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Kaloyeros v. Fort Schuyler Management Corp.

Supreme Court, Albany County

March 24, 2017

Alain Kaloyeros, Plaintiff,
v.
Fort Schuyler Management Corporation and FULLER ROAD MANAGEMENT CORPORATION, Defendants.

          Harris, Conway & Donovan, PLLC Attorneys for Plaintiff (Ryan T. Donovan and Ryan E. Manley, of counsel)

          Steptoe & Johnson LLP Attorneys for Plaintiff (Michael C. Miller, Jeffrey A. Novack and David B. Hirsch, of counsel)

          Hinman Straub, P.C. Attorneys for Defendants (James T. Potter, of counsel)

          Richard M. Platkin, J.

         Plaintiff Alain Kaloyeros commenced this action against defendants Fort Schuyler Management Corporation ("FSMC") and Fuller Road Management Corporation ("FRMC"), seeking indemnification of legal fees and expenses incurred in connection with two pending criminal prosecutions and a matter concerning plaintiff's public employment with the State University of New York ("SUNY"). Plaintiff moves pursuant to CPLR article 63 for a preliminary injunction requiring defendants to advance the legal fees and expenses associated with the three proceedings. Defendants oppose the motion.

         BACKGROUND

         Prior to the recent accusations of wrongdoing leveled against him, Dr. Kaloyeros had been hailed as a leader in the emerging field of nanotechnology. He ultimately rose to the rank of President and Chief Executive Officer of SUNY Polytechnic Institute ("SUNY Poly"). Dr. Kaloyeros also served as the Senior Vice President and Chief Executive Office of the College of Nanoscale Science and Engineering ("CNSE"), which was merged into SUNY Poly. In addition to his State employment, Dr. Kaloyeros was, at pertinent times, a director of both defendants, which are New York not-for-profit corporations affiliated with SUNY Poly and/or CNSE.

         According to the complaint filed in this action ("Complaint"), the United States Attorney's Office for the Southern District of New York ("USAO") and the New York State Office of the Attorney General ("OAG") began investigating FSMC and FRMC in or around 2015. FSMC and FRMC retained counsel in connection with the investigations, and the same counsel initially represented Dr. Kaloyeros.

         After being advised by the USAO of a potential conflict of interest, defendants allegedly informed Dr. Kaloyeros that he should retain his own counsel and promised to advance his legal fees and expenses. Dr. Kaloyeros retained the firm of Steptoe & Johnson ("Steptoe") to represent him in connection with the criminal investigations. Consistent with their alleged oral representations, defendants made two advances to plaintiff, covering legal fees and expenses incurred through June 30, 2016.

         On September 22, 2016, the USAO unsealed a criminal complaint ("USAO Complaint") that charged Dr. Kaloyeros with one count of conspiring to commit wire fraud. The charge is based on allegations that Dr. Kaloyeros conspired with real estate developers in Buffalo and Syracuse to defraud FSMC into awarding lucrative contracts to the developers (USAO Complaint, ¶ 67). Specifically, Dr. Kaloyeros is accused of causing FSMC to issue purportedly competitive requests-for-proposals ("RFPs") that secretly were tailored to the qualifications of preferred developers and designed to prevent competing bids - all while falsely representing to FSMC that the bidding process was fair, open and competitive (id., ¶ 68). On November 22, 2016, the USAO filed a wire fraud indictment against Dr. Kaloyeros, and he entered a plea of not guilty to the charge at his December 1, 2016 arraignment.

         Also on September 22, 2016, the OAG filed a criminal complaint ("OAG Complaint") that accused Dr. Kaloyeros of three felony violations of New York's Donnelly Act (General Business Law §§ 340, 341). The OAG Complaint alleges that Dr. Kaloyeros colluded with others to manipulate FRMC's procurement process to ensure that the corporation awarded contracts to pre-selected bidders (OAG Complaint, ¶¶ 12-17). Dr. Kaloyeros entered a plea of not guilty to these charges as well.

         On October 21, 2016, plaintiff and FSMC allegedly executed an undertaking by which FSMC agreed to advance Dr. Kaloyeros's legal fees and expenses through September 22, 2016 ("FSMC Undertaking"). The undertaking, apparently signed only by Dr. Kayoleros, acknowledged that FSMC's by-laws entitled directors to indemnification "to the full extent permitted by law". In addition, Dr. Kaloyeros "affirmed" his good-faith belief that, with respect to the subject matter of the federal prosecution, he acted in good faith, in a manner he reasonably believed to be in (or not opposed to) the best interests of FSMC, and without reasonable cause to believe that his conduct was unlawful. Dr. Kayoleros further agreed to repay any advances if it ultimately were determined that he is not entitled to indemnification. On the same date, Dr. Kaloyeros and FRMC allegedly entered into an identical undertaking with respect to the OAG investigation ("FRMC Undertaking").

         Complaining that defendants have refused to provide him with any further advancement of legal fees and expenses, plaintiff commenced this action on January 30, 2017. The Complaint alleges three causes of action: (1) a request for a declaratory judgment that plaintiff is entitled to advancement of legal fees and indemnification under Not-for-Profit Corporation Law § 724; (2) a claim of promissory estoppel, founded upon allegations that defendants represented that they would indemnify and advance his legal fees and expenses; and (3) a claim for breach of contract, based upon the corporations' by-laws and representations allegedly made by defendants to plaintiff. Plaintiff also simultaneously moved for a preliminary injunction requiring defendants to advance legal fees and expenses incurred to date and going forward.

         ANALYSIS

         To obtain a preliminary injunction, the moving party has the burden of demonstrating: (1) a likelihood of ultimate success on the merits; (2) the prospect of irreparable harm in the absence of the requested injunctive relief; and (3) a balance of the equities tipping in favor of the movant (see ...


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