Palella v. TMO VI LLC

2025 NY Slip Op 30373(U)

• Court: New York Supreme Court, New York County
• Decided: January 27, 2025
• Docket: Index No. 655556/2023
• Status: Unpublished

Opinion

Palella v TMO VI LLC 2025 NY Slip Op 30373(U) January 27, 2025 Supreme Court, New York County Docket Number: Index No. 655556/2023 Judge: Melissa A. Crane Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. INDEX NO. 655556/2023 NYSCEF DOC. NO. 97 RECEIVED NYSCEF: 01/27/2025

SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HON. MELISSA A. CRANE PART GOM Justice ---------------------- -------X INDEX NO. 655556/2023 KATHLEEN PALELLA, MOTION DATE 11/18/2024 Plaintiff, MOTION SEQ. NO. _ _ _00_3_ __ - V-

TMO VI LLC,ICON INTERMEDIATE HOLDINGS, LLC,TMO LLC, ICON PARKING 3 LLC,ICON PARKING HOLDINGS, LLC,ICON PARKING MANAGEMENT, LLC,ICON PARKING DECISION + ORDER ON SERVICES, LLC,ICON PARKING SYSTEMS, LLC,58TH & MOTION 7TH PARKING LLC

Defendant. ----------------------------X

The following e-filed documents, listed by NYSCEF document number (Motion 003) 85, 86, 87, 88, 90, 91, 93, 94, 95 were read on this motion to/for DISMISS

The motion to dismiss is mostly denied in accordance with the reasoning on the record of

1/24/2025 and the following.

In this lawsuit, derivative plaintiff second guesses defendants' (the managing member of

a joint venture and the entities who controlled the managing member) decision to terminate a

lease and enter into a management agreement. The termination of the lease ended up forfeiting a

right to enter into a 49-year commercial lease in a parking garage.

This is the third motion to dismiss in this case. In the previous round, the court dismissed

the complaint under the business judgment rule because plaintiffs had not adequately plead self-

dealing or bad faith (see EDOC

In the second amended complaint, plaintiff has switched theories. Instead of pleading some

sort of self-dealing, the plaintiff now pleads that defendants were inadequately informed about the

benefits they were allegedly throwing away when they gave up the joint venture's right to the 49-year

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lease. As Drew Katz, a "representative of the Trust" at issue, elaborates in his affirmation (EDOC 91 ),

defendants, through Mr. Smith, then CEO ofICON Parking, purportedly told him that, due to a lack of

organization resulting from the pandemic, defendants had "no idea" the JV even had the right to enter into

the 49-year lease with Extell (id. ,r 18). The complaint alleges that defendants "did not conduct even the

minimal inquiry necessary to understand the JV's rights under the 2006 Lease and subsequent

agreements." (EDOC 72 at, 87). This was because the managing member had experienced

"significant turnover in personnel" and "in 2020 were not familiar with the then-existing rights

held by the JV." (EDOC 72 at, 67). As a result, the managing member "did not know or

understand what it was destroying though its actions. It failed to conduct even a minimal inquiry

into the terms of the 2006 Lease and the N's subsequent agreements with Extell." (id. at, 68).

"[T]he amount of information that it is prudent to have before a decision is made is itself

a business judgment of the very type that courts are institutionally poorly equipped to make"

(RJR Nabisco, Inc Shareholder Litigation, 1989 WL 7036, at * 19 (Del Ch 1989). However,

"where management's '"methodologies and procedures" are "so restricted in scope, so shallow

in execution, or otherwise so proforma or halfhearted as to constitute a pretext or sham," then

inquiry into their acts is not shielded by the business judgment rule' (see Hanson Tr. PLC v. ML

SCM Acquisition, Inc., 781 F.2d 264,274 (2d Cir. 1986). Rather, to prove a breach of the duty of

care, a plaintiff must demonstrate gross negligence (see In re Walt Disney Co. Derivative Litig.,

907 A.2d 693, 748 [Del Ch 2005], affd, 906 A.2d 27 [Del. 2006] ["in instances where directors

have not exercised business judgment, that is, in the event of director inaction, the protections of

the business judgment rule do not apply. Under those circumstances, the appropriate standard for

determining liability is widely believed to be gross negligence"]; see also Clingman & Hanger

Mgmt, v Knobel, 2018 WL 2006763 at* 14 [SD Fla January 9, 2018]). However, a conscious

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decision to refrain from acting may be a valid exercise of business judgment (see In re Trinsum

Grp., Inc., 466 B.R. 596, 614 [Bankr SDNY 2012]).

Here, plaintiff's allegations are sufficient to raise an issue of fact as to gross negligence.

It remains to be seen whether or not management made a conscious decision to trade in the lease.

It also remains to be seen whether it was gross negligence for management to trade in the lease,

while failing to realize there was a 49-year lease right, in favor of a management contract, all at

the height of the pandemic (see McMullin v Beran, 765 A2d 910, 922 [Del 2000] [allegations

sufficient that directors breached duty of care when they approved the merger without adequately

informing themselves]).

It matters not at this stage that some of plaintiff's knowledge regarding defendants' lack

of awareness about the 49-year lease option came from settlement discussions. While statements

made in the course of settlement would not be admissible at trial, it is sufficient at this stage to

support plaintiff's good faith allegations. Discovery may provide further, admissible support for

plaintiff's allegations. Therefore, defendants' alternate request for an immediate hearing on the

status of Mr. Smith's statements is denied.

However, the court does dismiss the second cause of action for "gross negligence." As

discussed on the record, this cause of action duplicates the first cause of action for breach of

fiduciary duty.

Finally, the court dismisses the claims against Icon Parking Holdings, LLC and its

affiliates. As discussed on the record, plaintiff has failed to plead that these defendants misused

the corporate form to harm plaintiff (see Walnut Haus. Assocs. 2003 L. P. v. MCAP Walnut Haus.

LLC, 136 A.D.3d 403,404 [I5t Dep't 2016] "[t]o state a veil-piercing claim under Delaware law

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a plaintiff must plead facts supporting an inference that a corporation, through its alter ego, has

created a sham entity designed to defraud investors and creditors"]).

Accordingly, it is

ORDERED THAT the court grants the motion to dismiss to the extent it dismisses the second cause of action for gross negligence and dismisses all claims against TMO LLC, Icon Parking 3, LLC, Icon Parking Holdings, LLC, Icon Parking Management, LLC, Icon Parking Services, LLC, and Icon Parking Systems, LLC, and otherwise denies the motion; and it is further

ORDERED THAT defendants have 45 days from the efiled date of this decision and order to answer the complaint; and it is further

ORDERED THAT the parties have ten days to send the court a stipulated discovery schedule; and it is further

ORDERED THAT if the parties do not send the court a stipulated discovery schedule, they shall appear for a Preliminary Conference, on February 10, 2025, at eleven am over Microsoft teams.

1/27/2025 DATE MELISSA A. CRANE, J.S.C.

~ CHECK ONE: CASE DISPOSED NON-FINAL DISPOSITION

GRANTED □ DENIED GRANTED IN PART □ OTHER APPLICATION: SETTLE ORDER SUBMIT ORDER

CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT □ REFERENCE

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