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Angelo Vargas v. Jason Hennigan and C & R Party Rentals


October 18, 2012


Appeal from an order of the District Court of Suffolk County, Second District (C. Stephen Hackeling, J.), entered March 28, 2011.

Vargas v Hennigan

Appellate Term, Second Department

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 18, 2012


October 18, 2012

The order granted defendants' motion to dismiss the complaint.

ORDERED that the order is modified by providing that the dismissal of the complaint is without prejudice; as so modified, the order is affirmed, without costs.

In this action, plaintiff seeks, as a first cause of action, to recover the principal sum of $15,000, representing his share of profits as a shareholder and officer of the corporate defendant, C & R Party Rentals, Inc. (C & R), and damages for the sale of the corporate assets at a below-market price. Plaintiff alleges that he contributed $6,560 to form C & R with defendant Jason Hennigan, in exchange for 80 shares of C & R stock or a 40% equity ownership; that, in August of 2009, plaintiff and Hennigan stopped doing business together and plaintiff no longer received profits from C & R; that Hennigan had unsuccessfully attempted to coerce plaintiff to relinquish his shares of C & R stock with the threat that Hennigan would sell the corporate assets for an inadequate sum if plaintiff did not cooperate; and that Hennigan had sold corporate assets at a below-market price. As a second cause of action, plaintiff seeks to recover $15,000 due to Hennigan's alleged mismanagement of corporate assets and abuse of doing business under the corporate form, which adversely affected the well-being of the corporation and deprived plaintiff of his rights in the corporation.

Defendants moved to dismiss the complaint based on the defenses of documentary evidence (CPLR 3211 [a] [1]), lack of subject matter jurisdiction (CPLR 3211 [a] [2]), and plaintiff's lack of legal capacity to sue (CPLR 3211 [a] [3]). In support of their motion, defendants attached documentary evidence showing that Hennigan is the sole shareholder and officer of C & R. Defendants also argued that this was a shareholder derivative action, which the District Court lacked subject matter jurisdiction to adjudicate. Moreover, defendants argued, plaintiff was not a shareholder, and thus lacked legal capacity to sue in a shareholder derivative action. The District Court granted defendants' motion, finding, among other things, that the documentary evidence established that plaintiff was not a shareholder of the corporation.

The District Court is a court of limited jurisdiction and has only such powers and jurisdiction as are expressly conferred upon it by the New York State Constitution and by the Legislature pursuant to the authority of the Constitution (see Mormon v Acura of Val. Stream, 190 Misc 2d 697 [App Term, 9th & 10th Jud Dists 2001]; Total Comfort v Alfred Benzenberg, Inc., 75 Misc 2d 1009, 1010 [1973]). Since shareholder derivative actions are equitable in nature (see Sakow v 633 Seafood Rest., Inc., 25 AD3d 418 [2006]) and there is no statute conferring on the District Court subject matter jurisdiction over such actions, the District Court lacks jurisdiction to entertain them.

Plaintiff's allegations confuse his "shareholder's derivative and individual rights" (Abrams v Donati, 66 NY2d 951, 953 [1985]). An action is direct, as opposed to derivative, if the thrust of the action is to vindicate the plaintiff's "personal rights as an individual and not as a stockholder on behalf of the corporation" (Albany Plattsburgh United Corp. v Bell, 307 AD2d 416, 419 [2003] [internal quotation marks and citation omitted]). Although plaintiff alleged that he had suffered personal damages as a result of Hennigan's conduct, he also maintained that Hennigan had mismanaged corporate assets and sold some at a below-market price, which are wrongs against the corporation, not the shareholders (see Marx v Akers, 88 NY2d 189, 193 [1996]; Elenson v Wax, 215 AD2d 429 [1995]). Plaintiff also alleged that he had executed an oral subscription agreement for C & R stock, thereby challenging Hennigan's claim of being the sole shareholder and officer of C & R. Plaintiff's "intermingling of derivative and individual claims" requires the dismissal of the complaint without prejudice (Jones v Citigroup, Inc., 28 Misc 3d 132[A], 2010 NY Slip Op 51326[U], *1 [App Term, 1st Dept 2010]).

In light of the foregoing, the remaining issues on appeal have been rendered academic.

Iannacci, J.P., Molia and LaCava, JJ., concur. Decision Date: October 18, 2012


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