On May 16, 2023, Justice Ruchelsman of the Kings County Commercial Division issued a decision in Vashovsky v. Zablocki, 2023 NY Slip Op. 31648(U), examining the limited scope of the voluntary payment doctrine:
The defendants argue the terms of the order which permitted the defendant Yossi Zablocki a right to purchase the property constituted financial injustice because it failed to consider the st1ms Zablocki had already contributed in excess of the plaintiff. Indeed, the defendant’s sole objection to the court’s order is the fact the defendant is required to purchase the property, if he so chooses, without considering the substantial sums he has already contributed. The plaintiffs oppose that request and argue that the payments made by the plaintiff were merely voluntary payments and that pursuant to the voluntary payment doctrine they cannot be recovered in any manner by the defendant.
Whether an infusion should be treated as a loan is determined by the intent of the parties. Thus, whether the payments were voluntary is a legal conclusion that simply cannot be determined at this time. In any event, there are numerous reasons the payments should not be treated as voluntary at this time, First, in Man Chou Chiu v. Chiu, 125 AD3d 824, 4 NYS3d 279 [2d Dept., 2015J the court held, essentially, that contributions are generally treated as loans since that is the default reason infusions are made. Further, notwithstanding the conclusions that cannot be made at this time, the voluntary payment doctrine may have no applicability to this case at all. That doctrine bars the recovery of payments voluntarily made with full knowledge of the facts absent fraud or mistake. The rationale for the rule is the simple truism that when a party intends to resort to litigation in order to resist paying an unjust demand, that party should take its position at the time of the demand; and litigate the issue before, rather than after, payment is made. In Peyser v. City of New York, 70 NY 497, 25 Sickles 497 [1877] the court expanded upon
that reason and explained that the reason of this principle is, that a person shall not be permitted, with the knowledge that the
demand made upon him is illegal and unfounded, to make payment without resistance, where resistance is lawful and. possible, and afterwards to choose his own time to spring an action for restoration, when, perchance, his adversary has lost the evidence to sustain his side. Other jurisdictions are in accord. Thus, in Putnam v. Time Warner Cable of Southeast Wisconsin Ltd. Partnership, 649 NW2d 626, 255 Wis2d 447 [Supreme Court of Wisconsin 2022] the court explained there are two primary reasons why courts have adopted the voluntary payment doctrine. First, the doctrine allows entities that receive payment for
services to rely upon these funds and to use them unfettered in future activities. Second, the doctrine operates as a means to
settle disputes without litigation by requiring the party contesting the payment to notify the payee of its concerns. After such notification, a payee who has acted wrongfully can react to rectify the situation.It is clear that where a potential member of an entity infuses the entity with cash where litigation has already commenced and no payments are demanded then the voluntary payment doctrine may well be entirely inapplicable.
The plaintiffs argue that the reason Defendants made these voluntary payments was so that he could continue his windfall and
(Internal quotations and citations omitted).
not to provide loans to the company. However, according to records maintained by the receiver as of April 30, 2023, the defendant infused the hotel with $2,369,400. Further, since April 2022 the receiver has documented total receipts of $2,751,867.45 and disbursements of $2,808,091.45. The evidence of any windfall is curious indeed. The plaintiffs further argue and have consistently argued that the defendant charges high fees to various vendors and clients and only forwards a small portion of the receipts to the receiver. However, if true, that means the defendant is depositing unreported money he receives back into the hotel just to permit the receiver to pay expenses to keep the hotel barely afloat. The circuitous nature of these actions really defies common sense. This convoluted scheme does not explain why the defendant would act in this fashion and why he would continue a cycle of deficit and unprofitability. Of course, these issues will be resolved in the court of litigation. They are only highlighted here to demonstrate that defendant’s payments cannot be unrecoverable pursuant to the voluntary
payment doctrine at this time.