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1012912007 i

SUPREME COURT OF THE STATE 0 NEW YORK NEW YORK COUNTY

PART q'

PRESENT: h S L I f l t ~ W t w kodlnraJustice

e fw L ct ccc, INDEX NO.MOTIONDATE

MOTION SEQ. NO.- v -

f MOTION CAL. NO.

e

The fo l lowing papers , numbered 1 t o L/ wer e read on th i s mot ion to / for LeGVL l J mw

N o t l c e o f Motion/ Order to Show Cause - Aff i dav i t s Exh i b i t s ...Ans wer i n g Aff i dav i t s Exh lb i t s

Reply ing Aff idavi t s

Cross-Mot ion : Yes w d

PAPERS NUMBERED

Upon the foregoing papers , i t Is ordered that th i s m ot ion

I

v- J S C.Check one: INAL DISPOSITION WNON FINAL DISPOSITION

C h m k if aonrooriate: a O NOT PCIST i l F F F ~ R F N ~ F

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SUPREMECOURT OF THE STATE OF NEW YORKCOUNTYOF NEW YORK:PART 54

LEE LEE, LLC, CHONGOK LEE , andYOUNG J.KIM

X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Index No.:602994/04

Plaintiffs,

-against-DECISIONand ORDER

BEAUTRIREALTY C ORP. , aM aBEAUTRICEREALTY COR P. andCHANGWOOK LIM

Defendants.X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

KORN REICH, SHIRLEYWERNER,J.:

This is an action for specific performanceof the March2004 Contract for Sale ((the

Contract) ofa mixed use building located at9 West 32dStreet, New York, N.Y . (the

premises). Plaintiffs we re the purchase rs, and defendants Beau tri RealtyCorp., aW a Beautrice

Realty Corp. (Beautri)and Chang WookLim ((Lim) were the sellers of the premises. No n-

party Chung SangYae (T h u ng ) , Lims aunt, moves: pursuant to CPLRJ321(b), to substitute

Herzfeld R ub in , P.C. (Herzfeld) as counsel forBeautri, and following such substitution,pursuant to CPL R 5015(a)(2) and (3),to vacate this courts October20,2006,order which

granted plaintiffs cross-motionfor summaryjudgm ent directing defendants to specifically

perform the C ontract (the October2006 Order) and convey the premises to plaintiffs.In the

alternative, Chung, as an interested person, m oves pursuant to CPL R@5015(a)(2)and (3), to

vacate the October2006 Order and permit her to interveneas a defendant in this action pursuant

to CPLR 101 2 and 1013. In a separate motion, non-party JangHo Choi (Cho i) mov es to

intervene asa plaintiff in this action pursuant to C PLR 1012(a)(2) (3) and 1013. In a third

motion, plaintiffs m ove for the appointment ofa temporary receiver pursuant to C PLRJ6401

All three motionsare consolidated for disposition.

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the com plaint and plaintiffs cross-moved for specific performance of the Contract. The October

2006 Order denied defendan ts motion in its entirety and granted plaintiffs cross-motion,

ordering specific performance o f the Contract.

On April 16,2007, Royal Asian ank advised plaintiffsit had approved a new mortgage

for their purchase of the premises and designatedMay 30,2007, as the new closing date. That

same day, plaintiffs notified d efendants, viafax, of the newmortgageand closing date. Nara

Bank was also ready to accept plaintiffsas assigneeof six other outstanding mortgages it hadon

the premises totaling 2,3 50,000.In addition, title com pany Traditional AbstractCorp.,was

prepared to insure plaintiffs acquisition of the premises in th e am ountof 3,300,000. Neither

Lim nor his attorney attended the closing which, therefore, never took place.

Chungs Claim as to Beautri and The Premises.

Chung , a resident and citizenof Korea, avers that she purchased all200 shares of

Beautris stockfrom Lirn pursuant to a stock purchase agreement dated Novem ber 1 5,20 01 (the

Stock Purchase Agrecrnent). Chung has attached to her motion,two exhibits purporting to

show that on December10,2001, prior to the closingof the stock purchase, Lim executedan

assignmentof his 200 shares to Ch ung and resigned as Beautris sole director and officer. Chun g

also attachesan exhibit of a meetingof Beautris Boardof Directors thatsame day, where she

was elected president. Th e closing of the Stock Purchase Agreemen t took placeon December

23,2001,

Following th e purchase, Chung avers that Lirn remained involved in the day-to-day

operations of Beautri and the premises. Wh ileChungremained i n Korea, Lirn wasin charge of

collecting all rentfor the premisesand was to transmit [rent] to [her] on a regular basis. She

further avers that nearlyfive years after her purchaseof Beautn, Lims paymentsto her became

inconsistent and thus shebccame concerned. Therefore, she appointed her son Won-Seo kPark

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under the July or Septcmber Notes, On that same date, BeautrilLim entered intoa contract to sell

the premises to Choi (the Septem ber Contract) for5,750,000.

On or about November 30,200 6,Choi agreed to lend Beautriand Lim anadditional

1,000,000. As in the July and September transactions, the parties entered into apromissorynotedated Nov embe r 30 ,20 06 (the Novem ber Note) outlining the terms of the transaction andan

additional agreement dated Novem ber 30,2 006 , (the Novem ber Agreement) which called for

Be au tri ki m to sell the premises to Ch oi for a purchase price between5,500,000 and 6,000,000

in the eventof default under the July, Septemberor Novem ber Notes.In addition,on November

30, 2006, Beautri/Lim entered into a second contract to sell the premises to Choi (the N ove mb er

Contract) for 5,750,000. That sam e day, the parties ex ecuted a mo rtgagein favor of Choi in

the amountof 490,000 in connection with the am ountloaned of 2,100,000.

B e a u t d i m defaulted under all of its Notes with Choiin January2007. Following

several unsuccessful attempts to collecthis 2,100,000, Choi,on June 6, 2007, sent a letter to

B e a u tr a im advising Lim of the defaults and Chois desire to closeon his purchaseof the

premises. On June 11, 2007, Choi bec ame aware of thts action via a letter from Chu ngs counse l

stating that Lim had no authority to acton behalf of Beautri since November of2001 and that

Lim ma y have falsely represented himself to Choi. Th e letter also stated thatChungwas not

aware ofany of Ch oisvariouscontractdagreements withLim and, therefore, considered allof

them to be null and void with respect to Beautri.

II Conclusions of Law

A .

Apparent authorityis created by w ords or conductof the principal, comm unicated toa

third party, that give riseto the appearanceand belief that the agen t possesses authority to en ter

into the transaction.Parlato v Equitable Life Amur. Soc y of the United States 299 A.D.2d

Vacator of the October 2006 Order

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108, 112 (lstDept 2002) quotingHallockv. Sta te of Ne wYork 64 N.Y.2d 224,231(1984). The

agent canno t create the existenceof apparent authority by hisown acts, rather, there must be a

factual showing that the thirdparty relied on the agents misrepresentation due to misleading

conduct by the principal.Id The third-partys reliance onan agents apparent au thority mustalso

be reasonable. Id .

Business Corporation Law 909(a)(3) provides that thesale of all or substantially allof a

corporations assets, if not made in its usual or regular courseof business, can only be authorized

by two-thirdsof all outstanding shares entitled to vote.Bouton v . Thomas Bros Sales Corp. 179

A.D.2d 612,613 2dDept 1992);Vzgv. Deka Realty Corp. 143 A.D.2d 185, 1862dDept

1988). This section precludes any claimof apparent authority since those who deal with

corporations a re bound b y the statutory limitations on the authorityof corporate o fficers.

Bouton 179 A.D.2d at 613;Yzg, 143 A.D.2d at 187.

CPLR tj 5015(a) slates that the court which rendereda judgmentor order may relievea

party from it upon such termsas may be just, on motionof any interested person with such notice

as the court may direct.An interested person canbe a nonpartyand is defined ashaving some

legitimate interest in the action where judicia l assistancewill avoid injustice. See Nachman v .

Nachman 274 A.D.2d 313,315 (1Dept2000). Pursuant toCPLR 5013(a)(3), the court may

relieve an affected party from a judgme nt ororder based upon the fraud, misrepresentation, or

other misconduct of an interested party. These factors apply to conduct w h c h occurred prior to

the judgmentor the method by which judgment w as obtained.Nachman 274 A.D.2d at315;

Hershkowitzv. Friedlander 224 A.D.2d305 306 (ls tDept 1996).

Here, Ch ung has offered enough evidence to show that shehas an interest in the outcom e

of this action. She provides the Stock Purchase Agreement purportingto demonstrate her

purchase of Beautri andall of its assetsin December 2001. Chung also offers documentationof

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Lims assignment ofall 200 sharesof Beautris stock to her on Decemb er 10 ,20 01 . Finally, she

provides minutes from a meetingof Beautris Board of Directors that same day where she was

elected Beautris president.As of this time, non eof these documents have been authenticated.

Therefore, until a further determination can be madeas to who rightfullyownsBeautn, Chunghas an interest in the adjudicationof this action. Evenif the court presumes the purported saleof

Beautri to ha ve taken place, however, issues of fact remain as to whetherLirn had apparent

authority to act on beha lf of Beautri andalso whether Lim fraudulentlysold the premises.

Herzfeld argues that there isno evidence here to support plaintiffs allegation that Chung

permitted Lirn to perform any acts as president of Beautri. Herzfeld also claims that thereis no

evidenceof any misleading conduct by Chung,as principal, that would haveled plaintiffs to

believe that Limwas indeed an agentof Beautri, or that hewas authorized to performany

transactions on behalf of Beautri. Chu ng avers that following the saleof Beautri, Lirnwas only

authorized to collect rent on the premisesand transfer it to her on a regular basis. But, it is

incontrovertible that Chung , a Korean resident, remained there after she supposedly purchased

Beautri in 2001 and allowed Lim to control the operationsof the premises. Lirn averred that he

was the president, sole officer andonly employeeof Beautri. He further averred that he alone

mana ged the premises, collected rentand paid allof the premises mortgage payments and taxes.

Lirn issued leases and stated that he ownedand operatedAranga restaurant located on the

premises second floor.

Even if Lims claimsas to ow nership were indeed fraudulentand misleading, Chu ngs

grant of authority, comb ined with Lims actions over a five year period, may have createdan

agent-principal relationship wh ich imputed Lirn with apparent authority to acton behalf of

Beautri. New Y ork City Departmentof Building records listLirn as the head officer, property

managerand emerge ncy contact for the premises. Between January2002 and February2004,

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Lim executed 12 leases with residential and commercial tenants in the premises on behalf of

Beautri. Chung testified that she sent her sonPark to New York in November2006 because she

became suspicious about the irregular rent payments Limwas sending her. Therefore, between

December 2001 and October 2006,Chungwas apparently satisfied with the benefits she was

receiving from her arrangement with Lim. Consequ ently, any lackof contact thatChung had, as

principal, w ith any third parties during this time would not se rve to sever L ims apparent

authority to acton behalf of Beautri. See Parlato 299 A.D.2d at 116 (Considerationsof

fairness, practicality and sound public policy leado this conclusion. Evenin the caseof a third

party unknown to the principal, itseems fair to hold the principal responsible fo r the agents

misus e of apparent authority while the principal-agent relationship continues to exist, bringing

benefitsto the principal and giving the principal a measure o f control over the agents condu ct.)

Nevertheless,BCL 8 909(a)(3) provides enoughof a basis at this point to vacate the

October2006 Order since itis not yet clear who owned Beautri in Marchof 2004 and whether

Lims conduct during that time was fraudulent and misleading. Here, Beautrisregularbusiness

was managing the premises. Beautri was not engagedin the businessof selling real property.

Hence, the sale of thc premises, Beautris sole asset, would notbe a transaction m ade in its

regular courseof business and, thus, shareholder approval would be required.See Vzg 143

A.D.2d at 186-87. Plaintiffs argue thatKurshv. Verderame 87 A.D.2d803 (1 Dep t 1982),

serves tobar Chung from usingBCL

In that case, plaintiff Kursh entered intoan agreement to purchase land w ith individual defendant

Verderam e. Th e agreement did not identify that the land was actually owned bya family-run

corporation formed for the sole purpose of operating the subject property. Verderame actedas an

individual principal through the signing of the contract and at no point in time did Kursh know

that the landwas actually owned by a corporation. Following executio n of the agreemen t,

909(a)(3) asa reason to vacate the October2006 Order.

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defendants re h se d to proceed with the closing and Kursh sued for specific performance o f the

agreement. Defendants asserted BC L8 909(a)(3)as a defense to the transaction. Ho wev er, the

court precluded defendantsfrom asserting this defense an d ordered specific performanceof the

agreement stating that since the individual defendant held him self outas having th e authority to

make the sale, the corporate undisclosed principal is estoppedto deny hisauthority.Kursh 87

A.D.2d at 803.

The facts here differ somew hat from those inKzrrsh. Here, plaintiffs w ere aware that they

were purchasing the premises froma corporation. The buyer inKursh did notknow he was

dealing with a corporation. Here, Lim held h m se lf outas being the principalof a corporation.

In Kurslz the individual defendant held himself out asan individual owner, notas a corporate

principal. In other words, B eautris corporate identity was not co ncealedat any point in this

transaction. Plaintiffsknew they werebuying the premisesfrom a corporationduring the

negotiation an d execution of the Contract.As a result, since this transaction involved a

corporation selling its sole asset, w h c h is a transactionnot made in its regular courseof business,

shareholder approval was necessary.See Bouton 179 A.D.2d at 613 (BCL 909(a)(3) precluded

plaintiffs claimof apparent authority and shareho lder app roval necessary where plaintiffknew

he was purchasing propertyfrom a corporation and agent held himself out as being sole

Shareholder with c apacity to ma keall business decisions for corporation). Accordingly, the

October2006 Order mustbe vacated.

B.

CPLR 321(b) provides thatan attorneyof record m ay withdraw orbe changed by order

Herzfeld s Motion to Substitute as Counselfor Beautri

of the courtin which the actionis pending,uponmotionon suchnotice to the clientof the

withdrawing attorney, to the attorneysof all other partiesin the action ..and to any other person,

as the court may direct. Herzfeld argues that since Chu ng was Beautris sole shareholder and

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president, Lim had n o authority to act on Beautris behalfin this action,and, therefore, thereis

no ground to deny its motion. How ever, as previously stated, issuesof fact remain as to the

legitimacyof B ea ut is sale. Accordingly, until it can be determined who truly owned and

operated Beautri when the Contractwas executed, Herzfelds motion to be substituted as counsel

for Beautri is denied.

C Chung s Intervention

CPLR t 1012(a)(3) permits any person to intervene inany action involving the

disposition or distribution of, or the title ora claim for dam ages for injuryto, property and the

person maybe adversely affected by the judgm ent.A person will be p ermitted to intervene

whe re they have a real and substantial interestin the outcom e of the action.Agostznov . Soufer

284 A.D.2d 147, 148(1 Dept 2001). Here, Ch ung claims that she is the rightful owner of

B ea ut i and w ould thus be adversely affectedby any judgm ent rendered regarding the sale of the

premises, which is Beautris only asset. Plaintiffs correctly note that permitting C h u g to

intervene raises a great num ber of issues involving the authenticity of her purchase of Beautriin

2001, the consideration(if any) receivedfrom the sale, Lims authority following the alleged

sale, and what levelof ownership Ch ung actually exercisedfrom 2001 through the present.

How ever, all of these questions must now be answeredto properly adjudicatethis matter.

Accordingly, until proven otherwise, Chung has a real and substantial interest in the outcom e of

this action, and should be permitted to intervene pursuant to C PLR1012(a)(3).

D .

Pursuant to CPL Rt 6401(a), a temporary receiver may be appointed where a dang er

Plaintiffs Motion f o r ppointment of a Temporary Receiver

Pursuant to CPLR 1014 a motion to intervene shall be accompanied by a proposedpleading setting forth the claim or defensefor wh ich intervention is sought. Herzfeldhasattached a copyof Chungs answer to this action with its papers insupportof this motion.

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exists that the property at issue will be removed from the state, lost, or materially injured or

destroyed. This drastic remed y should be invoked only whe re necessary to protect the interests

of the parties,Armienti v B r o o h 309 A.D.2d659, 661 (1 Dept 2003) quotingDi Bona v.

GeneralRayfin Ltd. 45 A.D .2d 696 (1 Dept 1974). There must be dangerof irreparable

loss,

and courts of equity will exercise extreme caution in appointment o f receivers, which should

neve r be mad e until a proper case has been clearly established.Id quotingLaber v Laber 181

A.D. 733, 735 2dDept 1918).

Plaintiffs argue that appointmentof a receiver is necessary to ensure that th e general

responsibilities associated with maintaining thc premises are being met. These responsibilities

include paying the mortgage and taxes, tending to the needs and requestsof the tenants, renewal

and eplacement of leases, responding to emergencies and ov erall maintenanceof the premises.

Plaintiffs claim that due to the apparent disappearanceof Lim no one is currently undertaking

these responsibilities and thus thereis a risk that the premises w ill diminishin value.

How ever, in his affidavit, ScottK. Hur (Hur), avers that at the requestof Chungand

Park, he has been performing various managerial functionson the premises since approximately

November2006. These tasks include collecting rentsfrom residential tenants, executing leases

on behalfof Beautri, responding to maintenance requests on the premises and payments to

maintain its insurance coverage. Hu r also avers that payments of Beautris mortgageare

automatically transferred every mo nth from Beautris account at NaraBank. A letter from Nara

Bank dated July 1 1, 2007, signed by Helen Choe, aNara Bank Loan Officer, states that as of July

1 1, 20 07 , Beautris m ortgage payments on the premisesare up to date. Chu ng submits copiesof

paym ent records reflecting all payments made on the mortgage since it was transferred to Nara

ank in March2000. Chu ng also offers copiesof Maintenance Work Orderforms for various

tenants in the premisesand receipts for items purchased to perform the corresponding repairs.

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Finally, C hung provides copiesof three residential leases executedby Hur on behalfof Beautri.

Therefore, since the general responsibilities associated with maintaining the premises are

apparently being m et, and there is no threat of irreparable lossor that the premises will be injured

or destroyed, plaintiffs motion to appo inta temporary receiver is denied.

E. Choi s Intervention

A nonparty may intervene as a matter of right when the representation of the person s

interest by the parties is or may be inadequate and the person is or may be bound by the

judg men t. CPLR 1012(a)(2). H ere, Choi seeks to recover money damages of approximately

2,100,000 allegedly due him under the promissory notes he executed with Lim in2006. In this

action, plaintiffsare seeking specific performanceof the Contract they executed with Lim to

purchase the premises in2004, twoyears priorto Cho is notes. Further, the Lis Pendens filedon

behalf of plaintiffs in this action predates anyof Chois transactions with Lim regarding the

premises by approximatelytwo years, This would serve to give Choi constructive noticeof

plaintiffs claimat the timehe executedhis November 2006 Contract to purchase the premises.

See CPLR 6501; Goldstein v Gold 106A.D.2d 100,102 2nd ept 1984) (filing a noticeof

pendency putsworld on no ticeof plaintiffspoten tial rights regarding subject realtyand warns all

comers thatif they buysubject realty or relyon defendants right, they do so subject to plaintiffs

rights). If plaintiffs are successful in this suit, Choi can still litigate against Lim personally for

the money o wed under the promissory notes.s a result, Chois motionto intervene in this

action is denied. Accordingly,it is

ORDEREDthat ChungSang Yaes motion to vacate thiscourts October20,2006order

granting plaintiffs cross-motion for summ ary judgmen t is grantedand that thiscourtsorder of

October20, 2006 is hereby vacated; and itis further

ORDERED that Herzfeld Rubin, P.Cs motion to substitute as counsel for defendant

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Beautri RealtyCorp., is denied; and it is further

ORDEREDthat Chung Sang Yaes motion to intervene is granted, and that C h u g Sang

Yae b e permitted to intervene in the above -entitled actionas a party defendantand hat her

annexed answer is deemed served and filed;and it is further

ORDEREDthat the summ ons and comp laint in the abov e titled actionbe amendedby

adding C h u gSang Yae as aparty defendant and the am ended caption shall now read

SUPREMECOURT OF THE STATE OFNEW Y O R KCOUNTYOF NEW YORK:PART 54

LEE LEE, LLC,CHONGOK LEE, andYOUNG J. KIM

X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Index No.: 602994/04

Plaintiffs,

-against-

BEAUTRI REALTY COR P., dWaBE AU TNC E REALTY CORP.andCHANG WOOK LIM,

Defendants.

CHUNGSANG YAE, a SANG YAE CHUNGorSANG YAE CHUNG

ORD ERE D that the attorney for the intervenor shall serve a copy ofthis order w ith notice

of entry upon the Clerkof the Court and upon the Clerk of the Trial Suppo rtOffice (Room 158),

who are directed to amend their records to reflect such changein the caption herein; and it is

further

ORDEREDthat SangHo Chois motionto intervene in t h ~ sction is denied;and it is

further

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ORDEREDthat plaintiffs m otionfor the appointmentof a temporary receiveris denied.

ENTER

DATE: October 23,2007New York,NY