Hearst Mag. v McCaffery

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Hearst Mag. v McCaffery 2012 NY Slip Op 32534(U) August 31, 2012 Sup Ct, NY County Docket Number: 101303/2011 Judge: Lucy Billings 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. SCANNED ON 101512012 [* 1] SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY PART % Justice I Index Number : 101303/2011 INDEX NO. HEARST MAGAZINES vs. MCCAFFERY, WILLIAM A. M O T I O N DATE - M O T I O N CAL. NO. SEQUENCE NUMBER : 001 Th MOTION SEQ. NO. DISMISS motion to/for PAPERS NUMBERED No. I .. Answering Affidavits v) Replying Affidavits 2 Cross-Motion: - Exhibits A z 0 3 0 Yes No UJ er L r3+5 y ;*' < =heck one: l f ? FINAL DISPOSITION 2heck if appropriate: 1. ** - .'r J. S. E. ;1 */: :- [ 'YhlON-FINAL DISPOSITION I 0 DO NOT POST 0 SUBMIT ORDER/ JUDG. II( REFERENCE n SETTLE ORDER/ JUDG. [* 2] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 4 6 HEARST MAGAZINES, a Division of Hearst Communications, Inc., Index No. 101303/2011 Plaintiff - against - DECISION AND ORDER WILLIAM A . MCCAFFERY, SHEILA H. APPEARANCES: 14i6). For Plaintiff Bernard D'Orazio E s q . 100 Lafayette Street, New York, NY 10013 For Defendants William A . McCaffery and Sheila H. McCafferv Martin S. Rapaport Esq. 18 East 48th Street, New York, NY 10017 LUCY BILLINGS, J.S.C.: I. BACKGROUND Plaintiff, t h e owner and publisher of magazines, entered a contract w i t h nonparty McCaffery, Gottlieb, Lane LLC (MGL), an advertising firm of which defendant William McCaffery w a s a member, to place advertisements in plaintiff's publications f o r MGL's client, nonparty General Cigar Company. MGL thus acted as General Cigar's disclosed agent in MGL's dealings with plaintiff. Under the separate contract between the principal, the client General Cigar, and its agent, the advertising firm MGL, General Cigar paid the amount due to MGL. plaintiff its advertising fees. hearst.141 1 MGL, however, never paid [* 3] Plaintiff now is the assignee of the contract between General Cigar and i t s advertising agent MGL and of any claim of General Cigar arising from t h e principal-agency relationship. Plaintiff, standing in General Cigar's shoes, does not claim a breach of that contract, however, and does not sue MGL, which has filed a bankruptcy petition. Plaintiff sues MGL's individual members or managers for breach of a fiduciary duty arising from t h e principal-agency relationship; conversion of General Cigar's payment to MGL, which plaintiff maintains MGL was to pay over to plaintiff; and unjust enrichment. Plaintiff seeks an accounting regarding defendants' diversion of the funds to be paid to plaintiff. Plaintiff also seeks t o pierce t h e corporate v e i l so as to bring these claims on plaintiff's own behalf against defendant individuals. 11. DEFENDANTS' MOTION Defendants William McCaffery and Sheila McCaffery, MGL's alleged members or managers, move to dismiss the assigned claims and the direct claim. Although Sheila McCaffery attests that she has never been a m e m b e r or manager of MGL, upon defendants' motion based on the complaint's failure to state a claim, the court may not rely on facts alleged by defendants t o defeat the claims unless the evidence demonstrates the absence of any dispute regarding those facts and completely negates the allegations against defendants. V. C.P.L.R. 5 3211(a)(7); Lawrence Graubard Miller, 11 N.Y.3d 5 8 8 , 595 (2008); Goshen Life Ins. Co. of N . Y . , hearst.141 V. Mutua1 98 N.Y.2d 314, 326 (2002); Leon v. 2 [* 4] Martinez, 84 N.Y.2d 83, 87-88 (1994); Yoshiharu Iqarashi v. Shohaku Hisashi, 289 A.D.2d 128 ( 1 s t Dep't 2001). The c o u r t must accept the complaint's allegations as true, liberally construe them, and draw all reasonable inferences in plaintiff's favor. Nonnon v. City of N e w York, 9 N.Y.3d 8 2 5 , 8 2 7 ( 2 0 0 7 ) ; Goshen v . Mutual Life Ins. Co. of N.Y., 98 N.Y.2d at 326; Harris v. IC Greemoint C o r p . , 72 A.D.3d 6 0 8 , 609 (1st Dep't 2010); Vis v. New York Hairslsray C o . , L . P . , 67 A.D.3d 140, 144-45 (1st Dep't 2 0 0 9 ) . Sheila McCaffery's acknowledgement that she was MGL's employee and her denial t h a t she controlled its finances do not conclusively negate, but simply dispute plaintiff's allegations that she participated in M G L ' s operation as defendants' own instrumentality, including their failure to remit General Cigar's payment to plaintiff and use of those funds f o r their own benefit. See, e.q., Sokoloff v. Harriman Estates Dev. Corp., 96 . N.Y.2d 409, 416 (2001) Co-defendant Gottlieb's answer, moreover, admits that all defendants were members or managers of MGL. Defendants do not present any corporate documents of MGL, f o r example, establishing that Sheila McCaffery is not a member or manager. C.P.L.R. § 3211(a)(1); Goshen v. Mutual L i f e I n s . C o . of N.Y., 9 8 N.Y.2d a t 326; Greenamle v . Capital One, N . A . , 92 A.D.3d 548, 550 (1st Dep't 2012); McCully v. Jersey P a r t n e r s , Inc., 60 A.D.3d 562 (1st Dep't 2009); Zanett Lombardier, Ltd. v., Maslow, 29 A.D.3d 495 (1st Dep't 2006). Nor would such records necessarily show that she did nott as an employee and as admitted member William McCaffery's wife, control MGL's finances or hearst.141 3 [* 5] participate in MGL s operation and the diversion of General Cigar s payment f o r defendants own purposes. State D e D t . of Taxation & Fin., 82 Morris v. New York N.Y.2d 135, 142 (1993). 111. GENERAL CIGAR S CLAIMS ASSIGNED TO PLAINTIFF Dismissal of the assigned claims in any event rests, at minimum, on the basis that General Cigar incurred no damages f o r plaintiff now to recover. Plaintiff ran t h e advertisements that General Cigar paid f o r . A. The Absence of a Breach of Contract Claim A s defendants acknowledge, the complaint does allege that each time MGL transmitted an order to plaintiff to place an advertisement for General Cigar, t h e order provided t h a t : The agency [MGL] shall be s o l e l y liable for payment of all media insertions if t h e agency has been paid for those invoices by the advertiser [General CigarJ. Prior to payment to the agency, the advertiser shall be solely liable * Aff. of Martin S. Rapaport Ex, 1 (Compl.) 15. The record does not include a copy of any such order, however, nor does any p a r t y indicate that MGL signed t h e order so as to form a promise to pay plaintiff for the advertisements once General Cigar paid MGL for them, as General Cigar did. Yet, even if these orders created a contract by MGL to plaintiff, such a contract does not confer any rights on General Cigar, which plaintiff may claim as General Cigar s assignee. As set forth above, plaintiff does not sue MGL and does not claim a breach of any contract, e i t h e r t h e contract between General Cigar and its advertising agent MGL, or any contract by MGL directly to plaintiff. hearst.141 4 [* 6] B. The Absence of Any Injury Based on t h e Claims Alleqed General Cigar s advertising agent bore a duty to act according to the promised agency, to be loyal to General Cigar in carrying o u t t h e agency, and to act consistently w i t h the agency and General Cigar s trust. Matter of Ferrara, 7 N.Y.3d 244, 254 (2006); Sokoloff v. Harrirnan Estates Dev. Corp., 96 N.Y.2d at 416; Greenapple v. Capital One, N . A . , 92 A.D.3d at 549-50; CBS Gorp. v. Durnsday, 2 6 8 A.D.2d 3 5 0 , 353 (1st Dep t 2000). While the advertising agent may liable to its principal for any harm its principal from the agent s breach of a duty to make payment on t h e principal s behalf or the agent s use of i t s principal s funds f o r the agent s own purposes, a claim by the principal General Cigar, through which plaintiff claims here, suffers from at l e a s t two deficiencies. See Sokoloff v. Harriman Estates Dev. C o r p . , 9 6 N.Y.2d at 416; Wolff v. Wolff, 67 N.Y.2d 6 3 8 , (1986); American Baptist Churches of Metro. N . Y . 641 v. Galloway, 271 A.D.2d 92, 99 (1st Dep t 2000). First, plaintiff fails to present any written agency contract or articulate the specific terms of any oral agency contract, so the precise terms of the promised agency remain undisclosed. Greenapple v. Capital One, N . A . , 92 A.D.3d at: 54950. Second, even assuming the agent promised to pay plaintiff on the principal s behalf, the essential elements of a claim for breach of a fiduciary d u t y include not only t h a t the fiduciary, here the agent, committed misconduct in that capacity, b u t also that the misconduct caused damages to the party owed the hearst.141 5 [* 7] fiduciary duty, here General Cigar, Burry v. Madison Park Owner m, 84 A.D.3d 699, 700 (1st Dep't 2011); Estate of Spitz v. Pokoik, 83 A.D.3d 505, 506 (1st Dep't 2011). Here, the only harm was to plaintiff, not to the principal, General Cigar. Similarly, if MGL or defendants converted General Cigar's funds and used them to enrich themselves unjustly, they may have breached a promise in the undisclosed contract between MGL and plaintiff or order by MGL to plaintiff, as well as injured plaintiff through t h e conversion and unjust enrichment. MGL may have even breached the specific terms of its agency contract with General Cigar, but i n no event d i d MGL or defendants act contrary to General Ciqar's interests and injure General Cigar, through whom plaintiff claims. A.D.3d at 550. Greenalmle v. CaDital One, N . A . , 92 See Matter of Ferrara, 7 N.Y.3d at 254; Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d at 417; Wolff v. Wolff, 67 N.Y.2d at 641. Plaintiff attempts to construct an interest on General Cigar's p a r t in maintaining a business relationship with plaintiff. No f a c t s support such a proposition: that General Cigar ever dealt with plaintiff or that plaintiff knew General Cigar any more than as a reader of General Cigar's advertisements. Plaintiff's actual allegations show only that MGL maintained a business relationship with plaintiff and dealt with it to p l a c e General Cigar's advertisements. At best, again assuming the terms of the agency contract promised payment to plaintiff, General Cigar would be entitled to hearst.141 6 [* 8] a return of t h e agent's commission based on its noncompliance with its prescribed duties. Greenapple v. Capital One, N . A . , 92 A . D . 3 d at 549. Plaintiff specifically excludes the commission from the amount plaintiff seeks, however, claiming $55,557 after deduction of MGL's 1.5% commission from General Cigar's higher payment to MGL. In sum, due to the absence of injury to General Cigar, any claim by General Cigar for breach of a fiduciary duty by the advertising a g e n t to its principal, conversion of General Cigar's payment to MGL, or unjust enrichment from this payment fails. IV. PLAINTIFF'S DIRECT CLAIMS Plaintiff's o n l y claim on its own behalf, against de'fendant individuals, not MGL, is to pierce MGL's corporate veil based on defendants having looted MGL for their personal gain. The doctrine of piercing the corporate veil applies to limited liability companies (LLCs). Matias v. Mondo Props. LLC, 43 A.D.3d 367, 368 (1st Dep't 2007); Retropolis, Inc. v. 14th St. Dev. LLC, 17 A.D.3d 209, 210 (1st Dep't 2 0 0 5 ) . This d i r e c t c l a i m , however, does not allege any different substantive basis f o r relief against the individuals, such as breach of a contract. At best, this claim realleges the Same conversion and unjust enrichment by plaintiff directly rather than derivatively as General Cigar's assignee. As f o r the breach of a fiduciary duty, while the advertising agent may have owed a fiduciary duty to the agent's principal General Cigar, the agent's business dealings with plaintiff at arm's length, for hearst.141 7 [* 9] placement of the advertisements, c r e a t e d no f i d u c i a r y relationship with plaintiff. Co I . 5 N.Y.3d Gibbons & EBC I, Inc. v. Goldman, Sachs & 11, 20 (2005); Sonnenschein v. Douqlas Elliman- Ives, 96 N.Y.2d 369, 374 (2001); Friedman v . Fife, 2 6 2 A.D.2d 167, 168 (1st Dep't 1999). $ee Sokoloff v. Harriman Estates Dev. C o r p . , 96 N.Y.2d at 416. As plaintiff's d i r e c t claim against defendants is based on t h e m having looted MGL for their personal gain, the same claim may belong to MGL and be part of its e s t a t e in bankruptcy. 11 541(a); Cardinal Holdinqs, Ltd. v. Indotronix Intl. U.S.C. § Corp., 73 A . D . 3 d 960, 962 (2d Dep't 2010); Corman v . LaFountain, 38 A.D.3d 706, 7 0 8 (2d Dep't 2007); Andrew Greenberq, Inc. v. Svane, Inc., 36 A . D . 3 d 1 0 9 4 , 1096 (3d Dep't 2007); St. Paul Fire & Mar. Ins. Co. v. PepsiCo, Inc., 884 F.2d 6 8 8 , 697, 703-704 (2d Cir. 1989). A claim to recover corporate assets diverted, converted, or misappropriated by corporate officers or employees for their own enrichment and for which they have not accounted constitutes a wrong to the c o r p o r a t e entity as well as to its creditors. Abrams v. Donati, 66 N.Y.2d 951, 953 (1985); Evanqelista v. S l a t t , 20 A.D.3d 3 4 9 , 3 5 0 (1st Dep't 2 0 0 5 ) ; A n d r e w Greenberq, Inc. v. Svane, Inc., 3 6 A.D.3d at 1097; AlbanyPlattsburqh United C o r p . v. Bell, 307 A.D.2d 416, 419 (3d Dep't 2003). See Lama Holdins Co. v. smith Barney, 8 8 N.Y.2d 423, 424 (1996); Wolff v. Wolff, 67 N.Y.2d at 641; Buechner v. Averv, 38 A.D.3d 4 4 3 (1st Dep't 2007); American Baptist Churches of Metro. N.Y. v . Galloway, 271 A.D.2d at 99. Unless this claim is hearst.141 a [* 10] sufficiently particular to plaintiff, as opposed to all MGL's creditors, the bankruptcy trustee must determine whether to institute the claim, and until the trustee abandons it plaintiff l a c k s standing to maintain it. 11 U.S.C. Holdinqs, Ltd. v. Indotronix Intl. C o r p . , § 73 554; Cardinal A.D.3d at 962; Corman v. LaFountain, 38 A.D.3d at 708; Kalb, Voorhis & Co. v. American Fin. Corp., 8 F.3d 130, 132 (2d Cir. 1993); St. Paul Fire & Mar. Ins. Co. v . PepsiCo, I n c . , 8 8 4 F.2d at 698, 701. A. The Parameters of Plaintiff's Alter E s o Claim The complaint alleges that defendants operated MGL as their instrumentality or alter eqo, rather than as a separate corporate entity, without observing corporate formalities and without adequate capital, to further their personal business or other personal purposes, and siphoned off MGL's assets f o r their own needs without satisfying i t s debts. See Shissal v. Brown, 21 A.D.3d 845, 848-49 (1st Dep't 2005); Albanv-Plattsburqh United Corp. v. Bell, 3 0 7 A,D.2d at 419, 420 n. Denial of defendants' motion to allow disclosure well might uncover MGL's l a c k of corporate and financial records and defendant individuals' r o l e s and responsibilities in MGL's operation, such t h a t defendants dominated MGL, perpetrating a wrong against plaintiff regarding the payment for the General Cigar advertisements. C.P.L.R. § 3211(d). Such evidence would support piercing the corporate veil. Morris v. New York State Dept. of Taxation & Fin., 8 2 N.Y.2d at 141; Stewart Tit. I n s , Co. v . Liberty Tit. Aqencv, LLC, 83 A.D.3d 532, 533 (1st Dep't 2011); Do Gooder P r o d s . , Inc. hearst.141 9 v. [* 11] American Jewish T h e a t r e , Inc., 66 A.D.3d 527, 528 (1st Dep't 2009); Shisqal v. Brown, 21 A.D.3d at 847-48. Plaintiff's allegations supporting this relief, however, See Kalb, Voorhis apply to MGL's creditors as a whole. American Fin. Corp., 8 F.3d at 133; St. Paul Fire v . PepsiCo, Inc., 884 F.2d at 697-98. & & Co. v. Mar. Ins. Co. Plaintiff's alter eqo claim does not depend on plaintiff's particular dealings with or reliance on defendants in their control of MGL, nor depend on defendants' particular misrepresentations designed to perpetrate a fraud against plaintiff in particular. See St. Paul F i r e & Mar. Ins. Co. v. P e p s i C o , Inc., 884 F.2d at 697, 701, 706. Defendants' operation of MGL as their instrumentality or alter eqo, rather than as a distinct corporate entity, without corporate formalities and adequate capital, and defendants' siphoning off of MGL's assets, a l l for their personal purposes, may explain the nonsatisfaction of MGL's debt to plaintiff, but also would explain the nonsatisfaction of any creditor's debt. Shisqal v. Brown, 21 A.D.3d at 848-49; Andrew Greenberq, Inc. v. Morris v. New York State Svane, Inc., 36 A.D.3d at 1097. Dept. of Taxation & Fin., 82 N.Y.2d at 143-44. While plaintiff seeks a specific payment owed to plaintiff, it does not claim defendants' conversion of or unjust enrichment by a particular item of property to be returned to plaintiff or a personal injury distinct from o t h e r creditors. See St. Paul Fire v. PepsiCo, I n c . , 884 F.2d at 704, 706. & Mar. I n s . Co. Instead, plaintiff claims defendants' looting caused MGL to lose assets, which in hearst.141 10 [* 12] 884 F.2d at 697. E. Plaintiff's Lack of Standinq to Maintain Its Alter E q o Claim Nevertheless, plaintiff, a single creditor, may not maintain i t s alter eqo claim on its own behalf against defendants, MGL's officers or employees, and obtain plaintiff's own remedy in preference to and to the detriment of other creditors, when plaintiff shares an injury common to all creditors. See St. Paul Fire & Mar. Ins. Co. v. PepsiCo, Inc., 8 8 4 F.2d at 698, 701, 7 0 4 . The remedy for an injustice to creditors caused by defendants is hearst.141 11 [* 13] to allow the bankruptcy trustee to institute the alter eqo claim as property of MGL's estate. I . at d 704. The trustee's exclusive standing to institute this claim furthers the bankruptcy proceeding's objective of ensuring similar treatment of similarly situated creditors by maximizing the pool of assets available to satisfy all creditors' debts proportionately: an objective that a continuation of this action based on the alter ego claim would frustrate. Kalb, Voorhis COTP., 8 F.3d at 133; St. Paul Fire Inc. 884 F.2d at 6 9 7 , 7 0 1 , 7 0 4 , I & & Co. v. American Fin. Mar. Ins. Co. v. PessiCo, 707. This objective of protecting all creditors extends to common claims against the debtor MGL's alter eqos who have misused the LLC's property. 884 F.2d at 701. St. Paul Fire & Mar. Ins. Co. v. PepsiCo, Inc., Therefore plaintiff may not maintain its alter eqo claim outside MGL's bankruptcy proceeding, Cardinal Holdinqs, Ltd. v. Indotronix Intl. Corp., 73 A.D.3d at 962; Corman v. LaFountain, 38 A.D.3d at 708, until the bankruptcy t r u s t e e has abandoned t h e claim. S t . Paul Fire & Mar. I n s . Co. v. PeDsiCo, Inc., 884 F.2d at 702, 704-705, 7 0 7 . V. DISPOSITION For the foregoing reasons, and in the absence of any crossclaims by any defendants, the court grants the McCaffery defendants' motion to dismiss the action against them, without prejudice to a future action by plaintiff against MGL or these defendants consistent with MGL's bankruptcy proceeding. U.S.C. §§ hearst.141 5 4 1 ( a ) , 554; C.P.L.R. § 12 3211(a)(1), ( 3 ) - ( 5 ) , 11 and (7). [* 14] DATED: August 31, 2012 L-'JJ rti/llqs LUCY BILLINGS, J.S.C. UNFILED JUDGMENT This judgment has not been entered by the County Clerk and notice of entry ~ M I Q be wv& based hereon. TO ~ oMain entry? o authorized repremWve must r appear in person a the Judgment clerk's DeSk(Rn0m t 141B), * hearst.141 13

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