Miller v. Miller

152 A.D.3d 662

58 N.Y.S.3d 573

Scott MILLER, et al., appellants,

v.Wolfe MILLER, et al., respondents.

Supreme Court, Appellate Division, Second Department, New York.

July 19, 2017.

Withers Bergman LLP, New York, NY (Jeremy A. Mellitz, John A. Farnsworth, and Kellianne Baranowsky of counsel), for appellants.

Certilman Balin Adler & Hyman, LLP, East Meadow, NY (Thomas J. McNamara and Nicole L. Milone of counsel), for respondents.

REINALDO E. RIVERA, J.P., SANDRA L. SGROI, ROBERT J. MILLER, and VALERIE BRATHWAITE NELSON, JJ.

In an action, inter alia, to recover damages for breach of fiduciary duty, the plaintiffs appeal, as limited by their brief, from so much of an order of the Supreme Court, Suffolk County (Martin, J.), dated June 4, 2015, as granted those branches of the defendants' cross motion which were for summary judgment dismissing the first through sixteenth, twenty-fifth, and twenty-sixth causes of action.

ORDERED that the order is reversed insofar as appealed from, with costs, and those branches of the defendants' cross motion which were for summary judgment dismissing the first through sixteenth, twenty-fifth, and twenty-sixth causes of action are denied.

In July 2011, the plaintiffs commenced this action against Wolfe Miller, Richard Kolsch, and 14 corporate entities, including Four Boys I, LLC, Four Boys II, LLC, Four Boys III, LLC, Four Boys IV, LLC, and Four Boys VII, LLC (hereinafter collectively the LLCs and individually Four Boys I, Four Boys II, Four Boys III, Four Boys IV, and Four Boys VII). Miller and Kolsch held ownership interests in and/or managed the LLCs, and the plaintiffs, who are Miller's children, each held an ownership interest in Four Boys I, Four Boys II, Four Boys III, and Four Boys IV, and allegedly held an ownership interest in Four Boys VII. The LLCs were formed under South Carolina law but maintained their principal place of business in New York. On or about June 18, 2014, the plaintiffs filed an amended complaint, wherein the first through sixteenth, twenty-fifth, and twenty-sixth causes of action pertained specifically to the LLCs and sought an accounting of each LLC and damages for breach of fiduciary duty, fraud, civil conspiracy, and unjust enrichment. The plaintiffs alleged that they were wrongfully denied an opportunity to inspect the LLCs' books and records; Kolsch, acting as manager of the LLCs, breached his fiduciary duties of care and loyalty to the plaintiffs; Miller was complicit in Kolsch's breaches of fiduciary duties; and Miller and Kolsch conspired to operate the LLCs in a manner that served only their pecuniary interests and was to the detriment of the LLCs and the plaintiffs.

While this action was pending, an action for judicial dissolution was also pending in the South Carolina Circuit Court (hereinafter the South Carolina Action). Prior to the commencement of this action, Four Boys III and Kolsch, as its managing member, commenced the South Carolina Action for judicial dissolution of Four Boys III pursuant to South Carolina Code § 33–44–801(4). The complaint in the South Carolina Action, dated January 6, 2011, alleged that Four Boys III was formed for the purpose of owning and operating certain real property in South Carolina and that subsequent to its purchase, the property value had diminished to the extent that Four Boys III's corporate purpose was unreasonably frustrated. In an amended complaint dated December 6, 2011, causes of action for judicial dissolution of the remaining LLCs—Four Boys I, Four Boys II, Four Boys IV, and Four Boys VII—were added, alleging that each LLC's corporate purpose was to own and develop certain real property in South Carolina and that subsequent to the purchase of each property, the property value had diminished to the extent that each LLC's corporate purpose was unreasonably frustrated. By virtue of their ownership interests, the plaintiffs and Miller were named as defendants in the South Carolina Action. On November 7, 2013, the South Carolina Circuit Court issued a final order dissolving the LLCs, appointing Kolsch to wind up the LLCs' affairs, and providing that as part of the winding up Kolsch could preserve the LLCs' business for a reasonable time in order to, inter alia, prosecute and defend actions and proceedings, whether civil, criminal, or administrative.

In this action, on July 29, 2014, the plaintiffs moved for summary judgment on several causes of action. The defendants cross-moved, inter alia, for summary judgment dismissing the first through sixteenth, twenty-fifth, and twenty-sixth causes of action, arguing that those causes of action were barred by the doctrines of full faith and credit and res judicata. In opposition to the cross motion, the plaintiffs argued that the issues raised in this action did not share the same subject matter as those raised in the South Carolina Action and therefore the South Carolina final order did not have preclusive effect.

The Supreme Court, inter alia, granted those branches of the defendants' cross motion which were for summary judgment dismissing the first through sixteenth, twenty-fifth, and twenty-sixth causes of action. The court determined that South Carolina's res judicata doctrine precluded not only relitigation of claims and issues that were decided, but also claims which could have been presented for determination. Based on this interpretation of South Carolina law, the court reasoned that the claims could have been raised in the South Carolina Action and thus would have been precluded in South Carolina. The court concluded that under the Full Faith and Credit Clause of the United States Constitution, it was bound to accord the South Carolina final order the same preclusive effect in New York as the order would have had in the issuing state. The plaintiffs appeal.

The Full Faith and Credit Clause of the United States Constitution requires that a " ‘judgment of a state court should have the same credit, validity, and effect, in every other court of the United States, which it had in the state where it was pronounced’ " (Matter of Luna v. Dobson, 97 N.Y.2d 178, 183, 738 N.Y.S.2d 5, 763 N.E.2d 1146, quoting Underwriters Nat. Assurance Co. v. North Carolina Life & Accident & Health Ins. Guaranty Assn., 455 U.S. 691, 704, 102 S.Ct. 1357, 71 L.Ed.2d 558 ; see U.S.C.A. Const. Art IV, § 1 ; Ho v. McCarthy, 90 A.D.3d 710, 711, 935 N.Y.S.2d 310 ; Matter of Bennett, 84 A.D.3d 1365, 1367, 923 N.Y.S.2d 715 ). One purpose of the clause is "to avoid the duplicate litigation of issues which have been determined by the courts of another state" ( Matter of Bennett, 84 A.D.3d at 1367, 923 N.Y.S.2d 715 ; see Matter of Luna v. Dobson, 97 N.Y.2d at 182, 738 N.Y.S.2d 5, 763 N.E.2d 1146 ). Absent a challenge to the jurisdiction of the issuing court (see Matter of Bennett, 84 A.D.3d at 1367, 923 N.Y.S.2d 715 ),...