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In Matter of Application of Patti v. Fusco

Supreme Court of the State of New York, Nassau County
Nov 30, 2005
2005 N.Y. Slip Op. 52017 (N.Y. Sup. Ct. 2005)

Opinion

10717-05.

Decided November 30, 2005.

Simmons, Jannace Stagg, LLP, Syosset, New York, Counsel for Petitioner

Blumberg, Cherkoss, Fitz Gibbons Blumberg, LLP, Amityville, New York, Counsel for Respondent.


Petitioner, Lori Patti ("Patti"), a 50% shareholder of Soma Care Massage Therapy Wellness, P.C. ("Soma Care"), petitions for dissolution of Soma Care pursuant to Business Corporation Law 1104(a)(3) on the grounds that there is internal dissension and that the two shareholders are so divided that dissolution would be beneficial to the shareholders.

Respondent Paul Fusco ("Fusco"), the other 50% shareholder of Soma Care, cross-petitions for denial of the petition, surrender of the corporate books and records, equipment and premises by Patti, an accounting by Patti and a hearing on damages.

BACKGROUND

Soma Care was incorporated in late 2003 as a professional service corporation for the practice of massage therapy. Petitioner and Respondent are each 50% shareholders. Patti states that the initial capital invested in the corporation was $20,000. Each shareholder brought certain clients to Soma Care and, it is alleged, that each serviced private clients outside of Soma Care.

It is clear from the record that Patti and Fusco reached a parting of the ways in April 2005, when Soma Care's relationship with its "on site" physician, Dr. Bressler, was terminated by Fusco. Patti states that she wanted to continue receiving medical referrals from Dr. Bressler. She notes that it was Fusco who had originally invited Dr. Bressler to treat Soma Care's clients in Soma Care's offices, and that it was Fusco who gave Soma Care's customer list to Dr. Bressler. Nevertheless, a permanent arrangement with Dr. Bressler did not work out. Patti claims that when she informed Fusco that she wanted to work with Dr. Bressler one day a week, Fusco abandoned Soma Care and confiscated its books.

Fusco alleges that Patti wanted to provide medical massage services to Soma Care's clients at Dr. Bressler's office and that this would create a conflict of interest. He contends that certain corporate records were delivered to his attorney. Further, he alleges that Patti changed the locks at Soma Care after she was contacted by Fusco's former lawyer.

DISCUSSION

The standard for dissolution is not who is at fault for a deadlock, but whether a deadlock exists. See, Matter of Kaufmann, 225 AD2d 775 (2nd Dept. 1996). The critical consideration is the fact that dissension exists and has resulted in a deadlock precluding the successful and profitable conduct of the corporation's affairs. Matter of Goodman v. Lovett, 200 AD2d 670 (2nd Dept.), lv. app. dism., 84 NY2d 850 (1994). Cf. Matter of Fazio Realty Corp., 10 AD3d 363 (2nd Dept. 2004).

In the case of a close corporation, the relationship between the shareholders is akin to that of partners. When the relationship begins to deteriorate, the ensuing deadlock and dissension can effectively destroy the orderly functioning of the corporation. Molod v. Berkowitz, 233 AD2d 149 (1st Dept. 1996), lv. app. dism., 89 NY2d 1029 (1997); and Greer v. Greer, 124 AD2d 707 (2nd Dept. 1986), app. dism., 69 NY2d 900 (1987). Where the record demonstrates sufficient differences and animosity between the shareholders, and dissolution is the only viable alternative, dissolution will be granted Molod v. Berkowitz, supra; and Matter of Goodman v. Lovett, supra. Dissolution is not to be denied merely because the dissension has not yet had an appreciable impact on the corporation's profitability. Molod v. Berkowitz, supra.

On this record, the Court finds sufficient evidence of such dissension between the two shareholders that a deadlock exists. Soma Care cannot continue to function effectively. For this reason, the petition for dissolution must be granted and the cross-petition for denial of dissolution must be denied.

However, the Court is troubled by the allegations of self-dealing by Petitioner. Shareholders in a close corporation owe each other a duty to act in good faith. Matter of Cassata v. Brewster-Allen-Wichert, Inc., 248 AD2d 710 (2nd Dept. 1998). The relationship of such shareholders is a fiduciary one. See, Brunetti v. Musallam, 11 AD3d 280 (1st Dept. 2004); and Spodek v. Neiss, 304 AD2d 557 (2nd Dept. 2003). The issue presented on this record is whether Patti has breached her fiduciary duty to Fusco, by diversion of corporate opportunities for Soma Care. See gen'lly, Fender v. Prescott, 101 AD2d 418 (1st Dept. 1984), affd., 64 NY2d 1079 (1985). The cross-petition alleges such a claim for breach of fiduciary duty. Thus, the cross-petition must be granted to the extent of setting this claim down for a hearing.

In addition, Fusco is certainly entitled to an accounting of all of the assets of Soma Care and the winding down of its business. The hearing on Fusco's breach of fiduciary duty claims shall be heard along with the accounting issues.

Accordingly, it is, ORDERED, that the petition for dissolution of Soma Care pursuant to Business Corporation Law 1104(a)(3) is granted, and, to the extent that the cross-petition seeks denial of dissolution, it is denied; and it is further, ORDERED, that the cross-petition is granted to the extent of setting down for a hearing the claim against petitioner for breach of fiduciary duty; and it is further, ORDERED, that the request in the cross-petition for an accounting of Soma Care and its winding down is granted; and it is further, ORDERED, that the remainder of the cross-petition is denied; and it is further, ORDERED, that counsel for the parties are directed to appear for a preliminary conference on January 10, 2006 at 9:30 a.m.

This constitutes the decision and Order of the Court.


Summaries of

In Matter of Application of Patti v. Fusco

Supreme Court of the State of New York, Nassau County
Nov 30, 2005
2005 N.Y. Slip Op. 52017 (N.Y. Sup. Ct. 2005)
Case details for

In Matter of Application of Patti v. Fusco

Case Details

Full title:IN THE MATTER OF THE APPLICATION OF LORI PATTI, Holder of One-Half of All…

Court:Supreme Court of the State of New York, Nassau County

Date published: Nov 30, 2005

Citations

2005 N.Y. Slip Op. 52017 (N.Y. Sup. Ct. 2005)
809 N.Y.S.2d 482

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