Zaharatos v. Zaharatos, Index No. 500153/2011, 5/21/2015 (Demarest, J.)

Preliminary Injunction; Summary Judgement; CPLR § 3212; Conversion; CPLR § 6401; CPLR § 6312(b); Civil Contempt

By: Gregory Brown, Jr. | Staff Writer

Plaintiff and Defendant were married and divorced on two separate occasions. Both divorces were governed by a separation agreement, which provided that “[a]ll other items of personal property not specifically enumerated herein shall be the sole property of the party who purchased or received said property as a gift.” Before, during, and after the marriages, Plaintiff and Defendant individually purchased a total of thirteen properties (the “Properties”) and transferred one or more of the Properties to Alimos Corp. or Chrysa Corp. (collectively, the “Corporations”). Defendant incorporated the Corporations and originally purchased ten of the thirteen Properties (the “Ten Properties”). None of the Properties or Corporations were enumerated in the separation agreement. After the second divorce, Plaintiff and Defendant disputed the ownership of the Properties and the Corporations.

Since Defendant retained possession and control of the Properties, Plaintiff sued Defendant alleging five causes of action: conversion, unjust enrichment, money had and received, equitable accounting, and ejectment. Plaintiff initially moved for a preliminary injunction to enjoin Defendant from collecting rent from the Properties and holding himself out as an agent or authorized representative of the Properties. In response, the Court issued an order allowing Defendant to continue to manage the Properties and to take any action necessary to maintain the Properties (the “First Order”). Later, Defendant failed to pay outstanding property taxes on the Properties, so Plaintiff moved for an order finding Defendant in contempt for violating the First Order. In response, the Court ordered Defendant to pay the outstanding property taxes, provide an accounting of the finances of the Properties, and provide biannual accountings of the Properties in the future (the “Second Order”).

One year after the Second Order, Plaintiff moved for a preliminary injunction seeking to (i) enjoin Defendant from holding himself out as an agent or authorized representative of the Properties; (ii) enjoin Defendant from collecting rents from the Properties; (iii) enjoin Defendant from taking any actions as a proposed representative or owner of the Corporations; (iv) compel Defendant to provide an accounting of the Properties in accordance with the Second Order; (v) find Defendant in contempt for failing to comply with the Second Order; (vi) declare that Plaintiff is the sole owner of the Properties and the Corporations; and (vii) vacate the First Order or, alternatively, appoint a temporary receiver to manage the Properties. In response, Defendant moved for summary judgement, pursuant to CPLR § 3212, and an order declaring Defendant the sole owner of the Corporations or, alternatively, an order declaring Defendant the sole owner of the Ten Properties. Defendant argued that there were no triable issues of fact because, based on the separation agreement, deeds from the Ten Properties showed that Defendant was the original purchaser.

The Court denied Defendant’s motion for summary judgement. First, the Court noted that the separation agreement does not govern the disposition of the Properties because the agreement does not encompass real property. Second, the Court found several issues of triable fact regarding the ownership of the Properties and the Corporations. A party moving for summary judgement must present evidence that makes a prima facie showing of entitlement to judgement as a matter of law. Here, both parties failed to provide evidence of ownership interests in the Corporations and any consideration paid for the transfers of the Properties. Thus, Defendant was not entitled to summary judgement.

The Court granted Plaintiff’s motion for preliminary injunction to the extent that Defendant is enjoined from collecting rents from the Properties or taking any actions as a proposed representative or owner of the Corporations. A party moving for a preliminary injunction must prove three elements: the likelihood of success on the merits; irreparable harm without the preliminary injunction; and that the equities are balanced in the movant’s favor. First, the Court found that Plaintiff established a likelihood of success on the merits of her conversion claim against Defendant. Conversion occurs when a party intentionally exercises control over personal property belonging to someone else, which interferes with that person’s right of possession. Since Plaintiff alleged that she was the owner of the Properties while Defendant continued to collect rents and enter into lease agreements, Plaintiff established a likelihood of success on the merits for her conversion claim. Second, the Court found that Plaintiff would suffer irreparable harm without the preliminary injunction because Defendant’s actions will damage the goodwill and creditworthiness of the Corporations. Additionally, since many of the Properties are not generating rents, Plaintiff would be unable to provide adequate services for the Properties. Lastly, the Court did not specifically address the equity element of the preliminary injunction standard; nonetheless, the Court partially granted Plaintiff’s preliminary injunction.

However, the Court did not find Defendant in contempt of the First and Second Orders. To prevail on a motion for contempt, the movant must prove that the party accused of contempt violated a clear and unequivocal mandate of the court, thereby prejudicing the movant’s rights. First, the Court found that Defendant complied with the First Order by continuing to collect rents and manage the Properties; whether Defendant mismanaged the Properties has no bearing on the First Order. Second, the Court emphasized that Defendant did not directly violate the Second Order. Even though the accountings provided by Defendant were handwritten and lacked detail, the Second Order did not explicitly require Defendant to provide information about the tenants, leases, or rent charged per each tenant.

As a result, the Court vacated the First Order and appointed a temporary receiver. Pursuant to CPLR § 6401, the court may appoint a temporary receiver when the evidence demonstrates the need to conserve the property at issue and protect a party’s interest in that property. This need was established through Plaintiff’s interest in the Properties and Defendant’s diversion of the rents to his personal use.

Since the preliminary injunction was partially granted, the Court then directed Plaintiff to post an undertaking. According to CPLR § 6312(b), the undertaking must be rationally related to the potential damages that Defendant would incur if the preliminary injunction proves to be unwarranted. Since Defendant’s potential damages include lost rental income and attorneys’ fees, the Court directed Plaintiff to post an undertaking in the amount of $100,000.

Therefore, Defendant’s motion for summary judgement was denied, and Plaintiff’s motion for preliminary injunction was granted and denied in part.

Zaharatos v. Zaharatos, Index No. 500153/2011, 5/21/2015 (Demarest, J.).

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