Tomassetti v. Falco

• Decision Date: 28 April 2015
• Docket Number: Index no. 508599/14
• Citation: 2015 NY Slip Op 30947 (U)
• Court: New York Supreme Court
• Parties: LORIN TOMASSETTI, et al. Plaintiff(s) v. MADELINE B. FALCO, et al. Defendant(s)

2015 NY Slip Op 30947(U)

LORIN TOMASSETTI, et al. Plaintiff(s) v. MADELINE B. FALCO, et al. Defendant(s)

Index no. 508599/14

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS Commercial Part 10

RECEIVED NYSCEF: June 4, 2015

FILED: May 27, 2015

April 28, 2015

NYSCEF DOC. NO. 65

DECISION/ORDER

Recitation, as required by CPLR 2219(a), of the papers considered on the review of this motion to dismiss the action pursuant to CPLR 3211(a)(1), (5) and (7) and CPLR 3024(a)

PAPERS

NUMBERED

Notice of Motion and Affidavits Annexed

Answering Affidavits

Replying Affidavits

Memorandum of Law

,5&6

Upon the foregoing cited papers, the Decision/Order on this motion is as follows:

This action is brought by Lorin Tomasseti as a minority owner of four limited liability corporations alleging, inter alia, mismanagement of the LLCs by her aunt, Madeline B. Falco. The four LLCs are identified in the complaint as: 2250 East 69^th Street, LLC, (2250) the owner of 2250 E. 69^th Street, Brooklyn, NY; 2300 East 69^th Street, LLC, (2230) the owner of 2300 E. 69^th Street, Brooklyn, NY; Wielka, LLC, the owner of 2350 E. 69^th Street, Brooklyn, NY; and Point Development, LL C, (Point) the owner of 2401-2423 E. 69^th Street, Brooklyn, NY.

The complaint alleges that plaintiff has a 16% interest (though possible less during some relevant periods) in both 2235 and 2300 and a 25% interest in both Wielka and Point, and that Madeline Falco has approximately a 69% interest in 2235 and 2300, a 75% interest in Wielka and a 25% interest in Point. The remaining 50% interest in Point is held equally by Madeline's sons, Joseph and Salvatore.

The complaint alleges that the property allegedly owned by 2250 and 2300 are used by Falco Supply & Equipment Corp. and Falco Construction Corp. to store equipment and material and that Madeline Falco is the sole or majority owner of both Falco Supply & Equipment Corp. and Falco Construction Corp. (the Falco defendants). The gist of the complaint in regard to these two LLCs is that Madeline Falco as managing member of 2250 and 2300 sets the rent for these properties below fair market rent and has failed to render an account for the LLCs.

The allegations regarding the Wielka property are that it is under the control of Madeline Falco. That the property is under a triple net lease to Mill Basin Health & Racquet Club and that the LLC has failed to make appropriate distributions of the proceeds it receives for rent or provide plaintiff with access to the records of the LLC.

The allegations regarding the Point properties are that they were used to park construction equipment by Falco Supply & Equipment Corp. and Falco Construction Corp. and that leakage from this equipment contaminated the property. A prospective sale of the property in 2014 was cancelled as a result of the contamination and decontamination will result in substantial costs. The allegations in regard to Point are directed to Joseph Falco, as the managing partner of Point, and Madeline, as alleged de facto manager.

It is worth noting that the motion of the accountant defendants to dismiss the seventeenth, eighteenth and nineteenth causes of action was granted by short form order dated March 26, 2015.

Turning to the causes of action that remain, as an initial matter, the first cause of action is for a declaratory judgment declaring void ab initio amendments to the operating agreements of 2250 and 2300, both dated September 8, 2011. These amendments, if they are enforced, substantially circumscribe, if not entirely preclude plaintiff proceeding on the second, third, sixth, seventh, tenth, eleventh, fourteenth and fifteenth causes of action. These amendments expressly provide:

"4.6.3 Each Member understands and acknowledges that the conduct of the Company's business may involve business dealings and undertakings with Members and their Affiliates. In any of those cases, those dealings and undertakings shall be at arm's length and on commercially reasonable terms, expect however for any agreements, leases and/or rental arrangements entered into, whether formally or informally, and whether in writing or orally, with Falco Construction Corp. or Falco Supply & Equipment Corp., a/k/a Falco Supply Corp., which are owned exclusively, as of the date hereof, by Susan Falco in her capacity as the current Trustee of the Susan Falco Revocable Trust u/a dated June 16, 2009, as amended, and Madeline B. Falco"

On September 11, 2011, Susan Falco (plaintiff's grandmother and Madeline's mother) passed away and ownership of all, or substantially all, of Falco Construction Corp. and Falco Supply & Equipment Corp. passed to Madeline B. Falco. Plaintiff asserts that she was coerced into signing the amendments by threats by Madeline B. Falco "to use her power of attorney to disinherit plaintiff from her grandmother's will".

In sum, the first cause of action seeks a declaratory judgment voiding the amendments that permit non-arms length transactions between 2250 and 2300 and the Falco defendants. The second, third, sixth, seventh, tenth, eleventh, fourteenth and fifteenth causes of action assert mismanagement by Madeline B. Falco in connection with non-arms length transactions entered into by 2250 and 2300 with the Falco defendants and/or for an accounting. The fourth, fifth,eighth, ninth, twelth, thirteenth and twentieth cause of action all concern the alleged pollution of the Point properties and the failure of Madeline and Joseph to prevent it, or, in regard to the twentieth cause of action, the Falco defendants for causing it. The sixteenth cause of action is for an accounting in connection with the Wielka property (the rented property).

The remaining defendants move to dismiss the action asserting that the stipulation discontinuing with prejudice in a prior action (4267/10) brought by plaintiff's mother should be given res judicata effect as to the instant action and that the first cause of action fails to state a cause of action to void the amendments in regard to 2250 and 2300.

At the outset of this court's analysis is important to note that neither Wielka or Point were parties to the prior action. Contamination of the properties owned by Point are not among the allegations raised in the prior action. Inadequate distributions from Wielka are not among the allegations raised in the prior action. Thus, to the extent the resolution of the prior action may have resolved issues concerning the management of the LLCs, it could only apply to 2250 and 2300, which morphed out of Stasna LLC/Maly LLC and Dobry LLC/Nadzieja LLC, respectively, the later LLCs having been parties to the prior action and their management an issue in that case.

"Under the doctrine of res judicata, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The rule applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation... [U]nder New York's transactional analysis approach to res judicata, "once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy" ( O'Brien v. City of Syracuse, 54 N.Y.2d 353, 357, 445 N.Y.S.2d 687, 429 N.E.2d 1158 [1981], citing Matter of Reilly v. Reid, 45 N.Y.2d 24, 29-30, 407 N.Y.S.2d 645, 379 N.E.2d 172 [1978]". (In re Hunter, 4 N.Y.3d 260, 827 N.E.2d 269, 794 N.Y.S.2d 286, 2005 N.Y. Slip Op. 02361 [2005]).

"'Under the doctrine of res judicata, a disposition on the merits bars litigation between the same parties, or those in privity with them, of a cause of action arising out of the same transaction or series of transactions as a cause of action that either was raised or could have been raised in the prior proceeding.' " (Douglas Elliman, LLC v. Bergere, 98 A.D.3d 642, 642-643, 949 N.Y.S.2d 766, quoting Abraham v. Hermitage Ins. Co., 47 A.D.3d 855, 855, 851 N.Y.S.2d 608). (Pedote v. STP Associates, LLC, 124 A.D.3d 856, 998 N.Y.S.2d 894, 2015 N.Y. Slip Op. 00738 [2d Dept. 2015]).

"Generally, to establish privity the interests of the nonparty must have been represented by a party in the prior proceeding ( see Green v. Santa Fe Indus., 70 N.Y.2d 244, 253, 519 N.Y.S.2d 793, 514 N.E.2d 105). The Court of Appeals has observed that privity is an "amorphous concept," not easily applied ( Buechel v. Bain, 97 N.Y.2d 295, 304, 740 N.Y.S.2d 252, 766 N.E.2d 914, cert. denied 535 U.S. 1096, 122 S.Ct. 2293, 152 L.Ed.2d 1051 [internal quotation marks omitted]),but persons in privity include those whose interests are represented by a party to the previous action and those "[whose] own rights or obligations in the subsequent proceeding are conditioned in one way or another on, or derivative of, the rights of the party to the prior litigation" ( D'Arata v. New York Cent. Mut. Fire Ins. Co., 76 N.Y.2d 659, 664, 563 N.Y.S.2d 24, 564 N.E.2d 634)." (Bayer v. City of New York, 115 A.D.3d 897, 983 N.Y.S.2d 61, 2014 N.Y. Slip Op. 02005 [2 Dept., 2014]).

The plaintiff in this action was not a party to the prior action. There is nothing in the record showing that plaintiff had notice of the prior action. The submissions on this motion and the record in the prior action fail to establish that the interests of Ms. Tomasseti in 2250 and 2300 are derived exclusively through her mother. To the extent a portion of her interests are derived through her mother, that portion may be bound by the prior resolution. Conversely, to the extent her interests are not derived through her mother, the prior resolution may not be binding on her. It is worth noting that the stipulation of discontinuance in the prior action makes...