Auto Collection Inc. v Pinkow

[*1] Auto Collection Inc. v Pinkow 2013 NY Slip Op 50623(U) Decided on April 19, 2013 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 April 19, 2013
Supreme Court, Kings County

The Auto Collection Inc., et al., Plaintiffs,

against

Christopher Pinkow, et al., Defendants.



L & L AUTO DISTRIBUTORS AND SUPPLIERS INC., et al., Plaintiffs, - -

against

THE AUTO COLLECTION, INC., et al., Defendants.



7847/09



Attorney for The Auto Collection, Steven and Joshua Lever, Brian Flynn:

Leo K. Barnes, Jr.

Barnes & Barnes, PC

445 Broadhollow Rd, Suite 229

Melville, NY 11747

Attorney for L & L, A1A, Kotlyarsky, Bergunker:

Victor Worms

65 Broadway, Suite 750

New York, NY 10006

Carolyn E. Demarest, J.

In the The Auto Collection v Pinkow (Index No. 7847/09) ("The Auto Collection Action"), L & L Auto Distributors & Suppliers, Inc. ("L & L"), Empire Leasing, Inc. ("Empire"), Boris Kotlyarsky ("Kotlyarsky"), Nikolay Bergunker ("Bergunker"), and A1A Auto Leasing, Inc. ("A1A"), collectively referred to as the "Kotlyarsky Defendants", move for summary judgment dismissing the complaint.

In the L & L Auto Distributors v The Auto Collection (Index No. 18728/08) ("L & L Action"), The Auto Collection, Inc. ("The Auto Collection"), Platinum Volkswagen LLC ("Platinum"), Steven Lever ("Steven"), Joshua Lever ("Joshua"), and Brian Flynn ("Flynn") move for summary judgment dismissing the complaint in its entirety. L & L and A1A cross-move for partial summary judgment seeking judgment of $647,937.00.

Background

The Auto Collection Inc. is a New York corporation licensed by the New York State Department of Motor Vehicles to operate an automobile dealership for the retail sale of motor vehicles. Steven and Joshua are principals of The Auto Collection. L & L, A1A, and Empire are auto exporters engaged in the business of purchasing high-end automobiles and other vehicles and re-selling them to customers located in the former Soviet Union and Eastern Europe. They are not licensed by the New York State Department of Motor Vehicles. Kotlyarsky is the principal of L & L and Empire and Bergunker is the principal of A1A.

These actions are two of a number of civil actions before this court involving The Auto Collection [FN1], all of which share common fact patterns and claims. Specifically, all of these actions allege that a luxury motor vehicle or several luxury motor vehicles were purchased from The Auto Collection by an import-export company in the business of buying motor vehicles and reselling them for export to Russia, or an Eastern European country, that The Auto Collection demanded pre-payment, the purchaser pre-paid The [*2]Auto Collection, either a deposit or in full, and the motor vehicles were never delivered, nor was the purchase price refunded. In each action, The Auto Collection has argued that its employee, defendant Christopher Pinkow ("Pinkow"), defrauded The Auto Collection and its members without Steven or Joshua's knowledge or participation. These are the only remaining Auto Collection actions that are active and they are joined for trial. The remaining Auto Collection Actions were either settled and discontinued or a judgment was entered after trial.

The Auto Collection v Pinkow

In The Auto Collection Action, The Auto Collection alleges, inter alia, that the defendants created a scheme to defraud The Auto Collection through a pattern of racketeering activities. The Auto Collection alleges that their employee, Pinkow, was working for defendant Kotlyarsky and that Pinkow arranged for a number of the defendants to act as good faith purchasers who then wired The Auto Collection money as advance payments for particular automobiles. The Auto Collection alleges that once the payments were received and deposited into The Auto Collection's bank account, "Pinkow would manipulate the funds in an old-fashioned criminal pyramid and/or criminal kiting scheme" and then divert the delivery of vehicles for his own benefit or the benefit of the defendants. The Auto Collection alleges that the vehicles were actually delivered to the purchasers for export to Russia and "[t]o further exacerbate the scheme, and to lend an air of credibility to the same, several defendants have filed civil actions against [The Auto Collection] seeking to recover damages for breach of contract", as well as having filed complaints with the Nassau County Police Department and Nassau County District Attorney's Office, Commercial frauds and Criminal Enterprise Bureau. In addition to causes of action brought under the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), plaintiffs allege causes of action for aiding and abetting a breach of fiduciary duty, tortious interference with business relationships, conversion, unfair business practice, and fraud. Discovery is complete in this action and the note of issue has been filed.

In a prior decision in The Auto Collection Action, this court dismissed the tenth cause of action for RICO violations, pursuant to 18 USC 1962(c), upon the motion of defendants US Autoland LLC and LOV Motors, Inc. (Auto Collection Inc. v Pinkow, 33 Misc 3d 1206(A) [Sup Ct, Kings County 2011]). The Kotlyarsky Defendants now similarly move to dismiss the RICO claims against them.[FN2] In its opposition papers and at oral argument, plaintiffs conceded that, in its October 7, 2011 decision, this court [*3]determined that the alleged factual predicate for the RICO causes of action was insufficient, the plaintiffs did not appeal that decision, and that decision therefore constitutes the law of the case. Accordingly, plaintiffs do not oppose the dismissal of the eighth, ninth, tenth, and eleventh causes of action brought under RICO as to the Kotlyarsky Defendants.

The Kotlyarsky Defendants argue that plaintiffs have failed to offer any proof in support of the remaining causes of action for aiding and abetting a breach of fiduciary duty, tortious interference with business relationships, conversion, unfair business practice, and fraud. Plaintiffs respond that the defendants have failed to support their argument that no issues of fact exist and argue that there are multiple instances where Kotlyarsky assisted Pinkow in committing fraud against the plaintiffs.

In order to obtain summary judgment, the movant must establish its cause of action or defense sufficiently to warrant a court's directing judgment in its favor as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]; CPLR 3212 [b]). "Where the moving party has established prima facie that it is entitled to summary judgment, the party opposing the motion must demonstrate the existence of a factual issue requiring a trial of the action by admissible evidence, not mere conjecture, suspicion, or speculation" (Fotiatis v Cambridge Hall Tenants Corp., 70 AD3d 631, 632 [2d Dept 2010]). The parties' competing contentions are viewed in the light most favorable to the party opposing the motion (Marine Midland Bank, N.A. v Dino & Artie's Automatic Transmission Co., 168 AD2d 610 [2d Dept 1990]).

In support of the motion, the Kotlyarsky Defendants provided a single 45 page affidavit from Kotlyarsky ("Kotlyarsky Affidavit"). It is noted that there is no indication that Kotlyarksy is a principal of A1A. No affidavit by Bergunker or a principal of A1A was submitted in support of the summary judgment motion. Further, it is noted that the Kotlyarsky Affidavit does not actually deny the allegations in the complaint or address the alleged relationship between Kotlyarsky and Pinkow. The Kotlyarsky Affidavit also contains significant hearsay and analysis of documents and deposition testimony, elicited during discovery, without any apparent personal knowledge as to a number of the documents and events. The Kotlyarsky Affidavit is essentially devoid of statements made with personal knowledge and is not competent.

In support of its claim that Kotlyarsky aided and abetted Pinkow's breach of fiduciary duty, The Auto Collection submitted deposition testimony from Pinkow's father, Jeffrey Pinkow, indicating that Pinkow was working for Kotlyarsky in April of 2008 as the Auto Collection was ceasing operations and that Jeffrey Pinkow wired $399,196 to L & L, and another of Kotlyarsky's purported business entities, at Pinkow's request, between April 18 and May 5, 2008. Accordingly, the Kotlyarsky Defendants have failed to tender sufficient evidence to demonstrate the absence of any material issues of fact or establish its defense to warrant this court's directing judgment in its favor as a matter of law (see [*4]Zuckerman, 49 NY2d at 562; Stahl v Stralberg, 287 AD2d 613, 614 [2d Dept 2001]; CPLR 3212 [b]).

L & L Auto Distributors v The Auto Collection

The Auto Collection defendants move to dismiss the remaining causes of action in the L & L Action including the first cause of action for breach of contract, the second cause of action for restitution, and the third cause of action for fraud. Defendants argue that the causes of action for restitution and fraud are duplicative of the breach of contract claims as they are based upon written contracts, in the form of vehicle cash purchase agreements, between the parties. Defendants argue that the plaintiffs are unable to prove that they gave The Auto Collection any consideration for the five automobiles at issue in A1A's claim and two of the automobiles at issue with respect to L & L's claim. Defendants move to dismiss the complaint as to Steven and Joshua, claiming that the complaint is devoid of allegations for piercing the corporate veil, and to Flynn, claiming that the plaintiffs did not enter a contract with Flynn or deal with him in the transactions.

Defendants further argue that the plaintiffs' claims must be dismissed as the plaintiffs were unlicensed by the New York State Department of Motor Vehicles to engage in new or used car sales and any enforcement of a contract would be antagonistic to New York's public policy. Defendants argue that Platinum cannot be held liable for The Auto Collection's debts based upon either successor liability or a de facto merger. Defendants also argue that, in the event that the L & L Action is not dismissed pursuant to defendants' motion, the plaintiffs' cross-motion for summary judgment should be held in abeyance pending the trial in The Auto Collection Action.

Plaintiffs cross-move for partial summary judgment on the first and second causes of action seeking a judgment of $647,937.00. Plaintiffs argue that the documentary evidence establishes that L & L paid $416,862.00 for eight automobiles it never received [FN3] and A1A paid $231,075.00 for five automobiles it never received. In addition to a judgment against The Auto Collection, plaintiffs seek judgment against Platinum, as plaintiffs claim that a de facto merger occurred between Platinum and The Auto Collection when Platinum was formed at virtually the same time that The Auto Collection ceased operation in April of 2008, as well as against Steven and Joshua under the theory of piercing the corporate veil and collateral estoppel relying upon this court's trial decision in Azte Inc. v Auto Collection, Inc. (36 Misc 3d 1238(A) [Sup Ct, 2012]).[FN4]

Plaintiffs' motion for partial summary judgment is denied as the defendants have outstanding claims against plaintiffs in The Auto Collection Action that may preclude [*5]recovery in the L & L Action, as indicated above. There are also numerous issues of fact with respect to the proof submitted by plaintiffs, including whether the Auto Collection actually received any consideration from A1A or from L & L as to some of the automobiles allegedly not delivered. The documents submitted by plaintiffs in support of their motion have not been properly authenticated, some of the payments do not indicate the VIN number for a specific automobile, and for some of the payments that do indicate VIN numbers, it is not clear who identified those VIN numbers and at what time. Further, there are numerous issues of fact regarding the relationship between Kotlyarsky and Pinkow based upon the allegations of the plaintiff in The Auto Collection Action. Accordingly, the motion is denied.

Defendants' motion to dismiss the complaint for lack of consideration, as to the five automobiles that comprise A1A's claims and to two of the 21 automobiles that comprise L & L's claims, is denied as there are issues of fact as to whether The Auto Collection received consideration. Although The Auto Collection defendants argue that the plaintiffs' proof of payments to parties other than The Auto Collection establish that The Auto Collection did not receive any consideration, Kotlyarsky submitted an affidavit indicating that the L & L check was made out to a non-party at the express direction of Pinkow as an agent of The Auto Collection, for The Auto Collection's benefit. Similarly, Bergunker submitted an affidavit indicating that the A1A checks were written out, in consultation with The Auto Collection, to non-parties as a means of paying The Auto Collection's debts, in exchange for automobiles from The Auto Collection. As there are issues of fact as to whether the plaintiffs' checks to non-parties were consideration for automobiles to be delivered by The Auto Collection, the motion is denied.

Defendants' motion to dismiss the complaint in its entirety as to Steven and Joshua is denied. Defendants argue that the complaint does not allege that the Levers are liable for The Auto Collection's liabilities or any basis upon which the plaintiffs may pierce the corporate veil. The complaint alleges that Steven and Joshua transferred The Auto Collection's funds to Platinum, both companies which they own, in order to frustrate collection of any judgment against The Auto Collection. Steven Lever's affidavit admits removing $96,656.80 from The Auto Collection for the benefit of Platinum. Joshua has not submitted an affidavit denying the allegations in the complaint or provided documentary evidence conclusively establishing his defense. While the Azte trial decision did not address the L & L or A1A transactions at issue in this case, it did make a number of rulings with respect to Joshua and Steven's management of The Auto Collection, including their day to day performance, their knowledge of the business documents, and their access to The Auto Collection bank accounts (see Azte Inc., 36 Misc 3d at 1238(A)).

"As a general rule, a court will pierce the corporate veil or disregard the corporate form whenever necessary to prevent fraud or to achieve equity" (Hyland Meat Co. v Tsagarakis, 202 AD2d 552 [2d Dept 1994]). "The concept [of piercing the corporate veil] is equitable in nature, and the decision whether to pierce the corporate veil in a given [*6]instance will depend on the facts and circumstances" (Hyland Meat, 202 AD2d at 553). Plaintiffs have alleged facts sufficient to warrant piercing the corporate veil against Steven and Joshua (see Peery v United Capital Corp., 84 AD3d 1201, 1202 [2d Dept 2011] holding "[i]ndicia of a situation warranting veil-piercing include . . . inadequate capitalization, . . . whether funds are put in and taken out of the corporation for personal rather than corporate purposes, . . . [and] whether the corporation in question had property that was used by other of the corporations as if it were its own"). As the complaint includes allegations of the removal of funds for individual purposes resulting in the inadequate capitalization of The Auto Collection, defendants' motion is denied (see Hyland Meat, 202 AD2d at 553; Peery v United Capital Corp., 84 AD3d at 1202).

However, plaintiffs' motion for judgment against The Auto Collection and against Steven and Joshua on the theory of piercing the corporate veil, under the doctrine of collateral estoppel, is denied as plaintiffs do not have a judgment against The Auto Collection on their claims (see Altegra Credit Co. v Tin Chu, 29 AD3d 718, 719 [2d Dept 2006], holding that "the identical issue necessarily must have been decided in the prior action and be decisive of the present action" in order for a party to invoke the doctrine of collateral estoppel). Should plaintiffs ultimately prevail in obtaining a judgment against The Auto Collection, Steven will be collaterally estopped from arguing that he did not exercise complete domination and control of The Auto Collection, that he commingled The Auto Collection's funds with his personal funds and Platinum, or that he exercised complete control over The Auto Collection's bank account, accounting files, ledger, and police books, which recorded every automobile sale. The findings on these issues, made at the conclusion of the Azte trial, are identical to the individual liability factors in the present action and Steven had a full and fair opportunity to contest those determinations (see Altegra, 29 AD3d at 719). Plaintiffs are not collaterally estopped from attempting to pierce the corporate veil as to Joshua as the plaintiffs were not a party to the Azte Action.

Defendants' motion to dismiss the complaint as to Flynn is granted. It is uncontested that Flynn was an employee of the Auto Collection, he did not have any ownership interest or management position in The Auto Collection, and he did not have any individual agreement with L & L or A1A. Defendants submitted a deposition transcript of Kotlyarsky who did not articulate any independent knowledge of Flynn. As plaintiffs' opposition and cross-motion are essentially devoid of any references to Flynn or his conduct in the transactions in the L & L action, and the plaintiffs have failed to raise any issues of fact as to Flynn, the motion to dismiss is granted as to Flynn (see Zuckerman, 49 NY2d at 562; Stahl, 287 AD2d at 614; CPLR 3212 [b]).

Defendants' motion to dismiss the complaint pursuant to Vehicle Traffic Law § 415 upon this court's prior ruling in Sirota v Champion Motor Group, Inc., 18 Misc 3d 862 [Sup Ct, Kings County 2008], due to the plaintiffs not being licensed as automobile dealers with the New York State Department of Motor Vehicles, is denied. The alleged contracts between unlicensed automobile dealers and the Auto Collection are not void [*7]where the plaintiffs seek to recoup funds advanced to The Auto Collection for undelivered automobiles (see Azte Inc., 36 Misc 3d at 1238(A) n 7, holding "the instant contracts are not unenforceable because the provisions of Vehicle Traffic Law § 415 are merely malum prohibitum. Moreover, [The Auto Collection is] seeking to use such provisions as a sword for their own benefit to avoid a legal obligation and not as a shield for the public's benefit").

Defendants' motion to dismiss the complaint as to Platinum is denied as there are issues of fact as to whether a de facto merger occurred when Platinum was created. The complaint alleges that Steven and Joshua transferred funds from The Auto Collection to Platinum to frustrate any judgment collection against The Auto Collection. Although Steven submitted an affidavit indicating that The Auto Collection and Platinum were not connected in any way, and that the timing of The Auto Collection's end of operations in April 2008 and Platinum's commencement of operations in late April 2008 was "mere coincidence", Steven did admit that The Auto Collection paid $96,656.80 in expenses related to Platinum. Steven also stated that he and Joshua were the owners of both The Auto Collection and Platinum. In opposition to the motion, plaintiffs argue that Steven used the assets of The Auto Collection to capitalize Platinum and there was a continuation of management between the companies.[FN5] Plaintiffs note that this court previously ruled in the Azte trial decision, an action in which Platinum was not a party, that, "[a]s Steven openly admitted, he owned the Auto Collection and treated its assets and resources as his own. When Steven became involved in the purchase of Platinum Volkswagen, he saw no conflict in transferring the Auto Collection's assets to his new venture" (Azte Inc., 36 Misc 3d at 1238(A)).

"As a general rule, a corporation which acquires the assets of another corporation is not liable for the torts of its predecessor. However, a corporation may be held liable for the torts of its predecessor if (1) it expressly or impliedly assumed the predecessor's tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction was entered into fraudulently to escape such obligations. This doctrine is also applicable in breach of contract actions. For a successor corporation to establish that it is entitled to summary judgment on the ground that it is not liable, it must demonstrate that none of the four aforementioned exceptions applies" (Nationwide Mut. Fire Ins. Co. v Long Is. A.C., Inc., 78 AD3d 801, 802 [2d Dept 2010], internal citations omitted). As there are issues of fact as to the formation of Platinum with The Auto Collection's funds, alleged by plaintiffs to have been done in order to frustrate a judgment against The Auto Collection, defendants' motion to dismiss as to Platinum is denied (see Nationwide, 78 AD3d at 802). [*8]

Defendants' motion to dismiss the second cause of action for restitution is denied. The Auto Collection argues that the written vehicle cash purchase agreements, which plaintiffs rely upon in support of their summary judgment motion, preclude plaintiffs from recovering under an equitable cause of action. In this court's decision of June 12, 2009, the motion to dismiss the restitution cause of action was denied because, "a claim of unjust enrichment may be pleaded in the alternative to a contract claim where there is a dispute as to whether a contract exists" (see L & L Auto, 23 Misc 3d at 1139(A)). As plaintiffs only moved for partial summary judgment with respect to some of the automobile transactions at issue, and that motion was denied due to a number of issues of fact as discussed, supra, and The Auto Collection has not affirmatively stated that written contracts were entered between the parties for each of the automobiles at issue, there are issues of fact regarding the existence of contracts. The motion is therefore denied (see Goldman v Simon Prop. Group, Inc., 58 AD3d 208, 220 [2008]; Hochman v LaRea, 14 AD3d 653, 654-655 [2005]; Zuccarini v Ziff-Davis Media, 306 AD3d 404, 405 [2003]; Old Salem Dev. Group v Town of Fishkill, 301 AD2d 639, 639 [2003]).

Defendants' motion to dismiss the third cause of action for fraud is granted as to Platinum and denied as to The Auto Collection, Steven and Joshua. The Auto Collection cites to deposition testimony from Kotlyarsky and Bergunker indicating that they did not have any interactions or receive any promises from Steven or Joshua regarding the automobiles at issue. In this court's decision of June 12, 2009, the motion to dismiss the fraud cause of action was denied because "plaintiffs allege that fraudulent misrepresentations were made by defendants prior to, and as an inducement for them to enter into the contracts . . .. The fraud allegedly perpetrated by defendants occurred prior to the parties' entry into the contracts, and arose from circumstances separate and distinct from plaintiff's breach of contract claim" (see L & L Auto, 23 Misc 3d at 1139(A)).In opposition to the present motion, plaintiffs argue, without citation, that it is "well settled that a breach of contract can give to [sic] rise a claim of fraud if it can be shown that the defaulting party never intended to perform under the contract." However, this is a misstatement of the law. "A cause of action for fraud cannot stand where . . . the only fraud alleged relates to a breach of contract. Moreover, [a breach of] contract action may not be converted into one for fraud by the mere additional allegation that the contracting party did not intend to meet his contractual obligation'" (Hadari v Leshchinsky, 242 AD2d 557, 558 [2d Dept 1997], citing Hudson v Greenwich I Assocs., 226 AD2d 119 [1st Dept 1996]; Meehan v Meehan, 227 AD2d 268 [1st Dept 1996]). The motion is denied, however, as to Steven, Joshua and The Auto Collection as deposition testimony indicates that Pinkow, as an agent of The Auto Collection, did make false representations to the plaintiffs, on behalf of The Auto Collection, regarding specific automobiles to induce them to enter into the alleged contracts. Moreover, "[a] corporate officer may be liable for torts committed by or for the benefit of the corporation if the officer participated in their commission" (PDK Labs, Inc. v G.M.G. Trans W. Corp., 2012 [*9]NY Slip Op 8706, *3 [2d Dept 2012], citing Hamlet at Willow Cr. Dev. Co., LLC v Northeast Land Dev. Corp., 64 AD3d 85, 116 [2d Dept 2009]; see Aquirre v Paul, 54 AD3d 302, 304 [2d Dept 2008]; Greenway Plaza Off. Park-1 v Metro Constr. Servs., 4 AD3d 328, 329-330 [2004]). While "[a] corporate officer is not held liable for the negligence of the corporation merely because of his official relationship to it", personal liability will attach where it is "shown that the officer was a participant in the wrongful conduct" (Aquirre, 54 AD3d at 304, citing Clark v Pine, 112 AD2d 755 [4th Dept 1985]). As there are issues of fact as to Steven and Joshua's interactions with Pinkow at the time of Pinkow's alleged fraudulent activities, summary dismissal of the third cause of action for fraud is precluded as to Steven and Joshua as well as The Auto Collection (see PDK Labs, Inc. v G.M.G. Trans W. Corp., 2012 NY Slip Op 8706at *3; Aquirre, 54 AD3d at 304). It is uncontested, however, that Platinum was not yet in existence when plaintiffs purportedly made payments to The Auto Collection for the automobiles at issue and dismissal of the fraud claim is warranted as to Platinum.

Conclusion

In The Auto Collection v Pinkow (Index No. 7847/09), defendants' motion to dismiss is granted as to the eighth, ninth, tenth, and eleventh causes of action, on consent, and denied as to the second, fourth, fifth, sixth, and seventh causes of action.

In L & L v The Auto Collection (Index No. 18728/08), defendant's motion to dismiss the complaint as to Flynn is granted. Defendants' motion to dismiss the third cause of action is granted as to Platinum Volkswagen and denied as to The Auto Collection, Steven Lever and Joshua Lever. Defendants' motion to dismiss the remaining causes of action is denied.

Plaintiffs' cross-motion for partial summary judgment is denied.

This matter is scheduled for a pre-trial conference on June 13, 2013.

This constitutes the decision and order of the court.

E N T E R :

J.S.C. Footnotes

Footnote 1: For a detailed history of The Auto Collection litigation, see Auto Collection Inc. v Pinkow, 33 Misc 3d 1206(A) [Sup Ct, Kings County 2011].

Footnote 2: The eighth and ninth causes of action allege RICO violations against Kotlyarsky and L & L in addition to Pinkow. The tenth and eleventh causes of action allege RICO violations against Bergunker and A1A, in addition to a number of other defendants against whom the action has previously been discontinued by the plaintiffs.

Footnote 3: The complaint alleges that L & L paid for 21 automobiles that it did not receive.

Footnote 4: Although this court did grant judgment against Steven in the Azte trial decision under the theory of piercing the corporate veil, the court specifically denied recovery against Joshua under that theory.

Footnote 5: The complaint alleges that "[Platinum] uses the exact same New York State Dealer's License as Defendant The Auto Collection."