Orange Gowanus LLC v PCLING LLC

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Orange Gowanus LLC v PCLING LLC 2024 NY Slip Op 31612(U) May 7, 2024 Supreme Court, Kings County Docket Number: Index No. 537850/2023 Judge: Leon Ruchelsman Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 INDEX NO. 537850/2023 RECEIVED NYSCEF: 05/07/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS : CIVIL TERM: COMMERCIAL 8 . ---------- --.-- ·--··----. - - - - .. ---: -. -- .--.. X. ORANGE GOWANUS LLC, Decision and order Plaintiff, index No. 537850/202 3 - against PCLING LLC; STE Develciper LLC; and EYAL BEN-YOSEF, Defendant s, -·----·--- ·. --- . -·-· --· ·------.- .--·-----.-- --. --.x. PRESENT: HON. LEON· RUCHELSMAN May 7, 2024 Motion Seq. #1 The defendant s hav"; moved pursuant toCPLR §3211 seeking to dismiss the complaint on the grounds of documenta ry evidence and that it fails to allege any causes of action. opposes the motion. arguments held. The plaintiff Papers were submitted by the parties and After reviewing all the arguments this court now makes the following determina tion. According to the conrplaint , in February 20Z2 the plaintiff Orange Gowanus LLC, through its sole member Andrew Bradfield entered into an agreement with PCLING LLC through its members Yosse:E Meir .Ariel and Ido Paul Amit. T.he agreement provided for the purchase and developme nt of property located at 125 Third Street in Kings County. The parties created a new entity called Third St Developme nt LLC [hereinaf ter 'Third street LLC'] . PCLING LLC and de.fendant Eyal Ben-Yosef collectiv ely owned over 80% of that entity while the plaintiff owned the remainder , close to 20%. The parties .formed additiona l entities including Gowanus GP ventures LLC which was appointed the managing rrterrtber of Third [* 1] 1 of 12 INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 Street: LLC. RECEIVED NYSCEF: 05/07/2024 Another entity, defendant ST-E De.ve.lop·e·r LLC owned by Ariel ahd Amit was the majority partner in Gow anus GP while the plaintiff was the minority partner. Thus, Thi.rd Street ·t.LC wa:s ~.ffecti.vety managed b:y _Ariel and Amit. on: February 25, 2022 Orange Gowanus LLC, Gowanus GP, PCLING LLC and Ben:-Yose-f ·-entered into an_ operat.ing ag:reeme:nt arid on the: s arne cl-ate th.E? pr ope rt y was p~t.chas ed f o:r $ 22 . 5 mil lion. In January 2023 def.endarits informed the members :of Third Street LLC that there was a_n. offe.r to pll_;r-chas.e tl:le property for $27. -5 miLLion from an individual n!=l,:ined Rotem Rosen. The defendants voted to approve the tra;nsac:titm and the plaintiff voted again,s:t it. T_h_us, pur s ua.p t to the opercit ing ag ree:inent the·. _·plaintiff informed th~ def~ridants bf its intention to purchase the defendants members.hip interests in Third Str~.et LLC:. The complaint a,lleges: the ,def:erida_n,t$ engc1ged in tactics to delay the plaintiff's ability to purchase defendant's shares, acci..rsing the defendants o-f trying to .secure the· deal with ·Ro·sen. Ihdm3d, the J:ila1ritiff comrnehced an. actiqri see]:{.lng to prevent the: defendants from pr.oceeding with any transacti•on with Rosen. On April 27, 2023 tti:e court ruled the pla·i.ritiff·' s ability t.o. p:urphase tht= membership intere:3ts o_f the defendants was valid and enf.orceable. In c1ny event; the complaint a:11·eges :the def endant.s con_tinued to delay tn,e plai,ntiff' s, acquisition .of the membership shares.. This delay made it difficult for the defendants to secure financing 2 [* 2] 2 of 12 INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 but ultimately sold the property to 13.n entity controlled by the Joy land Group for $29. 5 million on June 16, 2023. The sale required a. Closing by August 25, 2023 a.nd a down payment of $1. 5 million. The shortenecJ. time frame was necessary to enable the developer to take advantage of signifi6ant tax abatements pursuant to Section 421-a of the New York Real Property Tax Law. The plaintiff scheduled a combined closing wherein the plaintiff would purchase the membership interests of the defendants and transfer title to the property to Joyland. The parties subsequently stipulated to agree to the transfer of the membership interests ahd terminate the prior lawsuit. However, i t is alleged the defendants refused to facilitate the transfer of the interes_ts and refused to participate in the combined closing. Eventually, the plaintiffs were forced to close twice, first to purchase the membership shares and then to transfer title. The delay allegedly caused by the defendants required the plaintiff to incur an additional $125,000 in fees and interest and an addi t-ional $690, OOd in additional transfer taxes. This lawsuit was filed wherein the plaintiff seeks recovery of those sums from the defendants,. The lawsuit alleges cause-s of action for breach of contract, breach of implied covenant of good faith and fair dealing, tortious int~rference,. breach of a fiduciary duty and aiding and abetting that brea¢h. The defendants seeking to dismiss the action . . . have now .moved . . 3 [* 3] 3 of 12 INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 arguin9. it fails._ t_o state any viabl-e cau.s_.es o! action. Speci_f ically, they are the assignment ag.reernent executed. by th!:! parties upon the. transfer of ·the JT1.embership interests fo-:r:ecloses any alJj.lity t.P pur-E?,ue any further claims .against th.e- de£etrdants .. A.s noted; the plaintiff opposes the motion. Conclusion& of taw It is well settled that- upon' a mot-i.o•n to .dismiss ti)e_ ooucrt Ir\ll:St :determine, ac(;:eptin.g the. alle.gations of the complaint as true, whether the. party can succeed. upon any reasonable v1ew of those facts.- (Pere-z· v . .Y •&. M -Transportatio n Corporation, 2-_l.9 AD3d 1449, 196 NYS3d 145 [2d Dept., 2023]). Further, a.11 the allegations in the· complaint .are de.·emed true and all reasonabl-e infere.n.ces may b_e. drawn -in favor of the plaintiff (Archival Inc., v. 177 Realty Corp., 220 AD3d 909, 198 NYS2d 567 .[2d Dept., .2023]) •. Whether the complaint will lc:it"e-r survive a· motion for surnmc;1.;ry j udgJnent., or wn.ether the piaintiff will ul tirnately be _able to prove its claims, of cour·se; plays no. part in the ·deterin:inat~o:n . of a pre--o..iscover y C"PLR §;3211 ·motion to dismiss ( ~ , Lam V, Weiss, 219 AD3d 713; 195 NY$3d 4.88 [2d Dept .. ,. Oh September 11., 2023 the defendants transferred t.he:ir membership interests to the plaintiff and e:xecuted ah Assignment of Membership Intere:sts ~ That a.greement st-ates. that ·"-as a condition:. to th.e Ass.ignment and Purchaser's payment of the 4 [* 4] 4 of 12 INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 Purchase Price as contemplated hereunder, on the Effective Date, simultaneously with the effectiveness of this Assignment, Seller and Purchaser shall enter into a: Stipulation in the form of Exhibit C attached hereto ... pursuant to which the parties agree to discontinue the litigation in New York Supreme Court Kiri.gs County" ( ~ , Assigrnnent of Membership Interests. in Third St LLC and Gowanus GP Ventures LLC, 'Il7 [NYSCEF Doc. No. Development 28]). Further, the parties executed a stipulation of discontinuance which states that the previous lawsuit as well all claims asserted ''are qiscon tinued without preJudi ce" (see, Stipulation of Dis continua.nee [NYSCEF Doc. No. 36]) •· It is well settled that a stipulation -of discontinuance without prejudice does not have any res judicata effect artd does not hara party from maintaining further claims (Maurischat v. county of Nassau, 81 AD3d 793, 916 NYS2d 235 [2d Dept., 2011]). Moreover; pursuant to CPLR §3217(c) unless expressly stated, any stipulation of discorttinua:hce is without prejudice. Thus, the existence of language expressly stating the discontinuance is without prejudice should not bar the claims soug11t here. The defendants argue that pursuant to the merger claus·e contaihE;!d within the assignment agreement no furth~r claims are possible. Th.at clause states that ~'rio change.s of or modifications or additions to this Assignment shall bE:l valid un1ess the same shall be in writing at1d signed by the parties 5 [* 5] 5 of 12 INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 heretou (see~ As_signment of _Member,9 hip tnt.ere·sts in. [NYBCEF 't'hird :St D$veloprri.ent LLC and Gow~rn_u:s GI;' Ventures LLC,. ~13 Doc. No. 28l). It is true that a merger .clause whi.ch st:ates the ~greeme.nt r_epres_emts the entire un:c;lerstandin g betw~en the parties is ''to require full application of the parole evidence rule in orde:r to bar the introduction of ·extrinsic evidenc:e to va:ry o.I." con tr a diet ·the terms o.f the ·-w-r it in.g-'' ( Pr-imex · In tern at ion al Corp ..• v. W~l~Mart Stores Inc., 89 NY2ti 594, 657 NYS2d 385 [1997Jj. Howev-e:"-r, first, th.e st.i-puiation of· discon:tinu_a.n ce :Ls: not an oral modification . I:t is a writ~en document sig.ned by all parties. Moreover, the, stipulation of discontinuan ce is not a·n extr.insic document sought to contradict the assignf!l.ent ·-agreement. R_ather, _the stipulation is intrin$i,C to Ui.e agreement and is specifically refer.ericed i:n the agreement. Thus, an:y claims tl::iat: may fl9w fr.om the st1pulation ag.reernent dq_~s, not viol-a.t_e th:E3 merg:e.r clause o,f .assignment agree:rnept. Likel,jise, no clause of the assignment ·agreement itself -contradicts: the me.rger Clause_. Th~s conc:T1.1sion i:c:; compelled by the "no prej:udice;,; lan9ua9e coritained in the stipulation of di"scontinuanc e- and, t"ll:e failure t.o specifi-cally includ:e: "wit),. prej-udic-e" lang_uage ·.eitheir in the stipulation agreement or the assignment agreement. The. defe:ndants insist that since the -assig-nm.ent a·greement did not .s,pecifically state: the claims conce_rning the transf11,3r tax would survive clos.ipg then .no s_uch cl.aims are 6 [* 6] 6 of 12 now possible. The INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 assignment agreement contains four essential conditions. First, that Ariel would be released from all liability pursuant to the mortgage made by Maxem Capital Group in the -amount of $16 Million. Second; the action would be discontinued pursuant to the stipulation of discontinuance. Third, the plaintiff would Fourth, the plaintiff would pay the sum of $7,270,165.50. deliver to defendant's counsel funds sufficient to pay all transfer taxes (see; Assignment of Membership Interests in Third St Development LLC and Gowanus GP Ventures LLC, <][2 [NYSCEE' Doc. No. 28]). Notwithstanding, the allowance afforded to pursue claims in this action, specifically, to recover the transfer taxes the as,;;ignment agreement required the plaintiff to pay, does not contradict the assignment agreement. Essentially, the assignment agreement authorized the plaintiff to,pay the transfer taxes with the ability to try and recover them in another action, The existence Of this action does not mean the defendants will be Tt required to repay the plaintiff. to try and recover those funds. merely allows the plaintiff As nOted, the discrete language that the stipulation was without prejudice compels this result. It may be true the defendants were not aware of the words "without prejudice" contained in the stipulation of settlement. However, ignoring those words, expressly agreed upon by all parties, merely because of the merger clause in the assignment agreement would essentially negate the full thrust of the 7 [* 7] 7 of 12 INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 stipulation of settlement. Clearly, a result where both agreements can be read in consonance with each other, even if such reading may negatively impact the defendants is far preferable than ignoring them altogether. The defendants next argue that ari earlier stipulation in open court on July 20, 2023 forecloses the Claims sought here. However, that stipulation merely settled the action. As noted, any settlement is always considered without prejudice unless the 1 anguage 'with prej udi,ce' is specif i ca 11 y included. Next, the defendants seek to <;iismiss claims asserted against STE Developer LLC on the grounds the operating agreement bars all such Claims. The operating agreement states that "neither the Managing Member nor its Affiliated Persons shall be liable to the . . . . Company or its Members for ahy loss or damages resulting from errors in judgment or for any acts or ,omissions within the scope of the authority granted to the Managing Member under this Agreement or by law, unless such act or omission wa:s determined by a final judgment of a court of competent jurisdiction to have resulted from an act of fraud, gross negligence, misappropriation of funds or theft'' (see, Limited Liability Company Ag;reemerit for Third St Development LLC, '315. 9 [NYSCEF Doc. No. 30]). Thus, the ciperatin~ agreement per~its s0it~ ~gainst S18 De~eloper LLC for fraud, gross negligence, misappropriation of funds and theft. Al though the complaint al leg.es tcrtious interferen-de anq. 8 [* 8] 8 of 12 INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 "intentional conduct" there are no allegations STE Developer LLC committed fraud or theft or any misappropriation of funds. Thus, STE Developer LLC cannot be sued for mere intentional tortious conduct that does not involve fraud, theft or misappropriation of funds. The operating agreement also permits lawsuits for gross negligence. Gross negligence is defined as a failure to use even slight care or involves conduct that is so careless as to demonstrate a complete disregard for the rights of others (Greenwood v. Daily News, Inc., 8 Misc3d 1002:A, 2005 WL 1389052 [Nassau County 2005] ) . Further, gross negligence may consist of intentional conduct (Somni.er 583 NYS2d 957 v. Federal Signal Corp., 79 NY2d 540, [19.921, see, also, Seti v. Carnell Associates Irie., 218 AP3cl 509, 1.93 NYS3d 80 [2d Dept., 2023]). Thus, at this stage of the litigation there are questions whether STE Developer LLC's conduct constituted gross negligence. Moreover, in order state a claim for tortious interference with prospective ecohomic advantage the pla:intiff must allege specific business relationships with an identified third party wi.th which the defendant interfered (Mehrhof v. Monroe-Woodbury Central School District, 168 AD3d 713, 91 NYS3d503 [2d Dept., 2019]). As a non-party to the contract there are surely allegations S1'E Dev:eloper L+iC interfered with the contract and such •interference ha:tmed the plaintiff. Consequently, the motion seeki:og to dismis$ the third cause of action againsit STE Developer LLC is 9 [* 9] 9 of 12 INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 denied. As noted, STE Developer LLC was hcit a party to any contract. The plaintiff argues that STE Developer LLC "controlled" the otJJ.er signatories to the contract and therefore can be held liable for breach of contract as well. However,, the complaint only alleges Conclusory assertions that STE Developer LLC controlled any other entity to assert that STE Developer LLC was really the entity that made all the decisions. It is well settled that to demonstrate two corporations are really the same and that obligations flowing from one are incumbent upon the other a "heavy burdenrt of evidence must be presented (Etex Apparel Inc,, v. Tractor International Corp., 83 AD3d 587, 922 NYS2d 315 [Pt Dept., 2011]) . The Second Department in explaining the definition of an 'alter ego entity' held that a party must demonstrate that one entity controls the "day to day" activities of the other (Constantine v. Premier Cab Gorp., 295 AD2d 303, 743 NYS2d 516 [2d Dept., 2002]). The language "day to day" activities was borrowed from another area of corporate law, namely the doctrine of piercing the corporate veil. The standard espoused in that context was that a parent corporate entity's veil could be pierced if it controlled the daily activities of the subsidiary such that it was "the true prime movers behind.the subsidiary's actions" (Pebble Cove Homeowners' Association Inc. v. Fidelity New York. FSB, 153 AD~d 843, 545 NYS2d 362 [2d Dept.~ 10. [* 10] 10 of 12 INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 Thus, the court held that joint.stock ownership and 1989]). interlocking directors and officers was insufficient to fuse the two companies together to pierce all corporate veils, rather control of the daily activities was required. Whether one entity controls another's day to day activities is obviously a factual question. Therefore, in Mournet v. Educational .& Cultural Trust Fund of Electrical Industry, 303 AD2d 474, 756 NYS2d 433 [2d Dept., 2003], the court concluded that where insufficient evidence was presented whether two companies were alter egos of each other it was proper to resolve that issue in a motion for summary judgement. In this case other than describing the corporate structure, the complaint does not allege ariy facts at all demonstrating such control by the parent entity STE Developer LI.C. Therefore, the motions seeking to dismiss the first two causes of action against STE Develop·er LLC is granted. The second cause of action alle<;1e.s a breach of the Implied Covenant 0£ g.ood faith and £air de.ali.ng. That cause of action is duplicative of the breac:.h of contract claim {Salamon v. Citigroup Inc., 123 AD3d 517, 999 NYS2d 21 [Pt Dept.; 2014}). Thust the motion seeking to dismiss that cause of action as to all defendants is. granted. The motion seeking t.b disrnis& the third caµse of action for torti.ous interference wi.th econqmic advantage is dismissed as to. 11 11 of 12 -------------------------------------------------"·-· ..·······--·····-···· [* 11] INDEX NO. 537850/2023 FILED: KINGS COUNTY CLERK 05/07/2024 02:09 PM NYSCEF DOC. NO. 50 RECEIVED NYSCEF: 05/07/2024 all parties except STE Developer LLC. A party to any contract cahnotbe liable for the tortious interference with the breach of such contract. Lastly, concerning the fourth cause of action alleging a breach of fiduciary duty, it is well settled that when a claim for breach of a fiduciary ciuty is merely duplicative of a breach of contract claim where they are based on the same facts and seek the same damage then the breach of fiduciary claim cannot stand (Pacella v. Town of Newburgh volunteer Ambulance Corps. Inc., 164 AD3d 8 09, 83 NYS3d 24 6 [2d Dept. ,. 2018 ]} . · In this case the cause .of action alleging any breach of a fiduciary duty is identical to the breach of contract claim:, namely that the defendants failed to honor the terms of the operating agreement entered into between the parties. Consequently, the motion: seeking to dismiss the fourth cause of action and the fifth cause of action is granted. Thus, only the first cause of action remains against defendant PCLING LLC and Ben-Yosef and only the tourtious interference claim remains against STE Devel,oper LLC. So ordered, ENTER: DATED: May 7, 2024 Brooklyn NY Hon. JSG 12. [* 12] 12 of 12

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