Lama v. 3681 Broadway HDFC

2019 NY Slip Op 31061(U)

FRANKLIN LAMA, LIDIO ZAPATA, RAMONA BAUTISTA, JUAN TAVARES, ILUMINADA BLANCO,INDIVIDUALLY AND DERIVATIVELY AS SHAREHOLDERS OF THE 3681 BROADWAY HDFC, Plaintiff, v. THE 3681 BROADWAY HDFC, MIRTHA HASBURN, ANTONIO HASBUN, CELINA ALMONTE,BEATRIZ SANTANA, CRISTIAN DELGADO, VALERIE MATOS, MICHELLE THEN,BOARD OF DIRECTORS OF THE 3681 BROADWAY HDFC,THE CITY OF NEW YORK, JOHN DOE, JANE DOE Defendant.

INDEX NO. 656634/2016

SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PART IAS MOTION 52EFM

RECEIVED: April 19, 2019

April 11, 2019

NYSCEF DOC. NO. 114

PRESENT: HON. ALEXANDER M. TISCH Justice

MOTION DATE 10/31/2018

MOTION SEQ. NO. 005

DECISION AND ORDER

The following e-filed documents, listed by NYSCEF document number (Motion 005) 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113 were read on this motion to/for SUMMARY JUDGMENT(AFTER JOINDER).

Upon the foregoing papers, defendants, excluding The City of New York,¹ move pursuant to CPLR 3212, for an order granting them summary judgment and dismissing plaintiffs' amended complaint. Plaintiffs oppose the motion and defendants submit a reply. For the reasons set forth below, defendants' motion is granted in part, and denied in part as follows.

BACKGROUND

Plaintiffs are individual shareholders and tenants of an entity known as 3681 Broadway Housing Development Fund Corporation (3681 HDFC). 3681 HDFC is organized, pursuant to Private Housing Finance Law, as a cooperative corporation whose objectives include providing affordable housing to persons of low income (amended complaint, at 1). 3681 HDFC is the owner of the cooperative building (Co-op) at issue in this case. The Co-op is located at 3681 Broadway, New York, NY (id.). Defendantsinclude, among others, 3681 HDFC, its Board of Directors (Board), as well as individual defendants. Plaintiffs allege that beginning in or around 2013, the corporate defendants "began engaging in a pattern of conduct detrimental to 3681 HDFC and its individual shareholders" (id. at 5, ¶ 18). Prior to the commencement of this action, plaintiffs served 3681 HDFC's Board with a written demand requesting, among other things, the issues raised in this motion (NYSCEF Doc. No. 26). Plaintiffs claim that their good faith efforts to resolve the issues were ignored by defendants (id. at 2). As a result, plaintiffs filed the instant action.

Plaintiffs commenced this shareholder derivative action on December 20, 2016 by filing a summons and verified complaint. Plaintiffs filed an amended complaint which alleged various instances of misconduct by defendants.² Plaintiffs bring their claims individually and derivatively as shareholders on behalf of 3681 HDFC. Plaintiffs claim that defendants breached their fiduciary duty based on the: (1) failure to pay real estate taxes and utility services; (2) unauthorized payments to non-parties for construction work performed at the property without disclosure to all shareholders; (3) failure to abide by specific voting requirements; (4) election of unqualified directors and officers; and (5) lack of transparency with the books, records and use of assets of 3681 HDFC (id. at 2). Plaintiffs' amended complaint set forth causes of action for breach of fiduciary duty; accounting; declaratory judgment; relief pursuant to BCL § 619; and breach of contract (id. at 12-16). Defendants filed a verified answer and now move for summary judgment dismissing the amended complaint pursuant to CPLR 3212.

DISCUSSION

A motion for summary judgment "shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party" (CPLR 3212 [b]). However, "facts must be viewed in the lightmost favorable to the non-moving party" (Vega v Restani Constr. Corp., 18 NY3d 499, 503 [2012] [internal quotation marks and citations omitted]), and "the motion shall be denied if any party shall show facts sufficient to require a trial of any issue of fact" (CPLR 3212 [b]). Once the moving party has demonstrated the absence of any triable issue of fact through the submission of sufficient evidence, "the burden shifts to the opposing party to submit proof in admissible form sufficient to create a question of fact requiring a trial" (Kershaw v Hospital for Special Surgery, 114 AD3d 75, 82 [1st Dept 2013]).

I. Breach of Fiduciary Duty

Defendants move for summary judgment dismissing plaintiffs' first cause of action for breach of fiduciary duty. In support of their motion, defendants argue that the first cause of action is procedurally defective because the allegations set forth therein are not pled with particularity as required by CPLR 3016 (b). Defendants also argue that the allegations in the first cause of action do not rise to the level of a breach of fiduciary duty.

The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct (Pokoik v Pokoik, 115 AD3d 428, 429 [1st Dept 2014]). A cause of action sounding in breach of fiduciary duty must be pleaded with particularity (CPLR 3016 (b); (Burry v Madison Park Owner, LLC, 84 AD3d 699 [1st Dept 2011]). A fiduciary relationship arises when one is "under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation" (Roni LLC v Arfa, 18 NY3d 846, 848 [2011]). CPLR 3016 (b), entitled "Particularity in specific actions," reads as follows:

"(b) Fraud or mistake. Where a cause of action or defense is based upon misrepresentation, fraud, mistake, wilful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail."

A review of plaintiffs' first cause of action reveals that a claim for breach of fiduciary duty was sufficiently pled. First, the individual defendants, Antonio Hasbun, Celina Almonte, Beatriz Santana, Cristian Delgado, Valerie Matos, and Michelle Then are alleged to be members of the Board (amended complaint at 3, ¶¶ 7-14). Mirtha Hasbun is alleged to have acted as President of the Board, as well as the Managing Agent of 3681 HDFC (id. at 5, ¶ 18). Next, it is further alleged that the individually named defendants, in their roles as board member, and/or officers, the Board, and Mirtha Hasbun, as Managing Agent, acted in a manner inconsistent with the best interest of 3681 HDFC and failed to act or otherwise take appropriate action to protect the interests of 3681 HDFC (id. at 12, ¶¶ 52-52). Finally, plaintiffs' also claim 3681 HDFC is entitled to damages in the sum of $500,000. Moreover, plaintiffs set forth particular allegations that Ms. Hasbun, as Managing Agent and Board member, together with the other individual Board members, neglected her obligation to, among other things, collect all maintenance and rent payments owed to 3681 HDFC and arbitrarily enforced collection against certain tenants and tenant-shareholders (amended complaint at 12, ¶ 52). Accordingly, the Court concludes that the amended complaint asserts particularized facts and details (see Shearson Lehman Bros. v Bagley, 205 AD2d 467 [1st Dept 1994]).

Next, defendants argue that the allegations set forth in the first cause of action do not rise to the level of a breach of fiduciary duty. In their role as Board members, defendants owe a fiduciary duty to the corporation's shareholders "to act solely in the best interest of all shareholders" (Berkowitz v 29 Woodmere Blvd. Owners', Inc., 50 Misc 3d 843, 848 [Sup Ct, Nassau County 2015], quoting Bryan v West 81st Street Owners Corp., 186 AD2d 514, 515 [1st Dept 1992]; see also Murphy v State, 14 AD3d 127 [2d Dept 2004]). As a general rule, the managing agent of a cooperative corporation owes a fiduciary duty to the cooperative corporation, but not to the individual shareholders (Caprer v Nussbaum, 36 AD3d 176 [2d Dept 2006]). An exception may arise where a managing agent has aided and abetted a breach of fiduciary duty (id. at 191).

In support of their motion, the individually named defendants argue that they do not owe a fiduciary duty to plaintiffs outside their official capacity as members of the Board. However, nothing in the first cause of action alleges that any individual defendant acted outside their official capacities, and in fact, the plaintiffs clearly state that "each of the Defendants identified owed a fiduciary duty to Plaintiffs and to 3681 in their roles as Board of Directors and/or Officers and, in the case of Mirtha Hasbun, as the Managing Agent" (id. at 12, ¶ 52). Plaintiffs' first cause of action specifically names each individual defendant, as well as the Board and Mirtha Hasbun, as Managing Agent. Individual directors may not be subject to liability absent allegations that they committed separate tortious acts (Stalker v Stewart Tenants Corp., 93 AD3d 550 [1st Dept 2012]; see Konrad v 136 E.64th St. Corp., 246 AD2d 324 [1st Dept 1998]).

Defendants further argue that the actions of the Board are protected by the Business Judgment Rule and their determinations are entitled to deference from the court (Matter of Levandusky v One Fifth Avenue Apartment Corp., 75 NY2d 530 [1990]). The Court of Appeals in Matter of Levandusky v One Fifth Ave. Apt. Corp. held that the business judgment rule is the proper standard to evaluate a cooperative, acknowledging that lessees "consent to be governed, in certain respects, by the decisions of a board," who is exercising authority and is "responsible for running the day-to-day affairs of the cooperative" (75 NY2d 530, 536 [1990]). "[A]s with any authority to govern," cooperative boards, like corporate boards, "hold potential for abuse through arbitrary and malicious decision making, favoritism, discrimination, and the like"...