New York State Unified Court System

'C (; V)
INDEX
NO. 9620-
SUPREME COURT - STATE OF NEW YORK
IAS TERM PART 18 NASSAU COUNTY
PRESENT:
HONORABLE
Justice
LEONARD B. AUSTIN
In the Matter of
Motion RID: 7-30Submission Date: 11- 17Motion Sequence No. : 001 002/MOT D
COUNSEL FOR PETITIONER
The Application of GARY D' ANNUNZIO
Holder of Fifty Percent of All
Outstanding Shares of Albano AlC &
Mechanical Service Corp.
Bailey & Sherman, P .
42-21 Douglaston Parkway
Douglaston, New York 11363
COUNSEL FOR RESPONDENT
Peter A. Silverstein ,
Petitioner
Esq.
40 Cuttermil Road
Great Neck, New York 11021
- against -
Tashlik , Kreutzer , Goldwyn & Crandell
For the Dissolution of ALBANO AlC &
MECHANICAL SERVICE CORP. , a
Domestic Corporation
40 Cuttermil Road
Great Neck, New York 11021
Respondent.
ORDER
The following papers were read on Petitioner s application for the judicial
dissolution of Albano AlC & Mechanical Service Corp. and Respondent's motion to
dismiss this proceeding:
Order to Show Cause dated July 19, 2004;
M. Hendler , Esq. dated July 15, 2004;
Affidavit of GarY D' Annuzio sworn to on July 15, 2004;
Notice of Motion dated November 9 , 2004;
Affirmation of Peter A. Silverstein , Esq. dated November 9, 2004;
Affidavit of George Albano sworn to on November 8, 2004;
Affirmation of Ri chard
AlC
ANNUNZIO v. ALBANO
& MECHANICAL SERVICE CORP.
Index No. 9620Affidavit of FelixDedalle sworn to on July 17 , 2004;
Respondent's Memorandum of Law;
Affirmation of Peter A. Silverstein, Esq. dated November 16 , 2004;
Affirmation of Richard M. Hendler , Esq. dated November 15 , 2004;
Affidavit of Gary D' Annunzio sworn to on November 12 , 2004;
Affidavit of George Albano sworn to on November 8 , 2004;
Affirmation of Peter A. Silverstein , Esq. dated November 9 2004;
Affidavit of George Albano sworn to on July 19, 2004;
Respondent's Answer dated November 8 , 2004;
Petitioner s Reply dated November 23 , 2004;
Transcript of proceedings Before Special Referee Frank Schellace dated May 19 , 2005.
Petitioner, Gary D' Annunzio (D' Annunzio ), seeks the judicial dissolution of
Respondent Albano
AlC
Mechanical Service Corp. (" Mechanical" ).
D'
Annunzio also
seeks a preliminary injunction enjoining Respondent's agents including George Albano
("George ) and Donna Albano (" Donna ) (collectively "Albano ) from using corporate
funds except in the regular course of corporate business and from using corporate
credit cards except for corporate expenses.
BACKGROUND
Procedural Background
Annunzio petitioned for the judicial dissolution of Mechanical. Albano moved to
dismiss the petition, pursuant to CPLR 3211 (a)(8), on the grounds that the order to
show cause and supporting papers had not been served as directed by the order to
show cause and, pursuant to CPLR 3211 (a)(7), on the grounds that the petition failed to
state a cause of' action.
By order dated March 16, 2005, the Court decided that motion by setting the
matter down for a traverse hearing before Special Referee Frank Schellace on April 19
ANNUNZIO v. ALBANO AlC & MECHANICAL SERVICE CORP.
Index No. 96202005. D' Annunzio
s application to judicially dissolve Mechanical and Albano s motion to
dismiss were held in abeyance pending the outcome of the traverse hearing.
The parties appeared before Special Referee Schellace for the traverse hearing
on May 19, 2005.
During colloquy on the record, Peter A Silverstein , Esq., who was
then Respondent's attorney, admitted that he had told this Court in chambers, on July
19, 2004 , that he was authorized to and would accept service of the order to show
cause and supporting papers on behalf of Mechanical and Albano. Silverstein
conceded that he was given copies of the signed order to show cause by court
personnel. He asserted that this was insufficient service since copies of the papers
were never given to him by Richard M. Hendler, Esq. , who was then Petitioner
attorney.
Based upon these statements , Special Referee Schellace determined that
service had been properly made on the Respondent and referred the matter back to this
Court. Petitioner has not moved to confirm and Respondent has not moved disaffirm
the report of Special Referee Schellace. In view of this, the Court considers the issues
involving service fully resolved and that this Court has jurisdiction over this proceeding.
Thus , the Court will now hear and decide D' Annunzio s application to dissolve
Mechanical and Albano s motion to dismiss.
Factual Backaround
Mechanical is a domestic corporation incorporated in 1983. Mechanical is in the
ANNUNZIO v. ALBANO
AlC
& MECHANICAL SERVICE CORP.
Index No. 9620business of installing and servicing commercial air conditioning and refrigeration
equipment.
George and D' Annunzio each own fifty percent (50%) of the shares of
Mechanical. From 1987 through the summer of 2005 , George and D' Annunzio jointly
operated and managed Mechanical' s business.
Annunzio alleges that , in or about November 2002 , George began to use
Mechanical' s funds to pay personal expenses and used a Mechanical charge card to
charge personal expenses. D' Annunzio also alleges that George opened a new
business that competes with Mechanical.
Annunzio asserts that George has frozen him out of the business by locking
him out of Mechanical's computer system and denying him access to the corporate
checking and bank accounts. George has allegedly opened a new checking account for
Mechanical to which D' Annunzio has no access. George has taken the company van
which D' Annunzio used for corporate business and placed a lock on the steering wheel
preventing D' Annunzio
from using the vehicle.
George also changed the lock on the doors of the corporate offices and facilities
and has not given D' annunzio copies of the keys for the new locks.
In the Summer of 2004, George , who was responsible for issuing pay checks
stopped issuing weekly paychecks to D' Annunzio.
Finally, George sent a letter to D' Annunzio stating that D' Annunzio was being
terminated as an employee of Mechanical.
AlC
ANNUNZIO v. ALBANO
& MECHANICAL SERVICE CORP.
Index No. 9620Based upon these actions, D' Annunzio commenced this special proceeding
pursuant to Business Corporation Law 911
04-a(1) and (2). D' Annunzio
George s actions have been ilegal, guily and fraudulent.
D' Annunzio
asserts that the
further asserts
that George has been wasting, looting and diverting corporate assets and opportunities
for non-corporate purposes. D' Annunzio asserts that all of these action constitute of
breach of George
s fiduciary duties to D' Annunzio
and Mechanical.
George generally denies all of D' Annunzio s allegations. He asserts that
although he took these actions, the petition should be dismissed because his actions
were justified.
On July 1'2 , 2004 , D' Annunzio transferred $11 000 from Mechanical to his
personal account. George asserts that this was done without his consent and
constitutes a looting of corporate funds. D' Annunzio concedes that he took the funds.
However , D' Annunzio did this only after George has failed and refused issue a pay
check to D' Annunzio for three consecutive weeks. D' Annunzio claims that this transfer
constituted his
three
weeks back pay, two weeks of prospective pay and $4 550 owed
to him from a corporate savings plan.
George asserts that all of his actions were precipitated by D' Annunzio. George
claims that , in April or May 2004 , D' Annunzio began to work for Piece Management , Inc.
Piece ) in New Hyde Park. He asserts that Piece gave D' Annunzio a cell phone. In
July 2004, Felix Dedalle , a salesman of a vendor of Mechanical called Piece and asked
for D'
Annunzio. ; A Piece employee gave Dedalle a cell phone number which Dedalle
ANNUNZIO v. ALBANO
AlC
& MECHANICAL SERVICE CORP.
Index No. 9620-
called. The phone was answered by a message which indicated that the caller had
reached D' Annunzio.
George asserts that in March 2004, D' Annunzio began ordering parts from
Mechanical' s suppliers which were shipped to his home instead of Mechanical'
premises. He also claims that D' Annunzio has been soliciting business from
Mechanical' s customers for his new employer.
George contends that he has never denied D' Annunzio access to the corporate
computers and records. All of Mechanical' s business and financial records are kept on
a computer. George kept and maintained these records. He claims that D' Annunzio
could not acces this information in the computer because he never bothered to learn
how to operate Mechanical' s computer system.
George concedes that he and D' Annunzio no longer get along. He claims that
Annunzio and he had been trying to amicably resolve their disputes. In fact
Mechanical had hired a CPA to value the corporation. Before the parties could resolve
their disputes, this proceeding was commenced.
DISCUSSION
Business Corporation Law 911
04-a permits the holder of twenty (20%) percent of
the shares of corporation whose shares are not publicly traded to petition for a judicial
dissolution of a corporation when the directors or those in control of the corporation
have engaged in ilegal , fraudulent or oppressive conduct towards the petitioner.
(Subpar. 1) or when the officers, directors or those controllng the corporation loot,
ANNUNZIO v. ALBANO
AlC
& MECHANICAL SERVICE CORP.
Index No. 9620,.
waste or divert corporate assets for non-corporate purposes (Subpar. 2).
Oppressive conduct is generally found when a shareholder has been has been
excluded from participation in corporate management for no legitimate business reason
or personal animus, where the shareholder/employee has been discharged from
employment without cause and thus deprived of salary or where corporate policies have
been changed to deprive a shareholder from receiving a reasonable return on his or her
In re Dissolution of Upstate Medical Associates. P.
investment. See,
2d 732
Gunzberg v. Art- Lloyd Metal Products Corp. , 112 AD. 2d 423 (2
Dept. 2002);
1985); and
, 292 A.
Dept.
Matter of Weidy s Furniture Clearance Center Co.. Inc. , 108 AD. 2d 81 (2
Dept. 1985).
Annunzio has pleaded sufficient facts of oppression to survive George s motion
to dismiss. He alleges that George terminated his employment for no legitimate reason,
deprived him of his salary, excluded him from corporate business, deprived him of
access to corporate records and excluded him from the corporate premises. George
asserts that he had good cause or valid reasons for all of his actions.
Annunzio also alleges that George has looted, diverted and wasted corporate
assets by using them to pay personal expenses. D' Annunzio alleges that George used
a corporate charge card to charge personal expenses. D' Annunzio further alleges that
George obtained charge cards from Sunoco and Chase in the corporate name and then
permitted his wife and son to use the cards to charge personal expenses. George then
used corporate funds to pay for these expenses. D' Annunzio alleges that George hired
AlC
ANNUNZIO v. ALBANO
& MECHANICAL SERVICE CORP.
Index No. 9620Donna, as a part-time bookkeeper for Mechanical , without consulting with him and then
he unilaterally raised her salary.
When deciding a motion to dismiss made pursuant to CPLR 3211 (a)(7), the court
Guggneheimer v.
must determine whether pleader has a cognizable cause of action.
Ginzburg , 43 N.
2d 268 (1977); and
Rovello v. Orofino Realty Co.
40 N.
2d 633
Well v. Yeshiva Rambam , 300 AD. 2d 580 (2 Dept. 2002).
(1979); and
Leon v.
In making this determination, the pleading must be liberally construed.
Martinez , 84 N.Y.
2d 83 (1994); and
Paterno v. CYC. LLC , 8 AD. 3d 544 (2
Dept.
2004). The court must consider all of the facts alleged in the pleading as true and must
give the pleader the benefit of every favorable inference which can be drawn from the
511 West 232rd Street Owners Corp. v. JenniferHealty Co. , 98 N.
facts.
Sokoloff v. Harriman Estates Development Corp. , 96 N.
(2002); and
2d 144
2d 409 (2001).
George s motion to dismiss attacks the merits of D' Annunzio s petition; not its
sufficiency. When deciding a motion to dismiss, the court must determine whether
petitioner has pleaded a cognizable cause of action; not whether petitioner will
ultimately prevail.
Jacobs v. Macy s East. Inc. , 262 AD. 2d 607 (2
Dept. 1999).
Annunzio s allegations are sufficient to support his claim for a dissolution of
Mechanical pursuant to Business Corporation Law 911
04-a(1) and (2).
Thus, Albano
motion to dismi s the petition must be denied.
Where the shareholders make conflicting allegations regarding the dissolution of
the corporation , the court must direct an evidentiary hearing.
Matter of Fancy Windows
ANNUNZIO v. ALBANO AlC & MECHANICAL SERVICE CORP.
Index No. 9620
& Doors Mfg. Corp. 244 AD. 2d 484 (2
Dept. 1997). The allegations of D' Annunzio
and George are clearly conflicting. Therefore, an evidentiary hearing in necessary.
An application to dissolve a corporation is a special proceeding in which
discovery is not ordinarily permitted. CPLR 408. However , a reading of the papers
demonstrates that some limited discovery is necessary in this matter; particularly and
without limitation on the issues of (1) whether George has used corporate funds to pay
personal expenses; and (2) whether D' Annunzio began working for Piece and diverting
Mechanical' s business to Piece while remaining a shareholder and employee of
Mechanical. See,
In re Sahara Beach Club. Inc. , 3 AD. 2d 933 (2
Dept. 1957).
The order to show cause contained a temporary restraining order preventing
George, Donna or any other employee of Mechanical from using corporate funds except
in the ordinary course of business and from using and corporate bank and/or checking
accounts or corporate credit cards except in the ordinary course of Mechanical'
business. Under the circumstances, the temporary restraining order should remain in
place, as a preliminary injunction , pending the determination of this proceeding. The
provisions of the temporary restraining order permit Mechanical to continue its business
while assuring that corporate funds are not used for non-corporate or improper
purposes.
Accordingly, it is,
&.
ANNUNZIO v. ALBANO
AlC
& MECHANICAL SERVICE CORP.
Index No. 9620ORDERED, that Petitioner s application to dissolve Albano
AlC
& Mechanical
Service Corp is referred to the trial court; and it is further,
ORDERED , that Respondent's motion to dismiss this proceeding is denied; and
it is further
ORDERED, that counsel for the parties are directed to appear for a preliminary
conference on December 15 , 2005 at 9:30 a.
; and it is further
ORDERED, that Respondent and its agents including George Albano and Donna
Albano , their employees and those acting concert with them are hereby restrained and
enjoined during the pendency of this action from using corporate funds and assets of
Mechanical except in the regular course of Mechanical' s business and they are further
restrained and enjoined from using credit cards issued to Mechanical or its officers
and/or employees except in the regular course of Mechanical' s business during the
pendency of this action.
This constitutes the decision and order of thi
urt
Dated: Mineola , NY
November 23, 2005
ONARD B. AUSTIN , J.
ENTEREO
2 C( 2005
U COUNTY
NASSA ERK' 5 OFFICE
COUNT'l CL