Plaintiff in Action No. 1, Mahesh Gandhi moves for reargument and renewal of this Court's order dated September 26, 2006 and, upon reargument and renewal, denying Gandhi's motion for summary judgment and for leave to intervene in the dissolution proceeding. Defendants Vinod K. Chand and Hari Chand cross-move for sanctions.

BACKGROUND

These actions relate to, and arise out of, the relation between the individual parties who were, at one time, one-third shareholders in Bell Trading, Inc. ("Bell"). They remain one-third shareholders in AMK Enterprises, Inc. ("AMK"). [*2]

In 2004, Plaintiff Mahesh Gandhi ("Gandhi") sold his shares in Bell, pursuant to an agreement dated April 6, 2004 ("Stock Redemption Agreement"), which provided for, a promissory note from Bell to Gandhi for the $360,000 purchase price, personal guarantees on the note by Defendants Arlington H. Filler ("Filler") and Vinod K. Chand ("Chand"), the escrow of Gandhi's sold shares pending payment in full on the promissory note, loans of $200,000 each by Gandhi, Filler and Chand to AMK and a loan of $600,000 by AMK to Bell. The AMK loan proceeds were intended to satisfy certain corporate debts in order to relieve Gandhi of liability for his guarantees thereon.

Gandhi previously moved for summary judgment, not on his own cause of action, but upon Defendants' fifth counterclaim which seeks rescission of the Stock Redemption Agreement. The fifth counterclaim was one in equity to restore the parties to the status quo ante. Bell, Filler and Chand sought to rescind the Stock Transfer Agreement, the Note and the Guarantees based upon Gandhi's fraudulent representations concerning Bell's finances. The counterclaim, which was voluntarily discontinued with leave to replead in the prior order, stated that the Defendants "are ready willing and able to return to Plaintiff his stock certificates, and to return Plaintiff to his position in the Corporation immediately prior to the execution of the [Stock Transfer] Agreement" (Verified Answer ¶¶ 110,111).

DISCUSSION

A.Rescission

The distinction between a rescission action in equity and one at law merits clarification, as Plaintiff appears to merge the requirements of the two. When, as here, the complaint asserts fraudulent representations as the basis for rescission, the Court of Appeals has outlined the three choices open to the plaintiff as follows:He may rescind the contract absolutely and sue in an action at law to recover the consideration parted with upon the fraudulent contract. To maintain such action he must first restore, or offer to restore, to the other party whatever may have been received by him by virtue of the contract .

He may bring an action in equity to rescind the contract . . . Such an action is not founded upon a rescission, but is maintained for a rescission, and it is sufficient therefore for the plaintiff to offer in his complaint to return what he has received and make tender of it on the trial. Lastly, he may retain what he has received and bring an action at law to recover the damages sustained. (Emphasis added)

Vail v. Reynolds, 118 NY 297, 302-303 (1890) (citations omitted). See also, Motor Vehicle Manufacturers Assn. of the United States, Inc. v. State of New York, 75 NY2d 175, 182-3 (1990).

The distinction between the offer and tender requirements for an action at law and an action in equity remain valid. Id. See also, Strand Bldg. Corp. v. Russell & Saxe, 36 Misc 2d 339 (Sup. Ct. Kings Co. 1962), affd., 19 AD2d 592 (2nd Dept. 1963); and Rubin v. Lesser, 35 Misc 2d 172, 174 (Sup. Ct., NY Co. 1962). Although, pursuant to statute, an action at law will not be dismissed for a failure of tender or offer, it will be made a condition of relief. CPLR 3004. [*3]

There can be no dispute regarding the nature of Defendants' discontinued counterclaim. It was a cause of action for rescission, an action in equity, in which return of the consideration received need not have been tendered until trial. Vail v. Reynolds, supra. Indeed, in their answer, the Defendants did not allege tender or offer as it stated that they were "ready willing and able to return" Plaintiff's stock certificates. See, Rubin v. Lesser, supra. In equity, "the return of benefits" is a condition of rescission, not an offer capable of acceptance by the opposing party. Tepfer v. Berger, 119 AD2d 668, 670 (2nd Dept. 1986). See also, Marr v. Tumulty, 256 N.Y.15, 21 (1931)(equity exacts the return of benefits as a condition of rescission); and CPLR 3004 (where there is no tender, the court may make tender of restoration a condition of judgment).

On the prior motion, Gandhi sought summary judgment on the Defendants' equitable counterclaim for rescission, contending that he had "accepted" Defendants' offer to return his shares. The Court treated the application as one for "reverse summary judgment" (see, Siegel, New York Practice 4th § 282), and that Gandhi failed to establish that there were no issues of fact. Indeed, he claimed that he had made no misrepresentations to Filler and Chand.

Plaintiff must admit the allegations on which rescission is premised in order to warrant an award of summary judgment. As this Court previously held in its order of September 26, 2006, to obtain reverse summary judgment, "the party seeking the relief must withdraw its answer or admit facts sufficient to establish entitlement to judgment as a matter of law", citing Rauch v. Rauch, 91 AD2d 407 (2nd Dept. 1983).

On this application, Gandhi avers that the Court overlooked his allegation that his acceptance of Defendants' offer of his stock resulted in a rescission which could be enforced in an action at law. He asserts that he was not seeking reverse summary judgment on Defendants' counterclaim but was merely seeking the return of his consideration in an action at law.

The basis for the purported action at law based upon Gandhi's acceptance was his delivery of a bank check in the amount of $16,800 to Defendants on July 13, 2005. By "stipulation" of that date, counsel for the parties acknowledged such tender and Gandhi's demand for the return of his stock certificates. The stipulation, however, does not provide for the return of the stock, agree that there is a rescission or recite any actual agreement.

Gandhi's claim of rescission must be rejected. He has asserted no cause of action for rescission upon which summary judgment or specific performance could be granted. Patently, the Court did not overlook an unpleaded agreement, it was not there to be reviewed.

Even had the counterclaim contained words which could be construed as an offer, and had Plaintiff accepted the offer, which argument the Court rejects, Gandhi seeks summary judgment not only without a pleading, but also without indicating that he is able to restore Defendants to the status quo ante by returning all the benefits conferred under the Stock Redemption Agreement. He is no longer liable on his personal guarantees of Bell's debt. Filler and Chand have advanced loans to AMK and Bell has assumed debts to AMK in order to relieve Gandhi of his guarantees.

On reargument, Gandhi suggests that the Court may cure the deficiencies in [*4]pleading and tender a judgment conditioned on restoring Defendants to status quo ante pursuant to CPLR 3004. CPLR 3004 provides that a party seeking rescission on a void or voidable transaction "shall not be denied relief because of a failure to tender before judgment restoration of such benefits; but the court may make a tender of restoration a condition of its judgment, and may otherwise in its judgment so adjust the equities between the parties that unjust enrichment is avoided." CPLR 3004 does not support Gandhi's claim that he is entitled to summary judgment without a pleading, without showing that the equities are capable of adjustment or that Defendants are capable of being restored to the status quo ante.

With respect to the Defendants' counterclaim for rescission, the permitted withdrawal of the cause of action for rescission precludes reargument on the reverse summary judgment application. The Court's discretion, pursuant to CPLR 3017 (a), to grant "any type of relief within its jurisdiction appropriate to the proof whether or not demanded" is not intended "as an expedient for forcing on a plaintiff relief which the plaintiff neither seeks nor wants." Davenport v. Martin, 294 AD2d 891, 891-2 (4th Dept. 2002). Clearly, Defendants' withdrawal of the counterclaim establishes that they no longer seek or want rescission. Accordingly, the Court will not force rescission based upon the withdrawn claim.

B.Intervention

Gandhi also seeks renewal of his application to intervene in the dissolution proceeding brought by Chand as a 50% shareholder in Bell. In order to satisfy the requirements for renewal, Plaintiff must tender material evidence which would alter the prior determination. Konrad v. 136 East 64th Street Corp., 254 AD2d 110 (1st Dept. 1998), lv. den. 92 NY2d 1042 (1999).

On renewal, Gandhi avers that he subsequently served a notice of default on Defendants pursuant to the Stock Redemption Agreement and that they have failed to timely cure the default. He asserts that the escrow agent must therefore return his shares pursuant to the Stock Redemption Agreement. He argues that these new facts provide a basis for granting his motion for leave to intervene in the dissolution proceeding. Gandhi does not seek an amendment of his pleading to assert a cause of action for return of his stock based upon breach of the Stock Redemption Agreement or that the stock has been returned. As the complaint now stands, Gandhi seeks only damages for breach of the Stock Redemption Agreement.

Several of the escrow terms are relevant to the issues raised on this motion. Paragraph IV of the Stock Redemption Agreement provides that "[d]uring the period in which Seller's Shares are held in escrow, Seller shall not be entitled to any rights, powers, and benefits arising out of or related to Seller's Shares; it being the intention of the parties that all such rights, powers and benefits shall revert to the Corporation during the escrow period" (emphasis added).Gandhi surrendered his certificates which were "endorsed in blank" and also delivered a proxy authorizing Filler and Chand "to vote" his shares of stock.

The Stock Redemption Agreement allowed Gandhi, in the event of certain defaults by the Defendants, to notify Bell, Filler, Chand and the escrow agent of the default, and, in the event there is no cure within the time required, the escrow agent must "forthwith return Seller's Shares and Proxy to Seller." If any dispute arises "as to [*5]the obligations of the Escrow Agent" or if any party objects to release of the Seller's shares and proxy "by written notice to all parties", then the Escrow Agent continues to hold the shares until the parties agree in writing, or a court order, judgment or decree results in "instructions as to . . . disposition".

Without possession or a proven right to possession of the escrowed shares, intervention is still not warranted. Fundamental to an award of possession under the Agreement is proof as a matter of law that there has been a breach, something Gandhi has thus far not contended. Instead, on reargument and renewal, Gandhi seeks a judgment of rescission based on an unpleaded agreement, as well as intervention based on the very agreement he alleges was rescinded. He has not shown that Defendants breached the Stock Redemption Agreement as a matter of law, and that he is entitled to a return of his shares.

In any event, the motion for renewal would not alter the prior determination. The dissolution proceeding was brought pursuant to Business Corporation Law §1104(a)(3) which permits the holders of 50% of the shares entitled to vote in the election for directors of a corporation to petition for dissolution when there is internal dissension, and two or more factions of shareholders are so divided that dissolution would be beneficial. If "deadlock and dissension" have "effectively destroyed the orderly functioning of the corporation" dissolution will be granted (Matter of T.J. Ronan Paint Corp., 98 AD2d 413, 422 [1st Dept 1984]), and "the stability of the corporation, the financial security of its stockholders and the ends of justice require that the action or proceeding be disposed of with utmost dispatch, as expeditiously as reasonably practicable." Id. at 420.

The prior order noted that were Gandhi to be reinstated as a shareholder then Chand would own less than 50% of Bell's outstanding shares and would not have standing to pursue a dissolution proceeding pursuant to Business Corporation Law §1104. The proceeding would thus have to be dismissed as a matter of law and there would be no need for, and could be no, intervention. Thus, it appears that Gandhi's objection to the dissolution proceeding would be served simply by recovering his stock. He has asserted no cause of action, in rescission or breach, to attain such end. Accordingly, the proffered evidence on renewal would not alter the prior result, and the request for renewal must also be denied. Konrad v. 136 East 64th Street Corp., supra.C.Sanctions

The court may impose sanctions upon a party or an attorney who engages in frivolous conduct. 22 N.Y.C.R.R. 130-1.1(a). Frivolous conduct is that which sets forth arguments lacking merit in law and cannot be supported by a reasonable extension, modification or reversal of existing law, if it is designed to harass or maliciously injure another, or if ir makes material statements of fact which are false. 22 N.Y.C.R.R. 130-1.1.(c). Determination of sanctions is left to the sound discretion of the court. Wagner v. Goldberg, 293 AD2d 527 (2nd Dept. 2002).

Though Plaintiff's motion for reargument and renewal must be denied, it does not necessarily follow that Plaintiff's arguments are without merit. Hair Say, Ltd. v. Salon Opus, Inc., 6 Misc 2d 1041(A) * 10 (Sup. Ct. Nassau Co. 2005) ("Not every unsuccessful claim is frivolous."). Since Plaintiff's arguments have not been shown to [*6]lack merit, albeit they were unavailable, Plaintiff's conduct cannot be deemed frivolous. As such, Defendants' cross-motion for sanctions must be denied.

Accordingly, it is,

ORDERED, that Plaintiff's motion to reargue and renew this Court's order of September 27, 2006 is denied; and it is further,

ORDERED, that Defendants' cross-motion for sanctions is denied; and it is further,

ORDERED, that counsel for all parties shall appear for a status conference on May 4, 2007 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

April 11, 2007Hon. LEONARD B. AUSTIN, J.S.C.