SHIRLEY WERNER KORNREICH, J.

This action arises out of a recapitalization agreement between the company-defendant, Empire Resorts, Inc. (Empire, or the company), and two of its preferred shareholders, Bryanston Group, Inc. (Bryanston) and Stanley S. Tollman (Tollman) (collectively plaintiffs). Plaintiffs claim Empire breached the recapitalization agreement and seek a preliminary injunction requiring the company to set aside sufficient funds to redeem their preferred shares and pay accrued dividends, pending a determination of this action. Empire moves to dismiss the complaint, and plaintiffs oppose the motion.

I. Background

The following facts are based on the complaint unless otherwise indicated.

Empire is a Delaware corporation, with its principal place of business in Monticello, New York. Compl. ¶ 3. It owns and operates Monticello Casino and Raceway, a video gaming machine and harness-horse racing facility. Id. Bryanston, a Georgia corporation, provided Empire with a portion of its initial capital. More specifically, prior to December 10, 2002 — the date of the parties' "Recapitalization Agreement" — Bryanston owned approximately 2.3 million shares of Empire's common stock, at .$0.1 par value per share. See Compl. Exh. A, Recapitalization Agreement, "Recitals." Bryanston also held an Empire note with an unpaid balance of $1,570,126. Id. In addition, Empire owed Tollman $1,528,167 for unpaid compensation. Id.

In December 2002, Empire decided to "reconstitute its capital structure" in part "through issuance of a newly created series of redeemable preferred stock in full satisfaction of the Stockholder Debt," which is defined to include the debt owed to Bryanston and Tollman. Id. As a first step to recapitalization, on December 9, 2002, Empire, pursuant to its certificate of incorporation, "created" 1,730,697 shares, at $.01 par value per share, of Series E Preferred Stock (or the Preferred Stock) by executing a "Certificate of the Designations, Powers, Preferences and Rights of the Series E Preferred Stock" (the Certificate). See Compl., Exh. A, Certificate. A copy of the Certificate was filed with the Secretary of State of Delaware.

Section 2 of the Certificate states that:

Section 6 of the Certificate states that "[t]he Corporation, at the option of the Board, may redeem the whole or any part of the Series E Preferred Stock at any time outstanding, at any time or from time to time, by paying the redemption price of $10.00 per share . . . plus dividends accrued thereon."

On December 10, 2002, Empire and plaintiffs entered into the "Recapitalization Agreement" pursuant to which Empire transferred to Bryanston and Tollman a total of 1,704,30 shares of Series E Preferred Stock or 98 percent of the same class of stock that Empire had created through the Certificate a day earlier. See Compl., Exh. A, Recapitalization Agreement. Specifically, Bryanston received 1,394,200 shares of the Preferred Stock in exchange for its membership interest in Catskill Development, a real estate venture that is not a party to this action. Recapitalization Agreement, § 1.3. Bryanston and Tollman also received, respectively, 157,013 and 152,817 shares of Preferred Stock in return for a cancellation of Empire's obligations to them which, at the time of the Recapitalization Agreement, were, respectively, $1,570,126 and $1,528,167. Recapitalization Agreement, § 1.5; Schedule 1.5. In essence, the Recapitalization Agreement, transformed Bryanston's and Tollman's creditor interests in Empire to preferred shareholder interests at approximately $10.00 of debt cancellation per preferred share.

Empire, in turn, acquired the right to repurchase the Preferred Stock from Bryanston and Tollman at the same $10.00 price per share. Section 1.8 of the Recapitalization Agreement states:

However, to protect the Series E Preferred Shareholders, the Recapitalization Agreement imposed certain restrictions on Empire's "distributions" for so long as the Preferred Stock remained outstanding. Section 1.9 of the Recapitalization Agreement titled "Distributions" provides that:

Section 1.9 defines "Net Available Cash Flow" as

On October 1, 2009, Kien Huat Realty III Limited (Kien), a Malaysian company, purchased 34,506,040 shares of Empire's common stock for $55 million in cash and a $10 million credit facility. Compl. ¶ 17. On June 12, 2010 — the date that plaintiffs commenced this action — Empire had over $47 million left in cash from this purchase. Id. Plaintiffs claim that Empire breached Section 1.9 of the Recapitalization Agreement because it used the funds it received from Kien for purposes other than the retirement of the plaintiffs' Preferred Stock. Compl. ¶ 16. Plaintiffs allege that Empire used the funds to pay more than $1 million per year in operating expenses and to settle a contested claim with a former CEO in excess of $1 million. Compl. ¶ 18. The complaint contains three causes of action: (1) breach of contract as to Bryanston; (2) breach of contract as to Tollman; and (3) a preliminary injunction.

II. Discussion

On a motion to dismiss pursuant to CPLR 3211, the court must accept the facts as alleged in the complaint as true, and accord plaintiff the benefit of every possible favorable inference. Morone v Morone, 50 N.Y.2d 481, 484 (1980); Rovello v Orofino Realty Co., 40 N.Y.2d 633, 634 (1976). Empires' motion to dismiss is denied for the reasons stated below.

In an action for breach of contract plaintiff must allege: (1) the existence of a valid contract; (2) plaintiff's performance of his obligations thereunder; (3) defendant's failure to perform; and (4) damages. Morris v 702 East Fifth Street HDFC, 46 A.D.3d 478, 479 (1st Dept 2007) (citing Furia v Furia, 116 A.D.2d 694, 695 (2d Dept 1986)). The only element at issue in this case is defendant's performance.

Empire's argument for dismissing the complaint has two parts and they are interrelated. First, Empire argues that plaintiffs fail to allege a breach of the Recapitalization Agreement. Second, they argue that even if plaintiffs allege such a breach, their allegation is contradicted by documentary evidence. Both arguments fail.

Plaintiffs have alleged a breach of the Recapitalization Agreement. Plaintiffs allege that in 2009, Empire issued common stock to Kien in return for a $55 million cash infusion. They contend that this sum — minus the $1 million adjustment for reasonable expenses — constitutes "Net Available Cash Flow" (NACF) under the clear language of the Recapitalization Agreement. See Compl., Exh. A, Recapitalization Agreement § 1.9. Plaintiffs further allege that by the time their complaint was filed, Empire only had approximately $43 million left in cash from the sale of stock to Kien, which amounts to a total NACF reduction of approximately $11 million. According to plaintiffs, Empire used these NACF funds for purposes other than retirement of plaintiffs' Preferred Stock, including payment of operating expenses in excess of $1 million and settling a contested claim with a former CEO. See Compl. ¶ 16. If such use of the NACF funds constituted payment of "dividend" or the making of a "distribution," plaintiffs have correctly alleged that Empire breached Section 1.9 the Recapitalization Agreement. Compl., Exh. A, Recapitalization Agreement § 1.9. The court must accord plaintiffs the benefit of such favorable inference, unless Empire shows that the inference would be flawed as a matter of law. See Morone, at 484; Rovello, at 634; Cochard-Robinson v Concepcion, 60 A.D.3d 800, 802 (2d Dept 2009) (dismissing complaint where documentary evidence conclusively establishes a defense as a matter of law). This leads to the second part of Empire's argument for dismissal.

Empire argues that the inference would be flawed because Empire never used NACF funds to pay a "dividend" or make a "distribution," in the sense specified in Section 1.9. Defendant MOL, 9-10. In support of this argument, Empire provides documentary evidence, in the form of the company's public filings, which, according to Empire, proves that it "has not declare[d] or pa[id] a cash dividend with respect to [its] Common Stock" since 2002 — the time the parties executed the Recapitalization Agreement. [emphasis supplied] Defendant MOL, at 9. Empire concludes from this documentary evidence that NACF funds were never used to "pa[y] [a] dividend" or "ma[ke] [a] distribution" in the sense specified in Section 1.9, and a fortiori that any inference of breach would be flawed as a matter of law.

The second part of Empire's argument fails for several reasons. First, the restriction imposed by Section 1.9 refers to "dividends" not "cash dividends." Cash dividends — as the term suggests — are "dividends paid to shareholders in the form of money." [emphasis supplied] Black's Law Dictionary, 8th ed., Heading "Dividend," Subheading "cash dividend." Dividends, in turn, can be in the form of money or other corporate property. See Black's Law Dictionary, 8th ed., Heading "Dividend," Subheadings "asset dividend" ("a dividend paid in the form of property, . . . rather than in cash or stock"); see also IRC §§ 301, 316(a), 317(a) (defining "dividends" as "any distribution of property made by a corporation to its shareholders" where "property" includes "money, securities, and any other property") [emphasis supplied]; Choate v Commissioner, 129 F.2d 684 (2d Cir 1942) (if corporation distributes to its stockholders property rather than cash, there is nevertheless taxable dividend).

The court may not construe the term "dividend" as "cash dividend" because to do so would be to add a term to the Recapitalization Agreement "and thereby make a new contract for the parties under the guise of interpreting the writing." See Bailey v Fish & Neave, 8 N.Y.3d 523, 528 (2007). Hence, even if Empire did not declare or pay cash dividends — as it alleges — it does not follow that it did not pay dividends from the NACF funds at issue, thereby, violating Section 1.9 of the Recapitalization Agreement.

Moreover, interpreting "dividends" as "cash dividends" in Section 1.9 would undermine the prima facie purpose of the restriction imposed by Section 1.9. Madison Avenue Leasehold, LLC v Madison Bentley Associates, LLC, 30 A.D.3d 1, 6 (1st Dept 2006) (A consideration in interpreting a commercial contract is the business purpose to be served by the contract.). The prima facie purpose behind Section 1.9 is to maintain a payment priority of the Series E Preferred Shareholders vis-a-vis other shareholders of the corporation with respect to the company's NACF. If Section 1.9 prohibited only payment of "cash dividends" to the other shareholders while the Preferred Stock remained outstanding, Empire could easily circumvent the prohibition by using its NACF to purchase securities in the open market and then distribute them to its other shareholders instead of cash. If this happened, the Series E Preferred Shareholders, such as plaintiffs, would have no recourse against Empire because they have no meaningful voting rights to effect Empire's corporate decisions from the inside. See Compl., Exh. A, Certificate § 5. Their only protection is the Recapitalization Agreement. In sum, a mere "cash dividend" restriction would be inadequate to accomplish the apparent, protective purpose of Section 1.9. That this was not the parties' intention is further confirmed by the robust restriction actually articulated in Section 1.9.

Section 1.9 prohibits not only "dividends" but also other "distributions" under the specified circumstances. It states that "no dividends shall be paid and no distributions shall be made" from NACF while any of the Preferred Stock remains outstanding. [emphasis supplied]. "The use of different terms in the same agreement strongly implies that the words are to be accorded different meanings." NFL Enterprises LLC v Comcast Cable Communications, 51 A.D.3d 52, 61 (1st Dept 2008) citing Frank B. Hall & Co. v Orient Overseas Associates, 48 N.Y.2d 958 (1979). "Dividends" and "distributions" should be accorded different meanings in this case both because the Recapitalization Agreement uses different terms and because these terms are not synonymous. Dividends are only a type of corporate distribution. See Black's Law Dictionary, 8th ed., Heading "Distribution," Subheading "corporate distribution" (a corporate distribution is a "direct or indirect transfer of money or other property, or incurring of indebtedness to or for the benefit of its shareholders, such as a dividend payment out of current or past earnings.") [emphasis supplied]; see also BCL § 510(a) ("A corporation may declare and pay dividends or make other distributions in cash or its bonds or its property, including the shares or bonds of other corporations, on its outstanding shares . . . .") [emphasis supplied].

The court also notes the distinction drawn by the Internal Revenue Code between distributions of a corporation "with respect to its stock" — which include dividends — and other types of corporate distributions to shareholders, such as those in the form of salary to a shareholder who is also an employee, or in the form of repayment of debt to a shareholder who is also a creditor of the corporation. See IRC §§ 301(a), (c),(drawing distinction between distributions by a corporation to shareholders "with respect to its stock," which include dividends, andother types of corporate distributions), 316(a) (defining "dividend"); Cheryl B. Block, Corporate Taxation, 4th ed., 142-143 (discussing the distinction in IRC § 301(a) between corporate distributions "with respect to its stock," which include dividends, and other corporate distributions such as payment of salaries and repayment of debt).

In sum, the second part of Empire's argument fails because it interprets the term "distributions" to mean "dividends" and the term "dividends" to mean "cash dividends" in Section 1.9 of the Recapitalization Agreement. Both interpretations conflict with basic rules of contract construction. See Bailey, 8 NY3d at 528; NFL Enterprises, 51 AD3dat 61.Accordingly, it is

ORDERED that Empire's motion to dismiss the complaint is denied.