Judge Richard Platkin of Albany County recently handed down a stark reminder to Defendant Walid Darwish: everyone has to follow the rules of the road, even the person who writes the rules and owns all the cars. On April 26, 2023, Judge Platkin denied Darwish’s motion to dismiss in all respects, filed in response to a suit brought by two entities, Darwish Auto Group, LLC (“Darwish Auto”) and Darwish General Corp. (“Darwish General”), collectively, “Plaintiffs.”[1] Defendant Darwish is the sole owner of Darwish Auto and the sole shareholder of Darwish General; collectively, Plaintiffs own and manage ten car dealerships across upstate New York. In the motion, Judge Platkin ruled that Defendant Darwish’s sole ownership of both Plaintiff entities did not preclude either entity from suing to enjoin Defendant Darwish from violating the terms of their respective Operating Agreements.
Background
From 2020 to early 2022, Walid Darwish pursued loan financing in the hopes of purchasing car dealerships in Upstate New York. In April 2022, Darwish executed loan agreements that provided Darwish’s companies, Darwish Auto and Darwish General, with the funds to purchase several dealerships.[2] In return, Darwish promised that Darwish Auto would be governed by an Operating Agreement that, among other things, stated that management of Darwish Auto is vested in a committee of three managers, of which no manager has the authority to act alone.[3] Similarly, Darwish promised that Darwish General would be governed by a Shareholder Agreement that, among other things, vested management of Darwish General in a board of directors, none of whom could act alone.[4]
Within months of executing the loan agreements, Darwish allegedly began to violate the terms of the Operating and Shareholder Agreements. In July 2022, Plaintiffs learned that Darwish had unilaterally changed the access privileges to both Darwish Auto and Darwish General’s corporate bank accounts, limiting access to Darwish alone.[5] Plaintiffs commenced this action in August 2022, first seeking an injunction directing Darwish to grant Plaintiffs access their own corporate bank accounts.[6] After Judge Platkin granted Plaintiffs’ injunction, in September 2022, Darwish filed an answer with counterclaims, along with a third-party action against the other individual members of Plaintiffs’ respective governing bodies.[7] On October 13, 2022, Plaintiffs filed an amended complaint, alleging further actions by Darwish that violate Plaintiffs’ Operating and Shareholder Agreements (collectively the “Governance Agreements”).[8] On October 31, 2022, Darwish filed a pre-answer motion to dismiss the amended complaint for (i) failure to bring the action in the proper forum, (ii) lack of standing to sue, (iii) failure to join necessary parties, (iv) defenses founded on documentary evidence and (v) failure to state a claim.[9] After a brief hiatus in which the parties tried unsuccessfully to mediate, Judge Platkin advised the parties that he would rule on Darwish’s motion to dismiss.
Discussion
Forum Selection Clause
In his ruling, Judge Platkin first considered Darwish’s argument that Plaintiffs could not obtain relief because they brought the complaint in the wrong forum. Specifically, Darwish argued that the disputes alleged in Plaintiffs’ complaint had to be adjudicated in Delaware, based on the forum selection clauses in the various financing agreements that effectuated the leases provided to Plaintiffs.[10] In response, Plaintiffs pointed to the Governance Agreements, which specified that any disputes under the Agreements must be adjudicated in New York.[11] Judge Platkin sides with the Plaintiffs, concluding that “resolution of this case hinges on the Governance Agreements, not the Financing Agreements,” which “largely serve as a source of context for the parties’ disputes under the Governance Agreements.”[12] Accordingly, Judge Platkin denies Darwish’s motion to dismiss for failure to bring the action in the proper forum.
Standing
Judge Platkin then briefly considered Darwish’s argument that Plaintiffs cannot sue Darwish because Darwish is the sole owner/shareholder of each entity and “did not authorize the [P]laintiffs to bring suit against himself.”[13] Judge Platkin put his response in simple terms. “There is no merit to Darwish’s standing argument. Corporations and limited liability companies are legal entities that can sue and be sued.”[14] Finding that the Plaintiffs’ governing bodies have authorized suit against Darwish, Judge Platkin denies Darwish’s motion to dismiss for lack of standing.[15]
Necessary Parties
Next, Judge Platkin considered Darwish’s contention that the complaint should be dismissed for failure to join necessary parties. Namely, Darwish argued that complete relief cannot be accorded in the dispute without joining other entities involved in the loan financing agreements or various car manufacturers who have executed contracts with Plaintiffs.[16] Judge Platkin rejected this argument on two grounds: (1) Even if Darwish’s assertion that the parties identified are necessary, dismissal would be inappropriate prior to the issuance of a summons;[17] and (2) Darwish failed to identify any necessary parties currently missing from the dispute because the entities he identified were not parties to the relevant agreements, nor did the Amended Complaint seek relief against them.
Documentary Evidence
Darwish also sought relief pursuant to CPLR 3211(a)(1), which permits a court to consider documentary evidence in connection with a motion to dismiss. A motion to dismiss a complaint as barred by documentary evidence may be properly granted when “unambiguous” evidence “of undisputed authenticity” works to “utterly refute[] the plaintiff’s factual allegations, conclusively establishing a defense as a matter of law.”[18] After brief consideration, Judge Platkin observed that the documentary evidence proffered (which included a letter, earlier drafts of the relevant agreements and various other documents) by Darwish does not meet these requirements. Judge Platkin found that various documents submitted by Darwish to show that Darwish was the sole owner of Plaintiffs failed to refute Plaintiffs’ factual allegations in the complaint, which center on management, not ownership.[19] Next, Judge Platkin observed that Darwish’s production of prior governance documents for Plaintiffs was not relevant because they were superseded upon the execution of the currently-operative April 2022 Governance Agreements.[20]
Failure to State a Claim
Finally, Judge Platkin considered Darwish’s contention that the Plaintiffs’ complaint must be dismissed for a failure to sufficiently plead their claims for declaratory judgment, breach of fiduciary duty, and breach of contract. “Dismissal of claims for pleading insufficiency are warranted,” Judge Platkin stated at the outset of his analysis, “if the plaintiff fails to assert facts in support of an element of the claim, or if the factual allegations and inferences to be drawn from them do not allow for an enforceable right of recovery.”[21] Judge Platkin first determined that, because “the present record plainly establishes that there is a real dispute between the parties involving substantial legal interests for which a declaration of rights will have practical effect,” Plaintiffs have stated a claim for declaratory judgement.[22]
Next, Judge Platkin analyzed Plaintiffs’ claims of breach of fiduciary duty. Under CPLR 3016(b), claims of a breach of fiduciary duty must allege (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant’s misconduct[23], and must be pled with sufficient particularity to put the defendant on notice of the particular incidents which are alleged to have violated the defendant’s fiduciary duty.[24] Judge Platkin found that Plaintiffs had met both pleading burdens: the Amended Complaint adequately identified the source of Darwish’s fiduciary duty to Plaintiffs, and alleged with particularity the incidents complained of by Plaintiffs.[25] Judge Platkin also noted that this finding is buttressed by Judge Platkin’s prior decision, finding that Plaintiffs were likely to succeed on establishing Darwish’s unauthorized interference with Plaintiffs’ corporate bank accounts.[26]
Finally, Judge Platkin affirmed that the Plaintiff’s claim for breach of contract, although “sparsely pleaded,” adequately alleged the formation of an employment agreement, Darwin’s breach of that agreement coupled with Plaintiffs’ performance, and resulting damages in order to survive a motion to dismiss.[27]
Conclusion
Judge Platkin’s decision serves as an important reminder to those considering the creation of corporate entities for the purpose of furthering their personal business interests; those entities will always exist separate and apart from their founders, for better or worse, and will legally embody all of the power and autonomy written into their governing documents. Moreover, this case illustrates the high bar for dismissal pursuant to CPLR 3211(a)(1)—unless the moving party can proffer documents of unquestionable authenticity that directly and absolutely refute the allegations of the complaint, a court is unlikely to rely on documentary evidence to dismiss an action before the close of discovery.
[1] Darwish Auto Grp., LLC v TD Bank, N.A., 905851-22, 2023 slip op. 50404(U) (Sup. Ct., Albany Cty., Apr. 26, 2023).
[2] Id. at 1.
[3] Id. at 2.
[4] Id.
[5] Id.
[6] Id.
[7] Id. at 2–3.
[8] Id. at 3.
[9] Id.
[10] Id. at 3–4.
[11] Id. at 4.
[12] Id.
[13] Id.
[14] Id. at 6, citing Bill v. Consolidated Mach. Tool Corp., 51 N.Y.2d 152, 163 (1980); Singh v Nadlan, LLC, 171 A.D.3d 1239, 1240 (2d Dep’t 2019).
[15] Id.
[16] Id.
[17] Id., citing CPLR 1001; Matter of Nemeth v. K-Tooling, 163 A.D.3d 1143, 1145 (3d Dep’t 2018.
[18] Id. at 8, citing Zeppieri v. Vinson, 190 A.D.3d 1173, 1175 (3d Dep’t 2021).
[19] Id.
[20] Id. at 5.
[21] Id., citing Connaughton v. Chipotle Mexican Grill, Inc., 29 N.Y.3d 137, 142 2017)
[22] Id. at 5–6.
[23] Id. at 6, citing Litvinoff v. Wright, 150 A.D.3d 174, 715 (2d Dep’t 2017)
[24] Id., citing CPLR 3016(b); Palmetto Partners, L.P. v. AJW Qualified Partners, LLC, 82 A.D.3d 804, 808 (2d Dep’t 2011); see also New York State Workers’ Compensation Bd. v.. SGRisk, LLC, 116 A.D.3d 1148, 1154 (3d Dep’t 2014).
[25] Id.
[26] Id.
[27] Id. at 6–7.
