Foster v Island Estates at Shoreham, Inc.

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Foster v Island Estates at Shoreham, Inc. 2012 NY Slip Op 31930(U) July 10, 2012 Supreme Court, Suffolk County Docket Number: 09-42861 Judge: Ralph T. Gazzillo 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. [* 1] INDEX NO. 09-42861 SUPREME COURT - STATE OF NEW I ORK I.A.S. PART 6 - SUFFOLK COUNTY PRESENT: Hon. RALPH T. GAZZILLO Acting Justice of the Supreme Court MOTION DATE 7- 14-11 (#OO 1) MOTION DATE 9-22- 11 (#002) ADJ. DATE 1-5-12 Mol. Seq. $1 00 1 - MD 002 - XMD MATTHEW R. FOSTER and THERESA A. FOSTER, Plaintiffs, TWOMEY, LATHAM, SHEA, KELLIEY, DUBIN & QUARI ARARO, LLP Attorney fix Plaintiffs 33 West Second Street, P.O. Box 9898 Riverhead, New York 11901 - against - ISLAND ESTATES AT SHOREHAM, INC., LENNARD AXINN, HARVEY GESSIN, GERALD FRIEDMAN and DAVID WASSERMAN, KELLY & HULME, P.C. Attorney fix Defendants 323 Mill Road Westhampton Beach, New York 11978 Defendants. Upon the following papers numbered 1 to 32 read on this motion and cross motion for summarv iudnment; Notice of Motion/ Order to Show Cause and supporting papers 1 - 18 ; Notice of Cross Erlotion and supporting papers 20 - 24 ; Ansv.eringAffidavitsand supporting papers -; Replying Affidavits and supporting papers 25 - 27.28 - 32 ;Other memoranda of law 19,23 ; ( . it is, 1 ORDERED that this motion by the plaintiffs for an order pursuant to CPLR 3212 granting summary judgment in their favor and holding the individual defendants jointly and severally liable for the outstanding judgment debt that is owed to the plaintiffs is denied; and it is further O D E R E D that this cross motion by the defendants for an order pursuant to CPLR 32 12 granting summary judgment dismissing the complaint is denied. This is an action to pierce the corporate veil of the defendant Island Estates at Shoreham, Inc. (IES), and to hold the individual defendants personally liable for the pa.yment of an unsatisfied judgment granted to the plaintiffs against IES in 2003. On or about Marclh 13, 15198, the plaintiffs entered into a written contract of sale (contract) with IES for the purchase of a. newly constructed home in a [* 2] Foster v Island Estates At Shoreham, Inc. Index No. 09-42861 Page 2 subd ivision known as Island Estates at Shoreham (subdivision), containing approximately 140 homes. Pursuant to the contract, IES provided the plaintiffs with a written warranty in addition to the implied warranties for new construction contained in the New York General Business Law. On or about October 1, 1?98, the closing of title on the plaintiffs new home took place. Thereafter, the plaintiffs submitted a warranty claim in writing to IES alleging various defects in the construction of their home. On July 21, 2000, the plaintiffs commenced an action for damages based on the failiure of IES to satis@ its obligations under the subject warranties. After trial, in a Memorandum Decision dated June 6,200.3, the Court (Kitson, J.) found, among other things, that the plaintiffs were entitled to damages based on ai breach of contract by IES. On August 21 , 2003, a judgment in the amount of $28,690 was entered against IES in favor of the plaintiffs. Thereafter, the plaintiffs levied on a bank account owned by IES, and collected approximately $5,290 Despite further collection efforts, the plahtiffs have not been able to locate my other bank accounts or assets in the name of IES, and IES has not paid anything towards the outstanding judgment debt. Pursuant to subpoena, Lennard Axinn (Axinn) appeared as a representative of IES on September 26,2007, for a deposition regarding the activities of the corporation. The plaintiffs move for summary judgment on the grounds that Axinn s testimony establishles that there are no triable issues of fact regarding their right to pierce the corporate veil. In support of their motion, the plaintiffs submit, among other things, the pleadings, the contract and written warranty for their new home, and the transcript of Axinn s deposition. The Cow? notes that Axinn s deposition is certified but unsigned, and that the plaintiffs have not submitted1proof that the transcript was forwarded to the witness for his review (see CPLR 3 116 [a]). However, the Courl may consider the unsigned deposition transcript submitted in support of the motion as the defendants have not raised any challenges to its accuracy (Rodriguez v Ryder Truck, Znc., 91 AD3d 935,037 NYS2d 602 [2d Dept 20121; Zafot v Zieba, 8 1 AD3d 935,917 NYS2d 285 [2d Dept 201 I]; see also Benneif v Berger, 283 AD2d 374,726 NYS2d 22 [lst Dept 20011; Zabari v City of New York, 242 AD2d 15,672 NYS2d 332 [lst Dept 1998l). The proponent of a summary judgment motion must make a prima facie showing of entitlement to judg nent as a matter of law, tendering sufficient evidence to eliminate any material issue of fact ( w e Alvarez v Prospect Hospital, 68 NY2d 320, 508 NYS2d 923 [1986]; Winegrad v New York Univ. Med. Ctr., 64 NY2d 85 1,487 NYS2d 3 16 [19851). The burden then shifts to the party opposing the motion which must produce evidentiary proof in admissible form sufficient to require a trial of the material issues of fact (Roth v Barreto, 289 AD2d 557,735 NYS2d 197 [2d Dept 20011; Rebecchi v Whitmore, 172 AD2d 600,568 NYS2d 423 [2d Dept 19911; O Neiffv Fishkiff,134 AD2d 487,521 NYS2d 272 [2d Dept 19871). Furthermore, the parties competing interest must be viewed in a light most favorable to the party opposing the motion (Marine Midland Bank, N.A. v Din0 &. Artie s Automatic Transmission Co., 168 AD2d 610,563 NYS2d 449 [2d Dept 19901). In order to prevail in an action to pierce the corporate veil, a plaintiff must show that the indikidual defendants (1) exercised complete dominion and control over the corporation, and (2) used such dominion and control to commit a fraud or wrong against the plaintiff which resulted in injury (see Matter of Morris v New York State Dept. of Taxation and Fin., 82 NY2d 135, 141,603 NYS2d 807 [* 3] Foster v Island Estates At Shoreham, Inc. Index No. 09-42861 Page 3 [1993]; Seuter v Lieberman, 229 AD2d 386,644 NYS2d 566 [2d Dept 19961). The mere claim that the corporation was completely dominated by the defendants, or conclusory assertions that the corporation acted as their alter ego, without more, will not suffice to support the equitable relief of piercing the corporate veil (see Matter of Morris v New York State Dept. oj-Taxation and Fin. ,supra at 141- 1~42; AbeJman v Shoratlantic Dev. Co.,153 AD2d 821, 545 NYS2d ,333 [2d Dept 19891). It is well estaldished that a business can lawfully be incorporated for the very purpose of enabling its proprietor to avoid personal liability (Seuter v Lieberman, supra). Absent a showing that control and domination was used to commit wrong, fraud, or the breach of a legal duty, or a dishonest and unjust act New York will not allow a piercing of the corporate veil (see Electronic Switching Zndus., Inc. v Faradyne E lec. Corp., 833 F2d 418,424 [2d Cir 19871). Factors to be considered by a court in determining whether to pierce the corporate veil include failure to adhere to corporate formalities, inadequate capitalization, commingling of assets, and use of corporate funds for personal use (set!Millennium Const. v Loupolover, 44 AD3d 1016,845 NYS2d 110 [2007]; Shisgalv Brown, 21 AD3d 845,801 NYS2d 581 [ 1st Dept 20051). In addition, The decision whether to pierce the corporate veil in a given instance depends on the particular facts and circumstances (Weinstein v Willow Lake Corp., 262 AD2d 634, 635, 692 NYS2d 667 [2d Dept 19991). Veil-piercing is a fact-laden claim that is not well suited for suminary judgment resolution (First Bank ofAmericas v Motor Car Funding, 257 AD2d 287,294, 690 NYS2d 17 [1st Dept 19991; see also Damianos Realty Group, LLC v Fracchia, 35 AD3d 344., 825 NYS2d 274 [2d Dept 20061; First CapitalAsset Mgt., Znc. v. ALA. Partners, L.P., 300 AD2d 112,755 NYS2d 63 [lst Dept 20021). At his deposition, Axinn testified that IES was dissolved in February, 2005, that he was the president of IES from its formation until its dissolution, and that he was appearing on behalf of said corporation. He stated that he and the defendants Harvey Gessin (Gessin), Gerald Friedman (Friedman) and David Wasserman (Wasserman) were all shareholders, officers and directors in IES before its dissolution. He indicated that there were a number of entities created to further the Island Estates business, and that he was currently the president of Island Estates Management, Inc., which is not related to IES. He named a number of entities, including Island Estates, LLC, in which he is a member, and Island Estates at Yaphank, LLC, Island Estates at Mount Sinai Home Owners Association, and Island Estares at Miller Place, Inc., all of which are not related to IES. Axinn further testified that IES was incorporated for the purpose of entering into contracts with the lx~rchasers homes in the subdivisiion, of and hiring subcontractors and material suppliers to build the homes. 1E:S had no employees other than the shareholders and Jean Friedman (Jean), the wife of Friedman. Most of the administrative work was done by employees of Gessin Contracting Corp. (GCC), which .was then reimbursed by IES. GCC ishared space with IES, and he, Gessin and Friedman owned GCC. IES operations were funded through bank loan:;, and he did not recall whether or not there were other infusions ol capital into the corporation. He stated that the land in the subdivision was owned by GLH Development, Inc. (GLH), and that he, Gessin and Friedman had an ownership interest in GLH when it was an operating entity. Axinn acknawledged that IES was not intended to make a profit, and that he did not know if a reserve was kept to fund warranty claims. He stated that, if a valid warranty claim was made, [IES] may have had to get money from the partners or GLH, if there was a shortfall in the account, and that the business plan regarding warranties was to the extent that the assets were no longer in that company, to have the partners contribute from their personal or other corporations that they own. He did not know what percentages or amounts of money went to GLH or GCC regarding their work, or if there are documents [* 4] Foster v Island Estates At Shoreham, Inc. Index No. 09-42861 Page 4 which would contain the information. Axinn also did not recall1 whether there were formal shareholder or directors meetings, although he did indicate that meetings took place. He did not recall many other details regarding corporate formalities, although he indicated th.at the corporate kit should indicate that information. Here, viewing the competing interests of the parties in a light most favorable to the defendants, the plaintiffs have failed to demonstrate their entitlement to summary judgment in this action. Initially, the Court notes that Axinn s testimony is equivocal on many salient points, and that he appears to lack knowledge on many other relevant issues. The lack of any docilmentary evidence makes a determination about credibility of a witness, better left to a trier of fact, critical in this instance. Regardless, the Court notes that there are multiple issues of fact requiring a trial in this action including, but not limited to, whether the parties adhered to corporate formalities, whether the corporation was adequately capitalized, and whether IES was actually a shell being used by the individual sh.areholdersto advance their oiwn purely personal rather than corporate ends (Port Chester Elec. Consir. Corp. v Atlas, 40 NY2d 652, 656-57, 389 NYS2d 327 [1976]; Walkovszky v Carlton, 18 NY2d 414,276 NYS2d 585 [1966]). Iin addition, a review of the record reveals that the plaintiffs have failed to address the issues raised in the defendants answer. CPLR 3212 (b) provides in pertinent part A motion for summary judgment shall be supported by affidavit ... and by other available proof ... and it shall show that there is no defense to the cause of action or that the cause of action or defense has no merit. The plaintiffs have failed to demonstrate the absence of triable issues of fact on every issue raised hy the pleadings @Aimatop Resraurant, Inc. v Liberty Mut. Fire Ins. Co., 74 AD2d 5 16,425 NYS2d 8 [1st Dept 19801; see also Stovre v Continental Ins. Co., 234 AD2d 282,650 NYS2d 772 [2d Dept 19961). The plaintiffs failure to make a prima facie showing of entitlement to summary judgment requires a denial of the motion, regardless of the sufficiency of the opposing papers (see Alvarez v Prospect Hosp., supra; Winegrafd v New York Univ. Med. Ctr., supra). Accordingly, the plaintiffs motion for an order granting; s m m i q judgment and holding the individual defendants liable for the subject judgment debt is denied. The defendants cross move for summary judgment dismissing the complaint on the grounds of res judicata, that the plaintiffs claims are barred by the statute of limitiitions and/or laches, and that the com:daint fails to state a cause of action. Here, res judicata is not a bar to the plaintiffs claim; even if issue of the defendants personal liability could have been raised and determined in the prior action, it need not have been, as this action is not predicated on the same facts or the same transactions which formed the basis of the prior action (see Silberstein, Awad & Miklos v Spencer, Maston & McCarthy, 43 AD3d 902,841 NYS2d 623 [2007], lv dismissed 10 NY3d 805,857 NYS2d 34 [2008]; see generally, O Brien v City of Syracuse, 54 NY2d 353,445 NYS2d 687 [1981]; Matter of Reilly v Reid, 45 NE 2d 24,4.07 NYS2d 645 [19781). Nor do the statute of limitations or the doctrine of laches aid the defendants in their attempt to dismiss the complaint. The defendants aver that the first action against IES was based on a claim o-F breach of contract, which has a six year statute of limitations (CPLR 2 I 3), and that the time to bring this action against the individual defendants has expired. However, it is clear that this is not an action fix breach of contract, and the defendants submission does not address the question of the relevant [* 5] Foster v Island Estates At Shoreham, Inc. Index No. 09-42861 Page 5 limitations period in an action such as this by a judgment creditor seeking to pierce the corporate veil. In addition, there is an issue of fact relative to when this action accrued for the purposes of the statute of limitations. A defendant seeking to dismiss the complaint insolfar as asserted against it as time-barred has the initial burden of proving through documentary evidence: that the action was untimely commenced after its accrual date (see Morris v Gianeffi, AD3d 965, 897 NYS2cL 210 [2d Dept 20101; Lessqlffv 71 26 Court Street Assoc., LLC, 58 AD3d 6 10, 872 NYS2d 144 [ h d Dept 20093; Sabadie v Burke, 47 AD:!d 913, 849 NYS2d 440 [2d Dept 20081). Further, the defendants have failed to establish their right to a dismissal of the complaint based on the doctrine of laches. The doctrine of laches is an equitable doctrine which bars the enforcement of a right where there has heen an unreasonable and inexcusable delay that results in prejudice to a party (Markelf v Markell, 91 AD3d 832,938 NYS2d 117 [2d Dept 201:!]; Skrodelis v Norbergs, 272 AD2d 3 16,707 NYS2d 197 [2d Dept 20001). Mere lateness is not a barrier to the prosecution of a claim. It must be lateness coupled with significant prejudice to the oither side. the very elements of the laches doctrine (Markelfv Markeff,supra; Denaro v Denaro, 84 AD3d 1148,924 NYS2d 453 [2d Dept 201 13; Skrodefis v Norbergs, supra). Here, the defendants have failed to establish that the plaintiffs unreasonably and inexcusably delayed bringing this action and, more importantly, that they were significantly prejudiced by that delay. The only support for this branch of the defendants motion is Axinn s affidavit which states that Upon information and belief, the plaintiffs purposely created such a delay, so as to prevent the other shareholders and I from having the evidence necessary to properly defend the action ... This conclusory statement on behalf of the defendants is not sufficient to establish their entitlement to summary judgment on this issue. Lastly, the defendants contend that the complaint fails to state a cause of action. The Court notes that the defendants sole argument in this regard appears to be their assertion that New York does not recognize a separate cause of action to pierce the corporate veil. The defendants cite to authority which indicates that an attempt to pierce the corporate veil does not constitute a cause of action separate from that against the corporation (Rosen v Kessler, 51 AD3d 761, 856 NYS2d 861 [2d Dept 20081; Hart v Jassem, 43 AD3d 997, 843 NYS2d 121 [2d Dept 20071; Fiber Consultants, Znc. v. Fiber Optek Interconnect Corp., 15 AD3d 528,792 NYS2d 89 [2d Dept 20051). However, each of the cited cases are based on the plaintiffs improperly pleading a separate cause of action in an underlying case against a corpxation, with leave to serve an amended complaint. There is authority that a party may bring a second action to pierce the corporate veil in an attempt to enforce its rights as a judgment creditor of the 1 corporation (see eg. Wm. Passafacqua Builders, Znc. v Resnick Developers South, Znc., 933 F2d 131 [2d Cir 19911 (after partially recovering on a judgment against the corporation, plaintiffs instituted ;m action in federal court to, among other things, pierce the corporate veil); Klein v Loeb Holding Coqa, 24 Misc 3d 899,878 NYS2d 876 [Sup Ct, New York County 20091 (having secured a money judgment, the judgment-creditor commenced an action seeking to pierce the corporate veil); see also Miller v Colben, 93 AD3d 424,939 NYS2d 424 [lst Dept 20121; Commissioners of State Ins. Fund v Ramos, 80 AD3d 447,915 NYS2d 241 [lst Dept 201 13; ZsfandSeafood Co. v Golub Corp., 303 AD2d 892,759 NYS2d 768 I3d Dept 20031; Sotow v Domestic Stone Erectors, Inc., 269 AD2ad 199, 703 NYS2d 94 [lst Dept 20001). In viewing the defendants contentions, set forth as affirmative defense in their answer, in a Light most favorable to the plaintiffs, it is determined that the defendants have failed to establish their entitlement to summary judgment in this action. The defendants failure to make a prima facie showing [* 6] Foster v Island Estates At Shoreham, Inc. Index No. 09-42861 Page 6 of entitlement to summary judgment requires a denial of the crolss motion, regardless of the sufficiency of thte opposing papers (see,Alvurez v Prospect Hosp., supra; Winegrud v New York Univ. Med Ctr., supra). Accordingly, the cross motion by the defendants for an order gxanting summary judgment dismissing the complaint is denied. -FINAL DISPOSITION X NON-FINAL DISPOSITION

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