memorandu m i,- ci.‘c.. .,?&ti.,,3jdecisions.courts.state.ny.us/10jd/nassau/decisions/...narotzky...
TRANSCRIPT
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21106/1994
Action No. 2
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PHILIP NAROTZKY, FANNY NAROTZKY,ALFRED NAROTZKY and MORRIS HOROWITZ,
Defendants.
Suffolk County Clerk’sINDEX NO.
- against
PLAYBALL AT HAUPPAUGE, INC. andBERNARD GURTMAN,
Plaintiffs,
000894/2000
Action No. 1
TRIAL/IAS PART 20
Nassau County Clerk ’sINDEX NO.:
PLAYBALL AT HAUPPAUGE, INC.,
Additional Defendant on Counterclaim.
FANBE CORP.,
Defendants,
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FANNY NAROTZKY, BALLPARK ASSOCIATES,L.P. and
- against
-._
PRESENT:HON. IRA B. WARSHAWSKY,
Justice.
BERNARD GURTMAN,
Plaintiff,
yjyQI-: - ,:;;-,\I_
COUNTY OF NASSAU‘. y-., ci.‘C.._.,?&ti.,,3j
- STATE OF NEW YORK
/
SUPREME COURT
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SCANMEMORANDU M
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$1,584,000.00. A portion of the
proceeds of that sale has been distributed equally to Narotzky and Gurtman, and the
remainder is held in escrow by Narotzky ’s counsel, Robinson Brog, subject to the
determination of Action No. 2.
Because Ballpark has sold its real property, is no longer operating, and its sole
asset is a cash deposit in the Robinson Brog escrow account, all that needs to be
determined in Action No. 1 is the relative entitlement of Narotzky and Gurtrnan to the
Ballpark cash account.
Action No. 2 is an action for damages by Narotzky against Gurtman based on
Gurtman’s breach of fiduciary duty. Action No. 2 began as an action by Gurtman against
pendency of Action No. 1, Ballpark
sold its real estate in an arms-length transaction for
50150 partners in Ballpark.
When Action No. 1 was commenced, Ballpark owned real estate in Hauppauge,
New York, improved by a large building that formerly housed indoor sports facilities,
most recently an indoor softball facility. During the
Fanbe. Thus, Narotzky and
Gurtman are effectively
Narotzlcy and Gurtrnan are the sole and equal shareholders of
Fanbe Corp. is a 2% partner of Ballpark.
(‘Narotzky”) and plaintiff Bernard Gurtrnan
(“Gurtman”) are each 49% partners of Ballpark.
Fanbe Corp. The individual parties to these
actions, defendant Fanny Narotzky
Playball at Hauppauge.
THE PARTIES AND THE PROCEDURAL HISTORY
The above captioned Action No. 1 is an action to dissolve a real estate partnership
known as Ballpark Associates, L.P. (hereafter “Ballpark”), and further to dissolve the
corporate general partner of Ballpark,
TRIAJL
This matter proceeded to trial at the direction of the Appellate Division to
determine the damages due Fanny Narotzky (from Action No. 2) considering the lease
and partnership agreement she had with Bernard Gurtman and
DECISION AFTER
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Playball under the lease between Ballpark and
Playball, and the lease was to be a conduit of profits to the Ballpark partners, Narotzky
and Gurtman.
Gurtman ’s motion for reargument and leave to appeal to the Court of Appeals was
denied by the Appellate Division. Thus, what remains in Action No. 2 is an assessment
of Narotzky ’s damages occasioned by Gurtman ’s breach of fiduciary duty, not, it must be
pointed out, by the breach of a lease.
Narotzky/Gurtman partnership, Ballpark. Gurtman had personally
guaranteed the rent and tax obligations of
8,2002.)
The Appellate Division directed that Narotzky ’s damages be determined “in
accordance with the lease and partnership agreement ” between Gurtrnan ’s company
Playball, and the
$94,000.00 was inadequate. The court also
reversed the verdict on Gurtman ’s claim against Narotzky, and ordered that Gurtman ’s
claim against Narotzky be dismissed, and upheld the dismissal of Gurtman ’s claim
against Philip Narotzky. (See the Appellate Division decision of July
Playball was the sole tenant
of Ballpark under a written lease and operated an indoor softball facility at the Ballpark
premises. At the time of trial and for some years prior thereto, Gurtman was the sole
shareholder of Playball.
A jury trial in Suffolk County in December 1999 resulted in dismissal of
Gurtman ’s claim against Philip Narotzky, and verdicts in favor of Fanny Narotzky on her
claim against Gurtman and in favor of Gurtman on his claim against Fanny Narotzky.
Narotzky appealed the verdict and Gurtman cross-appealed.
On appeal, the Appellate Division, Second Department, upheld the finding of
liability on Narotzky ’s claim against Gurtman and remanded for a new trial on damages
indicating that the jury damage award of
Playball at Hauppauge, Inc. (hereafter “Playball ”).
Narotzky, Narotzky ’s husband Al Narotzky, and Narotzky ’s son Philip Narotzky for
damages for breach of fiduciary duty, in which Narotzky counterclaimed against Gurtman
for breach of fiduciary duty. Plaintiffs in Action No. 2 were Gurtman and an entity
known as
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Playball was granted two 5-year renewal options. Upon
exercise of a renewal option, there was an additional 10% increase in rent, plus the 5%
Playball had four equal shareholders, being Narotzky, Gurtman, Philip Narotzky and
Morris Horowitz. Narotzky and Gurtman were “Investing Shareholders ”, while Philip
Narotzky and Morris Horowitz were “Managing Shareholders ”, employed by and
responsible for the day-to-day operations of Playball.
After Ballpark acquired the Hauppauge property, it entered into a net lease with
Playball. The lease ran for six years and provided for annual rent payment that increased
at the rate of 5% annually.
Playball was formed to
lease the Ballpark property and operate an indoor softball facility. Throughout most of
1993
77.) For example, if Ballpark
had $10.00 to distribute, $5.00 would go to each of Narotzky and Gurtman, and then
$4.00 of Narotzky ’s distribution would go to Gurtman to be credited against the loan.
At approximately the same time that Ballpark was formed,
$100,000.00 loan, until the loan was repaid in
full. (See Ballpark Partnership Agreement, Exhibit “D” at
$100,000.00. They
structured the distributions out of Ballpark so that 80% of Narotzky ’s distributions would
be paid to Gurtman in repayment of the
$25,000.00. Gurtman and Narotzky agreed that, in order to equalize their capital
contributions, they would deem that Gurtman had loaned Narotzky
net-
lease basis, property in Hauppauge, New York. Throughout its history, Narotzky and
Gurtman have been the sole principals of Ballpark, each having a 50% interest.
Gurtman contributed $225,000 to Ballpark ’s capital, and Narotzky contributed
PLAYBALL
Ballpark was formed in 1993 as a partnership to acquire and rent out, on a
Because Action No. 1 and Action No. 2 involve common parties and common
issues of law and fact, Supreme Court, Nassau County (O ’Connell, J.), ordered a joint
trial of Action No. 1 and Action No. 2.
BRIEF HISTORY OF BALLPARK AND
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Playball leased from Ballpark through May, 2000. Accordingly, Gurtman ’s guaranty
of Playball ’s rent and tax obligations extended through August, 2000, pursuant to the
Playball by reducing the loan amount.
Following the Buyout Agreement, Gurtman operated Playball, occupying the space
that
$24,000.00 for her share of
12.) Narotzky “virtually ” was
paid
$76,000.00. (See Buyout Agreement at $100,000.00 to
14.)
Gurtman and Narotzky remained equal partners in Ballpark, but with an
adjustment in the “loan” from Gurtman to Narotzky that reduced the same from
“F”at
Playball was in occupancy under the lease, and for
three months thereafter. (See Buyout Agreement, Exhibit
73.) In
the Buyout Agreement, Gurtman personally guaranteed the payments of rent and real
estate taxes that were Playball ’s obligation under the lease. Gurtman ’s guaranty of rent
and taxes was to extend so long as
“F” at Playball was to remain in full force and effect (Buyout Agreement, Exhibit
Playball and became the 100% owner of
Playball.
The Buyout Agreement specifically provided that the lease between Ballpark and
Playball took place pursuant to a written Buyout Agreement which
was the result of negotiation between the parties. A few months later, Gurtman also
acquired the interest of Morris Horowitz in
Playball commenced operations and opened for business in the fall of 1993. Its
first several months were marked by cash flow problems and dissension among its
shareholders. Ultimately, in January, 1994, Gurtman bought out the interests of Narotzky
and of Philip Narotzky in Playball. Gurtman ’s acquisition of Narotzky ’s and Philip
Narotzky ’s interests in
Playball paid the rent and taxes,
there would be a positive cash flow to Ballpark each month that was to be distributed to
the Ballpark partners, Narotzky and Gurtman.
725.)
Because the lease was a net lease, Ballpark ’s only financial obligation was to pay
its mortgage. Under the structure of the lease, so long as
w14.) The lease also contains a waiver of
right to jury trial. (See Lease at
annual increase. (See Lease, Exhibit “E” at
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‘(use and occupancy ” issue, the other major issue argued at trial was
that of pre-decision/judgment interest pursuant to CPLR
that interest in an action for a breach of fiduciary duty is
discretionary with the court, both in rate and duration.
5001 (a) or (c). Gurtman argues
equitable in nature and thus is
Narotzky argues that, though agreeing the action is equitable in nature (breach of
2000-August 2000).
Besides the
1999-May 2000) and no payment
should be due when the premises were vacant May
Playball ending in mid 1994. Thereafter, Gurtman ceased paying any rent in excess of
Ballpark ’s mortgage obligation, which he proceeded to pay on behalf of Ballpark
throughout the duration of the tenancy.
NAROTZKY ’S THEORY OF DAMAGES
Narotzky argues she is entitled to damages for the amount that she would have
received had Gurtman honored his guaranty and his fiduciary obligation to Narotzky, and
made the full rent payments due to Ballpark under the lease.
Narotzky has argued that her damages in Action No. 2 is a straightforward
calculation, taking into account the amount of rent that Gurtman should have paid through
December 1999 (time of trial) and then until August 2000 when the guaranty expired, the
amount of distributions actually made to her early in the lease, the deemed loan owed by
Narotzky to Gurtman, and reduction in that loan based on the distributions that Gurtrnan
actually made to Narotzky.
Gurtman does not entirely disagree, but argues that any amounts due under the
lease ceased when its term ended in June 1999, and Narotzky has failed to establish “use
and occupancy ” of the property after that date (June
Buyout Agreement. Gurtman also took control of Ballpark, directing Ballpark ’s bank to
send all banking statements to Gurtman ’s home. However, even though Gurtman
personally guaranteed Playball ’s rent and tax obligations under the lease, Gurtman caused
distributions to be made to Narotzky for only the first five months that Gurtman operated
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(1988), including the degree of personal
wrongdoing by Gurtman, what other investment opportunities might have been available
to Narotzky, whether Narotzky delayed in bringing an action (the action was brought by
Gurtman), and other fundamental considerations of fairness.
The New York cases cited by Gurtman are not strictly on point, but do lend
support to his general argument that when a court is considering pre-decision interest in
an equitable action, good faith on the part of both sides should be taken into account.
A jury found that Gurtman breached his fiduciary duty to Fanny Narotzky. How
does that breach translate into damages ? The Appellate Division clearly stated that a re-
trial was on the issue of “damages only ” in accordance with the lease and partnership
& Whinney, 484 U.S. 169
pre-
decision interest. After determining the amount due Narotzky, the court will determine
what interest, if any, is appropriate. The court will consider the guidelines set forth in
Ostemech v Ernst
Oshrin, Supreme Court, Suffolk County, in response to a
motion requesting, among other things, that “Bernard Gurtman [to] continue making
rental payments as per Playball ’s lease and the parties ’ January 29, 1994 Buyout
Agreement until a further Order of the Court ” denied said motion.Thus, Gurtman argues
that even if he is now found to owe said rental amounts as damages for breach of
fiduciary duty, he should not be required to pay interest on an amount that a court of
concurrent jurisdiction found he did not have to pay at that time.
The court will read CPLR 5001(a) literally. There is no issue this is an equitable
action and that section 5001(a) clearly gives the court discretion in an award of
F.2d 77, 87 (2d Cir. 1980). None of these
are on point when carefully read.
As to the non-payment of the rent, Gurtman points out that in 1998 (this case
actually began in 1994) Justice
& Co. Ins., 637 Blyth, Eastman. Dillon
F.2d 474 (2d Cir. 1973);
Rolf v
(Bar&r. S.D.N.Y. 2000); Spector v Mermelstein, 485
fiduciary duty), interest is mandatory when the only relief sought is compensatory in
nature. The cases Narotzky cites supporting his point are all Federal. (In re Kovler, 253
B.R. 592
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74)
1,2000, three months after the tenant
had vacated and including the period that Gurtman ’s personal guaranty (Exhibit G,
$206,373.00. He thus submits proposed values
(Exhibit L) for those periods ending on August 3
$196,546.00 and 2000-2001 would equal
$196,546.00. Each year thereafter the rent
would increase by 5% over the prior year ’s rent.Thus, the rent for 1999-2000 would be
($178,679.00) =
Playball (Gurtman), had the
option to renew for an additional term. The first year of the renewal would be 110% of
the last year of payment
$478,835.32.
Narotzky argues that pursuant to the lease, the tenant,
$323,43 1.68. (Again, this does not include 1993.) The amount due Ballpark as of this
point in time would be
$802,267.00. (This does
not include 1993 because no distributions were anticipated in that year.) During that
same period, the mortgage payments paid by Gurtman on behalf of Ballpark were
finds
from its reading of the above referenced documents that it is to determine what monies
should have been available to Fanny Narotzky if Gurtman had paid the rent to the owners
of Ballpark (of which he was one) after subtracting the payments made by Gurtman on
behalf of Ballpark. The court believes it has no choice in this matter, not being privy to
the manner in which the jury answered the interrogatories submitted to them by the trial
court.
The evidence at trial was directed at Gurtman ’s failure to appoint an accountant, as
well as failing to pay rent to Ballpark. It is not clear specifically what or how damages
would flow from Gurtman ’s acts in breaching his “fiduciary duty ”. However, it is logical
to infer that since Gurtman, as tenant, did not pay himself or Narotzky the rent pursuant to
the lease, but rather paid the obligation the tenant had under the lease as well as the
mortgage and taxes owed by Ballpark (the partnership), the damage to Narotzky would be
her share of the rent that went unpaid.
These amounts are fairly straight forward until the lease term expired on June 29,
1999. As of that date the rent that would have been paid was
agreement. Thus, court is not to retry the issue of a fiduciary breach. The court
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Playball with Ballpark?Yes.It continued in operation without any change because we were inlitigation trying to solve this problem.
From this Narotzky wishes the court to infer a lease renewal.
There are certain things that are very clear to this court about these parties. If there
was a way for one or the other of these neighbors and obviously once friends to get an
edge on the other once the relationship started to break down in 1994, they took it. It is
obvious to the court from the decisions it has read, the frustration of Justice Oshrin in
handling this case, a matter that was actually first filed in 1994.The parties treat the
Playball renew its lease with Ballpark when the six year leaseterm expired?
Q -A.
Did Q -
A.
1,200O. In fact, counsel argues it is the burden of Narotzky
to prove use and occupancy and they have proven nothing. He also points out that the
guaranty guarantees the payment of rent not use and occupancy. Thus, Gurtman owes
nothing to Narotzky after June 30, 1999.
Narotzky counters and points out that Gurtman had taken over control of Ballpark
by this time and he was thus in position to renew the lease (with himself), but chose not to
do so. However, at the first trial in Suffolk County, Gurtman testified that:
Playball was a tenant in default since
approximately the middle of 1994. Thus, he argues, neither the lease nor any of its terms
should be used by the court in determining the use and occupancy value of the premises
from July 1, 1999 to August 3
$34,395.71.
Gurtman ’s counsel argues that it cannot be presumed that the lease was renewed as
of the end of its term in June 1999 in that
1,200O would be
$98,273.45; and the amount from July 1,
2000 to August 3
30,200O would be 1,200O to June
$98,273.45; the amount
from January
Playball had given notice it was vacating the premises.)
The period from July 1, 1999 to December 3 1, 1999 would be
covered. (Gurtman had personally guaranteed Playball ’s obligation on the rent including
a period of three months after
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$151,983.82.
As pointed out earlier, in an order dated November 6, 1998, on a motion filed on
September 26, 1997, the court denied Narotzky ’s application to compel Gurtman to
$41,129.05 equals $193,112.87 less -
$41,129.05
Balance due Narotzky
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$82,258.11
Credit to Gurtrnan
8,343.OOTotal
- $ $10,774.28
Miscellaneous expenses
$63,140.50Insurance
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1,2000, Gurtman expended the following sums on the property:
Mortgage and taxes
$193,112.87 due Narotzky.
After August 3
$79,383.00 equals$272,495.87 less $79,383.00. $76,000.00 equaling -
$3,383.00 and the payback of the loan to Narotzky as part of the initial
investment
$272,495.87.
This amount must then be reduced by distributions made by Gurtman to Narotzky
(stipulated) of
$544,99 1.75. Narotzky ’s 50% share would equal
$66,156.43 equaling$478,835.32 plus
$66,156.43.
The total amount due Ballpark equals
$127,412.48. Thus, the amount owed by Gurtman to Ballpark from July 1, 1999 to
August 3 1, 2000 equals
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$193,568.91.
Said amount shall be reduced by the mortgage paid by Gurtman during that period
1,200O equals
$178,679.00 per fiscal year. Further, for our purposes, the term
“rent ” in the personal guaranty of Gurtman will be equivalent to “use and occupancy ”,
and Gurtman will be responsible for its payment.
Thus, the amount due from July 1, 1999 to August 3
1,200O will be fixed at the amount of rent that was being paid as
of June, 1999, equaling
1, 1999 to August 3
Playball was essentially a
“month to month ” tenant after June, 1999. “Use and occupancy ” of the premises from
July
matter as one in equity when it suits them and as the breach of a lease when that would
favor their respective positions.
The court finds that this lease was never renewed, that
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way.to determine whether the rent was excessive. However,
there is no indication that Gurtman mismanaged the business or did anything that
prevented the business from being a success. It was only his own out of pocket
investments that kept the business going. It is uncontroverted that Narotzky, though
within her legal rights and despite a minimal financial investment, adamantly refused to
re-negotiate a lease that appeared inappropriate in only a short period of time after it had
Playball stayed, the more valuable became the property.
But, of course, you cannot spend or invest the increase in value of property.
Gurtman argues that the rent was far in excess of what should have been set and
the Narotzkys refused to permit a reduction once their son was no longer part of the
business. The court has no
$177,719.10 owed to Narotzky and it is to that amount that interest will be
applied, if it is appropriate to apply interest.
It is clear to the court that Gurtman used large amounts of his own money to keep
his corporation, Playball, alive so that it could pay the real estate taxes it was responsible
for under the lease and pay the mortgage which was the responsibility of Ballpark.This
was not entirely a selfless act. It was clearly to his advantage because he, along with
Fanny Narotzky, was a personal guarantor on the mortgage. This action also inured to the
benefit of Narotzky. The longer
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$355,438.20 (owed to Ballpark), 50% of said
amount
- he is incorrect.
A year earlier, July 1996, Justice Oshrin denied Fanny Narotzky ’s request for a
temporary receiver and/or an independent accountant. Considering that order and the
circumstances of this case brought out on trial, pursuant to the court ’s discretion, CPLR
5001(a), no interest will be ordered from that date forward on monies that accumulated
(were owed) after that date, September 26, 1997.
As to monies that the court finds were owed prior to that date (January 1, 1994 to
September 30, 1997) they would amount to
continue making payments pursuant to the lease and the additional agreement of January
29, 1994. Narotzky ’s counsel argues this was merely the denial of a summary judgment
motion
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1,983.82.
$25,000.00 investment, will impose interest at a rate of
3% per year from October 1, 1997 to the date of this decision compounded annually. Said
amount is to be calculated by the Clerk of the County and added to the amount the court
has decided is owed in damages of $15
$101,719.10. It is upon this amount that the court,
considering the equities involved and the good faith of the parties, the personal
investment of Gurtman in this venture above and beyond the initial investment and the
return Narotzky has made on her
$76,000.00 to determine what monies were due to Narotzky by September
1997, resulting in an amount of
$177,719.10 must be
reduced by
$76,000.00 which we have deducted as a credit to Gurtman
would have been recovered by September 1997. The amount of
1,1994 to
September 27, 1997, the formula that was established for the repayment of Gurtman ’s
loan to Narotzky (to compensate for his larger investment of cash and her comparatively
smaller investment) would have taken effect and 80% of her 50% share would have been
paid to Gurtman. Thus, the
$177,719.10. However, during the period of January
& Y), and inappropriately claimed a larger tax deduction than he was entitled
for Playball ’s losses on his 1994 tax return.
Though defense counsel does not demonstrate in any way that his client Fanny
Narotzky acted in good faith, he points out the obvious, that she was denied the use and
benefit of monies that an award of pre-decision interest was designed to compensate.
As pointed out earlier, as of the end of September 1997, Fanny Narotzky would
have been owed
started.
Though insistent that pre-decision interest is mandatory, Narotzky argues in the
alternative that Gurtman has not acted in good faith. She points out that a jury determined
he breached his fiduciary duty (the same jury also found she did as well), he took over
control of Ballpark, he failed to engage an accountant to operate Ballpark and collect the
rent as required by the Buyout Agreement, he hid the rental shortfall from Narotzky
(Exhibits X
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2,2003
setoffs. There is also insufficient proof to
conclude that any delay in this case initially reaching a trial was due to Gurtman. In fact,
Gurtman as pointed out, initiated the first action in Suffolk County nine years ago. The
inferences drawn from Justice Oshrin ’s decision from July 1996 is that both sides had
been less than cooperative in moving the case forward. The fact that the case did not go
to trial until nearly three years later is some evidence of such a conclusion. The request
for attorney fees is denied.
Dated: June
$9,622.05 for having paid one-half of the transcript and record on
appeal.
ATTORNEY FEES
Initially, there is no legal basis for attorney fees. This is not an action under a
lease. It is an action in equity with the damages being calculated by the rent not
forwarded to Narotzky, less certain substantial
evident&y basis to give Narotzky credit for the credit given to the
buyer of the property at closing for roof replacement or repair. There is no indication that
this was the type of repair envisioned by the lease for which Gurtman would have been
personally responsible.
COSTS
The Appellate Division awarded Narotzky “costs” as a result of the appeal of the
Suffolk jury verdict. This matter is directed to be calculated by the Clerk of the Court,
crediting Gurtman
ROOF CREDIT
There is no