Combina Inc. v Iconic Wireless Inc.

[*1] Combina Inc. v Iconic Wireless Inc. 2011 NY Slip Op 51511(U) Decided on August 11, 2011 Supreme Court, Kings County Demarest, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 11, 2011
Supreme Court, Kings County

Combina Inc., Plaintiff,

against

Iconic Wireless Inc., ICONIX INC., and Y and Y TRADING INC., JOSEPH KAHAN a/k/a YOSSI KAHAN, JACOB KOHN, Defendant,



4222/2011

 

Attorney for Plaintiff:

Jeffrey Fleischmann, Esq.

32 Broadway, Suite 1710

New York, NY 10004

Attorney for Defendants:

Meyer Silber, Esq.

Silber Law Firm

233 Broadway, Suite 900

New York, NY 10007

Carolyn E. Demarest, J.

In an action to recover damages for defendants' allegedly fraudulent sale of Bluetooth headsets and accessories, defendants Iconix Inc. ("Iconix") and Jacob Kohn ("Kohn") cross-move to dismiss the complaint pursuant to CPLR 3211 (a) (7) and (8).

BACKGROUND

According to plaintiffs, in December of 2010, defendant Joseph Kahan ("Kahan")[FN1], owner of both Iconic Wireless Inc. ("Iconic Wireless"), a wireless mobile phone accessories retailer, and Y and Y Trading Inc. ("Y & Y"), a marketing manager for Iconic Wireless,

approached plaintiff Combina, Inc. ("Combina") to sell $125,000.00 worth of Bluetooth headsets and accessories under standard industry terms and conditions ("the Transaction").

The complaint alleges that as part of the Transaction, Combina paid Iconic Wireless an initial deposit, with the balance to be paid upon delivery of the merchandise. The shipment was [*2]delivered on January 11, 2011, and upon receipt, the plaintiff paid the remaining balance and, after surveying the merchandise it received, concluded that it was "junk." The complaint alleges that it immediately attempted to reject it, but Iconic Wireless refused plaintiff's requests to issue a refund or provide conforming goods. The complaint further alleges that Iconic Wireless then transferred the balance it had received from Combina to Iconix, a semi-conductor manufacturing corporation, of which defendant Kohn is the dominant shareholder.

Plaintiff commenced this action by summons and complaint on February 22, 2011 and concurrently brought a motion, by order to show cause, for a preliminary injunction, enjoining defendants from transferring any funds allegedly owed to plaintiffs. The complaint alleges twelve causes of action, which include, inter alia, breach of contract, fraud, conversion, unjust enrichment, and tortious interference claims.

On March 16, 2011, defendants Kohn and Iconix cross-moved, filing the instant motion to dismiss. On April 5, 2011, defendants Iconic Wireless, Y & Y, and Kahan (the "Kahan Defendants") filed their Verified Answer, asserting a counterclaim which contained allegations, unrelated to plaintiff's claims, that in December 2010, Combina provided defective goods under a separate agreement whereby Combina was to provide $40,000 worth of cellular goods to Iconic Wireless. At oral argument on April 6, 2011, this court denied plaintiff's motion for a preliminary injunction and reserved decision on defendants' cross-motion, which is addressed herein.

DISCUSSION

CPLR 3211 (a) (8)

Defendants Kohn and Iconix move to dismiss for lack of personal jurisdiction, pursuant to CPLR 3211 (a) (8), claiming they were not personally served. In opposing a motion to dismiss based on improper service, the plaintiff bears the burden of proof to demonstrate prima facie personal jurisdiction and must submit proof of service (see Fosella Bldrs. & Gen. Contrs. v Silver, 208 AD2d 525, 526 [2d Dept 1994]; CPLR 3211 (e)).

As an individual, Kohn should have been served pursuant to CPLR 308.[FN2] Plaintiff has not produced a single affidavit stating that "Jacob Kohn" was ever served pursuant to CPLR 308 and has, therefore, failed to meet its burden to prove that Kohn was properly served. Instead, plaintiff has submitted one affidavit of service stating that service of the summons and complaint to "Jacob Kahan" was delivered to "Jeremy" who stated that "he was authorized to accept service of legal papers on behalf of Jacob Kahan" at the business address shared by Iconix and Iconic Wireless. Although it is unclear whether "Jacob Kahan" refers to Kahan or Kohn, the affidavit is nonetheless inadequate as there is no indication that the mailing required by CPLR 308 (2) took place. Plaintiff is entitled to 120 days from the date of filing to serve the summons and complaint (see CPLR 306-b). As this motion was made prior to the expiration of that time period, defendants' motion to dismiss as to Kohn pursuant to CPLR 3211 (a) (8) is granted (see CPLR 306-b; see Leader v Maroney, 97 NY2d 95, 100-101 [2001]; see also Pandolfi v Langer, 2011 NY Slip Op 51270U at *6 [Sup Ct., Nassau County 2011] ("Even if service was improper, the [*3]Court may utilize a C.P.L.R. 306-b extension to cure such defective service")).

As a corporation, Iconix must be served pursuant to CPLR 311 (a) (1), which states, in part, that personal service upon a domestic corporation can be made by "service of process on the Secretary of State" pursuant to BCL §306. As plaintiff has submitted an affidavit stating that Iconix was served on April 4, 2011 by serving the Secretary of State pursuant to BCL §306, defendants' motion to dismiss Iconix pursuant to CPLR 3211 (a) (8) is denied.[FN3]

CPLR 3211 (a) (7)

Defendants Iconix and Kohn have also moved to dismiss the complaint as to themselves under CPLR 3211 (a) (7) for failure to state a cause of action. When determining a CPLR 3211 (a) (7) motion, the pleadings must be afforded a liberal construction, and the court must determine only whether the plaintiff has any cause for relief under any cognizable legal theory (see Uzzle v Nunzie Court Homeowners Assn. Inc., 55 AD3d 723, 724 [2d Dept 2008]). Therefore, a pleading will not be dismissed for insufficiency merely because it is poorly articulated. Rather, such pleading is deemed to allege whatever can be implied from its statements by fair and reasonable interpretation (see Cayuga Partners, LLC v 150 Grand, LLC, 305 AD2d 527, 527-528 [2d Dept 2003]). However, any allegation that states purely legal opinions or conclusions, rather than facts, will not be afforded any weight (see Asgahar v Tringali Realty, Inc., 18 AD3d 408, 409 [2d Dept 2005]).

Defendants' initial motion moves to dismiss only Iconix and Kohn from the action and does not address any specific causes of action or any other defendants in the action. However, plaintiff's opposition papers mention specific causes of action as to all of the defendants, and defendants' reply memorandum identifies specific causes of action which defendants claim should be dismissed as to all. Because defendants' new arguments are improper (see 22 NYCRR 202.70 (g) Rule 17), this court need only address whether plaintiff has stated a cause of action with respect to Kohn and Iconix. However, to the extent that defendants have demonstrated that plaintiff has patently failed to adequately plead a cause of action, such claim will be dismissed pursuant to CPLR 3211 (a) (7) for all purposes.

Defendants argue that plaintiff's first cause of action, for fraud, should be dismissed as to all defendants because the complaint fails to allege any fraud independent of plaintiff's breach of contract claims. "A cause of action to recover damages for fraud may not be maintained when the only fraud alleged relates to a breach of contract" (Lee v Matarrese, 17 AD3d 539 [2d Dept 2005]. The fraud claim alleges that defendants perpetrated a fraud by "inducing Plaintiff into giving them $125,000 by falsely promising to deliver a shipment of valid, conforming goods, [*4]pursuant to industry standards" (Complaint ¶28) and "by falsely claiming they would get Plaintiffs [sic] money back or replace the goods after plaintiff rejected the goods, and by falsely claiming that they were separate companies, when in fact, it was all a scheme to steal and dissipate plaintiffs [sic] funds while shielding themselves from liability" (Complaint ¶31). Because plaintiff's fraud claim relates exclusively to the parties' contractual relationship and defendants' alleged intent to breach the contract, plaintiff's first cause of action is dismissed.

Plaintiff's second cause of action to pierce the corporate veil as to Kohn and Iconix is dismissed as an attempt to pierce the corporate veil does not constitute an independent cause of action (see Morris v New York State Department of Taxation and Finance et. al., 82 NY2d 135, 141 [1993]).

Plaintiff has adequately pleaded its third cause of action for breach of contract, which requires plaintiff to allege (1) the existence of a contract, (2) plaintiff's performance under the contract, (3) defendant's breach and (4) plaintiff's resulting damages (see JP Morgan Chase v J.H. Elec. of New York, Inc., 69 AD3d 802 [2d Dep 2010]). Here, plaintiff has adequately alleged that a contract existed between Combina and Iconic Wireless, Combina paid Iconic Wireless for the goods delivered, but Iconic Wireless breached the agreement by providing defective goods, thus damaging Combina. Defendants' motion to dismiss the second cause of action is denied as to the Kahan Defendants as defendants do not dispute their inclusion in this cause of action. Iconix and Kohn, however, will only be included in the agreement under a piercing the corporate veil theory, which will be addressed below.

Plaintiff's fourth cause of action for conversion is dismissed as to all the defendants. To establish a cause of action in conversion, plaintiff must demonstrate " legal ownership or an immediate superior right of possession to a specific identifiable thing and must show that the defendant exercised an unauthorized dominion over the thing in question . . . to the exclusion of the plaintiff's rights . . . Tangible personal property or specific money must be involved'" (Fiorenti v Central Emergency Physicians, 305 AD2d 453, 454-455 [2d Dept 2003] quoting Independence Discount Corp. v Bressner, 47 AD2d 756, 757 [2d Dept 1975]). "A conversion claim cannot be based only on the allegation that a defendant received money and failed to remit payment to the plaintiff" (Interstate Adjusters v First Fid. Bank, N.J., 251 AD2d 232, 234 [1st Dept 1998][internal citations omitted]). Here, plaintiff has failed to allege independent facts in support of its conversion claim and has merely re-stated its breach of contract claim.

Plaintiff's fifth cause of action for unjust enrichment must be dismissed as to all defendants where, as here, a valid and enforceable written contract is alleged to have controlled the transaction (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388 [1987] ("The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter")).

Plaintiff's sixth cause of action, which seeks to recover under the theory that defendants breached the covenant of good faith and fair dealing, is dismissed as to all defendants as it is subsumed by and duplicative of plaintiff's breach of contract claims (Deer Park Enters., LLC v Ail Sys., Inc., 57 AD3d 711, 712 [2d Dept 2008]).

Plaintiff's seventh cause of action alleges that plaintiff and defendants entered into "a confidential relationship by virtue of plaintiffs [sic] purchase of goods" (Complaint ¶70). [*5]Plaintiff claims that because defendants breached their promise to deliver conforming goods or repay plaintiff, plaintiff is entitled to a constructive trust in defendants' assets. "To state a cause of action for the imposition of a constructive trust, the plaintiffs must plead and prove four essential elements: (1) a confidential or fiduciary relationship, (2) a promise, (3) a transfer in reliance thereon, and (4) unjust enrichment"(Doxey v Glen Cove Community Dev. Agency, 28 AD3d 511, 512 [2d Dept 2006]). Here, plaintiff has failed to allege any facts suggesting that a confidential or fiduciary relationship existed between plaintiff and defendants. Rather, it appears that an arms-length relationship existed between plaintiff and defendants here, as their relationship was based upon a contractual agreement to deliver goods (Cuomo v Mahopac Nat. Bank, 5 AD3d 621, 622 [2d Dept 2004]). Accordingly, plaintiff's seventh cause of action is dismissed as to all defendants.

Plaintiff's eighth, ninth, tenth, and eleventh causes of action,[FN4] relate to Debtor and Creditor Law § 274, § 275, § 276, and § 276-a respectively. The eighth cause of action claims that Iconic and Y & Y made transfers to Iconix prior to the Transaction without consideration, which left them with insufficient capital reserves in violation of § 274. Debtor and Creditor Law § 274 states that "[e]very conveyance made without fair consideration when the person making it is engaged or is about to engage in a business or transaction for which the property remaining in his hands after the conveyance is an unreasonably small capital, is fraudulent as to creditors and as to other persons who become creditors during the continuance of such business or transaction without regard to his actual intent." In order for plaintiff to plead a claim of fraudulent conveyance, it must allege that the conveyance was made without fair consideration and would render Iconic Wireless insolvent, or that the property remaining after the conveyance is unreasonably small and insufficient to pay Iconic Wireless's existing debts as they mature (Fromer v Yogel, 50 F Supp 2d 227 [SD NY 1990]). Here, plaintiff has adequately alleged that Iconix loaned Iconic Wireless money without consideration prior to the Transaction, and that Iconic Wireless knowingly provided defective products and transferred the $125,000.00 it received from Combina immediately to Iconix, leaving Iconic Wireless without any capital reserves. Plaintiff has adequately alleged its eighth cause of action.

Plaintiff's ninth cause of action alleges that Kohn and Iconix aided and abetted a fraudulent conveyance in violation of Debtor and Creditor Law § 275, which states "[e]very conveyance made and every obligation incurred without fair consideration when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors." Here, plaintiff has adequately alleged that Iconic Wireless transferred $125,000.00 to Iconix to avoid paying debts he may owe to Combina. Plaintiff further alleges that Kohn and Iconix knew of Iconic Wireless's scheme and aided and abetted it by accepting the transfer. Thus, plaintiff has adequately alleged its ninth cause of action.

Plaintiff's tenth cause of action alleges that Iconix and Kohn aided and abetted a fraudulent conveyance in violation of Debtor and Creditor Law § 276, which states that "[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors." Even mindful of the heightened pleading standard set forth in [*6]CPLR 3016 (b) for claims requiring fraudulent intent, plaintiff has adequately alleged that Iconic Wireless knowingly delivered defective products to Combina and then conveyed Combina's payment to Iconix with the intent of preventing Combina from re-claiming its payment.

Plaintiff's eleventh cause of action, erroneously labeled the fourteenth cause of action, seeks attorneys' fees pursuant to Debtor and Creditor Law § 276-a. As this court has found that plaintiff has adequately pleaded its tenth cause of action under Debtor and Creditor Law § 276, it is likewise entitled to assert its claim for attorneys' fees should this court find that a fraudulent conveyance was made under Debtor and Creditor Law § 276.

Plaintiff's twelfth cause of action, erroneously labeled the tenth cause of action, for tortious interference with a business relationship, is predicated upon plaintiff's claim that defendants knowingly interfered with plaintiff's customer business relationship by knowingly providing plaintiff with defective goods that plaintiff would then unknowingly sell to its customers. To adequately plead a cause of action for tortious interference with a business relationship, plaintiff must plead defendants "engaged in the use of wrongful or unlawful means to secure a competitive advantage over plaintiffs, or that defendants acted for the sole purpose of inflicting intentional harm on plaintiffs" (NBT Bancorp v Fleet/Norstar Fin. Group, 215 AD2d 990, 991 [1995]; see also Carvel v Noonan, 3 NY3d 182 [2004]). Plaintiff's cause of action merely restates its breach of contract claim, fails to identify any of plaintiff's current or prospective business relations that were damaged, and does not allege any facts suggesting that defendant used unlawful means or acted to inflict harm on the plaintiffs. Accordingly, plaintiff's twelfth cause of action for tortious interference with a business relationship is dismissed as to all defendants.

Plaintiff's remaining causes of action, for breach of contract and fraudulent conveyance, all include Iconix and Kohn, based solely upon a "piercing the corporate veil" theory. While plaintiff concedes that Iconix and Kohn were not direct parties to the Transaction, plaintiff claims that they should both be included in the action because Iconic Wireless is their alter ego.

Piercing the corporate veil requires (1) that one corporation exercised complete domination of another with respect to the transaction at issue,[FN5] and (2) that such domination was used to commit a fraud or wrong against plaintiff which resulted in plaintiff's injury (see Weinstein v Willow Lake Corp., 262 AD2d 634, 635 [1999], citing Hyland Meat Co. v Tsagarakis, 202 AD2d 552, 552-553 [2d Dept 1994]). The party seeking to pierce the corporate [*7]veil must further establish that the "controlling corporation [or person] abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against a party such that a court in equity will intervene" (Weinstein v Willow Lake Corp., 262 AD2d at 635).

Plaintiff claims that Iconix exercised complete domination over Iconic Wireless as evidenced by (1) the overlap in ownership, officers, directors, and personnel, (2) the usage of common office space and contact information, and (3) the inadequate capitalization and intermingling of capital, as evidenced by the transfer of funds from Iconic Wireless to Iconix (see Peery v United Capital Corp., 2011 NY Slip Op 4440, 4441-4442 [2d Dept 2011], citing Gateway I Group, Inc. v Park Ave. Physicians, P.C., 62 AD3d 141, 146 [2d Dept 2009], quoting Shisgal v Brown, 21 AD3d 845, 848-849 [1st Dept 2005]).

Plaintiff alleges that Kohn's signatory power over Iconic Wireless' bank account evidences Iconix's domination of Iconic Wireless and their overlapping personnel. Plaintiff further alleges that Iconic Wireless and Iconix share common space and contact information, as supported by an Iconic Wireless proforma invoice, dated January 6, 2011, and printout of the Iconix website homepage dated April 1, 2011. In response, defendants claim the address and phone numbers for Iconic Wireless and Iconix are different based upon an updated Iconic Wireless proforma invoice dated March 31, 2011. However, this invoice is not dispositive as it was created nearly ten weeks after the Transaction date took place and after this action was commenced. Plaintiff also alleges that Iconic Wireless was inadequately capitalized as evidenced by Kahan's threat to shut down Iconic Wireless in the event of an adverse judgment and by Iconic Wireless's immediate transfer to Iconix of the money it received from Combina in repayment of a loan of the funds needed to purchase the goods for the Transaction. Plaintiff further alleges that Iconix's domination of Iconic Wireless abused the corporate form and made it possible for Iconic Wireless to breach its contract with Combina, convert Combina's assets and commit the other alleged wrongdoings. Accordingly, plaintiff has alleged facts sufficient to warrant piercing the corporate veil to include Iconix in the action.

Plaintiff has sought to bring its action against Kohn personally by alleging Kohn is an alter ego for Iconic Wireless. Although Kohn has been dismissed without prejudice for lack of personal jurisdiction, there may be some basis for Kohn to remain in this action based upon a piercing of the corporate veil theory. Plaintiff has alleged, as evidenced by Kohn's signatory power over Iconic Wireless' bank account, that Iconic Wireless was an alter ego for Kohn. Although Kohn strongly disputes the allegation, plaintiff has also alleged that Kohn is a shareholder of Iconic Wireless. While such allegations alone would not support a finding of liability as to Kohn, whether to pierce the corporate veil requires a factual finding which can not be conclusively made at this stage in the litigation.

Plaintiff will not, however, be permitted to pierce the corporate veil through Iconix to Kohn, as it has failed to allege that Kohn exercised complete domination over Iconix or abused its corporate form (East Hampton Union Free School Dist. v Sandpebble Builders, Inc., 66 AD3d at 126). Moreover, Kohn has stated in his affidavit that Iconix is a large corporation with multiple shareholders other than Kohn. Accordingly, plaintiff has not sufficiently alleged facts to warrant the piercing of the corporate veil from Iconic Wireless through Iconix to Kohn.

CONCLUSION [*8]

Defendants' motion to dismiss pursuant to CPLR 3211 (a) (8) is granted as to Kohn without prejudice to effect proper service within forty-five days. Defendants' motion to dismiss pursuant to CPLR 3211 (a) (8) is denied as to the remaining defendants.

Plaintiff's motion to dismiss pursuant to CPLR 3211 (a) (7) is denied as to Iconix. Plaintiff's first cause of action for fraud, second cause of action for piercing the corporate veil, fourth cause of action for conversion, fifth cause of action for unjust enrichment, sixth cause of action for breach of the covenant of good faith and fair dealing, seventh cause of action for constructive trust, and twelfth cause of action for tortious interference with business relations are dismissed in their entirety.

This constitutes the decision and order of the court.

ENTER,

____________________________

Carolyn E. Demarest

J.S.C. Footnotes

Footnote 1:Joseph Kahan is also referred to as "Yossi Kahan" in plaintiff's motion papers.

Footnote 2: It is noted that defendants Kohn and Iconix have not waived their personal jurisdiction objections by appearing in this case. CPLR 320 [b] states that an appearance confers personal jurisdiction, unless defendant objects to jurisdiction pursuant to CPLR 3211 [a] [8], which they have done here.

Footnote 3: In supporting Kohn's and Iconix's cross-motion, the Kahan Defendants, who are also represented by counsel to Kohn and Iconix, claim that the complaint should also be dismissed against them pursuant to CPLR 3211 (a) (8) because they were not served properly. However, they have asserted an unrelated counterclaim in their April 5, 2011 Verified Answer. "A counterclaim related to plaintiff's claims will not waive the defense of lack of personal jurisdiction, but . . . an unrelated counterclaim does waive such defense because defendant is taking affirmative advantage of the court's jurisdiction" (Textile Technology Exchange, Inc. v Jack Davis, 81 NY2d 56, 58-59 [1993], citing Prezioso v Demchuk, 127 AD2d 576, 576 [1987]). Here, the allegations contained in the counterclaim pertain to an entirely separate and distinct contract under which Iconic Wireless was the purchaser and Combina was the seller. As such, the Kahan Defendants' counterclaim is unrelated to the plaintiff's claim, and they have waived the defense of lack of personal jurisdiction.

Footnote 4: The eleventh cause of action is erroneously labeled the fourteenth cause of action.

Footnote 5:The court's decision as to whether a theory of piercing the corporate veil is adequately pleaded depends upon the particular facts and circumstances of the case (see Hyland Meat Co. at 552-553). Certain factors, which, while not exhaustive, have been cited to illustrate domination of one corporation over another: "(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" (Peery v United Capital Corp., 2011 NY Slip Op 4440, 4441-4442 [2d Dept, 2011], citing Gateway I Group, Inc. v Park Ave. Physicians, P.C., 62 AD3d 141, 146 [2d Dept 2009], quoting Shisgal v Brown, 21 AD3d 845, 848-849 [1st Dept 2005]).