Winchester Global Trust Co. Ltd. v Donovan

[*1] Winchester Global Trust Co. Ltd. v Donovan 2009 NY Slip Op 50190(U) [22 Misc 3d 1119(A)] Decided on February 4, 2009 Supreme Court, Nassau County Warshawsky, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on February 4, 2009
Supreme Court, Nassau County

Winchester Global Trust Company Limited, as trustee of The Factored Receivables Trust, , Plaintiff,

against

Thomas B. Donovan, Pamela Donovan, First Secured Capital Corporation, The Thomas B. Donovan Family Trust, First Secured Lien Corporation, Secured Lien Corporation, Secured Partners Corporation, Secured Property Corporations, Reo Corp., and First Paper Corporation, Defendants.



014163/2004

Ira B. Warshawsky, J.

PRELIMINARY STATEMENT

The Plaintiff moves in motion sequence No.11 for partial summary judgment on the Tenth, Eleventh and Fourteenth causes of action in the complaint, the appointment of a referee to determine the amount of attorneys' fees to which the Plaintiff is entitled on the Fourteenth cause of action, or, in the alternative, scheduling an inquest on the issue. The movant seeks to pierce the corporate veil so as to impose obligations of the various corporate defendants on Thomas P. Donovan and Pamela Donovan.

The Defendants cross-move for dismissal of the complaint in its entirety.

BACKGROUND

This matter was the subject of a lengthy decision of this Court dated August 11, 2003, in which a judgment was directed in the amount of $21,471,650.29 against First Secured Capital and the Donovan Family Trust. The Court further enjoined First Secured Capital Corporation [*2]and the Donovan Family Trust from in any way divesting themselves of distressed loan collateral, proceeds of sale derived therefrom, whether in the ordinary course of business or otherwise, until such time as the monetary judgment granted to the Factored Receivables Trust is satisfied. The judgment was affirmed but the award against the Donovan Family Trust was limited by the Appellate Division to $400,000, and the injunctive relief vacated. (Riverside Capital Advisors v. First Secured Capital, 28 AD3d 452 [2d Dept. 2006]).

The injunction was founded on unpleaded allegations of misappropriation which came out for the first time. The complaint made no allegation of misappropriation of proceeds, and made only a single cause of action against the Trust in the amount of $400,000. The Plaintiff now seeks to impose liability on all Defendants in this action to set aside fraudulent conveyances.The Defendants oppose the application to grant summary judgment on the veil-piercing causes of action on the ground that this constitutes an attempt to re-litigate the 1999 action, and to avoid the burden of proof under the Debtor Creditor Law causes of action, which are the primary claims in the action, and upon which a basis for piercing the corporate veil must be founded.

The Defendants further request summary judgment dismissing Winchester's claims on the following grounds:

•there has been no determination of the rights of Riverside vis-a-vis Winchester and Factored against the Judgment Debtors, Winchester lacks standing to assert a claim as a judgment creditor, and the complaint should be dismissed as premature;

•the Tenth and Eleventh causes of action, which seek to hold the non-debtor Defendants liable on a veil-piercing theory, do not state an independent claim upon which relief can be granted under New York law;

•there is no legal authority to pierce the veil of a trust as opposed to a corporation;

•assuming for argument's sake that veil-piercing of a trust is authorized, Winchester is barred from doing so by doctrines of res judicata, merger, and/or collateral estoppel. In addition, the April 26 Modification Order, limiting the Trust's liability to $400,000, is binding on Winchester;

•the Tenth cause of action should be dismissed because the contractual liability limitation in the Loan Agreement and the Limited Guaranty Agreement bar veil-piercing liability against the Trust or the Donovans.

THE COMPLAINT

The complaint in this action is contained in Exh. "74" in Exhibit Binder III. The nature of the action is stated to be by the Plaintiff, as judgment creditor, to set aside and recover fraudulent conveyances made by the Defendants as part of a deceptive scheme to steal more than $7 million in collateral which secured advances made by Winchester to First Secured pursuant to a loan agreement dated November 27, 1997, and which was guaranteed by the Donovan Family Trust. The Tenth cause of action asks for a piercing of the corporate veil against First Secured Capital Corporation, The Thomas B. Donovan Family Trust, Thomas Donovan and Pamela Donovan. The Eleventh cause of action requests the same relief against First Secured Lien Corporation, Secured Lien Corporation, Secured Partners Corporation, REO Corp., Secured Property Corporation, and First Paper Corporation. The Fourteenth cause of action requests payment of attorneys' fees in accordance with Section 16 (a) of the Loan Agreement. This relief [*3]is sought against First Secured Capital Corporation, The Thomas B. Donovan Family Trust, Thomas B. Donovan, and Pamela Donovan. It is these three causes of action on which the Plaintiff requests partial summary judgment.

A summary of the fifteen causes of action, against whom they are alleged, and basis for the relief requested is as follows:

A summary of the fifteen causes of action, against whom they are alleged, and basis for the relief requested is as follows:

LEGAL PRINCIPLES

Summary Judgment

When presented with a motion for summary judgment, the function of a court is "not to determine credibility or to engage in issue determination, but rather to determine the existence or non-existence of material issues of fact." (Quinn v. Krumland, 179 AD2d 448, 449 — 450 [1st Dept. 1992]); See also, ( S.J. Capelin Associates, Inc. v. Globe Mfg. Corp. 34 NY2d 338, 343, [1974]).

To grant summary judgment, it must clearly appear that no material and triable issue of fact is presented. (Stillman v. Twentieth Century-Fox Corp., 3 NY2d 395, 404 [1957]). It is a drastic remedy, the procedural equivalent of a trial, and will not be granted if there is any doubt as to the existence of a triable issue. (Moskowitz v. Garlock, 23 AD2d 94 [3d Dept. 1965]); (Crowley's Milk Co. v. Klein, 24 AD2d 920 [3d Dept. 1965]).

The evidence will be considered in a light most favorable to the opposing party. (Weill v. Garfield, 21 AD2d 156 [3d Dept. 1964]). The proof submitted in opposition will be accepted as true and all reasonable inferences drawn in favor of the opposing party. (Tortorello v. Carlin, 260 AD2d 201, 206 [1st Dept. 2003]). On a motion to dismiss, the court must " accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal

theory' ". (Braddock v. Braddock, 2009 WL 23307 [N.Y.A.D. 1st Dept. 2009]), (citing Leon v. Martinez, 84 NY2d 83, 87 — 88 [1994]). But this rule will not be applied where the opposition is evasive or indirect. The opposing party is obligated to come forward and bare his proof, by affidavit of an individual with personal knowledge, or with an attorney's affirmation to which appended material in admissible form, and the failure to do so may lead the Court to believe that there is no triable issue of fact. (Zuckerman v. City of New York, 49 NY2d 557, 562 [1980]).

Piercing the Corporate Veil

The law permits the creation of corporations for the conduct of business so as to shield its proprietors from personal liability. But this privilege is not without its limits, and the courts will disregard the corporate form, or "pierce the corporate veil", whenever necessary "to prevent fraud or achieve equity". (Waldovszky v. Carlton, 18 NY2d 414, 417 [1966]). The Court there [*4]determined that while the complaint alleged that there were ten separate corporations, each of which had as its sole asset two taxi cabs, with the statutory minimum liability insurance, and from which funds were regularly and systematically removed by the Defendant and his associates, and, further, that the corporations were operated without formality, and solely to suit their immediate convenience, was insufficient to warrant the imposition of personal liability on the individual stockholders. Id. at 421.

There is a corollary of the traditional "veil-piercing" process, which holds the corporate shareholders, or other corporations, responsible for corporate obligations. That is a claim that all defendants, individuals and corporations, should be treated as a single personality by reason of domination and control by the individual over the corporations to transfer assets from the debtor corporations to other corporations so as to inhibit or prevent the honoring of the obligation. (Solow v. Domestic Stone Erectors, Inc., 269 AD2d 199 [1st Dept. 2000]).

THE MOVANT'S POSITION

New York Courts will pierce the corporate veil "whenever necessary to prevent fraud or achieve equity". (Walkovszky v. Carlton, 18 NY2d 414 [1966]). Whether or not the court will elect to pierce the corporate veil is fact-dependent, and there is no hard and fast rule. (Morris v. N.Y.State Dep't. of Taxation and Fin., 82 NY2d 135 [1993]). As a general rule, the movant must show that " (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff's injury."Id. at 141.

The Plaintiffs contend in this motion for partial summary judgment that there are certain hallmarks which evidence complete domination of a corporation by the owners. These factors are outlined in William Passalacqua Builders v. Resnick, 933 F.2d 131, 139 (2d Cir.1991) as follows:

(1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes, (4) overlap in ownership, officers, directors, and personnel, (5) common office space, address and telephone numbers of corporate entities, (6) the amount of business discretion displayed by the allegedly dominated corporation, (7) whether the related corporations deal with the dominated corporation at arms length, (8) whether the corporations are treated as independent profit centers, (9) the payment or guarantee of debts of the dominated corporation by other corporations in the group, and (10) whether the corporation in question had property that was used by other of the corporations as if it were its own.

They then proceed in pp. 14 — 39 of the Memorandum of Law to describe in what respects they contend that seven of the factors have been met in this case. The contentions can be summarized as follows:

1. Overlapping ownership and management.

According to the Lapatine Affirmation at ¶ 7, [FN1] the Donovan Trust is the sole owner of First Secured, and the Donovan children are the only beneficiaries. Thomas Donovan is First [*5]Secured's only officer and director, and he is the sole shareholder and officer of FSL Corp, SL Corp, Secured partners, Secured Property, First Paper Corp. and REO. Id. at ¶ 8. It is further alleged that Mr. Donovan made all decisions as to when First Secured or the Donovan Defendants would acquire a mortgage, Id. at ¶ 10; and any payments made from an entity or an attorney's account were made at the direction of Mr. Donovan. Mrs. Donovan had check-writing authority for First Secured, and, in fact, abused that authority. Id. at 43 — 49.

In response, at pp. 28 — 30, the Defendants contend that the fact that interrelated corporations or entities share the same owners, officers, or directors is not evidence of wrongdoing, and is not sufficient to warrant the veil-piercing imposition of liability. They also contend that reference to "the Donovans" or "the Donovan Defendants" is too vague to impose liability on non-Judgment-Debtors in the absence of specific instances of action of the type described by a particular party. Additionally, the Affidavit of Thomas Donovan alleges that his testimony has been misrepresented, and that Mrs. Donovan has no ownership of any of the corporations or entities. In essence, they contend that the fact that Mr. Donovan may have controlled the actions of First Secured, as its president, and of each of the non-Judgment-Debtor Defendants as their sole shareholder, is not dispositive as to the issue of veil-piercing.

2. & 3. Shared Offices, Staff and Employees.

The Plaintiffs contend that all of the Defendants, to the extent they operated, did so either

from the Donovan's single-family residence at 8 Goosehill Road, Cold Spring Harbor, or an office at 143 Main Street, Cold Spring Harbor. The Defendants counter that it may well be true that the entities utilized the same offices, employees and support staff, but that is a common event in small closely held entities, and does not warrant the piercing of the corporate veil.

4. Failure to Observe Basic Corporate Formalities.

Where a corporation fails to adhere to the customary formalities of corporate existence,

such as directors' and shareholders' meetings, maintenance of corporate minutes, segregated financial and economic records, and the preparation and execution of contracts referable to the business of the corporation, the corporate form should, in the Plaintiff's opinion, be disregarded. They cite Shanghai Join Buy Co., 2006 WL 2322648 (S.D.N.Y.2006), and JSC Foreign Economic Assoc.Technostroyexpoert v. Int's Dev. and Trade Svces, Inc., 386F.Supp.2d 461(S.D.NY 2005) for their proposition. In the former the owner of the corporations made numerous and undocumented intercorporate transfers. The Defendant, who was self-represented, failed to counter the factual averments, and the Court granted summary judgment based on the incomplete corporate records fraught with inconsistences and the absence of any minutes of corporate meetings.

The Defendants retort that New York courts have frequently held that small closely-held corporations often find it impractical to comport with the typical corporate formalities, and the failure to do so does not warrant a bypassing of the corporate entity. Shareholders of a closely held corporation may waive meeting requirements and authorize a corporate act without a meeting. (Leslie, Semple & Garrison, Inc. v. Gavit & Co., Inc., 81 AD2d 950, 951 [3d Dept. 1981]). It should be noted that the Leslie case involved a single transaction for the sale of company assets, which determination had been made informally as opposed to at a meeting of the Board of the two-person corporation.

The Defendants also claim that Mr. Donovan has testified that with respect to two of the [*6]non-Debtor Entities, FSLC and Secured Partners, there were "informal" board meetings with counsel, attorneys and staff regarding the operations, but that no minutes were maintained. They also contend, as to Mrs. Donovan, that she was no more than an employee of the non-Judgment Debtors, exercised no control over them, and cannot be held personally responsible for their actions. With respect to record-keeping, the Defendants controvert the statements of Mr. Lapatine, and challenge them as inaccurate distortions of the actual deposition testimony. But they do not come forward with what one would consider usual and customary discrete records kept by the various entities.

The Plaintiff takes the position that the maintenance of separate "property files" for each acquired property, into which was placed all documents related to that property, irrespective of the individual ownership by one or another entity, and that there were no separate financial records to track the income and expenses of the individual entities. Thus, they contend, the Defendants did not merely keep inadequate records, they kept none at all.

5. The Donovans took money from the Donovan Defendants for Personal Expenses.

The taking of corporate funds for personal use is one of the earmarks of a dominated

entity. JSC Foreign Economic at 473 — 474. The Plaintiffs allege that the Donovans took hundreds of thousands of dollars from First Secured during a five-year period beginning in 1998. Checks signed by one of the Donovans or Chalvoutis show approximately $415,000 paid to Pamela Donovan personally and more than $100,000 to Pamela Donovan Interiors, of which she was the sole owner. Mrs. Donovan also received in excess of $106,000 from Secured Partners and $17,500 from FSL Corp., and a trust she created received more than $89,000, in total, from Secured Partners, Secured Property, SL Corp., and the Donovan Trust. Her corporation received more than $200,000 in total from FSL Corp., Nizza & O'Brien, Secured Partners and the Donovan Trust.

While one may say that these funds were deserved, it is hard to substantiate in light of the apparent lack of documentation of work performed on behalf of any of the payors for such significate remuneration. The Memorandum at pp. 25 — 27 recites a further litany of personal expenditures and disbursements of corporate funds including, for example, a $600,000 transfer directly from First Secured to REO, without any evidence of a legitimate justification. The Defendants response to the latter, at p. 41 of their Memorandum, that the legal name of the organization is REO Corp. of New York as opposed to REO Corp. is hardly reassuring. The alleged agreement between REO and First Secured for REO to pay First's expenses does not seem reasonable, since there does not appear to be any independent source of income to REO other than payments from First Secured.

6. The Donovan Defendants were not independent profit centers. They did not function independently, nor deal with others at arm's length. They paid one another's debts and used each other's property as if it were there own.

At pages 27 — 36 the Plaintiff's Memorandum they refer to Shanghai Join Buy Co. v.

PSTEX Group, Inc., 2006 WL 2322648, in which the owner of three corporations created so many inter-company transactions so as to make it "difficult to establish the extent to which each corporation was capitalized", and In the Matter of Coppolla 1994 WL 159525, wherein the principal of the corporations used them only to perform jobs in which other affiliated corporations are involved.. The Court determined that they were in fact acting in concert for a [*7]single purpose, but, because they maintained adequate and independent corporate records such as to leave open the possibility that a jury may determine, as a factual matter, that the corporate veil should not be pierced, denied the motion for summary judgment on the issue of alter ego.

In this case, the record as outlined by the Plaintiffs is replete with incidents in which transfers of capital were made among the entities, with no ostensible business purpose for the transaction. The individual Defendants have received substantial remuneration from the various entities with scant, if any, documented justification.

Particularly significant is the fact that First Secured, Secured Partners, SL Corp., First Paper Corp. and FSL Lien Corp. are all in the same business, that is, the acquisition of mortgages on distressed properties, their foreclosure, and the subsequent sale of the properties. The only source of capital appears to funnel through First Secured, and there is little or no reason for the services which the others are alleged to have provided to one another. Simply stated, they exist solely as depositories for funds to be safe from attachment by a Judgment Creditor.While each of the transactions represented to be among the 10 Coppolla/Passalacqua hallmarks are set forth at length in the Lapatine Affirmation at ¶¶ 39 — 130, a number are highlighted at p. 32 of the Memorandum of Law. In abbreviated form, they are as follows:

•in four months commencing in October 2002, Mr. Donovan received almost $100,000 in gold coins, but he could neither recall nor document the consideration for that payment;

•Pamela Donovan and Pamela Donovan Interiors received more than $500,000 from First Secured after the cessation of loan acquisitions;

•Neither of the Donovans could explain why First Secured paid $146,900 to the Donovan Trust, years after the commencement of litigation;

•REO received almost $650,000 from First Secured, or traceable to it, after the dispute with Riverside and Winchester arose, for which there is no documentation or substantiation of consideration for the payment;

•First Secured paid Secured Property $266,000 between April 2000 and February 2002 for which there is no documentary substantiation, but rather speculation about a joint venture agreement, which has not been produced;

•Secured Partners received more than $500,000 from First Secured during the same period, for which there was no substantiation, but rather only speculation about reimbursement for First Secured losses when Winchester refused to finance additional acquisitions.

The Lapatine Affirmation describes all of the transactions at ¶¶ 79 — 130, but highlights a number at pp. 33 — 35 of the Memorandum. The common thread throughout these eight transactions is that for no apparent reason, First Secured assigned the distressed mortgage to Secured Property or, in one instance, conveyed title to the property after foreclosure to Secured Partners. There is no evidence of consideration for these conveyances, yet the transferees were the beneficiaries upon completion of the transactions.

DISCUSSION

The Plaintiff is seeking summary judgment to impose liability on each of the named Defendants because they have been so dominated by Thomas B. Donovan and Pamela Donovan that, as a matter of law, they should be treated as a single personality. The term "piercing of the [*8]corporate veil" is shorthand for what appears to be the essence of the complaint, that the various entities have been, and continue to be, so manipulated by the Donovans for the primary purpose of eluding the grasp of the Judgment Creditor against the Judgment Debtors. As a result of the decision of the Appellate Division, the Judgment Debtors are First Secured Capital, and The Donovan Family Trust, but the liability of the latter is limited to $400,000. Riverside Capital Advisors, Inc. v. First Secured Capital Corp., 28 AD3d 452 [2d Dept. 2006]).

This matter does not come to the Court's attention devoid of history. The big picture, as it were, is that Factored Receivables Trust, an off-shore Bermuda entity, loaned $7.6 million to First Secured Capital for the purpose of the latter's acquiring distressed mortgages. Winchester Global Trust Company is the trustee of Factored. Despite the acquisition of 45 mortgages, the foreclosure and resale of properties, none of the borrowed money has been refunded. After a 22-day trial, judgment was awarded to Riverside Capital Advisers and Winchester Global Trust Company Limited in the amount of $21,471,650.29 against First Secured Capital and the Donovan Family Trust. Exh. "1" to Motion Sequence # 11 for Partial Summary Judgment.

Winchester now seeks to obtain summary judgment on the two causes of action seeking to treat all of the Defendants as a single personality, and on another cause of action in which it seeks counsel fees. Needless to say, the Defendants oppose the motion.

Their first contention is that both Riverside and Winchester are Judgment Creditors according to the judgment, but it has never been determined which of them is entitled to enforce the judgment. They then claim that, by seeking to hold the Donovans and the non-Judgment Debtors responsible, they are by-passing their obligations of proof on the other thirteen causes of action, and seeking to re-litigate the issue of liability in the original 1999 action.

The Defendants then cross-move for summary judgment dismissing the complaint in its entirety for the following reasons:

•since neither this nor any other court has determined the rights of Riverside vis-a-vis Winchester, Winchester lacks standing to assert claims as a judgment creditor;

•the Tenth and Eleventh causes of action, those seeking to impose responsibility on non-judgment-creditor entities are not independent causes of action under New York law;

•there is no historical basis for the application of the "veil-piercing" doctrine against trusts, as opposed to corporations;

•the Plaintiffs are barred by res judicata, merger, or collateral estoppel from asserting claims of further liability against the Trust, or the Donovans, for the First Secured Judgment. The April 2006 Modification Order, which limits liability of the Trust to $400,000, is binding upon Winchester in this action. This limitation would also apply to the Donovans as trustees pursuant to the Modification Order;

•the Tenth cause of action should also be dismissed because of the terms of the Loan Agreement and the Limited Guaranty Agreement bar veil-piercing liability against the Trust or the Donovans.

Dealing first with the foregoing objections, it must be noted that the present action is to set aside allegedly fraudulent conveyances and to treat the named Defendants in this action as a single personality, as was done in Solow v. Domestic Stone Erectors, Inc., 269 AD2d 199 (1st Dept. 2000). That action was brought against Domestic, an individual, and two additional [*9]corporations, on the theory that the individual so dominated all of the corporations, and wound down the business of the judgment debtor solely to frustrate collection of a judgment. The Court determined that there was a fact question as to whether the winding down was for a legitimate business reason, or simply as a ruse to fraudulently prevent the plaintiffs from satisfying their judgment. If the latter were proven, then the Court would impose liability against all the Defendants as a single personality. That scenario is similar to the pending matter.

Winchester is a judgment creditor, and has standing to proceed with this action. Riverside's Severance Agreement with Winchester terminated its authority to pursue remedies in the 1999 action directly. Their claims were subsequently dismissed by Order of this Court. Exhs. "C" and "D" to Reply Affirmation of Kenneth A. Lapatine, Esq. The current action is one to set aside fraudulent conveyances and to enforce a judgment. It does not constitute an attempt to re-litigate issues involved in the 1999 action. Significantly, neither the Donovans, nor the non-judgment-debtor Defendants were named in that action. Only the Donovan Family Trust is named in both actions, and it is a judgment debtor. The Plaintiff is not barred by res judicata or collateral estoppel from seeking to impose liability against parties who were not participants in the action leading to the judgment.

It is to be noted that the Appellate Division concluded that the trial court erred in granting an award against the Donovan Family Trust in excess of $400,000, and in issuing an injunction on the basis that loan proceeds were misappropriated. (Riverside Capital Advisors, Inc. v. First Secured Capital Corp., et al., 28 AD3d 452 [2d Dept. 2006]). This was so because the complaint did not allege misappropriation, but only a single cause of action against the Trust for $400,000. Does transactional res judicata therefore bar the present claim against the Trust for misappropriation, and, if not, is the claim limited to $400,000? The Court finds it does not.

The Plaintiff now alleges fraudulent conveyances and seeks to bundle all of the Defendants into a single personality. The Loan Agreement makes specific provision for the obligation of the Trust to indemnify the lender to the full extent of the loan in the event of misappropriation.

The Defendants' position that no Court has applied the "piercing the corporate veil" doctrine against other than corporations may well be correct. But where the nexus of the complaint is what has earlier been described as a corollary to the doctrine, that is, unity of personality resulting from the domination of the various entities by one or more of the other Defendants, it would not seem to matter that the entity sought to be subjected to the judgment is a trust, as opposed to a corporation.

The Defendants are correct that there is contained in the 1997 Loan Modification Agreement a $400,000 limitation of liability against the Donovan Family Trust. Exh. "19" to Motion. But subdivision 2 (b) of that document provides for an unlimited guaranty " . . . in the event of the occurrence of fraud or misrepresentation on the part of the Guarantor, Borrower, or any of Borrower's officers, directors, employees or agents, with respect to the warranties, representations, and covenants contained in the Loan Document or in the event of the misappropriation of the Collateral Proceeds or the interests therein . . .".

There can be no doubt but that the Plaintiff in this action has been damaged as a consequence of the Defendants' machinations designed to assure that First Secured is under-[*10]capitalized and unable to pay the judgment against it. The Court is constrained to conclude that the multiple inter-entity transactions, with no apparent legitimate business purpose, the failure to maintain discrete records for each entity, the lack of a separate business purpose for the various entities, the ultimate use by the individual Defendants of funds generated by First Secured for their own purposes, the co-location of the entities and the use by them of the same employees, independent contractors and accountant, are adequate to justify a finding that each of the named Defendants were under the domination and control of Thomas Donovan and Pamela Donovan, and that all of the Defendants should be treated as a single personality, with each jointly and severally responsible for the judgment previously entered against First Secured Capital and The Donovan Family Trust. To do otherwise would be the height of inequity and quite assuredly would insulate the Plaintiffs from their rightful entitlement for all time.

The Plaintiff has sustained its burden on a motion for summary judgment. The cumulative effect of all of the facts with respect to the operation of the various entities forces the conclusion that they First Secured is completely and directly controlled primarily by Thomas Donovan, the Donovan Family Trust, and, to a less visible, but obvious extent, Pamela Donovan. While she is not listed as an officer or director of First Secured, she had check-writing authority for the corporation, and either directly, or through Pamela Donovan Interiors, received hundreds of thousands of dollars, sometimes years after the time frame within which the Plaintiff was lending money, and mortgages were being acquired. Substantial payments to other entities were undocumented, without consideration, and for no discernible business purpose. As pointed out by counsel for the Plaintiff, the business records were segregated by property, not by specific entity. It seemed to matter not which of the organizations acquired mortgages, either by purchase or assignment, or into which coffer proceeds of sales flowed. Ultimately, all roads led to the Donovans.

While the Defendants can, and do, contradict some of the factual allegations, they do not raise a material issues of fact as to whether or not First Secured is simply in orbit around, and subject to the gravitational pull of the Donovans, and that the other entities are no more than satellites in First Secured's orbit. They were all dedicated to the singular goal of acquiring, and reselling properties. The proceeds of this singular enterprise was seemingly arbitrarily doled out among them, with the obvious goal of avoiding repayment of the borrowed funds which made it all possible.

The Loan Agreement specifically provides in § 16 (a) that the Lender is entitled to recover legal fees in connection with any action brought to perfect, protect, or enforce its rights against the Borrower or in any Security Property or under the Note or other Loan documents. This is clearly an action to enforce the Plaintiffs rights against the Borrower on account of a judgment previously entered and thus far rendered uncollectible by the actions of the Defendants. The matter is hereby assigned to Court Attorney/Referee Thomas Dana to hear and report on the amount of legal fees incurred by the Plaintiff in the prosecution of this action to date.

As previously noted, the Defendants' contention as to the Plaintiff's lack of standing, which has been raised on prior occasions, is without merit. The rights of Riverside belong to Winchester by virtue of the Severance Agreement, which required arbitration, including the claim that Riverside had been fraudulently induced to release its claims against First Secured. There has been no such arbitration. By Order of this Court dated May 15, 2003 all of Riverside's [*11]claims were dismissed.

Also without merit is the Defendants' claim that because "veil-piercing" is not a separate cause of action, summary judgment cannot be awarded. It is true that the Court of Appeals has stated that the piercing of a corporate veil is not a cause of action independent of that against the corporation; "rather it is an assertion of facts and circumstances which will persuade the court to impose the corporate obligation on its owners". (Matter of Morris v. New York State Dept. Of Taxation and Fin. 82 NY2d 135, 141 [1993]). But this does not mean that the Court is precluded from determining the facts and circumstances with respect to whether all Defendants should be treated as a single personality by reason of domination and control over the all of then by one or another of the other Defendants, and the use of those entities to render the Judgment Debtors incapable of honoring their obligations under an existing judgment. (Solow v. Domestic Stone Erectors, Inc., 269 AD2d 199 [1st Dept. 2000]).

Neither should it matter that one of the entities is a trust, as opposed to a corporation. As in Solow, the action does not involve traditional veil-piercing. Rather, it aims at holding all Defendants responsible as a single personality. Just as if the Defendants has used a limited liability company, or partnership, to insulate assets from a Judgment Creditor, the fact that one or more of the Defendants is a trust is inconsequential.

CONCLUSIONS

The Plaintiff's motion for partial summary judgment on the Tenth, Eleventh and

Fourteenth Causes of Action is granted.

The Plaintiff's motion for the award of counsel fees is granted, and the parties are directed to communicate with Court Attorney/Referee Thomas Dana, for the scheduling of a hearing on this issue to be held no later than April 30, 2009.

The Defendants' cross-motion to dismiss the complaint is denied.

This constitutes the Decision and Order of the Court.

Dated:February 4, 2009

J.S.C.

Footnotes

Footnote 1: References to transcripts or other documents are in the Affirmation.