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Maureen FRITCH, Plaintiff, v. Igor BRON, Rita Bron, Richard Sajiun, Sajiun Electric, Inc., Joseph Fusco, G & G Electric Supply Co. Inc., Cristina Ciobanu, Howard Lindsay, Intake Electrical Contracting Corp., Yelena Plyumyanskaya, Arkadiy Berdichevskiy, Sergejs Berlevs, Roman Bodnarchuk, Ibny Management Inc., 2264 65th Street Properties, LLC & John Doe “1” Through John Doe “1000”, Defendants.
Upon the following papers read on these motions for various reliefs; Notice of Motion and supporting papers 166-173; 174-177; 178-181; 188-189; 255-263; 267-270; Notice of Cross Motion and supporting papers 184-187; Answering Affidavits and supporting papers 190; 196-203; 234-244;245; 247-250;251-252; 264; Replying Affidavits and supporting papers 191-195; 246; 253-254; 274-276; it is,
ORDERED that the motion by the plaintiff (004) for an order partially consolidating this action with actions entitled G & G Electric Supply Co., Inc. v E. Electrical Contracting, LLC (Index No. 605469/2021) and Fritch v Posses(Index No. 612529/2021) is denied; and it is further
ORDERED that the motion by the defendant Igor Bron (005) for an order compelling arbitration of the plaintiff's claims against him and staying the action or dismissing the complaint is granted to the extent of compelling arbitration of the plaintiff's claims against him and staying the action; and it is further
ORDERED that the motion by the remaining defendants (006) for an order dismissing the complaint or staying the action and imposing sanctions on the plaintiff is granted to the extent of staying the action; and it is further
ORDERED that the cross motion by the defendants Joseph Fusco and G & G Electric Supply Co., Inc. (007) for an order imposing sanctions on the plaintiff and her counsel is denied; and it is further
ORDERED that the motion by the plaintiff (009) for an order compelling arbitration of her claims against the defendants Igor Bron, Richard Sajiun, and Saijiun Electric, Inc., and staying this action and two actions entitled G & G Electric Supply Co., Inc. v E. Electrical Contracting, LLC (Index No. 605469/2021) and Fritch v Posses(Index No. 612529/2021) is granted to the extent of compelling arbitration of her claims against the defendant Igor Bron and staying this action; and it is further
ORDERED that the cross motion by the defendants Richard Sajiun and Sajiun Electric, Inc. (011) for an order imposing sanctions on the plaintiff is denied; and it is further
ORDERED that this action is stayed, and the plaintiff and the defendant Igor Bron are directed to proceed to arbitration.
Non-party E. Electrical Contracting, LLC (“EEC”) is owned by the plaintiff (51%) and the defendant Igor Bron (49%). On September 27, 2016, the plaintiff and Mr. Bron entered into an amended and restated operating agreement for EEC in which they agreed to arbitrate “any and all disputes relating to or arising under this Agreement[.]” The plaintiff commenced this action on March 31, 2021, alleging that Mr. Bron, aided and abetted by the defendants Rita Bron, Richard Sajiun and Sajiun Electric, Inc. (collectively, the “Sajiun defendants”), among others, diverted corporate assets and opportunities from EEC. The plaintiff's chief causes of action against the Brons and the Sajiun defendants are fraud and aiding and abetting fraud, breach of fiduciary duty and aiding and abetting breach of fiduciary duty, and unjust enrichment. Simultaneously with the commencement of this action, the plaintiff served Mr. Bron with a notice of her intention to arbitrate the claims against him. Both the plaintiff and Mr. Bron move to compel arbitration. Accordingly, the plaintiff and the defendant Igor Bron are directed to proceed to arbitration.
The plaintiff seeks to compel arbitration of her claims against the Sajiun defendants, who are not signatories to EEC's amended and restated operating agreement. Absent an express agreement to arbitrate, courts have recognized only limited theories upon which they are willing to enforce an arbitration agreement against a nonsignatory (Merrill Lynch Inv. Mgrs. v Optibase, Ltd., 337 F3d 125, 129 [2nd Cir]); see also, TNS Holdings v MKI Sec. Corp., 92 NY2d 335, 339). These theories are limited to (1) incorporation by reference, (2) assumption, (3) agency, (4) veil-piercing/alter ego, and (5) estoppel (Merrill Lynch Inv. Mgrs. v Optibase, Ltd., supra). The plaintiff contends that the Sajiun defendants can be compelled to arbitrate under the agency, veil-piercing/alter ego, and estoppel theories.
Agency is a fiduciary relation that results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other to so act (Merrill Lynch Inv. Mgrs. v Optibase, Ltd., supra at 130). The record does not reflect that Igor Bron signed EEC's amended and restated operating agreement as an agent, either disclosed or undisclosed, of the Sajiun defendants. Moreover, while an agent may bind its nonsignatory principal to an arbitration agreement where the nonsignatory seeks to compel arbitration with a signatory, this is not a case in which a nonsignatory seeks to compel arbitration with a signatory (Matter of Dramer Levin Naftalis & Frankel LLP v Cornell, 148 AD3d 430, 431, citing Merrill Lynch Inv. Mgrs. v Optibase, Ltd., supra at 130-131). Rather, the plaintiff, a signatory, seeks to compel arbitration with nonsignatories, i.e., the Sajiun defendants.
The plaintiff's contention that Igor Bron and Richard Sajiun are “silent partners” is unavailing. It is axiomatic that individuals may not, as a matter of law, operate as a business entity as a partnership for purposes of defining their rights vis-a-vis each other while concurrently holding the entity out to the general public as a corporation (Zahr v Wingate Creed Acquisition Corp., 827 F Supp 1061, 1068 [SDNY]). As the New York Court of Appeals stated in Weisman v Awnair Corp. of Am.(3 NY2d 444, 449), “The two forms of business are mutually exclusive, each governed by a separate body of law.” Thus, the plaintiff cannot claim that Igor Bron and Richard Sajiun entered into a partnership that was set up and run through the defendant Sajiun Electric, Inc. (“Sajuin Electric”) (see, Lombard & Co., Inc. v De La Roche, 46 AD3d 393, citing Weisman, supra). Although Weisman has been qualified so as not to preclude members of a preexisting partnership from acting as partners between themselves and as a corporation to the rest of the world (Id., citing Matter of Hochberg v Manhattan Pediatric Dental Group, P.C., 41 AD3d 202, 204), the record does not reflect a preexisting partnership that later spawned the creation of Sajiun Electric. The record reflects that Sajiun Electric was formed long before the alleged partnership between Igor Bron and Richard Sajiun was formed (Id.). Moreover, a “mutually beneficial affiliation” is insufficient to bind the Sajiun defendants, as non-signatories, on agency principles to the arbitration agreement signed by Mr. Bron (see, Merrill Lynch Inv. Mgrs. v Optibase, Ltd., supra at 130, discussing Thomson-CSF, S.A. v Am. Arbitration Assn., 64 F3d 773, 780; see also, Phoenix Co., Inv. v Ambrhamsen, US Dist Ct, SDNY, Sept. 28, 2006, Pauley, J. [2006 WL 2847812] at *6, citing Merrill Lynch, supra).
Under the estoppel theory, a nonsignatory may be compelled to arbitrate when the nonsignatory knowingly exploits the benefits of an agreement containing an arbitration clause and receives benefits flowing directly from the agreement (Matter of Belzberg v Versus Invs. Holdings, Inc., 21 NY3d 626, 631; see also, Phoenix Co., Inc. v Ambrhamsen, at *7 [and cases cited therein]). The guiding principle is whether the benefit gained by the nonsignatory is one that can be traced directly to the agreement containing the arbitration clause (Matter of Belzberg, supra at 633). Thus, courts have limited the application of the direct-benefits doctrine to situations in which a nonsignatory has obtained a real and tangible benefit from the relevant agreement either by taking affirmative steps to exploit a benefit from a contract by bringing an action of its own based upon the language of the contract or through the enjoyment of monetary benefits of a contract by taking over performance thereunder (Matter of Dramer Levin Naftalis & Frankel LLP v Cornell, 2016 NY Slip Op 32863[U] at *10-11, affd 148 AD3d 430).
The record does not reflect that the Sajiun defendants have taken affirmative steps to exploit a benefit flowing from EEC's amended and restated operating agreement, such as commencing an action based on the agreement or taking over performance thereof. The court finds that, at most, the Sajiun defendants may have exploited the contractual relation of the parties to the amended and restated operating agreement, but not the agreement itself (Matter of Cammarata v InfoExchange, Inc., 122 AD3d 459, 460, citing Matter of Belzberg, supra at 631). Contrary to the plaintiff's contentions, the alleged diversion of corporate assets and opportunities from EEC to the Sajiun defendants may be a breach of Mr. Bron's duties to the plaintiff and EEC, but they do not flow from EEC's amended and restated operating agreement (cf., Matter of Belzberg, supra at 634-635).
The alter-ego doctrine is a theory of liability generally invoked to disregard a corporate entity to find the owners liable for any judgment against the corporation (First Keystone Consultants, Inc. v Schlesinger Elec. Contractors, Inc., 871 F Supp 2d 103, 124 [EDNY]). It has been used to compel arbitration with nonsignatory “alter egos” of a signatory to an arbitration agreement (TNS Holdings, Inc. v MKI Sec. Corp., supra at 339). Generally, piercing the corporate veil requires a showing (i) that the owner exercised complete domination of the corporation with respect to the transaction attacked and (ii) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff's injury (Morris v New York State Dept. of Taxation and Fin., 82 NY2d 135, 141).
EEC is owned by the plaintiff (51%) and by the defendant Igor Bron (49%). Neither Richard Sajiun nor Sajiun Electric has an ownership interest in EEC, typically the fundamental basis for alter-ego liability (Partner Reinsurance Co. Ltd. v RMP Mortgage, Inc., US Dist Ct, SDNY, Nov. 13, 2020, Engelmayer, J. [2020 WL 6690659] at *11). Even if they had an ownership interest in EEC, either actual or equitable,1 EEC's amended and restated operating agreement was signed by the plaintiff and Igor Bron as EEC's members. It was not signed by anyone on behalf of EEC. Since EEC is not a signatory to the amended and restated operating agreement, it is not bound by the arbitration clause contained therein, and that clause cannot be used to compel arbitration with anyone by piercing the corporate veil.
The plaintiff contends that Sajiun Electric should be compelled to arbitrate because Igor Bron, who is bound by the arbitration clause, is a principal of Sajiun Electric. The plaintiff is making a reverse-veil-piercing argument. Typically, reverse veil piercing arises when a plaintiff seeks to hold a corporate entity accountable for the actions of its shareholders (Securities Inv. Protection Corp. v Stratton Oakmont, Inc., 234 BR 293, 321 [SDNY]). Courts that pierce the corporate veil in reverse are guided by the same rules that govern straight veil piercing (Id.). Domination is the key (Id. at 322).
The record does not reflect that Mr. Bron has an ownership interest in Sajiun Electric. In any event, even if he did, the record does not establish that Mr. Bron so dominated or controlled Sajiun Electric that it was an alter ego of himself. An overlap in ownership, officers and directors, and responsibilities is not uncommon or impermissible (Partner Reinsurance Co. Ltd., supra). A corporate relationship or interrelatedness, standing alone, is not enough to subject a nonsignatory to arbitration (Oxbow Calcining USA Inc. v Am. Indus. Partners, 96 AD3d 646, 649; Thomson-CSF, S.A., supra at 777). Moreover, the record does not reflect that Sajiun Electric is a sham entity and that it exists for no other purpose than as a vehicle for fraud (In re Ticketplanet.com, 313 BR 46, 70-71 [SDNY]; TNS Holdings, Inc., supra at 339-340 [an inference of abuse does not arise where a corporation was formed for legal purposes or is engaged in legitimate business]).
In sum, the alleged diversion of corporate assets and opportunities from EEC to the Sajiun defendants does not compel arbitration of the plaintiff's claims against the Sajiun defendants in the absence of a written agreement by the Sajiun defendants to arbitrate those claims (CPLR 7501). Moreover, the Sajiun defendants cannot be compelled to arbitrate under the agency, veil-piercing/alter ego, or estoppel theories. Accordingly, the plaintiff is directed to proceed to arbitration on her claims against the defendant Igor Bron only.
The issues to be decided in the arbitration against Mr. Bron are inextricably interwoven with, and may well dispose of, the claims against the remaining defendants. The proper course of action under these circumstances is to stay the judicial proceedings pending the determination of the issues in arbitration (see, County Glass & Metal Installers, Inc. v Pavarini McGovern, LLC, 65 AD3d 940). Accordingly, this action is stayed pending the outcome of the arbitration. Insofar as the plaintiff seeks to stay the actions entitled G & G Electric Supply Co., Inc. v E. Electrical Contracting, LLC (Index No. 605469/2021) and Fritch v Posses(Index No. 612529/2021), the plaintiff must move under those index numbers for such relief.
The motion by the plaintiff for an order partially consolidating this action with the two aforementioned actions is denied as academic.
Finally, the court declines to sanction the plaintiff or her counsel.
1. New York courts have recognized, for veil-piercing purposes, the doctrine of equitable ownership under which an individual who exercises sufficient control over a corporation may be deemed an “equitable owner” notwithstanding the fact that the individual is not a shareholder of the corporation (Freeman v Complex Computing Co., Inc., 119 F3d 1044, 1051 [2nd Cir]).
Elizabeth H. Emerson, J.
Response sent, thank you
Docket No: Index No. 605622-21
Decided: March 01, 2022
Court: Supreme Court, Suffolk County, New York.
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