Cotten v Robert K. Lesser Trust

[*1] Cotten v Robert K. Lesser Trust 2017 NY Slip Op 50262(U) Decided on February 23, 2017 Supreme Court, Chautauqua County Sedita, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 23, 2017
Supreme Court, Chautauqua County



Carole Cotten, d/b/a DYNAMICS UNLIMITED, Plaintiffs

against

Robert K. Lesser Trust, PALMER BRYANT REALTY, INC. and KENNETH BITTNER, Defendants



GRAF BUILDING, LLC, Plaintiffs

against

ROBERT K. LESSER, individually and as trustee of the Robert K. Lesser Trust, THE ROBERT K. LESSER TRUST, PALMER BRYANT REALTY, INC. and KENNETH BITTNER,Defendants



MEDICOR ASSOCIATES, INC., Plaintiffs

against

ROBERT K. LESSER, ROBERT K. LESSER, TRUSTEE OF THE ROBERT K. LESSER LIVING TRUST, PALMER BRYANT REALTY, INC., JONH J. BANKOSH, DAVID BRYANT and KENNETH BITTNER,Defendants



G.H GRAF REALTY CORPORATION, GRAF BUILDING and COUNTY OF CHAUTAUQUA,Plaintiffs

against

ROBERT K. LESSER, ROBERT K. LESSER, TRUSTEE OF THE ROBERT K. LESSER LIVING TRUST, PALMER BRYANT REALTY, INC., JONH J. BANKOSH, DAVID BRYANT and KENNETH BITTNER,Defendants



CAROLE COTTEN, d/b/a DYNAMICS UNLIMITED, Plaintiffs

against

NIAGARA MOHAWK, d/b/a NATIONAL GRID, ROBERT K. LESSER and JOHN J. BANKOSH,Defendants





K1-2010-1676



BURGETT & ROBBINS

Attorneys for Plaintiffs Carole Cotten, d/b/a Dynamics Unlimited

Lydia Allen Caylor, Esq., of Counsel.

LAW OFFICE OF JOHN WALLACE

Attorneys for Plaintiffs G.H. Graf Realty Corp., Graf Building,

LLC and County of Chautauqua

James J. Navagh, Esq., of Counsel.

RUPP, BAASE, PFALZGRAF & CUNNINGHAM, LLC

Attorneys for Plaintiff Medicor Associates, Inc.

Sean W. Costello, Esq., of Counsel.

DUKE, HOLZMAN, PHOTIADIS & GERSENS, LLP

Attorneys for Plaintiff Graf Building, LLC

Howard E. Berger, Esq., of Counsel

GOLDBERG SEGALLA, LLP

Attorneys for Defendants Robert K. Lesser, Robert K. Lesser Trust,

Palmer-Bryant Realty, Inc., Kenneth Bittner, David Bryant &

John J. Bankosh

Troy S. Flasher, Esq., of Counsel.
Frank A. Sedita III, J.

The principal question before the court is whether to grant summary judgment in the defendants' favor.

These lawsuits arise out of a February 24, 2010 fire in the City of Dunkirk. The fire consumed the Masonic Temple, a four-story commercial building, constructed in 1914. The fire also damaged the Graf Building and the Liberty Building, commercial structures immediately adjacent to either side of the Masonic Temple.

The Masonic Temple was owned by defendant Robert K. Lesser Trust (Lesser Trust), whose sole trustee was and is defendant Robert K. Lesser. The Lesser Trust purchased the Masonic Temple in 2007 from defendant Palmer-Bryant Realty (PBR), which, in one form or another, had owned the building since 1986. Defendants David Bryant and John Bankosh owned [*2]PBR but dissolved it about nine months after the first lawsuit was filed.

PBR held a mortgage in excess of one-million dollars and remained as the Masonic Temple's property manager between the time of the 2007 sale and the 2010 fire. No written agreement was entered into between the corporate entities or their principals. They instead operated under what appears to be an incomplete, one-page letter of understanding as well as a verbal agreement between Lesser, Bryant and Bankosh. PBR managed the day-to-day affairs of the Masonic Temple and was responsible for maintaining it. Defendant Kenneth Bittner (who is not an electrician) was a PBR employee who served as the general maintenance man.

The Masonic Temple was subject to the regulations contained in the 2007 New York Property Maintenance Code (Code). §106.1 of the Code makes the owner of a building, or the owner's designated agent, responsible for the maintenance of that building. §605.1 of the Code also requires that, "all electrical equipment, wiring and appliances shall be properly installed and maintained in a safe and approved manner." Both the Lesser Trust and PBR were obligated by the Code to inspect the Masonic Temple's electrical system on a regular basis, according to certified code enforcement officer expert James Burton. Inspections of electrical systems in a commercial building should take place annually, regardless of the age of the system, because a defective electrical system poses a grave risk to a building's tenants and the public-at-large, according to certified property manager Scott Hill.

Lesser never arranged to have an electrician perform a full top-down inspection of the Masonic Temple. He instead hired a, "commercial property inspector" to conduct a pre-purchase, "property condition assessment" that purportedly included a visual inspection of the electrical system for, "functionality." This assessment did not include opening and inspecting the main electrical service disconnect box (service disconnect), which was a critical component of the electrical system. Nor was the service disconnect ever inspected by the electrician who occasionally made service calls at the building.

There is no evidence to suggest the Masonic Temple's nearly century-old electrical system had ever been updated or modernized before the fire. There is also little, if any, evidence to suggest that the service disconnect had ever been meaningfully, regularly and/or annually inspected, despite the fact that its manufacturer expressly urged that annual inspections be conducted. The maintainence protocol for the Masonic Temple was neither proactive nor preventative, especially with respect to the electrical system. Nor was a regular schedule of electrical system inspections in place. The maintainence protocol was, instead, reactive, ad hoc and complaint-based.

There were ongoing electrical problems, including the loss of electrical power on three or four occasions in the two years leading up to fire, according to some Masonic Temple tenants. There was also a power outage on the day of the fire, which was purportedly investigated and purportedly remedied by Bryant and Bankosh.

The Chautauqua County Fire Investigation Team (CCFIT) responded to the fire scene. Private fire investigators also commenced investigations in the days and weeks that followed. Most of the public and private investigators were able to access the Masonic Temple's basement, [*3]and to inspect and photograph the service disconnect, before the ceiling collapsed and the building was demolished. The service disconnect was retrieved afterwards and taken to a laboratory, where it was again inspected by fire investigators and electrical experts.

The wires or "conductors" connected to the service disconnect were melted, severed and showed severe electrical arcing. These findings indicate an electrified conductor at the service disconnect sustained a catastrophic fault. After considering the relevant evidence — which included physical evidence, burn patterns, eyewitness accounts and the "well documented electrical issues at this building" — the CCFIT determined the fire originated at the service disconnect and that its cause was an electrical problem in the service disconnect. The CCFIT issued a report accordingly.

Defendants' fire investigation/electrical engineering expert disputes these findings, while plaintiffs' experts confirm and elaborate upon them.

According to defense expert Scott Russ, any opinion regarding cause and origin is highly suspect because of the extent of the destruction, inadequate investigation and the fire investigators' failure to comply with the rules, standards and methodology of NFPA 921, the purported 'Bible' of fire investigation.

NFPA 921 merely sets forth recommended guidelines for fire investigators, according to plaintiffs' expert Richard Shiah. In his view, the CCTIF followed appropriate guidelines and conducted an appropriate fire investigation.

The "electrical problem" cited by the CCTIF as the cause of the fire, was due to the deterioration of the wires' insulation, adjacent to the service disconnect, according to plaintiffs' expert Adam Roy. Roy believes this deterioration or "degradation," was largely due to age (the wiring was nearly one-hundred years old) and moisture infiltration (the service disconnect was located in the basement). Once the insulation wore off, the live wires were exposed and eventually came into contact, sparking a fire. Roy also opines that regular and/or annual visual inspections of the service disconnect would have revealed the dangerous condition which inevitably caused the fire.

The Lesser Trust Lesser collected two-million dollars from its insurance carrier. It paid expenses associated with the fire (e.g. demolition costs) and paid PBR over one-million dollars to satisfy the mortgage. Lesser himself also spent about a half-million dollars of trust funds to purchase other properties in his own name, thus depleting the trust. As to PBR's windfall, Bryant and Bankosh each pocketed over a half-million dollars and dissolved the corporation. Lesser, Bryant and Bankosh, in sum, transferred assets from the corporate entities under their control to benefit themselves individually. The timing of these transactions also suggest they occurred in response to and/or in anticipation of litigation.

Defendants are being sued by a host of plaintiffs, including: Carole Cotten, d/b/a Dynamics Unlimited, Medicor Associates and the County of Chautauqua, all of whom were Masonic Temple tenants; Graf Realty, LLC, the owner of the Graf Building; and, G.H. Graf Realty, Corp., the owner of the Liberty Building. Nine lawsuits, in total, have been filed and they set forth various causes of action, including negligence/premises liability, negligence per se, intentional infliction of emotional distress, breach of contract and fraudulent conveyance.

With respect to the five lawsuits that are the subject matter of the present motion, plaintiffs' principal liability theory is that defendants ignored and neglected the ticking time bomb that was the Masonic Temple's decrepit electrical system. More specifically, it is alleged that defendants' failure to properly maintain the electrical service disconnect — which foreseeably resulted in deterioration and failure of the associated wiring and the resulting fire — was in breach of their common law duty and contractual obligation to maintain the premises in a reasonably safe condition. Plaintiffs also allege that defendants were in violation of a statutory mandate to maintain a commercial building's electrical system in a safe condition.

Defendants principally rely on two arguments in support of their summary judgment motion.

First, the individually-named defendants — Robert Lesser, John Bankosh, David Bryant and Kenneth Bittner — contend they cannot be held liable as a matter of law because only the corporate entities owed a duty of care to the plaintiffs. The individually-named defendants' 'duty' argument emphasizes that a corporation is a distinct entity from its shareholders and that the law permits incorporation for the very purpose of escaping personal liability (Flasher/Glascott Memorandum, p.6). Implicit in this argument is the notion that the individually-named defendants are insulated from liability by virtue of the corporate form or so-called "corporate veil."

Second, all defendants — including Niagara Mohawk Power Corporation, who submitted papers but did not appear at oral argument — contend that no one at all can be liable because there are only speculative theories as to what caused the fire. It is important to note that defendants link their 'causation' argument to all of plaintiffs' liability theories and to other potential grounds for summary judgment. In defendants' view, there is no rational basis for concluding defendants are liable on any of plaintiffs' causes of action, and there is no basis upon which to conclude defendants' created a dangerous condition, had actual or constructive notice thereof, or had a duty to inspect for latent defects, precisely because the cause of the fire cannot be ascertained (see, Flasher/Glascott Memorandum, pp.11, 14-16). Defendants eventually tie their ubiquitous causation argument to the corporate veil issue as well, stating:

" it is only necessary to look at the piercing the corporate veil doctrine in the event liability is established against the trust or PBR and defendants moving papers establish beyond any question of material fact, that defendants are entitled to summary judgment on the issue of liability [because] the origin and cause(s) of the fire cannot be ascertained given the magnitude of fire destruction and the incomplete and inadequate public and private investigations" (Linton/Flasher Supplemental Memorandum, p.7).

Plaintiffs generally contend that defendants have not met their summary judgment burden of proof and/or that plaintiffs have satisfied their own proof burden. Regarding defendants' duty argument, plaintiffs' contend that: (1) the individually-named defendants are personally liable because they were "actively negligent in failing to maintain the electrical system" (Navagh Memorandum, p.12) and that (2) the corporate veil should be pierced because of defendants' allegedly shady business practices. Regarding defendants' causation argument, plaintiffs contend, inter alia, that there is a wealth of persuasive evidence regarding where, how and why the fire started.

Summary judgment permits a party to show, by affidavit or other evidence, that there is no material issue of fact to be tried, and that judgment may be directed as a matter of law (Brill v. City of New York, 2 NY3d 648, 650-651). The proponent of a summary judgment motion — here, the defendants — must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any genuine, material issues of fact. Pointing to gaps in the plaintiffs' case or pointing out the lack of evidence supporting the plaintiffs' causes of action do not carry this burden; rather, defendants must affirmatively demonstrate the merit of their defenses (Katz v. Beil, 142 AD3d 957, 964; Raichlin v. Michael's Arts & Crafts, 118 AD3d 1391, 1392; Bryant v. Estate of Gane, 51 Misc 3d 1220(A), 2016 NY Slip Op. 50724(U)). When (and only when) such a showing has been made, the burden shifts to the party opposing summary judgment to produce evidentiary proof — i.e. to lay bare their evidence — sufficient to establish the existence of material issues of fact which require a trial of the action (Alvarez v. Prospect Hospital, 68 NY2d 320, 324-325; Tambaro v. City of New York, 140 AD2d 331, 332). Mere conclusions, expressions of hope or unsubstantiated allegations are insufficient to defeat a well-crafted summary judgment motion (Justinian Capital SPC v. WestLB AG, 28 NY3d 160; Zuckerman v. City of New York, 49 NY2d 557, 562; Hewitt v. County of Chautauqua, 53 Misc 3d 1201(A), 41 N.Y.S.3d 448, 2016 NY Slip Op. 51305(U)). By the same token, the court must view the evidence in the light most favorable to the non-moving party — here, the plaintiffs — and summary judgment should not be granted where the facts are in dispute, where conflicting inferences may be drawn from the evidence or where there are issues of credibility (Katz v. Beil, 142 AD3d 957, 964; Open Door Foods, LLC v. Pasta Machines, Inc., 136 AD3d 1002, 1005).

As previously noted, defendants advance two principal arguments in favor of summary judgment. The first seeks to shield the individually-named defendants from any liability because they owed no duty of care to the plaintiffs. The second seeks dismissal of all complaints lodged against all defendants because there is no reliable proof of causation.

Regarding the causation argument, defendants' expert concludes that no cause and origin can be determined, chiefly because of the poor condition of the scene and the inadequacies of the other experts' investigative methodology. This critique, although scathing, remains tantamount to pointing to gaps in the plaintiffs' case theory and/or to emphasizing the lack of evidence supporting the plaintiffs' causes of action. Accordingly, defendants have not made a prima facie showing of entitlement to judgment as a matter of law.

Assuming, arguendo, that defendants were to have met their burden of proof, it is clear that plaintiffs have come forward with a wealth of evidence — in contrast to mere conclusions, expressions of hope or unsubstantiated allegations — establishing the existence of genuine and material issues of fact. These proofs include the CCFIT report as well the affidavits of two qualified experts regarding appropriate investigation methodology, where the fire started, how it started, why it started and even why it was preventable.

Regarding defendants' duty argument, liability for a dangerous condition is predicated upon occupancy, ownership, control or a special use of the premises; the existence of one or more of these elements is sufficient to give rise to a duty of care (Weierheiser v. McCannis, 126 AD3d 1482). Those who own and/or manage a building have a duty to exercise reasonable care [*4]in maintaining the building, including the electrical wiring, in a reasonably safe condition (see, Onetti v. Gatsby Condominium, 111 AD3d 496).

It is undisputed that the Masonic Temple was owned by the Lesser Trust and managed by PBR, both of which were corporate entities. It is also well-settled that a corporation has a separate legal identity from its owners, and, as a general matter, the owners are not personally liable for the obligations of the corporation (Open Door Foods, LLC v. Pasta Machines, Inc., 136 AD3d 1002, 1004). Since none of the above-listed liability predicates pertain to the individually-named defendants, they have made a prima facie showing of entitlement to summary judgment. The burden thus shifts to plaintiffs to demonstrate the existence of a genuine factual issue concerning whether the individually-named defendants can be held liable. As previously noted, they raise two: piercing the corporate veil and individual participation in the alleged corporate torts.

Broadly speaking, courts will disregard the corporate form, or "pierce the corporate veil," whenever necessary to prevent fraud or to achieve equity. The doctrine of piercing the corporate veil is typically employed by a party seeking to go behind the corporate existence in order to circumvent the limited liability of the owners and to hold them liable for some underlying corporate obligation. The concept is equitable in nature and assumes the corporation itself is liable for the obligation sought to be imposed. Thus, an attempt of a third party to pierce the corporate veil does not constitute a cause of action independent of that against the corporation; rather it is an assertion of facts and circumstances which will persuade the court to impose the corporate obligation on its owners (Morris v. New York State Dept. of Taxation & Finance, 82 NY2d 135, 140-141; see also, Pacer's Bar & Grill, Inc. v. Weinson's Inc., 46 AD3d 1473).

Piercing the corporate veil generally requires a showing that the owners exercised complete domination of the corporation and they abused the privilege of doing business in corporate form by, for example, committing a wrong or injustice to the detriment of plaintiff. Use of corporate funds for personal use is an important factor to be considered when determining whether the corporate form has been abused (A & M Global Management Corp. v. Northtown Urology Associates PC, 115 AD3d 1283, 1296-1287). Similarly, the stripping of corporate assets by shareholders to render the corporation judgment proof constitutes a fraud or wrong justifying piercing the corporate veil (Godwin Realty Associates v. CATV Enterprises, Inc., 275 AD2d 269, 270).

It is undisputed that Lesser controlled the Lesser Trust, while Bryant and Bankosh controlled PBR. As to whether they abused the corporate form, it is notable that all three individuals converted over $1,500,000 in corporate funds (originally in the form of insurance proceeds) to their own personal use. These transactions have diminished the holdings of the Lesser Trust and led to the dissolution of PBR. Both results are clearly to the detriment of the plaintiffs and form the basis of a lawsuit brought by plaintiff Graf Building, LLC, alleging fraudulent conveyance. Discovery in that lawsuit is ongoing and will likely shed further light on whether the corporate form was abused. Plaintiffs have, in the meantime, sufficiently demonstrated the existence of a genuine factual issues regarding whether Lesser, Bryant and Bankosh should be held individually liable for the obligations of their respective corporate entities.

It is also important to note that a corporate officer may be held personally liable for a tort of the corporation if he or she committed or participated in its commission, regardless of whether the corporate veil is pierced (Villafrank v. Ross, 120 AD3d 935 Espinosa v. Rand, 24 AD3d 102; American Express Travel Related Services Co., Inc. v. North Atlantic Resources, Inc., 261 AD2d 310). Summary judgment should be denied if there is a factual issue regarding whether the corporate officer was a participant in the allegedly wrongful conduct (Bischoff v. International Fellowship, Inc., 50 Misc 3d 1219(A), 31 N.Y.S.3d 920, 2016 NY Slip Op. 50178(U)).

The wrongful conduct alleged is essentially omissive in nature — defendants failed to do what a reasonable person would have done — while the sine qua non of their alleged negligence was failure to properly maintain an aging and decrepit electrical system. The parties' submissions demonstrate that Bryant and Bankosh personally participated in the inspection and maintenance of the Masonic Temple. Moreover, they had done so, first as property owners and then as property managers, for nearly 25 years. There is also evidence that they knew of advanced age of the building and its history of electrical problems, but did little to meaningfully or systemically address them. Plaintiffs have thus demonstrated the existence of factual issues regarding whether Bryant and Bankosh individually participated in the alleged corporate torts.

In summary, the motion to grant summary judgment in favor of defendant Kenneth Bittner is granted and all complaints against him are dismissed. Defendants remaining summary judgment motions are denied in their entirety.

The foregoing shall constitute the order of this court.

Dated: February 23, 2017

HON. FRANK A. SEDITA, III