Kelley v Vikse

[*1] Kelley v Vikse 2004 NY Slip Op 51875(U) Decided on July 28, 2004 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 28, 2004
Supreme Court, Suffolk County

DAVID KELLEY and NICOLE LABARBERA, Plaintiffs,

against

KENNETH VIKSE, GAIL VIKSE, INGA VIKSE, INGMAR FARMS, LTD. and KMI CONSTRUCTION, Defendants,



2307-04



TWOMEY, LATHAM, SHEA & KELLEY, LLP

Attorneys for Plaintiffs

33 West Second Street

Riverhead, New York 11901

CONFORTI & WALLER, LLP

Attorneys for Defendants

140 Fell Court

Hauppauge, New York 11788

Elizabeth H. Emerson, J.

ORDERED that the motion (No.002) by defendants for an order pursuant to CPLR 3212 granting them partial summary judgment is decided as follows; and it is further

ORDERED that the cross motion (#003) by plaintiffs for an order pursuant to CPLR 3025(b) granting them leave to serve an amended complaint and for an order pursuant to CPLR 3211(a)(1), (3) and (7), and 3212 dismissing defendants' first counterclaim is also decided as follows.

Initially, the Court notes that defendants have failed to annex copies of the pleadings to their motion for summary judgment, thereby rendering the motion insufficient (CPLR 3212[b]). Nevertheless, the pleadings are annexed to plaintiffs' cross motion and the Court shall consider defendants' motion on its merits.

Index No.: 2307-04

Page 2

Plaintiffs commenced this action to recover damages arising from to the renovation and reconstruction of their home. The contract between plaintiffs and Ingmar Farms, Ltd., dated November 16, 2002, provided for the payment of $320,000.00, completion of the project 225 days from the first payment thereunder, and a payment by the builder of $1,000 per week in the event that the work remained unfinished thereafter. The contract also provided that, if the builder failed to complete the construction in accordance with the agreement, the owner could terminate the contract, take possession of the work site, and finish the work. In the event that finishing the work exceeded the unpaid balance due the builder, the builder agreed to pay the difference to the owner. $308,000.00 of the $320,000.00 has been paid by plaintiffs. The exact timing of the falling out between the parties is in dispute. By letter dated October 28, 2003, plaintiffs notified Ingmar Farms' Kenneth Vikse of numerous unfinished or defective areas throughout the inside and outside of the house and stated that they considered the builder in breach of contract unless all items were completed or repaired on or before November 7, 2003. The work was not done and the instant action ensued.

Plaintiffs' complaint sounds in breach of contract, defamation, libel and fraudulent transfer. The defamation is alleged to have been representations made to plaintiffs by Mr. Vikse in person and on his website, KMIConstruction.com, that he would undertake "constant supervision" on the job and ensure "timely completion." Allegedly, these representations of constant supervision and timely completion were false when made and known to be false when made by Mr. Vikse, with an intent to induce plaintiffs to enter into the contract and to defraud [*2]them. The libel is alleged to have been statements made by Kenneth and Gail Vikse to subcontractors that they could not pay them "because the Kelleys aren't paying" or the "Kelleys are behind in their payments" or words to that effect. The alleged fraudulent transfer is the transfer of title of the Vikse residence to their daughter, Inga Vikse, on July 27, 2001, without consideration and in violation of Debtor Creditor Law § 273 and 273-a, in that it was made to render defendants judgment proof.

Plaintiffs allege that since the filing of their complaint they have learned that their home is not eligible for a certificate of occupancy because the foundation work done by the builder was not in accordance with the plans submitted to the building department and does not comply with the flood-zone regulations of the Town of Southampton. They anticipate a very large expense to correct the problem and allege that it was created by acts and omissions of the defendants. The amended complaint seeks to add as causes of action: piercing of the corporate veil, fraud, defamation/slander per se (apparently combining the original second and third causes of action into one), and constructive trust. The gravamen of the additional or expanded allegations is that defendants deliberately underbid the job, were undercapitalized when they entered into the contract, failed to segregate plaintiffs' payments, and did not timely pay the subcontractors. Plaintiffs argue that Kenneth and Gail Vikse had complete dominion and control over both Ingmar Farms and KMI Construction, utilized the funds collected without regard to corporate obligations and for their own personal use, and undertook a course of conduct to insulate themselves from personal liability. The alleged statements to the subcontractors about plaintiffs' unwillingness or inability to pay the builder were false and infer larceny, thereby damaging plaintiffs in their community as well as in their positions as federal prosecutors.

Index No.: 2307-04

Page 3

As a general rule, motions to amend or to supplement pleadings shall "be freely given upon such terms as may be just" (CPLR 3025[b]), absent prejudice or unfair surprise to the defendant (Scheuerman v Health & Hosps. Corp. of City of NY, 243 AD2d 553, 663 NYS2d 123 [1997]; Volpe v Good Samaritan Hosp., 213 AD2d 398, 623 NYS2d 330 [995]). However, it is essential that a party seeking leave to amend a complaint demonstrate the merits of the proposed pleading (East Asiatic Co. v Corash, 34 AD2d 432, 312 NYS2d 311 [1970]). The proponent must allege legally sufficient facts to establish a prima facie cause of action or defense in the proposed amended pleading, and it is for the nisi prius court to test the pleading's merit (East Asiatic Co. v Corash, supra). Permission to amend should be denied where the proposed amendment clearly lacks merit (Perrini v City of New York, 262 AD2d 541, 694 NYS2d 401 [1999]; Parisi v Leppard, 237 AD2d 419, 655 NYS2d 546 [1996]).



Fraud

It is well settled that a cause of action for fraud may not be maintained when the only fraud charged relates to a breach of contract ( Alamo Contract Builders, Inc. v CTF Hotel Co., 242 AD2d 643, 663 NYS2d 42 [1997]; McKernin v Fanny Farmer Candy Shops, 176 [*3]AD2d 233, 574 NYS2d 58 [1991]). To maintain a claim of fraud in such a situation, claimant must (i) demonstrate a legal duty separate from the duty to perform under the contract (see, Van Neil v Berger, 219 AD2d 811, 632 NYS2d 48 [1991]), or (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the contract, or (iii) seek special damages that are caused by the misrepresentation and unrecoverable as contract damages (Deerfield Communications Corp. v Cheesebrough-Ponds, Inc., 68 NY2d 954, 510 NYS2d 88 [1986]). Moreover, it is well established that general allegations that the defendant entered into a contract with the intention not to perform it are insufficient to support a claim for fraud (Gupta Realty Corp. v Gross, 251 AD2d 544, 674 NYS2d 741 [1998]; New York Univ. v Continental Ins. Co., 87 NY2d 308, 639 NYS2d 308 [1995]). Here, the allegations contained in the plaintiff's cause of action to recover damages for fraud are duplicative of the allegations contained in the cause of action to recover damages for breach of contract (Rosen v Watermill Dev. Corp., 1 AD3d 424, 768 NYS2d 474 [2003]; Jim Longo, Inc. v Rutigliano, 251 AD2d 547, 674 NYS2d 730 [1998]; Mastropieri v Solmar Constr. Co., 159 AD2d 698, 553 NYS2d 187 [1990]). Since the alleged misrepresentations relating to renovation of the plaintiffs' home are not sufficiently distinct from the breach of contract allegations, they do not constitute a separate cause of action sounding in fraud (Gupta Realty Corp. v Gross, supra; Rubinberg v Correia Designs, Ltd., 262 AD2d 474, 692 NYS2d 172 [1999]). Accordingly, leave to amend the complaint to add a cause of action sounding in fraud is denied.

Defamation/Slander Per Se

It is fundamental that a libelous statement is generally one that is written or printed, and a slanderous statement is one that is uttered orally (Ostrowe v Lee, 256 NY 36 [1931]). Plaintiffs have not alleged that the statements were printed and, therefore, have not stated a cause of action for libel in their first complaint. Accordingly, the cause of action for libel is dismissed.

Index No.: 2307-04

Page 4

The proposed amended complaint alleges, as the fourth cause of action, defamation/slander per se. CPLR 3016 (a) requires that in a slander action, "the particular words complained of ... be set forth in the complaint." The complaint also must allege the time, place and manner of the false statement and specify to whom it was made (Arsenault v Forquer, 197 AD2d 554, 602 NYS2d 653 [1993]; Vardi v Mutual Life Ins. Co., 136 AD2d 453, 523 NYS2d 95 [1988]).

Here, the proposed complaint alleges that statements that "the Kelleys weren't paying" or "the Kelleys are behind in their payments" were made to several subcontractors. Plaintiffs state that they had paid defendants for these subcontractors' services and that, when [*4]defendants told the subcontractors they could not pay them because the Kelleys hadn't paid defendants, such statements were tantamount to saying that plaintiffs were guilty of larceny and/or theft of services, thereby damaging plaintiffs in their profession as federal prosecutors. Plaintiffs do not identify the specifics of the statements. Moreover, plaintiff David Kelley states in his affidavit they he met with subcontractors who were not paid by defendants and agreed to pay them again so that the work could proceed on his home.

"Where a plaintiff alleges that statements are false and defamatory, the legal question for the court on a motion to dismiss is whether the contested statements are reasonably susceptible of a defamatory connotation" (Armstrong v Simon & Schuster, 85 NY2d 373, 380, 625 NYS2d 477, 481 [1995]). Whether particular words are defamatory presents a legal question to be resolved by the court in the first instance * * *. The words must be construed in the context of the entire statement or publication as a whole, tested against the understanding of the average reader, and if not reasonably susceptible of a defamatory meaning, they are not actionable and cannot be made so by a strained or artificial construction.

(Aronson v Wiersma, 65 NY2d 592, 593-594, 493 NYS2d 1006, 1007 [1985]). Language will be considered defamatory, i.e., injurious to one's reputation, if it tends "to expose one to public hatred, shame, obloquy, contumely, odium, contempt, ridicule, aversion, ostracism, degradation or disgrace, or to induce an evil opinion of one in the minds of right-thinking persons, and to deprive one of their confidence and friendly intercourse in society" (Kimmerle v New York Evening Journal, 262 NY 99, 102 [1933]). Even assuming that the statements as pleaded could be found to meet the specificity requirement of CPLR 3016(a), the Court is unable, in the context of unpaid subcontractors, to find the alleged statements defamatory. Accordingly, leave to amend the complaint adding a cause of action sounding in defamation/slander per se is denied.

Piercing Corporate Veil

An action to pierce the corporate veil and to hold the owners liable for an underlying corporate obligation is equitable in nature and dependent "on the attendant facts and equities" (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141, 603 NYS2d 807 [1993]). A plaintiff is not required to plead or prove actual fraud in order to pierce the corporate defendant's corporate veil, but must prove only that the individual defendant's control of

Index No.: 2307-04

Page 5

the corporate defendant was used to perpetrate a wrongful or unjust act toward plaintiff (Lederer [*5]v King, 214 AD2d 354, 625 NYS2d 149 [1995]; see, TNS Holdings v MKI Sec. Corp., 92 NY2d 335, 339, 680 NYS2d 891 [1998]). Further, when an undercapitalized corporation is unable to pay a judgment debt and there has been "disregard of corporate formalities and personal use of corporate funds", there may be sufficient evidence of wrongdoing to justify piercing the corporate veil (Rotella v Derner, 283 AD2d 1026, 723 NYS2d 801 [2001] appl denied 96 NY2d 720 [2001]; Austin Powder Co. v McCullough, 216 AD2d 825, 827, 628 NYS2d 855 [1995]). Accordingly, leave to amend by adding this cause of action is granted.

Fraudulent Transfer

The plaintiff's fifth cause of action sounds in fraudulent transfer. The transfer of the home by Gail Vikse to Inge Vikse, the defendants' daughter, then 25 years old, was allegedly made without consideration on July 27, 2001. Thereafter a mortgage in the amount of $425,000.00 was obtained by Inga Vikse on the residence. Plaintiffs argue that the transfer rendered Gail Vikse insolvent and was made in violation of Debtor Creditor Law §273, §273-a,§274, §275 and §276, with the intent to defraud present and future creditors. Gail Vikse argues that she reserved a life interest in the home, that she was not a defendant in any lawsuit at the time of the transfer, that she had other assets and that she was able to pay any of her debts as they matured; therefore, said transfer did not render her insolvent.

However, fraudulent intent is inherently not susceptible to direct proof. Actual intent may be inferred by circumstantial evidence. Generally, such intent is established by inference from the circumstances surrounding the act (Grumman Aerospace Corp. v Rice, 199 AD2d 365, 605 NYS2d 305 [1993]; Marine Midland Bank v Murkoff, 120 AD2d 122, 508 NYS2d 17 [1986]). When indicia or "badges of fraud" which show circumstances that commonly accompany a fraudulent transfer are present, an inference of intent is raised. These indicia involve (1) knowledge of the creditor's claim by both the transferor and transferee, (2) lack of fair consideration for the conveyance, (3) an intra-family conveyance, and (4) the transferor's retention of control of the asset after the conveyance (Pen Pak Corp. v LaSalle National Bank of Chicago, 240 AD2d 384, 658 NYS2d 407 [1997]). Here, defendants have not met their initial burden entitling them to judgment as a matter of law on this cause of action (Zuckerman v City of New York, 49 NY2d 557, 427 NYS2d 595 [1980]; Fabbricatore v Lindenhurst Union Free Sch. Dist., 259 AD2d 659, 686 NYS2d 822 [1999]). Accordingly, summary judgment is denied.

Defendants' First Counterclaim

Defendant Ingmar Farms seeks the sum of $9,000.00 from plaintiff on its counterclaim. Ingmar Farms asserts that the balance due on the contract is $12,000.00 and that the value of the uncompleted punch list is $3,000.00, thereby leaving a balance of $3,000.00 due and owing. Plaintiffs seek to dismiss the counterclaim because Ingmar Farms is no longer licensed to perform home improvements pursuant to the Southampton Town Code §143-2, and was not so licensed when the claim was asserted. Therefore, plaintiffs argue that the [*6]counterclaim must be

Index No.: 2307-04

Page 6

dismissed, citing to cases to the effect that an unlicensed contractor may not collect on a contract (Lee v Schweitzer, 300 AD2d 364, 751 NYS2d 517 [2002]; Louis Savarese Gen. Contr. v Mychalczak, 272 AD2d 300, 707 NYS2d 473 [2002]). However, the cases cited by plaintiffs establish that recovery may not be had where the contractor was unlicensed "when the work was performed." Here, the parties do not dispute that Ingmar Farms was licensed when the contract was entered into on November 16, 2002, and when the contract was terminated on November 7, 2003, and that Ingmar Farms thereafter let its license lapse in December of 2003. Therefore, Ingmar Farms was licensed when the work was performed, and the Court is unpersuaded that the lapse of the its license after termination of the contract entitles plaintiffs to summary judgment on the counterclaim (CPLR 3215[e]; Zuckerman v City of New York, supra; Fabbricatore v Lindenhurst Union Free Sch. Dist., supra). Accordingly, that portion of plaintiffs' motion is denied.

In summary, as to plaintiffs' original complaint, summary judgment is granted to defendants on the cause of action sounding in defamation and libel and is otherwise denied. The branch of plaintiffs' cross motion which seeks leave to serve an amended complaint is granted as to the causes of action sounding in breach of contract, piercing the corporate veil, fraudulent transfer, and constructive trust and is otherwise denied. The branch of plaintiffs' cross motion which seeks to dismiss defendants' first counterclaim is denied.

DATED: July 28, 2004

J. S.C.