compl. ¶ 11.) Defendants contend that Lee and Lester immediately engaged in a pattern of waste and mismanagement that threatened the Company's financial stability. On September 23, 2013, Lester and Lee allegedly caused the Company to enterinto a seven-year lease for commercial space, depositing $112,678.12 and committing to a monthly rent of $13,287.81. (Third Party Compl. ¶ 23.) Defendants allege that this Lease was excessive, particularly because Capo had identified an alternate property for $8,500 per month. On October 2013, Lester and Lee caused the Company to enter into a second lease for additional space, at an annual base rent of approximately $14,966.55 (the "Second Lease"). Id. Defendants allege that the second rental space has never been used for the Company's business, and is exclusively employed by Lester and Lee to store their personal effects. Id.
In addition to the rental space, Lester and Lee allegedly hired several employees at excessive rates, and caused the Company to spend $4,000 on a safe and $20,000 on a website. They also spent exorbitant amounts courting business prospects, which have not generated any revenue for the Company.
The Company's first auction took place in October 2013, with subsequent monthly auctions being held at least through February 2014. According to Plaintiffs, these auctions generated average monthly sales of $130,000, far below the parties' expectations of $250,000. (Compl. ¶¶ 13-17.)
Plaintiffs allege that at a January 24, 2014 meeting, Capo requested to increase his membership percentage to 40%, and asked to reduce Lester's percentage to 20%. Plaintiff Lester agreed to reduce his membership interest to 20% in exchange for $68,750, and a guarantee that he would receive future payments equal to those made to Capo. (Compl. ¶ 39.)
Meanwhile, Defendants deny agreeing to pay Lester $68,750 at the meeting. (Answer, ¶¶ 39-40.) Instead, they allege that after months of mismanagement and deception, Lester and Lee finally revealed that the Company was "technically bankrupt."3 Five days after the Company meeting, on January 29, 2014, Lester surreptitiously wrote himself check number 154 from the Company's JP Morgan Chase bank account for $45,319.43, and authorized the Company's payroll service, Paychex, to pay himself $23,430.57, totaling $68,750.
Plaintiffs maintain that Lester drafted the check from the Company's account in reliance on the parties' agreement, but claim "Capo apparently changed his mind" and contacted JP Morgan Chase Bank to place a "fraud alert" on the Check. Lester alleges that Capo and Rosenblum lied to the bank's employees by stating that Lester had stolen cash from the Company's premises and defrauded the Company. Capo and Rosenblumare also alleged to have made false statements regarding Lester to the other members of the Company. (Compl. ¶ 183.)
Upon receipt of the fraud alert, JP Morgan Chase Bank prevented Lester from withdrawing the funds and closed the Company's bank account. Thus, neither party disputes that Defendants successfully prevented Lester from withdrawing the funds. (Third Party Compl. ¶ 32.)
It is also alleged that several acrimonious verbal exchanges took place during this time period. Lester asserts that Capo's statements to JP Morgan Chase Bank's employees, including that Lester stole cash from the Company's premises and that he committed fraud, amounted to defamation. Meanwhile, Defendants allege that Lee made false statements about Capo, telling other members that he was a "slow player" who made the Company look "stupid" in the media. (Third Party Compl. ¶ 36.) On January 28, 2014, Lee also told the...
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