Columbia Forest Prods. v Firestone Plywood Corp.
Decided on November 23, 2004
Supreme Court, Nassau County
COLUMBIA FOREST PRODUCTS, Plaintiff,
FIRESTONE PLYWOOD CORP., and ALAN FIRESTONE., Defendants.
COUNSEL FOR PLAINTIFF
Borges Donovan, LLC
575 Underhill Blvd.
Syosset, New York 11791
COUNSEL FOR DEFENDANT
Goldstein, Tannenbaum & D'errico, LLP
One Old Country Road
Carle Place, New York 11514
Leonard B. Austin, J.
Defendant, Alan Firestone, ("Firestone") moves for summary judgment dismissing this [*2]action. Plaintiff, Columbia Forest Products, ("Columbia") cross-moves for summary judgment.[FN1]
Columbia is a manufacturer of plywood products. Firestone Plywood Corp. was in the business of selling commercial plywood. Firestone was the sole shareholder, president and chief executive officers of Firestone Plywood.
Columbia and Firestone Plywood had a longstanding relationship. Columbia sold its products to Firestone Plywood on credit.
In late 2001 and early 2002, Firestone Plywood encountered severe financial difficulties. These financial difficulties resulted in Firestone Plywood going out of business.
Firestone Plywood factored their accounts receivable except for the small number of customers who were COD. Firestone Plywood's bookkeeper, Florence Ostrowsky ("Ostrowsky"), would advise the factor of the new accounts receivable. The factor would then deposit into Firestone Plywood's checking account the agreed upon percentage of the factored accounts receivable.
Firestone Plywood's cash flow problems arose in late 2001 and early 2002 because customers' checks bounced and accounts became more than 90 days overdue in payment. As a result, the factor began to charge current accounts receivable to overdue and/or delinquent accounts. This resulted in the factor not depositing money into Firestone Plywood's account when new accounts receivable were factored.
Columbia's claim against Firestone relates to seven (7) checks issued by Firestone Plywood during the period January 27 and February 2, 2002 to Columbia in the cumulative sum of $73,417.42 which were dishonored because there were insufficient funds in Firestone Plywood's account to cover these checks when they were presented for payment. Firestone concedes that checks were dishonored for this reason.
Firestone signed all of these checks on behalf of Firestone Plywood.
Columbia asserts that Firestone is personally liable on these checks because Firestone breached his fiduciary duty and/or committed an actionable fraud by issuing checks with either actual or constructive knowledge that their were insufficient funds in Firestone Plywood's account to cover these checks.
Firestone asserts that he did not have a fiduciary duty to Columbia who was a business creditor of Firestone Plywood. He further asserts that he did not know that there were insufficient funds on deposit in the corporate bank account when these checks were issued.
Firestone testified at his deposition that he relied upon Ostrowsky to keep track of the balance on deposit in Firestone Plywood's checking account and that he did not know the balance on deposit in the account when the checks were issued. He indicated that the office policy was that checks were not to be issued unless there were adequate funds in the account to cover the checks.
Ostrowsky would write all of the checks that Firestone Plywood had to issue on a weekly basis. She would then give these checks to Firestone who would sign them and return them to Ostrowsky. Ostrowsky would then send out the checks only when there were sufficient funds on deposit in the account to cover the checks. [*3]
Ostrowsky did not know that the checks issued to Columbia had been dishonored. She testified at her deposition that when the checks were sent to Columbia she believed that the account had sufficient funds on deposit to cover these checks. She believed that the checks did not clear because the factor stopped depositing money into Firestone Plywood's account on current accounts receivable and began to charge the current accounts receivable to the overdue or delinquent accounts receivable.
Columbia's assertion that Firestone breached his fiduciary duty to Firestone Plywood's creditors is without merit. The case upon which Columbia relies for this proposition, Geyer v. Ingersoll Publications Co. 621 A.2d 784 (Del Chan., 1992), holds that a director of a Delaware corporation has a fiduciary duty to creditors when the corporation becomes insolvent.
This is not the law of New York. In New York, the fiduciary duty of corporate officers and directors runs to the corporation and its shareholders. Lindner Fund, Inc. v. Waldbaum Inc., 82 NY2d 219 (1993). See, Ench v. Breslin, 241 AD2d 475 (2nd Dept., 1997). Firestone Plywood was a New York corporation. New York courts have not extended the fiduciary duty of a director or officer to creditors. Columbia fails to cite and the Court has been unable to locate any cases where a director or officer of a New York corporation has been held to have a fiduciary duty to corporate creditors.
The fiduciary duties and obligations of a corporate officer or director should not be expanded or extended by judicial fiat. If such duties are to be imposed, the legislature should do so.
A corporate officer who issues a corporate check with knowledge that there are insufficient funds in the account to cover the check commits fraud. Societe Generale Alsacienne De Banque, Zurich v. Flemingdon Development, Corp., 118 AD2d 769 (2nd Dept., 1986). See also, Heurtematte v. Morris, 101 NY 63 (1885); and Lippman Packing Corp v. Rose, 203 Misc. 1041 (Mun. Ct., New York Co., 1953); and 60A NY Jur2d Fraud and Deceit §90. A check is issued when it is delivered to the payee or an agent of the payee. See, Matter of Sackler, 192 AD2d 536 (2nd Dept., 1993); Uniform Commercial Code §3-102(1)(a); and Anderson, Uniform Commercial Code § 3-102:4.
The checks in question were not issued when they were signed by Firestone. The checks in question were prepared in Firestone Plywood's customary fashion. They were written by Ostrowsky who gave them to Firestone to sign. Firestone signed the checks and then gave them back to Ostrowsky who sent them to Columbia when she believed that sufficient funds were or would be sufficient funds in Firestone Plywood's account to cover the checks when they were presented for payment. Thus, the checks were not issued until they were actually delivered to Columbia.
When considering a motion for summary judgment, the Court must consider the evidence in a light most favorable to the non-moving party and must give that party all of the reasonable inferences that can be drawn from the evidence. Negri v. Stop & Shop, 65 NY2d 625 (1985). See, Erikson v. J.I.B. Realty Corp., 2004 WL 2452476 (2nd Dept., 2004);and Louniakov v. M.R.O.D. Realty Corp., 282 AD2d 657 (2nd Dept., 2001). The record in this case reflects that Firestone did not know the balance on deposit in Firestone Plywood's checking account at the time the checks in question were issued. There is no evidence in the record from which the Court could infer that Firestone had knowledge of the fact that there insufficient funds in the account to cover these checks when they were issued. [*4]
The party seeking summary judgment must make a prima facie showing of entitlement to judgment as a matter of law. Winegrad v. New York University Medical Center, 64 NY2d 851 (1985); and Zuckerman v. City of New York, 49 NY2d 557 (1980). Once the movant does so, the burden shifts to the party opposing the motion to come forward with proof in evidentiary form establishing the existence of triable issues of fact. Zuckerman v. City of New York, supra; and Davenport v. County of Nassau, 279 AD2d 497 (2nd Dept., 2001); and Bras v. Atlas Construction Corp., 166 AD2d 401 (2nd Dept., 1991).
Firestone had made a prima facie showing of entitlement to judgment as a matter of law. Columbia has failed to come forward with proof in evidentiary form to establish the existence of triable issues of fact. Columbia's entire case is premised upon the fact that the seven checks in question bounced. However, to sustain its action, Columbia had to establish that Firestone knew that there were insufficient funds in the account to cover the checks when they were issued or that Firestone withdrew the funds after the checks were issued and before they were presented for payment so as to defeat payment of the checks. See, A. Sam & Sons Produce Co., Inc. v. Campese, 14 AD2d 487 (4th Dept., 1961). Columbia has established neither.
Columbia's failure to establish triable issues of fact sufficient to defeat Firestone's motion for summary judgment is fatal to its cross-motion. To be successful on its cross-motion, Columbia had to establish the same things that it would have had to have proven to defeat Firestone's motion for summary judgment; to wit, that Firestone knew that the checks were not going to be honored when they were issued or he withdrew funds from the account after the checks were issued to defeat their payment.
To sustain its claim for fraud, Columbia had to establish Firestone's fraudulent intent through evidentiary facts. Mineola Ford Sales, Ltd. v. Rapp, 242 AD2d 341 (2nd Dept., 1997). Fraudulent intent cannot be inferred. It must be established by facts set forth in the affidavits. Abacus Federal Savings Bank v. Lim, 8 AD3d 12 (1st Dept., 2004); and Computer Strategies, Inc. v. Commodore Business Machines, Inc., 105 AD2d 167 (2nd Dept., 1984). Columbia has failed to place before the Court any facts establishing the existence of Firestone's fraudulent intent.
Since Columbia has failed to establish a prima facie entitlement to judgment as a matter of law, its motion for summary judgment must be denied. Winegrad v. New York University Medical Center, supra; Widmaier v. Master Products, Mfg, 9 AD3d 362 (2nd Dept., 2004); and Ron v. New York City Housing Auth., 262 AD2d 76 (1st Dept., 1999).
Accordingly, it is,
ORDERED, that the Plaintiff's cross-motion for summary judgment is denied; and it is further,
ORDERED, that the motion of Defendant Alan Firestone for summary judgment dismissing this action is granted and the complaint is hereby dismissed against him.
This constitutes the decision and Order of the Court.
Dated: Mineola, NY _____________________________
November 23, 2004 Hon. LEONARD B. AUSTIN, J.S.C.
Footnote 1: By Order dated June 18, 2003, this Court granted summary judgment in favor of Plaintiff and against the Defendant, Firestone Plywood Corp.