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First Keystone Consultants, Inc. v. Schlesinger Electrical Contractors

March 28, 2012

FIRST KEYSTONE CONSULTANTS, INC. ROBERT H. SOLOMON AND JANE SOLOMON PLAINTIFFS,
v.
SCHLESINGER ELECTRICAL CONTRACTORS, INC. DEFENDANT.



The opinion of the court was delivered by: Kiyo A. Matsumoto, United States District Judge:

MEMORANDUM & ORDER

Presently before the court is a motion filed by defendant Schlesinger Electrical Contractors, Inc. ("SEC" or "defendant")*fn1 seeking to dismiss the first, second, and third causes of action of plaintiffs First Keystone Consultants, Inc. ("FKC"), Robert H. Solomon and Jane Solomon (together, the "Solomons," and collectively with FKC, "plaintiffs").*fn2 For the reasons set forth below, defendant's motion to dismiss is granted.

BACKGROUND

The following facts are drawn from the Complaint, the parties' submissions in connection with the instant motion, and the documents incorporated by reference therein.*fn3 The court summarizes below only those facts deemed necessary to an understanding of the issues involved in this motion.

I.The Parties and the Agreements

Plaintiff FKC is a Pennsylvania corporation authorized to do business in New York. (Compl. ¶ 8.) Plaintiffs Robert and Jane Solomon, residents of Florida, are principal officers of FKC, and Jane Solomon is its sole shareholder.*fn4 (Id. ¶¶ 8-9.)

Defendant SEC is a New York corporation. (Id. ¶ 10.) Jacob Levita ("Levita," and together with SEC, the "SEC defendants"), a New York resident, is a principal officer of SEC. (Id. ¶¶ 10-11.)

In or about August 2004, SEC and non-party Siemens Energy & Automation, Inc. ("SEA"), a Delaware corporation that provided electrical, engineering, and automation solutions in the construction industry, organized a limited liability company under the name Schlesinger-Siemens Electrical, LLC ("SSE"). (See id. ¶ 15; id. Ex. E, Amended and Restated Operating Agreement of Schlesinger-Siemens LLC, dated 10/17/2005 ("Am. Op. Agmt."); Kalish Decl. Ex. B, Verified Complaint, dated 12/16/2005 ("FKC Queens Compl.") ¶ 10.) See also First Keystone Consultants, Inc. v. DDR Constr. Servs., 901 N.Y.S.2d 906 (N.Y. Sup. Ct. Queens Cnty. 2009); DDR Constr. Servs., Inc. v. Siemens Indus., Inc., 770 F. Supp. 2d 627, 635-37 (S.D.N.Y. 2011). SSE was authorized to bid on and perform certain projects involving water treatment and facility electrical upgrades (the "Projects") for the New York City Department of Environmental Protection ("NYCDEP"). (See Compl. ¶¶ 13-15; id. Ex. E, Am. Op. Agmt. ¶ 1.3; ECF No. 101, Reply Declaration of Melvin J. Kalish in Support of Motion to Dismiss, dated 7/27/2011 ("Kalish Reply Decl.") Ex. T, Short Form Order, First Keystone Consultants, Inc. v. DDR Constr. Servs., Index No. 27095/2005, dated 11/26/2008 ("Queens P.I."), at 2.) See also First Keystone, 901 N.Y.S.2d at 906; DDR Constr., 770 F. Supp. 2d at 636. SEC and SEA agreed to split SSE profits in equal halves, but SEA retained control over SSE with a 51 percent interest, as compared to SEC's 49 percent interest. (See Compl. ¶¶ 15, 23; id. Ex. E, Am. Op. Agmt. ¶¶ 3.2, 8.3(a)(iv).) See also DDR Constr., 770 F. Supp. 2d at 636.

On or about August 20, 2004, SEC, FKC, and non-party DDR Construction Services, Inc. ("DDR"), a New Jersey corporation that provides consulting and other services to entities in the construction industry, entered into a Pre-Bidding and Joint Venture Agreement under the name SFD Associates (the "2004 SFD Joint Venture") through which those three entities agreed to assist in the bidding and performing of SEC's part of the Projects, and split in equal thirds any profits SEC earned from the Projects.*fn5 (Kalish Decl. Ex. A, Pre- Bidding and Joint Venture Agreement of SFD Associates, dated 8/20/2004 ("2004 SFD JV"); Kalish Decl. Ex. B, FKC Queens Compl. ¶¶ 4, 12; Kalish Decl. Ex. E, First Amended Verified Answer to Verified Complaint and Amended Counterclaim, dated 11/19/2007 ("DDR Queens Counterclaims against FKC") ¶¶ 42-56.) See also First Keystone, 901 N.Y.S.2d at 906; DDR Constr., 770 F. Supp. 2d at 635, 637. Pursuant to the 2004 SFD Joint Venture, SEC, FKC, and DDR agreed to distribute equally all profits "[u]pon completion of the Principal Contract and after paying or providing for the payment of (a) all known costs and expenses and (b) reserves for such unsettled claims, overruns and other contingencies as all the parties reasonably agree in their discretion, to be necessary and after repaying all sums advanced for working capital . . . ." (Kalish Decl. Ex. A, 2004 SFD JV ¶ 21.) A rider to the 2004 SFD Joint Venture agreement further provided that each of the joint venturers had a one-third interest in SEC's interest in the Projects, and in all profits, gains, and losses realized or sustained therefrom. (Kalish Decl. Ex. A, 2004 SFD JV Rider ¶ 4.) On May 4, 2005 FKC, SEC, and DDR executed another rider to the 2004 SFD Joint Venture, pursuant to which they agreed that the 2004 SFD Joint Venture would bid on Contract 26W-12E for the 26th Ward Water Pollution Control Plant (the "26th Ward Project"). (Kalish Decl. Ex. B, FKC Queens Compl. ¶¶ 15-16; Kalish Decl. Ex. A, 2004 SFD JV, Amendment to Rider dated 5/4/2005.)

According to plaintiffs, on August 29, 2005, FKC and SEC executed a letter agreement (the "August 29, 2005 Agreement") providing that upon award of the 26th Ward Project to SSE, FKC was to receive "$1,500 per week expenses from the [2004 SFD Joint Venture] charged as a job cost" and "$3,000 per week draw against First Keystone's share of the profits" from the 2004 SFD Joint Venture. (Compl. Ex. G, Letter from Robert Solomon to Jacob Levita, dated 8/29/2005 ("8/29/2005 Agmt."); Kalish Decl. Ex. H, FKC Queens Counterclaims ¶ 682.) The NYCDEP awarded SSE the 26th Ward Project on or about August 31, 2005. (Kalish Decl. Ex. G, Verified Answer of Third-Party Defendants Schlesinger and Levita and Counterclaims Against Third Party Plaintiffs and Plaintiffs, dated 1/12/2009 ("SEC Queens Counterclaims") ¶¶ 344, 431, Exhibit D.)

On October 17, 2005, SEC and SEA executed an Amended and Restated Operating Agreement of SSE (the "2005 Amended Operating Agreement"), which provided that SSE was to "engage in the business of bidding upon, and, if the successful bidder, negotiating, executing and performing . . . projects for the [NYCDEP] . . . ." (Compl. Ex. E, Am. Op. Agmt. ¶ 1.3.) Pursuant to the 2005 Amended Operating Agreement, SEC's role included estimating installation materials and other resource requirements, demolition and removal of equipment, interfacing with local unions to provide trade labor, and obtaining all permits and services necessary to perform the Projects. (Compl. ¶ 15; Compl. Ex. E, Am. Op. Agmt. ¶ 8.2(b).) SEA's role was to provide equipment and financial administrative services, including distributing payments, invoicing the NYCDEP, preparing tax forms, and creating financial reports. (Compl. ¶ 15; Compl. Ex. E, Am. Op. Agmt. ¶ 8.2(c).) The 2005 Amended Operating Agreement explicitly stated, "the parties do not intend to confer any benefit under this Agreement on anyone other than the parties . . . ." (Compl. Ex. E, Am. Op. Agmt. ¶ 18.4.)

On or about January 30, 2006, SEC and SSE entered into a Support Services Agreement (the "January 30, 2006 SSA"), pursuant to which SEC agreed to supply certain administrative support services to SSE to facilitate the operation of SSE's business of bidding on and performing the Projects. (Compl. Ex. A, Support Services Agreement, dated 1/30/2006 ("1/30/2006 SSA") ¶¶ 1.1, 2.1.) Among the services SEC agreed to provide SSE were the business consulting services of FKC, for which FKC was to be paid a fee not to exceed $156,000 per year. (Id. Exhibit A; Compl. ¶¶ 15, 17-18.) The January 30, 2006 SSA provided that SEC would invoice SSE on a monthly basis for the administrative support SEC provided. (Compl. Ex. A, 1/30/2006 SSA ¶ 2.2.)

On or about October 31, 2006, SEC and FKC entered into two Pre-Bidding and Joint Venture Agreements of SFD Associates (the "2006 SFD Joint Venture") through which FKC agreed to assist in the bidding and performing of SEC's part of the Projects, and split any profits SEC earned from the Projects.*fn6

(Compl. Ex. B, 2006 SFD JV.) The 2006 SFD Joint Venture stated that it superseded and replaced the 2004 SFD Joint Venture and all riders, addenda, and modifications thereto. (Id. at 1.) It further stated that bids or proposals for Projects would be "submitted in the name of [SSE] for the benefit of the [2006 SFD] Joint Venture . . . ." (Id. ¶ 2.) Pursuant to the 2006 SFD Joint Venture, SEC and FKC agreed that all profits to which SEC was entitled through SSE would be distributed equally, with SEC and FKC each receiving 50 percent, "[u]pon completion of the Principal Contract and after paying or providing for the payment of (a) all known costs and expenses and (b) reserves for such unsettled claims, overruns and other contingencies as all the parties reasonably agree in their discretion, to be necessary and after repaying all sums advanced for working capital . . . ." (Compl. Ex. B, 2006 SFD JV ¶¶ 20, 21.) A rider to the 2006 SFD Joint Venture further provided that each of the joint venturers had a one-half interest in SEC's interest in the Projects, and in all profits, gains, and losses realized or sustained therefrom. (Id. ¶ 4.)

The following chart represents graphically the relevant parties and agreements, as described in the Complaint, the parties' submissions in connection with the instant motion, and the documents incorporated by reference thereto:

II.The Queens Action

In December 2005, plaintiffs commenced litigation (the "Queens Action") against DDR in New York Supreme Court, Queens County (the "Queens court"), alleging, inter alia, that DDR had withdrawn from the 2004 SFD Joint Venture. (See Kalish Decl. Ex. B, FKC Queens Compl.) See also First Keystone Consultants, Inc. v. DDR Constr. Servs., Index. No. 27095/2005. Among the relief sought by plaintiffs was a declaratory judgment that DDR was not entitled to any profits derived from the 2004 SFD Joint Venture's work on the 26th Ward Project. (Kalish Decl. Ex. B, FKC Queens Compl. ¶ 32.)

In April 2006, DDR counterclaimed against plaintiffs and asserted third-party claims against the SEC defendants and SSE*fn7 for, inter alia, breach of contract, breach of fiduciary duty, and unjust enrichment.*fn8 As relief, DDR sought, inter alia, an accounting and dissolution of the 2004 SFD Joint Venture and a declaratory judgment regarding the amount of profits due and owing to it under the 2004 SFD Joint Venture. (Kalish Decl. Ex. E, DDR Queens Counterclaims against FKC ¶¶ 126-28, 139-48; Kalish Decl. Ex. F, DDR Queens Counterclaims against SEC ¶¶ 130-32, 143-53.)

On November 24, 2008, the Queens court granted DDR "summary judgment as to DDR's entitlement to an accounting" of the 2004 SFD Joint Venture. (See Case No. 09-CV-9605(ALC)(AGP) (S.D.N.Y.), ECF No. 63-3, Short Form Order, First Keystone Consultants, Inc. v. DDR Constr. Servs., Index. No. 27095/2005 (N.Y. Sup. Ct. Nov. 24, 2008).) See also DDR Constr., 770 F. Supp. 2d at 638. On November 26, 2008, the Queens court granted DDR's motion for a preliminary injunction prohibiting FKC and SEC, during the pendency of the Queens Action, from:

(1) disbursing funds of [the 2004 SFD Joint Venture] and [the 2006 SFD Joint Venture] as compensation for themselves or any of their relatives, except by further order of this court, (2) disbursing funds of [the 2004 SFD Joint Venture] and [the 2006 SFD Joint Venture] as a distribution of profits, except by further order of this court, and (3) disbursing funds of [the 2004 SFD Joint Venture] and [the 2006 SFD Joint Venture] in any other manner, except in the ordinary course of business or by further order of this court. (Kalish Reply Decl. Ex. T, Queens P.I. at 4.) Although the Queens court denied DDR's motion for an order appointing a referee to conduct the accounting of the 2004 SFD Joint Venture, the New York Appellate Division, Second Department, later reversed on that issue, stating, "the referees appointed by the Supreme Court in its prior orders . . . never conducted such an accounting. DDR was a partner in SFD Associates, and is entitled to an accounting of that joint venture." First Keystone Consultants, Inc. v. DDR Constr. Servs., 904 N.Y.S.2d 113, 117 (N.Y. App. Div. 2d Dep't 2010).

On January 12, 2009, in the Queens Action, the SEC defendants served an Answer and counterclaims on DDR and cross-claims on plaintiffs. (Kalish Decl. ¶ 26; Kalish Decl. Ex. G, SEC Queens Counterclaims.) There, the SEC defendants alleged, inter alia, that (1) DDR had withdrawn from the 2004 SFD Joint Venture; (2) FKC had breached the 2006 SFD Joint Venture by failing to pay FKC's share of costs and expenses pursuant to the 2006 SFD Joint Venture, including insurance costs and business operating expenses; and (3) FKC had breached the 2006 SFD Joint Venture by entering into improper agreements and incurring improper expenses. (Kalish Decl. Ex. G, SEC Queens Counterclaims ¶¶ 295-379, 457-73, 483-99.) As relief, the SEC defendants sought, inter alia, (1) a declaratory judgment that DDR retained no interest in the 2004 SFD Joint Venture, the 26th Ward Projects, or the Croton Projects; (2) dissolution of the 2004 SFD Joint Venture; (3) an accounting and dissolution of the 2006 SFD Joint Venture; and (4) an order directing plaintiffs to return $587,736.26 allegedly embezzled from SEC's Chase Bank accounts. (Id. ¶¶ 295-410, 474-82, 563-67, 622-38.)

On February 11, 2009, plaintiffs served an Answer and counterclaims on the SEC defendants in the Queens Action (Kalish Decl. ¶ 27; Kalish Decl. Ex. H, FKC Queens Counterclaims), alleging, inter alia, that (1) SEC had breached the 2006 SFD Joint Venture by failing to pay FKC its share of payments for engineering services, failing to release to FKC certain excess amounts in the payroll accounts, failing to reimburse FKC for payments made to Jane Solomon for administrative services, and improperly cashing checks drawn on the Joint Venture accounts; and (2) SEC had breached the August 29, 2005 Agreement between FKC and SEC by wrongfully ceasing to pay FKC $1,500 per week in expenses and $3,000 per week as a draw against FKC's share of the 2004 SFD Joint Venture profits. (Kalish Decl. Ex. H, FKC Queens Counterclaims ¶¶ 660-89, 707.) Plaintiffs sought (1) an accounting of the 2006 SFD Joint Venture; (2) distribution of all monies found to be to due and owing to FKC under the 2006 SFD Joint Venture; and (3) a declaration that the August 29, 2005 Agreement "is in full force and effect and that [] Keystone is entitled to the $1,500 per week in expenses and $3,000 per week as a draw against Keystone's share of profits under that agreement." (Id. ¶¶ 701-02, 707.)

III.The Arbitration Judgment

On or about September 12, 2008, SEC served and filed a Demand for Arbitration on FKC seeking payment of monies drawn by FKC against future profits of a joint venture between FKC and SEC formed on January 21, 2004 (the "Coney Island Joint Venture").*fn9 (Kalish Decl. Ex. Q, Verified Petition to Confirm Award of Arbitrators, dated 10/15/2009 ("Pet. to Confirm"), Exhibit B; ECF No. 10, Answer, Counterclaims and Cross-Claims of SEC and Levita, dated 3/12/2010 ("SEC E.D.N.Y. Counterclaims")

¶¶ 93-95.) On or about October 12, 2009, a three-member arbitration panel issued SEC an award of $545,147.48 plus interest against FKC. (Kalish Decl. Ex. Q, Pet. to Confirm Exhibit F; SEC E.D.N.Y. Counterclaims ¶ 96.) On January 6, 2010, the New York Supreme Court, Kings County, confirmed the arbitration award and rendered a judgment in favor of SEC for $545,147.48 plus interest against FKC. (Kalish Decl. Ex. R, Order and Judgment, dated 1/6/2010; SEC E.D.N.Y. Counterclaims ¶ 97.)

IV.The Federal Action

Plaintiffs commenced the instant action (the "Federal Action") on February 17, 2010 seeking, inter alia, (1) distribution of funds allegedly owed to FKC, pursuant to the January 30, 2006 SSA, as compensation for consulting services performed by FKC for SSE in connection with bidding on and performing the Projects (Compl. ¶¶ 1(a), 3, 17-25; id. Ex. A, 1/30/2006 SSA); (2) distribution of funds allegedly owed to FKC, pursuant to the 2006 SFD Joint Venture, arising from Project payments for union labor furnished by SEC in connection with the performance of the Projects (the "Variance Amounts")*fn10 (Compl. ¶¶ 1(b), 3, 26-29); and (3) distribution of profits and other funds arising out of the Projects that SEC reported to the Internal Revenue Service in 2007 and 2008, but which FKC allegedly never received (id. ¶¶ 1(c), 3, 30).

On March 12, 2010, the SEC defendants filed their Answer to the Complaint and counterclaimed against plaintiffs alleging, inter alia, breach of fiduciary duty and breach of the 2006 SFD Joint Venture by transferring funds from SSE's bank accounts to plaintiffs' own accounts. (SEC E.D.N.Y. Counterclaims ¶¶ 144-79.) The SEC defendants also alleged that FKC had made certain fraudulent conveyances to the Solomons, and that SEC was entitled to pierce FKC's corporate veil and recover from the Solomons personally for the arbitration judgment rendered by the New York Supreme Court, Kings County on January 6, 2010. (Id. ¶¶ 90-143).

DISCUSSION

I.Colorado River ...


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