2015 NY Slip Op 51857(U) Decided on December 18, Supreme Court, Albany County. Platkin, J.

Transcription

1 [*1] Matter of the Dissolution of Capital Region Multiple Listing Serv. Inc. (Greater Capital Region Assn. of Realtors Inc. Saratoga Schenectady Schoharie Assn. of Realtors, Inc.) 2015 NY Slip Op 51857(U) Decided on December 18, 2015 Supreme Court, Albany County Platkin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law 431. This opinion is uncorrected and will not be published in the printed Official Reports. Decided on December 18, 2015 Supreme Court, Albany County In the Matter of Greater Capital Region Association of Realtors, Inc., for the Dissolution of Capital Region Multiple Listing Service, Inc., Petitioner, and Saratoga Schenectady Schoharie Association of Realtors, Inc., Respondent Driver Greene, LLP Attorneys for Greater Capital Region Association of Realtors, Inc. (Patrick K. Greene and John D. Hoggan, Jr., of counsel) 1/9

2 228 Church Street Saratoga Springs, New York LeCours, Chertok & Yates, LLP Attorneys for Saratoga Schenectady Schoharie Association of Realtors, Inc. (Alan R. LeCours, of counsel) 59 Church Street Saratoga Springs, New York Richard M. Platkin, J. Petitioner Greater Capital Region Association of Realtors, Inc. ("GCAR") brings this special proceeding seeking the judicial dissolution of Capital Region Multiple Listing Service, Inc. ("CRMLS"). Respondent Saratoga Schenectady Schoharie Association of Realtors, Inc. ("SSSAR") opposes the Verified Petition ("Petition") through an answer. BACKGROUND 2/9

3 The lengthy background to this proceeding is set forth in two prior decisions: (1) the January 23, 2014 Decision & Order of this Court dismissing an earlier petition by GCAR to dissolve CRMLS (Index No ["Prior Proceeding"]); and (2) the February 24, 2015 Decision & Order entered in this proceeding denying SSSAR's motion to dismiss the Petition and ordering an evidentiary hearing thereupon. In brief, GCAR and SSSAR are not for profit trade associations representing real estate brokers within defined regions of Upstate New York. CRMLS is a corporation formed by the predecessors of GCAR and SSSAR to operate a computerized multiple listing service ("MLS"). GCAR and SSSAR each own 50% of the shares of CRMLS. There are 12 directors on the CRMLS governing board ("Board"), six of whom are nominated by GCAR and six of whom are nominated by SSSAR. Participating real estate brokers in the Capital Region pay an annual fee for access to the MLS, which contains current real estate listings and historical sales data. The vast majority of CRMLS's customers are members of GCAR and/or SSSAR, but there are some unaffiliated brokers who subscribe to the MLS system. Initially, GCAR and SSSAR had roughly comparable membership, but GCAR has become a much larger organization. By August 2014, GCAR had more than 2,800 members, and SSSAR had fewer than 150 members. As a result, GCAR's members provide CRMLS with almost 95% of its operating income. According to GCAR, this imbalance has resulted in a situation in which a small minority of CRMLS participants have frustrated the objectives of the overwhelming majority. GCAR alleges that since the dismissal of the Prior Proceeding in January 2014, the dissension, disagreement and deadlock between the two shareholders and their respective appointees to the CRMLS Board have continued to escalate. This continued dysfunction and dissension allegedly has left CRMLS unable to confront issues of significance to its business. GCAR seeks the dissolution of CRMLS under Business Corporation Law 1104 (a) (1) and (3) on the grounds that: "(i) the directors are so divided respecting the management of the Corporation's affairs that the votes required for action by the 3/9

4 [B]oard cannot be obtained; and/or (ii) that there is internal dissension and two or more factions of shareholders of the Corporation are so divided that dissolution would be beneficial to the shareholders of the Corporation." In opposing the Petition, SSSAR contends that dissolution should be denied because GCAR has failed to demonstrate that the alleged dissension or deadlock precludes the successful and profitable conduct of CRMLS's business. SSSAR also claims that the Petition was filed in bad faith, maintaining that GCAR "manufactured the very dissention which it now contends is ground for dissolution in a transparent effort to establish its own, competing MLS system". An evidentiary hearing was held before the Court on August 19, 2015 and August 26, Post trial briefing was completed on or about October 30, Based upon the credible [*2]testimony and evidence adduced, the Court hereby makes the following findings of fact and conclusions of law. ANALYSIS A. Standing At the outset, SSSAR argues that GCAR has neither alleged nor proven its standing to maintain this dissolution proceeding. This argument, raised for the first time in SSSAR's post hearing submissions, lacks merit for several reasons. First and foremost, SSSAR has waived this argument by failing to preserve the defense in its answer or in a pre answer motion to dismiss (see Matter of Plainview Old Bethpage Congress of Teachers v New York State Health Ins. Plan, 2015 NY Slip Op [3d Dept 2015]). Contrary to SSSAR's contention, the fourth affirmative defense, which generally alleges that the Petition fails to state a claim upon which relief can be granted, does not operate to preserve the affirmative defense of lack of standing. In any event, SSSAR's standing argument rests on the false premise that the 4/9

5 Petition was filed by the president of GCAR, who is said to lack standing under Business Corporation Law In fact, the Petition is brought in the name of Greater Capital Region Association of Realtors, Inc., the holder of one half of the outstanding shares of CRMLS. The president of GCAR, Albert Picchi, simply verified the Petition, as is authorized and directed by CPLR 3020 (d). Finally, SSSAR has not identified any provision of the CRMLS by laws that divested shareholders of the right to pursue involuntary judicial dissolution of the corporation in accordance with Business Corporation Law B. Deadlock, Dissension & Division Judicial dissolution of a business corporation is authorized where "the directors are so divided respecting the management of the corporation's affairs that the votes required for action by the board cannot be obtained" (Business Corporation Law 1104 [a] [1]). Dissolution also is available where "there is internal dissension and two or more factions of shareholders are so divided that dissolution would be beneficial to the shareholders" (Business Corporation Law 1104 [a] [3]). The dissension, disagreement and division within the corporation must "pose[] an irreconcilable barrier to [its] continued functioning and prosperity" (Matter of Dream Weaver Realty, Inc. [Poritzky DeName], 70 AD3d 941, 942 [2d Dept 2010] [internal quotation marks omitted]; see also Matter of Clever Innovations, Inc. [Dooley], 94 AD3d 1174, 1176 [3d Dept 2012]). But "the underlying reason for the dissension is of no moment, nor is it at all relevant to ascribe fault to either party. Rather, 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, [2d Dept 1994] [citations omitted]). In determining whether to grant dissolution, "the benefit to the shareholders... is of paramount 5/9

6 importance" (Business Corporation Law 1111 [b] [2]), and "dissolution is not to be denied merely because it is found that the corporate business has been or could be conducted at a profit" (id. [b] [3]). Applying the foregoing principles of law to the credible testimony and documentary evidence adduced at trial, the Court finds and determines that dissolution is warranted under both [*3]Business Corporation Law 1104 (a) (1) and (3). The proof at trial convincingly demonstrates an extremely high level of dissension, division and discord between GCAR and SSSAR that has left the Board, which consists of six directors appointed by each shareholder, deadlocked and unable to act on all but the most ministerial of matters. Subsequent to the dismissal of the Prior Proceeding in January 2014, the Board has been unable to obtain the votes necessary for action on matters of significance to CRMLS, including: approval of the minutes of prior Board meetings; changes to the CRMLS by laws mandated by the National Association of Realtors ("NAR"); the retention of counsel for CRMLS in an action commenced by GCAR seeking a declaration of rights with regard to ownership of the listing data provided to CRMLS (GCAR v SSSAR, Index No ["DJ Action"]); and various matters of corporate governance and day to day administration of the corporation. This deadlock of the CRMLS Board and its inability to act extends well beyond the discrete issues upon which Board votes were taken and deadlock ensued. Rather, GCAR has established persistent, sweeping and escalating divisions on the part of CRMLS directors that prevent the Board from taking any meaningful new action or, for that matter, even agreeing upon what transpired at its prior meetings. In other words, the credible proof at trial shows a corporate board that has been paralyzed by division and deadlock for years. The Court further finds that there is no reasonable prospect that the votes needed for action by the CRMLS Board action could be obtained by the convening of additional meetings. It is evident that the convening of additional Board meetings would be futile, even if a quorum were obtained. For this reason, the Court is unpersuaded by SSSAR's reliance on authorities denying dissolution where the claim of deadlock was founded upon a mere failure to convene board meetings at which the 6/9

7 votes needed for action could be obtained (cf. Nelkin v H. J. R. Realty Corp., 25 NY2d 543, [1969]). The paralysis of the CRMLS Board is a direct outgrowth of the extreme division and dissension that has developed over a long period of time between the two shareholders, each of which owns one half of the stock in the MLS joint venture. The minutes of shareholders' meetings and the credible trial testimony establish that GCAR and SSSAR are unable to agree on fundamental issues affecting CRMLS business and affairs, including: corporate governance; the day to day administration of CRMLS; the selection of an administrator, counsel and accountant; access to corporate funds and property; and the NAR mandated changes to the CRMLS by laws. As a result, the shareholders are embroiled in numerous disputes, including: the DJ Action; SSSAR's complaints to NAR regarding GCAR's administration of CRMLS; threats of personal litigation against GCAR leadership; and highly charged allegations of criminality and other wrongdoing. GCAR has further shown that the conflict between the shareholders escalated to the point of physical intimidation, threats and verbal hostility at several meetings in May In addition to the specific issues that have engendered dissension and division, the Court credits the more generalized testimony put forward by GCAR's witnesses regarding the shareholders' differing visions of the future of CRMLS and the technological and business changes necessary to ensure the corporation's continued success and vitality. Given the longstanding acrimony between the shareholders, CRMLS has been unable to enter into a long term arrangement with a vendor for the data processing services that are critical to the success of [*4]its MLS, instead being forced to maintain the status through month by month agreements. Nor can CRMLS explore significant technological changes or collaborative and/or regional opportunities with other multiple listing services as presently divided. Indeed, the ongoing dissension, disagreement and deadlock has created a chaotic and disruptive situation in which CRMLS is unable to address issues of significance to its current business, much less confront future challenges and opportunities. All of this poses an irreconcilable barrier to the continued functioning and prosperity of CRMLS, 7/9

8 even while the corporation remains financially solvent as a result of the fees being paid to it by GCAR's member brokers. [FN1] The Court also rejects SSSAR's claim that GCAR acted in bad faith to "manufacture[] the very dissension which it now contends is ground for dissolution in a transparent effort to establish its own, competing MLS system". At all times subsequent to the dismissal of the Prior Proceeding, almost two years ago, there has been genuine and bona fide deadlock and dissension between the shareholders and their respective appointees to the Board on matters important to the continued and successful operation of CRMLS. Under these circumstances, it is not "at all relevant to ascribe fault to either party" (Matter of Goodman, 200 AD2d at 621). Finally, the Court finds that the CRMLS shareholders would benefit from dissolution. CRMLS cannot function effectively now and in the future as a result of the high degree of division and dissension between the shareholders and the inability of the Board to act. No legitimate purpose would be served by obliging the parties to continue their joint venture under these circumstances (cf. 8 Delaware Code 273). CONCLUSION Accordingly, it is ORDERED and ADJUDGED that the Petition for dissolution is granted; and it is further ORDERED that counsel shall appear for a conference in the Chambers of the undersigned on January 26, 2016 at 9:30 a.m. to set further proceedings regarding the distribution of CRMLS's assets and any other remedial issues regarding dissolution, after having conferred in good faith as required by the Rules of the Commercial Division. 8/9

9 This constitutes the Decision and Order of the Court. The original of this Decision and Order is being transmitted to petitioner's counsel; all other papers are being retained in Chambers. The signing of this Decision and Order shall not constitute entry or filing under CPLR Rule Counsel is not relieved from the applicable provisions of that Rule respecting filing, entry and Notice of Entry. Dated: December 18, 2015 Albany, New York RICHARD M. PLATKIN A.J.S.C. Footnotes Footnote 1: It bears some emphasis that CRMLS is not operated to earn a profit or dividends for its shareholders, which are not for profit corporations. Return to Decision List 9/9