Decision and Judgment

Pursuant to CPLR Article 76, petitioners seek, inter alia, to enforce an agreement to select an independent appraiser to determine the market of value of shares, contained in a written agreement with corporations and a written agreement with a limited liability company for the repurchase of shares of those businesses. Petitioners also seek to enforce an oral agreement with another corporation, allegedly made on the same terms as the two written agreements.

According to the petition, the decedent, Armando de Peralta, and various corporations doing business as Dolphin Fitness gyms, entered into two written agreements setting forth dePerlata's rights to sell shares of the companies in the event of dePeralta's death. One written agreement, made as of January 6, 2003, appears to be between dePeralta and Buffalo Road Bodybuilding, Inc., Clove Road Bodybuilding Inc., Page Avenue Body Building, Inc., and John Amato. Verified Petition, Ex A (2003 Agreement). Another written agreement, made as of April 2006, appears to be between dePeralta, Peralta Shippping Limited Partnership, and Victory Blvd. Body Building, LLC and John Amato. Id., Ex B.

The 2003 Agreement recites that dePeralta invested a total of $600,000 in three corporations, and has 42 shares in Buffalo Road Bodybuilding, 20 shares in Clove Road Bodybuilding, and 10 shares in Page Avenue Bodybuilding. The 2003 Agreement provides that

"if dePeralta dies, dePeralta or his estate shall be entitled upon 30 days written notice given to the other parties to this Agreement (the "Notice") at any time to sell all or any part of the shares of the Corporations owned by dePeralta and the respective Corporations shall be required to purchase all the shares of the Corporations owned by dePeralta and offered for sale by him or his estate at a purchase price which is the greater of (a) the amount invested by dePeralta as set forth above or (b) the fair market value of the shares at the time of the purchase and sale."

The 2006 Agreement recites that Peralta Shipping LP invested $25,000, and has 2.5 shares in Victory Blvd. Body Building LLC. Like the 2003 Agreement, the 2006 Agreement also provides that, if dePeralta dies, Peralta Shipping LP may require Victory Blvd. Body Building, LLC to repurchase all or any part of the Peralta Shipping LP's interest at a purchase price "which is the greater of (a) the amount invested by [Peralta Shipping LP] as set forth above or (b) the fair market value of the shares at the time of the purchase and sale." Id., Ex B.

Paragraph 2 of both the 2003 Agreement and 2006 Agreement identically provide that, "In the event of a dispute regarding the market value of the shares so offered for sale, the parties shall select an independent appraiser to determine such market value." Id., Exs A, B. If the parties did not agree upon an independent appraiser within 30 days after the notice of the repurchase of shares were given, then dePeralta and Peralta Shipping LP could select an appraiser, the other parties to the respective agreements could select an appraiser, and "the two appraisers so selected will select a third appraiser to form a panel to determine such market value." Id. Pursuant to paragraph 4 of both [*2]written agreements, John Amato personally guaranteed 15% of the amount of the repurchase price. John Amato purportedly signed the 2003 Agreement and the 2006 Agreement.

The petition alleges that a third agreement was made orally between dePeralta and another health club entity, Whitestone Body Building, Inc., on the same terms as the two written agreements. DePeralta allegedly invested $10,000 in Whitestone Body Building, Inc.

Theodore J. Vittoria, the executor of dePeralta's estate, allegedly sent letters dated July 22, 2009 and August 3, 2009 to John Amato to exercise the repurchase rights, with no response. Verified Petition ¶ 17. Petitioners went ahead and chose an appraiser, but claims that respondents would not allow the appraiser access to any financial information. Id. ¶¶ 18-22.

Although the petition purports to enforce an agreement for a determination of valuation under CPLR Article 76, the prayer for relief asks the Court: (1) to compel respondents to provide access to the books, records, and financial information regarding the health club entities to perform the valuation of the shares, and (2) to enter judgment in the amount determined by the appraisal or in the total amount of dePeralta's purported investment, whichever is greater, and against Amato for 15% of the amount pursuant to his personal guaranty.

CPLR 7601 provides that

"A special proceeding may be commenced to specifically enforce an agreement that a question of valuation, appraisal or other issue or controversy be determined by a person named or to be selected. . . . Where there is a defense which would require dismissal of an action for breach of the agreement, the proceeding shall be dismissed."

However, petitioners have not established the existence of the oral agreement. Moreover, respondents have raised the defense of the Statute of Frauds, which bars the alleged oral agreement. According to petitioners, the oral agreement with Whitestone Body Building, Inc. was made upon the same terms as the two written agreements, which provided for repurchase rights for shares of stock upon dePeralta's death. Because the performance of this alleged promise to repurchase shares was not to be completed before the end of dePeralta's lifetime, the alleged agreement was required to be in writing, subscribed by the party to be charged. General Obligations Law § 5-701 (a) (1). Therefore, so much of the petition that seeks to compel appraisal of an oral agreement with defendant Whitestone Body Building, Inc. is dismissed.

As to the two written agreements, respondents argue that dePeralta's estate "has no authority to enforce the agreement," i.e., that only dePeralta, and not his estate, may enforce paragraphs 2, 3, and 4 of the 2003 Agreement and 2006 Agreement. This argument is without merit. Absent express words to the contrary, the parties' obligations under the 2003 Agreement and the 2006 Agreement are presumed to bind not only the named parties to the agreements, but also their personal representatives. Gura v Herman, 227 AD 452, 454 (2d Dept 1929), affd 253 NY 618 (1930). [*3]

"Causes of action arising out of contracts made by the decedent in his or her lifetime, if they are such as survive his or her death, are a part of the personal estate in respect of which the executor or administrator represents the person of the deceased. The executor or administrator is in law the decedent's assignee. Thus, the personal representative may maintain an action in his or her representative capacity upon such a cause of action. The representative may only enforce the rights which the decedent had."

Next, respondents argue that the agreements lack consideration. Moreover, Frank Rotella, who claims to be the former president of respondent Buffalo Road Body Building, Inc., the president of Grasmere Body Building, Inc. (formerly known as Clove Road Body Building, Inc.), and a managing member of Victory Blvd. Body Building, LLC, asserts that John Amato had no authority to enter into the two written agreements on behalf of the corporate respondents.

Lastly, respondents contend that "petitioner has sued all wrong parties," in that respondents are either companies that have been dissolved by proclamation prior to the execution of the purported written agreements, did not exist at the time of the agreements were executed, or were not signatories to the agreements. Thompson Opp. Affirm. ¶¶ 13-14.

On its face, the parties to the 2003 Agreement are, among others, "Clove Road Bodybuilding, Inc." and "Page Avenue Body Building, Inc." However, petitioners named "Clove Road Body Building, Inc." as respondent in this proceeding.

The slight differences in the spelling of the corporations is material. According to respondents, "Clove Road Bodybuilding, Inc." and "Clove Road Body Building, Inc." are two distinct corporations.^[FN1] According to respondents, the former was purportedly dissolved by proclamation on September 25, 2002, whereas the latter is an active corporation whose name has been changed to Grasmere Body Building, Inc. See Rotella Aff. ¶ 5 n 1; Thompson Opp. Affirm., Ex B.

Petitioners submit a copy of a stock certificate purportedly issued to dePeralta for shares of "Page Ave. Body Building, Inc.. This stock certificate would suggest that the 2003 Agreement with, among others, "Page Avenue Body Building, Inc." was meant to refer to "Page Ave. Body Building, Inc." Petitioners submit a copy of a stock certificate issued to dePeralta for shares of "Clove Road Bodybuilding Inc." Vittoria Reply Aff., Ex B. This stock certificate undermines respondents' contention that the 2003 Agreement with, among others, "Clove Road Bodybuilding Inc." should have referred to "Clove Road Body Building, Inc.", a corporation which did not exist until after the 2003 Agreement was made.

Assuming that "Clove Road Bodybuilding, Inc." was a party to the 2003 Agreement, [*4]respondents point out that this corporation, like Buffalo Road Body Building, Inc., was a corporations dissolved by proclamation prior to the 2003 Agreement. Respondents submit a printout from the New York State Department of State indicating that "BUFFALO ROAD BODY BUILDING, INC." is "INACTIVE — Dissolution by Proclamation / Annulment of Authority (Jun 25, 2003). Thompson Opp. Affirm., Ex A.

Under Business Corporations Law §§ 1005 (a) and 1009, a corporation dissolved for delinquent payment of taxes pursuant to Tax Law § 203-a may carry on business for the purpose of winding up its affairs. There is nothing in the record that indicates that the 2003 Agreement, purportedly made with two dissolved corporations, was consistent with the winding up of the affairs of Buffalo Road Body Building, Inc. and Clove Road Bodybuilding, Inc. In any event, as petitioners point out, "[a] corporation may be held liable on a cause of action that accrues after dissolution if the corporation continued its operations, operated its premises, and held itself out as a de facto corporation, notwithstanding its dissolution." Bruce Supply Corp. v New Wave Mech., 4 AD3d 444, 445 (2d Dept 2004). Thus, assuming that Buffalo Road Body Building, Inc. and Clove Road Bodybuilding, Inc. are parties to the 2003 Agreement, their status as dissolved corporations, which apparently occurred prior to the effective date of the 2003 Agreement, is not a defense to breach of the 2003 Agreement.

To the extent that petitioners seek to enforce the appraisal agreement against respondent Clove Road Body Building, Inc. (as opposed to Clove Road Bodybuilding, Inc.), respondents point out that Clove Road Body Building, Inc. was not formed until May 2003, after the 2003 Agreement was purportedly made in January 2003. Therefore, Clove Road Body Building, Inc. would have lacked capacity to enter into the 2003 Agreement. See 442 Decatur Street, LLC v Spheres Realty, Inc., 14 AD3d 535, 535 (2d Dept 2005). In 442 Decatur St, LLC, the plaintiff sought specific performance of a real estate contract dated August 7, 2002, entered into with the defendant, but the plaintiff's articles of organization were not filed with the Department of State until one month later. The Appellate Division, Second Department ruled that "the Supreme Court properly determined that the plaintiff lacked the capacity in August 2002 to enter into a contract." 442 Decatur St, LLC, 14 AD3d at 535-536. Here, like the plaintiff in 442 Decatur St, LLC, it is undisputed that Clove Road Body Building, Inc. did not come into existence until after the 2003 Agreement.

Petitioners' reliance on the de facto corporation doctrine is unavailing. "Under very limited circumstances, courts may invoke the de facto corporation doctrine where there exists (1) a law under which the corporation might be organized, (2) an attempt to organize the corporation and (3) an exercise of corporate powers thereafter." Matter of Hausman, 13 NY3d 408, 412 (2009). "[T]he de facto corporation doctrine is applicable to limited liability companies." Id.

"With respect to the second prong, however, the formation of a de facto company requires a colorable attempt to comply with the statutes governing incorporation' prior to the exercise of corporate powers, including the filing requirement. [W]here there has been an attempt in good faith to comply with the requirements of the law with respect to filing a certificate of incorporation and a certificate has been filed . . . and there has been use of the corporate name, the corporation will be deemed a corporation de facto'"

Petitioners' reliance upon the doctrine of corporation by estoppel is similarly unavailing.

" [I]f neither of the parties [to a suit] is aware that corporate status has not been achieved, then corporation by estoppel may apply.' The doctrine of estoppel is not the same as that of de facto corporation, a doctrine that requires a party to show that it made a colorable attempt to comply with the statutes governing incorporation."

As for Victory Blvd. Body Building, LLC, respondents point out that it is a party only to the 2006 Agreement, and not named in the 2003 Agreement. To the extent that respondents might be arguing that Victory Blvd. Body Building LLC should not have been joined in this proceeding with the other respondents, respondents have not shown that joinder of Victory Blvd. Body Building, LLC was improper use of permissive joinder, i.e., joined in one proceeding because common questions of law or fact would arise. See CPLR 1002 (b). In any event, misjoinder of parties is not a ground from dismissal of the proceeding. CPLR 1003.

John Amato avers that "I am not presently nor was I ever an officer of any of the respondent companies." Amato Opp. Aff. ¶ 3. Rotella states that "None of the respondents ever agreed to, authorized, or entered into a resolution allowing John Amato to sign any agreement with either of Petitioners herein." Rotella Opp. Aff. ¶ 3.

However, petitioners submit copies of documents that John Amato purportedly signed, indicating his corporate capacity as "Pres." Petitioners submit copies of stock certificates issued to Armando dePeralta which petitioners claim were signed by John Amato as President. As discussed previously, the stock certificates are for shares of common stock of "BUFFALO ROAD BODY BUILDING, INC." and "PAGE AVE. BODY BUILDING INC." Vittoria Reply Aff., Ex B. A copy of a membership certificate certifies that "PeRalta [sic] Shipping Limited Partnership" is a member of "VICTORY BLVD. BODY BUILDING LLC." Petitioners assert that John Amato signed the stock certificates as "President" and also signed the membership certificate. Petitioners also submit a copy of a letter dated August 21, 2002, which is notarized. The letter states,

"On this 21st day of August 2002 Mr. Amando DePeralta has acquired an additional ten percent (10%) of Buffalo Road Bodybuilding Incorporated . . . . He has also acquired an initial ten percent (10%) of Clove Road Bodybuilding Incorporated . . . and five percent (5%) of Page Avenue Bodybuilding Incorporated . . . ."

In a sur-reply affidavit, John Amato again asserts that "I am not presently nor was I ever an [*6]officer of any of the respondent companies." Amato Sur Reply Aff. ¶ 4. Amato states that the decedent's son, Rene,

"was the driving force behind obtaining the stock certificates to convince his father that he was making something of himself, as he had access to all the necessary information as an employee of the respondent companies. He recently disclosed to me and Frank Rotella that he needed these documents to convince his father that he was giving money to companies so he could use the money to a pay a defense attorney."

Thus, respondents' defenses, inter alia, of invalidity, lack of authority, and lack of capacity and the parties' submissions raise issues of fact and credibility as to (1) whether John Amato executed the 2003 Agreement and 2006 Agreement; (2) whether he had authority, express or implied, to bind the corporate entities that are parties to the agreements; and (3) whether the corporate entities may be bound to the agreements under the doctrine of apparent authority.

Respondents argue the defense that no consideration supported the 2003 Agreement and 2006 Agreement, in that dePeralta allegedly executed the agreements after investing money in the various business.

Although the written agreements were apparently executed after dePeralta invested money in the various corporate entities, it is not clear that the promise to repurchase the shares was not given when at the time the investments were made. The recitals in the two agreements identically state that "The parties wish to confirm certain understandings relating to dePeralta's right to sell and the Corporations' obligation purchase dePeralta's shares in the Corporations[.]" Verified Petition, Exs A, B.

Assuming that the promise to repurchase dePeralta's shares were made after his investment, petitioners argue that dePeralta's past consideration was sufficient, citing General Obligations Law § 5-1105. General Obligations Law § 5-1105 provides that

"a promise in writing and signed by the promisor or by his agent shall not be denied effect as a valid contractual obligation on the ground that consideration for the promise is past or executed, if the consideration is expressed in the writing and is proved to have been given or performed and would be a valid consideration but for the time when it was given or performed."

Because the parties dispute the authenticity of the 2003 Agreement and 2006, and dispute the authority of Amato to bind the corporations to the agreements, it cannot be determined on this petition, as matter of law, that the written agreements satisfy the requirements of General Obligations Law § 5-1105.

CPLR 7601 provides, " Where there is a defense which would require dismissal of an action [*7]for breach of the agreement, the proceeding shall be dismissed." Given the specific language requiring dismissal, conversion of the special proceeding into a plenary action pursuant to CPLR 103 (c) is not available.

Dismissal is consistent with the summary nature of a special proceeding (see Town of Pleasant Valley v New York State Bd. of Real Property Servs., 253 AD2d 8 [2d Dept 1999]), and with "the primary objective of the appraisal agreement," which is to avoid additional litigation and delay. Matter of Penn Cent. Corp. (Consolidated Rail Corp.), 56 NY2d 120, 130 (1982). Otherwise, litigation of the defenses, such as those raised here, would create protracted litigation and delay.

Here, respondents have raised defenses of lack of capacity, lack of authority, and lack of consideration to breach of the 2003 Agreement and 2006 Agreements. The parties' submissions raise issues of fact and credibility. There are the issues of (1) whether John Amato executed the 2003 Agreement and 2006 Agreement; (2) whether he had authority to bind the corporate entities that are parties to the agreements; and (3) whether the corporate entities may be bound to the agreements under the doctrine of apparent authority. The submissions do not make it clear as to whether the true parties to the 2003 Agreement are "Page Ave. Body Building, Inc." and "Clove Road Body Building, Inc.", as opposed to"Page Avenue Body Building, Inc." (a purportedly non-existent corporation) and "Clove Road Bodybuilding, Inc." (a dissolved corporation).

CPLR 410 states, "If triable issues of fact are raised they shall be tried forthwith and the court shall make a final determination thereon." However, if "the petitioner having neither requested to add to the record nor having sought a hearing on the facts, but, instead, having chosen to rely solely on its documentary submissions which were insufficient to meet its burden, the petition should have been dismissed." Conduit & Foundation Corp. v Metropolitan Transp. Authority, 66 NY2d 144, 150 (1985) (citation omitted).Here, petitioners chose to rely solely on their documentary submissions, and do not request a hearing. In any event, as discussed above, CPLR 7601 requires dismissal of the proceeding where there is a defense which would require dismissal of an action for breach of contract.

Because respondents have raised defenses which would require dismissal of an action for breach of the written agreements, the proceeding must be dismissed as against them pursuant to CPLR 7601, without prejudice to seeking relief in a plenary action.

Insofar as Amato has not denied signing the 2003 Agreement and 2006 Agreement in his individual capacity, it is possible to grant an order directing him to the appraisal. There is no dispute that he is a party to the written agreements. However, Amato's liability under the written agreements appears to be solely that of a guarantor of 15% of the repurchase price. Because the corporate respondents are not being compelled to the appraisal, the Court sees no utility in here ordering Amato to an appraisal that would not be binding upon the putative corporate respondents. Accordingly, the petition is denied as to Amato, as well, without prejudice.

In additional to compelling the parties to an appraisal, petitioners sought entry of judgment against respondents, jointly and severally, for the amount of the appraisal (should it prove to be greater than dePeralta's original investment), and against Amato based on his personal guarantee.

"[T]here is no need to confirm the award in the typical case where valuation represents only part of a dispute or serves as a condition precedent to the exercise of other contractual rights which may also be in dispute. Indeed to require or permit a party to commence a special proceeding for the confirmation of a valuation determination when there are other issues to be resolved at a plenary trial, would only lead to additional litigation and delay, thus defeating the primary objective of the appraisal agreement."

In the grand scheme, the appraisal is but one small part of seeking enforcement of agreements for the repurchase of shares. However, even assuming that John Amato had authority to bind the corporations named in 2003 Agreement, Business Corporation Law §§ 513 and 514, when read together, basically provide that a corporation cannot be compelled to redeem its shares if the corporation is then insolvent, or would be made insolvent by enforcement of an agreement to redeem its own shares. Buffalo Road Body Building, Inc. and Clove Road Body Building, Inc. were dissolved by proclamation, and thus are presumably insolvent. Petitioners did not submit any evidence as to whether the other companies are solvent, or whether the repurchase of dePeralta's alleged shares in those corporations would not render them insolvent.

Meanwhile, assuming that John Amato had authority to bind Victory Blvd. Body Building, LLC to the 2006 Agreement, Limited Liability Company Law § 606 (a) states,

"A member may withdraw as a member of a limited liability company only at the time or upon the happening of events specified in the operating agreement and in accordance with the operating agreement. Notwithstanding anything to the contrary under applicable law, unless an operating agreement provides otherwise, a member may not withdraw from a limited liability company prior to the dissolution and winding up of the limited liability company."

Thus, the Court questions whether resources would be wisely spent in attempting to enforce [*9]the appraisal when it is unclear whether the promise to repurchase shares and membership interest would be enforceable.

Accordingly, it is hereby

ADJUDGED that the petition is denied and the proceeding is dismissed, without prejudice to a plenary action.

Dated: March 15, 2011New York, New YorkENTER:

/s/

J.S.C.