Freeman Foursome v. Cabana Carioca
(Sup. Ct. N.Y. Cty. 1/30/01)
We represented: Plaintiff
Louise Gruner Gans, J.
DECISION and ORDER Following the trial of this action on April 3, 2000, April 4, 2000, April 10, 2000, April 11, 2000, and April 14, 2000, without a jury, the Court makes the following Findings of Facts and Conclusions of Law:
FINDINGS OF FACT AS TO PLAINTIFF'S CLAIMS AND DEFENDANT'S FIRST COUNTERCLAIM
1. At all relevant times Plaintiff Freeman Foursome, a New York Partnership, was the owner of the real property comprising the entire four-story building located at 133 West 45th Street, New York, New York.
2. Plaintiff Herbert Freeman ("Freeman"), the managing partner of Freeman Foursome, managed the building for the Partnership.
3. The building consisted of a basement, first floor and second floor used for commercial purposes, while the third and fourth floors consisted of four (4) residential apartments.
4. Cabana II is a New York corporation; it has been inactive since 1994 or was dissolved in 1994. John Cerqueira was President of Cabana II and owned 50% of its stock. John Cerqueira's son, Anthony "Tony" Cerqueira, was Vice-President of Cabana II and owned 25% of its stock; another 25% of the stock was owned by Tony's sister, Anne Marie Cerqueira.
5. By a written lease agreement dated December 1992, Freeman Foursome, as landlord, net-leased the entire building to the defendant Cabana II, as tenant, for a term commencing December 1, 1992 and terminating on December 31, 1994. The lease was signed by Herbert Freeman on behalf of Freeman Foursome, and Antonio Cerqueira on behalf of Cabana II. At the time the lease was signed, Cabana II had already been operating a restaurant in the premises for several years under an earlier lease.
6. Cabana II operated a Brazilian/Portuguese restaurant on the first two floors of the premises and rented the apartments on the third and fourth floor to residential subtenants, who paid rent to Cabana II. Cabana II had a sublease with at least one of the subtenants, Patrick Lima, and collected rent from all of them.
7. Pursuant to the lease, Cabana II paid $25,500.00 to Freeman Foursome on account of security.
8. Pursuant the lease, Cabana II was to pay Freeman Foursome base rent in the amount of $79,200.00 per year in equal monthly installments of $6,600.00.
9. The lease also provided for the payment of monthly additional rent, consisting of real estate tax charges, water bills, and insurance charges which for 1993 amounted to $3,010.00 a month.
10. Cabana II had paid the sum of $4,000.00 per month as additional rent for the months of January, February, March and April, 1993, based on Freeman's preliminary calculations for 1993, an excess of $3,960.00 over the amounts due.
11. Cabana II was not successful as a restaurant and in May 1993 stopped paying rent and additional rent.
12. Sometime in May 1993 Antonio Cerqueira inquired of Freeman whether Freeman Foursome would be interested in selling the 133 West 45th Street Building or would be willing to extend the Cabana II lease so as to make it possible for Cabana II to sell its business together with a lease assignment. Freeman Foursome, acting through Freeman, declined to pursue either option.
13. After these inconclusive discussions, and in light of Cabana II's continuing non-payment of rent, Freeman, with the assistance of Freeman Foursome's attorneys, Itkowitz & Gottlieb, sought to obtain possession of the premises with minimum effort. He wanted to avoid going to court.
14. Itkowitz & Gottlieb drafted an agreement entitled, "Surrender Agreement." The document reads as follows:
Agreement made as of the date set forth below, by and between Freeman Foursome ("Landlord") and Cabana Carioca II ("Tenant"), in connection with the lease dated December, 1992, the term of which expires on December 31, 1994, covering premises described as the entire building known as 133 West 45th Street, New York, New York 10036 ("the subject premises").
1. Tenant hereby surrenders possession of the subject premises to Landlord without prejudice, effective immediately. The parties to this agreement agree that no rights, remedies, causes, or claims of Landlord under the lease or otherwise are waived, modified, altered, or amended by this agreement.
2. Tenant represents that all of Tenant's personal property has been removed from the subject premises, and that any of tenant's personal property remaining in, on, or about the subject premises shall be deemed abandoned and shall be disposed of by Landlord at Landlord's sole discretion.
15. On July 5, 1993, Freeman went to the premises and presented the "Surrender Agreement" to Antonio and John Cerqueira outside of the entrance to Cabana II on the sidewalk at 133 West 45th Street. Freeman testified that his intention was to obtain legal possession of the premises from Cabana II while at the same time continuing to pursue all of Foursome's rights under the lease.
16. Antonio Cerqueira read the "Surrender Agreement", discussed it with his father, John, who doesn't read English, and then signed it on the hood of a car. Freeman signed the document at the same time.
17. Before he signed the "Surrender Agreement", Freeman explained to Antonio Cerqueira that in exchange for Cabana II giving up possession of the Building and removing its personal property Freeman Foursome would forego legal action against Cabana II. When Antonio Cerqueira asked Freeman to explain the language of the Agreement, particularly the second sentence of paragraph 1, Freeman told him that it was just "legal mumbo jumbo." Antonio Cerqueira believed and intended that after signing the Agreement, Cabana II would not be obligated to pay future rents due under the lease.
18. Also on July 5, 1993, Freeman and Antonio Cerqueira orally agreed that Cabana II would vacate the premises three days later, on July 8, 1993.
19. Freeman's testimony as to his intentions in having the "Surrender Agreement" drawn up and executed was not credible. In presenting the document to Antonio and John Cerqueira, he told them that he would not take them to court, intending Antonio and his father John to believe that Freeman Foursome would not be suing Cabana II for future rent obligations. Otherwise, there would be no incentive for Cabana II to sign the Agreement and vacate the premises immediately.
20. Cabana II vacated the premises on July 8, 1993 and turned over the keys to Freeman. During July, Cabana II accepted rent from two of its subtenants for that month before and from two after July 5, 1993. Cabana II also retained a $700.00 security deposit it had received from the subtenant of apartment 4R, Patrick Lima, pursuant to sublease.
21. By letters dated July 20, 1993, plaintiff Freeman Foursome notified each of the four residential tenants of the premises to attorn and pay rents to Freeman Foursome.
22. Freeman Foursome collected $16,500.00 in rents from the subtenants directly from August 1993 through January 1994.
23. As of July 8, 1993, Cabana II had failed to pay base rent and additional rent for the months of May, June and July for a total amount of $28,830.00 (i.e., $9,610.00 times three months), which, reduced by a credit of $3960.00 (i.e. over-payment of additional rent of $990.00 a month for January, February, March and April 1), amounts to $24,870.00. The rent and additional rent claimed by plaintiff for the 5 months from August through December amounts to ($9,610.00 x 5) $48,O55.
24. Plaintiff retained Cabana II's security deposit of $25,500.00.
25. Cabana II retained subtenant Lima's security deposit of $700.00.
26. On or about July 20, 1993, plaintiff began to advertise for a new tenant. On October 5, 1993, pursuant to a written lease Freeman Foursome, as landlord, net-leased the premises to Trattoria Tre Colori, as tenant, for a term commencing October 5, 1993 and terminating December 31, 2005. Freeman Foursome granted the new tenant a four months' rent concession.
THE CONDITION OF THE PREMISES UPON VACATUR AND EXPENSES OF RE-LETTING (SECOND CAUSE OF ACTION)
27. Under Article 22 of the lease, Cabana II agreed that upon termination of the lease, it would leave the premises "broom clean, in good order and condition." Cabana II did not leave the premises "broom clean" and on July 30, 1993, Freedom Foursome paid $500.00 to Walter Warblewski for clean-up of the premises.
28. Freeman Foursome incurred expenses in connection with Cabana II's departure and the re-letting of the premises: attorneys' fees in amount to be determined in the future; advertising costs in the amount of $390.25 during July through September 1993; cost of changing the locks to the premises in July 1993 in the amount of $362.00. Plaintiff also expended $321.00, for parking fees.
EXPENSES FOR PAYMENT OF VIOLATIONS (THIRD CAUSE OF ACTION)
29. By Article VI of the lease, Cabana II agreed that it would, at its sole cost and expense, promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards with respect to the premises.
30. On May 10, 1993, while Cabana II was still in possession of the premises, the Environmental Control Board issued three violations against the premises, for failure to comply with the New York City Administrative Code, including one such violation for: (i) failure to provide buckets/extinguishers; (ii) failure to provide adequate egress/space; and, (iii) failure to provide fireproof partitions.
31. A penalty of $1,000.00 for each such violation was levied against the premises by the New York City Environmental Control Board and a Judgment was filed on January 31, 1994 in the amount of $3,000.00, which amount was paid by Freeman Foursome.
COSTS OF SECURING A CERTIFICATE OF OCCUPANCY (FOURTH CAUSE OF ACTION)
32. Pursuant to Article XII in the Rider to the lease, the parties agreed that Cabana II had performed alterations to the premises under its previous lease with plaintiff, that it was obligated to obtain an amendment to the certificate of occupancy to legalize such alterations, and that it was liable for any and all costs associated with obtaining the amended certificate of occupancy, including the "…fees of an architect, lawyer and expeditor…"
33. Cabana II had previously sought to convert the second floor of the Building from permitted office use to full use for eating and drinking, but it had not obtained an amendment of the certificate of occupancy by the date that it vacated the premises.
34. Freeman Foursome hired an architect and expeditor, Michael De Luna, to obtain an amendment of the certificate of occupancy and to supervise any work by contractors and subcontractors necessary in this regard. The project lasted from the October 1993 to January 1996.
35. Freeman Foursome incurred expenses for De Luna's services as an architect and expeditor, including revisions to plans for approval with the City, the removal of violations, appearances before municipal authorities, supervision of work, soliciting of bias on behalf of Foursome to obtain fair prices for the work which had to be performed, awarding and/or recommending contractors and prices to Mr. Freeman, and personally observing and coordinating the work of the various contractors, including work by Shelter Design and Construction which performed work on the bar area of the premises, on emergency door, on roll-down shutters, on entranceway doors; work by Zero Out Sprinkler on the sprinkler system; and work by Abuin Construction with respect to interior and repair work, and roof work.
36. Freeman Foursome incurred expenses to obtain an amended certificate of occupancy in the amounts listed below:
|
Date |
To the order of: |
Amount |
Exhibit number |
Check number |
|
10/22/93 |
Mike De Luna |
$500.00 |
21 |
204 |
|
3/8/94 |
John Whedbee (prior architect's fee) |
$200.00 |
21 |
222 |
|
3/18/94 |
Mike De Luna |
$200.00 |
21 |
224 |
|
3/18/94 |
Mike De Luna |
$300.00 |
21 |
225 |
|
4/19/94 |
Mike De Luna |
$434.10 |
21 |
232 |
|
6/20/94 |
Zero Out Fire Sprinkler |
$1,000.00 |
21 |
240 |
|
2/10/95 |
Theodore Bodner (asbestos inspector) |
$150.00 |
21 |
429 |
|
3/10/95 |
Mike De Luna |
$950.00 |
21 |
430 |
|
5/24/95 |
Mike De Luna |
$400.00 |
21 |
438 |
|
6/30/95 |
Abuin Construction |
$2,000.00 |
21 |
447 |
|
7/5/95 |
Abuin Construction |
$2,500.00 |
21 |
448 |
|
7/8/95 |
Abuin Construction |
$2,500.00 |
21 |
449 |
|
7/12/95 |
Abuin Construction |
$2,500.00 |
21 |
450 |
|
7/3/95 |
Shelter Design |
$1,000.00 |
21 |
452 |
|
7/3/95 |
Mike De Luna |
$155.38 |
21 |
453 |
|
8/10/95 |
Mike De Luna |
$900.00 |
21 |
456 |
|
8/10/95 |
Shelter Design |
$950.00 |
21 |
457 |
|
8/10/95 |
Mike De Luna |
$500.00 |
21 |
458 |
|
8/26/95 |
Zero Out Fire Sprinkler |
$1,935.00 |
21 |
463 |
|
8/26/95 |
Abuin Construction |
$3,500.00 |
21 |
464 |
|
9/12/95 |
Mike De Luna |
$250.00 |
21 |
466 |
|
10/11/95 |
Mike De Luna |
$856.60 |
21 |
470 |
|
2/8/96 |
Mike De Luna |
$1,072.45 |
21 |
495 |
|
TOTAL: |
$24,753.53 |
37. An amended Certificate of Occupancy was issued on January 25, 1996.
FAILURE TO MAINTAIN FUEL TANK (FIFTH CAUSE OF ACTION)
38. By paragraph VII of the Rider to the lease, Cabana II agreed to maintain in good working order, at its own cost and expense, the heating, gas and electricity equipment in the premises.
39. Cabana II, while still in possession, had failed to maintain the fuel tank in the premises in good working order. In October 1993, Freeman Foursome paid a contractor, Eastmond & Sons, the sum of $600.79 for boiler repair, cleaning and welding services in order to restore the fuel tank to good working order.
REQUEST FOR ATTORNEYS' FEES (SIXTH CAUSE OF ACTION)
40. By Article 19 of the lease, Cabana II agreed that if, in connection with any default under the lease, Freeman Foursome incurred any attorneys' fees in instituting and/or prosecuting any action, then Cabana II would reimburse Foursome for such expenditures and/or obligations.
41. By agreement of the parties at trial, and with the approval of the Court, Foursome's claim for attorneys' fees and an appropriate hearing was reserved until after the Court's decision whether to render a judgment in favor of Foursome.
FEES DUE PLAINTIFF FREEMAN (SEVENTH CAUSE OF ACTION)
42. By paragraph VIII of the Rider to the lease, Cabana II agreed to pay plaintiff Freeman a sum of money equal to five percent (5%) of the gross rents due plaintiff Foursome each month.
43. This amount was not paid for the period May 1, 1993 through July 31, 1993.
44. As already stated above, the amount of base and additional rent due and owing from Cabana, II during this same period was $24,870.00; 5% of this amount is $1,243.50. On $48,055.00 of rents and additional rents for the period August through December 1993, 5% is $2,402.75.
CONVERSION OF FIXTURES/EQUIPMENT (EIGHTH AND NINTH CAUSES OF ACTION)
45. By Article 3 of the lease, Cabana II agreed that all fixtures, paneling, partitions, railings, and "like installations" installed in the premises at any time by Cabana II shall, upon installation, become the property of Freeman Foursome and remain upon the premises.
46. When it vacated the premises on July 8, 1993, Cabana II removed paneling, railings, air-conditioner compressors, lighting fixtures, ceiling louvers, toilet fixtures and a sink.
47. Plaintiff failed to offer evidence as to the value of these items.
48. At the same time, Cabana II also removed cutlery, serving pieces, liquor, a cash register, pots, pans, paintings, sound equipment, menus, chairs, glasses, plates, tables, and kitchen utensils. These items are not fixtures. Other than fixtures, the lease and rider do not list any personal property as belonging to plaintiff and plaintiff offered no other evidence that some or all are not property of President of Sir Cater. The stock of Sir Cater is held 50% by John Cerqueira, 25% by Antonio Cerqueira and 25% by Anne Marie Cerqueira.
55. Although there was interlocking ownership and directorship between the two corporations, Brazilian Specialties, Inc., and Sir Cater Corp. and Cabana II, and John Cerqueira had the capacity to dominate all three corporations, the corporate entities Brazilian Specialties and Sir Cater were not used to cause Cabana II to perpetrate a fraud or wrong against Freeman Foursome. The decision to close Cabana II was based on a legitimate business judgment, and not for the purpose of preventing Freeman Foursome from collecting a potential money judgment in the future.
56. The verified complaint in this action was served on or about December 31, 1993.
57. As shown by its tax returns for 1993 and 1994, Cabana II's cash on hand at the end of 1993 was $15,408.00; its inventory was $14,784.00; and its other assets totaled $15,786.00, although no schedule was attached. Loans from shareholders were listed at $35, 978.00. At the end of 1994, Cabana II's cash on hand and inventory was zero; its assets were listed as $15,786.00, again with no schedules; and the loans to shareholders had been reduced from $35,978.00 to $5,786.00. At this point Cabana II's assets were insufficient to cover potential liability to Freeman Foursome.
58. The depletion of Cabana II's assets after the end of 1993 and in 1994 demonstrated by the 1993 and 1994 tax returns, including the repayment of loans to shareholders without regard to plaintiff as a creditor, coupled with Cabana II's failure and inability to produce any documentary evidence whatsoever as to its business, corporate, banking or other financial transactions, support an inference that John Cerqueira and Antonio Cerqueira used Cabana II's assets for their personal benefit. Defendants were precluded from offering such records at trial because they had failed completely to produce any such records in discovery.
CONCLUSIONS OF LAW
As to the Claim for Future Rent and Additional Rent:
1. A written surrender of possession by a tenant, if accepted by the landlord, is evidence from which surrender of a lease or leasehold estate may be inferred. Yet, it will not have that effect if the parties agree otherwise. (Kottler v. New York Bargain House Inc. 242 N.Y. 28, 35-36 (1926).)
2. A surrender can discharge a tenant from liability for future rent, without relieving the tenant from liability for pre-surrender rent or pre-surrender causes of action compensable in damages. (Elliot v. Polny, 132 Misc. 2d 236, 23S (Civ. Ct. N.Y. Co. 1986); Centurian Development Ltd. v. Kenford Company, Inc., 60 A.D.2d 96 (4th Dep't 1977).)
3. The "Surrender Agreement" signed by the parties on July 5, 1993, was ambiguous in its provision for "Surrender of possession . . . without prejudice," without any explanation of what the "without prejudice" referred to, and the absence of any reference to further or future obligation to pay rent. In light of the fact that the "Agreement," was drafted by plaintiff's attorneys, it must be construed, and ambiguity resolved, against plaintiff. (Rentways, Inc. v. O'Neill Milk & Cream Co., Inc., 308 N.Y.2d 342 (1955).)
4. Plaintiff's conduct in instructing the four subtenants under the lease by notices, dated July 20, to attorn and pay rent directly to plaintiff, where their rents under the net lease were otherwise payable to Cabana II, is inconsistent with plaintiff's claim for post-July 1993 rents from Cabana II asserted in this action. (Plaintiff seeks rents through December, 1993.) In dealing with the subtenants in this manner, plaintiff was acting on its own behalf as if Cabana II had right to collect rent from the subtenants and its correlative rent obligations to plaintiff had terminated. This conduct sharply undercuts Freeman's testimony as to his intentions and Freeman Foursome's denial that it accepted a surrender of the remaining term of the lease from Cabana II. (Stahl v. Mapes, 111 A.D.2d 626, 630 (1st Dep't 1985).
5. Weighing the ambiguous language of the Surrender Agreement, as construed against plaintiff, the testimony of the parties, Freeman's conduct in seeking to collect rents directly from Cabana's subtenants after July 5, 1993, and the fact that plaintiff's version of the transaction provided no benefit to Cabana II in exchange for its voluntary removal, the Court concludes that the parties' July 5, 1993 Agreement operated as a surrender of the remaining term of the lease, so as to terminate Cabana II's liability for future rents, but did not operate to release Cabana II from pre-existing lease obligations and damages for breach of those obligations. Cabana II has established its defense on this point by a preponderance of the evidence.
6. Plaintiff Freeman Foursome is entitled to collect rent and additional rent for May, June and July, 1993, and is entitled to a judgment on its first cause of action for unpaid base rent and additional rent for those three months in the amount of $24,870.00 (i.e.$9,610.00 x 3 months, reduced by $990.00 x 4 months).
7. Contrary to Defendants' contentions, these issues had not been judicially determined by prior Order/Decision of Justice Schoenfeld dated June 7, 1995 ("the June 7th order"), or by that of Justice Ryp dated June 24, 1996 ("the June 6th Order").
As to the Costs of Clean-up and Re-letting (Second Cause of Action):
8. Under Article 18 of the lease, Cabana II agreed that if it vacated the premises prior to the original termination date of the lease, Freeman Foursome would be entitled to recover expenses of re-letting, including without limitation attorneys' fees and advertising costs. Under Article 22 of the lease, Cabana agreed to vacate the premises in "broom clean" condition.
9. Plaintiff Freeman Foursome is entitled to a judgment against defendant Cabana II in the amount of $1,252.25 for clean-up costs, change of locks and advertising fees on its second cause of action. The issue of attorneys' fees is reserved. Plaintiff's claim for parking expenses is unreasonable. Mr. Freeman commutes from Scarsdale and the premises is a few blocks away from Grand Central Station and commuter trains.
Expenses for Payment of Violations:
10. By Articles XIII of the lease and off the Rider, Cabana II is obligated to "indemnify and save harmless Owner against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which owner shall not be reimbursed by insurance . . . paid, suffered or incurred as a result of any breach by Tenant . . .of any covenant or condition of this lease . . ."
11. Based on Cabana II's failure to cure the violations issued against the premises while Cabana II was in possession, Freeman Foursome is entitled to be reimbursed for the $3,000.00 it paid to cure the violations and was not covered by insurance.
12. Plaintiff is entitled judgment against Cabana II on the third cause of action in the amount of $3,000.00.
Expenses of Securing Amended Certificate of Occupancy:
The work and services carried out by plaintiff's architect and expeditor, and by the several contractors who provided labor and services, was necessary, and reasonably incurred, and the testimony of the architect De Luna as to the need for and reasonable value of the labor and services, as well as proof of payment, established plaintiff's claim for the cost of securing the Amended Certificate of occupancy which should have been done by Cabana II. (See generally Damages, 36 N.Y.Jur. 2d ? 82 (cost of repairs properly shown where there is evidence of payment, necessity and reasonable value, including by person who knows that charges were necessary and reasonable).)
13. Plaintiff is entitled to a judgment against Cabana II on the fourth cause of action in the sum of $24,753.53.
Failure to Maintain Fuel Tank (Fifth Cause of Action):
14. In accordance with Cabana II's obligations under the Rider to the lease, Freeman Foursome is entitled to a judgment against Cabana II in the amount of $600.79 for boiler repair and cleaning and welding services.
Claim for Attorneys' Fees (Sixth Cause of Action):
15. Plaintiff's claim for attorneys' fees will be determined after these Findings of Fact and Conclusions of Law have been made.
Fees Due Plaintiff Herbert Freeman (Seventh Cause of Action):
16. Consistent with the provisions of the rider to the lease, Herbert Freeman is entitled to a judgment against Cabana II for his 5% fees in the amount of $1,243.50.
Conversion of Fixtures and Equipment (Eighth and Ninth Cause of Action):
17. With respect to the items enumerated in paragraph 45 herein plaintiff failed to offer any evidence as to the value of the items removed by Cabana II when it vacated the premises. With respect to the items enumerated in paragraph 47 herein, plaintiff failed to established either that some or all of the items removed were its personal property, the number of the items or the value of these items.
18. The Eighth and Ninth Causes of Action are dismissed for failure of proof.
The Subtenancies (Tenth, Eleventh and Twelfth Causes of Action):
19. Plaintiff is not entitled to rents collected by Cabana II from its subtenants for July 1993. These rents were payable to Cabana II under its net lease and are subsumed in the July 1993 rent to which plaintiff is entitled.
20. Plaintiff Freedom Foursome's Tenth and Eleventh Causes of Action are dismissed.
21. Plaintiff Freedom Foursome is entitled to a judgment directing Cabana II to pay Patrick Lima's $700.00 security deposit to Freedom Foursome, for deposit in its name as a security deposit for Lima.
Defendant Cabana II's First Counterclaim:
22. Cabana II is entitled to offset its $25,500.00 security deposit against the unpaid rent of $24,870.00 and against $630.00 of the Lima $700.00 security deposit.
Alter Ego And Fraudulent Conveyance Claims (Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth and Eighteenth Causes of Action):
23. Piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury. (Morris v. New York State Dept. Of Taxation and Finance, 82 N.Y.2d 135.) Here despite interlocking ownership and control of Brazilian Specialties, Inc., Sir Cater Corp. and Cabana II, and John Cerqueira's ability to dominate all three, with respect to the landlord-tenant relationship between Freeman Foursome and Cabana II, the corporate entities Brazilian Specialties, Inc. and Sir Cater Corp. were not used to commit a fraud or wrong against plaintiff Freeman Foursome which resulted in its injury. Plaintiff's action against Brazilian Specialties, Inc. and Sir Cater Corp. is dismissed.
24. Under the Debtor and Creditor Law ("DCL") Section 273, a conveyance may be fraudulent as to creditors where the transferor is insolvent or will become insolvent because of such transaction and the conveyance is made without fair consideration. In relevant part, pursuant to DCL Section insolvency exists when "the present fair salable value" of a person's assets "is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured." In relevant part, DCL Section 272 provides that fair consideration is given when property is conveyed as a fair equivalent, and in good faith, for other property or satisfaction of an antecedent debt. Under Section 276-a conveyance is fraudulent where the defendant made the conveyance with the actual intent to hinder, delay, or defraud creditors.
25. While there is common ownership and control of officers of defendants Cabana II, Brazilian Specialties, and Sir Cater Corp., and by reason of his 50% ownership interest in all three John Cerqueira had the ability to dominate them, the evidence relied on by plaintiff is insufficient to establish with respect to Brazilian Specialties, Inc. and Sir Cater Corp., that these corporate entities were used to defraud or injure plaintiff with respect to its landlord-tenant relationship with and claims against Cabana II. On that basis, plaintiff has no claim against Brazilian Specialties, Inc. and against Sir Cater Corp.
26. However, in repaying themselves a loan, defendants John Cerqueira and Antonio Cerqueira used the assets of Cabana II for their non-corporate personal benefit. The payment by Cabana II of $30,192.00, as repayment of a loan to shareholders during 1994, was a fraudulent transfer in violation of DCL 273. At that point, Cabana II was left with $15,786.00 in unidentified assets, and $5,786.00 in loans to shareholders, or net assets of $10,000.00 and was insolvent. Its probable liability to plaintiff alone, based on the complaint, was considerably in excess of that amount. Repayment of a loan to a major shareholder, officer or directors is presumptively fraudulent and not in good faith under these circumstances. (In re Centennial Textiles, Inc. 220 B.R. 165 (S.D.N.Y. 1998); A.F.L. Falck S.p.A. v. E.A. Karay Co. (U.S.D.C.S.D.N.Y 1989); R.L. Friedland Realty v. Mitlin Equities, 136 Misc.2d 750 (County Ct. Westchester Co. 1987); Southern Industries v. Jeremias, 66 A.D. 2d 208 (2d Dep't 1978).) The repayment of the loan was intentionally designed to hinder creditors in violation of DCL 276.
27. Freeman Foursome is entitled to recover of defendants John Cerqueira and Antonio Cerqueira individually to the same extent as it may recover on the various causes of action against Cabana II.
Attorney's Fees
28. Freeman Foursome is the "prevailing party" in the litigation, and is entitled to a hearing and an award of attorneys' fees under Article 19 of the lease. (Peachy v. Rosensweig, 215 A.D.2d 301, 302 (1st Dep't 1995).)
29. Plaintiffs are not entitled to an award of attorneys' fees pursuant to the Debtor and Creditor Law ("DCL") ? 276-a since this action was not an action to set aside a conveyance. (Greenwood Packing Corp. v. Triangle Meat & Provisions Corp., 120 A.D.2d 701, appeal denied 68 N.Y.2d 612 (1986).)
Accordingly, it is hereby
ORDERED, that the Clerk shall enter Judgment in favor of plaintiff Freeman Foursome and against defendants Cabana II and against John Cerqueira and Antonio Cerqueira, individually, the sum of $30,319. 28, with interest from June 30, 1995 and costs (the amount reflects total liability of $55, 819.28 after offset of $25,500 for the security deposit to which defendants are entitled to their first counterclaim; interest runs from an intermediate point); and it is further
ORDERED, that the action is dismissed as against defendants Brazilian Specialties, Inc. and Sir Cater Corp., and it is further
ORDERED, that plaintiff's Eighth, Ninth, Tenth and Eleventh causes of action are dismissed; and it is further ordered, that plaintiff Freeman Foursome reconstitute the Lima $700.00 security deposit by applying $630.00 from the offset and an additional $70.00 from the $30,329.28 awarded; and it is further
ORDERED, that plaintiff's claim for attorneys' fees is referred to a Special Referee to hear and report with recommendations; and it is further
ORDERED, that determination of the award of attorneys' fees is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403; and it is further
ORDERED, that a copy of this order with notice of entry shall be served on the Judicial Support Office (Room 311) to arrange a date for the reference to a Special Referee.
Decision affirmed on appeal at (App Div 1st) April 30, 2002.