Contract; breach; fiduciary duty; fraud; misappropriation; self-dealing; conspiracy; collateral estoppel; irreparable harm; CPLR § 3211(a)(5); CPLR § 3211(a)(4); BCL §713; BCL §624
By: Roshnee Sukhnandan | Staff Writer
Plaintiff brought an action on behalf of Hyperbaric Technologies, Inc. (“HTI”) against two defendants who are the CEO and CFO of HTI. Defendants, along with plaintiff, each held a one-third ownership interest in HTI. HTI’s products are manufactured exclusively by Breton Industries, Inc. (“Breton”), a corporation owned and controlled by the two defendants.
Plaintiff alleged that defendants fraudulently induced the execution of their Employment Agreement at HTI and engaged in misappropriation and self-dealing of HTI’s assets. Subsequently, one defendant was removed as an HTI officer and thereafter brought an action alleging breach of the Employment Agreement (“Schenectady Action”). Thereafter, defendants, as majority shareholders of HTI, held a special meeting at which they replaced plaintiff as a director and executed a Settlement Agreement for the Schenectady Action, which provided for reinstatement of the Employment Agreement.
Thereafter, plaintiff asserted causes of action for breach of a dividend plan, fraud, misappropriation, breach of fiduciary duty, breach of contract, and conspiracy and sought a judgment invalidating the Settlement Agreement and an order removing HTI’s officer and directors. Plaintiff made a motion for a preliminary injunction and defendants cross-moved to dismiss the action on the grounds that another action is pending between the same parties for the same action and under CPLR §3211(a)(5) arguing that the issues raised in by plaintiff in this action should have been raised in the Schenectady Action under the doctrine of collateral estoppel.
To obtain a primarily injunction, plaintiff had the burden to demonstrate: (1) a likelihood of ultimate success on the merits; (2) the prospect of irreparable harm in the absence of the requested injunctive relief; and (3) a balance of the equities tipping in favor of the plaintiff.
The Court found that plaintiff only satisfied the first element in one claim. The plaintiff demonstrated a fair likelihood of success in invalidating the Settlement Agreement. The plaintiff could establish that defendant had a substantial interest in HTI’s decision to settle the Schenectady Action since defendant had a substantial financial interest in discontinuing the Schenectady Action so as to avoid disclosure of his alleged wrongdoing and the prospect of legal liability.
Having concluded that plaintiff demonstrated a likelihood of ultimate success in invalidating the Settlement Agreement, the Court moved on to evaluate whether plaintiff demonstrated the prospect of irreparable harm in the absence of the requested injunctive relief, and found that plaintiff did not meet the burden. The Court said that irreparable harm here means any injury that a monetary award alone would not be adequate compensation. Here, the Court found that a money judgment would be adequate. Thus, the Court denied plaintiff’s motion for a preliminary injunction.
The Court denied defendant’s motion to dismiss under CPLR §3211(a)(4) because the Schenectady Action is no longer pending. The Court also denied defendant’s motion to dismiss under CPLR §3211(a)(5) because it found that no issues present in this litigation were previously litigated or stipulated upon to effect collateral estoppel.
Heller v. Lewis, Index No. 901146/2015, 12/21/15 (Platkin, J.).