| Craven v Rigas |
| 2011 NY Slip Op 05611 [85 AD3d 1524] |
| June 30, 2011 |
| Appellate Division, Third Department |
| J. Jeffrey Craven, Appellant-Respondent, v John C. Rigas et al.,Respondents-Appellants, and Zito I LP, Respondent. |
—[*1] Bond, Schoeneck & King, P.L.L.C., Syracuse (Clifford G. Tsan of counsel), for John C.Rigas and others, respondents-appellants. Embser & Woltag, P.C., Wellsville (J. Timothy Embser of counsel), for Constantine Rigas,respondent-appellant. Wagner & Hart, L.L.P., Olean (Janine C. Fodor of counsel), for Zito I LP,respondent.
Mercure, J.P. Cross appeals from an order of the Supreme Court (Mulvey, J.), entered March30, 2010 in Chemung County, which, among other things, partially granted defendants' motionsto dismiss the complaint.
In this action, plaintiff alleges that defendants—which include John C. Rigas(hereinafter Rigas) and Constantine Rigas, as well as several corporations and limitedpartnerships owned and operated by the Rigas family—were involved in defrauding him inconnection with his interest in one of those corporations. Specifically, plaintiff owned a 25%equity interest in defendant Americell Inc., which is a limited partner in defendant AmericellPA-3 LP (hereinafter PA-3).[FN*]Rigas, Howard Irvin and John Salzman also owned 25% interests in Americell. Rigas bought outSalzman's shares in 1997 and, three years later, purchased plaintiff's shares for $1,350,000. Asagreed, Rigas paid plaintiff $500,000 in cash at the time of the sale, and executed a promissorynote for $850,000 that was secured with the Americell shares. Although Rigas agreed to place arestrictive legend on the stock certificates declaring plaintiff's interest, he failed to do so. Instead,Rigas later pledged the shares, along with other assets, as security on indebtedness assumed bydefendant Zito I LP and Constantine Rigas.
Ultimately, following an amendment to the promissory note that conditionally extended thematurity date, Rigas defaulted. Plaintiff then moved for summary judgment in lieu of complaintto recover on the note (see CPLR 3213). The motion was granted (Craven v Rigas, 71 AD3d 1220[2010], lv denied 14 NY3d 713 [2010]). Plaintiff thereafter commenced this actionclaiming, in his first three causes of action, that (1) Rigas acquired Salzman's shares bypurchasing them with Americell funds, thereby making them treasury shares and increasingplaintiff's equity interest in the corporation to 33
Following joinder of issue, defendants moved to dismiss the complaint on numerousgrounds. Supreme Court partially granted the motions by dismissing the third, fourth and fifthcauses of action. All parties except Zito now cross-appeal.
Addressing each cause of action in turn, we begin with plaintiff's first cause of actionalleging that, in 1997, while plaintiff was still a shareholder in Americell, Rigas purchasedSalzman's 25% interest in the company with monies that he purported to be his own but whichwere, in fact, Americell's funds. Plaintiff alleges that Salzman's shares therefore became treasuryshares, thereby increasing plaintiff's ownership interest to 33
Initially, we reject the argument, raised by certain defendants, that this claim should bedismissed as untimely. As relevant here, the laws of both New York (the forum) and Virginia(plaintiff's residence) (see CPLR 202; Global Fin. Corp. v Triarc Corp., 93 NY2d525, 528 [1999]) provide that an action for fraud is timely if commenced within two years afterthe fraud is discovered or could have been discovered through the exercise of due diligence(see CPLR 213 [8]; Va Code Ann § 8.01-243 [A]; § 8.01-249 [1]). Plaintiffavers that he first became aware of [*2]the fraudulent conductshortly after March 16, 2007, when he received deposition testimony given by Rigas in a separateaction brought by Irvin. He commenced this action less than two years later. Inasmuch as it hasnot been established, on the record before us, that plaintiff had knowledge of, or access to, factsfrom which the alleged fraud could have been inferred prior to March 16, 2007, Supreme Courtproperly declined to dismiss this claim on statute of limitations grounds (see Sargiss v Magarelli, 12 NY3d527, 532 [2009]).
We further agree with Supreme Court that plaintiff's first cause of action states a claim forfraud. Plaintiff claims that Rigas concealed his use of Americell funds to purchase Salzman'sshares, thereby causing plaintiff to accept an undervalued price when he later sold his shares toRigas. In our view, these assertions, if accepted as true, sufficiently allege "misrepresentation orconcealment of a material fact, falsity, scienter by the wrongdoer, justifiable reliance on thedeception, and resulting injury" (Lusinsv Cohen, 49 AD3d 1015, 1017 [2008] [internal quotation marks and citation omitted];see CPLR 3016 [b]; Barclay Arms v Barclay Arms Assoc., 74 NY2d 644,646-647 [1989]).
Moreover, Supreme Court correctly determined that plaintiff has standing to assert this firstclaim. Although defendants contend that the claim alleges a wrong against thecorporation—which can only be vindicated in a shareholder derivative suit (seeAbrams v Donati, 66 NY2d 951, 953 [1985])—the pertinent inquiry, under the law ofboth New York (the forum) and Pennsylvania (where Americell is incorporated), "is whether thethrust of the plaintiff's action is to vindicate his personal rights as an individual and not as astockholder on behalf of the corporation" (Albany-Plattsburgh United Corp. v Bell, 307AD2d 416, 419 [2003], lv dismissed and denied 1 NY3d 620 [2004] [internal quotationmarks and citations omitted]; see Hendrickson v Vandling, 41 Pa D & C 3d 568, 571[1983]). Here, plaintiff alleges that Rigas paid him $432,000 less than the actual value of hisinterest in Americell after concealing the use of corporate funds to purchase Salzman's shares.That is, the transaction at issue was between Rigas and plaintiff; the fraud alleged did not harmthe corporation, but affected plaintiff directly in the sale of his interest in Americell (cf.Glenn v Hoteltron Sys., 74 NY2d 386, 392 [1989]). Thus, we conclude that he has standingto assert this individual claim.
The same cannot be said, however, for plaintiff's second cause of action, which alleges thatrevenues from the Pennsylvania cellular network were diverted to GAIA Corporation and awayfrom the partners in PA-3, including Americell. Such a diversion of corporate funds is an injuryto the corporation that must be vindicated through a derivative suit (see Abrams v Donati,66 NY2d at 953; Albany-Plattsburgh United Corp. v Bell, 307 AD2d at 419-420).Inasmuch as this claim is essentially corporate in nature, his second cause of action must bedismissed.
Turning to the third and fourth causes of action, plaintiff alleges that Rigas fraudulentlyconveyed to Zito the Americell shares purchased from plaintiff with the intent of subordinatingplaintiff's security interest in the shares and rendering Rigas insolvent. Plaintiff seeks to compelthe delivery of stock certificates in an amount equal to his former interest in Americell, or anequivalent amount. These claims were properly dismissed under the merger doctrine. Pursuant tosettled principles of res judicata, "[w]here a judgment is in favor of the plaintiff the claimunderlying the action is merged in the judgment and cannot thereafter be used as a basisfor an independent action" (Brown v Lockwood, 76 AD2d 721, 735 [1980]; seeHellstern v Hellstern, 279 NY 327, 333 [1938]). Because the promissory note merged intothe prior judgment (Craven v Rigas,71 AD3d 1220 [2010], supra; see Corless v Leonardo, 298 AD2d 693, 695[2002]; see also Heimbinder v Berkovitz, 263 AD2d 466, 467 [1999], lv denied94 NY2d 755 [1999]), [*3]plaintiff is precluded from enforcinghis rights under the note through this action, as he admittedly seeks to do in the third cause ofaction. To the extent that he seeks to enforce the prior judgment, plaintiff's recourse is an actionon the judgment pursuant to CPLR 5014 (see Brown v Lockwood, 76 AD2d at 735).
Finally, because the only surviving claim involves Rigas's fraudulent undervaluing ofplaintiff's interest in Americell, the fifth cause of action for an accounting lies only againstAmericell, inasmuch as plaintiff has failed to allege a fiduciary relationship between himself andany other party (see Bradkin v Leverton, 26 NY2d 192, 199 n 4 [1970]; Gersten-Hillman Agency, Inc. vHeyman, 68 AD3d 1284, 1286 [2009]; Village of Hoosick Falls v Allard, 249AD2d 876, 879 [1998], lv denied 92 NY2d 807 [1998]). The parties' remainingcontentions have been considered and found to be without merit.
Peters, Lahtinen, Malone Jr. and Stein, JJ., concur. Ordered that the order is modified, on thelaw, without costs, by reversing so much thereof as (1) denied the motions to dismiss the secondcause of action and (2) granted the motions to dismiss the fifth cause of action against defendantAmericell Inc.; second cause of action dismissed as to all defendants and fifth cause of actiondismissed as to all defendants except defendant Americell Inc.; and, as so modified, affirmed.
Footnote *: PA-3 owns and operates cellulartelephone networks in Pennsylvania.