Huebscher, as Litigation Trustee and Co-Liquidator v. BialskyHuebscher, as Litigation Trustee and Co-Liquidator v. Bialsky
Before the Court are the cross-motions for summary judgment pursuant to
BACKGROUND2
I. SAG HARBOR REAL ESTATE DEVELOPMENT PROJECT
Debtor was a real estate developer who did business as the sole member or owner of, or held financial interests in, several limited liability companies, including East End Ventures.3 [Dkt. No. 75 at 3.] Debtor owned 50% of the membership interests of East End Ventures; the other 50% was held by the estate of Emil Talel, represented by its administrator, Alexander Talel, as successor executor to former executor Bernard Jaffe. [Id.] Defendant Bialsky has been in the business of buying, selling, and developing real estate in the Hamptons and surrounding area since 1994. [Id.] Bialsky‘s construction company, Chateau Construction, LLC (“Chateau“), has constructed over thirty high-end residential homes and commercial properties during this period. [Id.]
The real estate development project (the “Sag Harbor Project“) involves the sale and construction of three properties.6 Compl. ¶ 35. The first, “Unit A,” was intended to be used as Bialsky‘s family residence. [Id.; Dkt. No. 51 at 16]. Construction on Unit A concluded on
II. DEBTOR‘S CHAPTER 11 CASE
On October 11, 2019, Debtor filed a voluntary petition pursuant to chapter 11 of the Bankruptcy Code.8 [See Dkt. No. 75 at 4; see also Bankr. Dkt. No. 1.] Debtor filed an amended disclosure statement (the “Amended Disclosure Statement“) and plan (the “Amended Plan“) on January 14, 2021. [See Dkt. No. 75 at 4; see also Bankr. Dkt. No. 135, 136.] The Court entered an order confirming the Amended Plan (the “Confirmation Order“) on March 17, 2021. [See Dkt. No. 75 at 4; see also Bankr. Dkt. No. 149.]
The Amended Plan, among other things, (i) establishes a litigation trust (the “Litigation Trust“) for the benefit of the holders of Class 4 (General Unsecured) Claims, (ii)
On May 19, 2021, the Court entered an order modifying Debtor‘s Amended Plan pursuant to
III. THE ADVERSARY PROCEEDING
The Trustee commenced this adversary proceeding on March 8, 2023. [Dkt. No. 75; see also Dkt. No. 1 (“Compl.“).] In the Complaint, the Trustee brings eight causes of action: 1) a demand for an accounting (“Count One“); 2) an equitable accounting claim (“Count Two“); 3) a claim for breach of contract in connection with the refusal to permit review of the Company‘s books and records (“Count Three“); 4) a claim seeking turnover of unpaid distributions or other amounts owing to the members or liquidators of East End Ventures (“Count Four“); 5) a claim seeking turnover of the Buyout Payment (as defined herein) to the members of East End Ventures (“Count Five“); 6) a claim for breach of contract in connection with the failure
IV. TRUSTEE‘S MOTION SEEKING ORDER OF ATTACHMENT
On November 7, 2023, the Trustee filed a motion seeking entry of an order of attachment, along with accompanying Huebscher Declaration, in the above-captioned adversary proceeding. [See Dkt. No. 75 at 6; see also Dkt. Nos. 48, 49.] In the motion, the Trustee alleged, inter alia, that Bialsky divested the Company of funds for his “personal benefit” in making certain challenged distributions to himself and that Bialsky has “failed to provide a sufficient accounting” of these transactions. [Dkt. No. 75 at 6.] The Trustee sought to prevent Bialsky from rendering himself, as well as the entities he controls, judgment-proof before the Court rules on Defendants’ liability in this action. [Id.] As such, the Trustee sought entry of an order of attachment under New York law. [Id.] The Trustee filed corrected exhibits to the Huebscher Declaration on November 9, 2023. [Id.; see also Dkt. No. 50.]
On November 21, 2023, Defendants filed their opposition, along with accompanying declarations and exhibits. [Dkt. No. 75 at 6; see also Dkt. No. 51.] The Trustee filed a reply, as well as the Wickouski Declaration, on November 27, 2023. [Dkt. No. 75 at 6; see also Dkt. Nos. 52, 53.] Intervening Plaintiff filed a joinder to the motion on November 29, 2023. [Dkt. No. 75 at 6; see also Dkt. No. 54.]
The Court held a hearing on November 30, 2023, at which the Court inquired whether the parties intended to request an evidentiary hearing in connection with the motion. [Dkt. No. 75 at 6; Nov. 30 Hr‘g Tr. at 48:22-51:24.] The parties submitted letters in response to the Court‘s inquiry. [Dkt. No. 75 at 6-7; see also Dkt. Nos. 55, 56.] The Court entered an order
V. SUMMARY JUDGMENT BRIEFING
On February 22, 2024, the Court entered an order scheduling the parties’ summary judgment briefing schedule. [Dkt. No. 78.] On March 18, 2024, Plaintiffs filed their motion for summary judgment (“PMSJ“) [Dkt. No. 80], along with accompanying Statement of Facts (“P. SOF“) [Dkt. No. 81], Feener Declaration [Dkt. No. 82]9, and Huebscher Declaration [Dkt. No. 83].10 Plaintiffs move for summary judgment on Counts One, Two, Four, Five, Six, and Eight.
On April 18, 2024, Defendants filed their motion for summary judgment and opposition to Plaintiffs’ MSJ (“DMSJ“), along with their Statement of Facts (“D. SOF“), Response to Plaintiffs Statement of Facts (“D. Resp. to P. SOF“), and other accompanying materials [Dkt. No. 92].11 Defendants move for summary judgment on all counts in the
As discussed infra Discussion Section I.C., the heart of this dispute is the parties’ differing interpretations of key provisions of the Sag Harbor Operating Agreement. For the reasons set forth below, the Court concludes as follows: (i) as to Count Six, Defendants’ motion is granted and Plaintiffs’ motion is denied; (ii) as to Count Eight, Defendants’ motion is granted and Plaintiffs’ motion is denied; (iii) as to Counts Four and Five, Defendants’ motion is granted and Plaintiffs’ motion is denied; (iv) as to Counts One and Two, Defendants’
LEGAL STANDARD
Under
The moving party bears the burden of demonstrating the absence of a genuine dispute as to any material fact. Celotex, 477 U.S. at 322-23. The evidence on each material element of its claim or defense must be sufficient to entitle the moving party to relief in its favor as a matter of law. Vt. Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir. 2004).
If the movant meets its initial burden, the nonmoving party “must come forward with ‘specific facts showing that there is a genuine issue for trial.‘” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting former
On a motion for summary judgment, the court must “construe all evidence in the light most favorable to the nonmoving party, drawing all inferences and resolving all ambiguities in its favor.” Dickerson v. Napolitano, 604 F.3d 732, 740 (2d Cir. 2010). The Court‘s job is “not to weigh the evidence or resolve issues of fact.” Lucente v. Int‘l Bus. Machs. Corp., 310 F.3d 243, 254 (2d Cir. 2002). “Assessments of credibility and choices between conflicting versions of the events are matters for the jury, not for the court on summary judgment.” Jeffreys v. N.Y.C., 426 F.3d 549, 553 (2d Cir. 2005) (citation omitted). A court should grant the motion if “the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there [being] no genuine issue for trial.” Matsushita, 475 U.S. at 587 (internal quotation marks omitted).
“When deciding cross-motions for summary judgment, the standard to be applied ‘is the same as that for individual summary judgment motions and a court must consider each motion independent of the other.‘” Hallingby v. Hallingby, 693 F. Supp. 2d 360, 364 (S.D.N.Y. 2010) (quoting Schultz v. Stoner, 308 F.Supp.2d 289, 298 (S.D.N.Y. 2004)), aff‘d, 453 F. App‘x 121 (2d Cir. 2012) (summary order). “[E]ach party‘s motion must be examined on its own merits, and in each case all reasonable inferences must be drawn against the party whose
JURISDICTION
The Court has jurisdiction over this adversary proceeding pursuant to
DISCUSSION
I. COUNT SIX
In Count Six, Plaintiffs seek damages for breach of the Sag Harbor Operating Agreement. Compl. ¶¶ 104-14. Count Six is brought against the Company, Bialsky, and JAB SH. See id. Plaintiffs and Defendants now cross-move for summary judgment in their favor on Count Six.
A. Legal Standard
To state a claim for breach of contract under New York law, a plaintiff must show “(1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of the contract by the defendant, and (4) damages.” New York City Transit Auth. v. Express Scripts, Inc., 588 F. Supp. 3d 424, 434 (S.D.N.Y. 2022) (quoting Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996)), reconsideration denied, No. 19-CV-5196 (JMF), 2022 WL 3577426 (S.D.N.Y. Aug. 19, 2022), objections overruled, No. 19-CV-5196 (JMF), 2022 WL 20056027 (S.D.N.Y. Oct. 12, 2022). The plaintiff must also “identify what provisions of the contract were breached as a result of the acts at issue.” Id. (quoting Chefs Diet Acquisition Corp. v. Lean Chefs, LLC, No. 14-CV-8467 (JMF), 2016 WL 5416498, at *8 (S.D.N.Y. Sept. 28, 2016)).
Generally, a court may grant summary judgment “only when the contractual language on which the moving party‘s case rests is found to be wholly unambiguous and to convey a definite meaning.” Id. (quoting Topps Co. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 68 (2d Cir. 2008)); see also Postlewaite v. McGraw-Hill, Inc., 411 F.3d 63, 67 (2d Cir. 2005) (citation omitted) (explaining that “when the meaning of the contract is ambiguous and the intent of the parties becomes a matter of inquiry, a question of fact is presented which cannot be resolved on a motion for summary judgment“). “A contract is ambiguous if its language is ‘capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement.‘” Express Scripts, Inc., 588 F. Supp. 3d at 434 (quoting Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1095 (2d Cir. 1993)); see also Topps Co., 526 F.3d at 68 (citation omitted) (“Ambiguity here is defined in terms of whether a reasonably intelligent person viewing the contract objectively could interpret the language in more than one way.“). “Conversely, ‘a contract is unambiguous if the language it uses has a definite and precise meaning, as to which there is no reasonable basis for a difference of opinion.‘” Express Scripts, Inc., 588 F. Supp. 3d at 434 (quoting Lockheed Martin Corp. v. Retail Holdings, N.V., 639 F.3d 63, 69 (2d Cir. 2011)). “Whether contract language is ambiguous is a question of law that is resolved by reference to the contract alone.” Id. (quoting O‘Neil v. Ret. Plan for Salaried Emps. of RKO Gen., Inc., 37 F.3d 55, 58-59 (2d Cir. 1994)).
Several courts in this Circuit have acknowledged that, “[a]lthough a determination that a contract is ambiguous ordinarily requires denial of summary judgment, the court may nonetheless grant summary judgment where the extrinsic evidence illuminating the parties’
B. Provisions of the Sag Harbor Operating Agreement
1. Management of the Company
Article IV of the Sag Harbor Operating Agreement concerns the management of the Company. Section 4.1 provides that “[m]anagement of the Company shall be vested in its Member, Jay Bialsky” and defines Bialsky as the Manager. SHOA § 4.1.
Section 4.2 provides as follows:
The business, affairs and assets of the Company shall be managed, arranged and caused to be coordinated by the Manager, who shall have, except as otherwise provided in this Agreement, full, exclusive and complete discretion with respect thereto. Subject to and in accordance with the provisions of this Agreement, the Manager shall have all necessary and appropriate powers to carry out the purposes of the Company set forth in
Section 2.6 . Except as otherwise provided in this Agreement, the Manager shall have the unilateral power and authority acting in good faith to make and implement all decisions with respect to all matters which the Company has the authority to perform[.]
2. Distributions
Article VII of the Sag Harbor Operating Agreement concerns “Allocations and Distributions.” Section 1.1(f) defines “Distribution” as “any cash and other property paid to a Member by the Company from the operations of the Company.” SHOA § 1.1(f).
Section 7.3, titled “Distributions,” provides that “[t]he Manager may from time to time, in the discretion of the Manager, make Distributions to the Members.” SHOA § 7.3. Section 7.3 further requires that “[a]ll Distributions shall be made to the Members in the following order or priority“:
First: to pay Manager Thirty-Five percent (35%) of the net proceeds of the sale of the Ferry Road lot to the Town of Southampton, but only after payment of 65% of such net proceeds to Mid First Bank;
Second: to pay all interest, principal and other sums payable with respect to the balance of loans for acquisition and construction financing made to the subsidiaries of the Company;
Third: Twelve percent (12%) preferred distribution on all Capital Contributions12 and guaranteed loans by JAB SH HOLDINGS LLC or Jay Bialsky which shall include the initial loan of Seven Hundred Fifty Thousand Dollars ($750,000) of which Two Hundred Fifty Thousand Dollars ($250,000) has been advanced by the date hereof;
Fourth: to pay the Capital Contribution by JAB SH HOLDINGS LLC to the Company; and
Fifth: to each Member in proportion to such Member‘s Membership Interest.
SHOA § 7.3.
Section 7.5, titled “Limitations Upon Distributions,” provides as follows: “No Distribution shall be declared and paid unless, after such Distribution is made, the assets of the Company are in excess of all liabilities of the Company.” SHOA § 7.5.
3. “Member Buyout Options” in Section 7.8 and Exhibit B
Section 7.8 of the Sag Harbor Operating Agreement, titled “Buyout,” provides as follows: “At any time after the date hereof, Manager shall have the buyout options as set forth on Exhibit B attached hereto and made a part hereof.” SHOA § 7.8.
Exhibit B, titled “2 West Water Street, Sag Harbor – Member Buyout Options,” sets forth the following:
Plaintiffs argue that Defendants breached the Sag Harbor Operating Agreement by i) failing to pay the Buyout Payment (as defined below) to East End Ventures, and ii) making allegedly improper distributions to Bialsky from the Company.
1. Buyout Payment
The parties’ conflicting interpretations of provisions relevant to the Buyout Payment stems, in part, from differing views of what the “buyout” under the agreement is, more broadly. Plaintiffs read the buyout provisions as setting forth the amount due to East End Ventures in exchange for their membership interests in the Company. See PMSJ at 12, 14; P. Opp. at 3. Defendants, however, read the “buyout” provisions as referring to a potential buyout of 2 West Water Street—not the buyout of East End Ventures’ membership interests. See DMSJ at 2, 22, 25-28; D. Reply at 2-3.
For their part, Plaintiffs maintain that Bialsky elected Option A under Exhibit B to the operating agreement on July 24, 2019, and East End Ventures is thus entitled to the “Buyout Payment“—a term coined by Plaintiffs that is not expressly defined in the agreement. See PMSJ at 11-12 (arguing that Option A was “irrevocably elected . . . in connection with the closing of the sale of Ferry Road to the town of Southampton and the approval by the town of the plan to construct the Sag Harbor Project as three units“); see also id. at 4 (defining “Buyout Payment“). Under Plaintiffs’ reading of the agreement, Exhibit B sets forth a formula, which provides that East End Ventures is entitled to “(i) the land value of Unit A (which, in the operative Exhibit B to the Sag Harbor Operating Agreement, is $5,400,000), plus (ii) 45% of the ‘profit of constructed units‘—i.e., Units B and C.” See id. at 12-13; P. Opp. at 4 (“The Buyout Payment is calculated according to the formula in Exhibit B: in essence, the land value of Unit A plus 45% of the net profits on Units B and C after land value and construction costs.“). Plaintiffs further maintain that, “[b]ecause the Unit C sale
Defendants respond that Bialsky did not elect Option A until April 14, 2023, when he purchased and took possession of Unit A. See DMSJ at 16, 32-33. Defendants read Section 7.8 and Exhibit B to provide as follows:
To purchase Unit [A], Bialsky would pay Sag Harbor $5.4 million13, which is equal to 60% of the agreed $9 million land book value of the entire property, with the land for the other two units, referred to as Units [B] and [C], each comprising 20% of the property and valued at $1.8 million each (excluding soft costs). . . . Units [B] and [C] would be constructed and placed on the market. The Members would divide the net profits from the sale of Units [B] and [C] with JAB SH receiving 55% and East End Ventures receiving 45%.
Id. at 25. Under Defendants’ reading, neither Option A nor Option B “contemplates or otherwise requires Bialsky or JAB SH to buy out the membership interests of East End Ventures or otherwise pay East End Ventures anything.” Id. (emphasis in original). Rather, the only payment that Bialsky is required to make is to the Company, not East End Ventures, in the event he decided to purchase Unit [A], as “Option A says nothing about Bialsky (or JAB SH) tendering payment of the purchase price to East End Ventures.” Id.; see also Aug. 22 Hr‘g Tr. at 22:10-24 (wherein counsel for Defendants argues that the purchase price “cannot possibly be construed as a payment to East End Ventures because Unit-A is not owned by East End Ventures” and the split of profits does not contemplate “payment from one member to another“). Defendants argue that East End Ventures is only to receive the
The parties also disagree about the relationship between the provisions in Section 7.8 and Exhibit B, and the waterfall provisions set forth in Section 7.3. In sum, Plaintiffs maintain that Sections 7.3 and 7.8 are mutually exclusive: Section 7.3 governs distributions to members of the Company, and the Buyout Payment is not a “distribution” subject to the waterfall. See PMSJ at 13-16; P. Opp. at 2-3; see also Aug. 22 Hr‘g Tr. at 10:11-11:3 (arguing that “the buyout is a fundamentally different transaction than a distribution by the manager on behalf of the LLC from profits of the LLC“). Defendants, however, do not interpret the waterfall in Section 7.3 to be overridden by Section 7.8. Defendants cite Section 7.1, which provides that “Net Profit“—a defined term in the agreement that appears in Exhibit B14—is allocated “after the application of
Plaintiffs allege that Bialsky took $10,410,784.96 in purportedly improper distributions over the period February 2019 through April 23, 2023. See PMSJ at 18. Plaintiffs maintain that these distributions were improper for several reasons. First, Plaintiffs note that, under Section 7.5 of the Sag Harbor Operating Agreement, “no Distribution shall be made unless, after such Distribution is made, the assets of the Company are in excess of all liabilities of the Company,” and maintain that Defendants produced no evidence of any solvency analysis undertaken before each of these distributions was made. Id. Second, Plaintiffs argue that “the Manager has been improperly accruing for himself a 12% ‘preferred distribution’ on liabilities of [the Company] to which he has no right.” Id. at 18-19.
Defendants counter that the distributions were proper. They maintain that no formal solvency analysis is required under the Sag Harbor Operating Agreement and cite the balance sheet on the Company‘s tax returns indicating that the book value of the Company‘s assets exceeded its liabilities in each year from 2019 to 2022. See DMSJ at 36-37. Additionally, Defendants cite the third paragraph of the waterfall, arguing that the 12% preferred distribution is due for all monies that Bialsky or JAB SH personally invested, or that are derived from loans that either one guaranteed. Id. at 37.
D. Discussion
In evaluating the parties’ cross-motions for summary judgment, the Court has applied the same standard as that which is applicable to individual summary judgment motions and considered each motion independent of the other. See Hallingby, 693 F. Supp. 2d at 364. The Court has examined Plaintiffs’ and Defendants’ motions on their own merits, see Morales,
Therefore, the Court denies Plaintiffs’ motion, and grants Defendants’ motion, as to Count Six. See generally Bassi v. New York Med. Coll., No. 19 Civ. 7542 (NSR), 2023 WL 2330478, at *14 (S.D.N.Y. Mar. 2, 2023) (granting defendants’ motions for summary judgment, and denying plaintiff‘s cross-motion for summary judgment, on breach of contract claim where plaintiff failed to raise a genuine dispute of material fact as to plaintiff‘s alleged breaches), aff‘d, No. 23-278, 2024 WL 3717317 (2d Cir. Aug. 8, 2024) (summary order); McKenzie v. Fishko, No. 12CV7297-LTS-KNF, 2015 WL 685927, at *7 (S.D.N.Y. Feb. 13, 2015) (concluding that plaintiffs “failed to proffer evidence sufficient to sustain the burden of proof on their breach of contract claim,” granting defendants’ motion for summary judgment dismissing that cause of action, and denying plaintiffs’ cross-motion for summary judgment).
1. Meaning of “Buyout”
There is no support for Plaintiffs’ contention that the “Member Buyout Options” set forth in Exhibit B contemplate a “buyout” of East End Ventures’ membership interests in the Company.
The Court begins with an analysis of the plain language of the agreement. See Ellington v. EMI Music, Inc., 21 N.E.3d 1000, 1003 (N.Y. 2014) (quoting Greenfield v. Philles Recs, Inc., 780 N.E.2d 166, 170 (N.Y. 2002)) (“The best evidence of what parties to a written agreement intend is what they say in their writing . . . a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.“). Plaintiffs appear to rely, in part, on the headings for Section 7.8, “Buyout,” and Exhibit B, which includes the language, “Member Buyout Options.” SHOA § 7.8. As a preliminary matter, Section 11.4 provides that “[t]he headings in this Agreement are for convenience only and shall not be used to interpret or construe any provision of this
Plaintiffs’ argument that the deduction from East End Ventures’ capital account reflected their right to Defendants’ buyout of East End Ventures’ membership interest is unfounded. See PMSJ at 11-12. Defendants correctly note that capital accounts can fluctuate—and can even reflect a zero or negative balance—but such a reduction would not automatically terminate East End Ventures’ membership. See DMSJ at 26-27; SHOA § 6.3 (describing when members’ capital accounts will increase and decrease); SHOA § 6.4 (contemplating a negative balance in a member‘s capital account). Nor have Plaintiffs substantiated their contention that the definition of “Membership Interests” in Article I points to a buyout because of East End Ventures’ purported lack of capital contributions.16 See PMSJ at 12. The agreement defines “Capital Contribution” as “any contribution by a Member to the capital of the Company in cash, property or services rendered.” SHOA § 1.1(c). Plaintiffs seem to ask the Court to read this portion to mean that a deduction from East End Ventures’ capital account somehow coincides with a deduction of its capital contribution. See PMSJ at 12. The agreement itself belies Plaintiffs’ characterization—in addition to the
2. Buyout Payment
It is well-established that “[c]ourts may ‘not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.‘” Abundance Partners LP v. Quamtel, Inc., 840 F. Supp. 2d 758, 767 (S.D.N.Y. 2012) (quoting Vt. Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (N.Y. 2004)) (granting defendant‘s motion for summary judgment dismissing breach of contract claims); see also Kaplin v. Buendia, No. 15 Civ. 649 (PAC), 2021 WL 1405517, at *7 (S.D.N.Y. Apr. 14, 2021) (observing that “Plaintiff‘s proposed construction invites the Court to add or at least redefine terms, which would effectively (and impermissibly) rewrite the contract” and declining to do so here); Mercury Partners LLC v. Pac. Med. Bldgs., L.P., No. 02 Civ. 6005 (HBP), 2007 WL 2197830, at *14 (S.D.N.Y. July 31, 2007) (quoting John Doris, Inc. v. Solomon R. Guggenheim Found., 209 A.D.2d 380, 381 (2d Dep‘t 1994)) (“Under New York law, ‘the courts may not rewrite the agreement to relieve a sophisticated contracting party from terms that it later deems disadvantageous.‘“).
As discussed supra, the term “Buyout Payment” does not appear in the Sag Harbor Operating Agreement. In defining the term, Plaintiffs cobble together a formula by combining provisions that appear in Exhibit B. This is an impermissible departure from the plain language in Exhibit B. See Bank v. Verde Energy USA, Inc., 19-cv-01472, 2020 WL 5596046, at *6 (E.D.N.Y. Sept. 18, 2020) (quoting W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 163 (N.Y. 1990)) (“By ignoring the plain language of the contract, [the] plaintiff effectively rewrites the bargain that was struck.“).
As a preliminary matter, there is no textual support for Plaintiffs’ contention that East End Ventures is entitled to the $5.4 million purchase price for Unit A. The Court need
It is widely acknowledged that “[c]ourts should be ‘extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include.‘” Ambac Assurance Corp. v. U.S. Bank Nat‘l Ass‘n, No. 18 Civ. 5182 (LGS), 2020 WL 7211217, at *8 (S.D.N.Y. Dec. 7, 2020) (quoting Global Reinsurance Corp. of Am. v. Century Indem. Co., 91 N.E.3d 1186, 1193 (N.Y. 2017)), aff‘d, No. 21-70-cv, 2021 WL 6060710 (2d Cir. Dec. 20, 2021) (summary order); see also One Stop 34, LLC v. Stimdel Properties (FL), Inc., No. 19-CV-04011, 2021 WL 8344133, at *7-8 (E.D.N.Y. Sept. 4, 2021) (citations omitted) (“In the context of a commercial contract, New York courts are particularly reluctant to find ambiguity from absent terms . . . . Because the Lease does not contain any term regarding access to the parking and loading area of the Demised Premises, there is no basis for finding that the parties intended to create such form of access, especially access entailing property not covered by the Lease.“), report and recommendation adopted, 2022 WL 985834 (E.D.N.Y. Mar. 31, 2022). Therefore, given the absence of any language in the
Additionally, Defendants have not breached the Sag Harbor Operating Agreement by failing to pay “45% of potential profit of constructed units” to East End Ventures at this juncture. As relevant here, the parties agree that: 1) “potential profit of constructed units,” as used in the two pertinent provisions of Option A in Exhibit B concerning the “55%/45%”
First, Plaintiffs fail to cite any provision of the Sag Harbor Operating Agreement that obligates the distribution of amounts owed to the East End Members pursuant to Option A in Exhibit B on an interim basis. See Elecs. & Telecomms. Rsch. Inst., 2017 WL 2389699, at *7 (denying plaintiff‘s motion for partial summary judgment on breach of contract claim where, among other things, plaintiff failed to identify language in support of its interpretation in governing agreements); see also DMSJ at 30. Upon review of the agreement, the Court concludes that no such provision exists. Second, Defendants correctly highlight—and Plaintiffs concede—that Unit B has not sold, so the profits cannot even be ascertained. See Aug. 22 Hr‘g Tr. at 21:13-19, 32:7-15; Ashland Mgmt. Inc. v. Janien, 624 N.E.2d 1007, 1010 (N.Y. 1993) (“A party may not recover damages for lost profits unless they were within the contemplation of the parties at the time the contract was entered into and are capable of measurement with reasonable certainty.“).
3. Distributions
The Court also denies Plaintiffs’ motion, and grants Defendants’ motion, seeking summary judgment on Count Six concerning the allegedly improper distributions.
First, Plaintiffs argue that Defendants produced no evidence that a solvency analysis was undertaken before each of the distributions made to Bialsky and, “[a]bsent any such analysis, none of the Manager‘s distributions are valid under the Sag Harbor Operating Agreement.” PMSJ at 18. The Court again returns to the plain language of the Sag Harbor Operating Agreement, which imposes no affirmative requirement that a “solvency analysis” be formally prepared or documented, as Plaintiffs seem to suggest. See DMSJ at 36-37; see Kaplin, 2021 WL 1405517, at *7 (ruling in favor of a contractual interpretation that “gives the words of the contract their plain meaning“). Section 7.5 merely provides as follows: “No Distribution shall be declared and paid unless, after such Distribution is made, the assets of the company are in excess of all liabilities of the Company.” SHOA § 7.5. There are no other provisions pertinent to Distributions that impose the obligation referenced by Plaintiffs. Plaintiffs cannot now create an obligation that plainly does not exist in the unambiguous text of the Sag Harbor Operating Agreement. See N. Am. Photon Infotech Ltd. v. ZoomInfo LLC, No. 20 CIV. 2180 (JPC), 2021 WL 4482208, at *5 (S.D.N.Y. Sept. 30, 2021) (citation omitted) (noting that “the Court will not create an obligation absent from the contract“), aff‘d as to liability, No. 22-1979, 2024 WL 4799843 (2d Cir. Nov. 15, 2024) (summary order).
Critically, Plaintiffs offered no evidence on the record to suggest that the Company‘s assets did not, in fact, exceed liabilities after the Distributions were made, nor do they contest Defendants’ contentions regarding the balance sheets on the Company‘s tax returns from 2019 through 2022. See DMSJ at 37. Plaintiffs do not dispute Defendants’ representations that the book value of the Company‘s assets exceed its liabilities at the beginning and end of the years 2019, 2020, 2021, and 2022, and that the Company issued Schedule K-1s to East End Ventures for those tax years. See P. Resp. to D. SOF at 63-65.
Second, Plaintiffs improperly argue that construing Section 7.3 as to entitle Bialsky to a 12% preferred distribution on “every penny loaned to Sag Harbor . . . as long as he personally guarantees it” runs afoul of contract interpretation principles. See PMSJ at 19; SHOA § 7.3. Defendants correctly note that the plain language of the waterfall provision in Section 7.3 entitles Bialsky to just that. See DMSJ at 37; SHOA § 7.3. Plaintiffs take the position that it would be “commercially absurd” to suggest Mr. Maiden and Talel would agree to this preference. See Aug. 22 Hr‘g Tr. at 19:22-20:6. The plain language of the agreement says otherwise, putting third in order of distributions—which are within the “discretion of the Manager” to make—“[t]welve percent (12%) preferred distribution on all Capital Contributions and guaranteed loans by JAB SH [] or Jay Bialsky . . . .” SHOA § 7.3. The Court will not “rewrite the contract” based on Plaintiffs’ discontent with the reasonableness of their own terms. Kaplin, 2021 WL 1405517, at *7; Verde Energy USA, Inc., 2020 WL 5596046, at *6; Mercury Partners LLC, 2007 WL 2197830, at *14 (quoting New England Merch. Nat‘l Bank v. Iran Power Gen. & Transmission Co., 502 F. Supp. 120, 127 (S.D.N.Y. 1980),
II. COUNT EIGHT
Count Eight seeks a declaratory judgment that East End Ventures is entitled to the Buyout Payment and distributions or other amounts owing under the Sag Harbor Operating Agreement. Compl. ¶¶ 121-28. Plaintiffs and Defendants now cross-move for summary judgment in their favor on Count Eight.
A. Legal Standard
The Declaratory Judgment Act provides that “[i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.”
- (1) whether the [declaratory] judgment [sought] will serve a useful purpose in clarifying or settling the legal issues involved;
- (2) whether [such] a judgment would finalize the controversy and offer relief from uncertainty;
- (3) whether the proposed remedy is being used merely for procedural fencing or a race to res judicata;
- (4) whether the use of a declaratory judgment would increase friction between sovereign legal systems or improperly encroach on the domain of a state or foreign court;
- (5) whether there is a better or more effective remedy; and
- (6) whether concerns for judicial efficiency and judicial economy favor declining to exercise jurisdiction.
Inherent in district courts’ broad discretion to decline jurisdiction is a similarly broad discretion to weigh the factors enumerated in Admiral. Id. at 100. “[N]o one factor is sufficient, by itself, to mandate that a district court exercise—or decline to exercise—its jurisdiction to issue a declaratory judgment.” Id. “Likewise, ‘[t]hese factors are non exhaustive,‘” and courts retain “wide latitude to address other factors as relevant to the ultimate question of whether ‘the normal principle that federal courts should adjudicate claims [over which they have] jurisdiction’ should ‘yield[] to considerations of practicality and wise judicial administration’ in a particular case.” Id. (internal citations omitted).
B. Summary of the Parties’ Arguments
Defendants maintain that a declaratory judgment would not serve any useful purpose because Count Eight is duplicative of the breach of contract claim in Count Six and, therefore, the Court should decline to exercise jurisdiction over the declaratory judgment claim. DMSJ at 48-49 (collecting authority). Plaintiffs respond that this consideration alone is insufficient to support a decision to abstain from exercising jurisdiction, and that entry of a declaratory judgment would nevertheless “serve the useful purpose of establishing East End Ventures’ entitlement to the Buyout Payment, with the amount of damages to be finally ascertained once Unit B sells.” P. Opp. at 12-13.
In considering the relevant Admiral factors, the Court concludes that a declaratory judgment would not serve a useful purpose, or finalize the controversy or offer relief from uncertainty, and that concerns for judicial efficiency and judicial economy favor declining to exercise jurisdiction over the claim.
Courts have recognized that, “[w]hen a plaintiff‘s contract claim ‘will necessarily settle the issues for which the declaratory judgment is sought,’ a declaratory-judgment claim ‘will serve no useful purpose and will not serve to offer relief from uncertainty.‘” Del Mar TIC I, LLC v. Bancorp Bank, No. 1:23-cv-08999 (JLR), 2024 WL 2213472, at *9 (S.D.N.Y. May 16, 2024) (quoting EFG Bank AG, Cayman Branch v. AXA Equitable Life Ins. Co., 309 F. Supp. 3d 89, 100 (S.D.N.Y. 2018)); see also Lim v. Radish Media Inc., No. 22-1610, 2023 WL 2440160, at *2 (2d Cir. Mar. 10, 2023) (summary order) (citation omitted) (concluding that declaratory judgment claim was correctly dismissed because no useful purpose would be served in granting declaratory relief where the issues on which plaintiff sought declaratory relief were necessarily decided in the determination of the breach of contract claims); Ambac Assurance Corp. v. U.S. Bank Nat‘l Ass‘n, No. 21-70-CV, 2021 WL 6060710, at *5 (2d Cir. Dec. 20, 2021) (summary order) (same). Courts have thus regularly exercised their discretion to dismiss declaratory judgment claims when they are duplicative of other claims in the suit. See Del Mar TIC I, LLC, 2024 WL 2213472, at *9 (collecting cases); Parts Auth., LLC v. Beyda, No. 23-CV-07656 (NCM) (VMS), 2024 WL 3553447, at *4 (E.D.N.Y. July 26, 2024) (“In federal actions, courts have refrained from exercising jurisdiction over a declaratory action when the issue would necessarily be determined through separate claims. Courts may compare the declaratory claim to separate claims made within the same lawsuit or a claim raised in a separate lawsuit.“) (comparing cases); Frommer v. MoneyLion Techs. Inc., No. 23-CV-6339 (JMF), 2024 WL 2158589, at *11 (S.D.N.Y. May 14, 2024) (“The decision whether to grant
Plaintiffs’ declaratory judgment claim does not “serve a useful purpose in clarifying or settling the legal issues” where “the breach of contract claim governs the substance of this dispute.” See Com. Tenant Servs., Inc. v. Penske Bus. Media, LLC, No. 20-CV-9756 (SHS), 2022 WL 4292971, at *6 (S.D.N.Y. Sept. 16, 2022). Therefore, the Court grants Defendants’ request for summary judgment as to Count Eight. See Apollo Capital Corp. v. Astra Veda Corp., No. 23-CV-9708 (AS), 2024 WL 3729093, at *7 (S.D.N.Y. Aug. 7, 2024) (granting summary judgment as to declaratory judgment claim because the claim was duplicative of the breach of contract claim); Jakobovits v. All. Life Ins. Co. of N. Am., No. 15 cv 9977, 2017 WL 3049538, at *8 (S.D.N.Y. July 18, 2017) (same).
III. COUNTS FOUR AND FIVE
Count Four seeks turnover of unpaid distributions or other amounts owing to the members or liquidators of East End Ventures. Compl. ¶¶ 90-96. This count is brought against the Company and JAB SH. See id. Count Five seeks turnover of the Buyout Payment to East End Ventures. Id. ¶¶ 97-103. This count is brought against JAB SH and Bialsky. See id.
Counts Four and Five are brought pursuant to
Section 542(a) of the Bankruptcy Code provides as follows:
[A]n entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
B. Summary of the Parties’ Arguments
For the reasons discussed supra Discussion Section I.C., Plaintiffs maintain—and Defendants dispute—that they are entitled to the Buyout Payment and other amounts purportedly owing under the Sag Harbor Operating Agreement. See PMSJ at 22-23; DMSJ at 44-46.
C. Discussion
1. Plaintiffs Cannot Seek Turnover Post-Confirmation.
Courts have recognized that turnover claims cannot be brought post-confirmation. See, e.g., Penthouse Media Grp. v. Guccione (In re Gen. Media, Inc.), 335 B.R. 66, 75 (Bankr. S.D.N.Y. 2005); In re Rickel & Assocs., Inc., 272 B.R. 74, 97 (Bankr. S.D.N.Y. 2002). This is because the bankruptcy estate ceases to exist, and there is no debtor-in-possession or trustee, after confirmation. See In re Gen. Media, Inc., 335 B.R. at 75 (citations omitted) (“Once
Here, the First Amended Plan in Debtor‘s bankruptcy case was filed on January 14, 2021. [Bankr. Dkt. No. 136.] The Court entered an order confirming the plan on March 17, 2021 [Bankr. Dkt. No. 149], and an order modifying the plan on May 19, 2021 [Bankr. Dkt. No. 166]. The Complaint in this adversary proceeding was filed on March 8, 2023—years after the plan was confirmed. [Dkt. No. 1.]
2. The Funds at Issue Are Not Undisputed.
Counts Four and Five fail for an additional reason. “Turnover actions involve the return of undisputed funds.” In re Ladder 3 Corp., 571 B.R. 525, 530 (Bankr. E.D.N.Y. 2017) (citation omitted), aff‘d, 768 F. App‘x 146 (2d Cir. 2019) (summary order). “It is fundamental to a turnover claim that the subject property belongs to the estate.” In re CIL Ltd., 2024 WL 1693626, at *45 (collecting cases); see also generally Geron v. Peebler (In re Pali Holdings, Inc.), 488 B.R. 841, 851 (Bankr. S.D.N.Y. 2013) (“When the turnover power [under § 542] is properly invoked, it is simply an effort to recover property—or on property—that is already property of the estate. That, in turn, invokes the court‘s in rem jurisdiction over the bankruptcy res.“). “The party seeking turnover bears the burden of proving, by a preponderance of the evidence, that the property in question is property to the estate.” In re CIL Ltd., 2024 WL 1693626, at *45 (collecting cases). In other words, for “section 542(a) to apply, there must be no dispute that the property that is the object of the turnover claim is estate property.” Id. (citation omitted). “A turnover claim is generally not a vehicle ‘to adjudicate a debtor‘s underlying rights in property when ownership of that property is in
The parties’ voluminous briefing demonstrates that there is a bona fide dispute as to entitlement to the Buyout Payment and challenged distributions based on conflicting interpretations of the text of the Sag Harbor Operating Agreement. See id. at *54 (noting that the court‘s “role [in deciding whether to dismiss the turnover claim] is only to decide whether there is a bona fide dispute” and granting defendants’ motion for summary judgment dismissing turnover claim where “there plainly [was]” such a dispute).
For the reasons discussed above, the turnover action cannot be maintained and the Court grants Defendants’ request for summary judgment as to Counts Four and Five.
Count One is a demand for an accounting based upon Section 3.4 of the Sag Harbor Operating Agreement. Compl. ¶¶ 67-75. Count Two is a claim for equitable accounting. Id. ¶¶ 76-82. Plaintiffs and Defendants now cross-move for summary judgment in their favor on Counts One and Two.
A. Legal Standard
“An action for accounting may be a suit in equity, or it may be a particular remedy sought in conjunction with another cause of action.” Insured Advoc. Grp., LLC v. Spartan Servs. Corp., 23-cv-07212 (LJL), 2024 WL 3429131, *7 (S.D.N.Y. July 16, 2024) (quoting Brown v. Cooley Enters., Inc., No. 3:11-CV-0124-D, 2011 WL 2200605, at *1 (N.D. Tex. June 7, 2011)). “If it is a separate, equitable cause of action, it is proper ‘when the facts and accounts in issue are so complex that adequate relief cannot be obtained by law.‘” Id. (quoting Brown, 2011 WL 2200605, at *1).
To state a claim for equitable accounting under New York law, a plaintiff must establish “(1) relations of a mutual and confidential nature; (2) money or property entrusted to the defendant imposing upon him a burden of accounting; (3) that there is no adequate legal remedy; and (4) in some cases, a demand for an accounting and a refusal.” Eichenblatt v. Kugel, No. 17-cv-559, 2018 WL 3202079, at *7 (E.D.N.Y. May 15, 2018) (quoting Associated Mortg. Bankers, Inc. v. Calcon Mut. Mortg. LLC, 159 F. Supp. 3d 324, 338 (E.D.N.Y. 2016)). “The purpose of an equitable accounting is to require a fiduciary to show what he did with the principal‘s property.” Sigalit v. Kahlon, No. 21-cv-8921 (AT), 2023 WL 5609099, at *2 (S.D.N.Y. Aug. 30, 2023) (quoting Soley v. Wasserman, No. 08-cv-9262, 2013 WL 6388401, at *4 (S.D.N.Y. Dec. 6, 2013)).
With respect to the third element of an equitable accounting claim, New York courts have held that an “equitable accounting claim cannot coexist with a breach of contract claim covering the same subject matter.” Najjar Grp., LLC v. West 56th Hotel LLC, 14-CV 7120(RA), 2017 WL 819487, at *3 (S.D.N.Y. March 1, 2017) (citations omitted); see also Calcon Mut. Mortg., 159 F. Supp. 3d at 340 (quoting Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc., 837 F.Supp.2d 162, 207 (S.D.N.Y. 2011)) (same); Herbert H. Landy Ins. Agency, Inc. v. Navigators Mgmt. Co., No. 14-cv-6298 (LGS), 2015 WL 170460, at *2 (S.D.N.Y. Jan. 13, 2015) (dismissing a claim for accounting on the merits because the plaintiff‘s breach of contract claim covered the same subject matter); Curtis v. Berutti, 176 N.Y.S.3d 423, 434 (Sup. Ct. 2022) (citing Physicians Mut. Ins. Co. v. Greystone Servicing Corp., No. 07 Civ. 10490 (NRB), 2009 WL 855648, at *11 (S.D.N.Y. 2009)) (dismissing the equitable accounting claim because it “arose from the same operative facts” as did the breach of contract claim). “That is because a plaintiff would be able to obtain the information and
The Second Circuit‘s decision in Scholastic is not contrary to this proposition. See Najjar Grp., 2017 WL 819487, *4 (citing Scholastic, Inc. v. Harris, 259 F.3d 73 (2d Cir. 2001)). “In Scholastic, a former partner of a joint venture sought an accounting even though it had ‘been given financial reports regarding the condition of the venture since the collaboration‘s inception.‘” Id. (citing Scholastic, 259 F.3d at 90). The Second Circuit held that “[e]ven if Scholastic already possessed detailed financial information regarding the joint venture,” the partner still had “an absolute right to an accounting.” Scholastic, 259 F.3d at 90 (quoting Koppel v. Wien, Lane & Malkin, 125 A.D.2d 230, 234 (1st Dep‘t 1986)). In an unpublished summary order, the Second Circuit clarified Scholastic‘s interpretation of Koppel (which had found that “whenever there is a fiduciary relationship between the parties . . . there is an absolute right to an accounting notwithstanding the existence of an adequate remedy at law, 125 A.D.2d at 234) by narrowing Koppel “as standing either for the proposition that the voluntary transfer of financial documents or willingness to provide for an inspection or audit are no substitute for a judicially supervised accounting or that a principal is not precluded from seeking an equitable accounting merely because she could bring [but has not brought] an action at law.” Soley v. Wasserman, 639 F. App‘x. 670, 674 n.5 (2d Cir. 2016) (summary order) (quotation marks and internal citations omitted). The Second Circuit concluded that “New York law clearly requires that a principal demonstrate the unavailability of an ‘adequate remedy at law’ in order to prevail on a claim for an equitable accounting, in
B. Summary of the Parties’ Arguments
In their motion, Plaintiffs maintain that JAB SH and Bialsky are legally obligated to provide East End Ventures with an accounting of the Company‘s financial affairs, but that Defendants are “incapable of providing the accounting to which the Plaintiffs are entitled.”24 PMSJ at 23-24. Plaintiffs argue that “Defendants did not and cannot account for the costs of Units B and C,” and that it is of no consequence that Defendants produced documents, as “an action for an accounting is not mooted by the production of financial documents.” Id. at 23-24. Plaintiffs rely on Section 3.4 of the Sag Harbor Operating Agreement in asserting that
“Information“. Each Member may inspect during ordinary business hours and at the principal place of business of the Company any and all books and records and any information or documentation respecting the Company, including but not limited to, the Certificate of Formation, the Operating Agreement, the minutes of any meeting of the Members and any tax returns of the Company.
SHOA § 3.4.
Defendants argue that Plaintiffs have not established that they are entitled to an accounting because they have not demonstrated that Defendants engaged in any wrongful conduct. See DMSJ at 46 (collecting cases). Defendants reiterate that they “have already provided Plaintiffs with over 21,000 pages of documents, which includes a full accounting,” and argue that Plaintiffs have failed to demonstrate that the records provided are inaccurate. Id. at 47-48. However, Defendants do not purport to deny that, as Manager of Sag Harbor, Bialsky owes fiduciary duties to minority members of the Company. See generally DMSJ. Defendants have also not denied that Plaintiffs entrusted Bialsky with money and property pursuant to this relationship. See generally id. Instead, Defendants argue (1) that Plaintiffs have not established that they are entitled to an accounting “because they have not demonstrated that Defendants engaged in any wrongful conduct“; and (2) that Defendants have already provided Plaintiffs with a full accounting. Id. at 46-47. Plaintiffs argue they have an “absolute right” to an accounting and that they need not establish wrongful conduct or a breach of fiduciary duty to assert that right. P. Opp. at 13.
1. Count One
The plain language of Section 3.4 of the Sag Harbor Operating Agreement indicates that members have the right to inspect books and records respecting the Company. SHOA § 3.4. On its face, the Sag Harbor Operating Agreement does not indicate a right to obtain an accounting, which is not the same as an inspection of books and records. See id.; Zyskind v. Facecake Marketing Techs., Inc., 973 N.Y.S.2d 34, 37 (1st Dep‘t 2013) (noting that “inspection of books and records” and the “furnishing of an annual balance sheet and profit and loss statement . . . are not the same as an accounting“); see also Sigalit, 2023 WL 5609099, at *3 (noting the “right to inspect company books and records is separate and independent from the right to an equitable accounting“). Even the right to inspect “any information or documentation respecting the Company” pursuant to section 3.4 of the SHOA is not the same as the right to a judicially supervised accounting. See Soley, 639 F. App‘x. at 674 n.5 (summary order) (citing Scholastic, 259 F.3d at 90); see also Najjar Grp., 2017 WL 819487, *4 (finding that the plaintiff “did receive the information it sought through ‘judicially supervised’ discovery in connection with its breach of contract claim, rather than through a voluntary transfer of records” from the defendant). Because Plaintiffs have failed to point to a provision in the Sag Harbor Operating Agreement establishing their right to an accounting, the Court grants summary judgment in favor of Defendants on Count One.
2. Count Two
It is undisputed that Bialsky, as Manager of Sag Harbor, owed a fiduciary duty to minority members of the Company and that Plaintiffs entrusted Bialsky with money and property pursuant to this relationship. “Managing members of an LLC owe fiduciary duties to the minority members and thus can be compelled to account.” DPB Family LLC v. Eutychia Group LLC, No. 65255, 2018 WL 5043897, at *4 (Sup. Ct. N.Y. Cnty. Oct. 17, 2018) (citations omitted).
With respect to whether Plaintiffs need to establish wrongdoing to assert their equitable accounting claim, the Second Department has held that a plaintiff “must show that there was some wrongdoing on the part of a defendant with respect to the fiduciary relationship concerning property in which the plaintiff has an interest.” LMEG Wireless, LLC v. Farro, 140 N.Y.S.3d 593, 598 (2d Dep‘t 2021) (internal quotation marks omitted) (quoting Pacella v. RSA Consultants, Inc., 164 A.D.3d 806, 808 (2d Dep‘t 2018)); see also Benedict v. Whitman Breed Abbott & Morgan, 110 A.D.3d 935, 938 (2d Dep‘t 2013) (affirming dismissal of an equitable accounting cause of action where petitioners failed to prove any wrongdoing by the respondents with respect to their fiduciary roles as officers and directors of a corporation). On the other hand, the First Department has held that “[t]he right to an accounting is premised on the relationship of the parties” and that “[t]here is no requirement that there be any allegation of wrongdoing.” In re Garson, 774 N.Y.S.2d 644, 646 (Sup. Ct. N.Y. Cnty. 2003) (citing Morgulas v. J. Yudell Realty, Inc., 161 A.D.2d 211, 213-14 (1st Dep‘t 1990)); see also Adam v. Cutner & Rathkopf, 238 A.D.2d 234, 242 (1st Dep‘t 1997) (quoting Morgulas, 161 A.D.2d at 213-14) (“An allegation of wrongdoing is not an indispensable element of a demand for an accounting where the complaint indicates a fiduciary relationship between the parties or some other special circumstance warranting equitable relief.“).
The Court finds it is unnecessary to reach the issue of whether Plaintiffs must establish wrongful conduct or a breach of fiduciary duty to sustain a claim for equitable accounting because Plaintiffs’ claim for equitable accounting cannot coexist with their breach of contract claims covering the same subject matter. “New York courts have dismissed equitable accounting claims where, as here, the plaintiff asserts a breach of contract claim
Because equitable accounting claims cannot coexist with breach of contract claims covering the same subject matter, the Court grants summary judgment in favor of Defendants on Count Two.
V. COUNTS THREE AND SEVEN
Count Three alleges breach of contract for refusing to permit review of the Company‘s books and records. See Compl. ¶¶ 83-89. This count is brought against Bialsky and JAB SH. See id. Count Seven, also brought against Bialsky and JAB SH, is a claim for breach of fiduciary duty. See id. ¶¶ 115-20. Plaintiffs allege that “Bialsky caused legal title to [the property located at 2 West Water Street] to be held by [JAB 2 West Water] despite the [Company‘s] entitlement to the Property” and that “Defendants breached their fiduciary duties by diverting the Property from [the Company].” Id. ¶¶ 116, 120. Defendants now move for summary judgment on Counts Three and Seven.
Defendants correctly observe that Plaintiffs failed to oppose Defendants’ request for summary judgment on Counts Three and Seven. The Second Circuit has recognized that, “when a counseled party moves for summary judgment, ‘a partial response [by the non-movant] arguing that summary judgment should be denied as to some claims while not mentioning others may be deemed an abandonment of the unmentioned claims.‘” Kovaco v. Rockbestos-Surprenant Cable Corp., 834 F.3d 128, 143 (2d Cir. 2016) (quoting Jackson v. Fed. Exp., 766 F.3d 189, 195 (2d Cir. 2014)); Jackson, 766 F.3d at 196 (observing that “preparation of a response to a motion for summary judgment is a particularly appropriate time for a non-movant party to decide whether to pursue or abandon some claims or defenses” and “[a] partial response reflects a decision by a party‘s attorney to pursue some claims or defenses
As noted in Defendants’ reply, Plaintiffs opposed Defendants’ request for summary judgment on all counts except Counts Three and Seven.26 See D. Reply at 1. At the August 22 Hearing, Defendants again raised the issue of Plaintiffs’ failure to oppose their request for summary judgment on these counts. See Aug. 22 Hr‘g Tr. at 33:25-34:3 (wherein counsel for Defendants “point[s] out to the Court that in our motion for summary judgment, on the third and seventh counts of the complaint, there was no opposition to those counts, so those counts would certainly be granted as unopposed“). Counsel for Plaintiffs had the opportunity to respond at the hearing, yet did not address either of these counts. Therefore, the Court concludes that Plaintiffs have abandoned Counts Three and Seven and grants summary judgment in favor of Defendants.
For the reasons set forth above, the Court concludes as follows: (i) as to Count Six, Defendants’ motion is granted and Plaintiffs’ motion is denied; (ii) as to Count Eight, Defendants’ motion is granted and Plaintiffs’ motion is denied; (iii) as to Counts Four and Five, Defendants’ motion is granted and Plaintiffs’ motion is denied; (iv) as to Counts One and Two, Defendants’ motion is granted and Plaintiffs’ motion is denied; and (v) as to Counts Three and Seven, Defendants’ motion is granted.
Louis A. Scarcella
United States Bankruptcy Judge
Dated: June 30, 2026
Central Islip, New York