S & M Heating Corp. v Macaluso

[*1] S & M Heating Corp. v Macaluso 2012 NY Slip Op 52256(U) Decided on December 13, 2012 Supreme Court, Suffolk County Emerson, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 13, 2012
Supreme Court, Suffolk County

S & M Heating Corp., THE BIG SEVEN HOLDING CORP., THE BIG SEVEN REALTY CORP., BEST OIL BURNER, PLUMBING, HEATING & POOL SUPPLY, INC., & ANTHONY MACALUSO, SR., Plaintiffs,

against

Joseph Macaluso, AS EXECUTOR OF THE ESTATE OF SANTO MACALUSO, JR., FTF TRANSPORT CORP., NEXT GENERATION F/O INDUSTRIES INC., d/b/a COUNT ON FUEL, COUNT ON FUEL, INC., & COUNT ON BURNER SERVICE, INC., Defendants.



9264-08



MAYER, ROSS & HAGAN, P.C.

Attorneys for Plaintiffs

178 East Main Street

Patchogue, New York 11772

ANTHONY P. GALLO, P.C.

Attorneys for Defendant Joseph Macaluso as Executor of the Estate of Santo Macaluso, Jr.

6080 Jericho Turnpike, Suite 216

Commack, New York 11725

JONES & BLACK, P.C.

Attorneys for Next Generation F/O Industries Inc., FTF Transport Corp., Dominick Fausto and Frances Fausto

23 Green Street, Suite 300

Huntington, New York 11743

ZEGEN & FELLENBAUM

Attorneys for Proposed Defendants Bobco, Inc., and Bobco Transport, Inc.

261 Madison Avenue, 18th Floor

New York, New York 10016

Elizabeth H. Emerson, J.

it is,

ORDERED that the motion by the plaintiffs for leave to amend the complaint is granted insofar as it seeks to add a sixth cause of action against Joseph Macaluso, as Executor of the Estate of Santo Macaluso, Jr., for breach of fiduciary duty and a seventh cause of action against FTF Transport Corp. for breach of contract; and it is further

ORDERED that the motion is otherwise denied; and it is further

ORDERED that the plaintiffs are directed to serve and file an amended complaint within 30 days after the date of entry of this order; and it is further

ORDERED that the cross motion by the defendants FTF Transport Corp. and Next Generation F/O Industries Inc. for an order dismissing the first, third, and fourth causes of action insofar as asserted against them is granted.

The standard for granting applications for leave to amend pleadings is statutorily prescribed as one that should be "freely granted" (CPLR 3025 [b]). Case authorities provide that, in the absence of prejudice or surprise to the non-moving party, leave should be granted without an examination of the merits of the proposed amendments or any obligation to support them with evidentiary materials (Deutsche Bank Natl. Trust Co. v Torres, 24 Misc 3d 1216[A] at *3 [and cases cited therein]). However, proposed amendments that are palpably insufficient or patently devoid of merit will be rejected without any showing of surprise or prejudice to the non-moving party (Id.).

The plaintiffs seek to add Bobco, Inc., and Bobco Transport, Inc. (collectively "Bobco"), and the Faustos as party defendants to the existing causes of action on the ground that the defendants FTF Transport Corp. ("FTF") and Next Generation F/O Industries Inc. ("Next Generation"), which are owned by Dominik and Frances Fausto, respectively, transferred all or substantially all of their assets to Bobco despite the pending litigation. The assets that FTF and Next Generation are alleged to have transferred consist of four fuel trucks.

A fraudulent conveyance is a transfer that is made without fair consideration by a debtor when he is insolvent or that renders him insolvent (Palermo Mason Constr. v Ark Holding Corp., 300 AD2d 458, 460, citing Debtor and Creditor Law § 273) or a transfer by a defendant in an action for money damages who is unable to satisfy a judgment that the plaintiff finally obtains [*2](Id., citing Debtor and Creditor Law § 273-a). The plaintiffs do not allege that the purported transfers to Bobco were made without fair consideration, that FTF and Next Generation were insolvent when they were made, or that the transfers rendered them insolvent.[FN1] The plaintiffs, therefore, have not stated a claim under Debtor and Creditor Law § 273. Moreover, since the plaintiffs have not obtained a judgment against the defendants, they have not stated a claim under Debtor and Creditor Law § 273-a. The existence of an unsatisfied judgment is an essential element of a claim under Debtor and Creditor Law § 273-a (see, Frybergh v Weissman, 145 AD2d 531).

To set aside a transfer as fraudulent under Debtor Creditor Law § 276 a creditor needs to show actual intent to defraud on the part of the transferor. When actual intent to hinder, delay, or defraud creditors is proven, proof of unfair consideration or insolvency is not required (Miller v Miller 276 AD2d 758; Wall Street Assocs. v Grodsky, 257 AD2d 526, 529; In re Sharp Intl. Corp. v State Street Bank & Trust Co., 403 F3d 43, 56 [2nd Cir]). Due to the difficulty of proving actual intent, the pleader is allowed to rely on so-called badges of fraud to support his case, i.e. circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent. Among such circumstances are: a close relationship between the parties to the alleged fraudulent transaction, a questionable transfer not in the usual course of business, inadequacy of the consideration, the transferor's knowledge of the creditor's claim and the inability to pay it, and the retention of control of the property by the transferor after the conveyance (Wall Street Assocs. v Grodsky, supra at 529; see also, Dempster v Overview Equities, 4 AD3d 495, 498). Other factors include secrecy, haste, or unusualness of the transaction (In re Sharp Intl. Corp. v State Street Bank & Trust Co., supra at 56, citing HBE Leasing Corp. v Frank, 48 F3d 623, 639) and the timing of the transfer (Matter of CIT Group/Commercial Servs. Inc. v 160-09 Jamaica Ave. Ltd. Partnership, 25 AD3d 301, 303). Of course, the flip side of these badges of fraud is that their absence constitutes evidence that there was no intent to defraud (Lippe v Bairnco Corp., 249 F Supp 2d 357, 375 [SDNY], affd 99 Fed Appx 274).

The plaintiffs' allegations are insufficient to demonstrate actual intent. The plaintiffs merely allege that Bobco uses the same DBA as Next Generation and Count on Fuel (i.e., South Bay Fuel), as well as an address or addresses and a telephone number that were used by FTF and Next Generation at one time. The court finds that, without more, the plaintiffs have not stated a claim under Debtor and Creditor Law § 276. Accordingly, the motion is denied insofar as it seeks to add the Faustos and Bobco as party defendants to the existing causes of action.

The proposed amended complaint contains two additional causes of action for breach of fiduciary duty against Joseph Macaluso, as Executor of the Estate of Santo Macaluso, Jr. (the "Executor"), and breach of contract against FTF, Next Generation, and the Faustos. Leave [*3]should be freely granted when a plaintiff seeks to amend the complaint to add a new theory of recovery without alleging new or different transactions (see, Sample v Levada, 8 AD3d 465, 468). Accordingly, leave is granted to add a sixth cause of action against the Executor for breach of fiduciary duty.

The proposed seventh cause of action for breach of contract is asserted against FTF, Next Generation, and the Faustos. In order for someone to be liable for a breach of contract, that person must be a party to the contract. Privity or its equivalent remains the predicate for imposing liability for nonperformance of contractual obligations (see, Danica Plumbing & Heating v Amoco Constr. Co., 18 Misc 3d 1137[A] at *3 [and cases cited therein]). There is evidence in the record that the plaintiff S & M Heating Corp.("S & M") had a service contract with FTF to deliver fuel oil to S & M's customers. However, the record does not reflect that S & M or any of the other plaintiffs entered into a contract with New Generation or the Faustos. Moreover, a cause of action to hold corporate officials personally responsible for the corporation's breach of contract is governed by an enhanced pleading standard (Petkanas v Kooyman, 303 AD2d 303, 305). That is, the pleadings must allege that the individual defendant corporate officer was acting for his or her own personal interest rather than for the corporate interest (Id.). The proposed seventh cause of action contains no such allegations against the Faustos. Accordingly, leave is granted to add a seventh cause of action for breach of contract against FTF only.

The defendants FTF and Next Generation cross move to dismiss the complaint on the grounds that the complaint fails to state a cause of action against Next Generation and that the first, third, and fourth causes of action are not pleaded with particularity. Only the first, third, and fourth causes of action for fraud, fraudulent conveyance, and conversion, respectively, are asserted against FTF and Next Generation.

To plead a viable cause of action for fraud, the plaintiff must allege that the defendant made a misrepresentation or omission of a material existing fact, which was false and known to be false by the defendant when made, for the purpose of inducing the plaintiff's reliance thereon, that the plaintiff justifiably relied on such misrepresentation or omission, and that the plaintiff was injured thereby (see, Lama Holding Co. v Smith Barney, 88 NY2d 413, 421; New York Univ. v Continental Ins. Co., 87 NY2d 308, 318; Friedman v Anderson, 23 AD3d 163, 166). In addition, CPLR 3016(b) requires that the misconduct complained of be set forth in sufficient detail to clearly inform the defendant of his role in such misconduct (see, P.T. Bank Central Asia v ABN AMRO Bank, 301 AD2d 373, 377; Williams v Sidley Austin Brown & Wood, 11 Misc 3d 1064[A], affd 38 AD3d 219). A mere recitation of the elements of fraud is insufficient to state a cause of action (see, Friedman v Anderson, supra at 166; Williams v Sidley Austin Brown & Wood, supra at *4). The plaintiff is required to set forth specific and detailed factual allegations that the defendant personally participated in or had knowledge of the alleged fraud (see, Friedman v Anderson, supra at 166; Handel v Bruder, 209 AD2d 282, 282-283). [*4]

The first cause of action for fraud alleges that Santo Macaluso, Jr., in preparing to sell his interest in the plaintiff corporations, entered into an intricate relationship with FTF and Next Generation in which the parties colluded to devalue the corporate plaintiffs and transfer the assets of such plaintiffs to themselves. The first cause of action does not allege that either FTF or Next Generation made any misrepresentations or omissions of material fact to the plaintiffs for the purpose of inducing them to rely thereon. Accordingly, the complaint fails to state a cause of action for fraud against FTF and Next Generation.

The third cause of action for fraudulent conveyance alleges that Santo Macaluso, Jr., transferred without consideration assets, including client lists and work products, in excess of $2.1 million to FTF and Next Generation, which caused the plaintiff corporations to become devalued and border on insolvency. The third cause of action further alleges that FTF received and held those assets without consideration, causing the plaintiff corporations to become insolvent and unable to obtain financing. The court finds that these allegations are not sufficiently particular to withstand dismissal pursuant to CPLR 3016 (b). A fraudulent transfer cause of action must identify the alleged transfers at issue and cannot simply allude generally to alleged transfers that may have taken place (see, Felshman v Yamali, 2011 NY Slip Op 33110[U], citing Syllman v Calleo Dev. Corp., 290 AD2d 209). The plaintiffs have not identified any particular transaction that they seek to void (Syllman at 210).

The fourth cause of action for conversion is duplicative of the third cause of action for fraudulent conveyance. The plaintiffs allege that Santo Macaluso, Jr. and the corporate defendants rendered the corporate plaintiffs insolvent and unable to obtain financing by converting to themselves assets of the corporate plaintiffs in the amount of $2.1 million, including customer lists, cash holdings, and credits lines.[FN2] As previously discussed, the plaintiffs' conclusory allegations are not sufficiently particular to withstand dismissal pursuant to CPLR 3016 (b). Accordingly, the cross motion is granted.

Dated:December 13, 2012

J.S.C. Footnotes

Footnote 1:Although the plaintiffs allege that FTF was dissolved a few days before the transfer, a dissolved corporation is not necessarily insolvent (see, Debtor and Creditor Law § 271 [1]).

Footnote 2:By alleging that the defendants converted such assets, the plaintiff is, in effect, alleging that they were transferred without consideration.