HALL v. LOUIS (2020)

Order, Supreme Court, New York County (Carol R. Edmead, J.), entered July 25, 2018, which, insofar as appealed from as limited by the briefs, sua sponte dismissed the second cause of action of the complaint, unanimously reversed, on the law, without costs, the second cause of action reinstated, and the matter restored to the trial calendar.

This appeal involves Supreme Court's sua sponte dismissal of a shareholders' derivative lawsuit against a low-income Housing Development Fund Corporation (HDFC) and its current and former members of the board of directors. Supreme Court dismissed the lawsuit at a pretrial conference after determining that all three causes of action asserted in the complaint were moot. The appeal is limited to Supreme Court's dismissal of plaintiffs' second cause of action for an equitable accounting, asserted against the individual defendants. Plaintiffs do not appeal from Supreme Court's dismissal of their first cause of action for the inspection of the HDFC's books and records or the dismissal of their third cause of action for an injunction.

An order issued sua sponte is not appealable as of right (see CPLR 5701[a][2]; Sholes v. Meagher, 100 N.Y.2d 333, 335, 763 N.Y.S.2d 522, 794 N.E.2d 664 [2003]). Plaintiffs' remedy is to move to vacate the court's order, and, if the motion is denied, appeal from that order (CPLR 5701[a][3]; see Person v. Einhorn, 44 A.D.3d 363, 841 N.Y.S.2d 869 [1st Dept. 2007]; Davidson v. Regan Fund Mgt. Ltd., 15 A.D.3d 172, 788 N.Y.S.2d 598 [1st Dept. 2005]).

Although plaintiffs failed to move to vacate the order in Supreme Court, in the interest of justice we deem the notice of appeal a motion for leave to appeal pursuant to CPLR 5701(c) and grant the motion (see Yuppie Puppy Pet Prods., Inc v. Street Smart Realty, LLC, 77 A.D.3d 197, 200, 906 N.Y.S.2d 231 [1st Dept. 2010]; Jun–Yong Kim v. A & J Produce Corp., 15 A.D.3d 251, 251, 790 N.Y.S.2d 19 [1st Dept. 2005]). Having granted leave to appeal, we turn now to the appeal.

On the merits, we find that Supreme Court erred in dismissing the complaint because the cause of action for an equitable accounting was not moot. Supreme Court conflated the first cause of action for the inspection of the HDFC's books and records with the second cause of action for an equitable accounting (see Zyskind v. FaceCake Mktg. Tech., Inc., 110 A.D.3d 444, 447, 973 N.Y.S.2d 34 [1st Dept. 2013] [the inspection of books and records is not the equivalent of an accounting] ). Defendants failed to demonstrate what happened to the $90,000 from the sale of Apartment 6A, and the funds do not appear in the HDFC's financials. Defendants' affidavits did not address this glaring deficiency.

Supreme Court also erred in concluding that plaintiffs were required to amend their complaint to assert yet another cause of action in order for this litigation to move forward. An equitable accounting involves a remedy “designed to require a person in possession of financial records to produce them, demonstrate how money was expended and return pilfered funds in his or her possession” (Roslyn Union Free School Dist. v. Barkan, 16 N.Y.3d 643, 653, 926 N.Y.S.2d 349, 950 N.E.2d 85 [2011]). Available relief includes a personal judgment against the wrongdoer (see Fur & Wool Trading Co. v. Fox, Inc., 245 N.Y. 215, 218, 156 N.E. 670 [1927]). Moreover, plaintiffs' complaint specifically demands “[j]udgment of such sums as were embezzled or improperly diverted by the Individual Defendants.”