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NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF WESTCHESTER
- ——
---------------------------------------------------X
THE TRUST OF VIOLET NELSON, by itsTrustee,
JACK NELSON, AYELET NELSON, ARIEL NELSON
and ALEXANDRA NELSON-TAL, individually and
derivatively on behalf of RIBEVY REALTY CO., LLC, Index No. 60763/2017
Plaintiffs,
-against-
GERALD LEIBMAN, VISTA BROKERAGE LLC, LSL
SERVICES, INC., 541 OPERATING CORP., and
SOVEREIGN REALTY PARTNERS, LLC,
Defendants.
--------------------------------------------------------X
REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT
DEFENDANTS'
OF MOTION TO DISMISS
DelBello Donnellan Weingarten Wise & Wiederkehr, LLP
11*
One North Lexington Avenue, Floor
White Plains, New York 10601
Phone: (914)
.(914) 681-0200
Facsimile: (914) 684-0288
Attorneys for Defendants Gerald Leibman, Vista Brokerage LLC, LSL
Services Inc., 541 Operating Corp., and Sovereign Realty Partners LLC
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Table of Contents
Table of Authorities...........................................................................................ii
...11
Argument.......................................................................................................1
I. The Complaint Should Be Dismissed For Lack of Capacity And/Or
.......,.... „.1
Standing.......................................................................................1
A. Jack's Purported Standing/Capacity..................................................1
"Beneficiaries"
B. The Purported Lack Standing.......................................4
...4
II. The Complaint Must Be Dismissed As Plaintiff Fails To Sufficiently
Plead That A Demand Was Made, Or That A Demand Was Excused...............4
a. Plaintiff's Pleading Fails To Allege That A Pre-Suit Demand Was
Made......................................................................................4
.... ,.4
Plaintiffs'
b. Res Judicata/Collateral Estoppel Preclude Futility
Claims....................................................................................6.6
Plaintiffs'
c. Complaint Fails To Establish That A Demand Was Futile............8
Plaintiffs'
III. Claims Are Derivative In Nature, Not Direct..............................10
IV. Plaintiffs Are Not Appropriate Parties For Vindicating Ribevy's Claims..........11
Plaintiffs'
V. Causes Of Action Should Be Dismissed In Whole Or In
Part...........................................................................................12
Plaintiffs'
A. Breach Of Fiduciary Duty Is Subject To Dismissal..................12
Plaintiffs'
B. Conversion Claim Is Subject To Dismissal...........................13
,....,
Plaintiffs'
C. Faithless Servant Claim Is Subject To Dismissal.....................14
Plaintiffs'
D. Unjust Enrichment Is Subject To Dismissal...........................14
......14
VI. If The Action Is Not Dismissed, The Parties Should Be Realigned,
And Ribvey Should Appear Through Independent Counsel..........................15
Conclusion. 15
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Table of Authorities
Case: Page:
Abrams v Donati,
66 N.Y.2d 951 (1985)..............................................................................10
„ .....,...........
....., .10
Brewster v Lacy,
24 A.D.3d 136 (1st Dept. 2005).....................................................................8
.8
,8
Danzy v. N1A Abstract Corp.,
40 A.D.3d 804 (2d Dept. 2007).....................................................................9
,.9
Gitlin v. Chirinkin,
No. 2131/07, 2007 WL 4289249 (Sup. Ct. Nassau Co. Nov. 21, 2007).....................13
„„„.13
„...13
Glenn v Hoteltron Sys.,
74 N.Y.2d 386 (1989)..............................................................................10
.10
,10
Hajderlli v. Wiljohn 59 LLC,
No. 7441/2007, 2009 WL 2710263 (Sup. Ct. Bronx County Aug. 28, 2009)...............11
„.,11
„„11
Herman v. Herman,
122 A.D.3d 506 (1st Dept. 2014)....................................................................4
......,....„,......4 ,4
Jones'
In re Will,
306 N.Y. 197 (1954).................................................................................2
In re Miller's Will,
257 N.Y. 349 (1931).................................................................................2
.2
v. Aaron,
106 F. Supp. 3d 492 (D.N.J. 2015).................................................................3
Lu v. OL Vineyards PRC, LLC,
No. 14478/2006, 2009 WL 142548 (Sup. Ct. Queens County Jan. 21, 2009)...............11
Matter of Tr. of Nelson,
No. A-4004-15T1, 2018 WL 1513450 (N.J. Super. Ct. App. Div. Mar. 28, 2018)..........2
McMullin v. Beaver,
905 So.2d 928 (Fla. App. 4 Dist. 2005)............................................................4
.4
,4
Neary v. City Bank Farmers Tr. Co.,
260 A.D. 791 (2d Dept. 1940)......................................................................3
....3,3
..
11
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Paf-Par LLC v. Silverberg,
118 A.D.3d 446 (1st Dept. 2013)...................................................................7
, „...„., „..„.,7
Paf-Par LLC v. Silverberg
No. 654384/2016, 2017 WL 413178 (Sup. Ct. N.Y. County Jan. 31, 2017)..................6
Romei v. Shell Oil Co.,
No. 11005/90, 1991 WL 692884 (Sup. Ct. N.Y. County Feb. 14, 1991)............12, 14, 15
Shelton v. EliteModel Management, Inc.,
11 Misc.3d 345 (Sup. Ct. N.Y. County 2005)...................................................11
Sims v. Firstservice Corp.,
2017 WL 356415 (Sup. Ct. N.Y. County Jan. 17, 2017).........................................5
...,.,5
Swartz v. Swartz,
145 A.D.3d 818 (2d. Dept. 2016),................................................................15
,. „,...,.....,..........15
rTaylor
uysur v. Wynkoop,
132 A.D.3d 843 (2d Dept. 2015)...................................................................9
. .. „ ...,.........,............9
Toco, Inc. v. Borrok,
57 A.D.3d 302 (1st Dept. 2008)....................................................................,7
, „...,..................,.......7
Usha Soha Terrace, LLC v. Robinson Brog Leinwand Greene Genovese 4 Gluck, P.C.,
2014 WL 3381986 (Sup. Ct. N.Y. County July 9, 2014).........................................9
................................9
Wandel ex rel.Bed Bath & Beyond, Inc. v. Eisenberg,
60 A.D.3d 77 (1st Dept. 2009).......................................................................8
.....,....,......................................8
Weldon v. Rivera,
301 A.D.2d 934 (3d Dept. 2003)..................................................................11
„...,..................................................11
Wietschner ex rel. JPMorgan Chase & Co. v. Dimon,
139 A.D.3d 461 (1st Dept. 2016)................................................ .................7
7
Wilson v. Tully,
243 A.D.2d 229 (1st Dept. ..
1998)..................................................................8
.,.........,.....,.......,.....8
Yudell v. Gilbert,
99 A.D.3d 108 (1st Dept. 2012)...................................................................10
...
111
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Statutes:
CPLR 215(3 ).............................................................................................
....„„,.„„,...,....„...„..„. 12 ,13
CPLR 3016(b)................................................................................................12
L
CLL (g601...................................................................................................13
.13
Other Authorities:
6 N.J. Prac., Wills And Administration § 541 (Rev.3d ed.).............................................2
N.J.Stat. Ann. §3B:31-26 (West)............................................................................2
Siegel, N.Y. Prac. § 445 (6th ed.)...........................................................................6
.6
1V
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Defendants'
respectfully submit this Reply Memorandum of Law in further support of
their motion for an order dismissing the Complaint in the above entitled action, pursuant to
CPLR §§ 3211(a)(1), (a)(2), (a)(3), (a)(5), and (a)(7), and awarding to Defendants such other and
further relief as the Court deems just and proper. For the reasons set forth herein, and for the
Defendants'
reasons previously stated, motion should be granted in its entirety.
ARGUMENT
L The Complaint Should Be Dismissed For Lack Of Capacity And/Or Standing
Plaintiff Jack contends that he has standing and/or capacity to sue because he is as
"Trustee" "winding-up"
purported of the Trust, who has allegedly brought suit as part of the
process of the Trust. See, Plain. Memo., pp. 6-8. Jack makes this claim even though he
control"
apparently renounced any "ownership, interest, or he had over the Trust's purported
Ribevy interest in May of 2013. See, Schwarz Aff., Ex. V at May 3, 2013 email, sent at 1:03 pm.
Plaintiffs Ayelet, Ariel and Alexandra argue that they have standing, even though they claim that
their interest is stillheld in trust.The Court should not countenance such duplicity, See, id. at p.
8. It isreadily apparent that one or more of the Plaintiffs lack standing and/or capacity to sue.
A. Jack'sPurported Standing/Capacity
To the extent Plaintiff Jack argues that he has standing and/or capacity to sue as the
"Trustee"
alleged of the Trust, his claims are without merit. As noted previously, the assignee of
a membership interest, like the Trust, lacks standing to bring a derivative claim. See, Def.
p. 8 cases). a mere assignee of a interest -- i.e.the Trust (and
Memo., (citing Further, membership
1 Defendants'
All defined terms are intended to have the same meaning and effect as ascribed to them in
Memorandum ofLaw, dated October 16, 2017 ("Def. Memo.").
2 It Plaintiffs'
should be noted thatthe inconsistency of standing position was discussed with Plaintiffsat the
December 1, 2017 conference, afterthe filingof themotion. A copy of thetranscriptof proceedings is annexed
hereto as Appendix 1. See,id,at pp. 9-10.
1
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its purported -- lacks to as the LLCL distinguishes between members and
Trustee) standing sue,
assignees of a membership interest. Id. Because Jack is not a member of Ribevy, either in his
"interest"
individual capacity or as Trustee, and because he has renounced his purported and
"control"
of Ribevy, Jack lacks standing and/or capacity to bring a claim.
Furthermore, in light of the termination of the Trust, Jack, as reputed Trustee, lacks the
ability to bring this action in the name of the Trust, which is entirely unrelated to the winding up
Jones'
of the Trust. See, In re Will, 306 N.Y. 197, 206 (1954); In re Miller's Will, 257 N.Y. 349,
356 (1931). The undisputed documentary proof establishes that the Trust automatically
terminated under its terms more than six (6) years before this action was commenced. See,
Plaintiffs'
Schwarz Aff., Ex. F at Articles 4 and 5. intimations that the Trust did not terminate
("
are meritless. See, 6 N.J. Prac., Wills And Administration § 541 (Rev.3d ed.) ("Where the
[settlor] fixes the duration of a trust ...the trust automatically terminates."). See also, N.J. Stat.
Ann. § 3B:31-26 (West) ("a trust terminates to the extent the trust ... expires pursuant to its
terms...."). While a trustee may possess limited powers to distribute assets as part of the winding
up process, Jack is not winding up the Trust. A wind up involves the liquidation and distribution
of trust assets. Jack is not doing that, he is asserting entirely new claims for matters which
allegedly occurred after the termination of the Trust, purportedly on behalf of the Trust and/or its
unidentified beneficiaries (some of whom he is litigating against in New Jersey and who are not
here).3
named
3 Plaintiffs duties"
intimate thatthe New Jersey Action was conunenced for "guidance as to[Jack's] as Trustee, and
duties"
seeking a "declarationof his as Trustee.Plain. Memo., p. 6-7. This is disingenuous. The New JerseyAction
was commenced to determine which grandchildren of Violet were the beneficiariesof theTrust, and to exclude two
grandchildren as beneficiariesof theTrust. See, Schwarz Aff.,Ex. J at p.5;Ex. AA. The lower courtin New Jersey
determined that Violet had six grandchildren, (see, Schwarz Aff.,Ex. I),who are beneficiariesof the Trust. Only
three of the potential Trust beneficiaries,Jack's children, are named in this action. It should be noted thatthe
Appellate Court recentlyheld that there areissues of factas to the intended beneficiariesof thetrust,and remanded
the matter for trial.
See Matter of Tr.of Nelson, No. A-4004-15Tl, 2018 WL 1513450 (N.J. Super. Ct. App. Div,
Mar. 28, 2018).
2
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Plaintiffs'
reliance upon Krys v. Aaron, 106 F. Supp. 3d 492 (D.N.J. 2015) is misplaced.
First, Krys involved a liquidating trust created as part of the liquidation of a bankruptcy estate,
unlike the Trust at issue here. Second, the trust agreement in Krys specifically provided that the
assets,"
trust did not terminate until the "distribution of all (see, id.,106 F. Supp.3d at 500), and
permitted the continuation of the trust for a period of years following the termination for
purposes of winding up. See, id. at 505. In contrast, the subject Trust Agreement clearly
provides for the automatic termination, (see, Schwarz Aff., Ex. F at Article 4) (the "Trust shall
terminate...."), and does not specifically provide Jack with post-termination authority to
prosecute claims on behalf of the Trust. (See, Schwarz Aff., Ex. F). In fact, the Trust Agreement
specifically directed the Trust res "shall be distributed in equal shares per capita and not per
grandchildren..."
stirpes to [Violet's] upon the death of Joseph Nelson, which occurred on
5.4
January 10, 2011. Id. at Article Finally, Krys involved prosecution of claims which arose
Plaintiffs'
before the termination of trust,in contrast, claims largely relate to matters which arose
Plaintiffs'
after the termination of the trust (and to the extent claims relate to matters which arose
prior to the death of Joseph Nelson, they are time-barred). Krys lacks determinative significance.
Plaintiffs'
reliance on Neary v. City Bank Farmers Tr. Co., 260 A.D. 791 (2d Dept.
1940), is also misplaced. Neary involved a claim for replevin against a trustee to recover property
held by him. It did not involve a post-termination lawsuit brought on behalf of a trust by its
reputed trustee for claims arising post-termination. While Neary may recognize that a trustee has
"reasonable"
a amount of time to wind-up the affairs of a trust, it is not authority for Jack's
contention that the instant action is properly brought as part of the winding-up of the Trust.
Further, unlike Neary, the six-year delay in winding up the affairs of the Trust is unreasonable.
4 There isno dispute thatas of allofViolet's grandchildren are over theage of 21. Schwarz I
see, Aff.,Ex. 2
at p.
(providing birthdatesof allgrandchildren). The Trusteedid notneed tocontinue the Trustto hold interestof any
3
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Finally, McMullin v. Beaver, 905 So.2d 928 (Fla. App. 4 Dist. 2005), is inapposite.
McMullin, which is decided under Florida law, lacks determinative significance. Further, in
Florida, a trustee is granted specific authority to prosecute actions on behalf of a trust until final
distribution of the trust assets. See id. (citing Fla Stat. § 737.402(2003)). Nothing in the subject
Trust Agreement expressly provides Jack with such broad authority to litigate post-termination
claims.
"Beneficiaries"
B. The Purported Lack Standing
If the purported res of the Trust (i.e.,Violet's 1/3 interest in Ribevy) remains in Trust, as
claimed, then Plaintiffs Ayelet, Ariel and Alexandra do not yet hold an interest in Ribevy, and
cannot maintain their claims. See, Herman v. Herman, 122 A.D.3d 506, 507 (1st Dept. 2014)
(dismissing derivative claims of trust beneficiaries who were not members of an LLC at the time
the lawsuit was commenced). Even if a portion of the Trust's alleged interest in Ribevy was
Alexandra,5
transferred to Ayelet, Ariel and Alexandra, those plaintiffs still would lack standing to bring
derivative claims on behalf of the LLC, as they would be mere assignees of a purported interest
in the LLC who do not have authority to bring derivative claims. See, Def. Memo., p. 8 (citing
Plaintiffs'
cases). Tellingly, fail to meaningfully address the authority cited by Defendants in
their opening brief. The Complaint should be dismissed for lack of standing and/or capacity.
IL The Complaint Must Be Dismissed As Plaintiff Fails To Sufficiently Plead
That A Demand Was Made, Or That A Demand Was Excused
Plaintiffs'
a. Pleading Falls To Allege That A Pre-Suit Demand Was Made
Recognizing that a demand is required, Plaintiffs argue that the Complaint contains
sufficient allegations to establish a demand, referencing the Complaint introduction, and
Paragraphs 41 and 53 of the Complaint. See, Plain. Memo., p. 9, 11-12. Paragraph 41 of the
grandchild.
4
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Complaint does not specifically identify, and makes absolutely no reference to, any purported
demand(s) made by Plaintiffs. While the introduction and paragraph 53 of the Complaint aver
that "several demands [were made] to the Company", (see, Schwarz Aff., Ex. A at p. 2; see also,
¶ 53), the Complaint allegations are bare and conclusory, and fail to establish, in detail: (1) the
specific demands that were made; (2) when they were made; (3) the individual(s) who made the
53.6
demand(s); and, (4) to whom the demand(s) were made. See, id. at p. 2 and ¶ 53. Plaintiffs
were given an opportunity to amend their Complaint to plead the circumstances setting forth their
alleged demand(s), but they elected to stand on their Complaint allegations. Further, no
affidavit(s) have been submitted to detail the circumstances surrounding the alleged demands.
Plaintiffs'
failure to specifically (and particularly) allege that they satisfied the pre-suit demand
requirement is fatal to their claims in this action. See, Def. Memo., pp. 10-12.
form"
Plaintiffs claim that a demand is not required to assume any particular or include
language,"
"any specific and argue that paragraph 70 of their Complaint alleges "numerous
communications" demand.7
between Jack and others which represent a demand. Plain. Memo., p. 10.
While a demand may not need to take a particular form, the complaint must still plead sufficient
non-conclusory facts to establish that a demand was made. Sims v. Firstservice Corp., 2017 WL
356415, at *4 (Sup. Ct. N.Y. County Jan. 17, 2017) (dismissing claim, holding the allegations are
Plaintiffs'
insufficient to plead a demand) (cited by Plaintiffs). Complaint is deficient in this
regard. See, Schwarz Aff., Ex. A, ¶¶ 51-54. Similarly, the emails attached to the motion practice
5 Such an assignment would deprive Jack ofhis claimed as purported Trustee of the Trust.
standing
6 appear refer to paragraphs 52 and 53 of their inthe Action --
Plaintiffs to Second Amended Complaint 2015 a
which has been dismissed -- to
argue that theirComplaint in thepresent action pleads a demand.
pleading sufficiently
See, Plain. Memo., pp. 13-14. This iswithout merit,and the sufficiency ofthe Second Amended Complaint in the
2015 Action is notbefore the Court here. Further,while the referenced paragraphs make scantconclusory references
to the word "demand", the pleading, like theirpresent Complaint, failsto plead factssufficientto establish what
demand was made, when, to whom, and forwhat. The conclusory allegationslack the specificityrequired by law,
which is undoubtedly the reason why Judge Scheinkman dismissed thatpleading. See, Schwarz Aff.,Ex. P.
7 Itshould be noted thatParagraph 70 of theComplaint does not discuss demands made Plaintiffs.
any by
5
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as Exhibit V do not demonstrate a demand by Jack. His emails fail to set forth sufficient facts to
identify the alleged wrongdoing of Leibman, and fail to show that a demand for specific action
was actually made by Plaintiffs. See, Schwarz Aff., Ex. V. In fact, the recipients of the emails
requested clarification and proof of Jack's claims, which was not provided. See id.; Schwarz
Aff., Ex. W. The referenced emails are insufficient to establish that a demand was made, and
tend to negate Jack's claim of standing, as reputed Trustee, as set forth above.
Plaintiffs also appears to argue that the stipulation of settlement entered into in the 2015
Action is evidence that the demand requirement has been met. No authority is cited for their
claim. The referenced stipulation does not establish that a demand was made by Jack, or any
Plaintiffs'
other plaintiff, or the circumstances surrounding the purported demand. claims that
they have sufficiently established a demand are patently without merit and should be rejected.
Plaintiffs'
b. Res Judicata/Collateral Estoppel Preclude Futility Claims
As established previously, res judicata and collateral estoppel apply where, as here, a
derivative claim is dismissed based upon a failure to plead demand futility. See, Def. Memo., pp.
12-15. Plaintiffs do not dispute, or attempt to distinguish, the authority relied upon by Defendant
in their moving papers. Instead, Plaintiffs argue that res judicata does not apply because the
"judgment" "merits."
prior dismissal allegedly was not on the Plain. Memo., pp. 12-13 (Point
Plaintiffs'
III(D)(1)). argument is without merit. As established previously, a dismissal on
grounds of demand futility is a merits-based dismissal, even without a judgment. See, Def.
Memo., p. 13. It is hornbook law that an order may be afforded res judicata treatment, even
without entry of a judgment. See, Siegel, N.Y. Prac. § 445 (6th ed.).
Plaintiffs'
reliance upon Paf-Par LLC v. Silverberg, No. 654384/2016, 2017 WL 413178
(Sup. Ct. N.Y. County Jan. 31, 2017) is misplaced. Paf-Par LLC did not involve the application
6
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of the doctrine of res judicata (or collateral estoppel) in a case involving a prior dismissal based
on the failure to establish demand futility. Further, relevant authority holds that a prior
dismissal for failure to establish demand futility is entitled to res judicata treatment. See, Def.
Memo., p. 13. See also, Wietschner ex rel. JPMorgan Chase & Co. v. Dimon, 139 A.D.3d 461,
462 (Ist Dept. 2016)), leave to appeal denied sub nom, 28 N.Y.3d 901 (2016). Paf-Par is
inapposite. Similarly, Toco, Inc. v. Borrok, 57 A.D.3d 302 (1st Dept. 2008) lacks determinative
as it does not concern the issue at hand - whether a dismissal of a prior action
significance, i.e.,
for failure to establish demand futility has preclusive effect in a separate subsequent action
occurrences.9
alleging the same basic transactions and The doctrine of res judicata applies here
Plaintiffs' Plaintiffs'
to bar claims in this action, as prior action was dismissed for failure to
establish demand futility. See, Wiestshner, 139 A.D.3d at 462. See also, Def. Memo., p. 13.
Plaintiffs'
second argument is that collateral estoppel does not apply because the issue of
decided" issue"
demand futility was not "actually or "put in in the 2015 Action by the pleadings
or the motion papers. See, Plain Memo, 13-14. This argument is not only disingenuous, it is
demonstrably false, and belied by the Court records. Plaintiffs commenced the 2015 Action,
amended their pleading, (see, NYSCEF Doc. No. 39), and then filed a Second Amended
court.10
Complaint with leave of See, NYSCEF Doc. Nos. 41, 45. Leibman sought dismissal of
the complaint in the 2015 Action, for, inter alia, failure to plead demand futility.See, NYSCEF
Plaintiffs'
Doc. Nos. 46-56, 67. The motion was opposed by prior counsel, who had a full and
fair opportunity to litigate the issue. (See, NYSCEF Doc. No. 60). Following full briefing,
8 In the action to recover a which was dismissed
Paf-Par, prior was commenced on guaranty, because theplaintiff
failedto establishthat it heldthenote, guaranty,and mortgage. Id.,118 A.D.3d 446 (1stDept. 2013).
9 prejudice"
Tico concerned thepropriety of the inclusion of"with language in a judgment entered by the lower
court. On appeal, the C
Preview
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NO. 50 RECEIVED NYSCEF: 03/30/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF WESTCHESTER - —— ---------------------------------------------------X THE TRUST OF VIOLET NELSON, by itsTrustee, JACK NELSON, AYELET NELSON, ARIEL NELSON and ALEXANDRA NELSON-TAL, individually and derivatively on behalf of RIBEVY REALTY CO., LLC, Index No. 60763/2017 Plaintiffs, -against- GERALD LEIBMAN, VISTA BROKERAGE LLC, LSL SERVICES, INC., 541 OPERATING CORP., and SOVEREIGN REALTY PARTNERS, LLC, Defendants. --------------------------------------------------------X REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT DEFENDANTS' OF MOTION TO DISMISS DelBello Donnellan Weingarten Wise & Wiederkehr, LLP 11* One North Lexington Avenue, Floor White Plains, New York 10601 Phone: (914) .(914) 681-0200 Facsimile: (914) 684-0288 Attorneys for Defendants Gerald Leibman, Vista Brokerage LLC, LSL Services Inc., 541 Operating Corp., and Sovereign Realty Partners LLC 1 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 Table of Contents Table of Authorities...........................................................................................ii ...11 Argument.......................................................................................................1 I. The Complaint Should Be Dismissed For Lack of Capacity And/Or .......,.... „.1 Standing.......................................................................................1 A. Jack's Purported Standing/Capacity..................................................1 "Beneficiaries" B. The Purported Lack Standing.......................................4 ...4 II. The Complaint Must Be Dismissed As Plaintiff Fails To Sufficiently Plead That A Demand Was Made, Or That A Demand Was Excused...............4 a. Plaintiff's Pleading Fails To Allege That A Pre-Suit Demand Was Made......................................................................................4 .... ,.4 Plaintiffs' b. Res Judicata/Collateral Estoppel Preclude Futility Claims....................................................................................6.6 Plaintiffs' c. Complaint Fails To Establish That A Demand Was Futile............8 Plaintiffs' III. Claims Are Derivative In Nature, Not Direct..............................10 IV. Plaintiffs Are Not Appropriate Parties For Vindicating Ribevy's Claims..........11 Plaintiffs' V. Causes Of Action Should Be Dismissed In Whole Or In Part...........................................................................................12 Plaintiffs' A. Breach Of Fiduciary Duty Is Subject To Dismissal..................12 Plaintiffs' B. Conversion Claim Is Subject To Dismissal...........................13 ,...., Plaintiffs' C. Faithless Servant Claim Is Subject To Dismissal.....................14 Plaintiffs' D. Unjust Enrichment Is Subject To Dismissal...........................14 ......14 VI. If The Action Is Not Dismissed, The Parties Should Be Realigned, And Ribvey Should Appear Through Independent Counsel..........................15 Conclusion. 15 2 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 Table of Authorities Case: Page: Abrams v Donati, 66 N.Y.2d 951 (1985)..............................................................................10 „ .....,........... ....., .10 Brewster v Lacy, 24 A.D.3d 136 (1st Dept. 2005).....................................................................8 .8 ,8 Danzy v. N1A Abstract Corp., 40 A.D.3d 804 (2d Dept. 2007).....................................................................9 ,.9 Gitlin v. Chirinkin, No. 2131/07, 2007 WL 4289249 (Sup. Ct. Nassau Co. Nov. 21, 2007).....................13 „„„.13 „...13 Glenn v Hoteltron Sys., 74 N.Y.2d 386 (1989)..............................................................................10 .10 ,10 Hajderlli v. Wiljohn 59 LLC, No. 7441/2007, 2009 WL 2710263 (Sup. Ct. Bronx County Aug. 28, 2009)...............11 „.,11 „„11 Herman v. Herman, 122 A.D.3d 506 (1st Dept. 2014)....................................................................4 ......,....„,......4 ,4 Jones' In re Will, 306 N.Y. 197 (1954).................................................................................2 In re Miller's Will, 257 N.Y. 349 (1931).................................................................................2 .2 v. Aaron, 106 F. Supp. 3d 492 (D.N.J. 2015).................................................................3 Lu v. OL Vineyards PRC, LLC, No. 14478/2006, 2009 WL 142548 (Sup. Ct. Queens County Jan. 21, 2009)...............11 Matter of Tr. of Nelson, No. A-4004-15T1, 2018 WL 1513450 (N.J. Super. Ct. App. Div. Mar. 28, 2018)..........2 McMullin v. Beaver, 905 So.2d 928 (Fla. App. 4 Dist. 2005)............................................................4 .4 ,4 Neary v. City Bank Farmers Tr. Co., 260 A.D. 791 (2d Dept. 1940)......................................................................3 ....3,3 .. 11 3 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 Paf-Par LLC v. Silverberg, 118 A.D.3d 446 (1st Dept. 2013)...................................................................7 , „...„., „..„.,7 Paf-Par LLC v. Silverberg No. 654384/2016, 2017 WL 413178 (Sup. Ct. N.Y. County Jan. 31, 2017)..................6 Romei v. Shell Oil Co., No. 11005/90, 1991 WL 692884 (Sup. Ct. N.Y. County Feb. 14, 1991)............12, 14, 15 Shelton v. EliteModel Management, Inc., 11 Misc.3d 345 (Sup. Ct. N.Y. County 2005)...................................................11 Sims v. Firstservice Corp., 2017 WL 356415 (Sup. Ct. N.Y. County Jan. 17, 2017).........................................5 ...,.,5 Swartz v. Swartz, 145 A.D.3d 818 (2d. Dept. 2016),................................................................15 ,. „,...,.....,..........15 rTaylor uysur v. Wynkoop, 132 A.D.3d 843 (2d Dept. 2015)...................................................................9 . .. „ ...,.........,............9 Toco, Inc. v. Borrok, 57 A.D.3d 302 (1st Dept. 2008)....................................................................,7 , „...,..................,.......7 Usha Soha Terrace, LLC v. Robinson Brog Leinwand Greene Genovese 4 Gluck, P.C., 2014 WL 3381986 (Sup. Ct. N.Y. County July 9, 2014).........................................9 ................................9 Wandel ex rel.Bed Bath & Beyond, Inc. v. Eisenberg, 60 A.D.3d 77 (1st Dept. 2009).......................................................................8 .....,....,......................................8 Weldon v. Rivera, 301 A.D.2d 934 (3d Dept. 2003)..................................................................11 „...,..................................................11 Wietschner ex rel. JPMorgan Chase & Co. v. Dimon, 139 A.D.3d 461 (1st Dept. 2016)................................................ .................7 7 Wilson v. Tully, 243 A.D.2d 229 (1st Dept. .. 1998)..................................................................8 .,.........,.....,.......,.....8 Yudell v. Gilbert, 99 A.D.3d 108 (1st Dept. 2012)...................................................................10 ... 111 4 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 ! Statutes: CPLR 215(3 )............................................................................................. ....„„,.„„,...,....„...„..„. 12 ,13 CPLR 3016(b)................................................................................................12 L CLL (g601...................................................................................................13 .13 Other Authorities: 6 N.J. Prac., Wills And Administration § 541 (Rev.3d ed.).............................................2 N.J.Stat. Ann. §3B:31-26 (West)............................................................................2 Siegel, N.Y. Prac. § 445 (6th ed.)...........................................................................6 .6 1V 5 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 Defendants' respectfully submit this Reply Memorandum of Law in further support of their motion for an order dismissing the Complaint in the above entitled action, pursuant to CPLR §§ 3211(a)(1), (a)(2), (a)(3), (a)(5), and (a)(7), and awarding to Defendants such other and further relief as the Court deems just and proper. For the reasons set forth herein, and for the Defendants' reasons previously stated, motion should be granted in its entirety. ARGUMENT L The Complaint Should Be Dismissed For Lack Of Capacity And/Or Standing Plaintiff Jack contends that he has standing and/or capacity to sue because he is as "Trustee" "winding-up" purported of the Trust, who has allegedly brought suit as part of the process of the Trust. See, Plain. Memo., pp. 6-8. Jack makes this claim even though he control" apparently renounced any "ownership, interest, or he had over the Trust's purported Ribevy interest in May of 2013. See, Schwarz Aff., Ex. V at May 3, 2013 email, sent at 1:03 pm. Plaintiffs Ayelet, Ariel and Alexandra argue that they have standing, even though they claim that their interest is stillheld in trust.The Court should not countenance such duplicity, See, id. at p. 8. It isreadily apparent that one or more of the Plaintiffs lack standing and/or capacity to sue. A. Jack'sPurported Standing/Capacity To the extent Plaintiff Jack argues that he has standing and/or capacity to sue as the "Trustee" alleged of the Trust, his claims are without merit. As noted previously, the assignee of a membership interest, like the Trust, lacks standing to bring a derivative claim. See, Def. p. 8 cases). a mere assignee of a interest -- i.e.the Trust (and Memo., (citing Further, membership 1 Defendants' All defined terms are intended to have the same meaning and effect as ascribed to them in Memorandum ofLaw, dated October 16, 2017 ("Def. Memo."). 2 It Plaintiffs' should be noted thatthe inconsistency of standing position was discussed with Plaintiffsat the December 1, 2017 conference, afterthe filingof themotion. A copy of thetranscriptof proceedings is annexed hereto as Appendix 1. See,id,at pp. 9-10. 1 6 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 its purported -- lacks to as the LLCL distinguishes between members and Trustee) standing sue, assignees of a membership interest. Id. Because Jack is not a member of Ribevy, either in his "interest" individual capacity or as Trustee, and because he has renounced his purported and "control" of Ribevy, Jack lacks standing and/or capacity to bring a claim. Furthermore, in light of the termination of the Trust, Jack, as reputed Trustee, lacks the ability to bring this action in the name of the Trust, which is entirely unrelated to the winding up Jones' of the Trust. See, In re Will, 306 N.Y. 197, 206 (1954); In re Miller's Will, 257 N.Y. 349, 356 (1931). The undisputed documentary proof establishes that the Trust automatically terminated under its terms more than six (6) years before this action was commenced. See, Plaintiffs' Schwarz Aff., Ex. F at Articles 4 and 5. intimations that the Trust did not terminate (" are meritless. See, 6 N.J. Prac., Wills And Administration § 541 (Rev.3d ed.) ("Where the [settlor] fixes the duration of a trust ...the trust automatically terminates."). See also, N.J. Stat. Ann. § 3B:31-26 (West) ("a trust terminates to the extent the trust ... expires pursuant to its terms...."). While a trustee may possess limited powers to distribute assets as part of the winding up process, Jack is not winding up the Trust. A wind up involves the liquidation and distribution of trust assets. Jack is not doing that, he is asserting entirely new claims for matters which allegedly occurred after the termination of the Trust, purportedly on behalf of the Trust and/or its unidentified beneficiaries (some of whom he is litigating against in New Jersey and who are not here).3 named 3 Plaintiffs duties" intimate thatthe New Jersey Action was conunenced for "guidance as to[Jack's] as Trustee, and duties" seeking a "declarationof his as Trustee.Plain. Memo., p. 6-7. This is disingenuous. The New JerseyAction was commenced to determine which grandchildren of Violet were the beneficiariesof theTrust, and to exclude two grandchildren as beneficiariesof theTrust. See, Schwarz Aff.,Ex. J at p.5;Ex. AA. The lower courtin New Jersey determined that Violet had six grandchildren, (see, Schwarz Aff.,Ex. I),who are beneficiariesof the Trust. Only three of the potential Trust beneficiaries,Jack's children, are named in this action. It should be noted thatthe Appellate Court recentlyheld that there areissues of factas to the intended beneficiariesof thetrust,and remanded the matter for trial. See Matter of Tr.of Nelson, No. A-4004-15Tl, 2018 WL 1513450 (N.J. Super. Ct. App. Div, Mar. 28, 2018). 2 7 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 Plaintiffs' reliance upon Krys v. Aaron, 106 F. Supp. 3d 492 (D.N.J. 2015) is misplaced. First, Krys involved a liquidating trust created as part of the liquidation of a bankruptcy estate, unlike the Trust at issue here. Second, the trust agreement in Krys specifically provided that the assets," trust did not terminate until the "distribution of all (see, id.,106 F. Supp.3d at 500), and permitted the continuation of the trust for a period of years following the termination for purposes of winding up. See, id. at 505. In contrast, the subject Trust Agreement clearly provides for the automatic termination, (see, Schwarz Aff., Ex. F at Article 4) (the "Trust shall terminate...."), and does not specifically provide Jack with post-termination authority to prosecute claims on behalf of the Trust. (See, Schwarz Aff., Ex. F). In fact, the Trust Agreement specifically directed the Trust res "shall be distributed in equal shares per capita and not per grandchildren..." stirpes to [Violet's] upon the death of Joseph Nelson, which occurred on 5.4 January 10, 2011. Id. at Article Finally, Krys involved prosecution of claims which arose Plaintiffs' before the termination of trust,in contrast, claims largely relate to matters which arose Plaintiffs' after the termination of the trust (and to the extent claims relate to matters which arose prior to the death of Joseph Nelson, they are time-barred). Krys lacks determinative significance. Plaintiffs' reliance on Neary v. City Bank Farmers Tr. Co., 260 A.D. 791 (2d Dept. 1940), is also misplaced. Neary involved a claim for replevin against a trustee to recover property held by him. It did not involve a post-termination lawsuit brought on behalf of a trust by its reputed trustee for claims arising post-termination. While Neary may recognize that a trustee has "reasonable" a amount of time to wind-up the affairs of a trust, it is not authority for Jack's contention that the instant action is properly brought as part of the winding-up of the Trust. Further, unlike Neary, the six-year delay in winding up the affairs of the Trust is unreasonable. 4 There isno dispute thatas of allofViolet's grandchildren are over theage of 21. Schwarz I see, Aff.,Ex. 2 at p. (providing birthdatesof allgrandchildren). The Trusteedid notneed tocontinue the Trustto hold interestof any 3 8 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 Finally, McMullin v. Beaver, 905 So.2d 928 (Fla. App. 4 Dist. 2005), is inapposite. McMullin, which is decided under Florida law, lacks determinative significance. Further, in Florida, a trustee is granted specific authority to prosecute actions on behalf of a trust until final distribution of the trust assets. See id. (citing Fla Stat. § 737.402(2003)). Nothing in the subject Trust Agreement expressly provides Jack with such broad authority to litigate post-termination claims. "Beneficiaries" B. The Purported Lack Standing If the purported res of the Trust (i.e.,Violet's 1/3 interest in Ribevy) remains in Trust, as claimed, then Plaintiffs Ayelet, Ariel and Alexandra do not yet hold an interest in Ribevy, and cannot maintain their claims. See, Herman v. Herman, 122 A.D.3d 506, 507 (1st Dept. 2014) (dismissing derivative claims of trust beneficiaries who were not members of an LLC at the time the lawsuit was commenced). Even if a portion of the Trust's alleged interest in Ribevy was Alexandra,5 transferred to Ayelet, Ariel and Alexandra, those plaintiffs still would lack standing to bring derivative claims on behalf of the LLC, as they would be mere assignees of a purported interest in the LLC who do not have authority to bring derivative claims. See, Def. Memo., p. 8 (citing Plaintiffs' cases). Tellingly, fail to meaningfully address the authority cited by Defendants in their opening brief. The Complaint should be dismissed for lack of standing and/or capacity. IL The Complaint Must Be Dismissed As Plaintiff Fails To Sufficiently Plead That A Demand Was Made, Or That A Demand Was Excused Plaintiffs' a. Pleading Falls To Allege That A Pre-Suit Demand Was Made Recognizing that a demand is required, Plaintiffs argue that the Complaint contains sufficient allegations to establish a demand, referencing the Complaint introduction, and Paragraphs 41 and 53 of the Complaint. See, Plain. Memo., p. 9, 11-12. Paragraph 41 of the grandchild. 4 9 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 Complaint does not specifically identify, and makes absolutely no reference to, any purported demand(s) made by Plaintiffs. While the introduction and paragraph 53 of the Complaint aver that "several demands [were made] to the Company", (see, Schwarz Aff., Ex. A at p. 2; see also, ¶ 53), the Complaint allegations are bare and conclusory, and fail to establish, in detail: (1) the specific demands that were made; (2) when they were made; (3) the individual(s) who made the 53.6 demand(s); and, (4) to whom the demand(s) were made. See, id. at p. 2 and ¶ 53. Plaintiffs were given an opportunity to amend their Complaint to plead the circumstances setting forth their alleged demand(s), but they elected to stand on their Complaint allegations. Further, no affidavit(s) have been submitted to detail the circumstances surrounding the alleged demands. Plaintiffs' failure to specifically (and particularly) allege that they satisfied the pre-suit demand requirement is fatal to their claims in this action. See, Def. Memo., pp. 10-12. form" Plaintiffs claim that a demand is not required to assume any particular or include language," "any specific and argue that paragraph 70 of their Complaint alleges "numerous communications" demand.7 between Jack and others which represent a demand. Plain. Memo., p. 10. While a demand may not need to take a particular form, the complaint must still plead sufficient non-conclusory facts to establish that a demand was made. Sims v. Firstservice Corp., 2017 WL 356415, at *4 (Sup. Ct. N.Y. County Jan. 17, 2017) (dismissing claim, holding the allegations are Plaintiffs' insufficient to plead a demand) (cited by Plaintiffs). Complaint is deficient in this regard. See, Schwarz Aff., Ex. A, ¶¶ 51-54. Similarly, the emails attached to the motion practice 5 Such an assignment would deprive Jack ofhis claimed as purported Trustee of the Trust. standing 6 appear refer to paragraphs 52 and 53 of their inthe Action -- Plaintiffs to Second Amended Complaint 2015 a which has been dismissed -- to argue that theirComplaint in thepresent action pleads a demand. pleading sufficiently See, Plain. Memo., pp. 13-14. This iswithout merit,and the sufficiency ofthe Second Amended Complaint in the 2015 Action is notbefore the Court here. Further,while the referenced paragraphs make scantconclusory references to the word "demand", the pleading, like theirpresent Complaint, failsto plead factssufficientto establish what demand was made, when, to whom, and forwhat. The conclusory allegationslack the specificityrequired by law, which is undoubtedly the reason why Judge Scheinkman dismissed thatpleading. See, Schwarz Aff.,Ex. P. 7 Itshould be noted thatParagraph 70 of theComplaint does not discuss demands made Plaintiffs. any by 5 10 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 as Exhibit V do not demonstrate a demand by Jack. His emails fail to set forth sufficient facts to identify the alleged wrongdoing of Leibman, and fail to show that a demand for specific action was actually made by Plaintiffs. See, Schwarz Aff., Ex. V. In fact, the recipients of the emails requested clarification and proof of Jack's claims, which was not provided. See id.; Schwarz Aff., Ex. W. The referenced emails are insufficient to establish that a demand was made, and tend to negate Jack's claim of standing, as reputed Trustee, as set forth above. Plaintiffs also appears to argue that the stipulation of settlement entered into in the 2015 Action is evidence that the demand requirement has been met. No authority is cited for their claim. The referenced stipulation does not establish that a demand was made by Jack, or any Plaintiffs' other plaintiff, or the circumstances surrounding the purported demand. claims that they have sufficiently established a demand are patently without merit and should be rejected. Plaintiffs' b. Res Judicata/Collateral Estoppel Preclude Futility Claims As established previously, res judicata and collateral estoppel apply where, as here, a derivative claim is dismissed based upon a failure to plead demand futility. See, Def. Memo., pp. 12-15. Plaintiffs do not dispute, or attempt to distinguish, the authority relied upon by Defendant in their moving papers. Instead, Plaintiffs argue that res judicata does not apply because the "judgment" "merits." prior dismissal allegedly was not on the Plain. Memo., pp. 12-13 (Point Plaintiffs' III(D)(1)). argument is without merit. As established previously, a dismissal on grounds of demand futility is a merits-based dismissal, even without a judgment. See, Def. Memo., p. 13. It is hornbook law that an order may be afforded res judicata treatment, even without entry of a judgment. See, Siegel, N.Y. Prac. § 445 (6th ed.). Plaintiffs' reliance upon Paf-Par LLC v. Silverberg, No. 654384/2016, 2017 WL 413178 (Sup. Ct. N.Y. County Jan. 31, 2017) is misplaced. Paf-Par LLC did not involve the application 6 11 of 20 FILED: WESTCHESTER COUNTY CLERK 03/30/2018 12:38 PM INDEX NO. 60763/2017 NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 03/30/2018 of the doctrine of res judicata (or collateral estoppel) in a case involving a prior dismissal based on the failure to establish demand futility. Further, relevant authority holds that a prior dismissal for failure to establish demand futility is entitled to res judicata treatment. See, Def. Memo., p. 13. See also, Wietschner ex rel. JPMorgan Chase & Co. v. Dimon, 139 A.D.3d 461, 462 (Ist Dept. 2016)), leave to appeal denied sub nom, 28 N.Y.3d 901 (2016). Paf-Par is inapposite. Similarly, Toco, Inc. v. Borrok, 57 A.D.3d 302 (1st Dept. 2008) lacks determinative as it does not concern the issue at hand - whether a dismissal of a prior action significance, i.e., for failure to establish demand futility has preclusive effect in a separate subsequent action occurrences.9 alleging the same basic transactions and The doctrine of res judicata applies here Plaintiffs' Plaintiffs' to bar claims in this action, as prior action was dismissed for failure to establish demand futility. See, Wiestshner, 139 A.D.3d at 462. See also, Def. Memo., p. 13. Plaintiffs' second argument is that collateral estoppel does not apply because the issue of decided" issue" demand futility was not "actually or "put in in the 2015 Action by the pleadings or the motion papers. See, Plain Memo, 13-14. This argument is not only disingenuous, it is demonstrably false, and belied by the Court records. Plaintiffs commenced the 2015 Action, amended their pleading, (see, NYSCEF Doc. No. 39), and then filed a Second Amended court.10 Complaint with leave of See, NYSCEF Doc. Nos. 41, 45. Leibman sought dismissal of the complaint in the 2015 Action, for, inter alia, failure to plead demand futility.See, NYSCEF Plaintiffs' Doc. Nos. 46-56, 67. The motion was opposed by prior counsel, who had a full and fair opportunity to litigate the issue. (See, NYSCEF Doc. No. 60). Following full briefing, 8 In the action to recover a which was dismissed Paf-Par, prior was commenced on guaranty, because theplaintiff failedto establishthat it heldthenote, guaranty,and mortgage. Id.,118 A.D.3d 446 (1stDept. 2013). 9 prejudice" Tico concerned thepropriety of the inclusion of"with language in a judgment entered by the lower court. On appeal, the C