This decision and order addresses three motions to dismiss the complaint pursuant to CPLR 3211 (a) (7) for failure to state a cause of action as it relates to three separate sets of defendants. In motion sequence No.1, defendants Langenthal, Meyrowitz & Company, CPA, LLP, Steven Langenthal, and Stanely Meyrowitz (the "Accountant Defendants") move, pursuant to both CPLR 3211 (a) (7) and 3016 (b), to dismiss the fifth and sixth causes of action for failure to state a cause of action. In motion sequence #2, defendants Falco Construction Corp. ("Falco Construction"), Falco Supply & Equipment Corp. a/k/a Falco Supply Corp. ("Falco Supply"), Madeline B. Falco ("Madeline") and Susan Falco ("Susan") (collectively, the "Falco Defendants") move to dismiss the first, second, third, fourth, seventh, eighth and fifteenth causes of action and to strike the claims for punitive damages contained in the first, second, third and fourth causes of action. In motion sequence #3, defendants Dobry LLC, Maly LLC, Nadzieja LLC and Stasna LLC (the "LLCs") move to dismiss the sixteenth cause of action.

This instant action arises out of a dispute concerning the management of Falco Supply and the LLCs, entities partially owned by plaintiff Lori Falco Greenberg ("Lori"), and their relationship with Falco Construction, a corporation owned exclusively by Madeline and Susan. The complaint alleges that plaintiff Lori Falco Greenberg holds 20% of the shares of Falco Supply and a 40.5% membership interest in each of the LLCs, which she claims she purchased from her mother, Susan, through a series of Private Annuity Agreements. Lori's sister, Madeline, the president of Falco Supply and managing member of the LLCs, also holds 20% of the shares of Falco Supply and a 40.5% membership interest in each of the LLCs. Susan, the secretary of Falco Supply, holds the remaining 60% of the shares of Falco Supply, but holds no interest in any of the LLCs. Susan and Madeline are the exclusive shareholders of Falco Construction, with Susan holding 98% of the shares of Falco Construction and Madeline holding the remaining 2% of the shares.

According to the complaint, Falco Construction is in the construction business and performs pile driving and foundation work in addition to general contracting work. The complaint further alleges that Falco Supply owns at least 105 construction vehicles and units of construction equipment and rents the items to Falco Construction at below the fair market rental value of the vehicles and equipment, to its detriment and to Falco Construction's benefit. Also [*2]according to the complaint, Dobry LLC owns the land and property on 2300 East 69th Street in Brooklyn, New York, Nadzieja LLC owns the land and property at 2402 East 69th Street in Brooklyn, New York, and Stasna LLC owns the land and property at 2250 East 69th Street in Brooklyn, New York. The complaint alleges that, although no written leases exist between Falco Construction and these three entities, Falco Construction rents the respective land and property from each of the LLCs and pays less than the fair market rent for such benefit. The complaint further alleges that Madeline, as the president of Dobry LLC, Nadzieja LLC and Stasna LLC, determines Falco Construction's rental payments after consulting with Susan, who has no interest in these LLCs, thus wasting the value of their assets to their detriment and to the benefit of Falco Construction. As for Maly LLC, Lori alleges that Madeline, as president, has locked Lori out of the business operations and has not paid her appropriate distributions.

The instant action was commenced on February 19, 2010, through the filing of a summons and verified complaint, which contains seventeen causes of action. The first cause of action is a derivative claim alleging breach of fiduciary duty, brought by Lori in the name of Falco Supply against Susan and Madeline. The second, third and fourth causes of action are derivative claims alleging breach of fiduciary duty, brought by Lori in the names of Dobry LLC, Nadzieja LLC and Stasna LLC, respectively, against Madeline. The fifth cause of action is a derivative claim, brought by Lori in the name of Falco Supply against the Accountant Defendants, the accountants for all the entities involved and the personal accountant of Lori from 1984 to 2008, contending that the Accountant Defendants aided and abetted Susan and Madeline's breach of fiduciary duty alleged in the first cause of action. The sixth cause of action is a derivative claim, brought by Lori in the name of Dobry LLC, Nadzieja LLC and Stasna LLC against the Accountant Defendants, contending that the Accountant Defendants aided and abetted Madeline's breaches of fiduciary duty alleged in the second, third and fourth causes of action. The seventh and eighth causes of action are derivative claims alleging unjust enrichment, brought by Lori in the name of Falco Supply and Dobry LLC, Nadzieja LLC and Stasna LLC against Falco Construction.^[FN1]

The twelfth cause of action is a derivative claim for an accounting under BCL § 720, brought by Lori in the name of Falco Supply against Susan and Madeline. The thirteenth cause of action is a derivative claim for a common law accounting, brought by Lori in the names of Dobry LLC, Nadzieja LLC and Stasna LLC against Madeline. The fourteenth cause of action is a claim for an accounting, brought both individually, by Lori, and also derivatively, in the name of Maly LLC, against Madeline.

The fifteenth cause of action is a claim calling for an inspection of books and records under both the common law and BCL § 624, brought individually by Lori against Falco Supply, Susan and Madeline. The sixteenth cause of action is a claim calling for an inspection of the books and records under Limited Liability Law §1102, brought individually by Lori against the LLCs. The seventeenth cause of action is a claim for breach of contract, brought individually by [*3]Lori against Madeline. The plaintiff claims that Falco Supply, Dobry LLC, Nadzieja LLC and Stasna LLC are entitled to punitive damages for the first through sixth causes of action.

When evaluating whether a complaint is sufficient to survive a motion to dismiss pursuant to CPLR 3211 (a) (7),"the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail. The court must accept the facts alleged in the complaint to be true and determine only whether the facts alleged fit within any cognizable legal theory. However, bare legal conclusions are not entitled to the benefit of the presumption of truth and are not accorded every favorable inference." Ruffino v New York City Tr. Auth., 55 AD3d 817, 818 [2d Dept 2008], citing Morris v Morris, 306 AD2d 449, 451 [2d Dept 2003].

On June 30, 2010, plaintiff's counsel represented at oral argument that the first, second, third, fourth, seventh and eighth causes of action are exclusively derivative in nature and that references within the complaint to relief sought by the individual plaintiff Lori should be ignored. This court denied the Falco Defendants' motion to dismiss upon the representations made and reserved decision on the matter of whether the plaintiff may be entitled to seek punitive damages in the first, second, third and fourth causes of action. However, a review of the complaint reveals a commingling of individual and derivative claims that require dismissal. The first, second, third and fourth causes of action are breach of fiduciary duty claims, brought derivatively on behalf of Falco Supply, Dobry LLC, Nadzieja LLC and Stasna LLC, yet within all of the causes of action, plaintiff alleges that a fiduciary duty was owed to both her and the entity bringing the derivative claim. More importantly, all of the causes of action the Falco Defendants are seeking to dismiss specifically seek relief for both the entity bringing the claim and for Lori individually.

Although a complaint may contain both derivative claims, brought on behalf of a corporation, and individual claims, the two claims must not be intermingled within the same causes of action, but instead must be pleaded separately (Abrams v Donati, 66 NY2d 951 [1985]; Baliotti v Walkes, 134 AD2d 554, 555 [1st Dept 1987]; Barbour v Knecht, 296 AD2d 218, 227 [1st Dept 2002]). In determining whether a claim is derivative or individual, "[t]he pertinent inquiry is whether the thrust of the plaintiff's action is to vindicate his personal rights as an individual and not as a stockholder on behalf of the corporation" (Albany-Plattsburgh United Corp. v Bell, 307 AD2d 416, 419 [3d Dept 2003]). In the instant action, the first cause of action clearly alleges that Madeline and Susan breached a fiduciary duty owed to both Lori and Falco Supply and seeks to vindicate both Lori and Falco Supply's rights. The seventh cause of action also alleges that Madeline and Susan have become unjustly enriched and clearly seeks relief for both Lori and Falco Supply.

As for derivative claims brought on behalf of LLCs, there is limited case law on whether such claims may be intermingled with Lori's individual claims as the Court of Appeals only recently held that derivative claims may even be brought on behalf of LLCs (Tzolis v Wolff, 10 NY3d 100, [2008]). However, corporate law and partnership law, which both require the segregation of individual and derivative claims, provide guidance for extending the pleading [*4]requirement to LLCs as well (see id.; Wallace v Perret, 28 Misc 3d 1023, 903 NYS2d 888, 895-896 [Sup Ct, Kings County 2010]). In the second, third, fourth and eighth causes of action, Lori mingles her own individual claims, as a member of the Dobry LLC, Nadzieja LLC and Stasna LLC with the claims of the LLCs and jointly seeks relief on her behalf and on behalf of the LLCs. Accordingly, the Falco Defendants' motion to dismiss those causes of action is granted with leave to serve and file an amended complaint within 30 days hereof.

Should plaintiff file and serve an amended complaint, she is not necessarily barred from interposing claims for punitive damages, provided she makes sufficient allegations to sustain a claim. "[P]unitive damages are recoverable for breach of fiduciary duty, where . . . it appears that the breach may demonstrate a high degree of moral culpability" (Stein v McDowell, 2010 NY Slip Op 5755 [2d Dept 2010] citing Giblin v Murphy, 73 NY2d 769, 772 [1988]) or where "a wanton or reckless disregard for the rights of the plaintiff" is demonstrated (Solis-Vicuna v Notias, 2010 NY Slip Op 2126 at *2 [2d Dept 2010]).

Remaining to be addressed is also the Falco Defendants' motion to dismiss the fifteenth cause of action, brought individually by Lori against Falco Supply, Susan and Madeline, calling for an inspection of the books and records of Falco Supply. The Falco Defendants claim that although plaintiff was denied personal access to the books and records of Falco Supply, her agents were permitted to conduct an inspection on November 18, 2009. Plaintiff, however, claims that the inspection was incomplete and that plaintiff has a right under BCL § 624, as well as under the common law, to personally inspect the books and records. BCL § 624 (b) states:

Any person who shall have been a shareholder of record of a corporation upon at least five days' written demand shall have the right to examine in person or by agent or attorney, during usual business hours, its minutes of the proceedings of its shareholders and record of shareholders and to make extracts therefrom for any purpose reasonably related to such person's interest as a shareholder

The statute clearly grants Lori, as a shareholder of Falco Supply, the right to examine the minutes of the corporation in person. However, BCL § 624 (d) requires:

Upon refusal by the corporation or by an officer or agent of the corporation to permit an inspection of the minutes of the proceedings of its shareholders or of the record of shareholders as herein provided, the person making the demand for inspection may apply to the supreme court . . . for an order directing the corporation, its officer or agent to show cause why an order should not be granted permitting such inspection by the applicant. Upon the return day of the order to show cause, the court shall hear the parties summarily, by affidavit or otherwise, and if it appears that the applicant is qualified and entitled to such inspection, the court shall grant an order compelling such inspection and awarding such further relief as to the court may seem just and proper.

Because BCL § 624 (d) requires that a demand for inspection be made by order to show cause, plaintiff's fifteenth cause of action is hereby dismissed without prejudice with leave to demand inspection pursuant to BCL § 624.

The Accountant Defendants Motion to Dismiss [*5]

In support of their motion to dismiss the fifth and sixth causes of action, the Accountant Defendants argue that, pursuant to CPLR 3211 (a) (7) as well as 3016 (b), plaintiff fails to state a cause of action for aiding and abetting Madeline and Susan's alleged breaches of fiduciary duty in the first cause of action and Madeline's alleged breaches in the second, third and fourth causes of action. They claim that plaintiff fails to allege that the Accountant Defendants affirmatively assisted, helped to conceal, or failed to act when required to do so, thus enabling breaches of Madeline and Susan's alleged fiduciary duties. The Accountant Defendants assert that, because accountants are not fiduciaries to their clients, the alleged inaction on their part is insufficient to support a cause of action for aiding and abetting a breach of fiduciary duty.

In addition to the standard previously set forth for evaluating a motion to dismiss pursuant to CPLR 3211 (a) (7), the Accountant Defendants contend that the complaint must withstand the heightened pleading standards for fraud or mistake, set forth in CPLR 3016 (b), which states "[w]here a cause of action or defense is based upon misrepresentation, fraud, mistake, wilful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail." The Court of Appeals has ruled that CPLR 3016 (b) requires "only that the misconduct complained of be set forth in sufficient detail to clearly inform a defendant with respect to the incidents complained of and is not to be interpreted so strictly as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud" (Lanzi v Brooks, 43 NY2d 778, 780 [1977] citing Jered Contr. Corp. v New York City Tr. Auth., 22 NY2d 187, 194 [1968]).

A claim for aiding and abetting a breach of fiduciary duty under New York law requires: (1) a breach by a fiduciary of duties owed to another, (2) the defendant's knowing inducement or participation in the breach, and (3) damages suffered resulting from the breach (Kaufman v Cohen, 307 AD2d 113, 125 [1st Dept 2003]; S & K Sales Co. v Nike, Inc., 816 F.2d 843, 847-848 [2d Cir 1987]). Because this court has already found that plaintiff improperly mingled individual and derivative claims within the first, second, third and fourth causes of action and dismissed those causes of action with leave to replead, the fifth and sixth causes of action must also be dismissed without prejudice as there is no cognizable breach of fiduciary duty claim. Moreover, the fifth and sixth causes of action also mingle individual and derivative claims, claiming that Susan and Madeline owe fiduciary duties to both the entities derivatively as well as to Lori individually and that Susan and Madeline owe relief to both the entities derivatively and to Lori individually. Thus, the fifth and sixth causes of action must be dismissed with leave to replead, within 30 days hereof.

Should plaintiff file and serve an amended complaint, the claims asserted against the Accountant Defendants will not be barred by the doctrine of in pari delicto. The Accountant Defendants claim that, by bringing derivative claims in the name of Falco Supply, Dobry LLC, Nadzieja LLC and Stasna LLC against the Accountant Defendants for aiding and abetting the alleged wrongdoing of Susan and Madeline, Lori is essentially bringing claims against the plaintiffs themselves because Susan and Madeline are individuals acting as agents for the companies. Hence, argue movants, the plaintiffs are equally culpable for any impropriety committed by management.

"The equitable defense of in pari delicto, translated from Latin as "in equal fault," bars a plaintiff from recovering from a defendant where each is equally at fault." (Bullmore v Ernst & [*6]Young Cayman Is., 20 Misc 3d 667, 670 [Sup Ct, New York County 2008] citing Stecher v 85th Estates Co., 43 AD3d 732, 736 [1st Dept 2007]; see also Shearson Lehman Hutton, Inc. v Wagoner, 944 F2d 114 [1991]). To determine whether a claim is barred by the doctrine of in pari delicto, the court must first evaluate whether Susan and Madeline's acts were committed within the scope of the employment or whether they were acting solely for their own or a third party's benefit (see Bullmore v Ernst & Young Cayman Is., 20 Misc 3d at 671). The Accountant Defendants seemingly conflate the doctrine of in pari delicto, with that of the Wagoner rule, a standing doctrine that "deprives a bankruptcy trustee of standing to assert a claim against a third party for wrongdoing to the corporation with the cooperation of management" (id. at 670) Neither of the two doctrines directly apply to the facts at bar.

In support of their argument, the Accountant Defendants do not allege any of the requisite facts to support a defense under the doctrine of in pari delicto. The Accountant Defendants contend that if Madeline or Susan acted improperly by leasing Falco Supply's equipment or property to Falco Construction at an allegedly unfavorable rate, they stand in the shoes of Falco Supply and their actions are imputed to it, just as Madeline's alleged misconduct as managing member of each LLC is imputed to the LLC. However, the Accountant Defendants fail to allege that Madeline and Susan were acting within the scope of employment and for the benefit of the plaintiff entities, which is a necessary allegation to impute Madeline and Susan's conduct to the companies under the doctrine of in pari delicto. In fact, the complaint itself alleges that Susan and Madeline, by breaching their fiduciary duties, were acting outside the scope of employment and in dereliction of their duty to the business entities by which they were employed. The determination of whether Madeline or Susan were acting within the scope of employment to the detriment of Falco Supply, Dobry LLC, Nadzieja LLC and Stasna LLC goes to the essence of plaintiff's derivative claims and require factual determinations that are inappropriate upon a motion to dismiss.

The Wagoner rule, which has only been applied to bar trustees from asserting claims against third parties in the bankruptcy context, is not relevant to the instant action as the Accountant Defendants have not demonstrated that management's actions were imputable to the entities and that management was acting within the scope of employment (id. at 670-671). It is noted, moreover, that the Accountant Defendants' argument, if accurate would defeat all derivative claims by shareholders. Only if Lori herself was complicit in the alleged wrongdoing would the principle of in pari delicto or the Wagoner rule defeat her right as a shareholder to bring derivative claims (id.).

The Accountant Defendants argue that plaintiff fails to make allegations sufficient to support an award of punitive damages. Should plaintiff file and serve an amended complaint, she will not be barred from interposing punitive damages claims upon proper factual allegations. The standard for recovering punitive damages in an aiding and abetting claim is the same as the standard for a breach of fiduciary duty claim. Thus, the plaintiff may only recover punitive damages for this cause of action if she can demonstrate that the Accountant Defendants' alleged misconduct demonstrates a high level of moral turpitude or wanton or reckless disregard for the rights of Falco Supply, Dobry LLC, Nadzieja LLC and Stasna LLC (Solis-Vicuna v Notias, 2010 NY Slip Op 2126 at *2 [2d Dept 2010]. As with the Falco Defendants' motion to dismiss the punitive damages claim, it is premature for this court to make a determination on whether [*7]punitive damages are appropriate at this early stage in the litigation; it is sufficient for the plaintiff to merely state an adequate claim for punitive damages. Accordingly, the Accountant Defendants' motion to dismiss the fifth and sixth causes is granted, without prejudice, with leave to file and serve an amended complaint within 30 days of the date hereof.

The LLCs' Motion to Dismiss

In support of their motion to dismiss the sixteenth cause of action, the LLCs argue that plaintiff fails to state a cause of action because 1) no relief is sought from the LLCs and 2) all of the requested records have been provided to agents of Lori. Plaintiff concedes that an inspection of the books and records took place by her agents on November 18, 2009, but contends that the inspection was incomplete. Further, plaintiff claims that she has the right to personally inspect the LLC's books and records and should not be barred from doing so.

Limited Liability Company Law § 1102 (b) provides:

Any member may, subject to reasonable standards as may be set forth in, or pursuant to, the operating agreement, inspect and copy at his or her own expense, for any purpose reasonably related to the member's interest as a member, the records referred to in [§ 1102 (a)], any financial statements maintained by the limited liability company for the three most recent fiscal years and other information regarding the affairs of the limited liability company as is just and reasonable.

The LLCs argue that the right conferred by Limited Liability Company Law § 1102 (b) is restricted by Limited Liability Company Law § 1102 (c), which grants Susan and Madeline the right to keep certain information confidential from Lori, given their good faith belief that keeping Lori separated from the books and records of the LLCs is in the LLCs' best interests. Limited Liability Company Law § 1102 (c) provides:

If provided in the operating agreement, certain members or managers shall have the right to keep confidential from other members for such period of time as such certain members or the managers deem reasonable, any information which such certain members or the managers reasonably believe to be in the nature of trade secrets or other information the disclosure of which such certain members or the managers in good faith believe is not in the best interest of the limited liability company or its business or which the limited liability company is required by law or by agreement with a third party to keep confidential.

Here, no provision restricting Lori's access to the records exists within any of the operating agreements of Dobry LLC, Maly LLC, Nadzieja LLC, and Stasna LLC. Rather, the operating agreements all provide, in Section 7.2.2 of each one, that "[t]he books and records . . . shall be available at the Company's principal office for examination by any Member or the Member's duly authorized representative at any and all reasonable times during normal business hours" (Arshack Aff., Exhibits L-O). Thus, Lori has sufficiently pleaded that the operating agreements granted Lori the right to personally inspect the LLCs' books and records and there is no evidence that the restrictions contemplated in Limited Liability Company Law § 1102 (c) apply.

The Falco Defendants' motion to dismiss the first, second, third, fourth, seventh and eighth causes of action is granted, without prejudice, with leave to file and serve an amended complaint within 30 days of the date hereof. Their motion to dismiss the fifteenth cause of action [*8]is also granted, without prejudice. The Accountant Defendants' motion to dismiss the fifth and sixth causes of action is granted, without prejudice, with leave to file and serve an amended complaint within 30 days of the date hereof. The LLCs' motion to dismiss the sixteenth cause of action is denied.

This constitutes the decision, order and judgement of the court.

E N T E R,

___________________________Carolyn E. DemarestJ. S. C.