State of New York

Supreme Court, Appellate Division

Third Judicial Department

Decided and Entered: October 30, 2014 517897 

________________________________

GARY T. HARKER, as a Member of

3H Corporate Services, 

LLC,

Appellant,

v MEMORANDUM AND ORDER

JOAN GUYTHER,

Respondent.

________________________________

Calendar Date: September 3, 2014

Before: Peters, P.J., Lahtinen, Garry, Rose and Clark, JJ.

__________

Hinshaw & Culbertson, LLP, New York City (Philip Touitou of

counsel), for appellant.

Bartlett, Pontiff, Stewart & Rhodes, PC, Glens Falls

(Malcolm B. O'Hara of counsel), for respondent.

__________

Garry, J.

Appeal from an order of the Supreme Court (Chauvin, J.),

entered September 23, 2013 in Saratoga County, which denied

plaintiff's motion for summary judgment.

In 2003, plaintiff and defendant entered into an operating

agreement by which they each held a 50% membership interest in 3H

Corporate Services, LLC (hereinafter the company), a Delaware

limited liability company. In 2008, the parties agreed to have

the company begin paying for their health insurance coverage as

an employment benefit. They later disagreed over various

business issues, including a claim made by defendant that, as the

costs of plaintiff's family health insurance coverage were
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greater than her own individual plan, the benefit derived by

plaintiff was inconsistent with his 50% membership interest. In

January 2012, defendant advised plaintiff that she had withdrawn

$3,144 from the company's operating account to reimburse herself

for this allegedly disproportionate distribution of company funds

during the previous six months, and that she would continue to

withdraw funds on a monthly basis for this purpose until

alternate arrangements were made. Plaintiff demanded that

defendant return the funds; when she refused, he sought to

terminate her employment and interest in the business. To this

end, he obtained an appraisal of her ownership interest, and

thereafter commenced this action seeking a declaratory judgment

and other relief, essentially contending that defendant had

engaged in conduct constituting grounds for termination. 

Following joinder of issue, plaintiff moved for summary judgment,

seeking a declaration that defendant's employment had been

properly terminated and directing that her membership interest be

sold to plaintiff for a stated sum, in accord with the terms of

the operating agreement. Supreme Court denied the motion, and

plaintiff appeals.

The parties' disagreement centers upon a provision in their

operating agreement stating that "embezzlement or substantial

misappropriation of the [c]ompany's assets by [a m]ember employee

in excess of $1,000" shall be grounds for terminating the

member's employment. In denying plaintiff's motion, Supreme

Court found that he had not met his prima facie burden to

establish as a matter of law that defendant's conduct constituted

misappropriation within the meaning of this provision. Plaintiff

contends that the court erred in failing to apply the clear and

unambiguous terms of the agreement.1

The operating agreement provides that it is to be governed

and construed under Delaware law. Accordingly, Delaware law

governs the substantive interpretation of the agreement –

including the meaning of the term "misappropriation" – while New

1 The complaint also alleged that defendant's conduct

constituted embezzlement, but plaintiff's arguments upon appeal

are limited to "substantial misappropriation."
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York law applies to procedural issues (see Ground to Air Catering

v Dobbs Intl. Servs., 285 AD2d 931, 932 [2001]; RMS Partners

Tivoli Co. v Uccellini, 249 AD2d 788, 791 [1998]). The operating

agreement includes a detailed section that defines many of the

terms used therein, but provides no definition of the term

"misappropriation." We reject plaintiff's claim that the

disputed provision is defined by the monetary standard of $1,000.

This monetary baseline may be fairly read in the agreement to

define "substantial," but does not define the operative term. 

"Under well-settled case law, Delaware courts look to

dictionaries for assistance in determining the plain meaning of

terms which are not defined in a contract" (Lorillard Tobacco Co.

v American Legacy Foundation, 903 A2d 728, 738 [Del 2006]

[citations omitted]; see Allen v Encore Energy Partners, LP, 72

A3d 93, 104 [Del 2013]; Pacific Co. v Liberty Mut. Ins. Co., 956

A2d 1246, 1255 n 35 [Del 2008]; see also Angstadt v Red Clay

Consolidated School Dist., 4 A3d 382, 390 [Del 2010]). Black's

Law Dictionary defines "misappropriation" as "[t]he application

of another's property or money dishonestly to one's own use"

(Black's Law Dictionary [9th ed 2009], misappropriation [emphasis

added]). That entry is cross-referenced with the definition of

"embezzlement," which is "[t]he fraudulent taking of personal

property with which one has been entrusted, esp[ecially] as a

fiduciary" (Black's Law Dictionary [9th ed 2009], embezzlement

[emphasis added]). Another dictionary defines "misappropriate"

alternatively as "to put to a wrong use" or "to apply wrongfully

or dishonestly, as funds entrusted to one's care" (Random House

Webster's Unabridged Dictionary [3d ed 1999] [emphasis added]). 

Moreover, as used in Delaware law, the term "misappropriation"

often implies dishonest or wrongful intent, or breach of duty

(see e.g. 6 Del C § 2001 [1], [2] [misappropriation of trade

secrets]; In re Vanderslice, 55 A3d 322, 326 [Del 2012] [attorney

committed theft by "misappropriating" client funds]; Lingo v

Lingo, 3 A3d 241, 242, 244 [Del 2010] [attorney-in-fact committed

a "breach of trust" by misappropriating funds]). 

Accordingly, we agree with Supreme Court that the plain

meaning of "misappropriation" carries a connotation of fraudulent

– or, at a minimum, wrongful – intent, and that plaintiff did not

prove as a matter of law that defendant acted with such intent in

withdrawing the disputed funds. Moreover, even if plaintiff had
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been deemed to have met his prima facie burden, defendant's

contention that she did not act with any fraudulent or wrongful

intent and that she believed that, as a member of the company,

she was fully authorized to make the disputed withdrawal gives

rise to triable issues of fact barring summary judgment as to

whether her conduct constituted "substantial misappropriation"

providing grounds to terminate her employment (see RWI

Acquisition LLC v Todd, 2012 Del Ch LEXIS 125, *28-29, 2012 WL

1955279, *7 [Del Ch May 30, 2012]; see generally CPLR 3212 [b]). 

The parties' further contentions depend upon the determination of

whether defendant's employment was properly terminated, and must

await resolution at trial. 

Peters, P.J., Lahtinen, Rose and Clark, JJ., concur.

ORDERED that the order is affirmed, with costs.

ENTER:

Robert D. Mayberger

Clerk of the Court