Araujo v. Macaire

Background

Jubilee First Avenue Corporation owned and operated the Jubilee on First restaurant. Ilda Araujo and Luc Holie were shareholders, board members, and officers of the corporation. Eric Macaire was the corporation’s former president. Plaintiffs claimed that Macaire was responsible for part of a $175,000 settlement with former restaurant employees in an action under the Fair Labor Standards Act and New York Labor Law. They also alleged that Macaire breached his fiduciary duties by using corporate funds for personal benefit and converted the corporation’s website and Facebook page after his termination.

Macaire asserted counterclaims alleging that Araujo and Holie breached a November 7, 2012 agreement, interfered with his employment contract, and breached their fiduciary duties to the corporation. He also sought an accounting, meaning a detailed review of financial transactions.

The plaintiffs moved for partial summary judgment. Summary judgment is a decision without a trial when the moving party shows that no important factual dispute requires a trial and that the law entitles that party to judgment. Magistrate Judge Kevin Nathaniel Fox recommended denying the motion in full. Plaintiffs objected, and Judge Engelmayer reviewed the challenged portions of the recommendation.

Settlement-Related Declaratory Judgment Claim

Plaintiffs sought a declaration assigning the parties’ respective “equitable shares” of the $175,000 settlement. The corporation had paid the entire settlement and sought to establish that Macaire should bear at least 75 percent of the amount while Araujo should bear no more than 25 percent.

The court denied summary judgment on this claim. It held that the Declaratory Judgment Act provides a procedural remedy but does not itself create a legal claim. Plaintiffs had not identified an underlying legal cause of action supporting their request to allocate the settlement. The settlement agreement did not allocate payment obligations among the corporation, Araujo, and Macaire. The court also held that the Fair Labor Standards Act and New York Labor Law did not allow the corporation to obtain contribution or indemnification for the settlement payment. The court declined to grant or dismiss the claim in Macaire’s favor because he had not moved for summary judgment on it.

Plaintiffs’ Fiduciary-Duty Claim

Plaintiffs alleged that Macaire improperly used corporate funds for personal expenses and misrepresented the purpose and destination of payments. They relied on bank records and a chart summarizing those records.

The court denied summary judgment because genuine disputes of important fact remained, even assuming the records and chart could be admitted into evidence. Macaire disputed whether the listed expenses were personal or business-related and challenged the accuracy of some entries. The court identified factual disputes involving expenses for opening the restaurant, storage, dining, supplies, transportation, hotels, and payments involving a company owned by Macaire and his wife. Those disputes required a factfinder to resolve them at trial.

Macaire’s Breach-of-Contract and Tortious-Interference Counterclaims

Macaire claimed that Araujo and Holie violated an agreement not to combine their shares when they voted to remove him as president and public relations director. He also claimed that they interfered with his employment contract by removing him.

The court granted plaintiffs’ motion for summary judgment on these counterclaims. Under New York law, the board could remove an appointed president with or without cause. Araujo and Holie constituted a quorum of the board at the December 1, 2016 meeting and had enough votes to remove Macaire as president. The court also held that Macaire’s employment agreement did not establish a fixed term or limit the reasons for termination. His employment therefore could be terminated without cause.

The court concluded that Macaire’s shareholder status did not change these rules. Even if the November 7, 2012 emails formed a valid agreement, the court held that the agreement concerned shareholder rights rather than the directors’ authority to remove an officer or terminate an at-will employee. Because Araujo and Holie had authority to take those actions, they did not breach a contract or interfere with Macaire’s employment contract.

Macaire’s Fiduciary-Duty Counterclaims and Accounting Claim

Macaire alleged that Araujo and Holie breached fiduciary duties by using corporate money for personal expenses and manipulating corporate records. Plaintiffs argued that their financial chart and bank records showed no genuine dispute.

The court denied summary judgment on these counterclaims. Evidence cited by Macaire, if credited, could support a finding that Araujo and Holie used corporate funds for home improvements, personal purchases, cash payments, and a $50,000 distribution or loan that plaintiffs’ chart did not include. Plaintiffs disputed some of those matters, but the court was required to view the evidence favorably to Macaire when deciding plaintiffs’ motion.

The court also declined to dismiss Macaire’s accounting counterclaim. Because the fiduciary-duty counterclaims remained unresolved, the court did not treat the accounting claim as moot.

Disposition

The court adopted the magistrate judge’s report in part. It denied plaintiffs’ motion for summary judgment on their declaratory judgment and fiduciary-duty claims and on Macaire’s fiduciary-duty and accounting counterclaims. It granted plaintiffs’ motion on Macaire’s breach-of-contract and tortious-interference counterclaims. The remaining claims—including plaintiffs’ conversion and permanent-injunction claims—were left for trial, and the court directed the parties to prepare for that trial.