Boschan v. Steinmetz

Background

Ronald D. Boschan sued Moshe Steinmetz individually and on behalf of Shildan, Inc. Boschan alleged that Steinmetz breached oral agreements concerning compensation and engaged in misconduct while operating Shildan. The opinion states that Steinmetz was Shildan’s President, Chief Executive Officer, Chairman of the Board, and 70% owner, while Boschan became a 30% shareholder in 2011 and remained a Shildan employee until he resigned in January 2018.

Boschan alleged three oral compensation arrangements: that he and Steinmetz would receive identical salaries; that neither would receive sales commissions or other compensation beyond the agreed salaries and proportional profit distributions; and that, after Boschan became a shareholder, each would receive profit distributions several times a year based on ownership percentage. Boschan alleged that Steinmetz violated those arrangements by paying himself commissions, including a $366,000 commission in 2016.

Boschan also alleged that Steinmetz used companies he owned to lease the Briggs Road properties to Shildan at rents far above fair rental value and charged Shildan for tenant improvements. Boschan asserted fiduciary-duty claims based on that conduct.

Motion and Legal Standards

Steinmetz moved for partial dismissal under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. On such a motion, the court accepts the complaint’s factual allegations as true and asks whether they plausibly support relief.

Steinmetz argued that the contract claims based on the oral agreements were barred by New York’s Statute of Frauds, which generally requires a writing for an agreement that cannot be performed within one year. He also argued that New York Business Corporations Law § 620(b) invalidated the salary and commission agreements because they were not included in Shildan’s articles of incorporation. He argued that the fiduciary-duty claims concerning the Briggs Road properties were barred by the statute of limitations and that the unjust-enrichment claims based on the oral agreements were also barred by the Statute of Frauds.

Rulings

The court granted dismissal of the breach-of-contract claim based on the alleged agreement to make profit distributions several times a year. It reasoned that the agreement contemplated payment obligations extending beyond one year and therefore had to be in writing under the Statute of Frauds.

The court did not dismiss the contract claims based on the alleged agreements for identical salaries and no sales commissions. It concluded that those arrangements could have been performed within one year and were independent of the profit-distribution agreement. The court also rejected Steinmetz’s argument under Business Corporations Law § 620(b), reasoning that the agreements were not unlawful and did not affect creditors or other third parties, so their absence from the articles of incorporation did not require dismissal.

The court denied dismissal of the Briggs Road fiduciary-duty claims as untimely. Although the complaint identified approximate years for some property purchases and described a 2017 amended lease, it did not provide enough exact dates to establish from the complaint that the claims were time-barred.

The court dismissed the unjust-enrichment claims based on the alleged profit-distribution agreement because labeling a claim unjust enrichment does not avoid the Statute of Frauds. The unjust-enrichment claims concerning the other alleged oral agreements were not dismissed.

The final order states that Steinmetz’s motion to dismiss was granted with respect to the breach-of-contract and unjust-enrichment claims involving the alleged annual profit-distribution agreement and was otherwise denied. The Clerk was directed to close the motion.