(Editor's Note: Two longtime associates of Harry Helmsley are suing the real estate tycoon and his wife, Leona. Irving Schneider and Alvin Schwartz claim that since Harry Helmsley's physical and mental condition deteriorated to the point where he could no longer play an active role in the management of his businesses, Leona Helmsley has blocked payments due them under their lifetime employment contracts. They also allege that Leona Helmsley has "looted" the Helmsley/Spear concern in which they are minority shareholders, transferring assets to other components of Helmsley's businesses.)
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
IRVING SCHNEIDER and ALVIN SCHWARTZ,
Plaintiffs,
against
LEONA HELMSLEY, HARRY HELMSLEY and HELMSLEY
ENTERPRISES, INC.
Defendants
Index No.
COMPLAINT
Irving Schneider and Alvin Schwartz, as and for their complaint against the defendants, by and through their attorneys Squadron, Ellenoff, Plesent & Sheinfeld, LLP, and Baer, Marks & Upham, respectfully allege as follows:
PARTIES
1. Plaintiff, Irving Schneider ("Schneider"), is a resident of the City and County of New York.
2. Plaintiff Alvin Schwartz ("Schwartz"), is a resident of Nassau County, New York.
3. Upon information and belief, Harry Helmsley ("Helmsley") is an individual residing in New York City and Greenwich, Connecticut. Helmsley also owns, through the medium of Helmsley Enterprises, Inc., over ninety-nine (99%) of the outstanding shares of Helmsley-Spear, Inc. ("H/S")
4. Upon information and belief, since in and after 1990, Helmsley's health and his mental and phystcal cond1tion has been such that he does not personally manage or make judgments or decisions about his holdings and bus1ness.
5. Leona Helmsley ("Mrs. Helmsley"), is an individual residing in New York City and Greenwich, Connecticut and is the wife of Helmsley and improperly purports to act in Helmsley's place w1th respect to Helmsley's corporate and partnership obligations.
6. Upon information and belief, defendant, Helmsley Enterprises, Inc. ("H/E") is a Delaware corporation with its principal place of business at 230 Park Avenue, New York, New York.
7. At various times between 1990 and the date hereof, Mrs. Helmsley has been an officer and director of H/S and H/E, but at all times material here Mrs. Helmsley has used both H/S and H/E to effectuate the illicit scheme hereinafter set forth.
JURISDICTION
8. This Court has Jurisdiction over defendants under CPLR Section 302(a)(1) in that causes of action alleged herein arise out of bus1ness transacted by these defendants w1thtn the State of New York.
9. Each of Messrs. Schwartz and Schneider have been affiliated with H/S for approximately fifly years. During their tenure and in conjunction with Helmsley, they built H/S tnto a pre-eminent brokerage and real-estate management firm which earns fees in the millions of dollars per year.
ALLEGATIONS COMMON TO ALL CAUSES OF ACTION
10. Helmsley, as President of H/S and the principal of H/E (the owner of 2284 of the 2286 shares of H/S) recognized the unique and substantial contribution of plaintiffs. He agreed with Schwartz and Schneider for each to become shareholders of H/S and, in July, 1977, caused H/S and H/E to enter into a lifetime Employment Agreement with each of the plaintiffs (the "Employment Agreement.").
11. The Employment Agreement provides that plaintiffs are to be compensated among other bases, in part on the basis of H/S gross income, in part on the basis of commissions received from managing particular properties obtained through their efforts (including, but not limited to those specified on exhibits to the Employment Agreement).
12. On or about June 13, 1989, Respondent H/S agreed with plaintiffs to increase the compensation of each of the plaintiffs under the1r 11fetime Employment Agreement by $1,000,000 per year, "retroact1ve to the year ending December 31, 1988." This amendment to their lifetime Employment Agreement was memorialized ln a Memorandum dated June 13, 1989 ("The Memorandum"), which was signed by Helmsley in his capacity as the President of H/S. The Memorandum was initialed by Mrs. Helmsley.
13. Despite due demand, commencing October, 1990, Mrs. Helmsley improperly caused H/S to fail and refuse to make the payments required under the Mcmorandum. As a consequence, H/S is currently indebted to each of Schneider and Schwartz in an amount in excess of $5,700,000, whtch sum continues to accrue on a monthly basis.
14. Pursuant to the Employment Agreement, each of the plaint1ffs is entitled to receive override commissions with respect to each of the properties for which he is the managing agent. Such override commissions are due and have always been paid annually 1n the month of March. In March, 1996, there was due and owing to each plaintiff approx1mately $234,000 by reason of such commissions, which sums Mrs. Helmsley caused H/S to refuse to pay.
15. On or about December 31, 1970, H/E and H/S entered into an agreement, amended August 6, 1974, with plaint1ffs (the "Option Agreement") wherein, inter alia, Schwartz and Schneider were greeted the option to purchase,upon the death of Helmsley, all shares of H/S owned by H/E. The Option Agreement also grants plaintiffs the right of first refusal ln the event H/E wishes to sell or dispose of 1ts shares. More particularly, for the purposes of this proceeding, the Option Agreement also provides, in the event plaintiffs choose not to exercise their option to buy upon the occurrence of e1ther of the' aforesaid triggering events. that plaintiffs be paid, for a period of four years, the compensation which they earned during the last full year of their employment with H/S (the "Payout Option").
16. Under the Employment and Option Agreements, plaintiffs are entitled to substant1al payments at the conclusion of their employment by H/S which payments are based, in part, on the plaintiffs' level of compensation. Consequently (because plaintiffs' compensation is dependent upon the performance! of H/S), the financial success of H/S is cr1tical to plaintiffs' receipt of the| ultimate consideration prom1sed to them for their lifetime employment.
17. Mrs. Helmsley has acknowledged that Helmsley has, for a number of years, been incapable of understanding or deal1ng w1th his financial affairs and has been absent for increasing periods of time from all phases of the businesses in wh1ch he once engaged, contributing noth1ng to the conduct of such businesses.
18. Notwithstanding her repeated denials of any involvement in the I bustness and affairs of H/E and H/S. and without any lawful author1ty, Mrs. Helmsley, on her own behalf and purportedly acting on behalf of Helmsley and H/E, has engaged in an egregious campaign to loot H/S and render H/S insolvent so as to disable it from meeting its obligations to the plaintiffs.
19. Plaintiffs have been obliged to commence end have commenced an arbitration proceeding seck1ng an award d1recting the payment of the compensation due under the Memorandum as well &S to enforce their other rights under the Employment and Option Agreements, which arbitration is now pending.
THE SCHEME TO LOOT HELMSLEY-SPEAR
20. Commencing in or before 1992, Mrs. Helmsley, separately and in concert with H/E, engaged in an intentional, calculated and bad-faith effort to transfer assets from H/S to herself, to H/E and to other entities controlled by her, without falr consideration. As hereinafter alleged, while stating to a! federal court that her contribution to H/S was "extraordinarily small," she extracted over $10 million dollars in compensation from H/S; Mrs. Helmsley falsified (or caused to be falsified) corporate records, including a May, 1990 memorandum that was wholly inconsistent with her representations concern1ng her lack of involvement with H/S and which stated that her contribution to H/S was equal to that of plaintiffs and which directed that her compensation from H/S be "on equal par with them. Mrs. Helmsley shifted millions of dollars of costs and expenses to H/S, including those of a corporate aircraft used almost exclusively for personal travel; and she caused the creation of fictitious loans and the lmposition of over $3 million in artificial interest payments.
21. More specifically, and upon information and belief, the transfers include, but are not limited to, the following:
a. A massive transfer of assets from H/S to H/E of an amount in excess of $20,000.000. This has been accomplished by (i) systematically "sweeping," or emptying the bank accounts of H/Si (ii) transferring the funds therein to H/E on a periodic basis; (iii) 'lending' money back to H/S so that H/S could pay 1ts bills and other obl1gatlons as they become due; and (iv) charging interest to H/S for the loan. The interest for the 'loan', payable to H/E, has amounted to approximately $1,000,000 per year over the period 1992 through and including l995;
b. Use of H/S personnel to work on behalf of interests controlled by Mrs. Helmsley and H/E without reimbursement to H/S;
c. The payment without consideration by H/S of the salaries of certain employees of H/E;
d. The payment w1thout consideration by HfS of certain expenses of H/E;
e. The payment by H/S of salary to Mrs. Helmsley and Helmsley in an aggregate amount in excess of $l3,000,000 despite the fact that Mrs. Helmsley and Helmsley have been almost completely uninvolved in the operation of H/S;
f. The payment by H/S of the outstanding loan in an amount in excess of $l,000,000 for an aircraft util1zed exclusively by Mrs. Helmsley and Helmsley for their personal, non-corporate purposes. Significantly, the aircraft is not carried as an "asset" on thc books of H/S. Additionally, H/S has an outstanding liab11ity on its accounting records in an amount in excess of $664.000, which amounts are related to the operation and/or maintenance of the aircraft; and
g. The transfer of properties for 1nadequate consideration, from H/S to H/E or other entities controlled by the Helmsleys.
22. Among many other properties, at least seventeen properties owned or controlled by the Helmsleys, or by entities controlled by them, have been managed by H/S since their acquisition. Such management has been satisfactory in all! respects.
23. It was always understood that certain properties owned or controlled by the Helmsleys, or by entit1es controlled by them, would be managed by H/S (including but not limited to those denominated in the Employment Agreement as Management Properties) and that such management was the fountation of the financia1 success of H/S and, ultimately, the payments due to plaintiffs.
24. The plaintiffs have made extraordinary contributions to the wealth accumulated by the Helmsleys in reliance upon the payments promised to them which, in turn, were founded upon the understanding that certain properties would be managed by H/S.
25. The contracts for management of the subject huildings are valuable assets belonging to H/S 1n accordance w1th the understanding.
26. In furtherance of Hrs. Helmsley's offort to render H/S insolvent and unable to satisfy its obligations to the plaintiffs, Mrs. Helmsley caused seventeen letters, dated March 29, 1996, to be sent to H/S purporting to terminate H/S as managing agent for the named properties.
27. Upon information and bel1ef, Mrs. Helmsley is arranging for the management of the buildings to be transferred to Helmsley-Noyes, Inc. ("Noyes"), another entity controlled by the Helmsleys. However, and as an admission of the satisfactory nature of H/S management to date, the buildings will be serviced by the same H/S personnel and the same H/S computer facilities will be utilized with respect to the management of the buildings in the exact manner as they have been to date. The result will be that plalnt1ffs will no longer supervise management of the propert1es and H/S will not earn the management fees which H/S would otherwise have earned.
28. Upon information and belief, H/S will receive no consideration for the aforesaid transfers of the valuable contractual right to manage the subject buildings.
29. Upon information and belief, the transfers hereinabove described were made with the intent of rendering H/S insolvent.
30. Upon further information and belief, at the time of the transfers, Mrs. Helmsley, and H/E through Mrs. Helmsley, intended or believed that H/S would incur debts beyond its ability to pay as they mature.
31. As a result of the fraudulent conveyances described above, Mrs. Helmsley, H/E and H/S have rendered H/S incapable of satisfying the obligations owed by H/S to the plaintiffs.
32. Plaintiffs have no adequate remedy at law.
AS AN FOR A FIRST CAUSE OF ACTION
(DEBTOR AND CREDITOR LAW SECTION 273 - CONVEYANCES BY INSOLVENT)
33. Plaintiffs repeat and incorporate herein by reference each allegation of Paragraph One (1) through and including Paragraph Thirty-Two (32) hereof as if fully set forth herein.
34. Plaintiffs, by reason of their entitlement to $1,000,000 in compensation per year, which compensation has not been paid since April 1990, are creditors of H/S ln an amount in excess of $5,700,000 each.
35. Upon 1nformation and belief, the transfers by H/S es aforesaid were made for no or insufficient consideration at a time when H/S was insolvent or was rendered insolvent thereby.
36. At the time of the transfers, the assets had a reasonable value in excess of $30,000,000.
37. By reason of the foregoing, plaintiffs are entitled to a declaration that the conveyances described above are fraudulent and void as to them, and a Judgment vacating and setting such transfers aside to tho extent necessary to satisfy their claims.
AS AND FOR A SECOND CAUSE OF ACTION I (DEBTOR AND CREDITOR LAW SECTION 279 RELATIN6 TO UNMATURED CLAIMS)
38. Plaintiffs repeat and incorporate herein by reference each allegation of Paragraph One (l) through and including Paragraph Thirty-Two (32) hereof as if fully set forth herein.
39. By operation of the Payout Opt10n under the Option Agreement, each of Schneider and Schwartz are entitled to Payout Option payments tn an amount in excess of $20,000,000. This claim will mature upon the occurrence of a triggering event under the Option Agreement.
40. By reason of the foregoing, plaintiffs, as creditors whose rights have not matured, are a) entitled to a declaration, pursuant to Section 279 of the Debtor and Creditor Law, that the conveyances described above are fraudulent and void as to them and b) a judgment vacating and setting such transfer aside to the extent nocessary to satisfy thelr claims.
AS AND FOR A THIRD CAUSE OF ACTION
(DEBTOR AND CREDITOR LAW Section 27C -
ACTUAL FRAUD)
41. Plaintiffs repeat and incorporate herein by reference each allegation of Paragraph One (1) through and including Paragraph Th1rty-Two (32) and Paragraph Thirty-Five (35) hereof as if fully set forth herein.
42. Upon information and belief, the transfers, as aforesaid, were made with the 1ntent of delaying and defrauding the creditors of N/S and, in particular, to delay and defraud tho plaintiffs.
43. Upon further information and belief, H/E and Mrs. Nelmsley were not bona fide purchasers at the Lime of the transfer and had knowledge of the wrongful and fraudulent intent and purpose alleged herein.
44. By reason of the foregoing, plaintiffs are ent1tled to a declaration that the conveyances described above are fraudulent and void as to them and judgment vacating and setting such transfers aside to the extent necessary to satisfy their claims together with an award of their reasonable attorneys' fees and disbursements in connection with this action.
AS AND FOR A FOURTH CAUSE OF ACTION
(DECLARATORY JUDGMENT AND MANDATORY
RELIEF)
45. Plaintiffs repeat and tncorporate herein by reference each allegation of Paragraph One (1) through and including Paragraph Thirty-Two (32) and Paragraph Thirty-Five (35) hereof as 1f fully set forth here1n.
46. The transfers of the assets of H/S, as aforesaid, were motivated solely by malice and were calculated to cause 1ntentional hanm to H/S so as to render H/S insolvent.
WHEREFORE, plaintiffs demand judgment as follows:
A. On the First Cause of Action, vacating and sett1ng as1de the transfers from H/S to defendants to the extent necessary to sat.isfy plaintiffs' claims;
B. On the Second Cause of Action, vacating and setting as1de the transfers from H/S to defendants to the extent necessary to satisfy plaintiffs' claims;
C On the Third Cause of Action, vacating and setting aside the transfers from H/S to defendants to the extent necessary to satisfy plaintiffs' claims together w1th plaintiffs' reasonable attorneys' fees and disbursements-,
D. On the Fourth Cause of Action, declaring the transfer of management of the subject propert1es from H/S to Noyes null and void and directing that they be returned to H/S management, and awarding incidental and punitive damages;
E. On all causes of action, a preliminary and permanent injunction restraining defendants from transfers of assets from H/S;
F. On all causes of action, the appointment of a Receiver to taker control of the assets found to have been fraudulently transferred;
G. On all causes of action, awarding incidental damages and punitive damages ln the sum of One Hundred Million ($100.000.000) dollars; and
H. Awarding such other and further relief as the Court deems necessary.
