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Twin Bay Village, Inc. v. Kasian

Supreme Court of New York, Third Department

August 3, 2017

Dissolution of TWIN BAY VILLAGE, INC. VLADIMIR CHOMIAK et al., Respondents;

          Calendar Date: June 6, 2017

          Tatiana Chomiak Kasian, Philadelphia, Pennsylvania, appellant pro se.

          Tamara L. Chomiak, Bolton Landing, appellant pro se.

          Akerman LLP, New York City (Benjamin R. Joelson of counsel), for respondents.

          Before: McCarthy, J.P., Garry, Lynch, Rose and Devine, JJ.


          ROSE, J.

         Appeal from an order of the Supreme Court (Muller, J.), entered March 16, 2016 in Warren County, which, among other things, granted petitioners' application, in a proceeding pursuant to Business Corporation Law article 11, to direct the judicial dissolution of Twin Bay Village, Inc.

         In 1957, the Chomiak family began operating Twin Bay Village, a seasonal summer resort on the shores of Lake George. In 1970, the family formed Twin Bay Village, Inc., a closely-held corporation, for the purpose of operating the resort. At its inception, 100 shares of corporate stock were issued, and those shares were split among Stephan Chomiak and Eleonora Chomiak and their two sons, Leo Chomiak and petitioner Vladimir Chomiak. Over the ensuing years, the division of the corporate shares changed and, by 2004, Valdimir Chomiak's son and daughter, petitioners Leon Chomiak and Leonora Chomiak, were the beneficial owners of a combined 48 shares, and Leo Chomiak and his two daughters, respondents Tatiana Chomiak Kasian and Tamara Chomiak, owned the remaining 52 shares [1]. In addition to these changes in ownership, the level of involvement of petitioners in operating the resort and managing the corporation changed over the years. Although petitioners were initially involved in helping to run the resort in the 1980s, their involvement thereafter declined, leaving the responsibility for operating the resort and managing the corporation entirely to respondents. In 2009, after years of running the corporation without petitioners' involvement, respondents attempted to force petitioners to sell their shares back to the corporation. After petitioners refused, they commenced this proceeding pursuant to Business Corporation Law § 1104-a seeking judicial dissolution of the corporation.

         Petitioners alleged, as is pertinent here, that respondents, as the majority shareholders, continuously breached their fiduciary duties owed to petitioners by engaging in oppressive conduct aimed at "freez[ing]" petitioners out of the corporation, as well as looting, wasting and/or diverting corporate assets for noncorporate purposes. Respondents answered and asserted, among other affirmative defenses, that petitioners lacked standing and that the proceeding is time-barred. Supreme Court determined that petitioners collectively held the requisite 20% of all outstanding corporate shares to maintain this proceeding, and then appointed a referee to conduct a hearing as to the merits. Following extensive testimony and the submission of voluminous records, the referee found, among other things, that respondents engaged in oppressive conduct towards petitioners and looted corporate assets such that dissolution of the corporation was warranted. Supreme Court confirmed the referee's report, and respondents now appeal.

         Initially, we agree with respondents that Supreme Court erred in finding that Leon Chomiak and Leonora Chomiak have standing to maintain this proceeding. Business Corporation Law § 1104-a (a) provides that "[t]he holders of shares representing [20%] or more of the votes of all outstanding shares of a corporation... entitled to vote in an election of directors may present a petition of dissolution" on the basis of, among other things, oppressive action or corporate looting (Business Corporation Law § 1104-a [a] [1], [2] [emphasis added]; see generally Matter of Bernfeld, 86 A.D.3d 244, 253-254 [2011]). Here, although the record indicates that respondents have historically treated Leon Chomiak and Leonora Chomiak as shareholders with the right to vote, the certificates of stock and documentary evidence in the record reflect that Leon Chomiak's 24 shares and Leonora Chomiak's 24 shares are held by Vladimir Chomiak as custodian and trustee for them. Thus, Leon Chomiak and Leonora Chomiak are beneficial owners of the 48 combined shares and are not the shareholders of record. Inasmuch as beneficial owners of corporate shares "have no right to vote if they are not record holders" (Matter of Stewart Becker, Ltd. v Horowitz, 94 Misc.2d 766, 771 [Sup Ct, Suffolk County 1978, Lazer, J.]; see Matter of D. J. Salvator, Inc. [Klages], 268 A.D. 919, 919 [1944]; compare Business Corporation Law § 626 [a]), we find that they lack standing pursuant to Business Corporation Law § 1104-a. We agree with Supreme Court, however, that Vladimir Chomiak has the requisite standing inasmuch as he has the power to vote the 48 shares held by him in his capacity as custodian and trustee, and those 48 shares represent more than 20% of all of the outstanding shares (see Business Corporation Law § 1104-a [a]). Contrary to respondents' contention, the fact that Vladimir Chomiak may have been confused as to whether he was a named petitioner in this proceeding is not dispositive regarding his standing.

         Next, we are unpersuaded by respondents' contention that this proceeding is time-barred. It is well settled that "'New York law does not provide a single statute of limitations for breach of fiduciary duty claims [and] the choice of the applicable limitations period depends on the substantive remedy that the [petitioner] seeks'" (Matter of Therm, Inc., 132 A.D.3d 1137, 1138 [2015], quoting IDT Corp. v Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132, 139 [2009]). Here, the gravamen of the petition is that respondents, as the majority shareholders, breached their fiduciary duties owed to petitioners, as the minority shareholders. Although the petition alleges fraudulent acts in the form of looting, the allegation of fraud is not essential to the breach of fiduciary duty claim. In light of this, and the fact that the remedy of a judicial dissolution is equitable in nature, we find that "the six-year limitations period of CPLR 213 (1) applies" (IDT Corp. v Morgan Stanley Dean Witter & Co., 12 N.Y.3d at 139; see generally Torrance Constr., Inc. v Jaques, 127 A.D.3d 1261, 1265-1266 [2015]), and it does not commence "until there has been an open repudiation by the fiduciary or the relationship has otherwise been clearly terminated" (Matter of Therm, Inc., 132 A.D.3d at 1138; see New York State Workers' Compensation Bd. v Consolidated Risk Servs., Inc., 125 A.D.3d 1250, 1252-1253 [2015]; Matter of Baird, 58 A.D.3d 958, 959 [2009]). In our view, respondents' attempt in 2009 to force petitioners to sell their shares is the earliest point at which respondents can be said to have openly repudiated the fiduciary relationship. Given that this proceeding was commenced within six years of the 2009 force-out attempt, we agree with Supreme Court that this proceeding is not time-barred.

         Turning to the merits, respondents contend that Supreme Court erred in determining that they engaged in oppressive actions toward petitioners and that they looted corporate assets. We cannot agree. Preliminarily, "[o]ur review of Supreme Court's determination... is not limited to whether [its] findings were supported by credible evidence; rather, if it appears that a finding different from that of Supreme Court is not unreasonable, we must weigh the probative force of the conflicting evidence and the relative strength of conflicting inferences that may be drawn, and grant judgment as warranted" (Matter of Sunburst Assoc., Inc., 106 A.D.3d 1224, 1225 [2013] [internal quotation marks and citation omitted]; accord Matter of Gould Erectors & Rigging, Inc., 146 A.D.3d 1128, 1129 [2017]; see Matter of Wenger v L.A. Wenger Contr. Co., Inc., 114 A.D.3d 694, 695 [2014]). Upon our review, however, we accord due deference to the credibility determinations and factual findings of the trier of fact (see Matter of Gould Erectors & Rigging, Inc., 146 A.D.3d at 1129; Matter of Funplex, Inc., 252 A.D.2d 923, 924 [1998]; see also S. Nicolia & Sons Realty Corp. v A.J.A. Concrete Ready Mix, Inc., 137 A.D.3d 994, 995 [2016]).

         Business Corporation Law § 1104-a permits a court to dissolve a closely-held corporation where, as is relevant here, those in control of the corporation have engaged in "oppressive actions toward the complaining shareholders" or have "looted, wasted, or diverted" corporate assets for noncorporate purposes (Business Corporation Law § 1104-a [a] [1], [2]; see Matter of Penepent Corp., 96 N.Y.2d 186, 191 [2001]; Matter of Clever Innovations, Inc.[Dooley], 94 A.D.3d 1174, 1176 [2012]; Matter of Quail Aero Serv., 300 A.D.2d 800, 802 [2002]). "Although the term 'oppressive actions' is not statutorily defined, the Court of Appeals has held that 'oppression should be deemed to arise... when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner[s'] decision to join the venture'" (Matter of Upstate Med. Assoc., 292 A.D.2d 732, 733 [2002], quoting Matter of Kemp & Beatley [Gardstein], 64 N.Y.2d 63, 73 [1984]; accord Matter of Gould Erectors & Rigging, Inc., 146 A.D.3d at 1129). Contrary to respondents' contention, this standard is equally applicable to passive shareholders, such as petitioners, inasmuch as the standard is not focused on the complaining shareholders' level of involvement with the corporation but, rather, their reasonable expectations and whether those expectations were defeated (see Matter of Kemp & Beatley [Gardstein], 64 N.Y.2d at 72-73; Matter of Parveen, 259 A.D.2d 389, 391 [1999]).

         Turning first to the allegations of oppressive conduct, Supreme Court found that petitioners reasonably expected respondents to fulfill their fiduciary obligations to the minority shareholders and to equally protect the interests of all of the shareholders, and that respondents' conduct in 2001, 2004 and 2009 substantially defeated those expectations. In this regard, at the 2001 annual shareholders' meeting - of which respondents failed to notify petitioners - respondents passed a resolution awarding themselves a total of $80, 000 in bonuses to be paid on a yearly basis. The bonuses were not contingent on respondents' performance or the corporation's ability to make such payments and were awarded despite the fact that the corporation had not paid dividends to shareholders since 1995. Significantly, because of the financial instability of the corporation, the bonuses were ...

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