Shyer v. Shyer

• Decision Date: 18 July 2019
• Docket Number: INDEX NO. 651109/2018
• Parties: CATHERINE SHYER, as preliminary executrix of the estate of ROBERT SHYER, Plaintiff and Counterclaim Defendant, v. CHRISTOPHER SHYER, JAMES SHYER, and ZYLOWARE CORPORATION, Defendants and Counterclaim Plaintiffs, and ZYLOWARE CORPORATION, Third Party Plaintiff, v. CATHERINE SHYER, individually, Third Party Defendant.
• Court: New York Supreme Court

2019 NY Slip Op 32138(U)

CATHERINE SHYER, as preliminary executrix of the estate of
ROBERT SHYER, Plaintiff and Counterclaim Defendant,
v.
CHRISTOPHER SHYER, JAMES SHYER, and
ZYLOWARE CORPORATION, Defendants and Counterclaim Plaintiffs,
and
ZYLOWARE CORPORATION, Third Party Plaintiff,
v.
CATHERINE SHYER, individually, Third Party Defendant.

INDEX NO. 651109/2018

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 3

July 18, 2019

NYSCEF DOC. NO. 220

MOTION DATE 01/02/2019

MOTION SEQ. NO. 006

DECISION AND ORDER

HON. JOEL M. COHEN:

The following e-filed documents, listed by NYSCEF document number (Motion 006) 151, 152, 153, 154, 155, 156, 158, 159, 160, 161, 162, 166, 167, 168, 169, 170, 171, 174, 175 were read on this motion to DISMISS THIRD-PARTY CLAIMS.

This motion relates to the Third Party Complaint brought by Zyloware Corporation ("Zyloware") alleging that Catherine Shyer, in her individual capacity, (i) tortiously interfered with a contract between Zyloware and the estate she was administering as preliminary executrix, and (ii) defrauded Zyloware by concealing certain information from the company in the course of applying for long-term disability benefits on behalf of her now-deceased husband.

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Ms. Shyer moves to dismiss these third-party claims under CPLR 3211(a)(7) for failure to state a cause of action. For the reasons set forth below, that motion is granted.

Factual Background

Zyloware is "the oldest family-owned and operated optical frame supplier in the United States." (Third Party Complaint ("TPC") ¶23) (NYSCEF Dkt. No. 135). The company was founded by Joseph Shyer. (Id. ¶1). For several decades, it was run by Joseph's sons, Robert Shyer and Henry Shyer. (Id. ¶23). Eventually, Robert and Henry's sons—Christopher Shyer and James Shyer, respectively—joined Zyloware and assumed significant leadership responsibilities within the company. (Id. ¶¶ 1, 36-40).

In March 2010, Robert, Henry, Chris and James entered into a Shareholders Agreement (NYSCEF Dkt. No. 154) and a Master Executive Employment Agreement (the "Employment Agreement") (NYSCEF Dkt. No. 155) (collectively, the "Succession Agreements") to formalize the succession of leadership in Zyloware.

The Shareholders Agreement

The Shareholders Agreement outlined the rights, responsibilities, and ownership interests between and among the four Shyers. Under the Agreement, each of them would hold a 25% stake in the company. (TPC ¶47). Christopher and James were designated co-chief executive officers of Zyloware, while Robert and Henry remained employed as executives and directors. (Id.). The Shareholders Agreement also set forth procedures for Zyloware to buy back Robert and Henry's Zyloware shares upon their deaths. (Id. ¶56). To that end, Section 6.1 provided:

In the event that a Signing Shareholder dies prior to the termination of this Agreement, then the Corporation shall purchase from the estate of that

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Deceased Shareholder, and the estate of that Deceased Shareholder shall sell to the Corporation, all of the Shares owned by that Deceased Shareholder at the time of his death at a price equal to the Purchase Price Per Share, determined as provided in Section 6.2 below and on the terms set forth in Section 6.4 below.

(Id. ¶57; Shareholders Agreement at 25).

Further, Section 6.6 "establishes a mandatory closing date, tied to the collection of Insurance Proceeds and to the appointment of the preliminary executrix of the Estate." (Id. ¶63). On that closing date, Section 6.6 requires that "the preliminary executor, executor or administrator of the Deceased Shareholder shall deliver to the Corporation certificates for all Shares being sold . . . and the Corporation shall deliver to the preliminary executor, executor or administrator of the Deceased Shareholder the required payment . . . ." (Shareholders Agreement at 29).

The Employment Agreement

The Employment Agreement includes two features that are particularly relevant to the dispute here. First, the Agreement provided that Robert (and Henry) "receive[d] substantial annual salaries/benefits for life," but "would lose certain of these benefits if no longer employed." (TPC ¶¶53, 55). These benefits included Zyloware's group health insurance coverage, and perks such as use of a corporate credit card and vehicle. (Id. ¶55). Second, the Employment Agreement allowed Zyloware to terminate Robert's employment if he suffered a "disability" within the meaning of the Agreement. (See Employment Agreement at 30 ("[T]he Board shall have the right to terminate an Executive's employment upon thirty (30) days' prior written notice in the event of such Executive's Disability")). "Disability," in turn, was defined as follows:

[T]he inability of an Executive to perform his functions as a shareholder, officer and/or director of the Corporation as provided herein, or the duties

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that he is required to perform . . . because of a physical, mental or emotional condition which persists for an aggregate of 120 days (which need not be consecutive) during any period of 360 consecutive days, as determined by a medical doctor selected by the Board, to whom each Executive hereby consents to present himself promptly for examination upon the Board's request.

(Employment Agreement at 5-6).

Catherine and Robert Shyer

Robert Shyer passed away on December 19, 2017. (TPC ¶23).

Ms. Shyer ("Catherine"), Robert's second wife, is the preliminary executrix of his estate (the "Estate"). (Id. ¶24). As relevant here, Zyloware's allegations against Catherine focus on her alleged interference with the Succession Agreements and her handling of Robert's long-term disability benefits.

On July 9, 2014, "Catherine obtained a New York Short Form Power-of-Attorney signed by [Robert]," which "stated that it would become effective upon written acceptance by Catherine." (Id. ¶¶105, 107). That same day, Robert executed a Last Will and Testament (the "Will") which, among other things, named Catherine as sole executor of Robert's estate. (Id. ¶104). Catherine accepted the power-of-attorney several months later, on November 6, 2014. (Id. ¶110). And on that day, Robert modified the Will to correct a mistake in the July 2014 version. (Id. ¶109).¹

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In 2015, Zyloware says, Catherine "persuaded Zyloware to continue employing [Robert] despite his declining health at a time when she had applied for a year's worth of long-term disability ('LTD')." (Id. ¶19). While Robert was assured a certain level of salary and benefits for life regardless of his employment status, his beneficiaries were not. If Robert were terminated under the "disability" provision of the Employment Agreement, Catherine and other beneficiaries "would have been relegated to less robust health coverage and would have lost other benefits, worth about $150,000 annually, including the lease and insurance payments for a second family car, a computer, cell phone, and travel expenses." (Id.). Therefore, Zyloware alleges, "[t]o avoid losing her benefits, Catherine concealed from [Robert's] own son and other Zyloware shareholders the fact that Robert, who was in obvious physical decline, had been diagnosed with dementia or symptoms consistent with dementia." (Id. ¶20).

Zyloware eventually retired Robert on November 30, 2017, about three weeks before he died. (Id. ¶23).

The Estate and the Closing

Catherine was appointed preliminary executrix of the Estate by the New York County Surrogate's Court on March 6, 2018. (Id. ¶¶6, 24).

The parties then scheduled the closing date for transactions under the Shareholders Agreement—i.e., the date on which certain share buyback provisions

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would kick in—for March 16, 2018. (Id. ¶158). On February 13, Zyloware's counsel had informed the Estate (through the Estate's counsel) that Zyloware intended to purchase Robert's remaining shares. Along with that notice, Zyloware's counsel provided the Estate's counsel with a copy of an accountant's calculation of the price Zyloware was willing to pay for those shares. (Id. ¶159).² Catherine, on behalf of the Estate, objected to the terms that Zyloware outlined, and Zyloware objected to those objections. Zyloware alleges that the Estate's actions ran "contrary to the Shareholders Agreement," (id. ¶165), while the Estate maintains that it was Zyloware's offer which breached the Agreement.

On the closing date, the Estate's counsel rejected Zyloware's "tender of a price and note that violate[d] the Shareholders Agreement and d[id] not protect the Estate's legitimate concerns and rights." (Id. ¶167). Zyloware alleges that, "[a]t Catherine's direction, the Estate has not delivered any of the Option or Remaining Shares to Zyloware, in material breach of the Shareholders Agreement." (Id. ¶66).

Procedural History

Catherine, in her capacity as preliminary executrix of the Estate, sued Zyloware and individual defendants Christopher, James, and Henry Shyer in March 2018. (Amended Complaint ("Am. Compl.") ¶¶7-9, 11-28) (NYSCEF Dkt. No. 29). In that action, Catherine alleged four causes of action—declaratory judgment, breach of

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contract, breach of fiduciary duty, and injunctive relief—stemming, in part, from the defendants' purported violation of the Shareholders Agreement. (Id. ¶1). The defendants moved to dismiss. In a Decision and Order dated July 19, 2018, this Court (Bransten, J.) dismissed the breach of contract claim against the individual defendants, dismissed the injunctive relief claim against all defendants, and otherwise denied defendants' motion. (NYSCEF Dkt. No. 64).

On November 14, 2018, Zyloware filed a Third Party Complaint alleging two causes of action against Catherine individually (rather than in her capacity as preliminary executrix of the Estate): (1) wrongful interference with contract, on the basis that Catherine induced the Estate to breach the Shareholders Agreement, and (2) fraud, based on Catherine's alleged failure to disclose to Zyloware the depth of Robert's...