Court Opinion

ID: 9918933
Source: CourtListenerOpinion
Date Created: 2024-01-16 22:07:58.427239+00
Date Added: 2024-06-11T08:06:35.759601
License: Public Domain

Lazar v Mor
               2024 NY Slip Op 30128(U)
                    January 10, 2024
           Supreme Court, New York County
        Docket Number: Index No. 654538/2019
                  Judge: Andrea Masley
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. 654538/2019
  NYSCEF DOC. NO. 142                                                                                             RECEIVED NYSCEF: 01/10/2024

            SUPREME COURT OF THE STATE OF NEW YORK
            COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 48
            ----------------------------------------------------------------------------------- X

             GABRIEL LAZAR, INDIVIDUALLY AND DERIVATIVELY                                           INDEX NO.         654538/2019
             ON BEHALF OF ATTENA LLC, HEMERA LLC AND
             NESSA LLC, JOEL SHEINBAUM, INDIVIDUALLY AND
             DERIVATIVELY ON BEHALF OF ATTENA LLC, and                                              MOTION DATE
             HEMERA LLC AND NESSA LLC,
                                                                                                    MOTION SEQ. NO.        003
                                                          Plaintiffs,

                                                - V -
                                                                                                     DECISION+ ORDER ON
                                                                                                           MOTION
             ARIK MOR and URIEL ZICHRON,

                                                          Defendants.

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

            HON. ANDREA MASLEY:

            The following e-filed documents, listed by NYSCEF document number (Motion 003) 115, 116, 117, 118,
            119,120,121,122,123,124,125,126,127,128,129,130,131,132,133,134,135,136,137
            were read 1 on this motion to/for                                       AMEND CAPTION/PLEADINGS

                      In motion sequence number 003, plaintiffs Gabriel Lazar and Joel Sheinbaum,

            derivatively on behalf of Attena LLC (Attena), Hemera LLC (Hemera) and Nessa LLC, 2

            1 The court has reviewed and where appropriate considered additional documents
            mentioned in the parties' papers but omitted in this autogenerated caption.

            2 Plaintiffs brought this action individually and derivatively on behalf of Attena, Hemera

            and Nessa. (See NYSCEF Doc. No. [NYSCEF] 1, Summons and Complaint; NYSCEF
            48, Amended Complaint [AC].) The court dismissed plaintiffs' individual claims after
            plaintiffs conceded "that their claims for relief are all derivative by not submitting
            opposition." (NYSCEF 110, Decision and Order at 14 [mot. seq. no. 002].) While this
            decision was appealed, it was a limited appeal and plaintiffs did not challenge this
            ruling. Thus, the individual claims remain dismissed. To the extent that the proposed
            Second Amended Complaint alleges that the claims are brought both individually and
            derivatively, the individual claims have been dismissed. Plaintiffs shall cease
            repleading them. This also holds for plaintiffs' 18th through 23 rd causes of action which
            were dismissed by this court and dismissal unanimously affirmed by the Appellate
            Division, First Department. (Id., affd Lazar v Mor, 213 AD3d 491 [1st Dept 2023].)
             654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                                                  Page 1 of 11
             Motion No. 003

                                                                           1 of 11
[* 1]
                                                                                               INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                                    RECEIVED NYSCEF: 01/10/2024

            move, pursuant to CPLR 3025 (b), for leave to file a second amended complaint 3

            adding two breach of contract claims against defendants Arik Mor and Uriel Zichron. 4

            Background

                      This action arises from a dispute among real estate investors. Plaintiffs are

            residents of Israel and co-managing members of Attena and Hemera, which were

            formed in 2011 and 2012, respectively, for the purpose of acquiring multifamily

            properties in Manhattan. (NYSCEF 48, AC   ,m 4-5, 12.) Defendants are also residents
            of Israel and co-managing members of the three LLCs. (Id. ,m 6-7.)       5

                      Plaintiffs seek to add two causes of action (24th and 25th), alleging that

            defendants breached Attena and Hemera's operating agreements. Plaintiffs allege that,

            although article V (,I7) of Attena's operating agreement and article V (,I10) of Hem era's

            operating agreement provide that distributions to any member shall be made in

            accordance with the monetary value of the member's capital account in proportion to

            the total value of all members' capital accounts, defendants' distributions exceeded the

            amounts to which they were entitled based on their capital contributions. ( See NYSCEF

            3The initial complaint was filed on August 9, 2019. (NYSCEF 1, Summons and
            Complaint.) The operative amended complaint was filed on January 30, 2020.
            (NYSCEF 48, AC.)

            4 Plaintiffs' counsel is reminded that "an affirmation may be filed, under penalties of
            perjury, not in place of a brief but in place of an affidavit, by an attorney admitted to
            practice in New York. Affirmations, like affidavits, are reserved for a statement of the
            relevant facts; a statement of the relevant law and arguments belongs in a brief (i.e., a
            memorandum of law)." (Tripp & Co., Inc. v Bank of NY (Del), Inc., 28 Misc 3d 1211 [A],
            911 NYS2d 696, 2010 NY Slip Op 51274[U], *6 [Sup Ct, NY County 2010] [citation
            omitted], citing 22 NYCRR 202.8 [c] ["Affidavits shall be for a statement of the relevant
            facts, and briefs shall be for a statement of the relevant law"].) A failure to file a
            memorandum of law in the future may result in denial of the motion.

            5The background of this action is set forth more fully in this court's previous decision.
            (NYSCEF 110, Decision and Order at 1-5 [mot. seq. no. 002].)
                654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                      Page 2 of 11
                Motion No. 003

                                                           2 of 11
[* 2]
                                                                                             INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                                 RECEIVED NYSCEF: 01/10/2024

            117, Second Amended Complaint [SAC]         ,m 224-235, 238-248.) Specifically, plaintiffs
            allege that Mor and Zichron's capital contributions to Attena were 9.2% and 10.5%,

            respectively, but they took distributions as though they each contributed 21.5% of

            Attena's capital. (Id. ,i 228.) Also, despite each having a capital account balance of

            negative $241,500 at Hemera, defendants allegedly took distributions as though they

            each contributed 15% of its capital. (Id. ,i 242.)

            Legal Standard

                   "[L]eave to amend a pleading should be freely granted in the absence of

            prejudice to the nonmoving party where the amendment is not patently lacking in merit .

            . . , and the decision whether to grant leave to amend a complaint is committed to the

            sound discretion of the court." (Davis v S. Nassau Communities Hosp., 26 NY3d 563,

            580 [2015] [internal quotation marks and citations omitted]; see also CPLR 3025 [b].)

            "[L]eave to amend a complaint should be denied if the proposed complaint could not

            survive a motion to dismiss. A proposed amended complaint that would be subject to

            dismissal as a matter of law is, by definition, 'palpably insufficient or clearly devoid of

            merit' and thus should not be permitted under CPLR 3025." (Olam Corp. v Thayer,

            2021 WL 408232, 2021 NY Misc LEXIS 476, 2021 NY Slip Op 30345[U], *3-4 [Sup Ct,

            NY County 2021].)

            Discussion

            Statute of Limitations

                   Defendants argue that the proposed breach of contract claims are time-barred

            because the alleged distributions occurred more than six years ago and do not relate

            back to the initial complaint or amended complaint. Plaintiffs contend that the proposed

            claims relate back to the amended complaint.
             654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                        Page 3 of 11
             Motion No. 003

                                                        3 of 11
[* 3]
                                                                                            INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                                RECEIVED NYSCEF: 01/10/2024

                   "A motion to amend a complaint ... to add a cause of action or theory of

            recovery that is time barred under the applicable statute of limitations is patently devoid

            of merit." (Schwartz v Walter, 171 AD3d 969, 970 [2d Dept 2019] [internal quotation

            marks and citation omitted].) "[A]n action upon a contractual obligation or liability,

            express or implied" must be commenced within six years. (CPLR 213 [2].) The breach

            of contract claim accrues at the time of the breach and not on the date of discovery.

            (Yarbro v Wells Fargo Bank, N.A., 140 AD3d 668, 668 [1st Dept 2016] [citation

            omitted]).

                   A claim in an amended pleading relates back to "the original pleading [if the

            original pleading gives] notice of the transactions, occurrences ... to be proved

            pursuant to the amended pleading." (CPLR 203 [fj.) "[T]he [relation back] doctrine

            enables a plaintiff to correct a pleading error - by adding either a new claim or a new

            party- after the statutory limitations period has expired." (Buran v Coupal, 87 NY2d

            173, 177 [1995] [internal quotation marks and citation omitted].) Where an amendment

            "contains an untimely claim against a defendant who is already a party to the litigation,

            the relevant considerations are simply (1) whether the original complaint gave the

            defendant notice of the transactions or occurrences at issue and (2) whether there

            would be undue prejudice to the defendant if the amendment and relation back are

            permitted." (O'Halloran v Metro. Transp. Auth., 154 AD3d 83, 87 [1st Dept 2017]

            [citations omitted].)

                   Here, to the extent that the breach of contract claims allege distributions to

            defendants made after July 13, 2016, that is, within six years of July 13, 2022, when the

             654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                       Page 4 of 11
             Motion No. 003

                                                        4 of 11
[* 4]
                                                                                                INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                                   RECEIVED NYSCEF: 01/10/2024

            present motion to amend was filed, these claims are timely. 6 (See CPLR 213 [2]; Perez

            v Paramount Communications, 92 NY2d 749, 754-56 [1999] [filing of motion to amend

            complaint tolls statute of limitations for proposed claims].)

                      To the extent that plaintiffs allege distributions made prior to July 13, 2016, the

            breach of contract claims relate back to the amended complaint because the amended

            complaint placed defendants on notice of these transactions, namely, that defendants

            took distributions that exceeded the amounts to which they were entitled based on their

            capital contributions to Attena and Hem era. ( See NYSCEF 48, AC ,i 3 ["Defendants

            either made no capital contributions or only a fraction of what was required from them ..

            . [yet] allocated to themselves equity and profit distributions as if they had in fact made

            their required capital contributions"]; id. ,i,i 33, 51, 60, 66, 67.) Specifically, in the fraud

            and breach of fiduciary duty claims alleged in the amended complaint, 7 plaintiffs alleged

            that defendants caused plaintiffs to contribute nearly all the capital that Attena and

            Hemera needed to acquire certain properties by overstating the purchase prices (id. ,i,i

            176-178, 185-187, 200-202, 211-212), defendants made no or negligible capital

            contributions to Attena and Hemera (id. ,i,i 180,190,204, 214), and, accordingly, all or

            almost all of defendants' equity in Attena and Hemera and resulting profit distributions

            should have been allocated to plaintiffs. (Id. ,i,i 181, 191, 205, 215.) The new breach of

            contract claims are similarly predicated on defendants' alleged insufficient capital

            contributions and excessive distributions. (NYSCEF 117, SAC ,i,i 228, 242.) Further,

            6 Defendants concede that the following alleged distributions fall with the statute of
            limitations: November 23, 2016, July 28, 2017, and September 13, 2017 distributions
            from Attena; and November 23, 2016 and June 6, 2019 distributions from Hemera.
            (NYSCEF 121, Opp memo at 13 n 1, 2 [NYSCEF pagination].)

            7The court refers to causes of action numbered 18, 19, 21, and 22, which were
            ultimately dismissed. (NYSCEF 110, Decision and Order at 21 [mot. seq. no. 002].)
                654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                       Page 5 of 11
                Motion No. 003

                                                           5 of 11
[* 5]
                                                                                           INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                              RECEIVED NYSCEF: 01/10/2024

            defendants will suffer no undue prejudice if the amendment and relation back are

            permitted. (Infra at 9-10.) Accordingly, the breach of contract claims relate back to the

            amended complaint filed on January 15, 2020. (See CPLR 203 [fj; see e.g. O'Halloran,

            154 AD3d at 87-88 ["Defendants need not have been put on notice of every factual

            allegation on which the subsequent claims depend, because the original complaint put

            them on notice of the occurrences that underlie those claims"] [citation omitted].) As all

            of the alleged distributions to defendants occurred within six years of January 15, 2020,

            the breach of contract claims are timely.

                      Defendants' argument that the amended complaint did not allege breach of the

            entities' operating agreements is unavailing because the relevant inquiry "is not whether

            defendant had notice of the claim, but whether ... the original pleading gives notice of

            the transactions (or) occurrences ... to be proved pursuant to the amended pleading."

            ( Giambrone v Kings Harbor Multicare Ctr., 104 AD3d 546, 548 [1st Dept 2013] [internal

            quotation marks and citations omitted].) 8

            Merits of Breach of Contract Claims

                      Defendants next argue that the proposed claims are palpably insufficient

            because the alleged distributions were not wrongful. Defendants argue that the entities'

            operating agreements, entitled them to pro rata distributions in proportion to their

            8 Indeed, as one commentator opines, "[t]he Second and Fourth Departments seem to
            insist that the original pleading place the adversaries on notice of the specific claim
            sought to be added by the amendment. The other two Departments appear to believe
            that this is a too narrow interpretation of CPLR 203(f), which, after all, only requires
            notice of the 'transactions and occurrences' to be proved pursuant to the amended
            pleading." (Commercial Litigation in New York State Courts, 4th ed., 2023, § 8: 158
            [footnote omitted], citing Giambrone, 104 AD3d 546 [1st Dept 2013]; Anderson v
            Camey, 161 AD2d 1002 [3d Dept 1990].)
                654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                  Page 6 of 11
                Motion No. 003

                                                           6 of 11
[* 6]
                                                                                         INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                             RECEIVED NYSCEF: 01/10/2024

            Membership Capital Accounts' value, which was based on their capital contributions

            and corresponding membership interests. Defendants maintain that their membership

            interests were based on "services rendered" in locating investment opportunities and

            investors and obtaining financing. Defendants contend that for their monetary and

            service contributions, they each received 21.5% and 15% stakes in Attena and Hemera,

            respectively, which correspond to the alleged distributions.

                   The entities' operating agreements provide that defendants are entitled to pro

            rata distributions based on the monetary value of their Member Capital Accounts. ( See

            NYSCEF 86, Hem era OA, Article V [1 O] ["The profits and losses of this Company and all

            other distributions shall be allocated among the members on the basis of the ratio of the

            monetary value of the Member Capital Account of each member to the total value of all

            Member Capital Accounts in this Company"]; NYSCEF 87, Attena OA, Article V [7]

            [same].) A Member Capital Account is an account that

                   "shall be maintained for each member. Each Member Capital Account shall be
                   increased by the value of each Capital Contribution made by such member,
                   allocations to such member of the net profits and any other allocations to such
                   member of income pursuant to the Internal Revenue Code. Each Member
                   Capital Account will be decreased by the value of each distribution made to the
                   member of this Company, allocations such member of net losses and other
                   allocations to such member pursuant to the Internal Revenue Code."

            (NYSCEF 86, Hemera OA, Article V [2]; NYSCEF 87, Attena OA, Article V [2].)

                   Even though per the entities' operating agreements, each defendant acquired

            21.5% Membership Interest in Attena (NYSCEF 87, Attena OA at Schedule A) and

            15.738% in Hemera (NYSCEF 86, Hemera OA at Schedule A), the agreements

            unambiguously state that distributions are allocated based on Member Capital

            Accounts' monetary values, and not on the basis of Membership Interests. (NYSCEF

            86, Hemera OA, Article V [10]; NYSCEF 87, Attena OA, Article V [7].) Accordingly, the
             654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                   Page 7 of 11
             Motion No. 003

                                                        7 of 11
[* 7]
                                                                                            INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                               RECEIVED NYSCEF: 01/10/2024

            entities' operating agreements do not demonstrate that the breach of contract claims

            are palpably insufficient. (See CPLR 3211 [a] [1]; At1 & Fashion Group Corp. v Cyclops

            Prod., Inc., 120 AD3d 436,438 [1st Dept 2014] ["A cause of action may be dismissed

            under CPLR 3211 (a) (1) only where the documentary evidence utterly refutes [the]

            plaintiff's factual allegations, conclusively establishing a defense as a matter of law"

            (internal quotation marks and citation omitted)].)

                      Defendants' reliance on Santelli v Spitzer, 2021 WL 2209390, 2021 NY Misc

            LEXIS 3102, 2021 NY Slip Op 31855(U) (Sup Ct, NY County 2021) is misplaced.

            Santelli held that alleged distributions to an LLC member were not wrongful because the

            agreement in question "provided that 'the parties will distribute income to each of the

            owners of the LLCs on a 50%/50% basis in accordance with their ownership interests in

            the LLC."' (Id. *5 [citation omitted].) Here, however, there is no such language in the

            agreements. (See CPLR 3211 [a] [1]; At1 & Fashion Group Corp., 120 AD3d at 438.) 9

            Further, contrary to defendants' argument, Santelli does not stand for a proposition that

            because an LLC member is permitted to make capital contributions in the form of

            services, other members cannot challenge distributions to such an LLC member.

            Preiudice

                      Plaintiffs argue that defendants cannot show prejudice because fact discovery is

            ongoing 10 and relevant capital contributions records are within defendants' possession,

            custody, or control. Defendants contend that that they would be prejudiced by the

            9 The court need not reach the issue of whether defendants were permitted to make or
            in fact made capital contributions to Attena and Hemera in form of services, given that
            defendants proffer no documentary evidence of any such capital contributions.
            10 To date, a note of issue has not been filed.
                654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                   Page 8 of 11
                Motion No. 003

                                                           8 of 11
[* 8]
                                                                                           INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                              RECEIVED NYSCEF: 01/10/2024

            amendment because they already expended significant time and expense in opposing

            plaintiffs' claims and would need to prepare defense for an entirely different case.

                   "[P]rejudice occurs when the party opposing amendment has been hindered in

            the preparation of [its] case or prevented from taking some measure in support of [its]

            position." (Jacobson v McNeil Consumer & Specialty Pharms., 68 AD3d 652, 654-55

            [1st Dept 2009] [internal quotation marks and citation omitted].) "[M]ere lateness ... is

            not a barrier to amendment. Lateness must be coupled with significant prejudice to [a

            non-moving party]." (Seda v New York City Housing Authority, 181 AD2d 469,470 [1st

            Dept 1992] [citation omitted], Iv denied 80 NY2d 759 [1992].)

                   "The kind of prejudice required to defeat an amendment ... must ... be a
                   showing of prejudice traceable not simply to the new matter sought to be added,
                   but also to the fact that it is only now being added. There must be some special
                   right lost in the interim, some change of position or some significant trouble or
                   expense that could have been avoided had the original pleading contained what
                   the amended one wants to add."

            (Jacobson v Croman, 107 AD3d 644, 645 [1st Dept 2013] [internal quotation marks and

            citations omitted].)

                   Defendants fail to demonstrate prejudice: how the amendment will hinder their

            case or pursuit of their position. For instance, there is no indication that defendants no

            longer have access to any relevant documents or witnesses. Instead, during oral

            argument, defendants' counsel represented that if the new claims were to proceed, he

            would need to reopen Lazar's deposition, depose an accountant, and reserve right for

            expert disclosure. (NYSCEF 137, tr at 32:20-33:2.) The need for additional discovery,

            however, "does not constitute prejudice sufficient to justify denial of an amendment."

            (Jacobson, 68 AD3d at 654 [citation omitted].) Finally, the court is unpersuaded by

             654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                     Page 9 of 11
             Motion No. 003

                                                        9 of 11
[* 9]
                                                                                              INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                                 RECEIVED NYSCEF: 01/10/2024

            defendants' argument that they are surprised by the amendment, given that the

            amended complaint alluded to defendants' excessive distributions.

                   Finally, defendants argue that plaintiffs provide no excuse for their delay in filing

            the new claims or indicate that they were unaware of the facts supporting these claims.

                   The amended complaint filed on January 30, 2019, indicates that plaintiffs at

            least suspected that defendants' capital contributions were excessive. In support of the

            present motion, plaintiffs' counsel affirms that plaintiffs confirmed that defendants'

            distributions were inflated during discovery. (NYSCEF 116, Tripodi aff ,i 4.) In his

            affidavit, Lazar explains that his initial attempts to receive capital contribution records

            were thawrted by defendants and an accounting firm that Mor retained. (NYSCEF 126,

            Lazar aff ,i,i 6-9.) Lazar avers that without the requisite records, which he ultimately

            received directly from Investors Bank in New York in 2022, he was unable to confirm the

            shortfall in funds contributed by defendants. (Id. ,i 9.) Lazar also avers that delay in

            "this process" is attributable to COVI D-19-related travel restrictions and his health

            issues. (/d.) 11 Given that plaintiffs' efforts to access capital contribution records

            contributed to a delay in asserting the new claims, the delay is excusable. ( See Yong

            Soon Oh v Hua Jin, 124 AD3d 639, 640 [2d Dept 2015] ["In exercising its discretion, the

            court should consider how long the party seeking the amendment was aware of the

            11During oral argument, plaintiffs' counsel represented that "[to receive] bank
            statements that predated 2013, [plaintiffs] had to come to New York and meet with bank
            officials to go through that process to get the statements ... in order to properly assert
            this claim, to go through the various bank statements and make sure that capital
            contributions had not been made by the defendants. So the pandemic and Mr. Lazar's
            health problems ... caused a delay in this matter. They ... couldn't get all the bank
            statements to assert this particular claim." (NYSCEF 137, tr at 9:24-10: 11.)
             654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                        Page 10 of 11
             Motion No. 003

                                                        10 of 11
[* 10]
                                                                                                 INDEX NO. 654538/2019
  NYSCEF DOC. NO. 142                                                                      RECEIVED NYSCEF: 01/10/2024

            facts upon which the motion was predicated [and] whether a reasonable excuse for the

            delay was offered" (internal quotation marks and citations omitted)].)

                    Accordingly, it is

                    ORDERED that the plaintiffs' motion for leave to amend the complaint is granted,

            and the second amended complaint in the proposed form annexed to the moving

            papers shall be deemed served upon service of a copy of this order with notice of entry

            thereof. However, to avoid confusion, plaintiffs are directed to refile the second

            amended complaint, removing "Individually" from the caption as well as the 18 th through

            23 rd causes of action which were dismissed; and it is further

                    ORDERED that the defendants shall serve an answer to the second amended

            complaint or otherwise respond thereto within 20 days from the date of this decision;

            and it is further

                    ORDERED that the parties shall submit a proposed discovery schedule to the

            court within 30 days from the date of this decision. If the parties cannot agree, they

            shall submit competing schedules.

                    1/10/2024
                      DATE                                                     ANDREA MASLEY, J.S.C.
             CHECK ONE:                   CASE DISPOSED                NON-FINAL DISPOSITION

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

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

             654538/2019 LAZAR, GABRIEL vs. MOR, ARIK                                           Page 11 of 11
             Motion No. 003

                                                          11 of 11
[* 11]