Kleeberg et al v. Eber et al

Filing 314

OPINION AND ORDER ON THE PARTIES' MOTIONS FOR PARTIAL SUMMARY JUDGMENT re: 262 MOTION for Partial Summary Judgment . filed by Eber-Connecticut, LLC, Eber Bros. Wine and Liquor Corporation, Eber Bros. Wine & Liquor Metro, I nc., Alexbay, LLC, Wendy Eber, Lester Eber, Eber Bros. & Co., Inc., 263 MOTION for Partial Summary Judgment . filed by Audrey Hays, Daniel Kleeberg, Lisa Stein, 258 MOTION for Summary Judgment . filed by Estate o f Elliot W. Gumaer, Jr., 300 JOINT LETTER MOTION to Stay re: 258 MOTION for Summary Judgment . and the portion of Plaintiffs' Motion for Summary Judgment concerning the Gumaer Estate, addressed to Magistrate Judge K atharine H. Parker from Brian C. Br filed by Audrey Hays, Daniel Kleeberg, Lisa Stein. For the reasons stated above, Plaintiffs Motion for Partial Summary Judgment (ECF No. 263) is denied. The Eber Defendants' Motion for Partial Summary Judg ment (ECF No. 262) is granted only insofar as Plaintiffs' Declaratory Judgment Claim (Count VI) is dismissed; it is otherwise denied. The remainder of the Eber Defendants' Motion for Partial Summary Judgment is denied. The Estate of Elli ot Gumaer's Motion for Partial Summary Judgement (ECF No. 258) is hereby terminated without prejudice to renew pending the Estate's settlement with Plaintiffs, and its motion to stay (ECF No. 300) is denied as moot. The Eber Defendants ar e hereby directed to file a letter by no later than August 31 2020, advising the Court of the status of Lester Eber's Estate Proceeding and the appointment of an executor for the Estate. The Court will schedule a conference with all parties a s soon as practicable once counsel appears for the Estate of Lester Eber and Alexbay. In light of the fact that the Estate of Lester Eber and Alexbay are currently unrepresented in this action, the deadline for the parties to file motions for reconsideration are extended to September 15, 2020. SO ORDERED. (Motions due by 9/15/2020.) (Signed by Magistrate Judge Katharine H. Parker on 8/10/2020) (jca)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------------------------------X

8/10/2020

DANIEL KLEEBERG, et al.,
Plaintiffs,

16-CV-9517 (LAK) (KHP)
OPINION AND ORDER ON
THE PARTIES’ MOTIONS FOR
PARTIAL SUMMARY JUDGMENT

-againstLESTER EBER, et al.,
Defendants.
-----------------------------------------------------------------X
KATHARINE H. PARKER, United States Magistrate Judge

The instant diversity action is an intrafamily dispute for control of the family business:
Eber Bros. & Co., Inc. (“EB&C”); EB&C’s subsidiary, Eber Bros. Wine and Liquor Corp. (“EBWLC”);
Eber Bros. Wine & Liquor Metro, Inc. (“Eber Metro”), a former subsidiary of EBWLC; and Eber
Metro’s subsidiary, Eber-Connecticut (“Eber-CT” and, collectively with the aforementioned
companies, the “Eber Entities”). There are presently two Cross-Motions for Partial Summary
Judgment before this Court – the Partial Summary Judgment Motion of Plaintiffs Daniel
Kleeberg, Audrey Hays, and Lisa Stein on one side, and the Partial Summary Judgment Motion

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of Defendants Lester Eber, Wendy Eber, and Alexbay, LLC1 (“Alexbay,” and, collectively with the
aforementioned Defendants, the “Eber Defendants”), on the other.2
Plaintiffs have moved for summary judgment on the following claims: breach of
fiduciary duty for improper transactions (Count I, in part); new elections pursuant to New York
Business Corporation Law (“B.S.C.”) § 619 (Count V); declaratory judgement with respect to
Plaintiffs’ rights as shareholders (Count VI); and for an accounting (Count IX). Plaintiffs also
have moved for attorneys’ fees pursuant to B.S.C. § 626(e).
For their part, in addition to opposing Plaintiffs’ Motion, the Eber Defendants have
cross-moved for summary judgment to dismiss the following claims asserted by Plaintiffs:
breach of fiduciary duty under New York’s faithless servant doctrine (Count II); declaratory
judgment claim (Count VI); aiding and abetting breach of fiduciary duty and fraudulent
concealment claim (Count VIII); and common law (equitable) indemnification (Count X).3 The
Eber Defendants also have asked this Court to make several holdings regarding the valuation of
the Eber Entities and the transactions at issue in this case. First, the Eber Defendants have

1

Lester Eber passed away on April 5, 2020 after the parties’ Motions were filed. Thus, Lester’s Estate and Alexbay
are currently unrepresented in this action. (Dkt. No. 301.) Lester named his daughter and co-defendant, Wendy,
executrix of his Estate. Wendy’s counsel, Underberg & Kessler LLP, has advised the Court that the Monroe County
Surrogate’s Court is in the process of appointing an executor for Lester’s Estate. (Id.; see also Dkt. Nos. 309 and
312.) Plaintiffs’ counsel advised that Wendy’s mother and brother have objected to Wendy’s appointment as
executrix of the Estate. (Dkt. No. 311.) In a prior order, this Court granted Plaintiffs until August 31, 2020 to make
their motion to substitute another party to replace Lester Eber in this action. (Dkt. No. 313.)
2

Defendant the Estate of Elliot Gumaer also filed a Cross-Motion for Partial Summary Judgment and opposed
Plaintiffs’ Motion for Partial Summary Judgment against Gumaer for his alleged breach of fiduciary duties under
the faithless servant doctrine (Count II). However, since filing their respective Motions, Plaintiffs and the Gumaer
Estate have asked the Court to stay decision on Gumaer’s Cross-Motion and those portions of Plaintiffs’ CrossMotion pertaining to Gumaer to allow the finalization of a formal settlement between the parties. (Dkt. No. 300.)
Accordingly, Gumaer’s Cross-Motion and his opposition to Plaintiff’s Motion will not be addressed in this opinion.
3

The Eber Defendants withdrew a portion of their Motion seeking to dismiss Plaintiffs’ Counts I, II, III, IV, and VII as
barred by the applicable statute of limitations. (Dkt. No. 270.)

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asked the Court to find that EB&C, EBWLC, and Eber Metro were jointly and severally liable for
certain pension liabilities as of June 2012. Second, Defendants request that this Court hold that
Plaintiffs are barred by the Rooker-Feldman doctrine and the principles of res judicata from
challenging a 2012 New York Supreme Court order finding that Alexbay’s acceptance of all of
EBWLC’s interest in the capital stock of Eber Metro was “commercially reasonable” during strict
foreclosure. Third, the Eber Defendants have asked this Court to hold that the transfer of
EBWLC’s interest in Eber Metro to Alexbay, through strict foreclosure, cannot be rescinded
under the New York Uniform Commercial Code (“U.C.C.”). Fourth, and finally, Defendants
request that this Court find that Canandaigua National Bank & Trust Company’s (“CNB”)
attempt to distribute certain shares of EB&C stock to Plaintiffs, which were formerly held in
trust, was ineffective.
In opposing the Eber Defendants’ Motion for Partial Summary Judgment, Plaintiffs also
have moved to strike certain portions of the Eber Defendants’ Rule 56.1 Statement as well as
certain portions of Lester and Wendy Eber’s Affidavits. Plaintiffs also seek to preclude the
affidavit of Michael Gallagher, a witness who Plaintiffs contend was not timely disclosed.
The parties consented to the undersigned’s jurisdiction to issue a final opinion and order
on all summary judgment motions. (Dkt. No. 271); see also generally 28 U.S.C. § 636(c)(1)). For
the reasons set forth below, the Eber Defendants’ Motion for Partial Summary Judgment is
granted, in part, and Plaintiffs’ Motion for Partial Summary Judgment is denied.

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BACKGROUND4
I.

Allen Eber’s Will and the Testamentary Trust
Allen Eber founded EB&C, including its wine and liquor distribution business. (Dkt. No.

265 (“Pls.’ Rule 56 Statement”) ¶ 1.) He died in 1970 and his last will and testament (the “Allen
Eber Will” or “Will”) provided for the creation of a testamentary trust to hold his residuary
estate, including all of the controlling stock for EB&C (the “Trust”). (Id.; Dkt. No. 266-8 (“Brook
Decl. in Supp.”) Ex. 132 (the “Will”).) The Will stated that it was Allen Eber’s “wish that [his]
voting control of [EB&C] can be retained and, subject to that primary wish, . . . that [his]
interests in certain other close corporations can also be retained and that [his] son, Lester
[Eber], may have an opportunity to participate in the management thereof.” (Will § 11.)
The Allen Eber Will nominated three trustees to manage the Trust: Lester Eber; Allen
Eber’s attorney, Elliott W. Gumaer, Jr. (“Gumaer”); and Marine Midland Trust Company, a bank.
(Id. § 12.) M&T Bank subsequently replaced Marine Midland Trust Company as co-trustee, and
CNB replaced M&T Bank in July of 2007. (Pls.’ Rule 56 Statement ¶ 4.) The Will provided that
the Trust assets would transfer to the Trust beneficiaries per stirpes, that is, “[p]roportionately .
. . according to their deceased ancestor’s share.” Black’s Law Dictionary (11th ed. 2019); (see
also Will § 9.) Allen Eber’s three children, Mildred Eber Boslov, Sally Eber Kleeberg, and Lester
Eber, were the original beneficiaries of the Trust and each held a one-third “equal” interest in

4

Familiarity with the procedural history and facts of this case is presumed. See, e.g., Kleeberg v. Eber, 331 F.R.D.
302 (S.D.N.Y. 2019). As such, only the facts relevant to the parties’ cross-motions for summary judgment will be
addressed in this opinion. The facts relied upon by the Court are taken from the parties’ Rule 56.1 Statements and
the exhibits annexed to their Declarations, and are considered in the light most favorable to the non-moving party.
For clarity, the Court notes that all citations to page numbers refer to the page numbers provided on ECF.

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the Trust. (Will § 9.) When Mildred Eber Boslov died in 1973, her only child, Plaintiff Audrey
Hays, became a one-third beneficiary of the Trust. (Pls.’ Rule 56 Statement ¶ 2.) When Sally
Kleeberg passed away in 2014, her two children, Plaintiffs Daniel Kleeberg and Lisa Stein, each
became a beneficiary of the Trust, each holding a one-sixth interest in the Trust. (Id.)
Under the terms of the Will, the Trust could be terminated in one of two ways. The
Trust would automatically terminate upon the death of the last of Allen Eber’s three children.
In the alternative, the Will provided that the Trust could be terminated if “all, or substantially
all, [the] stock of [EB&C] . . . [was] sold.” Such a decision to terminate the Trust early would be
made at the “absolute discretion” of the Trustees. (Will § 9.)
II.

The Corporate Structure of the Eber Entities
a. EB&C
EB&C is a New York corporation. (Pls.’ Rule 56 Statement ¶ 8.) In their Third Amended

Complaint (“TAC”), Plaintiffs represented that EB&C functions primarily as a holding company.
(Dkt. No. 236 (“TAC”) ¶¶ 26, 29.) EB&C’s capital structure is comprised of three classes of
shares: Class A Common Shares (Voting); Class B Common Shares (Nonvoting); and 6% NonCumulative Preferred Shares (Nonvoting). As of February 2017, the Trust held the following
shares of EB&C stock registered in the name of the Trustees: 1,850 Class A Voting Shares; 290
Class B Nonvoting Shares; 2,000 6% Preferred Nonvoting Shares. (Pls.’ Rule 56 Statement ¶ 8;
Brook Decl. in Supp. Ex. 134 (“EB&C Stock Certificates”); see also Dkt. No. 262-21 (“Wendy Eber
Aff. in Supp. Ex. A”).) It appears that these shares are still registered under the names of the
Trust’s former co-trustees. (Pls.’ Rule 56 Statement ¶ 8; see also EB&C Stock Certificates.) The
parties contend that the only other registered shareholders of EB&C at any time over the last

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20 years have been Lester Eber and Sally Kleeberg, with each holding 100 shares of Class B
Nonvoting Common Shares. (Pls.’ Rule 56 Statement ¶ 8; Wendy Eber Aff. in Supp. Ex. A; Brook
Decl. in Supp. Ex. 11.)
b. EBWLC
EBWLC is a direct subsidiary of EB&C. (Pls.’ Rule 56 Statement ¶ 9; Dkt. No. 277-8 (“Eber
Defs.’ Rule 56 Counterstatement”) ¶ 9; Wendy Eber Aff. in Supp. Ex. A; Brook Decl. in Supp. Ex.
11.) Plaintiffs represented in the TAC that EBWLC is a New York corporation and, like EB&C,
operates as a holding company. (TAC ¶¶ 27, 29.) Plaintiffs also allege that EBWLC is the sole
owner of nominal defendant Eber Bros. Acquisition Corp. (“Eber Acquisition”), a New York
corporation that maintained its principal place of business in Rochester, New York. (Id. ¶ 32.)
Plaintiffs contend that, until at least February 2017, EB&C directly held all of EBWLC’s
voting shares. (Pls.’ Rule 56 Statement ¶ 9; Brook Decl. in Supp. Ex. 11.) They also maintain
that, prior to February 2017, the Trust held at least some of EBWLC’s nonvoting common and
preferred shares of stock. (Id.) For their part, the Eber Defendants contend that EBWLC was a
wholly-owned subsidiary of EB&C. (Eber Defs.’ Rule 56 Counterstatement ¶ 9; Wendy Aff. in
Supp. Ex. A.)
c. Eber Metro
Eber Metro was a wholly-owned subsidiary of EBWLC until June 5, 2012, when all 20,000
shares of Eber Metro stock were transferred to Lester Eber’s company, Alexbay. (Pls.’ Rule 56
Statement ¶¶ 10, 61; Eber Defs.’ Rule 56 Counterstatement ¶ 10.) Plaintiffs represent that, like
EB&C and EBWLC, Eber Metro also is primarily a holding company without its own business
operations. (TAC ¶ 29.) Plaintiffs also aver that Eber Metro is the sole owner of nominal

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defendants Eber-Rhode Island, LLC (“Eber-RI”) and Eber-Metro, LLC (“Eber-NDC”). (Id. ¶¶ 31,
33.) Plaintiffs contend that both Eber-RI and Eber-NDC are Delaware limited liability
companies, and Eber-RI was registered to do business in New York. (Id.)
d. Eber-CT
Eber-CT is Delaware limited liability company that operates as a wine and liquor
distributorship in Connecticut. (Pls.’ Rule 56 Statement ¶ 11; Eber Defs.’ Rule 56
Counterstatement ¶ 11.) Out of all the Eber Entities, it is the sole operating business. (Pls.’
Rule 56 Statement ¶ 70; Eber Defs.’ Rule 56 Counterstatement ¶ 70.)
Eber-CT conducts business under the trade name Slocum & Sons.5 (Pls.’ Rule 56
Statement ¶ 11; Eber Defs.’ Rule 56 Counterstatement ¶ 11.) The Slocum & Sons
distributorship was the result of a 2005 merger between Slocum & Sons, Inc. and Eber-CT. (Pls.’
Rule 56 Statement ¶ 11.) At the time of the merger, Eber-CT was a wholly owned subsidiary of
Eber Metro. (Id.) As part of the 2005 merger, Eber Metro acquired a call option to acquire
Slocum & Sons of Maine, Inc. (“Slocum Maine”) at an exercise price of $10. (Id. ¶ 15.)
Eber-CT remained a wholly owned subsidiary of Eber Metro until 2008, when Eber
Metro sold 15 percent of its interest in Eber-CT to a company named Eder-Goodman, LLC for
consideration that included a $4.5 million payment to Eber Metro. (Id. ¶¶ 11-12; Eber Defs.’
Rule 56 Counterstatement ¶¶ 11-12.) Eder-Goodman also acquired a right of first refusal on
any further sales by Eber Metro of Eber-CT stock, allowing it to purchase the stock for itself on
the same terms that were offered. (Pls.’ Rule 56 Statement ¶¶ 11-12.)

5

Although Eber-CT does business as Slocum & Sons, for clarity, the Court will refer to the company as Eber-CT.

7

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Eber Metro retained an 85 percent interest in Eber-CT until 2010, when Eber Metro
transferred six percent of its remaining interest in Eber-CT to Polebridge Bowman Partners, LLC
(“Polebridge”) in exchange for a $350,000 non-recourse promissory note with two percent
interest (the “Polebridge Transaction”). (Pls.’ Rule 56 Statement ¶¶ 13-14; Brook Decl. in Supp.
Ex. 14 (“Polebridge Stock Purchase Agreement”).) Eder-Goodman declined to exercise its right
of first refusal in connection with this transfer. (Pls.’ Rule 56 Statement ¶ 13.) At the time of
the transfer, Polebridge was solely owned by Glenn Sturm, an attorney who sometimes advised
Lester and Wendy Eber and the Eber Entities. (Id. ¶ 63; see also Polebridge Stock Purchase
Agreement.) Following the Polebridge Transaction, Eber Metro retained a 79 percent interest
in Eber-CT. When Eber Metro was transferred to Alexbay on June 5, 2012, that transfer
included Eber Metro’s 79 percent interest in Eber-CT. (See Pls.’ Rule 56 Statement ¶¶ 10, 61.)
III.

Lester Eber’s, Gumaer’s, and Wendy Eber’s Roles Within the Eber Entities
Lester Eber wore many hats within the Eber Entities. He was President of EB&C from

before 2000 until his death in April 2020; President of EBWLC from prior to 2000 until at least
February 1, 2012; President of Eber Metro from prior to 2000 until his death; and Chief
Executive Officer of Eber-CT from at least 2008 until his death. (Id. ¶ 23.) At all times that
Lester was an officer, he was also a director. And, in the case of Eber-CT, he was Chairman of
the Board of Managers. (Id.) Lester also served as co-trustee of the Trust from the time of
Allen Eber’s death in 1970 until the Trust was terminated in 2017. (Id. ¶¶ 4, 23.)
Like Lester, Gumaer carried out many roles within the Eber Entities. He was a director
of EB&C, EBWLC, and Eber Metro from before 2000 through at least the end of 2013. (Id. ¶ 17.)
He also served as co-trustee of the Trust from the time of Allen Eber’s death in 1970 until the

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Trust was terminated in 2017. Plaintiffs contend that Gumaer was also Lester and Wendy’s
personal attorney. (Id. ¶ 18.)
The parties dispute the role Wendy Eber played within EBWLC. Defendants contend
that Wendy Eber was CFO and Secretary of EBWLC from approximately 2007 until 2012, at
which time she became President. (Dkt. No. 278 (“Eber Defs.’ Rule 56 Statement”)6 ¶ 11.)
Plaintiffs contend that Wendy was a director and officer of the company from 2008 through
2013, but that she was never President of the company because her appointment to the
position of President by Lester was a “sham.” (Id.) Wendy is the current President of Eber-CT.
(Eber Defs.’ Rule 56 Statement ¶ 12.)
IV.

Lester’s Non-Competition and Consulting Agreement with Southern Wine and Spirits of
America, Inc.
ln or about October 2004, Southern Wine and Spirits of America, lnc. (“Southern”), a

national wine and liquor distributorship, entered the New York market. (Eber Defs.’ Rule 56
Statement ¶ 18.) Southern subsequently solicited and hired approximately 20 of EBWLC’s
salespeople. In response, EBWLC sued Southern and its former employees in New York State
Supreme Court for, among other things, tortious interference, inducement of breach of
fiduciary duty, unfair competition, and interference with prospective business advantage. It
also sought a preliminary injunction against Southern. (Dkt. No. 262-1 (“Lester Eber Aff. in
Supp.”) ¶ 15; see also Lester Eber. Aff. in Supp. Ex. E.)
EBWLC’s application for a preliminary injunction was denied, and EBWLC and Southern
ultimately settled the action (the “Southern Settlement Agreement”). (Id.; see also Eber Defs.’

6

For simplicity and clarity, the Court will refer to Plaintiffs’ Counterstatement of Material Facts at Docket Number
278 as the Eber Defendants’ Rule 56 Statement.

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Rule 56 Statement ¶¶ 19-22.) Pursuant to the Settlement Agreement, entered into in or about
July and August of 2007, Southern agreed to pay EBWLC millions of dollars and, in exchange,
EBWLC agreed to sell its holdings located in Delaware and Ohio and cease operations in New
York. (Pls.’ Rule 56 Statement ¶ 25; Brook Decl. in Supp. Ex. 154; see also Lester Eber Aff. in
Supp. Ex. F.) Eber-CT, however, was permitted to continue operating in Connecticut. According
to the documents submitted by the parties, EB&C’s board of directors approved the Settlement
in or about August 28, 2007. (See Brook Decl. in Supp. Ex. 154.)
Southern hired Lester as a consultant and lobbyist effective August 30, 2007 (the
“Southern Consulting Agreement”). (Pls.’ Rule 56 Statement ¶ 24; Brook Decl. in Supp. Ex. 27
(“Southern Consulting Agreement”); Lester Eber Aff. in Supp. Ex. F.) Under the Agreement,
Lester was paid $600,000 in his individual capacity annually for five years. (Pls.’ Rule 56
Statement ¶ 28; Southern Consulting Agreement § 4.) As part of the Agreement, Lester
entered into a restrictive covenant that prohibited him from competing against Southern in any
state where Southern operated, including New York, for five years. (Pls.’ Rule 56 Statement ¶
29; Southern Consulting Agreement § 6.) Thus, from August 2007 through August 2012, Lester
served as a consultant for Southern while continuing to serve in his various roles at the Eber
Entities – President of EB&C, President of EBWLC (until February 1, 2012), President of Eber
Metro, Chief Executive Officer of Eber-CT (beginning in 2008), and director for the various Eber
Entities. (Pls.’ Rule 56 Statement ¶ 23.)
The parties dispute whether the Eber Entities had fully ceased operations in New York at
the time Lester negotiated the Southern Consulting Agreement and began working as a
consultant and lobbyist for the Southern. However, it is undisputed that the Southern

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Settlement Agreement required that the Eber Entities stop doing business in New York. (Pls.’
Rule 56 Statement ¶ 27; Eber Defs.’ Rule 56 Statement ¶ 25.) Defendants contend that EBWLC
and Eber Metro laid off all their employees and ceased operating in New York prior to August of
2007. (Eber Defs.’ Rule 56 Statement ¶ 25.) However, Plaintiffs maintain that EBWLC had
employees through at least the end of 2007, and that certain documents, such as W-2’s and
payroll statements, show that the EBWLC had employees through as late as July 2008. (Dkt. No.
280 (“Brook Decl. in Opp’n”) Ex. 168.) The Southern Consulting Agreement was not authorized
by the board of directors of any Eber company or consented to by the co-trustees of the Trust.
(Pls.’ Rule 56 Statement ¶ 35.) Plaintiffs contend that Lester had previously performed
consulting and lobbying work on behalf of the Eber Entities. (Eber Defs.’ Rule 56 Statement ¶
26.)
At his deposition, Lee F. Hager, Southern’s Executive Vice President and witness
pursuant to Federal Rule of Civil Procedure 30(b)(6), testified that Southern sought to hire
Lester, in part, due to Lester’s personal contacts with the governmental authorities involved in
regulating liquor sales and distribution in New York State and his knowledge of the governing
regulations. (Brook Decl. in Supp. Ex. 181 (“Hager Dep. Tr.”) 36:11-37:12, 41:16-43:02.) He also
explained that Southern hired Lester because it did not want Lester to interfere with Southern’s
“brand building and . . . selling ways,” and wanted advice from a “neutral source.” (Id. at 38:0104, 40:40-41:01.) Additionally, Hager stated that Southern entered into the Consulting
Agreement with Lester on an individual basis because Southern did not want to be tied to a
corporation for a consulting contract for “personal” services. (Id. at 43:23-44:09.) When
Plaintiffs’ counsel asked Hager if Southern would have agreed to pay one of the Eber Entities

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instead of Lester pursuant to the Consulting Agreement (id. at 69:14-18), Hager responded that,
“[S]ubject to whatever my attorneys might have said, I would have objected vehemently. . . .
Call me myopic if you want, after a business is done, it's done. We deal with the individual.” (Id.
at 69:20-22, 70:23-25.)
At the time EBWLC ceased operations, it was in debt to its primary lender, Wells Fargo,
and owed approximately $130 million. (Lester Eber Aff. in Supp. ¶ 26; Eber Defs.’ Rule 56
Statement ¶ 23.) In March of 2007, Wells Fargo had put EBWLC’s loans into default and
classified the loans as a “workout,” freezing all of EBWLC’s working capital in order to pay down
the outstanding loans. (Id.) After the Wells Fargo loans were paid off, Wells Fargo declined to
extend any further credit to any Eber Entity. (Eber Defs.’ Rule 56 Statement ¶ 23.)
After the Eber Entities ceased operations in New York, Eber-CT continued operating in
Connecticut. (Lester Eber Aff. in Supp. ¶ 18; Wendy Eber Aff. in Supp. ¶ 9.) The parties dispute
whether Eber-CT suffered from financial problems between 2008 through 2012, and whether
there were any third-party lenders willing to provide debt financing to Eber-CT. (Lester Eber
Aff. in Supp. ¶ 27.)
V.

Lester’s Loans and Demand for Payment by the New York State Teamsters Conference
Pension and Retirement Fund
While serving as an officer and director of the Eber Entities and co-trustee of the Trust,

Lester made personal loans to the Eber Entities. Defendants contend that in October 1, 2002
and August 15, 2005, Lester loaned EBWLC $2,079,645.00, and that the note was amended and
restated on March 13, 2006. (Eber Defs.’ Rule 56 Statement ¶ 28.) Plaintiffs dispute the
amounts of these loans, and contend that Defendants have produced no documents, such as
the underlying notes, showing that these loans were actually made. (Id.; see also id. ¶ 35.)
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By letter dated January 10, 2008, shortly after EBWLC ceased operations and laid off its
employees, the New York State Teamsters Conference Pension and Retirement Fund (the
“Teamsters Fund”) advised that EBWLC had incurred an employer withdrawal liability under the
Employee Retirement Income Act of 1974 (“ERISA”) in connection with its cessation of
operations. (Wendy Eber Aff. in Supp. Ex. G, 1.) The Teamsters Fund contended that EBWLC
had withdrawal liability totaling $2,212,367.47, and demanded payment of the entire amount
within 60 days or, in the alternative, the payment of monthly installments. (Id.)
The Eber Defendants represent that, in or about October of 2009, Lester executed a
$1.5 million Line of Credit Note with Eber Metro providing Eber Metro with a revolving line of
credit that did not require security for potential losses (the “October Line of Credit Note”).
(Eber Defs.’ Rule 56 Statement ¶ 28; Brook. Decl. in Supp. Ex. 13.) Lester executed a similar line
of credit note with EBWLC and Eber Metro in or about February 26, 2010 (the “February 2010
Line of Credit Note”). (Brook. Decl. in Supp. Ex. 16.) On the same day the February 2010 Line of
Credit Note was executed, EBWLC and Eber Metro executed a security agreement (the
“Security Agreement”) with Lester that securitized the February 2010 line of credit note against
assets owned by EBWLC and Eber Metro. (Brook Decl. in Supp. Ex. 15.) Wendy signed the
Agreement on behalf of EBWLC and Eber Metro. (Id.) That same day, EBWLC also executed a
guaranty with Lester (the “Guaranty”) pledging EBWLC’s interest in Eber Metro as collateral for
the February 2010 Line of Credit Note. (Brook Decl. in Supp. Ex. 140.) Wendy signed the
Guaranty on behalf of EBWLC. (Id.)
In or about April 2, 2010, after the Line of Credit Notes were executed and the collateral
pledged, Lester sent letters to Audrey Hays and Sally Kleeberg explaining that the Eber Entities

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were struggling financially and stating that Lester had personally made loans to the Entities to
keep them afloat. (Eber Defs.’ Rule 56 Statement ¶ 30.) Lester enclosed unsigned and undated
copies of the 2010 Line of Credit, Security Agreement, and Guaranty with the Letters. (Lester
Eber Aff. in Supp. Ex. J.) In the letters, Lester offered Audrey and Sally the opportunity to
participate in the Line of Credit Note on a one-third basis. Both declined to participate. (Id. ¶
32.)
The parties dispute whether the Eber Entities (that is, Eber-CT as the only operating
entity remaining) continued to perform poorly through 2012. Plaintiffs believe Eber-CT was
doing well and making a profit, whereas the Eber Defendants contend that the Eber Entities
were insolvent. (Id. ¶ 33; Lester Eber Aff. in Supp. ¶ 36; Brook Decl. in Supp. Ex. 127.)
On February 11, 2011, EBWLC, Eber Metro, and Lester entered into an Amended and
Restated Security Agreement (the “Amended and Restated Security Agreement”) pertaining to
the preexisting debt owed by EBWLC and Eber Metro to Lester. (Brook Decl. in Supp. Ex. 18.)
Wendy signed on behalf of EBWLC and Eber Metro. (Id.) That same day, EBWLC, Eber Metro,
and Lester also entered into a Debt Assumption Agreement. (Brook Decl. in Supp. Ex. 17 (“Debt
Assumption Agreement”); see also id. Ex. 13.) Wendy signed on behalf of EBWLC and Eber
Metro. (Id.) On August 18, 2011, Gumaer and Richard Hawks of CNB, in their capacity as cotrustees, ratified Lester’s loans and the Security Agreement and Lester abstained from the vote.
(Dkt. No. 277-1 (“Lester Eber Aff. in Opp’n”) ¶ 12; see also id. Ex. A.)
Eber Metro did not repay Lester the sums due under the Line of Credit Note and Debt
Assumption Agreement by December 31, 2011, the maturity date for the 2009 $1.5 line of
credit note. (Pls.’ Rule 56 Statement ¶ 38; Eber Defs.’ Rule 56 Counterstatement ¶ 38; Eber

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Defs.’ Rule 56 Statement ¶ 34.) Defendants contend that, by the end of 2011, the outstanding
principal and accrued, and unpaid interest on Lester’s loans totaled over $3.6 million. Plaintiffs
dispute this amount and argue that, while the Eber Defendants have submitted documents
showing that Lester appears to have loaned the Eber Entities $1,571,037.48, they have failed to
provide documents showing that Lester made loans to EBWLC in October 1, 2002 and August
15, 2005 totaling over $2 million. (Eber Defs.’ Rule 56 Statement ¶ 35.) On January 18, 2012,
Lester assigned his interest in $3.6 million in loans to a company he created at about that time,
Alexbay. (Id. ¶¶ 28, 35.) Lester was the sole owner of Alexbay until his death. (Id. ¶ 37.)
VI.

Alexbay’s Foreclosure Action Against EBWLC and Eber Metro
On February 21, 2012, Alexbay filed an action in New York State Supreme Court,

Monroe County pursuant to U.C.C. § 9-620 and § 9-627, seeking a judicial determination that
Alexbay’s acceptance of all of EBWLC’s ownership interest in Eber Metro – and Eber Metro’s 79
percent ownership interest in Eber-CT – in full satisfaction of the loans then held by Alexbay,
was “commercially reasonable” (the “Foreclosure Action”). (Id. ¶ 40.) Neither the Trust nor
any Trust beneficiary was named in or served with notice of the Foreclosure Action. (Pls.’ Rule
56 Statement ¶ 53.)
In its pleadings, Alexbay contended that the proposed transfer of Eber Metro and its
interest in Eber-CT to Alexbay for elimination of the debt owed by Eber Metro to Alexbay was
“commercially reasonable.” (Id. ¶ 54.) Alexbay valued Eber Metro’s 79 percent interest in EberCT at $3,660,000, and based this valuation on the price set in the 2010 Polebridge Transaction,
which Alexbay described as an “arms’ length transaction.” (Id.; Brook Decl. in Supp. Ex. 44.)

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The Eber Defendants allege that Lester Eber resigned from EBWLC on or about February
28, 2012, and that his resignation was retroactive and effective as of February 1, 2012 (that is,
prior to Alexbay’s filing of the Foreclosure Action on the loans). (Id. ¶ 56; Brook Decl. in Supp.
Ex. 77.) On March 9, 2012, Marino Fernandez, the attorney representing EBWLC and Eber
Metro in the Foreclosure Action, signed a stipulation stating that: “the Eber Bros. Defendants
have no objection to the relief requested by Plaintiff in this proceeding and release any claim to
the Collateral as defined in the Complaint or any proceeds thereof.” (Brook Decl. in Supp. Ex.
159.) Minutes from Board meetings subsequently held by EBWLC and Eber Metro state that
EBWLC decided to waive its defenses in the Foreclosure Action to avoid expending additional
resources defending the suit. (Pls.’ Rule 56 Statement ¶¶ 57-58.) Then, on May 11, 2012,
Justice Matthew A. Rosenbaum of the New York Supreme Court, Monroe County, issued an
order stating: the “part of Plaintiff’s Motion seeking a determination that Alexbay’s acceptance
of certain collateral in full satisfaction of Eber Bros’ obligation is, ‘Commercially Reasonable’
under the Uniform Commercial Code is GRANTED . . . .” (Lester Eber Aff. in Supp. Ex. M, 3.)
The Order specified that the term “commercially reasonable” was used as defined in the U.C.C.
(Id.); see also U.C.C. § 9-627 (determination of whether conduct was commercially reasonable).
The transfer of Eber Metro to Alexbay was finalized on June 5, 2012, and on that date,
all 20,000 shares of Eber Metro stock were registered in Alexbay’s name on a certificate signed
by Lester as President and Wendy as Vice President of Eber Metro. (Pls.’ Rule 56 Statement ¶
61; Brook Decl. in Supp. Ex. 62.) On June 6 and 9, 2012, Wendy and Gumaer, respectively,
formally consented on behalf of EBWLC to “transfer and deliver to Alexbay all of its ownership
interest in [Eber] Metro in full satisfaction of [EBWLC’s] Obligations to Alexbay . . . .” (Brook

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Decl. in Supp. Exs. 61 and 63.) EBWLC’s only remaining asset following the transfer of Eber
Metro to Alexbay was less than $3,000 in cash. (Pls.’ Rule 56 Statement ¶ 70.) EBWLC was also
left saddled with the debt it still owed to third-party creditors, including pension obligations to
the Teamsters Fund. (Id. ¶ 69.)
Neither Sally Kleeberg nor Audrey Hays were informed about Alexbay’s proposal to
accept the stock of Eber Metro in consideration for the elimination of Eber Metro’s debt to
Alexbay before its approval in 2012. (Id. ¶ 71; Dkt. No. 266-12 (“Hays Decl. in Supp.”) ¶ 18.)
Nor were they advised of the Foreclosure Action. (Id.)
VII.

Continuing Liability to the Teamsters Fund, Subsequent Transactions, and Wendy’s
Promotions Within the Eber Entities
In July of 2012, Eber Metro exercised the Call Option to acquire Slocum Maine for $10.

(Pls.’ Rule 56 Statement ¶ 75.) However, Eber Metro did not acquire any assets or stock and,
instead, Lester and Wendy Eber each individually received a 50 percent interest in Slocum
Maine. (Id.)
The parties do not dispute that, as of June 1, 2012, the remaining employer withdrawal
liability to the Teamsters Fund of the Eber "controlled group" was approximately
$1,421,029.95. (Eber Defs.’ Rule 56 Statement ¶ 67.) In August of 2012, Wendy signed a
confession of judgment on behalf of EBWLC agreeing to a judgment of $1,421,029.95 against
EBWLC by the Teamsters Fund for the remaining underfunded Plan liabilities. (Id. ¶¶ 67-68;
Wendy Aff. in Supp. Ex. I.) That same month, Lester approved a new employment contract with
Wendy in which she was awarded shares in Eber Metro, that vested over time. (Pls.’ Rule 56
Statement ¶ 76.) Pursuant to her new employment agreement, signed by Lester, Wendy
became the new President of Eber-CT. (Id.) Wendy subsequently acquired 2,000 shares (or 9.1
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percent) of Eber Metro’s stock. (Id.) The Eber Defendants also contend that Wendy was
promoted to President of EBWLC at some point in 2012, a contention that Plaintiffs dispute.
(Eber Defs.’ Rule 56 Statement ¶ 11.)
VIII.

The EBWLC Retirement Plan and Pension Benefit Guaranty Corporation Law Suit and
the Commencement of the Instant Action
EBWLC was the Plan Administrator and contributing sponsor of the EBWLC Retirement

Plan. (Eber Defs.’ Rule 56 Statement ¶ 49; Wendy Eber Aff. in Supp. Ex. E (“PBGC Action
Decision and Order”).) The Plan required the accrual and payment of pension benefits, and
annual contributions to the Plan to fund benefits. (Eber Defs.’ Rule 56 Statement ¶ 50.) EBWLC
and the members of its "controlled group," including Eber Metro and Eber-CT, were required to
make certain minimum annual contributions to the EBWLC Plan. (Id. ¶ 51; see also PBGC Action
Decision and Order 4.) The EBWLC Plan was a “single employer defined benefit plan” subject to
the termination insurance program established under ERISA. (Eber Defs.’ Rule 56 Statement ¶
53; see also PBGC Action Decision and Order 7.) The Eber Defendants contend that the EBWLC
Plan was a “debt” of EBWLC. (Eber Defs.’ Rule 56 Statement ¶ 54.)
On August 6, 2014, the Pension Benefits Guaranty Corporation ("PBGC") sought to
terminate the EBWLC Plan because it determined that the Plan would be unable to pay benefits
once they became due. (Id. ¶ 55.) The PBGC subsequently sued EWBLC in the United States
District Court for the Western District of New York and sought “to declare the Plan terminated
and to have PBGC appointed as statutory trustee.” (PBGC Action Decision and Order 2.) On
January 19, 2016, the District Court established April 30, 2010 — a date preceding both the
Polebridge Transaction and the transfer of EBWLC’s interest in Eber Metro to Alexbay — as the
termination date of the EBWLC Retirement Plan, and found that Eber Metro and Eber-CT were
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in the “controlled group” as of that date. (Eber Defs.’ Rule 56 Statement ¶¶ 58, 60; see also
PBGC Action Decision and Order 4, 16.)
Then, by letter dated March 29, 2016, the PBGC demanded immediate payment for
unfunded benefit liabilities and other related amounts. (Wendy Eber Aff. in Supp. Ex. D.) The
demand letter advised EBWLC that the PBGC had determined that, as of April 30, 2010, EB&C,
EBWLC, Eber Metro, and Eber-CT “constituted a parent-subsidiary controlled group based on
(a) [EB&C’s] direct ownership of 100% of EBWLC, (b) EBWLC's direct ownership of 100% of Eber
Metro, and (c) Eber Metro's direct ownership of 85% of Eber-CT” and, as such, “EBWLC, [EB&C],
Eber Metro, and Eber-CT are jointly and severally liable for the ERISA liabilities resulting from
the termination of the Plan.” (Id. at 3.)
On December 9, 2016, Plaintiffs commenced the instant action alleging individual and
derivative claims against Lester, Gumaer, CNB, and Wendy. The gravamen of their Complaint
was, and remains, that Lester, Gumaer, CNB, and Wendy conspired to divest the Trust and the
Eber Entities of their only valuable asset — Eber Metro and its subsidiary Eber-CT — for the sole
benefit of Lester and his heirs. (See Dkt. No. 1 (“Initial Complaint”).)
IX.

The 2017 Issuance of EBWLC Voting Preferred Shares of Stock to Lester Eber
On February 14, 2017, Lester Eber, as President of EB&C and the “holder of all

outstanding shares of Class A common stock of [EBWLC],” appointed Wendy Eber the sole
director of EBWLC. (Brook Decl. in Supp Ex. 43, 26; see also Pls.’ Rule 56 Statement ¶ 98.)
That same day, Wendy Eber executed a Certificate of Amendment of the Certificate of
Incorporation of EBWLC, authorizing the creation of Class B junior preferred stock with voting
rights. (Pls.’ Rule 56 Statement ¶ 100; Brook Decl. in Supp. Ex. 43, 22-25.) Plaintiffs contend

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that the Amendment to the Certificate of Incorporation was not approved by a vote of EBWLC’s
shareholders or by a written consent in lieu of a shareholder meeting. (Pls.’ Rule 56 Statement
¶ 99.) Defendants counter that because EB&C was the sole owner of EBWLC, Lester, as
President of EB&C, was authorized to approve the amendment. (Lester Eber Aff. in Opp’n ¶
31.)
The next day, Wendy signed a Resolution on behalf of EBWLC issuing 750 shares of Class
B junior preferred stock to Lester in exchange for Lester’s “agreement to reimburse the
Corporation, at its request, for up to $37,500.00 of expenses incurred or to be incurred by the
Corporation in connection with its general operations.” (Brook Decl. in Supp. Ex. 43, 21; see also
Pls.’ Rule 56 Statement ¶ 100.) Lester also signed the Resolution. (Id.)
X.

The Surrogate’s Court Order and the Termination of the Trust
In February of 2016, shortly after the District Court’s ruling in the PBGC Action against

EBWLC, CNB advised Lester and Gumaer of its desire to petition the Surrogate’s Court to
terminate the Trust. (Pls.’ Rule 56 Statement ¶ 79.) On December 15, 2016, Wendy Eber
advised CNB that Lester “would like to move forward with closing the [T]rust, finalizing the
accounting of the [T]rust, and acquiring the stock of Eber Bros Wine and Liquor [i]mmediately.”
(Brook Decl. in Supp. Ex. 153.)
Then, in February of 2017, CNB petitioned the Surrogate’s Court in Monroe County to
terminate the Trust and to be released from its duties as co-trustee by distributing the
remaining assets of the Trust, as specified in its final accounting, to the beneficiaries in
accordance with their respective interests in the Trust. (Brook Decl. in Supp. Ex. 135 (the
“Surrogate’s Court Petition”).) CNB sought to terminate the Trust because “the Eber Bros. &

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Co., Inc. stock ha[d] no (or nominal) monetary value.” (Surrogate’s Court Petition ¶ 12; see also
id. ¶ 16.)
CNB’s accounting, submitted in connection with the Petition, included the Trust’s shares
in EB&C on the list of Trust assets to be distributed to the beneficiaries. (Surrogate’s Court
Petition 33-34, 40, 73-74.)7 The accounting also stated that the EB&C stock – comprised of
2,000 shares of six percent non-cumulative stock; 1,850 shares of Class A voting stock; and 290
shares of Class B stock – were worth $0. (Id.) CNB’s accounting did not list EBWLC shares of
stock. (See id.)
Lester was served with notice of the Petition, in his capacity as both co-trustee and
beneficiary of the Trust, but did not join in the Petition. (See id. 2.) Gumaer was also served
with notice in his capacity as co-trustee, but declined to join the Petition. (See id.) Lester
appeared in the proceeding, through counsel James Vazzana, on or about March 13, 2017.
(Pls.’ Rule 56 Statement ¶ 82; Brook Decl. in Supp. Ex. 137.) Lester did not object to the
termination of the Trust or CNB’s proposed accounting. (Pls.’ Rule 56 Statement ¶ 83.)
Plaintiffs were also served notice, but did not enter an appearance or otherwise object to CNB’s
petition or accounting. (Id. ¶ 84.) On June 1, 2017, the Surrogate’s Court adopted CNB’s
proposed accounting and granted the Petition. The Court ordered CNB to:
[P]ay the remaining cash and transfer, assign and deliver the other
remaining assets shown in the account as follows (less certain
specified fees and commissions):
1/3 to Lester Eber

$113,908.61*

7

Because the ECF page numbers on this document are illegible, the Court cites to this document by using the page
numbers listed at the bottom of each page.

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1/3 to Audrey Hays

$113,908.61*

1/6 to Daniel Kleeberg

$227,817.22*

1/6 to Lisa Stein

$227,817.22*

*Less Woods Oviatt Gilman LLP fees and disbursements - amount to be
determined.
(Brook Decl. in Supp. Ex. 33 (“Surrogate’s Court Order”) 6.)
XI.

CNB’s Proposed Distributions and the Transfer Restriction on the EB&C Stock
After the Surrogate’s Court issued its Order terminating the Trust, CNB sent the Trust

beneficiaries, Plaintiffs and Lester, its proposed final distribution. Plaintiffs contend, and the
Eber Defendants do not dispute, that Lester received his share of the Trust’s cash and
marketable securities, as outlined in CNB’s proposed distribution. (Pls.’ Rules 56 Statement ¶
93.) CNB communicated with the same attorney who represented Lester in the Surrogate’s
Court Proceeding, James Vazzana, when making these distributions (Brook Decl. in Supp. Ex.
37; id. at Ex. 40; id. at Ex. 41; see also Dkt. No. 188-1 (“CNB’s Decl. in Supp. of Mot. to
Intervene”) Ex. 2.) On October 11, 2017, CNB purportedly sent a letter to Lester’s counsel,
Vazzana, and Plaintiffs’ counsel, Brian Brook, enclosing “the Stock Powers transferring their
shares of Eber Bros. & Co., Inc. pursuant to [CNB’s] distribution schedule.” (Brook Decl. in Supp.
Ex. 38; see also CNB’s Decl. in Supp. of Mot. to Intervene Ex. 7 (copies of stock powers). In its
letter, CNB explained that because it “never had possession of the company’s stock book or
other corporate documents and, despite request, . . . [was] not . . . provided with the same . . .
[it was] required to complete these transfers via these Stock Powers as opposed to issuing new
stock certificates.” (Brook Decl. in Supp. Ex. 38.) The stock powers purported to allocate the
1,850 shares of EB&C voting stock as follows: Audrey Hays (706 shares); Daniel Kleeberg (301
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shares); and Lisa Stein (137 shares). (CNB’s Decl. in Supp. of Mot. to Intervene Ex. 7.) From the
evidence in the record, it does not appear that CNB issued shares to Lester through stock
powers. (See id.) The Eber Defendants contend that, although Vazzana received CNB’s letter,
the copies of the stock powers were not enclosed with the Letter. (Eber Defs.’ Rule 56
Counterstatement ¶ 93; Lester Eber Aff. in Opp’n ¶ 32.)
At the time the Surrogate’s Court issued its Order, EB&C’s Bylaws provided that “shares
of the corporation shall be represented by certificates . . . .” (Brook Decl. in Supp. Ex. 133
(“EB&C Bylaws”) Art. VI.) The Bylaws also included a provision restricting the transfer of shares
unless the transferring shareholder first gave notice to EB&C’s President (i.e., Lester) or
Secretary. (Id. at Art. XII.) The Bylaws provide, in relevant part, that:
A shareholder shall not transfer, sell or assign any shares of the
corporation’s stock without first personally delivering to the
president or secretary written notice of a proposed transfer at least
five (5) days before the effective date of transfer, stating the terms
of the proposed transfer. Any other shareholder may, but is not
required to, give notice within said five day period to the
transferring shareholder of said other shareholder's intent to
purchase the shares for a price equal to the book value thereof as
appears by the books of the corporation of the end of the
immediately preceding fiscal year.
(Id.) The Bylaws further stated that, “No transfer of any stock shall be valid until such notice
shall be given and the other shareholders have the opportunity to purchase the same as
aforesaid” (the “EB&C Transfer Restriction”). (Id.) Lester knew about the Transfer Restriction
before the Surrogate’s Court issued its Final Accounting Order. (Pls.’ Rule 56 Statement ¶ 89;
Eber Defs.’ Rule 56 Counterstatement ¶ 89.) Neither Lester nor his attorney advised CNB or the
Surrogate’s Court about the Transfer Restriction before the Court issued its Order terminating
the Trust and directing CNB to make distributions. (Pls.’ Rule 56 Statement ¶ 90; see also id. ¶
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89.) CNB ultimately failed to issue stock certificates for the Trust beneficiaries’ shares of EB&C
stock. (See Pls.’ Rule 56 Statement ¶ 93.)
XII.

Plaintiffs Dismiss CNB from the Instant Action with Prejudice, Lester Seeks to
Acquire All Remaining Shares of EB&C Voting Stock by Invoking EB&C’s Transfer
Restriction, and Plaintiffs Supplement Their Second Amended Complaint
On August 7, 2018, the Honorable Judge Lewis A. Kaplan so ordered a stipulation signed

by all parties permitting the dismissal of CNB from this action, with prejudice, pursuant to
Federal Rule of Civil Procedure 41(a)(1)(A)(ii). (Dkt. No. 117.) In connection with the
settlement of their claims against CNB, “Plaintiffs agreed to indemnify CNB for certain legal
costs incurred by CNB in connection with further proceedings relating to the Allen Eber Trust.”
(TAC ¶ 390); see also Kleeberg, 331 F.R.D. at 324.
As of October 31, 2018, because it never issued stock certificates for the shares of EB&C
stock, CNB had yet to finish distributing the EB&C stock to the Trust beneficiaries pursuant to
the Surrogate’s Court Order. On that date, Lester, through his attorneys, sent a “Notice of
Intent to Purchase” to the Allen Eber Trust, in the care of CNB, and sought to invoke the EB&C
Transfer Restriction to acquire all of the EB&C stock for himself. (Brook Decl. in Supp. Ex. 35.)
Then, on or about December 17, 2018, Lester sent an updated notice clarifying that his
proposed purchase price for the shares was “$0.” (Id. Ex. 164.) Plaintiffs balked at Lester’s
attempt to acquire all of the EB&C stock, and their attorney Brian Brook instructed CNB to
refuse Lester’s request. As a result, CNB found itself caught between the competing demands
of Plaintiffs and the Eber Defendants, with the former demanding the distribution of two-thirds
of the EB&C stock, pursuant to the Surrogate’s Court Order, and the latter demanding all of the
shares of stock under the Transfer Restriction in EB&C’s Bylaws. CNB subsequently moved to

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intervene and was rejoined to this litigation as a nominal defendant. (See Dkt. Nos. 200 and
237.)
Soon thereafter, Plaintiffs moved to amend and supplement their Second Amended
Complaint (“SAC”) to allege, among other things, that “[b]y engaging in conduct to prevent the
transfer of shares of EB&C to Plaintiffs, including purporting to exercise an option to acquire
Plaintiffs’ shares for nothing, Lester and Wendy may have caused and may continue to cause
Plaintiffs to incur indemnification liability to CNB.” (TAC ¶ 391.) Plaintiffs contend that the
Eber Defendants’ “conduct has caused CNB to incur legal expenses that are likely to be subject
to the indemnification agreement executed by Plaintiffs.” (Id. ¶ 393.) For the reasons stated in
the Order granting Plaintiffs leave file the TAC, this Court granted Plaintiffs’ request to assert an
equitable indemnification claim against the Eber Defendants. See Kleeberg v. Eber, 331 F.R.D.
at 324.
LEGAL STANDARDS
I.

Legal Standard Governing Summary Judgment Under Federal Rule of Civil Procedure 56
Under Rule 56 of the Federal Rules of Civil Procedure (“Rule 56”), a court may grant

summary judgment when “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A fact is ‘material’ when it ‘might
affect the outcome of the suit under the governing law.’” Anderson v. Hertz Corp., 507 F. Supp.
2d 320, 326 (S.D.N.Y. 2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)),
aff’d, 303 F. App’x 946 (2d Cir. 2008). “The movant bears the burden of demonstrating the
absence of a genuine dispute of fact, and, to award summary judgment, the court must be able
to find ‘after drawing all reasonable inferences in favor of a non-movant’ that ‘no reasonable

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trier of fact could find in favor of that party.’” Palmer/Kane LLC v. Rosen Book Works LLC, 204 F.
Supp. 3d 565, 568 (S.D.N.Y. 2016) (internal citation omitted) (first citing Anderson v. Liberty
Lobby, Inc., 477 U.S. at 256; then quoting Heublein, Inc. v. United States, 996 F.2d 1455, 1461
(2d Cir. 1993)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (explaining that the
moving party is entitled to summary judgment where the “nonmoving party has failed to make
a sufficient showing on an essential element of her case with respect to which she has the
burden of proof”).
“In evaluating whether the parties have met their respective burdens, th[e] Court
‘examine[s] the record as a whole, just as a jury would . . . .’” Sealy v. Hertz Corp., 688 F. Supp.
2d 247, 254 (S.D.N.Y. 2009) (alteration in original) (quoting Byrnie v. Town of Cromwell, Bd. of
Educ., 243 F.3d 93, 102 (2d Cir. 2001), superseded on other grounds by Fed. R. Civ. P. 37(e)).
Thus, to receive consideration, evidence submitted in support of or in opposition to a motion
for summary judgment must be admissible at trial. Fed. R. Civ. P. 56(c)(4); see Santos v.
Murdock, 243 F.3d 681, 683 (2d Cir. 2001) (“Affidavits submitted to defeat summary judgment
must be admissible themselves or must contain evidence that will be presented in an
admissible form at trial.” (citing Celotex Corp., 477 U.S. at 323–24)); see also Burlington Coat
Factory Warehouse Corp. v. Esprit De Corp., 769 F.2d 919, 924 (2d Cir. 1985) (plaintiff could not
rely on inadmissible hearsay to oppose motion for summary judgment).
The Rule also provides that a “party asserting that a fact cannot be or is genuinely
disputed must support the assertion by . . . citing to particular parts of materials in the record . .
. or showing that the materials cited do not establish the absence or presence of a genuine
dispute, or that an adverse party cannot produce admissible evidence to support the fact.”

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Fed. R. Civ. P. 56 (c)(1). A non-moving party cannot create a material issue of fact to defeat
summary judgment by making conclusory statements that are unsupported by admissible
evidence. See Johnson v. Killian, 680 F.3d 234, 236 (2d Cir. 2012); see also Chartis Seguros
Mexico, S.A. de C.V. v. HLI Rail & Rigging, LLC, 3 F. Supp. 3d 171, 179 (S.D.N.Y. 2014) (“There is
no issue of material fact where the facts are irrelevant to the disposition of the
matter. Speculation, conclusory allegations and mere denials are not enough to raise genuine
issues of fact.”). Additionally, any legal conclusion framed as an undisputed fact must be
disregarded. See Wojcik v. 42nd St. Dev. Project, 386 F. Supp. 2d 442, 448 n.5 (S.D.N.Y. 2005).
Where a party “fails to properly support an assertion of fact or fails to properly address
another party’s assertion of fact as required by Rule 56(c),” courts have discretion to:
(1) give an opportunity to properly support or address the
fact; (2) consider the fact undisputed for purposes of the
motion; (3) grant summary judgment if the motion and
supporting materials—including the facts considered
undisputed—show that the movant is entitled to it; or (4)
issue any other appropriate order.
Fed. R. Civ. P. 56(e); see also Fed. R. Civ. P. 56(c)(2). Additionally, “[i]f satisfied that an affidavit
or declaration under this rule is submitted in bad faith or solely for delay, the court—after notice
and a reasonable time to respond--may order the submitting party to pay the other party the
reasonable expenses, including attorney’s fees, it incurred as a result. An offending party or
attorney may also be held in contempt or subjected to other appropriate sanctions.” Fed. R. Civ.
P. 56(h).
When determining whether a grant of summary judgment is appropriate, the court’s
decision should not hinge on whether it “‘believes that the plaintiff will be unable to meet his
or her burden of persuasion at trial.’” Walder v. White Plains Bd. of Educ., 738 F. Supp. 2d 483,
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493 (S.D.N.Y. 2010) (alteration in original) (quoting Danzer v. Norden Sys., Inc., 151 F.3d 50, 54
(2d Cir. 1998)). Instead, the court must determine whether there is such a “‘lack of evidence in
support of the plaintiff’s position” or evidence that is “‘so overwhelmingly tilted in one
direction that any contrary finding would constitute clear error.’” Id. “It is well settled that
‘[c]redibility assessments, choices between conflicting versions of the events, and the weighing
of evidence are matters for the jury, not for the court on a motion for summary judgment.’ ”
Anderson v. New York City Health & Hosps. Corp., No. 16-CV-1051 (GBD) (KHP), 2020 WL
2866960, at *9 (S.D.N.Y. Mar. 2, 2020) (quoting Curry v. City of Syracuse, 316 F.3d 324, 333 (2d
Cir. 2003) (alteration in original), adopted by 2020 WL 1528101 (S.D.N.Y. Mar. 31, 2020).
Typically, “[o]n cross-motions for summary judgment, the court must consider each
motion independently of the other and when evaluating each, the court must consider the facts
in the light most favorable to the non-moving party.” Chartis Seguros Mexico, S.A. de C.V., 3 F.
Supp. 3d at 179. “[E]ven when both parties move for summary judgment, asserting the
absence of any genuine issues of material fact, a court need not enter judgment for either
party.” See Morales v. Quintel Entm’t, Inc., 249 F.3d 115, 121 (2d Cir. 2001) (citing Heublein,
Inc., 996 F.2d at 1461). Where “the motion and cross-motion seek a determination of the same
issues, the Court may consider them together.” ExteNet Sys., Inc. v. Village of Pelham, 377 F.
Supp. 3d 217, 223 (S.D.N.Y. 2019); see also Chartis Seguros Mexico, S.A. de C.V., 3 F. Supp. 3d at
179 (considering cross motions for partial summary judgment together where two parties
moved on the issue of defendant’s limitation of liability defense because the motions presented
“two sides of the same coin”).

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II.

Substantive Law
Federal Courts sitting in diversity apply the choice of law rules of the forum state. See

Sparrow Fund Mgmt., LP v. Mimedx Grp., Inc., No. 18-CV-04921 (PGG) (KHP), 2019 WL 8955307,
at *4 (S.D.N.Y. Nov. 7, 2019) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496
(1941)), adopted by 2020 WL 1330283 (S.D.N.Y. Mar. 22, 2020); see also Krumme v. WestPoint
Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) (applying New York law where the parties’ briefs
assumed New York law controlled). In the instant diversity action, Plaintiffs’ claims are asserted
under New York law and the parties’ briefs assume that New York law controls. Accordingly,
the substantive issues in the parties motions will be evaluated under New York law. See
generally Kleeberg, 331 F.R.D. 302 (applying New York law).
DISCUSSION
I.

Plaintiffs’ Motion to Strike and Preclude Witness Testimony Under Federal Rule
of Civil Procedure 37
The Court first turns to Plaintiffs’ Motion to Strike and to Preclude, in which they have

moved to strike portions of Defendants’ Rule 56 Statement, portions of Lester’s and Wendy’s
affidavits, and to preclude the affidavit of Michael Gallagher, an undisclosed witness. Despite
having the opportunity to do so, the Eber Defendants did not oppose or otherwise respond to
the Motion.
District courts have “broad discretion to manage pre-trial discovery” and appellate courts
“review [their] decisions on these matters only for abuse of discretion.” Montgomery v. New York
City Transit Auth., 806 F. App’x 27, 30 (2d Cir. 2020) (internal quotation marks and citation
omitted). Where a court does not rely on contested submissions in deciding a motion for
summary judgment, it may deny a party’s motion to strike as “academic.” See Williams v. New
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York City Transit Auth., No. 10-cv-882 (ENV)(CLP), 2014 WL 11474810, at *1 n.2 (E.D.N.Y. Sept.
16, 2014), aff’d, 620 F. App’x 63 (2d Cir. 2015). Here, Plaintiffs seek to strike portions of the Eber
Defendants’ Rule 56 Statement on the basis that those assertions: are immaterial; constitute
legal conclusions; omit essential underlying facts; and omit the governing law. (Dkt. No. 279
(“Pls.’ Mem. of Law in Opp’n”) 8-16.) They also seek to strike certain portions of Lester’s and
Wendy’s affidavits that, they contend, suggest that they intend to raise advice of counsel as a
defense, as well as an assertion made by Wendy regarding what the board of EBWLC allegedly
believed about EBWLC’s outstanding liabilities. (Id. at 11-12.) Here, because the Court has not
relied on the facts and representations Plaintiffs seek to strike from the Eber Defendants’ Rule
56 Statement and Affidavits in deciding the parties’ motions, Plaintiffs’ Cross-Motion to Strike is
denied as moot.
Next, the Court considers whether the affidavit of Michael Gallagher, an undisclosed
witness who provided actuarial calculations regarding the Eber Entities’ pension liabilities as of
June 1, 2012 – a few days before EBWLC transferred its interest in Eber Metro to Alexbay – should
be precluded. Federal Rule of Civil Procedure 37(c)(1) provides that “[i]f a party fails to provide
information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use
that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the
failure was substantially justified or is harmless.” The party moving for Rule 37 sanctions has the
burden of demonstrating that the opposing party failed to timely disclose information, as
required by Rule 26. See New World Sols., Inc. v. NameMedia Inc., 150 F. Supp. 3d 287, 304
(S.D.N.Y. 2015). “To determine whether preclusion is warranted under Rule 37, a court must
consider ‘(1) the party’s explanation for the failure to comply with the disclosure requirement;

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(2) the importance of the testimony of the precluded witnesses; (3) the prejudice suffered by the
opposing party as a result of having to prepare to meet the new [evidence]; and (4) the possibility
of a continuance.’ ” Id. (quoting Design Strategy, Inc. v. Davis, 469 F.3d 284, 296 (2d Cir. 2006));
see also City of Almaty, Kazakhstan v. Ablyazov, No. 15-CV-05345 (AJN) (KHP), 2019 WL 4126445,
at *4 (S.D.N.Y. Aug. 30, 2019) (citing Patterson v. Balsamico, 440 F.3d 104, 117 (2d Cir. 2006)). It
is well settled that “preclusion is not a mandatory sanction,” and is a “harsh remedy that should
be imposed only in rare situations.” New World Sols., Inc., 150 F. Supp. 3d at 304 (internal
quotation marks and citations omitted); see also Design Strategy, 469 F.3d at 297–98; Update
Art, Inc. v. Modiin Pub., Ltd., 843 F.2d 67, 71 (2d Cir. 1988).
Plaintiffs’ allegation that the Eber Defendants failed to disclose a witness that they now
seek to use to support their Motion for Partial Summary Judgment is concerning. However,
because the Court has not relied on Gallagher’s Affidavit to decide the instant motions, it
concludes that the Affidavit, at least at this stage, is harmless. Accordingly, Plaintiffs’ Motion to
Preclude Gallagher’s Affidavit is denied, without prejudice to renew before trial.
II.

Applicability of the Rooker-Feldman Doctrine and Doctrine of Res Judicata to the
Foreclosure Action Order
The Eber Defendants have asked this Court to find that Plaintiffs are barred by the

Rooker-Feldman doctrine and the principles of res judicata from seeking to unwind the transfer
of Eber Metro to Alexbay because Justice Rosenbaum already found that Alexbay’s strict
foreclosure of EBWLC’s interest in Eber Metro’s stock, in satisfaction of the outstanding secured
loans Lester assigned to Alexbay pursuant to U.C.C. § 9-620, was “commercially reasonable”
under U.C.C. §9-627. (Dkt. No. 262-35 (“Eber Defs.’ Mem. of Law in Supp.”) 15-16.) The Eber
Defendants contend that the Rooker-Feldman doctrine and the principles of res judicata apply
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because, “[t]he crux of Plaintiffs’ claims is that Justice Rosenbaum's Order approving the 2012
Foreclosure divested Plaintiffs of their beneficial interest, as beneficiaries of the Trust, in Metro
and Eber CT.” (Id. at 17.)
Plaintiffs counter that their claims are not barred by the Rooker-Feldman doctrine and
the doctrine of res judicata because their injuries were not caused by the outcome in the
Foreclosure Action. Indeed, and as acknowledged by the Eber Defendants, no court proceeding
or court order was required to finalize the foreclosure of EBWLC’S interest in Eber Metro by
Alexbay under U.C.C. § 9-620. Thus, Plaintiffs contend they were not harmed by the
foreclosure itself. Rather, they were harmed by the Security Agreements and Guaranty that
gave Lester the option of foreclosing on Eber Metro to settle the debt owed to him by EBWLC
and by EBWLC’s consent to transfer its interest in Eber Metro to Alexbay following its default on
the loans owed to Alexbay. The Court agrees with Plaintiffs.
It is well established that the Rooker-Feldman doctrine constrains “ ‘state-court losers
[from] complaining of injuries caused by state-court judgments rendered before the district
court proceedings commenced and inviting district court review and rejection of those
judgments.’ ” Hoblock v. Albany Cty. Bd. of Elections, 422 F.3d 77, 85 (2d Cir. 2005) (quoting
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005)). As explained by the
Second Circuit, “[u]nderlying the Rooker–Feldman doctrine is the principle, expressed by
Congress in 28 U.S.C. § 1257, that within the federal judicial system, [with the exception of
habeas corpus review,] only the Supreme Court may review state-court decisions.” Id. at 85.
Four requirements must be met for the Rooker-Feldman doctrine to apply: (1) “the federalcourt plaintiff must have lost in state court”; (2) “the plaintiff must ‘complain[ ] of injuries

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caused by [a] state-court judgment’ ”; (3) “the plaintiff must ‘invit[e] district court review and
rejection of [that] judgment[ ]’ ”; (4) “the state-court judgment must have been ‘rendered
before the district court proceedings commenced.’ ” Id. at 85.
Under U.C.C. § 9-620, a secured creditor may accept collateral from a debtor to satisfy a
debt, so long as: (1) the creditor provides notice of its proposal to the debtor (who may waive
this right following default) and other parties with interest in the collateral, as set forth in U.C.C.
§ 9-621(b); and (2) the debtor consents to the acceptance of the collateral in satisfaction of the
debt after default. See also U.C.C. § 9-620 official comment; see also generally; Remedies
Outside the Box: Enforcing Security Interests Under Article 9 of the Uniform Commercial Code,
AMERICAN BAR ASSOCIATION (Aug. 31, 2012),
https://www.americanbar.org/groups/business_law/publications/blt/2012/08/03_cabral/. No
court action is required to effectuate a strict foreclosure under U.C.C. § 9-620.
In May of 2012, Justice Rosenbaum issued an Order finding that Alexbay’s acceptance of
EBWLC’s interest in Eber Metro was “commercially reasonable” under the U.C.C. (Lester Aff. in
Supp. ¶ 50; id. at Ex. M.) However, the Order did not purport to award Alexbay anything, nor
did it require EBWLC to give anything to Alexbay. Then, in June of 2012, EBWLC’s Board,
consisting of Wendy and Gumaer, consented to Alexbay’s acceptance of EBWLC’s interest in
Eber Metro. All 20,000 shares of Eber Metro stock were registered in Alexbay’s name that
same month. (Pls.’ Rule 56.1 Statement ¶ 59, ¶ 62; Dkt. No. 266-4 Ex. 61, 52-54.) Thus,
Plaintiffs’ alleged injuries did not flow from the Foreclosure Action or Judge Rosenbaum’s
Order, but rather, from the underlying agreements that gave Lester (and later Alexbay) the
right to Foreclose on EBWLC’s assets to satisfy its debt and EBWLC’s decision to transfer all of

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its shares of Eber Metro stock to Alexbay. Because a core requirement of the Rooker-Feldman
doctrine is that a causal connection exist between the state court judgement and plaintiffs’
injury, the Rooker-Feldman doctrine does not bar Plaintiffs from challenging the validity of
Alexbay’s strict foreclosure on EBWLC’s interest in Eber Metro and, by extension, all of Eber
Metro’s interest in Eber-CT. See McKithen v. Brown, 481 F.3d 89, 97–98 (2d Cir. 2007).
The Eber Defendants also argue that the Rooker-Feldman doctrine bars Plaintiffs from
challenging the validity of the underlying debts owed by EBWLC to Lester (and later Alexbay)
because Justice Rosenbaum’s Order “effectively confirmed the validity of the debts to Alexbay.”
(Eber Defs.’ Mem. of Law in Supp. 18-19.) To support this contention, the Eber Defendants’ cite
a litany of cases holding that the Rooker-Feldman doctrine bars plaintiffs from attacking state
court judgments of foreclosure. See, e.g., Feliciano v. U.S. Bank Nat. Ass’n, No. 13-CV-5555
(KBF), 2014 WL 2945798, at *3 (S.D.N.Y. June 27, 2014) (court lacked jurisdiction over claims
challenging default judgment of foreclosure and sale); Webster v. Wells Fargo Bank, N.A., No.
08 CIV. 10145, 2009 WL 5178654, at *6 (S.D.N.Y. Dec. 23, 2009) (court lacked jurisdiction over
plaintiffs’ claims challenging state court judgment of foreclosure under the Rooker-Feldman
doctrine), aff’d sub nom. Webster v. Penzetta, 458 F. App’x 23 (2d Cir. 2012), as amended (Jan.
24, 2012); Parra v. Greenpoint Mortg., No. CIV.A. 01-CV-02010, 2002 WL 32442231, at *2
(E.D.N.Y. Mar. 26, 2002), aff’d sub nom. Parra v. Wilshire Credit Corp., 53 F. App’x 164 (2d Cir.
2002) (the fact that the state court judgment of foreclosure was obtained by fraud did not
remove claims attacking the judgment from the scope of the Rooker-Feldman doctrine).
As explained above, Justice Rosenbaum’s Order was not a judgment that awarded
Alexbay anything. The cases cited by the Eber Defendants are inapposite because they all

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involve plaintiffs who sought to attack state court judgments of foreclosure that awarded banks
the right to foreclose upon the plaintiffs’ homes. As such, the Court rejects the Eber
Defendants’ argument that Plaintiffs’ challenge to the validity of the underlying debt is barred
by the Rooker-Feldman doctrine.
The Court similarly finds unpersuasive the Eber Defendants’ argument that Plaintiffs’
claims seeking the return of Eber Metro to a constructive trust are barred by the doctrine of res
judicata. For res judicata to apply, there must be “‘a final judgment on the merits of an action
[that] precludes the parties or their privies from relitigating issues that were or could have been
raised in that action.’” Greco v. Local.com Corp., 806 F. Supp. 2d 653, 657 (S.D.N.Y. 2011)
(quoting Allen v. McCurry, 449 U.S. 90, 94 (1980)). As explained above, Justice Rosenbaum’s
order was not a final judgment that awarded Alexbay anything and, thus, res judicata does not
apply. Furthermore, Plaintiffs were not parties to the Foreclosure Action. Thus, they are not
relitigating anything in this action. Accordingly, for the reasons set forth above, this Court finds
that Plaintiffs’ claims are not barred by the Rooker-Feldman doctrine or the principles of res
judicata.
III.

Plaintiffs’ Motion for Partial Summary Judgment on Their Declaratory Judgment
Claim (Count VI), and the Eber Defendants’ Cross-Motion to Dismiss Plaintiffs’
Declaratory Judgment Claim as Duplicative of Other Claims
Federal Rule of Civil Procedure 57 (“Rule 57”) governs the procedure for obtaining a

declaratory judgment under 28 U.S.C. § 2201, the Declaratory Judgment Act, which provides
that:
In a case of actual controversy within its jurisdiction . . . any court
of the United States, upon the filing of an appropriate pleading,
may declare the rights and other legal relations of any interested

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party seeking such declaration, whether or not further relief is or
could be sought.
28 U.S.C. § 2201; see also Kleeberg, 331 F.R.D. at 323. The Act grants district courts broad
discretion to determine whether to exert jurisdiction over a declaratory judgment action. See
Dow Jones & Co. v. Harrods Ltd., 346 F.3d 357, 359 (2d Cir. 2003). “[T]his broad discretion is
reviewed deferentially, for abuse of discretion.” Dow Jones & Co. v. Harrods Ltd., 346 F.3d 357,
359 (2d Cir. 2003) (first citing Wilton v. Seven Falls Co., 515 U.S. 277, 289 (1995); then citing
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494–95 (1942); then citing 10B CHARLES ALAN
WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 2759 (4th ed.)). “When determining
whether to entertain a declaratory judgment claim, courts in the Second Circuit ascertain: ‘(1)
whether the judgment will serve a useful purpose in clarifying or settling the legal issues
involved; and (2) whether a judgment would finalize the controversy and offer relief from
uncertainty.’ ” Kleeberg, 331 F.R.D. at 323 (quoting Duane Reade, Inc. v. St. Paul Fire & Marine
Ins. Co., 411 F.3d 384, 389 (2d Cir. 2005)).
It is well settled that “[a] declaratory judgment action ‘cannot be maintained [when] it
parallels the other claims and merely seeks a declaration of the same rights and obligations.’ ”
Culwick v. Wood, 384 F. Supp. 3d 328, 343 (E.D.N.Y. 2019) (first quoting Campione v. Campione,
942 F. Supp. 2d 279, 285 (E.D.N.Y. 2013) (alteration in original); then citing Smith v. Metro.
Prop. & Liab. Ins. Co., 629 F.2d 757, 760 (2d Cir. 1980); then citing Necchi S.p.A. v. Necchi
Sewing Mach. Sales Corp., 348 F.2d 693, 696 (2d Cir. 1965)). A claim is duplicative where “it
seeks no relief that is not implicitly sought in the other causes of action.” Sofi Classic S.A. de
C.V. v. Hurowitz, 444 F. Supp. 2d 231, 249–50 (S.D.N.Y. 2006) (citing Del Greco v. CVS Corp. 337
F. Supp. 2d 475, 488 (S.D.N.Y. 2004)). “Courts routinely “dismiss[ ] declaratory judgment
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[claims] as redundant when the [declaratory judgment claim] would be rendered moot by the
adjudication of corresponding claims in the complaint.” Vasu v. Combi Packaging Sys. LLC, No.
5:18-CV-1889, 2020 WL 2733756, at *9 (N.D. Ohio May 25, 2020) (first quoting Hardiman v.
McKeen, No. 19-12949, 2020 WL 1821025, at *4 (E.D. Mich. Apr. 10, 2020); then citing Malibu
Media, LLC v. [Redacted], 705 F. App’x 402 405–06 (6th Cir. 2017)).
Plaintiffs have moved for summary judgment, in part, on their Declaratory Judgment
Claim (Count VI) (the “Declaratory Judgment Claim”). The Declaratory Judgment Claim seeks a
declaration that:

1. (a) Lester has unreasonably delayed and interfered with Plaintiffs’
ability to establish legal title over the EB&C shares that were held
by the Trust; and, (b) accordingly, Lester is now obligated as a
matter of New York law to take all necessary steps to enable
Plaintiffs to establish legal title over the EB&C shares in accordance
with the Final Account entered by the Surrogate’s Court (Ex. H).
2. EB&C, including its corporate Secretary, Wendy, must recognize
Plaintiffs as shareholders of record in EB&C, together holding twothirds of the shares previously held by the Trust.
3. Plaintiffs are entitled to a declaration that EB&C’s board shall
consist of three directors, two of whom shall be elected by
Plaintiffs, and one of whom shall be elected by Lester.
4. Because neither EB&C nor EBWLC has had a validly constituted
board of directors since at least February 2017, Plaintiffs are
entitled to a declaration that all significant corporate actions since
then, whether taken by the board or the officers appointed by the
board, are deemed null and void, or at least voidable by a majority
of a properly elected and constituted board.
5. Regardless of whether an injunction is issued against Lester’s
attempt to take Plaintiffs’ shares in EB&C, a declaratory judgment
should be issued specifying that it would be unlawful for Lester to
take any actions to prevent Plaintiffs from exercising all legal rights
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attendant to hold legal title to the shares in accordance with the
Final Account.
6. In the alternative to having their two-thirds interest in EB&C
recognized in accordance with the Final Accounting, Plaintiffs seek
a declaration that certain Stock Powers executed by CNB on or
about October 2, 2017, must be accepted for delivery by Wendy
and EB&C and recorded by Wendy on EB&C’s stock book.
(TAC ¶¶ 347-52.) For their part, the Eber Defendants have not only opposed Plaintiffs’ Motion
for Partial Summary Judgment on their Declaratory Judgment Claim, but have also cross-moved
to dismiss Plaintiffs’ Declaratory Judgment Claim in its entirety as duplicative of “Counts l
[breach of fiduciary duty related to improper transactions], ll [breach of fiduciary duty under
the faithless servant doctrine], lV [claim under B.S.C. § 720 to set aside and enjoin unlawful
transactions,] and V [claim under B.S.C. § 619 for new elections]” in the TAC. (Eber Defs.’ Mem.
of Law in Supp. 35.) The Court addresses these arguments in detail below.
i. Plaintiffs’ Claim to Set Aside and Enjoin Unlawful
Transactions (Count IV)
In Count IV, Plaintiffs seek to set aside and enjoin certain transactions under New York
Business Corporation Law (“B.S.C.”) § 720. The statute provides that “[a]n action may be
brought against one or more directors or officers of a corporation to procure a judgment . . .
[t]o set aside an unlawful conveyance, assignment or transfer of corporate assets, where the
transferee knew of its unlawfulness” and to “enjoin a proposed unlawful conveyance,
assignment or transfer of corporate assets, where there is sufficient evidence that it will be
made.” B.S.C. § 720(a)(2)-(3).
In Count IV, Plaintiffs seek to set aside the following transactions:
•

The February 14, 2017 appointment of Wendy as the sole
director of EBWLC on the basis that EBWLC’s Bylaws
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required the board to consist of either three directors or, if
fewer, as many directors as there are shareholders, and
Plaintiffs contend that EBWLC had two shareholders – EB&C
and the Trust;
•

The February 2017 Amendment to EBWLC’s Certificate of
Incorporation that issued 750 preferred shares of EBWLC
stock because it was authorized by an invalidly constituted
board of directors; and

•

Set aside Lester’s receipt of 750 preferred shares of EBWLC
stock.

(TAC ¶¶ 298, 301-304.) Count VI (the Declaratory Judgment Claim) also seeks to enjoin Lester
from invoking the Transfer Restriction in EB&C’s Bylaws to take all of the shares of EB&C stock
for himself. (Id. ¶¶ 305-30.)
This Court has compared the relief sought in Count IV with the Declaratory Judgment
Claim (Count VI), and finds that the Declaratory Judgement Claim relies on essentially the same
legal theories and seeks the same relief as Count IV. For example, with respect to Wendy’s
appointment as sole director of EBWLC and the issuance of the 750 preferred shares of EBWLC
stock, in both Count IV and the Declaratory Judgment Claim, Plaintiffs argue that Wendy’s
appointment as sole director of EBWLC and her decision to amend EBWLC’s Bylaws to issue the
stock was invalid because EBWLC lacked a validly constituted board of directors. (Compare TAC
¶¶ 301-304 (Count IV); with id. ¶ 350 (Count VI).)
Likewise, Plaintiffs’ request that a declaratory judgment be issued stating, among other
things, that Lester is “obligated as a matter of New York law to take all necessary steps to
enable Plaintiffs to establish legal title over the EB&C shares in accordance with the Final
Account entered by the Surrogate’s Court” and that “EB&C, including its corporate Secretary,
Wendy, must recognize Plaintiffs as shareholders of record in EB&C, together holding two39

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thirds of the shares previously held by the Trust,” is duplicative of their claim to enjoin Lester
from invoking the Transfer Restriction in EB&C’s Bylaws to take all of the shares of EB&C for
himself. (Compare id. ¶¶ 305-30 (Count IV); with id. ¶¶ 347-48 (Count VI).) It is telling that, in
their Motion for Partial Summary Judgment, Plaintiffs have made many of the same arguments
in favor of their Declaratory Judgment Claim as they made in the TAC in favor of Count IV. For
example, in both Count IV of the TAC and in their moving brief seeking Summary Judgment on
their Declaratory Judgment Claim, Plaintiffs argue that Lester is enjoined from taking the EB&C
shares of stock formerly held by the Trust because: (1) as the “transferor” of the shares, Lester
could not invoke the Transfer Restriction against himself; (2) due to his failure to inform the
Surrogate’s Court of the Transfer Restriction, he is estopped from seeking to enforce the
Restrictions after-the-fact; (3) the Transfer Restriction was not valid against Plaintiffs because
they had no actual knowledge of the Transfer Restriction and the Restrictions were not
conspicuously noted on the EB&C stock certificates; and (4) the Surrogate’s Court already
determined what the appropriate distribution of shares should be among the Trust
beneficiaries – 1/3 to Lester Eber; 1/3 to Audrey Hays; 1/6 to Daniel Kleeberg; and 1/6 to Lisa
Stein. (Compare TAC ¶¶ 305-30; with Pls.’ Mem. in Supp. 8-12.)
Despite having an opportunity to do so, Plaintiffs have not explained how the relief they
seek in Count VI is distinguishable from the relief sought in their Declaratory Judgment Claim.
In their opposition to the Eber Defendants’ Motion for Partial Summary Judgment, Plaintiffs
made the following argument:
[S]ince Defendants have not formally conceded any of the other
Counts [in the TAC], this Court might decide for some reason not to
enjoin Lester’s actions, order new elections, etc., for reasons that
do not otherwise impair Plaintiffs’ rights to be recognized as
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shareholders of EB&C. If for whatever reason that happens, then
Count VI will be the appropriate means for determining Plaintiffs’
shareholder rights.
(Pls.’ Mem. in Supp. 30.) This explanation is insufficient to explain how the Declaratory
Judgment Claim is not duplicative of Count IV. The Court also notes that, in their Declaratory
Judgment Claim, Plaintiffs concede that “no declaration of Plaintiffs’ rights to . . . [the EB&C]
shares [of stock] is believed to be necessary from this Court.” (TAC ¶ 346.)
Accordingly, for all the reasons discussed above, the Court finds that issuing the
Declaratory Judgment sought by Plaintiffs – finding that significant corporate actions by EB&C
and EBWLC since at least February 2017 are void or voidable and that Lester and Wendy must
assist Plaintiffs in establishing legal title to their EB&C shares of stock pursuant to the
Surrogate’s Court Order – are duplicative of their claims in Count IV and will not help to clarify
of settle the legal issues involved in this case or “finalize the controversy and offer relief from
uncertainty.’ ” Kleeberg, 331 F.R.D. at 323 (quoting Duane Reade, Inc., 411 F.3d at 389); see also
222 Broadway, LLC v. Cont’l Cas. Co., 886 N.Y.S.2d 72 (Sup. Ct. N.Y. Cty. 2009) (dismissing
declaratory judgment claim as duplicative of claim seeking injunctive relief). As such, those
portions of Plaintiffs’ Declaratory Judgment claim must be dismissed.
Finally, it is undisputed that CNB’s proposed stock distributions, through stock powers,
were incorrect. As such, Plaintiffs’ request that the Court issue a declaration, in the “alternative
. . . that certain Stock Powers executed by CNB on or about October 2, 2017, must be accepted
for delivery by Wendy and EB&C and recorded by Wendy on EB&C’s stock book,” will not help
clarify the issues in this case or the parties’ rights. (TAC ¶ 352; see also Pls.’ Mem of Law in
Supp. 8; Dkt. No. 271-1 (“Pls.’ Proposed Order “) ¶ 1; CNB’s Decl. in Supp. of Mot. to Intervene

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Ex. 7 (purporting to allocate the EB&C voting shares of stock to the Trust beneficiaries as
follows: Audrey Hays (706 shares); Lisa Stein (137 shares); and Daniel Kleeberg (301 shares).)
Accordingly, the Court also declines to exert its jurisdiction over this portion of Plaintiffs’
Declaratory Judgment Claim.
In light of the above, the Eber Defendants’ Motion for Summary Judgment is granted
with respect to Plaintiffs’ Declaratory Judgment Claim, and Plaintiffs’ Declaratory Judgment
Claim is dismissed.
ii. Plaintiffs’ Claim for New Elections (Count V)
In Count V, Plaintiffs seek new elections pursuant to B.S.C. § 619 (“Count V”), which
permits courts, “upon the petition of any shareholder aggrieved by an election” to, among
other things, “order a new election, or take such other action as justice may require.” In Count
V, Plaintiffs request that, “[i]n connection with a new election [for the board of EB&C],
Plaintiffs’ voting rights in their shares distributed by the Trust must be recognized.” (TAC ¶
336.) As discussed above, Plaintiffs claim they are entitled to two-thirds of the EB&C shares of
stock and, thus, believe they are entitled to vote for two out of three directors on EB&C’s
board. (Id. ¶ 336-37.) In their Declaratory Judgment Claim, Plaintiffs seek a declaration that
“EB&C’s board shall consist of three directors, two of whom shall be elected by Plaintiffs, and
one of whom shall be elected by Lester,” consistent the EB&C shares of stock they are all
entitled to as beneficiaries of the Trust. (Id. ¶ 349.) As demonstrated above, this aspect of
Plaintiffs’ Declaratory Judgment Claim is duplicative of Count V and is, therefore, dismissed.

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Having dismissed the entirety of Plaintiffs’ Declaratory Judgment Claim, the Court does
not address the other arguments raised by the Eber Defendants in favor of dismissing Plaintiffs’
Declaratory Judgment Claim.
IV.

Defendants’ Cross-Motion to Dismiss Plaintiffs’ Claim Against Wendy for
Aiding and Abetting the Co-trustees’ Breaches of Fiduciary Duty (Count
VIII)
The Eber Defendants contend that Plaintiffs’ Count VIII against Wendy for fraudulent

concealment and aiding and abetting Lester’s and Gumaer’s breaches of fiduciary duty, as cotrustees of the Trust, should be dismissed as duplicative of the breaches of fiduciary duty claims
asserted against Wendy in Counts I and II, in her capacity as a director and officer EBWLC. (Eber
Defs.’ Mem. of Law in Supp. 36.) However, Count VII is not duplicative of Counts I and II simply
because all Counts assert claims under a theory of breach of fiduciary duty. Counts I and II
expressly assert breach of fiduciary duty claims against Wendy in her capacity as director and
officer of EBWLC. (Pls.’ Mem. of Law in Opp’n 31; see also TAC ¶ 183, 212-14, 264-69.) In
contrast, Count VIII asserts a fraudulent concealment and aiding and abetting claim against
Wendy for her role in allegedly helping Lester and Gumaer violate their fiduciary duties to
Plaintiffs as co-trustees of the Trust. (TAC ¶¶ 372-77); see also In re Platinum-Beechwood Litig.,
400 F. Supp. 3d 2, 5 (S.D.N.Y. 2019) (“[I]t is not an element of a claim for aiding and abetting
breach of fiduciary duty that the defendant must . . . owe fiduciary duty to the plaintiff,
separate from the duty owed by a fiduciary to the plaintiff.”). Accordingly, Defendants’ CrossMotion to Dismiss Count VIII as duplicative of Counts I and II is denied.

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V.

Plaintiffs’ Request for An Order Mandating New Elections Pursuant to
B.S.C. § 619 (Count V)
Plaintiffs’ request for an order mandating that new elections take place pursuant to

B.S.C. § 619 (Count V) is denied as premature. Article V of EB&C’s Bylaws state that “[e]very
shareholder of record shall be entitled to one vote for each share standing in his name on the
record of shareholders.” Article VI of the Bylaws states that “[t]he shares of [EB&C] shall be
represented by certificates . . . . [that] shall state upon the face thereof: “The name of the
person or persons to whom issued. . . . The number and class of shares, and the designation of
the series, if any, which such certificate represents.” Because Plaintiffs have not yet been issued
stock certificates in their own names, they are not currently registered shareholders of EB&C
with voting rights. Although Plaintiffs contend that they “together held two-thirds of the
equitable voting interest in EB&C through their two-thirds beneficial interest in the Trust,” they
have not provided any legal authority to show that “equitable voting interest” is a concept that
is cognizable under New York Law. As such, Plaintiff’s Motion for Partial Summary Judgment in
their favor with respect to Count V is denied.
VI.

Plaintiffs’ Motion for Summary Judgment On Their Breach of Fiduciary Duty Claim
Against Lester Eber (Count I) On the Basis that He Usurped Corporate Opportunity
Next, Plaintiffs contend that Lester usurped corporate opportunity by entering into the

Southern Consulting Agreement (Count I). “Under the doctrine of corporate opportunity in
New York, ‘corporate fiduciaries and employees cannot, without consent, divert and exploit for
their own benefit any opportunity that should be deemed an asset of the corporation.’” See
Berman v. Sugo LLC, 580 F. Supp. 2d 191, 205–206 (S.D.N.Y. 2008) (quoting Alexander &
Alexander of N.Y. v. Fritzen, 147 A.D.2d 241, 246 (App. Div. 1st Dep’t 1989)). “A business

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opportunity is deemed an asset if the ‘corporation has a ‘tangible expectancy’ which means
‘something much less tenable than ownership, but, on the other hand, more certain than a
desire or a hope.’ “ Berman, 580 F. Supp. 2d at 206 (quoting American Fed. Group, Ltd. v.
Rothenberg, 136 F.3d 897, 906 (2d Cir. 1998)). Courts also may consider “whether an
opportunity is the same as or is necessary for, or essential to, the line of business of the
corporation.” Alexander & Alexander, 147 A.D.2d at 248 (internal quotation marks and citation
omitted); see also generally American Fed. Group, Ltd. 136 F.3d at 906 (noting that a
“shareholder, officer and director of a closely held corporation, is under a duty ‘to deal fairly, in
good faith, and with loyalty’ to the corporation and other shareholders” (quoting Benson v. RMJ
Sec. Corp., 683 F. Supp. 359, 375 (S.D.N.Y. 1988)).
Plaintiffs maintain that Lester usurped corporate opportunity by entering into the
Southern Consulting Agreement, in part, because, by expressly prohibiting Lester from
competing against Southern in New York, the Agreement constrained the Eber Entities from
continuing to do business in New York. (TAC ¶ 191.) For their part, Defendants argue that
Plaintiffs’ claim that Lester usurped corporate opportunity is without merit because Lee Hager,
Southern’s Rule 30(b)(6) witness, unequivocally testified that Southern had no interest in
entering into a consulting agreement with the Eber Entities because Southern had a practice of
only entered into consulting agreements with individuals. (Dkt. No. 277 (“Eber Defs.’ Mem. of
Law in Opp’n”) 28-30; Hager Dep. Tr. 36:11-37:12, 38:01-04, 40:40-41:01, 41:16-43:02, 43:2344:09, 69:14-18, 69:20-22, 70:23-25.) The Eber Defendants also contend that EBWLC and Eber
Metro “laid off all employees and ceased New York operations” before August of 2007 – the

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month Lester entered into the Southern Consulting Agreement. (Eber Defs’ Rule 56 Statement
¶ 25.)
Here, the Court finds that there is an issue of material fact with respect to whether or
not Lester usurped corporate opportunity by entering into the Southern Consulting Agreement
that precludes summary judgement, insofar as the parties disagree about whether Lester
entered into the Agreement before or after the Eber Entities ceased operations in New York.8
Resolution of this fact issue is material to resolving this claim. To support their contention that
EBWLC did not cease New York operations prior to August of 2007 – the time of Lester’s hiring
as a consultant for Southern – Plaintiffs point to, among other things, a ledger that appears to
show payroll records for EBWLC’s employees through July of 2010. (Brook Decl. in Opp’n Ex.
168.) However, the records also appear to indicate that the payroll costs were reimbursed by
Eber-CT, which undisputedly operated in Connecticut. (Id.) As such, it is unclear to this Court
whether the expenses incurred by EBWLC were related to salary payments to employees
working in New York or Connecticut. In sum, the dispute about when the Eber Entities ceased
operating in New York is material because, if EBWLC and Eber Metro had already ceased
operations in New York at the time Lester negotiated and entered into the Southern Consulting
Agreement, it is plausible that there would have been no reason for Southern to give the Eber
Entities any consideration in exchange for a restrictive covenant in New York. Accordingly, both

8

To the extent Defendants contend that the District Court overseeing the PBGC Action “held, as a matter of law,
that EBWLC ceased operations by December 31, 2007,” that is a mischaracterization of the District Court’s order.
(See Wendy Eber Aff. in Supp ¶ 21.) In its opinion, the district court noted that the exact date EBWLC ceased its
New York operations was unclear. (PBGC Action Opinion and Order 5.)

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Plaintiffs’ and the Eber Defendants’ Cross-Motions for Partial Summary Judgment are denied as
to this claim.
VII.

The Eber Defendants’ Cross-Motion to Dismiss Part of Plaintiffs’ Breach of Fiduciary
Duty Claims Under the Faithless Servant Doctrine Claims (Count II), as Against Lester
Eber
The Eber Defendants have moved for Summary Judgment to Dismiss the portion of

Count II of the TAC alleging that Lester Eber breached his fiduciary duties to the Eber Entities
by entering into the Southern Consulting Agreement. (Defs.’ Mem. of Law in Supp. 29-30.)
The Eber Defendants contend that this portion of Count II “fails as a matter of law against
Lester Eber in his capacity as a Co-trustee of the Trust and corporate director” and seek a
“judgment as a matter of law dismissing Plaintiffs’ faithless servant claims” on the bases that
claims brought pursuant to the faithless servant doctrine are not cognizable against trustees
and corporate directors and Lester did not usurp corporate opportunity by entering into the
Southern Consulting Agreement. (Id.)
The Eber Defendants’ Cross-Motion is denied. First, the Court notes that the TAC does
not expressly assert the faithless servant claim against Lester in his capacity as corporate
director of the Eber Entities or as co-trustee of the Trust, but, rather, as a “fiduciary or
employee” of the Eber Entities. (TAC ¶¶ 373-79.) This distinction is significant because, even if
Defendants are correct that claims cannot be brought pursuant to the faithless servant
doctrine against directors and trustees, this argument ignores Lester’s undisputed role as an
officer of the Eber Entities. (Pls.’ Rule 56 Statement ¶ 23; Eber Defs.’ Rule 56
Counterstatement ¶ 23.) And, courts in this Circuit applying New York Law have found that
the faithless servant doctrine may apply against corporate officers. See, e.g., Tyco Int’l, Ltd. v.

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Kozlowski, 756 F. Supp. 2d 553, 564 (S.D.N.Y. 2010); Battle Fowler v. Brignoli, 765 F. Supp.
1202, 1203 (S.D.N.Y.), aff'd, 952 F.2d 393 (2d Cir. 1991).
Second, and as explained above, a material factual disputes exists with respect to
whether Lester usurped a corporate opportunity from the Eber Entities by entering into the
Southern Consulting Agreement. See infra Discussion Pt. VI. Accordingly, for all the reasons
stated above, the Eber Defendants’ Cross-Motion to Dismiss Plaintiffs’ faithless servant claim
against Lester Eber is denied.
VIII.

Alexbay’s Foreclosure on Eber Metro and Related Corporate Transactions (Count I)
There is no dispute that Allen Eber’s Will designated Lester as both a Trustee and

beneficiary of the Trust. (Will §§ 9, 12.) The Will also expressly permitted the Trustees to
make loans to the Trust that were securitized by Trust assets, and expressly provided that
Trustees were permitted to:
[B]orrow money from [EB&C] or others for the benefit of my estate
or any trust hereunder, and to secure the loan by pledge or
mortgage of the property of my estate or any trust and to renew
existing loans . . . .
(Will § 12 (H).) Plaintiffs, however, dispute Lester’s contention that he had the right, pursuant
to the Will, to foreclose upon and take the collateral for himself. And they argue that, by
orchestrating Alexbay’s foreclosure of EBWLC’s interest in Eber Metro, Lester violated his
fiduciary duties to Plaintiffs as co-trustee of the Trust. Plaintiffs also posit that, by agreeing to
transfer Eber Metro to Alexbay through a strict foreclosure, the Eber Defendants, as officers of
EBWLC, violated their obligation to act in the best interests of their shareholders, EB&C and the
Trust. (Pls.’ Mem. of Law in Supp. 22-31.) Plaintiffs argue that under both New York trusts and

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estates law and New York corporate law, Alexbay’s Foreclosure on Eber Metro was improper
and must be unwound, and that Eber Metro must be placed in a constructive trust.
The Eber Defendants’ raise a number of defenses in response. They steadfastly
maintain that EBWLC had only one shareholder – EB&C. They also contend that Lester provided
the Trust beneficiaries – then Lisa Stein and Audrey Hays – with copies of the loan agreements,
including the Security Agreement and Guaranty that expressly granted him the right to take
EBWLC’s interest in Eber Metro in the event EBWLC failed to pay back its loans. The Eber
Defendants represent that the Trust beneficiaries did not object to the terms of the loans or to
the Security Agreement and the Guaranty. (Eber Defs.’ Rule 56 Counterstatement ¶ 43.)
The Court addresses the parties’ arguments below, first pursuant to the framework of
New York trusts and estate law and, second, pursuant to the framework of New York corporate
law.
a. New York Trusts and Estates Law
i. A Trustee’s Duty of Undivided Loyalty to Trust
Beneficiaries and the No Further Inquiry Rule
It is well settled that “[a] trustee who is also a beneficiary of the trust has an inherent
conflict with other trust beneficiaries.” Milea v. Hugunin, 890 N.Y.S.2d 369 (Sup. Ct. Onondaga
Cty. 2009) (citing Scott on Trusts, § 107.1, 120 and § 99.1, 50); see also generally Karen E.
Boxx, Too Many Tiaras: Conflicting Fiduciary Duties in the Family-Owned Business Context, 49
HOUS. L. REV. 233 (2012) (discussing fiduciary duties of trustee-beneficiaries in the context of
closely-held family corporations). The mere fact that “a settlor is permitted to appoint a
conflicted trustee/beneficiary does not mean that the courts may ignore the conflict,” and
“courts must review a trustee/beneficiary’s conduct and actions with strict scrutiny and with
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special care.” Milea, 890 N.Y.S.2d 369 (first citing In re Heller, 6 N.Y.3d 649, 656 (2006); then
citing In re Peabody's Will, 198 Misc. 505, 96 N.Y.S.2d 556 (Sup. Ct. Suffolk Cty. 1950), aff’d, 277
A.D. 905, 98 N.Y.S.2d 614 (App. Div. 2nd Dep’t 1950); then citing Restatement of Trusts, § 50,
Cmt. (b)).
“[A] fiduciary owes a duty of undivided and undiluted loyalty to those whose interests
the fiduciary is to protect.” Birnbaum v. Birnbaum, 73 N.Y.2d 461, 466 (1989). “The rule of
undivided loyalty requires that a trustee ‘must not, under any circumstances, place himself in a
position whereby his personal interests will come in conflict with the interest of his beneficiary.’
” Benedict v. Amaducci, No. 92 CIV. 5239 (KMW), 1993 WL 87937, at *5 (S.D.N.Y. Mar. 22,
1993) (61 N.Y. Jur. Trusts § 295, at 491 (1968)).
The no further inquiry rule enforces a trustee’s duty of undivided loyalty by prohibiting
a trustee from acquiring trust property for him or herself (or transfer such property to their
spouse), absent certain exceptions. As explained by the Second Circuit: “Under the higher
standard of undivided loyalty, the law ‘stops the inquiry when the relation is disclosed, and sets
aside the transaction or refuses to enforce it, at the instance of the party whom the fiduciary
undertook to represent, without undertaking to deal with the question of abstract justice in the
particular case.’ ” Renz v. Beeman, 589 F.2d 735, 744 (2d Cir. 1978) (quoting Wendt v. Fischer,
243 N.Y. 439, 444 (1926); and Munson v. Syracuse, Geneva & Corning R.R., 103 N.Y. 58, 74
(1886)); see also generally Phelan v. Middle States Oil Corp., 220 F.2d 593, 603 (2d Cir. 1955) (a
“ ‘trustee violates his duty to the beneficiary not only where he purchases trust property for
himself individually, but also where he has a personal interest in the purchase of such a
substantial nature that it might affect his judgment in making the sale’ ” (quoting Restatement

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of Trusts § 170, Comment (c)). Upon finding that the no further inquiry rule is implicated, “the
court is generally required, upon challenge by a beneficiary, to set aside a transfer of property,
held in trust by a fiduciary, to the fiduciary himself or an entity in which he or she has an
interest.” In re Parisi, 111 A.D.3d 941, 943 (2013) (father’s sale of stock to his son did not
trigger no further inquiry rule).
ii. Exceptions to the Duty of Undivided Loyalty and No
Further Inquiry Rule
New York law provides three different ways in which a self-dealing Trustee may be
excused from his or her obligation of undivided loyalty and the no further inquiry rule. First, a
trustee may engage in self-dealing when expressly permitted by the trust instrument. See
Benedict v. Amaducci, No. 92 CIV. 5239 (KMW), 1993 WL 87937, at *4 (S.D.N.Y. Mar. 22, 1993)
(“trust settlor . . . may relieve a trustee of this duty of loyalty by affirmatively condoning selfinterested transactions” (first citing Renz, 589 F.2d at 744; then citing Tucker Anthony Realty
Corp. v. Schlesinger, 888 F.2d 969, 972 (2d Cir. 1989)); see also O’Hayer v. de St. Aubin, 30
A.D.2d 419, 424, 293 N.Y.S.2d 147, 152 (1968) (holding that the settlor’s son and trustee could
legally purchase trust assets for a fair price because the trust instrument expressly provided
that the son “shall benefit and profit from [his]trusteeship [ ]” and “authorized his son to
purchase at any time any part or the whole of the shares of stock held in the trust . . . .”); cf.
Renz, 589 F.2d at 741 (exculpatory clause providing that “decision of the Trustees with respect
to the exercise or non-exercise by them of any discretionary power hereunder, or the time or
manner of the exercise thereof, made in good faith, shall fully protect them and shall be
conclusive and binding upon all persons interested in the trust estate” did not lower trustee’s
standard of duty to one of good faith).
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Second, a trustee may engage in self-dealing where a court, after conducting a “full
exploration of the facts” and permitting the trust beneficiaries to object, approves the
transaction. See In re Scarborough Props. Corp., 25 N.Y.2d 553, 559 (1969) (permitting trustee
to acquire trust assets from himself following a private sale following proceeding where trust
beneficiaries were represented and court conducted “full exploration of the facts” justifying the
sale). As explained by the Second Circuit, limiting a trustee’s ability to engage in self-dealing is
paramount because a “[c]onflict can arise when a trustee becomes a competitor with the trust
for a business opportunity” and “[f]avoring one beneficiary over others may also be a source of
conflict.” Renz, 589 F.2d at 746 (citing Schwartz v. Marien, 37 N.Y.2d 487, 491 (1975)). And,
third, a trustee may engage in self-dealing with the consent of the trust beneficiaries. See Renz,
589 F.2d at 745–46 (first citing In re Van Deusen, 37 A.D.2d 131, 133 (1971); then citing In re De
Planche, 318 N.Y.S.2d 194 (1971); then citing City Bank Farmers Tr. Co. v. Cannon, 291 N.Y. 125,
132 (1943)).
iii. Application
With the respect to the first exception to the duty of undivided loyalty, although the
Allen Eber Will allowed the Trustees to make loans secured by collateral held in the Trust, the
Will did not expressly grant the Trustees the right to foreclose upon the collateral and keep it
for themselves. The Eber Defendants contend, without citing any authority, that this provision
of the Will should be interpreted as having “relax[ed] . . . [the] Trustee[s’] duties . . . expressly
or by necessary implication,” and, thus, allowing Lester to foreclose upon trust assets secured
as collateral for the loans. (Eber Defs.’ Mem. of Law in Opp’n 17.) However, applying the Eber
Defendants’ logic runs contrary to the prevailing case law, which states that, while trust

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instruments may expressly permit self-dealing, such instruments must also be strictly
construed. See O’Hayer, 30 A.D.2d at 423. And, as acknowledged by the Second Circuit, not
adhering to this well-established tenet of strict construction risks making the fiduciary duties
implicit in all trustee-beneficiary relationships a nullity. See Renz, 589 F.2d at 745 (“Courts may
not read exculpatory language broadly, lest they unwittingly permit erosion of the fiduciary
duty itself.”). In this Court’s view, the Trustees’ ability to make loans secured by the collateral
held in the Trust did not give them carte blanche to foreclose on the collateral without notice to
the beneficiaries because the collateral could, for example, have been sold at a public auction.
In sum, the fact that the Trustees could secure loans against the collateral held in the Trust did
not automatically grant a trustee who made such a securitized loan the right to foreclose on
that collateral for him or herself.
The second exception to the duty of undivided loyalty, likewise, does not apply because
no court approved the Security Agreements and Guaranty that gave Lester the right to
foreclose on the loans himself or the subsequent transfer of Eber Metro to Alexbay after fully
exploring the facts and permitting the Trust beneficiaries to make objections. See Scarborough,
25 N.Y.2d at 559. Indeed, to the extent the Eber Defendants attempt to analogize the
Foreclosure Action to such a proceeding, their argument falls short because the Trust
beneficiaries received no notice of the Foreclosure Action and, as contended by the Eber
Defendants, lacked standing to appear in that action. (Eber Defs.’ Mem. of Law in Opp’n 1011.) Additionally, the Eber Defendants do not contend that they alerted the judge presiding
over the Foreclosure Action about the Trust or the effect that removing Eber Metro and, thus,
Eber-CT, from the Trust would have on the value of the Trust. (Lester Aff. in Supp. Ex. L.)

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However, a material issue of fact exists with respect to the third exception – whether
the Trust beneficiaries consented to the terms of the Security Agreement and Guaranty that
granted Lester a security interest in Eber Metro and Eber-CT and allowed him to foreclose on
the collateral himself. The initial Security Agreement and Guaranty were signed in or about
February 26, 2010. (Pls.’ Rule 56 Statement ¶ 40; Eber Defs.’ Rule 56 Statement ¶ 28.) After
the Security Agreement and Guaranty were signed, Lester offered Sally Kleeberg and Audrey
Hays an opportunity to participate in making the loans by contributing up to one-third of the
2010 $1.5 million line of credit each in March and April of 2010, and both declined to do so.
(Pls.’ Rule 56 Statement ¶ 43.) It is, likewise, undisputed that Lester told Sally Kleeberg and
Audrey Hays that the Eber companies were in dire straits and badly needed cash. (Id.) From the
parties’ submissions, it appears that Lester sent Sally Kleeberg and Audrey Hays copies of the
loan documents pertaining to the 2010 Line of Credit Note, including the Guaranty Agreement,
Line of Credit Note, and Security Agreement. (Lester Aff. in Supp. Ex. J.) Although the
documents sent to Sally Kleeberg and Audrey Hays are undated and unsigned, these appear to
be the same documents executed by Lester in February of 2010. The Security Agreement
states, in relevant part that:
To secure all of Guarantor's obligations hereunder, Guarantor
assigns and grants to Lender a security interest in all moneys,
securities, and other property of Guarantor now or hereafter in the
possession of lender and all proceeds thereof.
[. . . .]
If Guarantor fails to fulfill its duty to pay all Indebtedness
guaranteed hereunder, lender shall have all of the remedies of a
creditor and, to the extent applicable, of a secured party, under all
applicable law. Without limiting the foregoing to the extent
permitted by law, Iender may, at its option and without notice or
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demand . . . take possession of any collateral pledged by Borrower
or Guarantor, wherever located, and sell, resell, assign, transfer,
and deliver all or any part of the collateral at any public or private
sale or otherwise dispose of any or all of the collateral in its then
condition, for cash or on credit or for future delivery, and in
connection therewith lender may impose reasonable conditions
upon any such sale.
Further, lender, unless prohibited by law the provisions of which
cannot be waived, may purchase all or any part of the collateral to
be sold, free from and discharged of all trusts, claims, rights of
redemption and equities of Borrower or Guarantor whatsoever.
Guarantor acknowledges and agrees that the sale of any collateral
through any nationally recognized broker-dealer, investment
banker, or any other method common in the securities industry
shall be deemed a commercially reasonable sale under the Uniform
Commercial Code or any other equivalent statute or federal law,
and expressly waives notice thereof except as provided herein . . .
.
(Lester Aff. in Supp. Ex. J, 13, 15-16, 51, 53-54 (emphasis added).) Sally Kleeberg passed away
before Plaintiffs commenced this action. Plaintiffs concede that Lester asked Audrey Hays to
make a loan to the family business and that she refused. (Hays Decl. in Supp. ¶ 16.)
Yet, Hays denies knowing about the terms of the loan and Lester’s ability to foreclose on
the collateral. (Id.) In particular, Plaintiffs contend that Lester never “informed Sally Kleeberg
or Audrey Hays about the possibility that he would take control of the Connecticut business
away from the Trust if they declined to loan money to Eber Metro.” (Pls.’ Rule 56 Statement ¶
43.) They concede, however, that “Lester . . . purport[ed] to offer [Sally and Audrey] the
chance to loan money to Eber Metro on the same terms as Lester did pursuant to the LOC Note,
to support ‘our Connecticut business and its parent company.’ ” (Pls.’ Rule 56 Statement ¶ 43.)
For their part, the Eber Defendants contend that Sally Kleeberg and Audrey Hays “did not
object to Lester making the loans” and knew about the terms of the loans. (Eber Defs.’ Rule 56
Counterstatement ¶ 43 (citing Lester Eber Aff. in Supp. ¶¶ 31-35).)
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Given that the parties dispute whether the Trust beneficiaries knew about the terms of
the Security Agreements and Guaranty that ultimately allowed Lester to take Eber Metro for
himself, a dispute of material fact exists that must be decided by a jury. See Anderson, 2020 WL
2866960, at *9 (explaining that “[c]redibility assessments, choices between conflicting versions
of the events, and the weighing of evidence are matters for [trial], not for the court on a motion
for summary judgment.” (internal quotation marks and citation omitted)). As such, the issue of
whether Lester violated his duty of undivided loyalty to Plaintiffs, and whether an exception to
the rule applies, will depend on findings of fact that must be decided at trial. As such, Plaintiffs’
Motion for Partial Summary Judgment to unwind the transfer of Eber Metro to Alexbay and
place Eber Metro in a constructive trust pursuant to a trustee’s duty of undivided loyalty and
the no further inquiry rule is denied.
b. New York Corporate Law
i. The Business Judgment Rule and the Entire Fairness Doctrine
Plaintiffs also contend that, by consenting to Alexbay’s strict foreclosure of Eber Metro
on behalf of EBWLC, the Eber Defendants violated New York corporate law and the business
judgment rule. “New York’s business judgment rule ‘creates a presumption that directors of a
company act in good faith and in the best interests of the corporation.’ ” United States Small
Bus. Admin. v. Feinsod, 347 F. Supp. 3d 147, 159 (E.D.N.Y. 2018) (quoting In re Sabine Oil & Gas
Corp., 562 B.R. 211, 231 (S.D.N.Y. 2016)). Under the rule, courts assume that directors acted in
good faith and are barred from making “ ‘judicial inquiry into actions of corporate directors
taken in good faith and in the exercise of honest judgment in the lawful and legitimate
furtherance of corporate purposes.’ ” Id. at 159 (first quoting Auerbach v. Bennett, 393 N.E.2d

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994, 1000 (1979); then citing In re Kenneth Cole Prods., Inc., 52 N.E.3d 214, 218 (2016)); see also
Levy v. Young Adult Inst., Inc., 103 F. Supp. 3d 426, 429 (S.D.N.Y. 2015) (citing B.S.C. § 717 (“A
director shall perform his duties as a director, including his duties as a member of any
committee of the board upon which he may serve, in good faith and with that degree of care
which an ordinarily prudent person in a like position would use under similar circumstances.”)).
The business judgment rule does not, however, protect decisions involving “ ‘fraud, selfdealing, or bad faith.’ ” Feinsod, 347 F. Supp. 3d at 159 (quoting Patrick v. Allen, 355 F. Supp. 2d
704, 710 (S.D.N.Y. 2005)). “Officers and directors are also ‘held to a standard of due care,’ ”
and “[t]hey must meet this standard with ‘conscientious fairness.’ ” Id. (quoting Hanson Tr. PLC
v. ML SCM Acquisition, Inc., 781 F.2d 264, 274 (2d Cir. 1986)). Officers and directors owe a duty
of care to their shareholders and, where “a corporation is a wholly-owned subsidiary, its
directors and officers owe their fiduciary duties to the parent corporation.” Id. at 160; see also
In re MF Glob. Holdings Ltd. Inv. Litig., 998 F. Supp. 2d 157, 180 n.15 (S.D.N.Y. 2014) (same),
aff’d sub nom. In re MF Glob. Holdings Ltd. Inv. Litig. (DeAngelis v. Corzine), 611 F. App’x 34 (2d
Cir. 2015).
It is well established that “ ‘when a corporate director or officer has an interest in a
decision, the business judgment rule does not apply.’ ” Levy v. Young Adult Inst., Inc., 103 F.
Supp. 3d 426, 429–30 (S.D.N.Y. 2015) (quoting In re Croton River Club, Inc., 52 F.3d 41, 44 (2d
Cir. 1995)). While plaintiffs bear “the burden of proving that the [transaction] violated the duty
of fairness,” where “an inherent conflict of interest” exists, “the burden shifts to the interested
directors or shareholders to prove good faith and the entire fairness of the [transaction].”
Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 570 (1984). The concept of fair dealing concerns

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the “procedural fairness of the transaction” and whether a “fair price” was paid. See id. “The
interested parties may attempt to establish this element of fair dealing by introducing evidence
of efforts taken to simulate arm’s length negotiations.” Id. Although courts are not required to
precisely determine the “fair value” of shares of stock, it must nonetheless consider factors that
are relevant to determining the value of the shares, such as “net asset value, book value,
earnings, market value, and investment value.” Id. at 571.
There are material issues of fact that, at this stage, preclude summary judgment on this
claim. To start, the parties dispute whether EBWLC was a wholly owned subsidiary of EB&C.
(Compare Pls.’ Rule 56 Statement ¶ 10 and Brook Decl. in Supp. Ex. 11; with Wendy Aff. in Supp.
Ex. A.) The parties have failed to submit admissible evidence, such as copies of the EBWLC stock
certificates, in this regard. (See also Brook Decl. in Supp. Ex. 108 (“EBWLC Bylaws”), Art. VI
(providing that “the shares of the corporation shall be represented by certificates”).) To argue
that the Trust owned some of EBWLC’s shares of stock, Plaintiffs point to an organizational
chart that they claim shows the Eber Entities’ corporate structure as of 2009. (Pls.’ Rule 56
Statement Brook Decl. in Supp. Ex. 11.) Although the chart appears to indicate that the Trust
owned certain shares of EBWLC stock, it is undated, is not Bates stamped, and Plaintiffs have
not provided any information that would allow this Court to ascertain the authenticity and
reliability of this document. (Id.) As such, this Court cannot rely on the organizational chart
proffered by Plaintiffs to grant them Summary Judgment on their claim. The Eber Defendants
also submitted organizational charts that purport to show that EBWLC was a wholly-owned
subsidiary of EB&C, until at least November of 2019, when Lester acquired 750 shares of EBWLC
stock. However, in this Court’s view, these charts do little to clarify this issue because the Eber

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Defendants have not provided the Court with any information that would allow it to conclude
that these charts are reliable. (See Wendy Aff. in Supp. Ex. A.)
This fact dispute is material because it will determine to whom EBWLC’s directors owed
their duty of good faith and fair dealing. If EBWLC was a wholly-owned subsidiary of EB&C,
EBWLC’s directors – Lester (until his purported resignation), Wendy, and Gumaer – owed a duty
of care only to EB&C. If, as Plaintiffs contend, the Trust also held some of EBWLC’s stock, then
EBWLC’s directors owed fiduciary duties to both EBWLC and the Trust. Additionally, to the
extent Lester’s position as a director of EBWLC triggered heightened scrutiny under the entire
fairness doctrine, whether there was “fair process” will also depend, at least in part, on
whether EBWLC’s directors owed fiduciary duties solely to EB&C or to both EB&C and the Trust.
Additionally, Plaintiffs have not sufficiently demonstrated, at this stage, that fair price
was not paid for EBWLC’s interest in Eber Metro. The answer to this question turns, at least in
part, on whether the Eber Entities were broke and needed Lester’s loans in order to stay afloat
at the time the Security Agreements and Guaranty were executed. As explained by the Eber
Defendants, Lester refused to loan additional money to the Eber Entities without the right to
foreclose on the collateral in the event of default, and the loans were a gamble the Eber
Companies made in an attempt to save the family business – a gamble the Eber Entities lost.
The Eber Defendants also argue that the value of Eber Metro was less than the value of the
loans Lester made to Alexbay, a contention that cannot be determined based on the facts
presently before this Court.
Accordingly, for all of the reasons stated above, the Court denies Plaintiffs’ request to
unwind the transfer of Eber Metro to Alexbay and place Eber Metro in a constructive trust on

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summary judgment. In light of the fact that the Court has declined to unwind the transfer of
Eber Metro to Alexbay and impose a constructive trust, it, likewise, declines to grant Plaintiffs’
Summary Judgment on their claim seeking an accounting (Count IX).
ii. Compliance with B.S.C. § 909
B.S.C. § 909(a) provides a procedure that corporations must follow if they dispose
of “substantially all [of their] . . . assets” and the transactions is “not made in the
[corporation’s] regular course of business . . . .” This procedure, in part, requires
shareholder consent. As explained in detail above, this issue cannot be decided on
summary judgment because the parties dispute who the shareholders of EBWLC actually
were. Accordingly, Plaintiffs’ Motion for Summary Judgment is also denied pursuant to
this theory.
iii. Corporate Waste
Plaintiffs contend that the Security Agreement and Guaranty executed on February 26,
2010 – which gave Lester the right to foreclose on EBWLC’s interest in Eber Metro in exchange
for a $1.5 million Line of Credit Note – constituted corporate waste because it gave Lester a
security interest in Eber Metro in exchange for the same terms offered by the unsecuritized
2009 Line of Credit Note. (Pls.’ Mem. of Law in Supp. 31.)
“The essence of a claim of gift is lack of consideration and the essence of waste is the
diversion of corporate assets for improper or unnecessary purposes.” Aronoff v. Albanese, 85
A.D.2d 3, 5, 446 N.Y.S.2d 368, 370 (App. Div. 2nd Dep’t 1982); see also Patrick, 355 F. Supp. 2d
at 714. “Corporate waste occurs when assets are used in a manner ‘so far opposed to the true
interests [of the corporation so] as to lead to the clear inference that no one thus acting could

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have been influenced by any honest desire to secure such interests.’ ” Patrick, 355 F. Supp. at
715 (quoting Meredith v. Camp Hill Estates, Inc., 77 A.D.2d 649, 650 (App. Div. 2nd Dep’t 1980)).
Corporate waste cannot be approved by shareholder vote. Id. at 709 n.4 (citing Meredith, 430
N.Y.S.2d 383, 385).
The fact that Lester executed an unsecuritized Line of Credit Note in 2009 that appears
to have been subsequently replaced by the nearly identical 2010 Line of Credit Note that gave
him a security interest in Eber Metro, also poses a disputed issue of material fact because no
party has been able to explain why the 2010 line of credit note was executed, beyond the fact
that Lester decided that he wanted a security interest in the collateral after he executed the
2009 Line of Credit Note. (Eber Defs.’ Rule 56 Counterstatement ¶ 42.) This Court cannot make
a finding on summary judgment as to whether the 2010 Line of Credit Note constituted
corporate waste based on the evidence submitted by the parties. Indeed, because the 2009
Line of Credit Note gave Lester “sole discretion” to “make . . . loan[s],” it is entirely possible
that, as the Eber Defendants claim, he refused to make additional loans to Eber Metro without
a security interest. (Id. ¶¶ 37, 42.) This could have made sense if the Eber Entities were, in
fact, insolvent and Lester was concerned that the debt would not be repaid. The question of
the Eber Entities’ insolvency is another issue that has been hotly contested throughout this
litigation and will need to be determined at trial. As such, summary judgment is also denied
under Plaintiffs’ theory of corporate waste.
c. The Post-Metro Transfer Asset Transfers
Plaintiffs have also asked this Court to unwind the following transactions: (1) Lester and
Wendy’s acquisition of Slocum Maine and (2) Wendy’s stock grant of 9.1 percent of Eber Metro.

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(Pls.’ Mem. in Supp. 31-32.) In making this application, they have acknowledged that the
question of whether these transactions can be unwound will depend, at least in part, on the
ultimate finding of whether the transfer of Eber Metro to Alexbay is voidable by the Trust
beneficiaries and whether the Eber Metro stock must be placed in a constructive trust. Because
this Court has declined to unwind the transfer of Eber Metro to Alexbay at this stage, it likewise
declines to unwind these transactions.
IX.

The Eber Defendants’ Cross Motion for a “Judgment” That EBWLC’s Transfer of Its
Interest in Eber Metro to Alexbay Cannot be Rescinded Because The Transfer Met the
Requirements of U.C.C. § 9-620
In their Cross-Motion for Partial Summary Judgment, the Eber Defendants contend that,

to the extent that Plaintiffs’ challenge to the foreclosure is not barred by the Rooker-Feldman
doctrine or the doctrine of res judicata, it is nonetheless barred by the U.C.C. (Eber Defs.’ Mem.
of Law in Supp. 22-24.) Specifically, they cite to U.C.C. § 9-620, the statute that permits a
creditor to accept collateral from a debtor in strict foreclosure, and U.C.C. § 9-622, which
provides that: “A secured party's acceptance of collateral in full or partial satisfaction of the
obligation it secures . . . transfers to the secured party all of a debtor's rights in the collateral
terminates any other subordinate interest” and “[a] subordinate interest is discharged or
terminated . . . even if the secured party fails to comply with this article.” § 9-622(a)(2), (4), (b).
The Eber Defendants’ argument, however, ignores the fact that Plaintiffs’ claims arise
from Lester’s purported breaches of his fiduciary duties to the Eber Entities and to Plaintiffs, as
beneficiaries of the Trust. This omission is fatal to the Eber Defendants’ argument because, as
explained by the New York Court of Appeals, “Actions that may accord with statutory
requirements are still subject to the limitation that such conduct may not be for the

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aggrandizement or undue advantage of the fiduciary . . . .” Alpert, 63 N.Y.2d at 568. The Eber
Defendants have cited to no case law or other authority to the contrary. Accordingly, the Eber
Defendants’ Motion for a “judgment as a matter of law that the 2012 Foreclosure cannot be
rescinded” is denied. (Eber Defs.’ Mem. of Law in Supp. 24.)
X.

Plaintiffs’ Claim to Void Issuance of and Enjoin Lester’s Taking of New Voting Shares of
EBWLC Stock
In Count I of the TAC, Plaintiffs argue that, as co-trustee, Lester owed Plaintiffs a duty of

undivided loyalty in February of 2017, when EBWLC issued 750 shares of voting preferred stock
and transferred them to Lester in exchange for the potential payment of certain debts. (TAC ¶¶
270-71.) Plaintiffs contend that, “this flagrant self-dealing by Lester as trustee, acquiring trust
property . . . could only be authorized by the trust beneficiaries or the Surrogate’s Court,” and
that “[n]either the Court nor Plaintiffs heard about it until many months later, and neither
ratified it afterwards.” (Pls.’ Mem. of Law in Supp. 32.)
This Court cannot make any finding regarding whether the issuance of the shares, and
Lester’s acquisition of those shares, violated his duty of undivided loyalty to Plaintiffs because
Plaintiffs’ affidavits are silent with respect to when they learned the EBWLC stock was issued
and that Lester acquired the shares, and what actions they took after they discovered that
Lester had acquired the shares. (See Dkt. No. 266-14 (“Kleeberg Decl. in Supp”); Dkt. No. 26613 (“Stein Decl. in Supp.”); Hays Decl. in Supp.) This line of inquiry is relevant to determining
whether Plaintiffs consented to the issuance of those shares after-the-fact. For clarity, the
Court notes that, although the stock was issued while this case was pending, Plaintiffs first
raised the issue of the 750 shares of voting preferred stock in the TAC, well over a year after the
stock was issued. (See Dkt. No. 174-3 (redline comparing SAC to TAC).) Accordingly,
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clarification is needed to determine whether the issuance of the stock violated Lester’s duty of
undivided loyalty to Plaintiffs.
The Sections of the New York Business Corporations Law cited by Plaintiffs do not
mandate a different result. Plaintiffs argue, that “under its Bylaws, EBWLC was required to
have at least two directors, and a quorum of ‘a majority of the entire board’ is required to have
effective action by the board.” (Pls.’ Mem. of Law 33 (citing B.S.C. §§ 707, 708).) However,
Article 2, Paragraph 1 of EBWLC’s Bylaws provides that:
The number of directors shall be at least three, who need
not be shareholders, except that where all the shares of the
corporation are owned beneficially and of record by less
than three shareholders, the number of directors may be
less than three but shall at least, equal the number of
shareholders.
(EBWLC Bylaws Art. II(1).) As explained above, the parties dispute how many shareholders
EBWLC had. See infra Discussion Pt. VIII(b). Plaintiffs contend that EB&C and the Trust were
shareholders, while the Eber Defendants steadfastly maintain that EB&C was EBWLC’s sole
shareholder. Thus, a material issue of fact exists that precludes summary judgment because the
disputed facts directly bear on the number of directors EBWLC should have had at the time the
corporate actions at issue occurred.
Plaintiffs also contend that the February 2017 amendment of the EBWLC Bylaws was
barred by B.S.C. § 713(a)(2), which provides that:
No contract or other transaction between a corporation and one or
more of its directors, or between a corporation and any other
corporation . . . in which one or more of its directors are directors
or officers, or have a substantial financial interest, shall [not] be . .
. void or voidable for this reason alone,” so long as “the material
facts as to such director’s interest in such contract or transaction .

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. . are disclosed in good faith or known to the shareholders entitled
to vote thereon, and such contract or transaction is approved by
vote of such shareholders.
Although the precise date of his resignation is disputed, it is undisputed that Lester resigned
from EBWLC at some point in 2012, long before EBWLC’s February 2017 issuance of 750 shares
of voting preferred stock and transferred them to Lester in exchange for the potential payment
of certain debts. Plaintiffs contend that the issuance of the EBWLC stock was “an interested
director transaction because Wendy, as Lester’s daughter, heir, and employee was materially
interested in the transaction and dominated by Lester.” (Pls. Mem. of Law in Supp. 33.)
However, Plaintiffs have provided no legal authority to support this argument. And, in any
event, the issue of whether EB&C was the sole shareholder of EBWLC or whether EB&C and the
Trust owned EBWLC’s shares is material because, to the extent a conflict of interest existed, if
EB&C was the sole shareholder, it could have waived any conflict under the rule without
consulting the Trust. Accordingly, summary judgment pursuant to this argument is also denied.
XI.

The Eber Defendants’ Request for a “Judgment” That EBWLC, Eber Metro, and
Eber-CT were Jointly and Severally Liable for Pension Liabilities to the Teamsters
Fund and the PBGC
The Eber Defendants seek a holding from this Court that EBWLC, Eber Metro, and Eber-

CT were jointly and severally liable for the Teamsters Fund and PBGC underfunded plan
liabilities as of June 5, 2012, the approximate date when EBWLC transferred Eber Metro to
Alexbay. (Eber Defs.’ Rule 56 Statement ¶ 44.) The Eber Defendants’ application is denied. As
made clear during oral argument, Plaintiffs do not dispute that EBWLC, Eber Metro, and EberCT were jointly-and severally liable for the Teamsters and PBGC underfunded pension plan
liabilities. (Dkt. 295 (“Jan. 8, 2020 Hrg. Tr.”) 36:18-42:08; see also Eber Defs.’ Rule 56 Statement

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¶ 20; PBGC Action Decision and Order 18.) Moreover, the Eber Defendants concede that the
amounts owed to the Teamsters Fund and PBGC by EBWLC, Eber Metro, and Eber-CT are
disputed issues of fact that should be determined at trial because they bear on the ultimate
issue of the valuation of EBWLC, Eber Metro, and Eber-CT as of the date of the Metro Transfer.
(Jan. 8, 2020 Hrg. Tr. 41:09-20; id. at 72:23-11.) Accordingly, the Eber Defendants’ Application
is denied.9
XII.

Plaintiffs’ Equitable Indemnity Claim
To extent the Eber Defendants seek to dismiss Plaintiffs’ equitable indemnity claim, this

request is denied. “Under New York law, the right to indemnification may arise out of an
express agreement for indemnification, or it may be implied by law in favor of one who is held
liable solely by imputation of law because of his relation to the actual wrongdoer.
Indemnification is an equitable concept that shifts liability when the failure to do so would
result in the unjust enrichment of one party at the expense of another.” Kleeberg, 331 F.R.D. at
324 (internal quotation marks and citations omitted). “In other words, implied indemnification
‘avoids the unfairness of holding one party liable solely on account of the negligence of
another.’” Id. (quoting LNC Inv., Inc. v. First Fid. Bank, Nat. Ass’n, 935 F. Supp. 1333, 1352
(S.D.N.Y. 1996)).
In deciding Plaintiffs Motion to Amend and Supplement the SAC, this Court already held
that Plaintiffs have sufficiently pleaded their equitable indemnity claim against the Eber
Defendants because CNB only sought to rejoin this action after Plaintiffs settled with CNB and

9

As discussed above, Plaintiffs’ motion to strike the Eber Defendants’ report, prepared by Michael Gallagher,
purporting to value the plan termination liability for the EBWLC Retirement Plan is denied as moot because the
Court did not rely on this report in rendering this opinion and it contains hearsay. See infra Discussion Pt. I.

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agreed to indemnify it for legal costs incurred in connection with this action, due to Lester’s
attempt to obtain all of the EB&C shares for himself. See id. at 324. Defendants did not object
to or move for reconsideration of this Court’s decision, and the case law now cited by the Eber
Defendants is inapposite to the case at bar. See McCarthy v. Turner Const., Inc., 17 N.Y.3d 369,
375, 953 N.E.2d 794, 799 (2011) (personal injury case noting that, “[c]onsistent with the
equitable underpinnings of common-law indemnification, our case law imposes indemnification
obligations upon those actively at fault in bringing about the injury, and thus reflects an
inherent fairness as to which party should be held liable for indemnity”); Rosado v. Proctor &
Schwartz, Inc., 66 N.Y.2d 21, 26, 484 N.E.2d 1354 (1985) (in a products liability lawsuit brought
against a manufacturer by the purchaser’s employee, the manufacturer could not seek
indemnity from the purchaser because “the manufacturer is in the best position to know the
dangers inherent in its product”). Accordingly, the Eber Defendants’ request to dismiss
Plaintiffs’ equitable indemnification claim is also denied.10
CONCLUSION
For the reasons stated above, Plaintiffs’ Motion for Partial Summary Judgment (ECF No.
263) is denied. The Eber Defendants’ Motion for Partial Summary Judgment (ECF No. 262) is
granted only insofar as Plaintiffs’ Declaratory Judgment Claim (Count VI) is dismissed; it is
otherwise denied. The remainder of the Eber Defendants’ Motion for Partial Summary
Judgment is denied. The Estate of Elliot Gumaer’s Motion for Partial Summary Judgement (ECF

10

Plaintiffs have moved for attorneys’ fees pursuant to B.S.C. § 626(e), which provides that a court “may award”
plaintiffs who have successfully asserted derivative claims an award of fees and costs. Because this Court has not
awarded Plaintiffs any relief, their application for fees is denied.

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No. 258) is hereby terminated without prejudice to renew pending the Estate’s settlement with
Plaintiffs, and its motion to stay (ECF No. 300) is denied as moot.
The Eber Defendants are hereby directed to file a letter by no later than August 31
2020, advising the Court of the status of Lester Eber’s Estate Proceeding and the appointment
of an executor for the Estate. The Court will schedule a conference with all parties as soon as
practicable once counsel appears for the Estate of Lester Eber and Alexbay. In light of the fact
that the Estate of Lester Eber and Alexbay are currently unrepresented in this action, the
deadline for the parties to file motions for reconsideration are extended to September 15,
2020.

SO ORDERED.
DATED:

New York, New York
August 10, 2020
______________________________
KATHARINE H. PARKER
United States Magistrate Judge

68