Defendants The Board of Managers of the 155 Condominium, Gary Dong, and Arnold Gitomer (collectively, the "Board Defendants") move, pursuant to CPLR 3212, for an order granting summary judgment dismissing the sole cause of action against them in the complaint or, in the alternative, disqualifying plaintiff as the representative of the shareholders in this derivative action.

Defendants New Bedford Management Corp. and Michael Wechsler, its owner and principal (collectively, "New Bedford"), join in the motion of the Board Defendants to disqualify plaintiff Allan A. Ash as a representative of the shareholders in this action and to dismiss.^[FN1]

Plaintiff cross-moves for reconsideration of this court's prior denial of their request that this court recuse itself from further proceedings in this matter, and further cross-moves for a default judgment against the Board Defendants, and/or that their answer be stricken pursuant to CPLR 3126.

This derivative action asserts claims for breach of fiduciary duty and an accounting. Plaintiff's cross motion should be considered first. Plaintiff's request that this court recuse itself [*2]from this action is denied.

Plaintiff is a 93-year old who has, from the onset of this litigation, engaged in a campaign of letter writing which the Appellate Division, First Department characterized as being "numerous, unnecessary an vexatious ramblings" (Ash v. Board of Managers of 155 Condominium, 44 AD3d 324 [1st Dept 2007]).

In an effort to restore civility, this court, in October, 2006, entered an order prohibiting Mr. Ash from contacting the litigants directly, and to cease what this court regarded as a form of harassment (see, Decision dated October 25, 2006). The Appellate Division vacated that order, holding that the defendants had not demonstrated a "clear and present threat" to the administration of justice (id.).

Emboldened by this "victory", Mr. Ash expanded his letter writing campaign to include this Court and its staff, in an ill-disguised effort to have the court recuse itself and to have a judge more to his liking assigned.

In December of 2006, in an effort to assuage Mr. Ash's fears, supervision of discovery in this matter was referred to a Special Referee. That having been said, the ad hominem attacks on the lawyers, litigants, staff and the courts continued unabated.

On November 16, 2007, plaintiff made a formal motion to compel this court's recusal based on what he perceived as this court's bias against him. During the conference, this court specifically addressed the letters and requests for recusal by plaintiff, and set forth its thoughts and the legal standards which would form the basis of this court's decision. The court denied plaintiff's request for recusal, and indicated that it would remain, and indeed was compelled to remain on this case for the duration of these proceedings.

After hearing oral argument from both sides, plaintiff claims that the court allegedly "encouraged" the defendants to make another motion for summary judgment dismissing the complaint,^[FN2] by advising them to "try again." Plaintiff argues that this court's suggestion to defendants that they make another summary judgment motion, together with plaintiff's numerous strong accusations and writings against this court and some of this court's prior decisions, have given rise to a level of bias and prejudice sufficient to compel this court's recusal.

Section 14 of the Judiciary Law sets forth the grounds for disqualification. It states in pertinent part that

[a] judge shall not sit as such in, or take any part in the decision of an action, claim, matte, motion or proceeding to which he is a party, or in which he has been attorney or counsel, or in which he is interested, or if he is related by consanguinity or affinity to any party to the controversy within the sixth degree.

Here, there is no allegation that recusal is statutorily required. In the absence of a legal disqualification under Judiciary Law § 14, a trial judge's decision on a recusal motion based on [*3]alleged bias and prejudice is generally a matter of discretion within the personal conscience of the judge (People v Moreno, 70 NY2d 403 [1987]).

In the present case, this court's suggestion to the defendants that they might want to make another motion for summary judgment was not intended to presage any eventual decision. This suggestion was made as a way to search the full available record, and apply the applicable law. Now that defendants have made the instant motion for summary judgment, plaintiff has a full and complete opportunity to argue his position.^[FN3] Additionally, the court notes that it is the conduct of the defendants and the transactions in which they engaged that forms the gravamen of the instant complaint. The plaintiff's behavior, as disagreeable as it might seem to this court, plays no role in assessing the bona fides of the complaint.

Finally, the court must take into consideration its own policy regarding "judge shopping". To permit a litigant by the device of judge baiting to compel a judge to recuse himself and thereby engage in a form of reverse judge shopping is unacceptable. Considering the overall circumstances and history of this action, this court has no bias or prejudice concerning any party which would prevent this court from presiding impartially over the proceedings in this action.

BACKGROUND

The facts, including the procedural history of this case, have been set forth in numerous prior decisions, and will only be repeated herein as is relevant to the instant motion and cross motion. This derivative action was originally commenced in 2003 by the late Ruth Mishkin. Ms. Mishkin, during the relevant time frame, was the owner of unit 17B of defendant, the 155 Condominium (the "Condominium"), located at 155 East 38th Street, New York, New York. Defendants Dong and Gitomer were, during the same relevant time frame, the president and treasurer of the Board of Managers of the Condominium (the "Board"), respectively. New Bedford was the Condominium's managing agent and was responsible for, inter alia, collecting condominium fees from the unit owners and paying condominium bills.^[FN4] The Board is elected by the unit owners of the Condominium, and is responsible for, inter alia, managing the financial affairs of the Condominium.

The complaint originally asserted three causes of action, to wit: breach of fiduciary duty, entitlement to attorney's fees and costs, and an order discharging New Bedford from its duties as managing agent. The second and third causes of action were dismissed by this court, leaving only the breach of fiduciary claim. By Decision and Order dated June 17, 2004, this court granted Ms. Mishkin's motion to amend the complaint by adding a second and third cause of action for an accounting as against New Bedford (the "Amended Complaint").

In 2005, following Ms. Mishkin's death, this court granted Ms. Mishkin's counsel's motion to substitute A. Ash and his son, Joel Ash, as Co-Executors for the Estate of Ruth Mishkin, deceased, and on behalf of The Condominium, as plaintiffs in place of Ruth Mishkin [*4](Decision and Order dated December 2, 2005).^[FN5] This court also denied the Board Defendants' cross motion for summary judgment dismissing the complaint, finding that "it could not be presently determined that the moving defendants engaged in the type of actions that would shield them from judicial inquiry under the business judgment rule."

Now that discovery is complete,^[FN6] the Board Defendants move for summary judgment dismissing the breach of fiduciary duty cause of action, which is the remaining claim asserted against them. New Bedford and Wechsler join in the Board Defendants' motion.THE AMENDED COMPLAINT

The Amended Complaint alleges that, on June 26, 2000, New Bedford withdrew the amount of $150,000 from the Condominium's operating account without authorization; that it electronically transferred the $150,000 to another account that only it controlled; and, that these monies were used by the Bedford Defendants for business and/or personal matters unrelated to the Condominium.

The misappropriation of the funds was discovered in the Spring of 2001 when Marin and Montayne, LLP ("M & M"), the Condominium's accountants at the time, prepared the 2000 year-end financial reports. M & M further discovered that, as of December 31, 2000, these funds had not been repaid. The misappropriation was not known to the Board until Dong, then president, received a letter, dated June 5, 2001, from M & M. M & M approached Wechsler, before advising the Board of the withdrawal of the funds. Wechsler refused to identify the recipient of the $150,000, and allegedly demanded that M & M hide the withdrawal of $150,000 so that it would not appear on the Condominium's financial statements as having been withdrawn by Wechsler, which M & M refused. Plaintiffs claim that when the Board Defendants were advised of the misappropriation, they instructed M & M to enter the misappropriation as an "erroneous withdrawal" on the 1999/2000 financial statement for the Condominium, which was done by M & M. The following appeared on the 1999/2000 financial statement:

(3) DUE FROM MANAGING AGENT

On June 26, 2000, $150,000 was erroneously withdrawn from the [Condominium's] operating account by New Bedford Management. Interest is being accrued on these funds, computed using the prevailing rate of 5.25%.

Plaintiff maintains that the withdrawal by New Bedford and Wechsler was improperly disclosed as an "erroneous withdrawal." Plaintiff further claims that there was no document evidencing the $150,000 withdrawal by New Bedford and Wechsler, nor any evidence of an obligation on their part to repay the monies, prior to M & M's discovery of the $150,000 withdrawal during the year 2000. [*5]

The Condominium unit owners were unaware of the transfer of these monies until April 2002, when the Condominium's 1999/2000 financial statement was made available to them. According to the 2000/2001 financial statement, the misappropriated funds were returned by New Bedford to the Condominium in payments of $50,000 in January 2001, and $100,000, together with interest of $4,140, in or about May or June 2001. Plaintiff contends that the interest repayment was insufficient, since the interest was only paid on the interest due for the year 2000, withstanding that the full amount of the withdrawn monies was not repaid until June 1, 2001. Plaintiff further contends that his repeated attempts to investigate the circumstances surrounding the withdrawal were futile.

The first cause of action of the amended complaint alleges breach of fiduciary duty against all the defendants. Plaintiff claims that Dong and Gitomer breached their fiduciary duty to the Condominium and to the unit owners by, inter alia, failing to honestly manage the financial affairs of the Condominium's finances; failing to discover and/or aiding Wechsler and New Bedford in concealing the unauthorized withdrawal; failing to collect sufficient interest from co-defendants when the misappropriated funds were returned; and refusing to provide plaintiff with proper disclosure with respect to the unauthorized withdrawal of the $150,000.

The Board is alleged to have breached its fiduciary duty to the Condominium and the unit owners by, inter alia, engaging in the above-stated breaches, and by failing to responsibly supervise the Condominium's officers, including Dong, Gitomer, Wechsler and New Bedford. The claim of breach of fiduciary duty as against New Bedford and Wechsler is based upon, inter alia, their failure to honestly manage the Condominium's funds and bank accounts, and their engaging in the inappropriate withdrawal of the $150,000 from the Condominium's operating account.^[FN7]

This court will first address plaintiff's cross motion.

PLAINTIFF'S CROSS MOTION FOR SANCTIONS

Plaintiff cross-moves to strike defendants' answers and/or that a judgment be rendered against defendants pursuant to CPLR 3126. Under CPLR 3126, if a court finds that a party destroyed evidence that "ought to have been disclosed ..., the court may make such orders with regard to the failure or refusal as are just."

In his 60-page affidavit, plaintiff claims that various discovery requested by the plaintiff has not been produced, including, but not limited to, cancelled checks, the general ledger, and the general journal for 2000, 2001, and 2002, and various invoices.

Plaintiff contends that defendants intentionally destroyed the records and/or failed to preserve and control material evidence in order to conceal evidence of inappropriate and criminal action by Wechsler, the Board Defendants, and Adele Rifkin, the current president of the Board. They claim that there are numerous "missing documents" which defendants failed to provide, which they characterize as "spoliation of evidence."

Spoliation is the negligent or intentional destruction of crucial or key evidence (Standard Fire Insurance Co. v Federal Pacific Electric Co., 14 AD3d 213 [1st Dept 2004]; see also Popfinger v Terminix Intl. Co. Ltd. Partnership, 251 AD2d 564 [2d Dept 1998]; Kirkland v New [*6]York City Hous. Auth., 236 AD2d 170 [1st Dept 1997]). Sanctions pursuant to CPLR 3126, including striking of a pleading, may be imposed for negligent or intentional destruction of key evidence (id.).

At the outset, this court notes that plaintiff has failed to serve and file an Affirmation of Good Faith in connection with his cross motion, pursuant to Uniform Rules § 202.7. Secondly, the defendants contend that they have produced all documents in their possession that were demanded by the plaintiff in the notices for discovery and inspection served by the plaintiff pursuant to CPLR 3120. Plaintiff does not attach a copy of any notice for discovery and inspection that they served pursuant to CPLR 3120, nor the responses they received that did not comply with the notices for discovery and inspection. Finally they do they mention any outstanding discovery request.

This cross motion appears to be based upon personal requests made by plaintiff in a series of letters to the defendants demanding various documents, made prior to his becoming a party to this lawsuit. These requests were not made in accordance with the CPLR and cannot form the basis for which sanctions under the CPLR can be granted. Moreover, this court notes that plaintiff's counsel concedes that the "absent records do not directly contain the description or explanation for Mr. Wechsler's misappropriation of the $150,000." Accordingly, the cross motion is denied.

THE BOARD DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

The Board Defendants argue that this action should be dismissed as against them because there is no evidence that they breached their fiduciary duty of loyalty or disclosure. They maintain that they did not participate in the wrongful transfer of the $150,000, or ignore or overlook it, or fail to properly disclose it. They further point out that all of the misappropriated funds, plus interest equivalent to 3.42%,^[FN8] were repaid by Wechsler and New Bedford prior to the commencement of this action; thus, the Condominium has suffered no loss.

In support of their argument, the Board Defendants note that in 2005 Wechsler and New Bedford agreed to pay additional interest to the Condominium in connection with the discontinuance of this action. They further assert that the Board properly exercised its business judgment by deciding not to litigate, and instead opting for settlement of the claims against New Bedford and Wechsler in exchange for a $10,000 payment to the Condominium. Defendants maintain that this $10,000 payment, made by New Bedford, more than makes up for the $3,951 in additional interest that plaintiff claims is owed.

The Board Defendants move for summary judgment dismissing the complaint on the basis that their decisions were well within the business judgment rule enunciated by the Court of Appeals in Matter of Levandusky v One Fifth Avenue Apartment Corp., 75 NY2d 530 [1990]). In that decision, the Court declared that as long as the directors of a cooperative or condominium board have acted in good faith, in the exercise of honest judgment and without breaching their fiduciary obligation to the common and general interests of the corporation, judicial review to examine their determinations is unavailable. [*7]

The appropriate standard for judicial review of decisions of boards of residential condominiums and cooperative corporations has been characterized as the "deferential standard," which "requires the courts to exercise restraint and defer to good faith decisions made by boards of directors in business settings'" (Pelton v 77 Park Avenue Condominium, 38 AD3d 1, 8 [1st Dept 2006], quoting 40 W. 67th Street v Pullman, 100 NY2d 147, 153 [2003]; see also Auerbach v Bennett, 47 NY2d 619, 629 [1979]).

Pursuant to the business judgment rule, a shareholder-tenant seeking review of a governing board's actions has the burden of demonstrating a breach of fiduciary duty, through evidence of unlawful discrimination, self dealing or other misconduct by board members, i.e., " that the board acted (1) outside the scope of its authority, (2) in a way that did not legitimately further the corporate purpose or (3) in bad faith " (Pelton v 77 Park Avenue Condominium, 38 NY2d at 9 [citation omitted]). Merely making an unwise, unreasonable, or inexpedient decision does not invite judicial review of the board's decision (Matter of Levandusky v One Fifth Avenue Apartment Corp., 75 NY2d 530, supra).

In the present case, the Board Defendants have made a prima facie showing that they acted in good faith and within the scope of their authority. In opposition to the motion, the plaintiff has failed to submit any evidence to support their conclusory assertion that the Board Defendants engaged in bad faith, that their actions had no legitimate relationship to the Condominium, that they acted outside the scope of their authority, or that they were guilty of disloyalty and malfeasance with respect to executing their duties.

In his examination before trial, dated February 13, 2007,Gitomer, the former treasurer of the Condominium, testified that he specifically authorized Wechsler to take $150,000 out of the Condominium's operating account and to put it into an interest bearing reserve account certificate of deposition (CD) to gain more interest (Gitomer depos., February 13, 2007, at 19). Dong, the former president of the Condominium, testified at his examination before trial, dated February 13, 2007, that the Board instructed Gitomer, at a board meeting, to transfer the $150,000 "from a non-interest bearing checking account to some higher yielding account" (Dong depos., dated February 13, 2007, at 38).

The Board Defendants assert that they properly relied on the monthly financial reporting system (the Reporting System) set up by New Bedford and M & M, which required New Bedford to send monthly reports to the Board and to M & M. The report included, inter alia, copies of monthly bank statements from the Condominium's operating account, a computer printout of all expenditures and receipts, and a reconciliation of the bank statement, expenditures and income. However, the Reporting System did not include copies of the bank statements for the Condominium's reserve funds, which were held in CDs at the time. Thus, although the attached copy of the June 2000 report reflects the transfer of $150,000 out of the Condominium's operating account, the report does not reveal that the $150,000 did not get deposited into the reserve account CD, nor does it reveal where the transfer of monies went.The Board Defendants concede that this was a "gap" or "hole" in the Reporting System which should have been corrected by M & M. According to the Board Defendants, M & M was discharged as the accountants for the Condominium in June 2001 based upon M & M's failure to advise the Board that the Reporting System had a gap; its failure to ensure that the $150,000 transferred from the operating account was properly deposited to the reserve account CD; and its failure to promptly [*8]alert the Board, prior to alerting Wechsler, of the misappropriation of funds by New Bedford.

The decision to discharge M & M was entirely within the Board's purview, which is to manage the financial affairs of the Condominium. Similarly, their reliance on the Reporting System prepared by M & M was reasonable. Plaintiff has not shown that the defendants' actions in relying on the Reporting System or in discharging M & M had no legitimate relationship to the welfare of the Condominium or were beyond the scope of their authority.

Further, although this court can appreciate plaintiff's frustration with the Board Defendants' decision not to immediately discharge New Bedford and hire a new management company, this court is not in a position to usurp the Board Defendants' authority and substitute its own judgment in this matter (see Matter of Levandusky v One Fifth Avenue Apartment Corp., 75 NY2d at 538; see also 40 West 67th Street v Pullman, 100 NY2d 147, supra).

In his affidavit, Dong states that this decision was based upon the Board's concern that an immediate change in management, without a competent replacement, would severely impact on the daily operations of the Condominium. He also claimed that it would have been difficult to immediately discharge New Bedford because the Board was short-handed at the time, and anticipated that the vacancies would be filled at the next Unit Owners Meeting to be held in six months.

Dong avers that the Board decided to implement improved financial reporting, together with hiring of a new accountant, and to begin a Management Company search with a full Board in January 2003.^[FN9] There is no evidence in the record to support the conclusion that the Board Defendants were grossly derelict in their duties, engaged in self-dealing, or acted in bad faith.

In support of their claim that the Board Defendants breached their fiduciary duty by attempting to resist disclosure of the $150,000 withdrawal, plaintiff submits, inter alia, a 60- page affidavit. In the affidavit, he discusses "collateral topics," which he concedes are "generally outside the scope of the factual issues before the court in this action." He further attaches a copy of a record of a 2003 interview by himself and his employee Jean Michel Fogel (Fogel), who was allegedly employed by M & M as an accountant from June 2001 through July 2002.

A review of the transcript reveals that Fogel had very little, if any, personal knowledge of the facts surrounding the $150,000 withdrawal, and that most of his statements are based on hearsay. Fogel stated that he took over the work of another M & M accountant, Richard Sauerwald (Sauerwald), in completing the audit of the financial statements of the Condominium for the year 2000; that Sauerwald discovered the $150,000 withdrawal and did the monthly detailed work on the audit; and that Fogel first learned of the $150,000 withdrawal in June or July 2001 from Sauerwald. Fogel proceeds to discuss conversations had between Sauerwald and Wechsler, the Board Defendants, and M & M, as told to him by Sauerwald. Fogel was allegedly told of the "facts" surrounding the withdrawal by Sauerwald. Fogel claims to have discussed the $150,000 withdrawal with Wechsler and Gitomer, who resisted disclosure of the withdrawal.

The above submission fails to raise a triable issue as to the Board Defendants' alleged breach of fiduciary duty. Although hearsay may be considered in opposition to a motion for summary judgment and may be sufficient to defeat the motion (see Phillips v Kantor & Co., 31 NY2d 307 [1972]), the conclusory and speculative statements offered here are insufficient to [*9]warrant denial of summary judgment. Moreover, the evidence is clear that the Board Defendants disclosed the withdrawal of the $150,000 in the Condominium's 2000 financial statement and that the financial statement was approved by M & M. Plaintiff does not contend that M & M certified an improper disclosure.

Other than the Fogel interview, and reciting various "collateral misdeeds" allegedly committed by the Board Defendants, which are irrelevant to the claim asserted by the plaintiffs in the complaint, plaintiff offers merely conclusory, unsupported opinion, and speculation. These speculative allegations are unsupported by any evidence.

Finally, the measure of damages for breach of fiduciary duty is the amount of the loss sustained (see e.g. 105 East Second Street Assocs. v Bobrow, 175 AD2d 746 [1st Dept 1991]). Not only is the record is devoid of proof of any appreciable monetary damage to plaintiff arising out of the misappropriation of the $150,000, the plaintiff has failed to meet his burden of demonstrating wrongful conduct as would warrant the imposition of liability, based upon breach of fiduciary duty, upon the Board or the individual board members.

Based upon the above, The Board Defendants' motion for summary judgment dismissing the complaint as against them is granted.

NEW BEDFORD'S JOINDER IN THE MOTION TO DISMISS AND TO DISQUALIFY PLAINTIFFS AS THE REPRESENTATIVES OF THE UNIT OWNERS

New Bedford merely submits a one page notice of joinder to defendants' motion to disqualify plaintiff as representatives and to dismiss the action. New Bedford submits no affidavits by anyone with personal knowledge of the facts with regard to New Bedford. New Bedford stands in a very different position than the Board Defendants. New Bedford's motion to dismiss this action against it is denied.

That branch of the motion which seeks to disqualify the plaintiff as the representatives of the unit owners in this derivative action is likewise denied. Plaintiff, as unit owner, has the capacity and interest to assert a claim derivatively on behalf of the Condominium (Caprer v Nussbaum, 36 AD3d 176 [2d Dept 2006]). Plaintiff has demonstrated that he can adequately represent the interests of the Condominium, notwithstanding allegations by the defendants that plaintiff has a "personal vendetta" against the defendants. Defendants have failed to demonstrate that plaintiff has not acted in the interests of the Condominium, notwithstanding his attacks on the defendants and their counsel.

Accordingly, it is

ORDERED that the motion for summary judgment is granted and the complaint is hereby severed and dismissed as against defendants The Board of Managers of the 155 Condominium, Gary Dong, and Arnold Gitomer; and the Clerk is directed to enter judgment in favor of said defendants; and it is further

ORDERED that defendant New Bedford Management Corp. and Michael Wechsler's motion for summary judgment dismissing the complaint is denied; and it is further

ORDERED that defendants' motion to disqualify plaintiffs as representatives for the Condominium in this derivative action is denied; and it is further;

ORDERED that plaintiff's cross motion for recusal is denied; and it is further

ORDERED that plaintiff's cross motion for a default judgment against the defendants, and/or that their answer be stricken, is denied; and it is further [*10]

ORDERED that the remainder of the action shall continue.

DATED:

ENTER:



Hon. Walter B. Tolub, J.S.C.