Key Points

  • The Second Department affirmed denial, on reargument, of leave to add a RICO claim under 18 U.S.C. 1962(b) because the plaintiff did not allege distinct damages arising from the acquisition or maintenance of control of an interest in the LLC.
  • The court held the proposed fraud claim palpably insufficient because its allegations did not permit a reasonable inference of fraud.
  • The court affirmed denial of summary judgment on the managing member's breach-of-contract counterclaim over a $350,000 contribution, finding a triable issue of fact on waiver of the 120-day deadline.
  • The court reversed and dismissed the fifth amended complaint's two claims for interference with prospective economic advantage under CPLR 3211(a)(7) for failure to allege wrongful means or a sole purpose to harm.
  • The court affirmed denial of the motion to vacate a $425,000 receiver's commission, holding the award was within the trial court's discretion and below the 5% ceiling of CPLR 8004(a).

A New York appeals court on Oct. 14 barred a co-owner of the company that owned the Hudson Valley Resort from adding federal racketeering and fraud claims to her suit against her business partner, and it dismissed two other claims from her complaint in a dissolution fight that began in 2021.

In three unsigned decisions issued the same day, a panel of the Appellate Division, Second Department, mostly sided with Yosef Zablocki, the company's managing member, and National Jewish Convention Center. Justices Betsy Barros, Lillian Wan, Donna-Marie E. Golia and Elena Goldberg Velazquez concurred in each ruling. The panel also refused to give Zablocki's side judgment on its own breach-of-contract counterclaim, and it upheld a $425,000 commission awarded to the court-appointed receiver over the company and the resort.

The rulings narrow the case in the state Supreme Court in Kings County, where Justice Leon Ruchelsman issued the orders under review. The plaintiff, Chana Vashovsky, cannot pursue the racketeering and fraud theories she proposed, and her fifth amended complaint loses its two claims for interference with prospective economic advantage. Zablocki's claim that she failed to make a required $350,000 contribution remains unresolved because the panel found a factual dispute over whether his side waived the deadline.

According to the first decision, Vashovsky and Zablocki each owned 50% of Hudson Valley NY Holdings LLC, which owned and operated the resort. The company was formed on April 8, 2019, and its operating agreement required Vashovsky to contribute $350,000 within 120 days of the closing date. She sued in March 2021, seeking an accounting and dissolution of the company. Zablocki and National Jewish Convention Center counterclaimed for breach of contract, contending that she missed the 120-day deadline.

Vashovsky then sought leave to amend her complaint to add a claim under 18 U.S.C. 1962(b), a provision of the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, along with a fraud claim. Ruchelsman denied that request in a March 15, 2022, order, and the trial court adhered to the denial on reargument in a May 9, 2022, order. The panel affirmed the May order.

The panel held that both proposed claims were "palpably insufficient." The RICO claim failed, the court wrote, because "the plaintiff failed to allege distinct damages arising from the acquisition or maintenance of control of an interest in the LLC." For that point the panel cited the Second Circuit's decision in D'Addario v. D'Addario. The fraud claim failed because its supporting allegations "failed to set forth facts sufficient to permit a reasonable inference of fraud," the panel wrote.

The same decision denied the Zablocki side a quick win on its counterclaim. Zablocki and National Jewish Convention Center had cross-moved for summary judgment on liability. The panel found that they had made a prima facie showing, an initial showing of entitlement to judgment. But it held that Vashovsky's "submissions raised a triable issue of fact as to whether the Zablocki defendants waived their right to object to the timeliness of the plaintiff's contributions." It affirmed Ruchelsman's denial of the motion.

The second decision reversed Ruchelsman's January 16, 2024, refusal to dismiss the fifth amended complaint's two claims for interference with prospective economic advantage, a tort claim over a defendant's interference with a plaintiff's prospective business relations. Zablocki and National Jewish Convention Center had moved under CPLR 3211(a)(7). The panel reversed "on the law, with costs," and granted that part of the motion.

The panel restated that such a claim requires interference by wrongful means or for the sole purpose of harming the plaintiff. Quoting earlier precedent, the court wrote that, as a general rule, "such wrongful conduct must amount to a crime or an independent tort, and may consist of 'physical violence, fraud or misrepresentation, civil suits and criminal prosecutions.'" Vashovsky's pleading fell short, the panel held, because it "failed to sufficiently allege that the defendants' actions were meant solely to harm the plaintiff or constituted wrongful means."

The third decision concerned the receiver, Gary M. Shuster, whom the trial court appointed at Vashovsky's request in March 2022 to oversee the company and the resort. In a January 18, 2024, order, the trial court awarded him a $425,000 commission. Zablocki and National Jewish Convention Center moved to vacate that award. Ruchelsman denied the motion on April 16, 2024, and the panel affirmed with costs.

The panel relied on CPLR 8004(a), which provides that a receiver "is entitled to such commissions, not exceeding five per cent upon the sums received and disbursed by him, as the court by which he is appointed allows." Quoting earlier precedent, the court wrote that "a Receiver is not entitled as a matter of right to the maximum 5%," and that a trial judge should weigh factors including the size of the assets and the complexity of the receiver's work.

The trial court "providently exercised its discretion in awarding the receiver a commission in the sum of $425,000, which is less than 5% of the sums received and amounts disbursed by the receiver," the panel held. It rejected the defendants' other arguments in a single sentence, writing that their "remaining contentions are without merit."

Vashovsky was represented in the 2022 appeals by Craig A. Saunders of Munzer & Saunders, LLP. Jeffrey M. Benjamin of The Linden Group, P.C. represented Zablocki and National Jewish Convention Center in those appeals, and Peter A. Mahler of Farrell Fritz, P.C. represented them in the two 2024 appeals. Kara J. Cavalo of J & G Law, LLP represented the receiver.

The three orders leave the accounting and dissolution action in Kings County Supreme Court without the RICO, fraud and interference claims, and with the waiver dispute over the $350,000 contribution still unresolved. The decisions are marked subject to revision before publication in the Official Reports.