Barrett v. ToroyanBarrett v. Toroyan
The Special Referee found that Delma Associates had advanced no money for litigation costs of the individual defendant directors. A referee‘s report should be confirmed if its findings are supported by the record (Baker v Kohler, 28 AD3d 375 [2006], lv denied 7 NY3d 885 [2006]; Freedman v Freedman, 211 AD2d 580 [1995]). In light of plaintiff‘s dilatory conduct in pursuing discovery, the Special Referee properly declined to allow further discovery before the hearing proceeded (see Forshay v Star Dairy, 187 AD2d 838 [1992], lv denied 81 NY2d 818 [1993]).
We have considered plaintiff‘s remaining contentions and find them without merit. Concur—Andrias, J.P., Gonzalez, Sweeny and Malone, JJ.
McGuire, J., concurs in part and dissents in part in a memorandum as follows: Plaintiff, a limited partner of Delma Associates, LP (the Associates), commenced this action against the Associates’ general partner, Delma Properties Inc. (the Properties) and the individuals composing the Properties’ board of directors, Toroyan, Shawwa and Khoury (the individual defendants). The gravamen of this action is alleged misappropriation of the assets of the Associates and breach of the Associates’ partnership agreement. Plaintiff moved to prohibit the Associates, the Properties and the individual defendants from using funds belonging to the Associates to pay legal expenses incurred by those parties in the course of this action. Plaintiff also sought the return to the Associates of any funds previously advanced for such expenses. Supreme Court, concluding that the individual defendants engaged in self-dealing in advancing to themselves litigation expenses, granted the motion to the extent of prohibiting the Associates from advancing to the individual
Plaintiff appeared at the hearing and requested an adjournment to allow him time to conduct discovery, but the request was denied by both the Justice supervising the Referees’ part and the Referee. Plaintiff then stated that he was not prepared to proceed but the hearing nevertheless went forward. Defendants called Barkev Kalayjian, the Properties’ corporate controller. Kalayjian testified that the law firm of LeBoeuf, Lamb, Greene & MacRae LLP (LeBoeuf Lamb) had billed defendants $825,000 for work the firm had performed on behalf of defendants in the action. Kalayjian further testified that only $350,000 of the $825,000 balance had been paid by defendants. This $350,000 was, according to Kalayjian, derived from the following sources: (1) $200,000 from Delma Associates II—an entity related to but separate and distinct from the Associates; (2) $46,875 from each of the individual defendants (totaling $140,625); and (3) $9,375 from the Properties. Kalayjian also testified that another law firm, Winston & Strawn, charged defendants $235,000 for work that the firm performed on the matter and that the Associates “partly paid” that fee. Specifically, Kalayjian stated that the Associates paid $177,000 toward that bill and that the remainder was “discounted” by the firm.
Following the hearing, the Referee determined that the Associates did not advance any money for the litigation expenses of the individual defendants. Supreme Court confirmed the Referee‘s report and plaintiff appealed.
Plaintiff advances two arguments on appeal: his request for an adjournment should have been granted, and the Referee improperly placed the burden of proof on plaintiff. With respect to the first contention, plaintiff never served a discovery request on defendants to produce copies of the bills they received from LeBoeuf Lamb or attempted to subpoena these bills. Nor did he seek judicial assistance in obtaining the bills until approximately three months after Justice Lowe‘s order referring the matter to a Referee after the note of issue had been filed. Accordingly, the denial of an adjournment was a proper exercise of discretion (see Reik v Reik, 280 AD2d 372 [2001]; Treppeda v Treppeda, 212 AD2d 592 [1995]).
Concerning the second contention, plaintiff claims that, because the individual defendants had engaged in self-dealing, defendants were required, under the “entire fairness” doctrine,
The Referee‘s determination that the Associates did not advance any money toward the LeBoeuf Lamb bill for legal services furnished to the individual defendants is supported by the record and was properly confirmed by Supreme Court (see Sichel v Polak, 36 AD3d 416 [2007]). Kalayjian testified that only $350,000 of the $825,000 owed to LeBoeuf Lamb was paid and identified the sources of that $350,000, none of which was the Associates.
The Referee‘s determination that the Associates did not advance any money toward the Winston & Strawn bill for legal services furnished to the individual defendants, however, stands on a different footing. Kalayjian testified that the Associates paid $177,000 toward that bill, but defendants offered no other evidence regarding this payment. Notably, Kalayjian also testified that Winston & Strawn‘s bills (like the bills from LeBoeuf Lamb) were sent to both the Properties and the individual defendants. No argument has been made by defendants—either before the Referee or on appeal—that Winston & Strawn did not perform legal work for the individual defendants. Rather, their contention has been that the Associates did not pay any of the fees charged to the individual defendants. However, the only reasonable conclusions permitted on this record are that: (1) at least some portion of the work performed by Winston & Strawn was performed for the individual defendants, and (2) the Associates advanced legal expenses for the individual defendants.
Accordingly, I would modify the order to the extent of denying that aspect of the motion seeking to confirm the Referee‘s finding that the Associates did not advance any money toward the Winston & Strawn bill for legal services furnished to the individual defendants and remand the matter for further proceedings, and otherwise affirm.2 [See 2006 NY Slip Op 30079(U).]