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5ca

INDEXNo. 16345-04 -GHANDI v

FILLERNo. 8072-05 . BELL v

CHANDNo. 8376-05 - CHAND v

BELL

SUPREME COURT - STATE OF NEW YORKIAS TERM PART 16 NASSAU COUNTY

PRESENT:HONORABLE LEONARD B. AUSTIN

Justice

MAHESH GANDHIPlaintiff

. against.

ARLINGTON H. FillER, VINOD K. CHAND,BEll TRADING, INC. and AMKENTERPRISES, INC.

Defendants,

------------------------------------------------------ )(

BEll TRADING, INC.Plaintiff,

. against.

VINOD K. CHAND and HARI CHAND,

Defendants,

...................................................... )(

In the Matter of the Application of: VINOD

K. CHAND, holder of 50% of all the Sharesof Stock entitled to vote in an election ofDirectors of Bell Trading, Inc.

Petitioner

For the Judicial Dissolution of:

BEll TRADING, INC.

Pursuant to BCl 1104 (a) (3)

COUNSEL FOR PLAINTIFFHarras , Bloom & Archer, LLP445 Broad Hollow Road. Suite 127Melvile, New York 11747

COUNSEL FOR DEFENDANT(for Bell Trading, AMK Enterprises &Arlington H. Filer)Hession, Bekoff & Cooper, LLP1103 Stewart Avenue. Suite 200Garden City, New York 11530

(for Vinod K. Chand & Hari Chand)Schrier, Fiscella & Sussman, LLC825 East Gate Boulevard. Suite 320

Garden City, New York 11530

GANDHI v. FillER, et aI.,Index No. 16345-BEll TRADING, INC. v. CHANDIndex No. 8072-CHAND v. BEll TRADING, INC.Index No. 8376-

ORDER

The following papers were read on the motions relating to:

Ghandi v. Filer - Index No. 16345-04:

Motion Sequence 3 - return date: 9- 05;submit date: 6-23-06;

Notice of Cross-motion dated September 2, 2005;Affirmation of Kenneth A. Brown, Esq. dated September 2, 2005;Affidavit of Mahesh Gandhi sworn to on September 2, 2005;

Motion Seauence 4 - return date: 2-10-submit date: 6-23-

Notice of Motion dated January 5, 2006;Affirmation of Kenneth A. Brown , Esq. dated January 5, 2006;Affidavit of Mahesh Gandhi sworn to on January 4, 2006;

Motion Sequence 5 - return date: 5-12-06;submit date: 6-23-06;

Notice of Cross-motion dated May 5, 2006;Affirmation of Andrew Paul Cooper, Esq. dated May 5, 2006;

Motion Sequence 6 - return date: 5-12-submit date: 6-23-

Notice of Cross-motion dated April 27, 2006;Affirmation of James B. Fiscella , Esq. dated April 27, 2006;

GANDHI v. FILLER, et aI.Index No. 16345-BELL TRADING, INC. v. CHANDIndex No. 8072-CHAND v. BELL TRADING, INC.Index No. 8376-

Bell v. Chand - Index No. 8072-05:

Motion Seauence - return date: 6- 06;submit date: 6-23-06;

Order to Show Cause signed by the Hon. Bruce D. Albert dated May 26, 2006;Affidavit of Arlington Filler sworn to on May 20, 2006;Affirmation of Jonathan B. Schwartzman , Esq. dated May 20, 2006;

Motion Seauence 2 - return date: 2-10-06;submit date: 6-23-06;

Notice of Motion dated January 3, 2006;Affidavit of Vinod K. Chand sworn to on December 13, 2005;Affidavit of Hari Chand sworn to on December 13, 2005;Affirmation of James B. Fiscella, Esq. dated December 14 , 2005;

Motion Sequence 3 - return date: 4-11-06;submit date: 6-23-06;

Notice of Cross-motion dared March 13, 2006;Affirmation of Andrew Paul Cooper, Esq. dated March 13, 2006;

Matter of Chand for the Judicial Dissolution of Bell Tra din g. Inc. - Index

No. 8376-05:

Motion Sequence - return date: 7- 15-submit date 6-23-

Order to Show Cause dated June 2, 2005;Petition of Vinod K. Chand duly verified May 24, 2006;

Motion Sequence 2 - return date: 5- 12-06;submit date: 6-23-06;

Notice of Cross-motion dated May 5, 2006;Affirmation of Andrew Paul Cooper, Esq. dated May 5, 2006;

GANDHI v. FILLER , et aI.,Index No. 16345-BELL TRADING, INC. v. CHANDIndex No. 8072-CHAND v. BELL TRADING, INC.Index No. 8376-

Other Papers

Affirmation of Andrew Paul Cooper , Esq. dated March 13, 2006;Affidavit of Vinod K. Chand sworn to on April 3, 2006;Affirmation of Andrew Paul Cooper, Esq. dated April 20, 2006;Affidavit of Arlington H. Filler sworn to on April 1 0, 2006;Affirmation of James B. Fiscella , Esq. dated April 3, 2006;Affirmation of Kenneth A. Brown , Esq. dated May 3 , 2006;Affirmation of Andrew Paul Cooper, Esq. dated May 5 , 2006;Affirmation of James B. Fiscella, Esq. dated June 2, 2006;Affidavit of Vinod K. Chand sworn to on June 1 , 2006;Affidavit of Arlington H. Filer sworn to on Jue 13, 2006;Affirmation of Andrew Paul Cooper, Esq. dated June 11 , 2006;Affirmation of Andrew Paul Cooper, Esq. dated June 15, 2006;Affirmation of Jonathan B. Schwartzman, Esq. dated June 12, 2006;Affirmation of James B. Fiscella, Esq. dated June 19, 2006;Affidavit of Kenneth A. Brown, Esq. Sworn to June 22, 2006; and

Memorandum of Law submitted on behalf of Manesh Gandhi dated May 25, 2006.

Motion Sequence 1, 2 and 3 in Bell Trading, Inc., Plaintiff -against- Vinod K.

Chand and Hari Chand, Index No. 8072/2005

, ("

Bell Action ); Motion Sequence 1 , 2

and 3 in Matter of the Application of Vinod K. Chand for the judicial dissolution of Bell

Trading, Inc., Index No. 8376/2005 ("Dissolution Proceeding ); and Motion Sequence 4

5 and 6 in Manesh Gandhi -against- Arlington H. Filer, Vinod Chand, Bell Trading,

Inc. and AMK Enterprises, Inc. Index No. 16345/2004 ("Gandhi Action ) have been

consolidated for disposition.

GANDHI v. FILLER , et aI.Index No. 16345-BELL TRADING, INC. v. CHANDIndex No. 8072-CHAND v. BELL TRADING, INC.Index No. 8376-

THE PENDING MOTIONS

Motions in the Bell Action

In Motion Sequence 1 , Bell Trading, Inc. ("Bell" ) moves for a preliminary

injunction enjoining Vinod K. Chand ("Vi nod" ) and Hari Chand ("Hari") or their agents

and employees from entering Bell's premises located at 593 Jerusalem Avenue,

Uniondale.

In Motion Sequence 2, Defendants move for an order dismissing the action and

vacating the temporary restraining order enjoining Vinod, Hari and their agents or

employees from entering Bell's premises.

In Motion Sequence 3, Bell moves for leave to serve an amended complaint.

Motions in the Dissolution Proceeding

In Motion Sequence 1, Vi nod seeks the judicial dissolution of Bell pursuant to

Business Corporation Law ("BCL") 9 11 04(a)(3).

In Motion Sequence 2, Bell seeks a dismissal of the judicial dissolution

proceeding, a judgment declaring that Vinod's shares in Bell do not have voting rights

and/or a stay of the this proceeding pending a determination of Gandhi's motion for

rescission of the Stock Buyback Agreement.


In Motion Sequence 3. Gandhi seeks leave to intervene in the Dissolution

Proceeding, and for consolidation or coordination of the Dissolution Proceeding with the

Bell Action and the Gandhi Action.

Gandhi Action

In Motion Sequence 4 , Gandhi seeks summary judgment on his fourth cause of

action seeking rescission of a stock buyback agreement and promissory note.

In Motion Sequence 5, Defendants seek leave to amend their answer to withdraw

their fifth counterclaim seeking rescission.

In Motion Sequence 6, Vi nod seeks summary judgment dismissing the action

against him as a guarantor of a promissory note made by Bell , which was payable to

Gandhi.

BACKGROUND

All of these actions arise from the parties ' relationship to and with Bell.

Bell Trading Action

Bell alleges that Vinod and Hari misappropriated and misused Bell money and

property. Bell further alleges that Vinod failed to account for significant amounts of cash

receipts when he was involved in Bell's day-to-day operations. The complaint alleges

causes of action sounding in breach of fiduciary duty, conversion, fraud and for an

accounting.


Bell originally had two shareholders , Filler and Gandhi. In January 2002 , Vi nod

became a shareholder in Bell. At that point , Vinod , Filler and Gandhi each owned one-

third (1/3) of the shares of Bell.

In 2004 , disputes arose between the Vinod, Filler and Gandhi. These disputes

were resolved when Gandhi sold his shares back to Bell. This transaction is the subject

of the Gandhi action. Since 2004, Vinod and Filler have each owned 50% of the shares

of Bell.

In January 2005, disputes arose between Vinod and Filer. As a result, the

parties entered into negotiations whereby one party would purchase the other party

interest in Bell.

Before Vinod and Filer could enter into an agreement, Gandhi filed an

involuntary bankruptcy proceeding against Bell.

Filler alleges that, when Bell was placed into bankruptcy, Vi nod walked away

from the business. After Bell was placed in bankruptcy, Filler claims that he ran Bell'

business. Filer further asserts that as a result of his efforts, the bankruptcy petition was

dismissed. Thereafter , Filler has continued to operate Bell's business.

This action was commenced almost immediately after the dismissal of the

bankruptcy proceeding.

GANDHI v. FILLER, et aI.,Index No. 16345-BELL TRADING, INC. v. CHANDIndex No. 8072-CHAND v. BELL TRADING, INC.Index No. 8376-

Filler alleges that, between August 2001 and January 2005, Vi nod was primarily

responsible for the day-to-day operations of Bell. Filler alleges that, when he took over

the day-to-day operations of Bell in January 2005, he discovered that Vinod had been

looting Bell. Bell is a cash business. Filler belIeves, and alleges, that Vinod was not

reporting or accounting for all of Bell's cash receipts.

Vi nod hired his father, Hari , as an employee. Filler alleges that Vi nod used Bell'

assets to purchase a computer for a business alleged to be controlled by Hari and used

Bell' s revenue to pay for goods purchased for a business allegedly owned or controlled

by Hari. Filler also claims that Vinod purchased computers for his own use and paid for

them with Bell assets.

The day Bell came out of bankruptcy, Vinod showed up at Bell's premises before

Filer arrived and began to harass Bell's employees. Thus, Filler seeks to have Vinod

and Hari barred from entering Bell's premises.

Vinod denies these allegations. He asserts that in January 2005, Filler and he

were working out the details of a buy-out agreement. The deal would have closed in

late January 2005 had Gandhi not filed the involuntary petition in bankruptcy.

Vinod claims that he did not "walk away" from Bell. He asserts that, when

Gandhi filed the bankruptcy proceeding, Filler advised him that he would work out the

bankruptcy in short order. Based upon Filer s representations that he would resolve the


bankruptcy, Vinod consented to Filler running Bells day-to-day operations during the

pendency of the bankruptcy. Vinod asserts that he did not consent to Filler permanently

running Bell to his exclusion.

Vinod asserts that, as vice-president, shareholder and director of Bell , he is

entitled and required to be involved in its day-to-day operations.

By letter dated December 5, 2001 , Vinod acknowledged that he was being

issued non-voting shares. Despite the December 5, 2001 letter, Vinod asserts he is the

owner of full voting shares of Bell. In support of this contention, Vi nod references Bell'

certificate of incorporation which provides for only one class of shares and Bell's by-

laws which provide for "one share, one vote." The August 22, 2003 shareholder

agreement, according to Vinod, provides for issuance of shares in which the only

restriction relates to their transfer. Vinod also points to special meetings of Bell'

shareholders held on February 8, 2004 in which he voted as a shareholder.

Dissolution Proceeding

In this proceeding, Vi nod claims that he owns fifty (50%) percent of the shares of

Bell. The remaining shares are owned by Filer. Vinod and Filler are Bell's officers and

directors Vinod asserts that his relationship with Filler has deteriorated to the extent

that it has created a deadlock in the operation of the business. Vi nod alleges that Filler

has locked him out of the business, denied him access to corporate records and has


changed the corporate banking resolutions so that Vinod is no longer an authorized

signatory to the corporate bank account.

Gandhi Action

In April 2004, Gandhi sold all of his stock in Bell back to the corporation. The

purchase price for the stock was $360,000 which was paid by Bell executing a

promissory note in favor of Gandhi ("Stock Purchase Agreement"). One-half of Bell'

obligation on the note was guaranteed by Filler. The other half of Bell' s obligations was

guaranteed by Vinod.

At the same time, Gandhi, Vinod and Filler agreed that Bell would borrow

$600,000 from AMK Enterprises, Inc. ("AMK" 1 Gandhi , Vinod and Filler each agreed

that they would loan $200,000 each to AMK; $100,000 each in April 2004 and $100,000

each in June 2004. As part of this agreement, Bell was to execute a Security and

Pledge Agreement pursuant to which Bell would grant AMK a security interest in Bells

profits, proceeds , cash flow and receivables. Gandhi alleges Bell has failed and refused

to execute a security agreement.

As their fifth affirmative defense, Bell, Vinod and Filer seek to rescind the Stock

Purchase Agreement. They allege Bell's agreement to purchase the stock from Gandhi

The relationship of the parties to AMK was not made clear in any of the paperssubmitted on these motions and does not appear to be relevant.


was based upon Gandhi's representations that Bell did not owe any state and federal

taxes and had a substantial operating profit for the three months prior to the transaction.

In reality, Bell owed substantial amounts of state and federal taxes and was operating at

a loss. Bell alleges that Gandhi's fraudulent representations regarding Bell's tax liability

and profitability entitle it to rescind the Stock Transfer Agreement.

Gandhi alleges that Bell defaulted in its obligations on the promissory note.

Gandhi commenced his action seeking to recover the amount due on the Bell note and

from Vinod and Filer of their guarantees. He also alleges a cause of action seeking to

rescind the AMK loan agreements. However, he did not allege a cause of action

seeking to rescind the Stock Purchase Agreement.

DISCUSSION

Bell Action Motions

Where a corporation has only two shareholders each of whom own fifty (50%)

percent of the outstanding shares, the corporation may not maintain an action brought

by one shareholder against the other. Abelow v. Grossman , 91 AD.2d 553 (1 Dept.

1982). See also, L.W. Kent and Co.. Inc. v. Wolf, 143 A. 2d 813 (2 Dept. 1988).

The appropriate remedy is a shareholder derivative action. Id.

Bell essentially concedes that the action was improperly commenced as an

action by the corporation against Vinod and cross-moves for leave to amend the caption


and the complaint to reflect the claims are being brought as a shareholder derivative

cause of action.

The caption of an action may be amended or corrected to reflect the proper

name of a party. See Stilman v. Kalikow

, -

AD.3d- , 818 N.Y. 2d 520 (2 Dept.

2006): and Cutting Edge. Inc. v. Santora , 4 AD.3d 867 (4 Dept. 2004). However, the

proposed amendment is more than a simple correction to the name of the party plaintiff

or defendant.

Plaintiff is seeking to add Filler individually and as a shareholder and name Bell

as a defendant. Bell must be added as a party since the corporation on whose behalf

the action a shareholder derivative suit is brought must be named as a defendant in the

action. Meier v. Holmes , 282 App. Div , 130 (1 Dept. 1953); and15 NY Jur2d Business

Relationships 91174.

When additional parties need to be added, the proper procedure is to seek leave

to serve a supplemental summons and amended complaint. See, Catanese v.

Lipschitz, 44 AD.2d 579 (2 Dept. 1974). See also CPLR 305, 1003 and 3025(b).

Plaintiff did not seek this relief.

A party should be granted leave to serve an amended pleading in the absence of

surprise or prejudice resulting from delay. Fahey v. County of Ontario , 44 N. 2d 934

(1978); and Northpay Construction Co.. Inc. v. Bauco Construction Corp. , 275 A.


310 (2 Dept. 2000); and CPLR 3025(b). The party opposing the amendment must

demonstrate that there will be actual prejudice in permitting the service of an amended

pleading. Edenwald Contracting Co.. Inc. v. City of New York, 60 N. 2d 957 (1983);

Holchendler v. We Transport. Inc. , 292 AD.2d 568 (2 Dept. 2002); and Neal v.

Cohen , 186 AD.2d 639 (2 Dept., 1992).

The determination of whether to deny or permit an amendment to the pleadings

is one addressed to the discretion of the court. Liendo v. Lona Island Jewish Med. Ctr.

273 AD.2d 445, (2 Dept., 2000); and Henderson v. Gulati , 270 Ad.2d 308 (2 Dept.,

2000 )

The party seeking leave to serve an amended pleading must make an

evidentiary showing establishing merit to the proposed amendment. Joyce v. McKenna

Assoc.. Inc. , 2 A.D.3rd 592 (2 Dept. 2003); and Morgan v. Prosoect Park Assoc.

Holdings. L.P. , 251 AD.2d 306 (2 Dept. 1998). The evidentiary showing establishing

merit must be made by one with actual knowledge of the facts surrounding the

proposed amendment. Id. and Frost v. Monter , 202 A. 2d 632 (2 Dept. 1994).

The court wil not consider the merits of the proposed amendment unless it is

insufficient as a matter of law or totally devoid of merit. Sunrise Plaza Assoc.. L.P. v.

International Summit Equities Corp. , 288 AD.2d 300 (2 Dept. 2001); and Norman v.

Ferrara , 107 AD.2d 739 (2 Dept. 1985). See also, Siegel New York Practice 3


9237.

Bell and Filler s proposed amendment fails to comply with BCL 9 626(c) which

requires that the complaint in a shareholder derivative action allege the efforts the

shareholder has made to compel the board to take action or that making such a request

of the board would be futile. See Bansbach v. Zinn , 1 N. 3d 1 (2003), rearg. den.

3d 593 (2004); and Marx v. Akers , 88 N. 2d 189 (1996). Failure to allege that the

plaintiff has requested the board take action and the board's refusal to act or to allege

specific facts why requesting the board take action would be futile renders the complaint

defective as a matter of law and requires dismissal. Teachers ' Retirement System of

Louisiana v. Welch , 244 A. 2d 231 Dept. 1997); and Bildstein v. Atwater , 222

AD.2d 545 (2 Dept. 1995).

The proposed amended complaint does not set forth the allegations required by

Business Corporation Law 9626(c). Thus, it is without merit.

The original complaint seeks relief against Vi nod on behalf of the wrong party

and Plaintiff has not sought the proper relief. Since the proposed amended complaint

is defective as a matter of law, the motion to dismiss should be granted. However, that

would almost certainly not dispose of this dispute. Plaintiff could and almost certainly

would recommence this action in the proper form. The Court would then most likely

faced with a motion to consolidate the new action with this action. Therefore, Plaintiff


shall be granted leave to renew the motion for leave to amend seeking proper relief

upon proper papers within thirty (30) days of the date of this order. In the event Plaintiff

fails to make the motion to renew within that time period, then Defendant's motion to

dismiss is the action as to Vinod shall be granted.

However, the same rationale does not apply to Hari. Hari is not, and never was

a shareholder in Bell. At most, he was an employee. As an employee , he owed Bell a

duty of good faith and loyalty. See, Western Electric Co. V. Brenner, 41 N. 2d 291

(1977); Wallack Freight Lines. Inc. V. Next Day Express. Inc. , 273 AD.2d 462 (2 Dept.

2000); and Maritime Fish Products Inc. v. World-Wide Fish Products. Inc. , 100 A.

81 (1 st Dept. 1981). Any misuse or misappropriation of Bell funds or property would

constitute a breach of this duty.

Bell can sue a former employee in its own name to recover damages sustained

as a result of a former employee s breach of the duty of good faith and loyalty. Id.

The president of a corporation has the apparent authority to make decisions that

are within the usual scope of the corporation s business. See, Odell V. 704 Broadway

Condominium 284 AD.2d 52 (1 st Dept. 2001); and Spitzer v. Born. Inc. , 194 App. Div.

739 (1 Dept. 1921). Filler , as Bell's president , had authority to commence the action

against Hari to recover monies and/or property diverted from Bell to Hari. Thus, as to

Hari, the complaint is proper and will not be dismissed.


Motion Sequence 1 in this action seeks a preliminary injunction barring Vinod and

Hari , or their agents and/or employees from entering Bell' s business premises.

The party seeking a preliminary injunction must establish (1) a likelihood of

success on the merits; (2) that plaintiff will suffer irreparable harm in the absence of an

injunction; and (3) a balancing of the equities favors the granting of an injunction. Aetna

Ins. Co. v. Capasso , 75 N.Y. 2d 860 (1990); Doe v. Axelrod , 73 N. 2d 748 (1988); and

Olabi v. Mayfield , 8 AD.3d 459 (2 Dept. 2004).

The party seeking the preliminary injunction has the burden of establishing a

prima facie entitlement to such relief. Gagnon Bus Co.. Inc. v. Vallo Transportation

Ltd. , 13 AD.3d 334 (2 Dept. 2004); and William M. Blake Agency. Inc. v. Leon , 283

AD.2d 423 (2 Dept. 2001). A preliminary injunction wil be granted only if there is a

clear right to the relief upon the law and the undisputed facts. JDOC Construction LLC

v. Balabanow, 306 AD.2d 318 (2 Dept. 2003); Peterson v. Corbin , 275 AD.2d 35 (2

Dept. 2000); Carman V. Congregation De Mita of New York. Inc. , 269 A. 2d 416 (2

Dept. 2000); and Anastasi V. MaioDon Realty Corp. , 181 AD.2d 706 (2 Dept. 1992).

The party seeking the preliminary injunction must present evidence establishing

the likelihood of success on the merits. Moy v. Umeki , 10 AD.3d 604 (2 Dept. 2004);

and Terrell v. Terrell , 270 AD.2d 301 (1 Dept. 2001).


In order to establish irreparable harm, plaintiff must establish that it will sustain

an injury for which it cannot be fully compensated by money damages. 1659 Ralph

Avenue Laundromat Corp. v. Ben David Enterprises. LLC , 307 AD.2d 288 (2 Dept.

2003): and Klein. Wagner & Morris v. Lawrence A. Klein. P. , 186 AD.2d 631 (2

Dept. 1992). Bell seeks to recover money and property allegedly improperly taken from

it by Vinod and/or Hari. Bell does not seek any permanent injunctive relief.

Filler is presently conducting the day-to-day operations of Bell. Therefore, he is

in a position to prevent to misuse and/or misappropriation of Bell assets. Since Bell has

not established it will sustain irreparable harm if Vi nod and Hari are barred from the

corporate offices, the request for a preliminary injunction barring them from entering the

corporate premises must be denied without prejudice. However, should they act in any

manner which is inimical to Bells proper functioning, Bell shall have leave to renew this

motion.

Gandhi Action

The motions in this action must be decided before the Court addresses the

dissolution proceeding. If Gandhi is successful on the rescission claim, then he will be

reinstated to his status as a shareholder. If Gandhi is reinstated as a shareholder , then

Vinod will own less than fifty (50%) percent of the shares of Bell. If Vinod owns less

than fifty (50%) percent of the shares of Bell entitled to vote for the election of directors,

GANDHI v. FILLER , et aI.Index No. 16345-BELL TRADING, INC. v. CHANDIndex No. 8072-CHAND v. BELL TRADING , INC.Index No. 8376-

he may not maintain an action to dissolve the corporation pursuant to BCL 9 1104.

Gandhi commenced this action seeking to recover the amount due him from Bell

on promissory notes made in conjunction with the Stock Purchase Agreement as well

as Filler and Vinod's personal guarantee of the payment due on that note.

As a fifth counterclaim, Bell seeks to rescind the Stock Purchase Agreement as

having been induced by fraud. This counterclaim is premised upon allegations that

Gandhi misrepresented material facts regarding Bell's state and federal tax liability and

Bell' s profitabilty.

Gandhi asserts he is ready and willng to cancel the Stock Sales Agreement and

return to Bell the money paid to him to date on account of that agreement in exchange

for his stock.

Gandhi' s argument has two essential flaws. Gandhi has an adequate remedy at

law, and Gandhi has failed to establish a prima facie entitlement to judgment as a

matter of law.

Rescission is an equitable remedy. Symphony Space. Inc. v. Pergola Properties.

Inc. , 88 N. 2d 466 (1996); and Babylon Assocs. v. County of Suffolk, 101 AD.2d 207

Dept. 1984). Equity will not entertain jurisdiction where the plaintiff has an

adequate remedy at law. Boyle v. Kelley, 42 N. 2d 88 (1977).


In this case, Gandhi commenced actions to recover the amount due on the

notes and the guarantees. These actions for money damages provide Gandhi with an

adequate remedy at law. See, Fisher v. Museum of Cartoon Art. Inc. , 303 AD.2d 548

Dept. 2003).

Additionally, Gandhi has failed to make a prima facie showing to entitlement to

judgment.

The party seeking summary judgment must make a prima facie showing of

entitlement to judgment as a matter of law. Winegrad v. New York University Medical

Center 64 N. 2d 851 (1985); and Zuckerman v. City of New York, 49 N. 2d 557

(1980). The burden to establish the existence of triable issues of fact does not shift to

the party opposing the motion unless the movant establishes a prima facie entitlement

to judgment as a matter of law. Winegrad v. New York University Medical Center

supra; and Widmaier v. Master Products. Mfg. , 9 AD. 3d 362 (2 Dept., 2004); and Ron

v. New York City Housing Auth. , 262 AD.2d 76 (1 Dept., 1999).

Rescission is permitted for failure of consideration , fraud in the making of the

contract, inability to perform after the contract is made, repudiation of the contract or for

a breach that substantially defeats the purpose of the contract. Callanan v. Keesevile.

Ausable Chasm and Lake Champlain Railroad Co. , 199 N.Y. 268 (1910). Recision may

be obtained for breaches that are wilful and material, or, if not wilful, for breaches that


are so substantial and fundamental as to defeat the purpose for which the parties

entered into the contract. Id; and RR Chester. LLC v. Arlington Building Corp. , 22

AD.3d 652 (2 Dept. 2005).

Gandhi is seeking " reverse summary judgment." See, Siegel, New York Practice

9282. To obtain reverse summary judgment, the party seeking the relief must

withdraw its answer or admit facts sufficient to establish entitlement to judgment as a

matter of law. See, Rauch v. Rauch , 91 AD.2d 407 (2 Dept. 1983). See also, Hinden

v. Hinden , 119 A. 2d 547 (2 Dept. 1986); and Siegel New York Practice 4 9282.

Gandhi has not withdrawn his answer nor has he admitted to the facts which give rise to

the rescission counterclaim.

Gandhi cannot rescind the Stock Purchase Agreement by simply returning the

money he received on account of the stock purchase agreement. Defendants

rescission counterclaim is premised upon allegations that Gandhi fraudulently

misrepresented to them that Bell did not owe federal or state taxes when Bell actually

had substantial federal and state tax liability and by providing Filer and Vinod with a

profit and loss statement showing Bell had a substantial three month operating profit

when Bell was actually operating at a loss. Gandhi does not admit any of these facts.

Indeed, in both his reply to the counterclaims and the affidavit submitted in support of

his motion for summary judgment, Gandhi specifically denies making any fraudulent


representation to the Filler or Vinod. As such, Gandhi has failed to establish a prima

facie entitlement to judgment as a matter of law.

Filler seeks leave to serve an amended answer withdrawing his fifth counterclaim

which seeks rescission of the Stock Purchase Agreement.

While leave to serve amended pleadings should be liberally granted (CPLR

3025(b)), leave to serve an amended answer is not the proper procedure to use to

withdraw or discontinue a cause of action. Rotwein v. Sunharbor Manor Residential

Health Care Facility , 181 Misc.2d 847 (Sup.Ct., Nassau Co. 1999). The proper

procedure is to seek leave to discontinue the action. Id. and CPLR 3217(b).

Although Filler did not request this relief, the Court will treat Filer s cross-motion

for leave to serve an amended answer withdrawing its counterclaim for rescission as a

motion to voluntarily discontinue this cause of action. See, CPLR 20001 which permits

the court to correct or disregard a mistake if a substantial right of a party is not

prejudiced.

An application to voluntarily discontinue an action is one addressed to the sound

discretion of the court. Tucker v. Tucker, 55 N. 2d 378 (1982); and Mathias v. Daily

News. L.P. , 301 AD.2d 503 (2 Dept. 2003). However, a party should not be

compelled to litigate a claim it does not want to pursue. Tucker v. Tucker supra;


Rotwein v. Sunharbor Manor Residential Health Care Facility supra.

In the absence of prejudice or other special circumstances , an application to

voluntarily discontinue a cause of action should be granted. 25 Jay Street Tenants

Assoc. v. 25 Jay Street. LLC , 290 A.D.2d 503 (2 Dept. 2002); and Great Western

Bank v. Terio , 200 AD.2d 608 (2 Dept. 1994).

In this case, Gandhi has failed to establish any prejudice or special

circumstances. Gandhi commenced the action. Yet, he did not assert a cause of

action for rescission. He has not moved to amend his complaint to assert such a

cause of action. Although he moved for reverse summary judgment on Defendants

counterclaim for rescission, he did not admit any of the facts that would give the

defendants the right to rescission. In fact, Gandhi specifically denies the facts

underlying that cause of action.

Vinod, who also has an interest in the action , does not oppose the withdrawal of

that counterclaim.

Therefore, defendants should be permitted to voluntarily discontinue their fifth

counterclaim for rescission.

Vinod moves to dismiss Gandhi's cause of action on Vi nod's guarantee of Bell'

obligations on the promissory note. This relief is premised on the Court granting

Gandhi' s motion for reverse summary judgment on the rescission cause of action.

GANDHI v. FILLER, et aI.,Index No. 16345-BELL TRADING, INC. v. CHANDIndex No. 8072-CHAND v. BELL TRADING, INC.

Index No. 8376-

Vinod argues that if the Stock Purchase Agreement is rescinded, then the promissory

note and the guarantees are cancelled. However, since the Court is denying Gandhi'

motion for summary judgment on Defendants' rescission counterclaim, this motion is

rendered meritless and must be denied.

Dissolution Proceedings

Vinod seeks dissolution pursuant to BCL 91104(a)(3) asserting that internal

dissension makes it beneficial to the shareholders to dissolve the corporation.

Filer cross-moves to dismiss the petition on the ground that Vinod lacks standing

to bring the proceeding since he owns non-voting shares.

Gandhi cross-moves to intervene in this action and to consolidate these actions

or for joint discovery in these action.

Business Corporation Law 91104(a)(3) permits the holder of one-half of all the

outstanding shares entitled to be voted in the election of directors to petition for

dissolution of the corporation when there is internal dissension and two or more factions

of shareholders are so divided that dissolution would be beneficial to the shareholders.

Filler asserts Vinod lacks standing to bring this action because he owns non-

voting shares. By letter dated December 5, 2001, addressed to Bell's accountant

executed by Vinod, Gandhi and Filer, Vinod acknowledges that his shares are non-

voting.


Despite this letter , Vi nod asserts he has been permitted to participate in

corporate management. It is clear that , at some point prior to 2005, Vinod had

significant involvement in the day-to-day management of Bell's affairs.

Business Corporation Law 9501 (a) permits a corporation to issue different

classes of stock with different rights. Business Corporation Law 9501 (a) requires the

rights of each class of stock including the voting rights of that class of stock to be stated

in the corporation s certificate of incorporation. See, 14 NY Jur2d Business

Relationships 9244

All shares of the same class must be equal to all other shares of that class. BCL

9501 (c). However, a shareholder may waive a statutory right provided that the waiver

of that right is not in violation of public policy, is made with knowledge of the right and is

made with the intention to waive it. Q.errv Green Property Corp. v. Wolf, 281 A.

367 (1 sl Dept. 2001).

Vi nod's waiver of his voting rights is not against public policy. Business

Corporation Law 9501 (a) requires at least one class of shares have full dividend and

voting rights. Filer owns shares which have full dividend and voting rights.

Paragraph 12 of the August 22, 2003 shareholder agreement does not indicate

whether Vinod's shares are voting or non-voting.


The letter by which Vi nod waives his voting rights and upon which the motion to

dismiss is premised is dated December 5, 2001. The stock certificate was not issued to

Vinod until January 2, 2002. Vinod asserts he did not become a shareholder until

January 2, 2002. This is confirmed by the complaint in the Bell Action in which Bell and

Filer allege Vinod became a shareholder on January 2 , 2002. The Court thus

questions how Vinod could waive the ability to vote on stock he did not yet own.

Vinod asserts he voted his shares on at least one occasion. Bell held a

shareholders meeting on February 8, 2004 which was attended by Filler, Gandhi and

Vinod. The minutes of that meeting reflect that 100% shareholders voted on several

items on the agenda. The minutes of the shareholders meeting do not indicate that

Vinod was not permitted to vote or that Filer of Gandhi challenged his right to vote.

The certificate issued to Vinod does not reflect that his shares do not have voting

rights.

Bell asserts Vi nod acquired non-voting shares to avoid having to personally

guarantee Bells obligations on its cigarette tax indemnity agreement. However , Vinod

executed the 2004 indemnity agreement.

This is a motion to dismiss made pursuant to CPLR 3211 (a)(1). The

documentary evidence upon which Bell relies is the December 5, 2001 letter. The letter

has been contradicted. A cause of action wil be dismissed when the documentary

GANDHI v. FILLER, et aI.,Index No. 16345-BELL TRADING, INC. v. CHANDIndex No. 8072-CHAND v. BELL TRADING, INC.

Index No. 8376-

evidence submitted in support of the motion conclusively resolves all factual issues and

establishes a defense as a matter of law. Montes CorP. v. Charles Friehofer Baking

Co.. Inc. , 17 A. 3d 330 (2 Dept. 2005); 730 J & J LLC v. Fillmore Agency. Inc., 303

2d 486 (2 Dept. 2003); and Berger v. Temple Beth-el of Great Neck , 303 AD.

346 (2 Dept. 2003).

The letter does not establish the defense as a matter of law. The assertion in the

letter that Vinod owned non-voting shares has been refuted. Thus, the motion must be

denied. See, Trade Source. Inc. v. Westchester Wood Works. Inc. 290 AD.2d 437 (2

Dept. 2002).

The petition on the question of Bell' s dissolution should be held in abeyance

pending the determination of whether Vinod owns voting shares. If Vinod's shares are

non-voting, he lacks statutory authority to commence this dissolution proceeding.

Vinod' s shares are voting shares, he has standing to prosecute the proceeding.

Vinod seeks the appointment of a receiver for Bell. This application is likewise

held in abeyance pending the determination of whether Vi nod has standing to bring the

proceeding.

Gandhi moves for leave to intervene in the Dissolution Proceeding. Gandhi is a

creditor of Bell. Creditors of parties to an action may not intervene as of right. See,


National Union Fire Ins. Co. of Pittsburgh. Pa. v. Ashford Hotels. Inc., 235 AD.2d 327

Dept. 1997).

CPLR 1013 permits a party to intervene in the discretion of the court if the

proposed intervenor s claim or defense and the main action have common questions or

law or fact. Intervention should be permitted when the intervenor has a real and

substantial interest in the outcome of the action. Reliance Ins. Co of New York

Information Disolay Technology. Inc. , 2 A. 3d 701 (2 Dept. 2003); and Siegel v.

Tenenbaum , 297 A. 2d 33 (2 Dept. 2002).

Gandhi does not have a real and substantial interest in the outcome of the

Dissolution Proceeding. He did not commence an action against Bell seeking to rescind

the Stock Purchase Agreement and regain his status as a shareholder in Bell.

He placed Bell involuntarily into bankruptcy as a creditor. His only real interest , like that

of all of Bell's creditors, is to be paid the debt owed to him. Therefore, he must be

denied leave to intervene in the Dissolution Proceeding.

Gandhi seeks a preliminary injunction enjoining Bell and its officers and directors

from transacting any unauthorized business and from exercising any corporate powers

and receiving other property and from paying out or otherwise delivering Bell property

without permission of the Court. Gandhi's request for this relief is premised upon his


being granted leave to intervene in the Dissolution Proceeding. He has been denied

leave to intervene in the Dissolution Proceeding. Therefore , his request for court

oversight of Bell's business must also be denied.

Gandhi also seeks a joint trial and/or joint discovery of these actions. CPLR

602(a) permits the court to direct consolidation or a joint trial of action involving common

questions of law or fact. The questions of law and fact in the Bell Action and the

Dissolution Proceeding overlap somewhat. Filer s justification for excluding Vinod from

the day-to-day operations of Bell relate to Vinod's alleged misuse and misappropriation

of Bell's assets and income. Vinod denies these allegations and seeks to dissolve Bell

because he has been excluded from its operation.

Gandhi is not a party to and has no direct interest in either of those actions. His

claims, and Bell's defenses to those claims, relate to a specific transaction that took

place well before the issues which divide Filer and Vinod arose.

CPLR 31 04(a) grants the court authority to supervise discovery of cases before

it. In this case, joint discovery is appropriate. Joint discovery wil streamline and speed

discovery. It will also avoid repetitive and unnecessary discovery demands and court

appearances. It will also avoid the need for having to treat Gandhi as a non-party in

connection with discovery in the Bell Action and Dissolution Proceedings.

Accordingly it is,


ORDERED, that Bells motion for a preliminary injunction enjoining Vi nod K.

Chand and Hari Chand from entering Bell's place of business is denied with leave to

renew consistent herewith; and it is further

ORDERED , that Bell's motion for leave to serve an amended complaint is

denied with leave to renew upon proper papers within thirty days of the date of this

order; and it is further

ORDERED, that Defendant's motion in the Bell Action to dismiss the action is

granted to the extent of dismissing the action against Vinod K. Chand if Plaintiff fails to

move to renew within thirty days of the date hereof; and it is further

ORDERED, that the application for the judicial dissolution of Bell and

respondent's motion to dismiss this proceedings are held in abeyance pending the

determination of whether the shares owned by Vinod K. Chand are voting or non-voting

shares; and it is further,

ORDERED, that Gandhi's motion for leave to intervene in the Dissolution

Proceeding is denied; and it is further

ORDERED , that Gandhi's motion for consolidation or joint trial of these actions or

for coordinated discovery on these actions is granted to the extent of directing joint

discovery on these actions and is, in all other respects, denied; and it is further,


ORDERED, that Gandhi's motion for summary judgment on Defendant's fifth

counterclaim in the Gandhi Action is denied: and it is further,

ORDERED, that Defendant's motion for leave withdrawing their fifth counterclaim

in the Gandhi Action is granted; and it is further

ORDERED , that the motion of Vinod K. Chand in the Gandhi Action for summary

judgment dismissing the action against him is denied; and it is further

ORDERED, that counsel for the parties are directed to appear for a preliminary

conference on these actions on October 25, 2006 at 9:30 a.

Dated: Mineola, NYSeptember 27, 2006

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