CHIU v. CHIU

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Docket Number

No. 2006-00455.

Attorney(S)

Michael C. Marcus, Long Beach, N.Y., for appellants. Warshaw Burstein Cohen Schlesinger Kuh, LLP, New York, N.Y. (Bruce H. Wiener of counsel), for respondents.

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Smart Summary

Factual and Procedural Background

This action sought to cancel a deed, set aside a conveyance of real property, and recover damages for unjust enrichment. After a nonjury trial, the Supreme Court, Queens County (Blackburne, J.), entered an order and judgment that, inter alia:

determined that defendant Winston Chiu "was never a member of the [plaintiff 42-52 Northern Blvd.] LLC" and that plaintiff Man Choi Chiu is the "sole member" of that LLC;
granted the plaintiffs' post-trial application to conform the pleadings to the proof by amending specified paragraphs of the complaint and the ad damnum clause;
determined that the deed and title held by the defendants to the subject premises were null and void;
precluded the defendants from any financial involvement, participation, management, membership, rights, privileges, interest, or emoluments of membership in the LLC and the premises; and
awarded plaintiffs an attorney's fee.

The defendants (appellants) appealed from that order and judgment to the Appellate Division, Second Department.

Legal Issues Presented

Whether the trial court correctly determined that defendant Winston Chiu "was never a member" of the 42-52 Northern Blvd., LLC and that plaintiff Man Choi Chiu was the "sole member" thereof.
Whether the trial court properly granted the plaintiffs' post-trial application to conform the pleadings to the proof by amending the complaint to add a new cause of action (that Winston was a "nominal member").
Whether the trial court correctly set aside as fraudulent the transfer of the LLC's sole asset (the real property) from the LLC to a trust controlled by the defendants for a purchase price of ten dollars, without payment of transfer taxes and in violation of the mortgage.
Whether the trial court properly precluded the defendants from any financial involvement, participation, management, membership, rights, privileges, interest, or emoluments of membership in the LLC and the premises.
Whether the award of attorneys' fees and other relief as entered by the trial court was appropriate.

Arguments of the Parties

Appellants' (Defendants') Arguments

The defendants sought to admit into evidence an operating agreement, purportedly entered into before the LLC's organization, which granted Winston the right to acquire up to a 25% ownership interest and Henry Chiu the right to acquire the remaining 75% interest; they noted that the same agreement was included in the closing statement prepared by Wander Golden and that the closing statement had been admitted into evidence on consent.
The defendants challenged the trial court's findings concerning membership and other determinations (as reflected by their appeal) and preserved other contentions identified in their brief (not described in detail in the opinion).

Respondents' (Plaintiffs') Actions / Contentions

The plaintiffs filed a post-trial application to amend the complaint to add a new cause of action seeking a declaration that Winston Chiu was merely a "nominal member" of the LLC and could be expelled upon payment of the value of a 4% capital account; they sought to conform the pleadings to the proof by amending specific paragraphs of the complaint and the ad damnum clause.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492, 499	The scope of appellate review of a trial court's findings of fact following a nonjury trial: the appellate court's authority "is as broad as that of the trial court" and includes power to render the judgment warranted by the facts, taking into account the trial judge's advantage in seeing witnesses.	The court invoked this standard in reviewing the trial court's factual findings and in determining which factual findings to uphold or modify.
see Hall v Sinclaire, 35 AD3d 660	Cited in support of the standard for appellate review of nonjury trial findings (see context with Northern Westchester).	Used as supplementary authority for the review standard.
Matter of Fasano v State of New York, 113 AD2d 885, 888	Cited in support of the standard for appellate review of nonjury trial findings (see context with Northern Westchester).	Used as supplementary authority for the review standard.
Felix v Lettre, 204 AD2d 679	Cited regarding the potential prejudicial effect of a post-trial application to amend pleadings and the concept of laches in that context.	The court referenced it when finding the plaintiffs' post-trial application to add an entirely new cause of action was, under the circumstances, arguably prejudicial and evinced gross laches.
cf. Mular v Fredericks, 305 AD2d 648	Referenced in connection with the permissibility or caution around post-trial amendments to pleadings.	Cited by way of contrast in the court's discussion of the plaintiffs' post-trial amendment request.
Romano v Romano, 139 AD2d 979, 980	Cited for the proposition that a proposed amendment may be unwarranted by the evidence.	The court relied on it in concluding the proposed amendment (that Winston was a nominal member) was unwarranted by the record evidence.
see Citibank, N.A. v Plagakis, 8 AD3d 604	Cited in relation to setting aside a transfer as fraudulent where transfer violated mortgage terms and transfer taxes were not paid.	The court cited it in upholding the trial court's setting aside of the transfer of the LLC's sole asset as fraudulent under the described circumstances.

Court's Reasoning and Analysis

The Appellate Division proceeded as follows:

Review Standard: The court began by stating the applicable standard of review for a nonjury trial: the appellate court's authority is as broad as the trial court's and includes the power to render the judgment warranted by the facts, while recognizing the trial judge's advantage in seeing witnesses (citing Northern Westchester and related authorities).
Membership Findings: The court concluded that the trial court's determination that Winston "was never a member" of the LLC was against the weight of the documentary and testimonial evidence concerning the original purchase and financing in September 1999. In particular, counsel for the LLC in connection with those transactions (Wander Golden, LLP) provided an opinion letter representing that loan documents executed by Winston "as member of the LLC" were duly authorized and constituted binding obligations of the LLC.
Post-Trial Amendment: The court determined the trial court lacked a proper factual and legal basis to grant the plaintiffs' post-trial application to amend the complaint to include a new cause of action that Winston was a "nominal member." The Appellate Division observed that (a) the plaintiffs' post-trial application to add an entirely new cause of action under the guise of conforming the pleadings to the proof evinced gross laches and was arguably prejudicial to the defendant (citing Felix v Lettre and contrasting Mular v Fredericks), and (b) determinations of LLC membership should be based primarily on the LLC's own records, which by statute must include a current list identifying members and their contribution and shares (citing Limited Liability Company Law § 1102[a][2]).
Documentary Evidence: The court noted that the only documentary evidence arguably satisfying the statutory record requirement were the LLC's tax returns for 1999 and 2000, both listing Winston as a member with a 25% ownership interest and Man Choi as a member with a 75% ownership interest. On that basis, the proposed amendment claiming Winston was merely nominal was unwarranted by the evidence (citing Romano v Romano). For the same reason, the court found the trial court's conclusion that Man Choi was the "sole member" unsupported.
Excluded Operating Agreement: The Appellate Division concluded the trial court erred in refusing to receive into evidence an operating agreement purportedly entered into before the LLC's organization (citing Limited Liability Company Law § 417[c]). The opinion notes that the same agreement (which provided for Winston to acquire up to 25% and Henry Chiu the remaining 75%) was included in the closing statement prepared by Wander Golden that had been admitted into evidence by consent.
Fraudulent Transfer: The court declined to disturb the trial court's determination setting aside as fraudulent the transfer by Winston of the LLC's sole asset to a trust he controlled for a purchase price of ten dollars, where the transfer occurred without payment of city and state transfer taxes and in violation of the mortgage; the court cited Citibank, N.A. v Plagakis in that context.
Other Contentions: The opinion states only that the defendants' remaining contentions were without merit, without elaborating on them.

Holding and Implications

Core Ruling: The Appellate Division modified and affirmed the trial court's order and judgment as follows:

It deleted the provisions that determined that defendant Winston Chiu "was never a member" of the LLC and that plaintiff Man Choi Chiu is the "sole member" thereof.
It deleted the provisions that granted the plaintiffs' application to conform the pleadings to the proof by amending specified paragraphs of the complaint and the ad damnum clause.
It deleted the provision precluding the defendants from any financial involvement, participation, management, membership, rights, privileges, interest, or emoluments of membership in the LLC and the premises.

As so modified, the order and judgment was affirmed, without costs or disbursements.

Implications: The direct effect is to reverse those specific factual and remedial determinations of the trial court concerning membership and the post-trial amendment, while leaving intact the trial court's setting aside of the challenged transfer as fraudulent. The opinion does not discuss broader legal implications or establish a new rule of statewide precedential significance beyond its application to the facts presented.

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MAN CHOI CHIU et al., Respondents, v. WINSTON CHIU et al., Appellants.

Ordered that the order and judgment is modified, on law and on the facts, by (1) deleting the provisions thereof which determined that the defendant Winston Chiu "was never a member of the [plaintiff 42-52 Northern Blvd.] LLC" and that the plaintiff Man Choi Chiu is the "sole member" thereof, (2) deleting the provisions thereof which granted the plaintiffs' application to conform the pleadings to the proof by amending paragraphs 50 and 51 of the complaint and paragraph 2 of the ad damnum clause, and (3) deleting the provision thereof precluding the defendants from any financial involvement, participation, management, membership, rights, privileges, interest, or emoluments of membership in the plaintiff 42-52 Northern Blvd., LLC, and the premises known as 42-52 Northern Blvd.; as so modified, the order and judgment is affirmed, without costs or disbursements.

In reviewing a trial court's findings of fact following a nonjury trial, this Court's authority "is as broad as that of the trial court" and includes the power to "render the judgment it finds warranted by the facts, taking into account in a close case the fact that the trial judge had the advantage of seeing the witnesses" ( Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492, 499 [citations and internal quotation marks omitted]; see Hall v Sinclaire, 35 AD3d 660; Matter of Fasano v State of New York, 113 AD2d 885, 888).

Here, the trial court's determination that the defendant Winston Chiu "was never a member of the [plaintiff 42-52 Northern Blvd.] LLC" was against the weight of the documentary and testimonial evidence relating to the original purchase and financing of the subject premises by the plaintiff 42-52 Northern Blvd., LLC (hereinafter the LLC), in September 1999. Among other things, the LLC's counsel in connection with those transactions, Wander Golden, LLP (hereinafter Wander Golden), provided an opinion letter representing, in relevant part, that certain loan documents executed by Winston Chiu, as member of the LLC, were "duly authorized, validly and duly executed and delivered by the [LLC] . . . and constitute the valid, binding and enforceable obligation of the [LLC]."

Moreover, the trial court lacked a proper factual and legal basis to grant the plaintiffs' application, after the close of the evidence, to amend the complaint to include a new cause of action for a declaration that Winston Chiu was merely a "nominal member" of the LLC, who could be expelled therefrom upon payment to him by the LLC of the value of the 4% capital account. At the outset, under the circumstances presented, the plaintiffs' post-trial application to add an entirely new cause of action under the guise of conforming the pleadings to the proof, apart from evincing gross laches on the part of the movant, was arguably prejudicial to the defendant ( see Felix v Lettre, 204 AD2d 679; cf. Mular v Fredericks, 305 AD2d 648). In any event, the court's determination as to the membership of the LLC should have been based primarily on the LLC's own records, which, by law, must include "a current list of the full name set forth in alphabetical order and last known mailing address of each member together with the contribution and the share of profits and losses of each member or information from which such share can be readily derived" (Limited Liability Company Law § 1102 [a] [2]). The only documentary evidence that arguably satisfied this requirement consisted of the LLC's tax returns for the years 1999 and 2000, both of which listed the defendant Winston Chiu as a member having a 25% ownership of capital, profit sharing, and loss sharing and the plaintiff Man Choi Chiu as the other member having a 75% ownership of capital, profit sharing, and loss sharing. Thus, the proposed amendment was unwarranted by the evidence ( cf. Romano v Romano, 139 AD2d 979, 980). For the same reason, the trial court's finding that Man Choi Chiu was the "sole member" of the LLC is similarly unsupported by the record evidence.

Additionally, the trial court erred in refusing to receive as evidence offered by the defendants an operating agreement, purportedly entered into before the organization of the LLC ( see Limited Liability Company Law § 417 [c]), between Winston Chiu and Man Choi Chiu's late son, Henry Chiu. As correctly noted by the defendants in their brief, the very same agreement, which, inter alia, granted Winston Chiu the right to acquire up to 25% of the ownership interest in the LLC and Henry Chiu the right to acquire the remaining 75% interest, was included as part of the closing statement prepared by Wander Golden, which had previously been admitted into evidence on consent of the parties.

We discern no basis, however, to disturb the trial court's determination to set aside as fraudulent the purported transfer by the defendant Winston Chiu of the LLC's sole asset, the underlying real property, from the LLC to a trust controlled by him and the other individual defendants for a purchase price of ten dollars, without payment of city and state transfer taxes, and in violation of the terms of the mortgage ( see Citibank, N.A. v Plagakis, 8 AD3d 604).

The defendants' remaining contentions are without merit.