The following papers numbered 1 to7read on this motion by defendant Petrocelli Electric Co., Inc. for, inter alia, an order pursuant to CPLR 5015 (a)(3) vacating a judgment entered against it on May 2, 2013.

Papers

Numbered

Notice of Motion - Affidavits - Exhibits1-2

Answering Affidavits - Exhibits3

Reply Affidavits4-5

Memoranda of Law6-7

Upon the foregoing papers it is ordered that the motion is denied without prejudice to renewal upon a showing that the hearing originally scheduled for October 8, 2013 in the turnover proceeding has either been stayed or concluded. [*2]

In 2008, plaintiff Clement Petrocelli ( CP), defendant Santo Petrocelli, Jr. (SP), and defendant Petrocelli Electric Co., Inc. (PEC) entered into several agreements which required the defendants to, among other things, pay certain debts owed by PEC to CP and to purchase 27% of CP's interest in the corporation. PEC executed two promissory notes in furtherance of the agreements. Pursuant to a "non-recourse secured promissory note" dated September 19, 2008, SP promised to pay CP the principal sum of $1,047,150. The note provided in relevant part: " Upon the occurrence of an Event of Default ( as such term is hereinafter defined), the unpaid Principal Amount shall become immediately due and payable at the option of Payee, without notice ***. Event of Default' shall mean any one or more of the following events *** (a) the failure of maker to make any payment required hereunder, provided that Payee has given Maker written notice of such breach and Maker has failed to cure such breach during the ten (10) day period immediately succeeding such notice; *** (h) Petrocelli consolidates with, or merges with or into, another entity or conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person or entity, or any entity consolidates with, or merges with into Petrocelli ***."

In 2010, PEC defaulted on its obligations, and CP began an action against it. After CP began a second action in 2011, the parties negotiated an amendment to their prior agreements and notes. Defendant SP signed an affidavit of confession of judgment on behalf of PEC in connection with the settlement of the lawsuits. Paragraph 4 of the affidavit of confession of judgment permits the entry of judgment by confession "upon any uncured default of any *** obligations" under the documents specified therein consisting of the settlement agreement and release as amended, the non recourse secured promissory note, as amended, a consolidated, amended, and restated promissory note, and two guarantees of promissory notes.

According to plaintiff CP, notwithstanding the amendment to the prior agreements, PEC has transferred its assets and employees to Allan Briteway Electrical Services, Inc. (ABES) (also known as Allan Briteway Electrical Contractors), allegedly PEC's alter ego, for the purpose of defeating the plaintiff's rights to payment on the notes and for the purpose of depriving him of his rights as a substantial minority owner of PEC. Plaintiff CP's attorney sent a notice of breach and default letter dated April 4, 2013 to the attorney for PEC setting out various failures in making payment required by the notes. The letter further stated that " PEC's transfer of all or substantially all of its assets to Allen Briteway, per se, constitutes an Event of Default."

In reply, the defendants assert that there has been no de facto merger between PEC and ABES. While the defendants admit that there has been some transfer of assets, they allege that there is no continuity of ownership, there has been no stock-for stock transfer, and there has been no transfer of ownership interests between the two companies. Moreover, according to the defendants, PEC remains an active corporation with extensive assets, including accounts receivable approximating several million dollars, and PEC leases property to ABES at a rental of $780,000 per year. [*3]

On or about May 2, 2013, plaintiff CP filed an affidavit of confession of judgment in this case. On May 14, 2013, defendant PEC submitted a motion for, inter alia, an order pursuant to CPLR 5015(a)(3) vacating the judgment entered against it in on May 2, 2013. Pursuant to a decision and order dated July 29, 2013 (one paper), this court in effect directed the plaintiff to file a complete copy of the affidavit of confession of judgment with the Clerk of Queens County and held the balance of the defendant's motion in abeyance. The plaintiff has complied with the court's directive, and the defendant has re-calendared its motion.

On or about May 2, 2013, plaintiff CP also filed a turnover petition in the Supreme Court of the State of New York, County of New York seeking, inter alia, the turnover of property that PEC had conveyed to ABES (Petrocelli v. Petrocelli, Index No. 651605/13). Plaintiff CP also sought an order finding that PEC and ABES are "alter egos." Unaware that the plaintiff had already entered judgment in Queens County, PEC brought a cross motion by way of an order to show cause for (1) an order dismissing the turnover proceeding on the ground that there was no judgment entered against it, (2) a preliminary injunction prohibiting the plaintiff from entering judgment based on defaults in payment, (3) a preliminary injunction prohibiting the plaintiff from conducting enforcement proceedings, and (4) an order vacating any judgment the plaintiff might have obtained pursuant to the affidavit of confession of judgment.

Pursuant to a written order dated September 3, 2013, the Honorable Eileen A. Rakower denied the cross motion by PEC for, inter alia, an order dismissing the turnover petition. Pursuant to a second order dated September 3, 2013, Justice Rakower scheduled a hearing on the turnover petition for October 8, 2013. PEC appealed from the orders issued by Justice Rakower, but the Appellate Division, First Department, denied a stay of the evidentiary hearing.

Having filed a complete copy of the affidavit confessing judgment with the Clerk of Queens County as required by this court's prior decision and order dated July 29, 2013, the defendants re-calendered their motion so that its remaining branches may be determined.

According to the defendants, there has been no uncured default because all of the $25,000 monthly payments have been made within the applicable ten day cure period. The defendants argue that "an uncured default in payment is the only Event of Default' that triggers the right to file the Affidavit of Judgment by Confession and enter a judgment pursuant thereto."

The plaintiff does not dispute that PEC had made all of its payments, but contends that PEC made fraudulent conveyances to ABES and/or transferred all or substantially all of its assets to ABES which constituted an event of default entitling the plaintiff to file the affidavit of confession of judgment without taking any preliminary steps. The plaintiff argues: "While PEC would have a ten (10) day cure period for any default in payment after which a failure to cure would constitute an Event of Default,' any merger constituted an immediate uncured Event of Default." (Italics in original.) The plaintiff argues that the moment SP violated the merger/conveyance clause, an event of default occurred entitling him to file the affidavit of [*4]confession of judgment without doing anything more.

The defendants argue in reply: "Plaintiff has no authority to unilaterally declare such an Event of Default.' Any such purported default must be proven before a court of law in order to trigger any of Plaintiff's rights or remedies under the various documents at issue." According to the defendants, "[t]o the extent that Plaintiff contends that there has been an Event of Default arising out of (a) Allan Briteway being the alter ego of Petrocelli Electric by reason of a de facto merger between these entities or (b) there having been a transfer of all or substantially all of the assets of Petrocelli Electric (all of which is vehemently denied and disputed by Defendants), Plaintiff would (i) first, have to prove the alleged default and obtain an adjudication of those issues by a court of competent jurisdiction, (ii) second, exercise his right to accelerate the remaining unpaid balance then outstanding and demand payment of the accelerated amount, (iii) third, issue a notice of default demanding payment of the accelerated amount, and then (iv) fourth, wait for the ten day cure period to end without the requisite payment being made, before he can file the Affidavit of Confession of Judgment and have a Judgment by Confession entered."

The first issue that must now be determined by this court is whether, in view of the matters raised in the turnover proceeding, the doctrine of collateral estoppel bars the defendants from litigating here issues pertaining to the validity of the judgment by confession.

"The doctrine of collateral estoppel, a narrower species of res judicata, precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same ***." ( Ryan v. New York Telephone Co., 62 NY2d 494, 500; Parker v. Blauvelt Volunteer Fire Co., Inc., 93 NY2d 343; Altegra Credit Co. v. Tin Chu, 29 AD3d 718; Sam v. Metro-North Commuter Railroad, 287 AD2d 378.) "The doctrine applies if the issue in the second action is identical to an issue which was raised, necessarily decided and material in the first action, and the plaintiff had a full and fair opportunity to litigate the issue in the earlier action ***." ( Parker v. Blauvelt Volunteer Fire Co., Inc., supra, 349; Sam v. Metro-North Commuter Railroad, supra.) The doctrine will only be applied to matters "actually litigated and determined" in a prior action. (Kaufman v. Eli Lilly and Co., 65 NY2d 449, 456; M.V.B. Collision, Inc. v. Rovt, 101 AD3d 830.)

In the turnover proceeding, the defendants did raise the issue of whether the plaintiff had to take preliminary steps in regard to a default based on a de facto merger before filing the judgment by confession. Discussing at oral argument the points that he had made in his initial and reply papers, the attorney for the defendants stated: " Our second point was that there was no uncured default that allowed for the filing of the confession of affidavit of judgment. ***[I]n fact, there was no de facto merger. There has been no fraudulent conveyances, and moreover, even if such de facto merger had occurred and there were fraudulent conveyances, this doe not give the Plaintiff the right to file the affidavit of confession of judgment. It merely gives rise to the events of default, at which point the application [sic: burden] is on the plaintiff [*5]to accelerate the amount owed to allow for a ten day cure period, and only at that point can they file the affidavit ***. That never happened, and they cannot unilaterally make [that] determination that a de facto merger, in fact, occurred ***." On September 3, 2013, Justice Rakower signed a written order which read in relevant part: "OSC seeking to dismiss is denied for the reasons stated on the record." While Justice Rakower's reasoning is not easily discernible from the record, the defendants' cross motion raised the issue of preliminary steps, and she denied the cross motion in its entirety. This court is constrained by the doctrine of collateral estoppel from deciding that issue anew.

Even if this court were to regard the issue of preliminary steps to be open, the result here would be the same as that reached in the turnover proceeding. The documents signed by the parties do not require the four step process (set out above) demanded by the defendants. "Courts will not rewrite contracts that have been negotiated between sophisticated, counseled commercial entities ***." ( Flag Wharf, Inc. v. Merrill Lynch Capital Corp. , 40 AD3d 506, 507.) ""The court's role is limited to interpretation and enforcement of the terms agreed to by the parties, and the court may not rewrite the contract or impose additional terms which the parties failed to insert ***." ( 131 Heartland Blvd. Corp. v. C.J. Jon Corp., 82 AD3d 1188, 1189; Maser Consulting, P.A. v. Viola Park Realty, LLC, 91 AD3d 836.) Moreover, requiring the plaintiff to preliminarily obtain an adjudication of whether there was a de facto merger or substantial transfer of assets would defeat his purpose in obtaining the affidavit of confession of judgment. The procedure is a short cut to judgment. While the defendants may argue that they were at least entitled to an opportunity to cure the default, the plaintiff's notice of breach and default letter dated April 4, 2013 stated, inter alia, " PEC's transfer of all or substantially all of its assets to Allen Briteway, per se, constitutes an Event of Default." The plaintiff did not file the affidavit of confession of judgment until about one month later.

The next issues to be decided in this court, assuming for the moment that collateral estoppel is no bar, are whether PEC has consolidated with or merged into ABES or conveyed, transferred, or otherwise disposed of all or substantially all of its assets to ABES. The conflicting allegations of the parties have created factual issues which cannot be resolved without a hearing. The problem is that Justice Rakower's written order dated September 3, 2013 scheduled a hearing in the turnover proceeding for October 8, 2013. Although the defendants' attorney informed her that their motion pending in Queens County would be recalendared, Justice Rakower decided to hear argument on the petition and cross motion before her anyway: " I do not intend to wait, counsel." She then denied the defendants' cross motion and granted the petition to the extent of setting the matter down for a hearing. The petition raises the issues of whether PEC and ABES are "alter egos" and whether the transfers by PEC to ABES were fraudulent conveyances. This court has not been informed about whether those issues have already been heard and determined in the turnover proceeding. Since those issues duplicate to a certain extent the issues to be heard here, this court will not conduct a hearing until the hearing in the turnover proceeding is either stayed pending a disposition here or concluded.

Dated: February 24, 2014 [*6]

Long Island City, NY

______________________________

ROBERT J. MCDONALD

J.S.C.