Roos v. Aloi
| Decision Date | 19 February 1985 |
| Docket Number | No. 2,No. 1,1,2 |
| Citation | 127 Misc.2d 864,487 N.Y.S.2d 637 |
| Court | New York Supreme Court |
| Parties | , 41 UCC Rep.Serv. 971 Richard K. ROOS, individually and as an Officer and Director of DJR Card & Gift Shop, Inc., d/b/a Bethpage Stationery and Richard K. Roos, Ltd., Plaintiffs, v. James ALOI, Sr., individually and as an Officer and Director of DJR Card & Gift Shop, Inc., d/b/a Bethpage Stationery, and DJR Card & Gift Shop, Inc., and Debbie Ehret a/k/a Debbie Aloi, individually and as Secretary; James Aloi, Jr., individually and as Treasurer of DJR Card & Gift Shop, Inc., Joel Greenfield, and DJR Card & Gift Shop, Inc., Defendants. ActionJames ALOI, Sr., Plaintiff, v. Richard K. ROOS, Defendant. Action |
Young, Symons & Rinear by Edward Young, West Babylon, for Richard Roos, plaintiff in Action No. 1.
William H. Kain, Williston Park, for defendants in Action No. 1.
Morris Abolafia, Oceanside, for plaintiff in Action No. 2.
These actions concern the rights and obligations of the two shareholders of a close corporation 1 which owns and operates a retail card and gift shop located at 578 Stewart Avenue, Bethpage, New York.
In action no. 1, in a rambling complaint, plaintiff Richard K. Roos (herein referred to as "Roos") alleges that he is a shareholder in DJR Card & Gift Shop, Inc. (herein referred to as "DJR"), and that he is entitled to certain benefits under a shareholders agreement with James Aloi, Sr. (herein referred to as "Aloi"), the only other shareholder in DJR. Roos seeks, inter alia, to enforce the shareholders agreement and compel DJR to pay certain monies allegedly due under the said agreement. Roos further requests an accounting, the appointment of a receiver and punitive damages.
In action no. 2, Aloi alleges, inter alia, that on July 13, 1981, an oral agreement was entered into wherein Roos agreed to sell his stock in DJR to Aloi. Aloi seeks to enforce the said oral agreement. In addition, Aloi alleges that Roos made fraudulent misrepresentations causing him to sustain money damages.
A joint trial of both actions was directed by order dated November 28, 1984 (Velsor, J.).
Aloi has interposed multiple defenses to enforcement of the shareholders agreement in action no. 1, including the following:
Enforcement of this agreement is contrary to the public policy of this state since it mandates payments to the shareholders regardless of the rights of the creditors of DJR.
Richard K. Roos is the President, a director and a stockholder of Richard K. Roos, Ltd., a corporation formed in 1979 for the purpose of making loans to other corporations and to Roos himself. Interest on these loans is the sole income of Ltd. In 1982, Roos transferred all of his stock to his former wife Patricia, except for one share retained by Roos who stated that he is the sole member of the Board of Directors. Roos testified that he was present at a Board of Directors' meeting which authorized Ltd. to enter into the subject shareholders agreement.
Aloi was in the business of operating a retail card shop. In 1979, he was the owner and operator of a store known as "Debbie & Jim's" located at 400 North Wantagh Avenue, Wantagh, New York. Roos and Aloi first met in 1979 at Aloi's retail store when they were introduced by a third party with regard to a possible loan by Roos to Aloi. Roos agreed to have Ltd. lend Aloi $5,000.00 on condition that Aloi incorporate the business, which he did under the corporate name of Debbie & Jim's Card Shop Inc. (herein referred to as "Debbie & Jim's"). Thereafter, an additional loan in the sum of $5000.00 was made by Ltd, and certain security agreements were executed by Debbie & Jim's.
The parties saw a newspaper advertisement regarding a retail stationery store for sale in Bethpage, New York, located at 578 Stewart Avenue, Bethpage, New York. After seeing the store and reviewing the gross receipts and expenses, the parties agreed to purchase the Bethpage store on the following terms: Roos would buy 50% of the stock of Debbie & Jim's from Aloi for the sum of $17,500.00; and Roos and Aloi would together form a new corporation, DJR Card & Gift Shop Inc., in which Roos and Aloi would each own 50% of the outstanding stock. In this venture, Roos would contribute another $17,500.00, and Aloi would turn over the $17,500.00 he had received for 50% of Debbie & Jim's. DJR would then purchase the retail store for the total sum of $35,000.00.
DJR was incorporated in or about May, 1980. Subsequent to the signing of the shareholders agreement, DJR purchased all the shares of stock and assets of 578 Page, Inc., the then owner of the retail store. DJR also received an assignment of said corporation's interest in the lease of the said store.
The down payment for the purchase of the Bethpage store was made by Ltd.; and, thereafter, the shareholders agreement was negotiated and signed by Roos and Aloi. By the terms of the agreement, Roos and Aloi were each to own 50% of the outstanding stock of DJR. Roos was to be President and Aloi Vice President of the corporation. Aloi was to be a full-time working partner. One of the terms of the agreement essential to Roos' cause of action is paragraph 8(B) which provides as follows:
By an addendum to the main shareholders agreement dated June 2, 1980, paragraph 8(B) was amended in a manner not relevant to the determinations herein. The Court notes that while the main agreement was signed by only Roos and Aloi, the addendum agreement was also signed by Aloi individually and on behalf of DJR.
DJR did, in fact, gross in excess of $5000.00 per week for some period of time, but Aloi failed and refused to make the prescribed payments of $350.00 per week to Ltd.
It is clear from the undisputed evidence that Roos and Aloi voluntarily and intentionally entered into a shareholders agreement wherein each was to own 50% of the outstanding stock of DJR. The agreement itself so states in express, unambiguous language. The accountant set up the books and records so as to reflect such ownership. The tax returns indicated such ownership. Both parties expressly conceded the existence of this relationship in their pleadings. Moreover, Aloi, in his testimony conceded this relationship.
After DJR's purchase of the Bethpage retail store, Aloi, his son James Aloi, Jr. and Debbie Aloi, his daughter-in-law, operated and managed the store on a seven-day per week basis. Although the corporation grossed in excess of $5000.00 per week, Aloi refused to make the prescribed $350.00 weekly payments to Ltd. and this litigation resulted.
During this period, attempts were made by Aloi to purchase Roos' stock interest in the corporation. In action no. 2, Aloi contends that he and Roos entered into an oral agreement wherein Roos agreed to sell his stock to Aloi and that Roos breached that agreement.
The Court finds that on July 13, 1981, Roos and Aloi entered into an oral agreement wherein Roos agreed to sell his 50% stock interest in DJR to Aloi for the sum of $55,000.00 payable in 120 monthly installments. The terms of the oral agreement were set forth in a tape recording made by attorney William H. Kain at his office on July 13, 1981. At that time, the parties agreed that they would enter into a more formal written contract amplifying the terms of the oral agreement.
Further, the Court finds that, based upon the agreement by Roos to sell his stock to him, Aloi made certain payments of corporate obligations, including a $1700.00 monthly payment on the mortgage on the retail store.
The Court finds that, thereafter, Roos changed his mind and declined to sell his stock. No written agreement with regard to the sale of stock by Roos to Aloi was consummated; no money was paid to Roos for the stock and the stock was never delivered to Aloi. The Aloi cause of action, therefore, is based upon the oral agreement as formalized by the tape recording. In addition, Aloi alleges that the representation by Roos to sell his stock was fraudulent, and he relied upon said representation and, as a result, paid certain corporation obligations with funds received from his son.
At the outset, it must be noted that the transactions under scrutiny involve a close corporation so that failure to adhere to the intricacies of the Business Corporation Law will not necessarily be fatal as to this type of corporation which, in this case, is equally owned by only Roos and Aloi. The Court will not require strict compliance with corporate formalities where this will serve to frustrate the intention of the parties and create injustice. This is not an agreement between the corporation and an outsider, but between the two sole equal shareholders of a close corporation. Where warranted, this Court may, in effect, disregard the corporate form and treat the shareholders as co-partners. Further, in such close corporations, certain formalities may be waived. See Leslie, Semple & Garrison, Inc. v. Gavit & Co., Inc., 81 A.D.2d 950, 439 N.Y.S.2d 707 (3d Dept.1981); Weiss v. Gordon, 32 A.D.2d 279, 301 N.Y.S.2d 839 (1st Dept.1969); Matter of Ostwald's Estate, 20 Misc.2d 1001, 189 N.Y.S.2d 472 (Sur.Ct. Richmond Co. 1959). Courts should not shut their eyes to the realities of business life. Haff v. Long Island Fuel Corp., 233 App.Div. 117, 251 N.Y.S. 67 (2d Dept.1931).
The defendant further asserts that the agreement is void as against public policy because it requires mandatory payment to the shareholders, irrespective of creditors' claims, and thereby effects a fraud on the creditors. This defense is also without merit. Salaries and executive compensation are usually determined by the...
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