WIDEWATERS HERKIMER COMPANY LLC LLC v. AIELLO

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

WIDEWATERS HERKIMER COMPANY, LLC and Eljoe Ventures, LLC, Plaintiffs-Respondents, v. Steven F. AIELLO and Joseph B. Gerardi, Defendants-Appellants.

Decided: April 28, 2006

PRESENT:  SCUDDER, J.P., KEHOE, MARTOCHE, GREEN, AND HAYES, JJ. Mannion & Copani, Syracuse (Anthony F. Copani of Counsel), for Defendants-Appellants. Menter, Rudin & Trivelpiece, P.C., Syracuse (Julian B. Modesti of Counsel), for Plaintiffs-Respondents.

Plaintiffs, Widewaters Herkimer Company, LLC (Widewaters) and Eljoe Ventures, LLC (Eljoe), the majority member of Widewaters, commenced this action against two minority members of Widewaters.   The first cause of action seeks a declaration that Eljoe has the right to acquire defendants' membership interests in Widewaters based on defendants' alleged breach of Widewaters' operating agreement in failing to make required contributions in response to a capital call.   The second cause of action seeks monetary damages for the alleged breach set forth in the first cause of action.   Defendants' answer asserts, inter alia, six counterclaims.

 Supreme Court properly granted that part of plaintiffs' cross motion for partial summary judgment dismissing the first counterclaim seeking dissolution of Widewaters.   In alleging that the majority members breached their fiduciary duty to defendants and engaged in unlawful or oppressive conduct toward them, defendants “did not plead the requisite grounds for dissolution of a limited liability company” (Artigas v. Renewal Arts Realty Corp., 22 A.D.3d 327, 327, 803 N.Y.S.2d 12, citing Limited Liability Company Law §§ 701, 702).   The court therefore did not abuse the sound discretion vested in it with respect to “[t]he appropriateness of an order of dissolution of a limited liability company” (Matter of Extreme Wireless, 299 A.D.2d 549, 550, 750 N.Y.S.2d 520;  see generally Matter of Spires v. Lighthouse Solutions, 4 Misc.3d 428, 438, 778 N.Y.S.2d 259).   The court also properly denied that part of defendants' motion for appointment of a temporary receiver (see Pixel Intl. Network v. State of New York, 228 A.D.2d 899, 902, 644 N.Y.S.2d 377;  McBrien v. Murphy, 156 A.D.2d 140, 548 N.Y.S.2d 186;  cf. Singh v. Brunswick Hosp. Ctr., 2 A.D.3d 433, 434, 767 N.Y.S.2d 839).   The court further properly denied that part of defendants' motion for summary judgment dismissing the complaint.   As the court concluded, there are triable issues of fact concerning whether the project was “[o]pen for business” at the time of the capital call, thereby authorizing the capital call to be made by plaintiffs.   In addition, there are triable issues of fact concerning whether the capital call was necessitated or otherwise preceded by plaintiffs' wrongful conduct toward defendants.

 We conclude, however, that the court erred in granting that part of plaintiffs' cross motion for partial summary judgment dismissing the second through sixth counterclaims.   As the court noted in its decision, defendants raised triable issues of fact concerning the propriety of the transactions engaged in by plaintiffs, particularly with respect to their alleged payment of preferential distributions or preferential returns of capital to the majority members, their alleged payment of excessive fees to management and other fees to related entities, their alleged prepayment of loans to related entities, and their alleged commingling funds of Widewaters with funds of other related entities.   Those triable issues of fact preclude the dismissal of the second through sixth counterclaims, which allege theft, fraud, and breach of fiduciary duty on the part of plaintiffs (see Sterling Natl. Bank v. Israel Discount Bank of N.Y., 305 A.D.2d 184, 186, 762 N.Y.S.2d 584;  Glazer & Gottlieb v. Nachman, 233 A.D.2d 275, 650 N.Y.S.2d 544;  Dershowitz & Eiger v. Helmsley, 219 A.D.2d 497, 631 N.Y.S.2d 318;  see also Matter of Watson, 8 A.D.3d 1092, 778 N.Y.S.2d 658;  cf. Eagle Comtronics v. Pico Prods., 270 A.D.2d 832, 834, 705 N.Y.S.2d 758), and we modify the order accordingly.

It is hereby ORDERED that the order so appealed from be and the same hereby is unanimously modified on the law by denying that part of the cross motion with respect to the second through sixth counterclaims and reinstating those counterclaims and as modified the order is affirmed without costs.

MEMORANDUM: