Bastidas v. Garcia

81 Misc.3d 1234 (A)

202 N.Y.S.3d 727 (Table)

Alberto J. BASTIDAS, a shareholder of JGAB, Inc. suing derivatively ON BEHALF OF JGAB, INC., Plaintiff,

v.Javier GARCIA, Cario Inc. d/b/a Mama's Empanadas, Caso Inc. d/b/a Mama's Empanadas, and Laviana Inc. d/b/a Mama's Empanadas, Defendants,JGAB, Inc., Nominal Defendant.

Index No. 704700/2018

Supreme Court, Queens County, New York.

Decided on January 23, 2024

Leonard Livote, J.

The following numbered papers read on this motion by the defendants Javier Garcia, Cario Inc. d/b/a Mama's Empanadas (Cario), Caso Inc. d/b/a Mama's Empanadas, and Laviana Inc. d/b/a Mama's Empanadas for summary judgment dismissing the complaint.

Papers Numbered

Notice of Motion-Affirmation-Affidavit-Exhibits EF 97-111

Answering Affidavit - Exhibits EF 117-121

Reply Memorandum EF 126

Upon the foregoing papers it is ordered that the motion is determined as follows:

On March 28, 2018, the plaintiff Alberto J. Bastidas, a shareholder of JGAB, Inc. suing derivatively on behalf of JGAB, Inc. commenced this action to recover damages and for equitable relief against defendants arising from Garcia's alleged acts in opening restaurants using JGAB's trademarked name, Mama's Empanadas (trademark), which competed with JGAB's original restaurant of the same name (original restaurant), causing the original restaurant to close by failing to pay its taxes, and improperly transferring the trademark to other corporate entities. According to the complaint, plaintiff is president, Garcia is vice president, each of them are 50% shareholders of JGAB, and both are the only members of JGAB's board of directors. The complaint asserts causes of action for breach of fiduciary duty and waste against Garcia, unjust enrichment, conversion, unfair competition, and trademark infringement against all defendants, and pursuant to Business Corporation Law § 713 to vacate transfer of the trademark against Garcia and Cario. Defendants now move for summary judgment dismissing the complaint.

Plaintiff bases all his claims on allegations that Garcia violated his duty as an officer and director of JGAB by opening four restaurants that competed with the original restaurant and used the trademark without paying JGAB a royalty, causing JGAB's dissolution by failing to pay its expenses, and transferring the trademark to Cario without approval of JGAB's board of directors or shareholders. To support their motion, defendants present Garcia's affidavit sworn January 20, 2023, in which he attested that he and plaintiff agreed that each of them could use the trademark for other restaurants as long as they did not draw business away from the original restaurant and were operated by business entities that one of them owned. Defendants also point to plaintiff's deposition testimony that he and Garcia owned the trademark and were free to use it without paying a royalty. Defendants also deny that Garcia caused JGAB's dissolution.

Defendants first argue that the breach of fiduciary duty claim is time-barred. Since plaintiff seeks monetary damages from Garcia and does not allege he committed fraud, the breach of fiduciary claim is subject to the three-year statute of limitations (see Jadidian v Goldstein , 210 AD3d 969, 970 [2d Dept 2022] ; LMEG Wireless, LLC v Farro , 190 AD3d 716, 719—20 [2d Dept 2021] ; Siegler v Lippe , 189 AD3d 903, 905 [2d Dept 2020] ). The limitations period begins to run when defendant openly repudiated the fiduciary obligation (see Siegler , 189 AD3d at 905 ). Since plaintiff claims Garcia breached his fiduciary duty by opening competing restaurants from 2004 to 2011, and plaintiff commenced this action in 2018, the breach of fiduciary duty claim is time-barred (see Jadidian , 210 AD3d at 970 ). Under those circumstances, even accepting plaintiff's argument in opposition that the six-year statute of limitations applied, the breach of fiduciary duty claim would still be time-barred. The court rejects plaintiff's fixing Garcia's repudiation of fiduciary duties to 2013, when New York State closed JGAB, as it ignores the complaint's allegations of Garcia's conduct for years prior to that closure and allegedly causing it. Plaintiff also contends that the statute of limitations is tolled by the continuing wrongs doctrine, which must be based on "continuing unlawful acts and not the continuing effects of earlier unlawful conduct" (see Matter of Salomon v Town of Wallkill , 174 AD3d 720, 721—22 [2d Dept 2019] ; Affordable Hous. Assoc., Inc. v Town of Brookhaven , 150 AD3d 800, 802—03 [2d Dept 2017] ). Here, Garcia's alleged opening of a restaurant in 2004 constituted the repudiation of his fiduciary duty by which plaintiff was damaged, such that his future actions merely constituted consequences of that initial act (see generally Matter of Salomon , 174 AD3d at 721—22 ; Affordable Hous. Assoc., Inc. , 150 AD3d at 803 ; Pike v New York Life Ins. Co. , 72 AD3d 1043, 1048 [2d Dept 2010] ). Moreover, even viewing each subsequent restaurant opening and their use of the trademark by Garcia as independent improper acts, the allegation that he opened them from 2004 through 2011 still renders time-barred the action commenced in 2018. Therefore, dismissal of the breach of fiduciary duty claim is appropriate.

The second cause of action for waste is based on the allegations that Garcia failed to pay JGAB's expenses, which allowed him to take over the original restaurant and deprive JGAB of its asset. Diverting corporate assets for improper or unnecessary purposes constitutes waste (see SantiEsteban v Crowder , 92 AD3d 544, 546 [2d Dept 2012] ; Aronoff v Albanese , 85 AD2d 3, 5 [2d Dept 1982] ). A defendant may disprove a waste claim by demonstrating that the diversions were made in good faith and fair to the corporation (see SantiEsteban , 92 AD3d at 546 ). Garcia attested that plaintiff ran the corporation and was responsible for its finances. However, plaintiff testified that he and Garcia paid JGAB's bills. Although Garcia also attested that he only took money from the corporation when he and plaintiff would split profits, plaintiff testified that Garcia took money from JGAB's safe without his knowledge, which prevented plaintiff from paying JGAB's expenses. Considering the factual dispute between plaintiff's testimony and Garcia's affidavit, dismissal of the waste claim is not warranted.

With respect to the third cause of action for unjust enrichment, plaintiff must prove that another party was enriched, at plaintiff's expense, and that the other party's retention of the thing sought to be recovered is against equity and good conscience (see Fortuna Design & Constr., Inc. v 888 Crescent, LLC , 221 AD3d 861, 863 [2d Dept 2023] ; Canas v Oshiro , 221 AD3d 650, 651 [2d Dept 2023] ). "An unjust enrichment claim is not available where it simply duplicates, or replaces, a conventional contract or tort claim" ( Corsello v Verizon NY, Inc. , 18 NY3d 777, 790—91 [2012] ). Here, since the breach of fiduciary duty claim is time-barred as set forth above, the court rejects defendants’ contention that the unjust enrichment claim duplicates it. In any event, the factual issues whether Garcia was permitted to operate restaurants using the trademark, took money from JGAB's safe, and caused JGAB's dissolution by failing to pay its expenses preclude summary judgment dismissing the unjust enrichment claim (see Canas , 221 AD3d at 651 ).

Regarding the fourth cause of action, conversion requires proof of plaintiff's ownership or superior possessory right to identifiable property and defendants’ unauthorized exercise of dominion over the property excluding plaintiff's right (see Mohrman v Johns , 210 AD3d 1075, 1076 [2d Dept 2022] ; Sammy v First Am. Tit. Ins. Co. , 205 AD3d 949, 956 [2d Dept 2022] ). A conversion claim may be based on specifically identifiable money (see Abraham v. Torati , 219 AD3d 1275, 1282 [2d Dept 2023] ; Petrone v Davidoff Hutcher & Citron, LLP , 150 AD3d 776, 777—78 [2d Dept 2017] ), such as specific settlement proceeds (see RD Legal Funding Partners, LP v Worby Groner Edelman & Napoli Bern, LLP , 195 AD3d 968, 970 [2d Dept 2021] ). Although defendants establish that plaintiff's conversion claim is not based on specifically identifiable money, they fail to demonstrate that the trademark is not a proper subject for a conversion claim. Defendants mistakenly rely on Thyroff v Nationwide Mut. Ins. Co. (8 NY3d 283, 292—93 [2007] ) to support their contention that a conversion claim may not be based on intangible property. To the contrary, the Court of Appeals held that a conversion claim may be based on electronic records, which were intangible property (see id. at 292-93 ). In addition, the purpose of the Fair Trade Law is "to protect the property and good will of the producer or owner in his trade name or trade-mark from injury or unfair competition by price cutting or discounts on resale" ( U. S. Pioneer Elecs. Corp. v Dist. Sound , 47 AD2d 142, 144 [1st Dept 1975] ), which indicates that a property interest in a trademark may exist. Thus, dismissal of the conversion cause of action is unwarranted.

The fifth cause of action seeks to vacate the allegedly improper transfer of the trademark to Cario pursuant to Business Corporation Law § 713. Business Corporation Law § 713 [b] permits a corporation to void a transaction with another corporation in which at least one of its directors are directors or officers of or have a substantial financial interest in the other corporation, where the transaction was not approved pursuant to Business Corporation Law § 713 [a], unless it is shown to be fair and reasonable to the...