In a big win in Westchester Supreme Court in the matter of Laurino v. Laurino, Index No. 64194/2021, a classic business divorce case between family members over a family owned business (sound familiar?), the Court determined that managers of the business (the Defendants) could not use the business bank account for any personal expenses during the pendency of the lawsuit.
In a previous Court directive, the Court determined that the Defendants could not use the company bank account to pay for their legal fees. That issue is discussed in a separate article. Here, the Court determined that the Defendants/Managers could not use the Company bank account for any other personal non-business related expense which is expected to shift the tide considerably since the crux of the Plaintiff’s claims pertained to Defendants’ unauthorized use of the Company bank account, and Defendants’ intentional failure to pay out any distributions.
The use of Company funds for personal non-business related expenses in most cases amounts to a de facto distribution meaning that for at least tax purposes it’s a distribution. So by using the Company bank account to pay the Defendants’ personal expenses they are in essence making distributions to themselves without paying the Plaintiff any share of distributions.
The relevant part of the Court’s Decision and Order is as follows:
“Here, the plaintiff has demonstrated his entitlement to a preliminary injunction. He has demonstrated that he is likely to succeed on his cause of action for breach of fiduciary duties because the defendants have not made distributions to him since 2020 and because they have been using the Company’s funds for non-business-related expenses.
Although the defendants argue that these expenses are a mere continuation of the
expenses that the plaintiff himself made when he was the manager, there is no dispute
that the expenses for the parties’ mother are not business-related. Moreover, it is
undisputed that the defendants have not made any distributions to the plaintiff since 2020.
The plaintiff has also demonstrated that he will be irreparably harmed if the motion is not
granted because the “monies at issue are identifiable proceeds that are supposed to be
held” for him as one of the owners of the Company(See, i.e.., AQ Asset Mgt. LLC v Levine,
111 AD3d 245,259 [1st Dept 2013] [“AQ principally argues that there can be no
irreparable harm from the mere loss of money. However, an exception to this rule exists
where the monies at issue are identifiable proceeds that are supposed to be held for the
party seeking injunctive relief]).
Moreover, it is well-settled that a preliminary injunction should be granted to prevent the dissipation of property that could render a judgment ineffectual (Ying Fung Moy v Hohi Umeki, 10 AD3d 604, 604 [2d Dept 2004]; Ma v Lien, 198 AD2d 186, 187 [1st Dept 1993]).
Finally, the balance of the equities favors the plaintiff because permitting non-business-related expenses to be made from the Company’s funds will undoubtedly reduce the distributions to be made to him. The defendants have not demonstrated that they will be more burdened than the plaintiff by the imposition of the preliminary injunction.
Accordingly, the plaintiffs motion for a preliminary injunction is granted.”
