Court Opinion

ID: 9954289
Source: CourtListenerOpinion
Date Created: 2024-03-25 21:10:33.500774+00
Date Added: 2024-06-11T08:12:00.609551
License: Public Domain

Hyman v Cummings
               2024 NY Slip Op 30945(U)
                     March 20, 2024
           Supreme Court, New York County
        Docket Number: Index No. 652954/2023
                   Judge: Judy H. Kim
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.
                                                                                                                      INDEX NO. 652954/2023
  NYSCEF DOC. NO. 40                                                                                            RECEIVED NYSCEF: 03/20/2024

                                   SUPREME COURT OF THE STATE OF NEW YORK
                                             NEW YORK COUNTY
            PRESENT:             HON. JUDY H. KIM                                                 PART                              04
                                                                                       Justice
            ----------------------------------------------------------------- ----------------X   INDEX NO.          652954/2023
             MITCHEL HYMAN,
                                                                                                                     06/20/2023,
                                                         Petitioner,                              MOTION DATE        07/07/2023

                                                 - V -
                                                                                                  MOTION SEQ. NO. _ _0_0_1_0_0_2__

             LINDA CUMMINGS,
                                                                                                    DECISION + ORDER ON
                                                         Respondent.                                      MOTION

            ------------------------------------------------------------------- --------------X

            The following e-filed documents, listed by NYSCEF document number (Motion 001) 10, 14, 15, 16, 17,
            18, 19,20,21,22,23,24,25,26,27,28,35,36
            were read on this motion to                                                               STAY

            The following e-filed documents, listed by NYSCEF document number (Motion 002) 29, 30, 31, 32, 33,
            34, 37
            were read on this motion to                                                               SEAL

                      Upon the foregoing documents, the Petition to stay the binding mediation commenced by

            Respondent Linda Cummings-Ramone is denied and dismissed and respondent's motion to seal is

            denied.

                                                           FACTUAL BACKGROUND

                      Ramones Production, Inc. ("RPI") is the "vehicle through which the musical group, the

            Ramones ... markets, merchandises, licenses and produces its memorabilia and musical-related

            products" (NYSCEF Doc. No. 1 [Petition at ,JI 1]). Petitioner Mitchel Hyman is a 50% Shareholder

            of RPI, and one of its four directors. Respondent Linda Cummings-Ramone is RPI's other 50%

            shareholder and also serves as a director.

             652954/2023 HYMAN, MITCHEL vs. CUMMINGS, LINDA                                                           Page 1 of 9
             Motion No. 001 002

                                                                            1 of 9
[* 1]
                                                                                                   INDEX NO. 652954/2023
  NYSCEF DOC. NO. 40                                                                       RECEIVED NYSCEF: 03/20/2024

                    Pursuant to an Amended and Restated Shareholders' Agreement (the "Shareholders'

            Agreement"), the parties agreed upon certain procedures for the election and removal of RPI

            directors:

                    1. Election and Removal of Directors: Actions by the Board of Directors

                    (a) General. The Company, to the extent possible, and each of the Shareholders
                    agree to take such action as may be necessary to cause the board of directors of the
                    Company (the "Board of Directors"), to be elected in accordance with the
                    provisions of this Section 1. In furtherance, and not in limitation, of the foregoing,
                    each Shareholder shall vote or cause to be voted, whether at any annual or special
                    meeting of Shareholders of the Company called for the purpose of electing or
                    removing directors or pursuant to a written consent in lieu thereof, all voting shares
                    of the capital stock of the Company (the "Voting Shares") then owned or controlled
                    by such Shareholder in favor of the election of directors designated for election in
                    accordance with Section l(b) or l(d), as applicable ...

                    (b) Election of Designated Directors.

                         (i) Each of the Shareholders shall vote all Voting Shares owned or
                         controlled by such Shareholder in favor of causing the Board of Directors
                         to consist of four directors, including Mitchell Hyman and Linda Cummings
                         and two other directors, who shall be designated in accordance with
                         subparagraph (ii) below.

                         (ii) Mitchell Hyman and Lesher, on the one hand, and Linda Cummings. on
                         the other hand, shall each have the right to designate one additional person
                         to serve with him or her as a director on the Board of Directors (Mitchell
                         Hyman and the director designated by Mitchell Hyman and Lesher, each a
                         "Hyman Director" and together, the "Hyman Directors" and Linda
                         Cummings and the director designated by Linda Cummings, each a
                         "Cummings Director" and together, the "Cummings Directors").

                    (c) Removal. Mitchell Hyman and Lesher shall be entitled at any time and for any
                    reason (or for no reason) to require the removal of the designated Hyman Director
                    and Linda Cummings shall be entitled at any time and for any reason (or for no
                    reason) to require the removal of the Cummings Director ...

                    (d) Filling Vacancies. If at any time a vacancy is created on the Board of Directors
                    by reason of the death. removal or resignation of either a Hyman Director or a
                    Cummings Director (a "Removed Director"), subject to subparagraphs (i) and (ii)
                    below, the remaining Hyman or Cummings Director, as the case may be, shall have
                    the right to designate a replacement director to fill such vacancy and the

             652954/2023 HYMAN, MITCHEL vs. CUMMINGS, LINDA                                        Page 2 of 9
             Motion No. 001 002

                                                            2 of 9
[* 2]
                                                                                                  INDEX NO. 652954/2023
  NYSCEF DOC. NO. 40                                                                      RECEIVED NYSCEF: 03/20/2024

                   Shareholders shall take such action to approve and elect, within twenty (20) days
                   after designation, the director so designated.

                       (i) If a vacancy is created by reason of the death, removal or resignation of
                       either of the Hyman Directors, the remaining Hyman Director shall have
                       the sole right to designate a nominee to be elected to fill such vacancy until
                       the next annual meeting of the Shareholders of the Company.

                       (ii) If a vacancy is created by reason of the death, removal or resignation of
                       either of the Cummings Directors, the remaining Cummings Director shall
                       have the sole right to designate a nominee to be elected to fill such vacancy
                       until the next annual meeting of the Shareholders of the Company.

                   (e) Actions by the Board. Unless otherwise specified, all actions of the Company
                   shall be subject to the approval of a majority of the Board of Directors; provided.
                   however. that the Company may not take any action with regard to the following,
                   without the affirmative vote, or written consent, of all of the members of the Board
                   of Directors of the Company:

                       (i) any amendment to the Company's certificate of incorporation or by-laws
                       (ii) any change in the number of directors of the Company
                       (iii) any change in the Company' s capital structure;
                       (iv) any action to incur corporate debt;
                       (v) any capital expenditure;
                       (vi) any redemption or repurchase of the Company's stock;
                       (vii) any issuance of shares of capital stock or rights to acquire the same;
                       (viii) any merger or consolidation of the Company into another entity or any
                       sale of all or substantially all of the Company's assets;
                       (ix) any dissolution, liquidation or winding up of the Company;
                       (x) any payment of dividends by the Company; or
                       (xi) any change in the strategic direction of the Company

            (NYSCEF Doc. No. 7 [Shareholder Agreement] [emphasis added]).

                   The Shareholders' Agreement also sets out two mechanisms to resolve disputes among

            RPI' s directors or shareholders:

                   ( f) Deadlock. If as to any Company or Shareholder action or matter requiring
                   approval, authorization or other action by the Shareholders or the Board of
                   Directors pursuant to this Agreement or by law is not able to be taken or obtained
                   by reason of a dispute between the Shareholders or the absence of a majority
                   decision by the Shareholders or the Board of Directors (a "Deadlock Event"), then
                   the Shareholders shall proceed to negotiate in good faith, and shall use their
                   reasonable efforts, to resolve such Deadlock Event for a period of ten (10) days

             652954/2023 HYMAN, MITCHEL vs. CUMMINGS, LINDA                                       Page 3 of 9
             Motion No. 001 002

                                                          3 of 9
[* 3]
                                                                                                  INDEX NO. 652954/2023
  NYSCEF DOC. NO. 40                                                                      RECEIVED NYSCEF: 03/20/2024

                   after notice from any Shareholder of the existence of a Deadlock Event. While any
                   Deadlock Event is pending, the Company and the Shareholders and officers and
                   directors shall continue to operate the Company and its business without
                   interruption in the manner most closely to the ordinary course consistent with past
                   practice. In the event that the Deadlock Event is not resolved within such ten (10)
                   day period, the dispute relating to the Deadlock Event shall be submitted to a
                   mediator, to be selected by the Directors on a case by case basis (the "Mediator")
                   for final and binding mediation ...

                   10. Arbitration.

                       (a) Any dispute, controversy or claim arising under, out of or in connection
                       with or relating to this Agreement, and any amendment, breach or alleged
                       breach hereof, shall be determined and settled by arbitration pursuant to the
                       rules then in effect of the American Arbitration Association ...

            (Id. [emphasis added]).

                   On or about October 7, 2022, petitioner and respondent executed an agreement with

            Federal Arbitration, Inc. (the "Arbitrator Agreement"), to appointing retired United States District

            Court Judge Shira A. Scheindlin as a "standby mediator" (the "Mediator") to resolve disputes

            arising under section l(f) of the Shareholders' Agreement (NYSCEF Doc. No. 8 [Arbitrator

            Agreement]).

                   In April 2023, respondent sought to convene a special meeting of the Board of Directors

            to remove David Frey as a Director of RPI for cause, based on his alleged failure to disclose

            corporate opportunities, his disclosure of confidential information and his failure to "respond

            timely to RPI operational emails." Petitioner did not consent to such a special meeting. Respondent

            sought to bring this dispute to the Mediator as a "Deadlock Event" under section l(f) of the

            Shareholders' Agreement, which petitioner opposed. After receiving written submission and

            hearing oral argument on the parties' positions, the Mediator issued an order concluding that "the

            issue of removing [Frey] as a Director of RPI is a Deadlock Event as defined in the Shareholders'

            Agreement," noting that paragraph (l)a of the Shareholders' Agreement required petitioner or

             652954/2023 HYMAN, MITCHEL vs. CUMMINGS, LINDA                                       Page 4 of 9
             Motion No. 001 002

                                                          4 of 9
[* 4]
                                                                                                   INDEX NO. 652954/2023
  NYSCEF DOC. NO. 40                                                                       RECEIVED NYSCEF: 03/20/2024

            respondent to defer to the others' selection of their Designated Director in electing or replacing

            such a director, but was "silent as to the rights that either of those Directors may have to seek the

            removal of the other party's designated director" (NYSCEF Doc. No. 9 [Order of Mediator at ,J8]).

                   The Mediator added that

                   Paragraph 14(e) of the Shareholders Agreement provides that it is to be "governed
                   and construed in accordance with the laws of the State of New York." Under New
                   York law, "[a] corporation possesses the inherent power to remove a member,
                   officer or director for cause, regardless of the presence of a provision in [the
                   Agreement] providing for such removal." Grace v. Grace Institute, 19 N.Y.2d 307,
                   313 (1967). New York's Business Corporation Law provides for "[a]n action to
                   procure a judgment removing a director for cause ... by the holders of ten percent
                   of the outstanding shares." N.Y. Bus. Corp. Law§ 706(d). Accordingly, given the
                   silence in paragraph l(c) and given the clear direction in both the New York statute
                   and caselaw, Linda Cummings-Ramone has the right to seek the removal of Mr.
                   David [Frey] as a Director.

                   I have been informed by the parties that were a meeting to be called for the purpose
                   of removing Mr. [Frey] as a Director the vote would be 2-2. Thus, there is a
                   Deadlock Event, as defined in paragraph 1( f) of the Shareholders Agreement, and
                   I have the authority to subject that dispute to binding mediation as acknowledged
                   in paragraph l(f) of that Agreement.

            (NYSCEF Doc. No. 9 [Order of Mediator at ,J,J8-10]).

                   After the Mediator scheduled a binding mediation on this issue, petitioner commenced the

            instant special proceeding.

                   In his Petition, petitioner argues that the subject dispute is not a Deadlock Event under the

            Shareholders' Agreement because section l(f) is restricted to disputes concerning matters

            "requiring approval, authorization or other action by the Shareholders or the Board of Directors,"

            and that no such approval is required here, where the Shareholders' Agreement is silent as the

            process to remove RPI directors for cause and respondent is free to "commence an action under

            Business Corporations Law §706( d) to remove a director for cause" without resorting to a Board

            meeting (NYSCEF Doc. No. 1 [Petition at ,J46]). Petitioner also argues, alternatively, that even if

             652954/2023 HYMAN, MITCHEL vs. CUMMINGS, LINDA                                        Page 5 of 9
             Motion No. 001 002

                                                          5 of 9
[* 5]
                                                                                                   INDEX NO. 652954/2023
  NYSCEF DOC. NO. 40                                                                       RECEIVED NYSCEF: 03/20/2024

            a vote was required to remove Frey, such a vote would not result in a deadlock because, under

            sections l(a), (b), and (d) of the Shareholders' Agreement, respondent must vote in accordance

            with petitioner's wishes in such a vote.

                   In opposition, respondent argues that petitioner is "estopped" from bringing the instant

            special proceeding because it has "litigated and lost the threshold question of whether the present

            dispute is subject to binding mediation following briefing and oral argument before Judge

            Scheindlin (NYSCEF Doc. No. 28 [Opp. at p. 7]). Respondent adds that the dispute is a Deadlock

            Event because New York law vests corporations with the inherent power to remove a director for

            cause and that, since any such removal would be a company action subject to the approval of a

            majority of the Board of Directors under section 1 of the Shareholders' Agreement, any tie in such

            a vote would be a Deadlock Event.

                                                       DISCUSSION

                                                Petition to Stay Arbitration

                   As a threshold matter, the Court rejects respondent's argument that petitioner has waived

            its ability to bring this special proceeding to objection to the Mediator's jurisdiction. "An

            arbitrator's decision to assert jurisdiction, over objection, is subject to a much broader and more

            rigorous judicial review than an arbitral decision on the merits, and because it is a question for the

            court to decide, it is subject to de novo judicial review" (See Steyn v CRTV, LLC, 175 AD3d 1,

            10-11 [1st Dept 2019] [internal citations and quotations omitted]).

                   However, upon its de novo review, the Court agrees with respondent that the parties'

            dispute constitutes a Deadlock Event within the meaning of section l(f). As the Mediator noted,

            under New York law, "[a] corporation possesses the inherent power to remove a member, officer

            or director for cause, regardless of the presence of a provision in [the Agreement] providing for

             652954/2023 HYMAN, MITCHEL vs. CUMMINGS, LINDA                                         Page 6 of 9
             Motion No. 001 002

                                                           6 of 9
[* 6]
                                                                                                                  INDEX NO. 652954/2023
  NYSCEF DOC. NO. 40                                                                                     RECEIVED NYSCEF: 03/20/2024

            such removal" (Grace v Grace Institute, 19 NY2d 307, 313 [ 1967]; see also Matter of Davidson v

            James, 172 AD2d 323, 324 [1st Dept 1991]) and, pursuant to section l(e) of the Shareholders'

            Agreement, any such removal requires the approval of its Board of Directors. Accordingly, a

            deadlock on such a vote falls within the ambit of section l(f) of the Shareholders' Agreement.

                      The fact that respondent may move to remove Frey as a director in a proceeding pursuant

            to BCL §706(d) does not alter this conclusion. Contrary to petitioner's claim, section l(f) does not

            require that respondent exhaust other available avenues for removal prior to proceeding through a

            vote of the Board. Petitioner's argument on this score relies upon a selective reading of section

            l(f), focusing exclusively on the phrase "a matter requiring approval, authorization or other action

            by the Shareholders or the Board of Directors pursuant to this Agreement or by law," while failing

            to address the fact that section l(f) is not limited to a "matter" but also contemplates any "company

            or shareholder action," categories into which, as discussed supra, the underlying dispute here falls.

                      Petitioner's alternative argument, that a vote to remove Frey would not result in deadlock

            because respondent would have to defer to petitioner in any such vote, also has no foundation in

            the text of the Shareholders' Agreement, which mandates that petitioner and respondent defer to

            each other's removal of their own "designated directors" but does not impose any such requirement

            on a director's attempt to remove another director's "designated director" for cause.

                                                      Respondent's Motion to Seal

                      Respondent's motion to seal NYSCEF Document Numbers 18 and 20-27, which were

            filed 1 as exhibits to respondent's opposition to the Petition, is denied. In support of its motion,

            1
             In filing these exhibits, respondent did not comply with section K(3 )(b) of the Protocol On Courthouse And County Clerk
            Procedures For Electronically Filed Cases which sets out the proper procedure for temporarily uploading document under
            seal while a motion to seal is sub Judice (See https://www.nycourts.gov/LegacyPDFS/courts/ljd/supctmanh/Efil-
            protocol.pdf) but instead uploaded a single page for each exhibit which stated that the exhibit was "(filed under seal)"
            while submitting hard copies of these exhibits to the Court by mail.

                652954/2023 HYMAN, MITCHEL vs. CUMMINGS, LINDA                                                     Page 7 of 9
                Motion No. 001 002

                                                                   7 of 9
[* 7]
                                                                                                        INDEX NO. 652954/2023
  NYSCEF DOC. NO. 40                                                                           RECEIVED NYSCEF: 03/20/2024

            respondent asserts that it does not believe sealing is appropriate but that it nevertheless made this

            motion in anticipation of objections from petitioner as to the confidentiality of its filings. However,

            in his response, petitioner argues that the Court should only seal three of these exhibits, which

            include various emails discussing RPI business, including the licensing of Ramones music for a

            film (which film is now completed) and play (See NYSCEF Docs. No. 20-22).

                    22 NYCRR §216.l(a) directs that "a court shall not enter an order in any action or

            proceeding sealing the court records, whether in whole or in part, except upon a written finding of

            good cause, which shall specify the grounds thereof." On this motion, respondent "has the burden

            to demonstrate compelling circumstances to justify restricting public access" (Mosallem v

            Berenson, 76 AD3d 345, 349 [1st Dept 2010] [internal citations omitted]). The bare assertion of

            confidentiality by her counsel does not satisfy Respondent's burden here (Id. at 350-351 [1st Dept

            2010]). Accordingly, respondent's motion is denied. However, as a portion ofrespondent's Exhibit

            F indisputably contains private medical information that is irrelevant to this action, the Court

            directs that the first eighteen lines of text (which concern this medical issue) contained in Exhibit

            F be redacted and then the document shall be uploaded to NYSCEF.

                    Accordingly, it is

                    ORDERED and ADJUDGED that the Petition is denied and this proceeding dismissed;

            and it is further

                    ORDERED that respondent's motion to seal is denied; and it is further

                    ORDERED that respondent is directed to upload documents previously filed "under seal"

            as exhibits to its opposition to the Petition within five days of the date of this order; and it is further

                    ORDERED that, within twenty days from the date of this decision, order, and judgment,

            counsel for respondent shall serve a copy of this decision, order, and judgment, with notice of

             652954/2023 HYMAN, MITCHEL vs. CUMMINGS, LINDA                                             Page 8 of 9
             Motion No. 001 002

                                                             8 of 9
[* 8]
                                                                                                       INDEX NO. 652954/2023
  NYSCEF DOC. NO. 40                                                                             RECEIVED NYSCEF: 03/20/2024

            entry, upon petitioner and the Clerk of the Court, who shall enter judgment accordingly; and it is

            further

                      ORDERED that service upon the Clerk of the Court shall be made in accordance with the

            procedures set forth in the Protocol on Courthouse and County Clerk Procedures for

            Electronically Filed Cases (accessible at the "E-Filing" page on the court's website at the address

            www.nvcourts.gov/supctmanh).

                      This constitutes the decision, order, and judgment of the Court.

                      3/20/2024
                                                                         ~,-:Ji,~
                        DATE                                                         HON. JUDY H. KIM, J.S.C.

                                                                         ~
             CHECK ONE:                    CASE DISPOSED                     NON-FINAL DISPOSITION

                                           GRANTED         0    DENIED       GRANTED IN PART          □ OTHER
             APPLICATION :                 SETTLE ORDER                      SUBMIT ORDER

             CHECK IF APPROPRIATE:         INCLUDES TRANSFER/REASSIGN        FIDUCIARY APPOINTMENT    □ REFERENCE

             652954/2023 HYMAN, MITCHEL vs. CUMMINGS, LINDA                                             Page 9 of9
             Motion No. 001 002

                                                             9 of 9
[* 9]