In the Matter of the Petition to appoint a wind-up person for Lowbet Realty Corp., pursuant to Business Corporation Law § 1108, or to dissolve Lowbet Realty Corp. pursuant to Business Corporation Law § 1104-a or 1104 and appoint a wind-up person, and for ancillary relief including the appointment of a receiver for and the sale of the property owned by Lowbet Realty Corp. Shau Chung Hu, Petitioner,
Lowbet Realty Corp., Margaret Liu, and all other persons interested in Lowbet Realty Corp., Respondents.
Attorney for Petitioner: Kenneth M. Moltner Bressler, Amery & Ross, P.C.
Attorney for Proposed Respondent 973 44th Street Realty LLC: Michael J. Siris Solomon & Siris, P.C. Garden City Center
Attorneys for Proposed Respondents Westcor Land Title Insurance Company and Phillip O'Hara Associates, Inc.: Lee S. Wiederkehr Michael J. Schwartz One North Lexington Avenue
Attorney for Proposed Respondents Bay Shine Management Company and Ray Chen: Steven J. Harfenist Friedman Harfenist Kraut & Perlstein LLP
Carolyn E. Demarest, J.
In this proceeding to wind up the affairs of Lowbet Realty Corp. ("Lowbet"), petitioner Shau Chung Hu moves, by order to show cause, pursuant to Business Corporation Law § 1107, to amend his petition, seeking Court supervision of the liquidation of respondent corporation upon its dissolution pursuant to Business Corporation Law § 1008, to include claims arising from the purportedly fraudulent sale of the building located at 973 44th Street, Brooklyn, New York (the "Property"), Lowbet's sole asset; pursuant to CPLR 401, to join proposed respondents 973 44th Street Realty LLC ("973"), Philip O'Hara Associates ("POA") a/a/f Westcor Land Title Insurance Company ("Westcor") (collectively, the "Title Respondents"), and Bay Shine Management Company and Ray Chen (collectively, "Bay Shine"); and, pursuant to CPLR 408, for discovery regarding the sale of the Property.
On or about January 1, 1980, Petitioner purchased all 200 authorized and outstanding shares of Lowbet, a holding corporation whose sole asset is the Property, a four-story residential apartment building with 19 units that was appraised, as of July 15, 2011, to have a value of $1, 700, 000.00. In 1985, petitioner married respondent Margaret Liu ("Liu"), who thereafter obtained 50 shares of Lowbet, constituting a 25% interest in the corporation. The couple separated in 1995, and petitioner has since resided in China while Liu has resided at the Property and exercised full control over Lowbet. Petitioner claims that Liu has dissipated the corporation's assets and diverted corporate income to herself.
By notice dated May 30, 2006, petitioner called a special meeting on August 1, 2006 to elect directors, pursuant to Business Corporation Law § 603, which Liu failed to attend and during which petitioner and Zong Hu were named the sole directors and officers of Lowbet. Plaintiff claims that, as a result of this meeting, Liu initiated a divorce action against petitioner, in which the court granted a temporary restraining order barring either spouse from dissipating, transferring, or encumbering Lowbet's assets or their interest in the corporation (see Liu v Hu, Sup Ct, Kings County, Feb. 16, 2007, Krauss, J., index No. 21419/06). Liu violated this order by paying her own expenses and counsel fees from Lowbet's account and was sanctioned by the court (see Liu v Hu, Sup Ct, Kings County, Sept. 18, 2008, Adams, J., index No. 21419/06). By order dated July 21, 2011, the divorce action was dismissed due to Liu's failure to appear at the trial.
By order to show cause dated October 5, 2011, petitioner commenced the instant proceeding seeking appointment of a referee, pursuant to Business Corporation Law § 1108, to wind up the affairs and sell the assets of Lowbet; for access to, and appointment of an accountant to inspect, Lowbet's books and records to determine whether and to what extent Liu dissipated the corporation's assets; pursuant to Business Corporation Law § 1115, to restrain Liu from operating, managing, or transacting business on behalf of Lowbet; and for a declaration that petitioner owns 75% of Lowbet's shares. Lowbet was dissolved by proclamation of the Secretary of State pursuant to Tax Law § 203-a on December 27, 2000. In the order to show cause, the Court granted a temporary restraining order directing that "pending the hearing of the motion, the status quo shall be maintained in that the management company currently managing the property [Bay Shine] shall continue to do so" and "neither party shall... participate in the management of the realty or remove assets of the corporation without further direction by a Justice of this Court." Liu interposed an answer dated January 31, 2012, requesting that the court impose a constructive trust granting her 100% of the shares of Lowbet. On April 10, 2012, the Court held a hearing on the petition, which Liu failed to attend, found, upon inquest, that petitioner owns 75% of Lowbet's shares, and struck Liu's answer on default. 
By deed dated February 22, 2012, Liu, purporting to act on Lowbet's behalf, in violation of the Court's order, sold the Property to proposed respondent 973 for $1, 600, 000. As of February 15, 2012, when proposed respondent Bay Shine resigned as managing agent of the Property, Liu had acquired possession of all of the keys to the Property and Lowbet's books and records, also in contravention of this Court's October 5, 2011 order.  At the closing, proposed respondent POA appeared and issued a title insurance policy to 973 through proposed respondent Westcor. Both POA and Westcor state that they searched the public records and found no notice of pendency filed against the Property or any other document that would provide constructive notice of the instant proceeding. Petitioner contends that all parties to the transaction should have checked the public records for litigation concerning Lowbet, particularly in light of the corporation's dissolved status at the time of the transaction. POA admits that it was aware that Lowbet had been dissolved, but asserts that "it is a common occurrence for a dissolved corporation, under such circumstances to convey, as occurred here, when the corporation' is appearing by what appeared to be all of its shareholders."
On or about April 20, 2012, upon discovering that the Property had been sold, petitioner sought to obtain, from counsel for both 973 and Lowbet in connection with the sale and from the Title Respondents, copies of the closing documents and checks exchanged. Petitioner's request was denied by all parties, which claimed that the documents are privileged. Petitioner argues that these documents, which would uncover "essential facts surrounding Ms. Liu's fraud, " are "not privileged" and that he has "not been provided with any valid reason that any of them are." Petitioner also previously sought discovery from Bay Shine, via subpoena dated November 22, 2012, in which he requested Lowbet's corporate filings, books and records, summaries of payments to Bay Shine, bank statements, checks, and deposit and withdrawal slips. Bay Shine did not comply with petitioner's subpoena.
On April 30, 2012, upon petitioner's motion by order to show cause, Liu was held in contempt for violating the October 5, 2011 temporary restraining order. On May 10, 2012, the Court issued a warrant for Liu's arrest. Liu has left the country and has never appeared before the Court.  Despite petitioner's 75% interest in Lowbet, Liu has not distributed to petitioner any portion of the $1, 600, 000.00 that she received in consideration for transfer of the Property to 973.
Petitioner brought the instant motion, by order to show cause dated May 30, 2012, to amend the petition to include claims arising from the sale of the Property; pursuant to CPLR 401, for leave to join proposed respondents 973, POA as agent for Westcor,  and Bay Shine (collectively, "Proposed Respondents"); and, pursuant to CPLR 408, for leave to seek discovery from 973's counsel, Lowbet's real estate counsel, the Title Respondents, and Bay Shine of closing documents and checks exchanged in connection with the sale of the Property. As against 973, petitioner's proposed amended petition adds three claims: rescission of the sale of the Property pursuant to Business Corporation Law § 1114; an accounting pursuant to Business Corporation Law § 1114, and for rescission of the sale of the Property predicated on fraud. As against the Title Respondents, petitioner seeks to add a claim sounding in negligence for "failing to discover Ms. Liu's fraud." As against Bay Shine, the amended petition would add alternative claims sounding in breach of fiduciary duty and negligence in facilitating the fraudulent transfer of the Property, in violation of the Court's temporary restraining order, by providing to Liu the keys to the Property and Lowbet's books and ...