Stuart's LLC v Edelman
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Stuart's LLC v Edelman 2011 NY Slip Op 33533(U) December 27, 2011 Sup Ct, Nassau County Docket Number: 012560/2009 Judge: Ira B. Warshawsky Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. SCi [* 1] SHORT FORM ORDER SUPREME COURT: STATE OF NEW YORK COUNTY OF NASSAU HON. IRA B. W ARSHA WSKY, Justice. TRIALIIAS PART 7 STUART'S LLC ahd WAYNE GALVIN, Plaintiffs, - against - INDEX NO. : 012560/2009 MOTION DATE: 10/20/2011 SEQUENCE NO. : 001 STUART EDELMAN, LEVEL 8 APPAREL, LLC, WORLD CROSS CULTURE, INC. , WORLDWIDE SOURCING GROUP, LLC, KUK JA KIM a/a SAM KIM, PETER LEE EDELMAN, LISTER, MICHAEL HONG, nd MARYDefendants The following documents were read on this motion: Motion by Worldwide Sourcing Group and Peter Lister for Leave to Amend Answer 2. .............. ' Affirmation in Oppo$ition to Motion for Leave to Amend .............. 3. Plaintiffs Memorandum of Law in Opposition to Motion for Leave to Amend Lee Edelman in Opposition Affrmation on behalf of Stuar Edelman and Mar- Leave to Amend .............. 5. Reply Affrmation 1n Furher Support of Motion for PRELIMINARY STATEMENT Defendants Worldwide Sourcing Group and Peter Lister move to amend their Answer of the , including cross- claims. The stated purose and Counterclaims to assert additional matters claims against co- defendants Stuar amendment is to clarify certain counterclaims, and add crossLevel 8 Apparel, LLC. Movants seek to add a third Edelman, Kuk Ja Kim a/a Sam Kim and and fourh counterclaim for breach of contract on a promissory note and repayment of unsecured loans. [* 2] Plaintiffs and co- defendants Stuar Edelman, Mar- Lee Edelman, Sam Kim , Level 8 LLC, and World Cross Culture , Inc. oppose the motion. Edelman s claims are that he would be prejudiced by imposition of a cross- claim since the paries have had extensive strategy discussions with respect to the defense of the action. He furher claims that the Third Cross- claim is insuffcient as a matter of law, in that the material terms and conditions of the purorted $59 000 loan , are vague and lack definiteness. They also claim that the facts regarding the alleged loan were known by movants at the time of the initiation of the action some two years ago. There was apparently no written agreement, and defendants contend that the loan was for Stu' s LLC to make payroll , and Galvin and Edelman, as alleged guarantors , would have to have signed a written agreement under the Statute of Frauds. Plaintiffs contend that the motion to amend must be denied. The proposed Third Counterclaim is based upon a May 2008 note of Stuar' s LLC in favor of Worldwide Sourcing Group (" WSG" ) in the amount of $900 000. ( 138). It also claims that , pursuant to the note Lister and WSG loaned Stuar' s and Galvin up to $2 800, 000 , of which $1 200, 000 remains unpaid. Opponents contend that there is no basis for the imposition of liabilty upon Galvin since he was not a par to the note. They anticipate a claim that movants are entitled to pierce the corporate veil , but they have not alleged any independent tortious conduct , nor any conduct by Galvin which constituted an abuse of the privilege to proceed in a corporate form. Plaintiffs fuer assert that the movants have failed to establish the meritorious nature of their claims , and that the proposed third counterclaim is subject to dismissal for indefiniteness. Sam Kim, Level 8 , LLC and World Cross Culture, Inc. (" WCC" ) contend that the First Cross- claim against Kim and Level 8 is bared by the Statute of Frauds, in that every agreement which, by its terms, is not to be performed within one year , must be in writing. Further , they claim , even if not precluded by GOL 701 (a)(1), it is unenforceable for vagueness. The claimed agreement was for " profits participation [* 3] BACKGROUND Based upon analysis of the Complaint , (Exh. " A" to Complaint), the paries were engaged s LLC in the production, distrbution and sale of clothing, paricularly men s outerwear. Stuart' had two members , Wayne Galvin, the majority owner and manager , and Stuart Edelman. Until , NY. approximately March 2009 , Stuar' s operated at 247 W. 36 Street, New York Level 8, LLC is also in the business of production , sale and distribution of men s leather Plaintiff alleges that Level 8 was formed by one or more of the defendants, including Edelman, Peter Lister, and Sam Kim. World Cross Culture , Inc. WCC" ) is a and outerwear goods. , Suite 603, manufactuer of men s, women s and children s clothing, located at 213 W. 35 Street New York, NY. Prior to 2009 , WCC manufactured clothing for Stuar' s, which it sold to customers such as Aeropostale. Worldwide Sourcing Group, LLC (" WWS" ), of 120 Springy Ban Road , East Hampton for Stuar' s. Defendant Lister is a member ofWWS. NY was created to serve as a funding 29 promissory note on On December 29 2005 Galvin and Edelman signed a $265, 190. ar behalf of Stuar' s to Galvin. The note was for loans made by Galvin between May 4, 2004 and s LLC" December 29 2005. The note was " collateralized by any and all of the assets of Stuar' Stuar' s entered int a licensing agreement with Tumi, Inc. , a distributor of trademarked luggage. Pursuant to this agreement Stuar' s was authorized to develop, market and sell trademarked products of Tumi, in retur for which Stuar' s paid royalties. Stu' s obtaned financing though Hana Financial , Inc. ("Hana ) a factor. Edelman and Galvin personally guaranteed repayment and , the complaint alleges , the debt now exceeds $561 000. The complaint also alleges a " Differential Agreement" between Edelman and Galvin whereby the paries equalized their salaries and fringe benefits by way of creating a debt owed by the par receiving the greater amount to the other. Edelman allegedly owes Galvin $52, 729 pursuant to the agreement. On or about June 4 and June 6 , 2007, Stuar Edelman and Mary- Lee Edelman signed a The complaint also promissory note in favor of Galvin for loans allegedly made by him to them. references a non- disclosure agreement signed by one Michael Hong. The June 18, 2009 [* 4] complaint goes on to allege Nine Causes of Action as follows: Breach of contract against Edelman, in that , despite the operating agreement to the FIRST: contrar, he made various management decisions involving the assets of Stewar' including the Tumi licensing agreement and concerning the relationship with Aeropostale , without consulting Galvin. He also allegedly transferred assets to Level 8 Apparel , including the Tumi licensing agreement and acted contrar to the best interests of Stuart' SECOND: Plaintiff alleges breach of fiduciar duty by Edelman in that he had such a duty to Stua' s and Galvin, and breached it by transferring assets to Level 8 and World Cross Culture; Tortious interference with contractual relations by Level 8 , World Cross Culture THIRD: Worldwide Sourcing, Sam Kim and Peter Lister; FOURTH: Tortious interference with advantageous business relations by Stuar Edelman, Level 8, World Cross Culture, Worldwide Sourcing, Sam Kim and Peter Lister. FIFTH: Breach of Contract against Michael Hong; SIXTH: s without Declaratory judgment that Level 8 , the recipient of the assets of Stuar' adequate consideration , is a successor corporation of Stuar' s and is liable for Stuar' s debts and obligations. These include Stuar' s debt to Galvin under the 12/29/05 promissory note ($265, 190.29), Stuar' s debts to Hana (in excess of $561 000) as well as other obligations; SEVENTH: Against Stuar Edelman and Mar- Lee Edelman on the 6/4/07 promissory note in the amount of $9, 931. 56; EIGHTH: Breach of contract against Stuar Edelman on the Differential Agreement in the amount of $52, 729; NINTH: Against Stuar Edelman for Unjust Enrichment based upon the Differential Agreement. Defendants Lister and WWS answered the complaint by Answer dated July 24, 2009. It included a preamble to the counterclaims, alleging that plaintiff Galvin so dominated Stuar' s. The First as to constitute an alter ego and be personally responsible for the debts of Stuar' s so [* 5] Counterclaim alleges that Stuar' s contracted with WSG to purchase goods from them in the amount of$1, 500 000, for which payment has not been made. The Second Counterclaim alleges Fraud in the Inducement by Galvin. Defendants Lister and WSG now seek to amend the answer to include a third counterclaim against plaintiffs , and insert cross- claims against co- defendants Stuar Edelman, Sam Kim and Level 8. The Third Counterclaim alleges that Galvin is personally liable on the promissory note of Stuar' s in favor ofWSG. Plaintiffs contend that the absence of Galvin signature on the note , as a maker or a guarantor , precludes a claim of liability on his part , and the Counterclaim fails to state a claim upon which relief can be granted. With respect to the cross- claims , the co- defendants assert that they would be prejudiced since the movants and the co- defendants have discussed the defense of the action and their position will now be compromised. Movants seek to place Edelman in the same position as Galvin in the first and second cross- claim. The third cross-claim involves a claimed loan WSG to Galvin, Edelman and Stuar' s in the amount of $59, 000. These paries object to the proposed third cross- claim in that there is no new evidence upon which it is based, and the information was available to defendant movants at the time of the original answer. Co- defendants Kim and Level 8 make the same arguments with respect to the proposed amendments against them. DISCUSSION Amendment of Pleadings The amendment of pleadings is governed by Civil Practice Law and Rules ~ 3025 of the Civil Practice Law and Rules , which provides as follows: Rule 3025. Amended and supplemental pleadings (a) Amendments without leave. par may amend his pleading once without leave of court within twenty days after its service, or at any time before the period for responding to it expires, or within twenty days afer service of a pleading responding to it. (b) Amendments and supplemental pleadings by leave. A part may amend his pleading, or supplement it by setting forth [* 6] additional or subsequent transactions or occurrences , at any time by leave of court or by stipulation of all paries. Leave shall be freely given upon such terms as may be just including the granting of costs and continuances. The court may (c) Amendment to conform to the evidence. permit pleadings to be amended before or after judgment to conform them to the evidence , upon such terms as may be just including the granting of costs and continuances. Except where otherwise prescribed by law or order of the cour, there shall be an answer or reply to an amended or supplemental pleading if an answer or reply is required to the pleading being amended or supplemented. Service of such an answer or reply shall be made within twenty days after service of the amended or supplemental pleading to which it responds. (d) Responses to amended or supplemental pleadings. The language of the statute , and cases interpreting it, make it abundantly clear that amendment of pleadings is to be freely granted unless the proposed amendment is " palpably insuffcient" to state a cause of action or defense , or it is patently devoid of merit. To the extent that prior decisions led to the conclusion that the movant was under a burden to establish the merit of the amendment, they erroneously stated the standard to be followed. While this action was commenced in 2009 , it has not proceeded pursuant to a preliminar conference order. There can be no argument that the plaintiffs or the co- defendants have limited their discovery premised on the absence of the proposed amendments. There is no doubt but that it wil tae significant evidence to justify the piercing of the corporate veil so as to make Galvin individualy liable for the debts of Stuar' s. But it is not necessary for the Cour to consider the likelihood of success on the merits, only whether or not the proposed amendment states a claim. Nor is it determinative that at some later date , upon the completion of discovery, a cause of action, counterclaim, or cross- claim may be dismissed. At the early pleading stage, at which state this action remains , despite a 2009 filing date, the Court is compelled to grant substantial Lucido v. Mancuso, 49 A. 3d 220, 230 (2d Dept. 2008). [* 7] leeway to enable the paries to air their grievances in their entirety. Because the proposed counterclaims and cross- claims are not "palpably insuffcient" or patently devoid of merit" The motion by Worldwide Sourcing Group, LLC and Peter Lister to amend the answer to include the proposed counterclaim and cross- claims is granted. This constitutes the Decision and Order of the Cour. Dated: December 27, 2011 ENTERED DEC 2 9 2011 NASSAU COUNTY COUNTY CLERK' S OFFtCe
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