Nassau County v Richard Dattner Architect, P.C.

[*1] Nassau County v Richard Dattner Architect, P.C. 2007 NY Slip Op 51065(U) [15 Misc 3d 1140(A)] Decided on May 22, 2007 Supreme Court, Nassau County Austin, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 22, 2007
Supreme Court, Nassau County

Nassau County, Plaintiff,

against

Richard Dattner Architect, P.C., Dormitory Authority of the State of New York, Empire State Development Corp., Tishman Construction Corporation of New York, Mariano D. Molina, P.C., Counsilman Hunsaker & Associates, Severud Associates, A. James Debruin & Sons, Federman Design & Construction Consultants, Inc., Robert Schwartz & Associates, Roy Kay, Inc., Keyspan Corporation, Anron Heating and Air Conditioning, Inc., Dectron Internationale, Stonewall Contracting Corp., Norberto & Sons, Inc., Century-Maxim Construction Corp., Metropolitan Steel Industries, Inc. and Hatzel & Buehler, Inc., Defendants,



2750-04



Counsel for Plaintiff

Mohen & Treacy, LLP

186 Birch Hill Road

Locust Valley, New York 11560

County Attorney, Nassau County

1 West Street

Mineola, New York 11501

Counsel for Defendants

(for Anron Heating & Air Conditioning)

Steven G. Rubin & Associates, P.C.

225 Old Country Road

Melville, New York 11747

Kreig Associates, P.C.

(for Counsilman Hunsaker)

Kreig Associates, P.C.

5 Heather Court

Dix Hills, New York 11746

(for Empire State Development Corp. and Dormitory Authority)

Cornelia Mogar, Esq.,

Assistant Attorney General

The Capitol

Albany, New York 12224

(Attorney for Federman Design & Construction Consultants Inc.)

Law Office of Irwin M. Echtmen, P.C.

250 West 57th Street - Suite 1020

New York, New York 10107

Leonard B. Austin, J.

In this action Plaintiff, Nassau County ("Nassau"), seeks to recover damages for the negligent design and construction of the Aquatic Center in Eisenhower Park. It advances causes of action against the various project coordinators and contractors sounding in negligence, breach of contract and/or fraud.

Defendant, KeySpan Corporation ("KeySpan"), seeks dismissal of the action against it. KeySpan alleges that its only connection to this project is its acquisition of Defendant, Roy Kay Inc. ( RKI"), by a subsidiary of one of its subsidiaries. More specifically, KeySpan Services, Inc., a subsidiary of KeySpan Energy Corporation, which is a subsidiary of KeySpan, acquired RKI in January, 2000. RKI subsequently merged with KSI Contracting, LLC. RKI contracted with Nassau to install the heating, ventilation and air conditioning ("HVAC") system at the Aquatic Center in 1996.

On February 1, 1996, Nassau entered into an agreement with Defendant Empire State Development Corp ("ESDC") to fund and manage the planning, design and construction of the Aquatic Center. On February 2, 1996, ESDC entered into an agreement with the Defendant Dormitory Authority of the State of New York ("Dormitory Authority") whereby the Dormitory Authority was to supervise and coordinate the management, planning, design and construction of the project on a day-to-day basis, on behalf of Nassau. The Dormitory Authority's obligations included overseeing the phases of predesign, schematic design, design development, bidding, awarding and letting of construction contracts, construction documentation, value engineering, construction, testing, inspection and corrective work. From the inception of the project, it was always intended that the Aquatic Center be completed so that it could be used to host the 1998 Goodwill Games and, in fact, it was.

This action was commenced on or about February 27, 2004. In its complaint, Nassau alleges that ESDC retained Defendant Richard Dattner Architect, P.C. ("Dattner") to provide architectural services and entered into an agreement with Defendant Tishman Construction Corporation of New York ("Tishman") to provide the construction management services during both the design and construction phases. Nassau also alleges that Dattner hired various consultants to provide additional professional services on behalf of and for the benefit of Nassau.

Of the remaining Defendants in this action, Dattner allegedly hired Mariano D. Molina, P.C. to provide mechanical engineering design services; Councilman Hunsaker & Associates to provide overall natatorium design services; Federman Design & Construction Consultants, Inc., to provide cost estimating and value engineering services; and Robert Schwartz & Associates to provide limited specifications consulting and technical writing. Nassau further alleges that the Dormitory Authority entered various construction contracts for construction and installation services on behalf of, and for the benefit of, Nassau.

The Dormitory Authority allegedly entered into construction contracts with RKI for the construction, coordination and installation services of the HVAC system. In addition, Defendant Anron Heating and Air Conditioning, Inc., was retained for sheet-[*2]metal services (including manufacturing and installing HVAC duct-work, hangers, grilles and attendant hardware) and Defendant Stonewall Contracting Corporation was retained for general contracting services.

Nassau alleges that RKI's contract had not yet been closed out by the Dormitory Authority when it was acquired by KeySpan Services, Inc. because of RKI's failure to fully complete contract work and punch-list items. In fact, Nassau claims that the Dormitory Authority did not close out the various construction contracts that it had let, including the contract with RKI's, until December 8, 2004, ten months after Nassau initiated this action.

DISCUSSION

In order to establish a prima facie entitlement to judgment as a matter of law, it is incumbent upon KeySpan to come forward with evidentiary proof in admissible form, demonstrating the absence of any triable issues of fact. McDonald v. Mauss, 38 AD3d 727 (2nd Dept. 2007), citing Alvarez v. Prospect Hosp., 68 NY2d 320 (1986); and Zuckerman v. City of New York, 49 NY2d 557 (1980). The failure to make such a showing requires denial of the motion, regardless of the sufficiency of the opposing papers. McDonald v. Mauss, supra, citing Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851, 853 (1985). KeySpan cannot meet its burden by pointing to gaps in Plaintiff's proof. Restrep v. Rockland Corp., 38 AD3d 742 (2nd Dept. 2007), citing Ramos v. Mac Laundry Hemp., Inc., 22 AD3d 822 (2nd Dept. 2005).

"A decision to pierce the corporate veil is a fact-laden decision that is not well-suited for summary judgment resolution." Giarguaro S. p.A. v. Amko Intl. Trading, Inc., 300 AD2d 349 (2nd Dept. 2002), citing Matter of Morris v. New York State Dept. of Taxation & Fin., 82 NY 2d135, 141 (1993); and Forum Ins. Co. v. Texarkoma Transp. Co., 229 AD2d 341, 342 (1st Dept. 1996). "The concept of piercing the corporate veil is a limitation on the accepted principles that a corporation exists independently of its

owners, as a separate legal entity. . . ." Morris v. New York State Dept. of Taxation and Finance, supra at 140.

A corporate veil will be pierced: (1) to achieve equity, even absent fraud, where the officers and employees of a parent corporation exercise control over the daily operations of a subsidiary corporation and act as the true prime movers behind the subsidiary's actions (see, Van Valkenburgh, Nooger & Neville v. Hayden Pub. Co., 30 NY2d 34 [1972], mot. for rearg den. 30 NY2d 880 [1972], cert. den. 409 U.S. 875 [1972]; Fiur Co. v. Ataka & Co., 71 AD3d 370 [1st Dept. 1979]; Astrocom Electronics v. Lafayette Radio Electronics Corp., 63 AD2d 765 [3rd Dept. 1978]; 13 NY Jur 2d, Business Relationships, § 30) and/or (2) where a parent corporation conducts business through a subsidiary which exists solely to serve the parent (see, Port Chester Elec. Constr. Corp. v. Atlas, 40 NY2d 652 [1976]; Educational Beneficial v. Reynolds, 67 Misc 2d 739 [Cir. Ct. NYC 1971])." Pebble Cove Homeowners' Assn., Inc. v. Fidelity New York FSB, 153 AD2d 843 (2nd Dept. 1989); and Matter of Sbarro Holding Inc., 91 AD2d 613, 614 (2nd Dept. 1992).

Furthermore, "[t]hose seeking to pierce the corporate veil . . . bear a heavy burden of showing that the corporation was dominated as to the transaction attacked and that such domination was the instrument of fraud or otherwise resulted in wrongful [*3]or inequitable consequences." TNS Holdings, Inc. v. MKI Securities Corp., 92 NY2d 335, 339 (1998). Matter of Morris v. New York State Dept. of Taxation and Finance, supra; and Walkovsky v. Carlton, 18 NY2d 414 (1966). There needs to be more than evidence of domination; such as an additional showing that it led to inequity, fraud or malfeasance. TNS Holdings, Inc. v. MKI Securities Corp., supra at 339, citing Matter of Morris v. New York State Dept. of Taxation and Finance, supra at 141-142. See also, Goldsmith v. Sotheby's, Inc., 9 Misc 3d 1120(A) (Sup. Ct. NY Co. 2005); and Sahu v. Union Carbide Corp., 2006 WL 3377577 (S.D.NY 2006).

There is a presumption of corporate separateness which must apply where a party seeks to hold a parent corporation liable for the alleged misconduct of its subsidiaries. Portnoy v. The American Tobacco Company, 1997 WL 638800 (Sup. Ct. Suffolk Co. 1997), citing Meshel v. Resorts, Intl. of New York, Inc., 160 AD2d 211 (1st Dept. 1990); and Horowitz v. Aetna Life Ins., 148 AD2d 584 (2nd Dept. 1989). The fact of a parent corporation's ownership of a controlling interest in the shares of its subsidiary, standing alone, cannot be a basis for liability. Billy v. Consolidated Mach Tool Corp., 51 NY2d 152, 163, rearg. den., 52 NY2d 829 (1980). Likewise, stock control, interlocking directors and interlocking officers and the like are insufficient bases to find liability without more. Townley v. Emerson Electric Co., 178 Misc 2d 740, 743 (Sup. Ct. Monroe Co. 1998), citing Musman v. Modern Deb, Inc., 50 AD2d 761, 762 (1st Dept. 1975).

"A parent company is not liable for the torts of its subsidiary, even if it is a wholly owned subsidiary, unless it can be shown that the parent's control over the subsidiary disregards its corporate independence." Horowitz v. Aetna Life Ins., supra at 586. See also, Billy v. Consolidated Machine Tool Corp., supra. In fact, the parent corporation must exercise complete dominion and control over the subsidiary's daily operations for liability to attach. Fesczyszyn v. General Motors Corporation, 248 AD2d 939, 940 (4th Dept. 1998), quoting 14 NY Jur 2d, Business Relationships § 41. See also, Allen v. Oberdorfer Foundries, Inc., 192 AD2d 1077 (4th Dept. 1993). Under New York law, however, the corporate veil can be pierced where there has been a failure to adhere to corporate formalities, inadequate capitalization, use of corporate funds for personal purpose, overlap in ownership and directorship, or common use of office space and equipment. Forum Ins. Co. v. Texarkoma Transp. Co., supra; and Wm. Passalacqua Builders. Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 139 (2nd Cir. 1991).

The court should also consider factors such as the existence of corporate minutes, the existence of a board of directors, the actual issuance of shares and the existence of corporate records or bank accounts. Maggio v. Becca Const. Co., Inc., 229 AD2d 426, 427-428 (2d Dept. 1996). "At the very least, there must be direct intervention by the parent in the management of the subsidiary to such an extent that the subsidiary's paraphernalia of incorporation, directors and officers' are completely ignored." Billy v Consolidated Machine Tool Corp., supra at 163, quoting Lowendahl v. Baltimore Ohio R.R. Co., 247 App.Div. 144, 155 (1st Dept.), aff'd., 272 NY 360 (1936). It has been held to be determinative where the subsidiary corporation is "a dummy for the parent corporation". A.W. Fiur Co., Inc. v. Atka & Co., Ltd., supra at 374, citing Port Chester Electrical Construction Corp. v. Atlas, 40 NY2d 652 (1976); and Astrocom Electronics, Inc. v. Lafayette Radio Electronics Corp., 63 AD2d 765 (3rd Dept. 1978). [*4]

In support of its application, KeySpan has submitted the affidavit of Michael A. Walker, Vice President and Deputy General Counsel of KeySpan. He attests that KeySpan "played no role whatsoever with respect to the Aquatic Center" and "had no involvement, contractual or otherwise, with the Aquatic Center project."

Whether this statement standing alone suffices to establish KeySpan's entitlement to summary judgment and to shift the burden to Nassau to establish the existence of a material issue of fact is questionable. See, Dempsey v. Intercontinental Hotel Corp., 126 AD2d 477 (1st Dept. 1987). Assuming, arguendo, that it does, Nassau has established that KeySpan's application must be denied at this juncture.

Only limited discovery has taken place. In fact, it has thus far been significantly limited by this Court to events preceding 1998.

As a result, KeySpan has produced only one document to date. Nevertheless, Nassau has been able to access some public records of KeySpan. Exhibit 99.2 to KeySpan's July 17, 2001 Form 8-K, which was filed with the Securities and Exchange Commission ("SEC"), demonstrates that KeySpan had terminated RKI's former management and installed new management in their place. KeySpan's 2001 Form10-K, which was also filed with the SEC, states that KeySpan, through its subsidiary formerly known as RKI, terminated their employment. Additionally, and perhaps more importantly, KeySpan took a special charge to earnings of $30 million after tax for costs to complete the work on certain of RKI's construction projects to correct inaccuracies on

RKI's books on several construction projects, and inaccuracies related to RKI's financial performance.

Exhibit 99.2 to KeySpan's October 24, 2001 Form 8-K, SEC filing demonstrates that KeySpan subsequently integrated and closely coordinated RKI's HVAC and engineering services with its other energy-related services subsidiaries. That document also demonstrates that KeySpan discontinued RKI's general contracting business since it no longer fit the energy-related focus that was crucial to KeySpan's strategy: That business was deemed by KeySpan to contain an unacceptable level of risk. KeySpan's 2001 Annual Report shows that it was to complete RKI's construction projects and, as a result, continue to consolidate its operations in its Consolidated Financial Statements until those contracts were completed. Thus, the need for further discovery regarding KeySpan's possible involvement in the Aquatic Center project has been established. CPLR 3212(f). See, Giarguaro S.p.A. v. Amko Int'l. Trading, Inc., supra. See also, Amsellen v. Host Marriott Corp., 280 AD2d 357 (1st Dept. 2001); Aubrey Equities v. SMZH 73rd Assoc., 212 AD2d 397, 398 (1st Dept. 1995); and Bordet v. 21 Club, Inc., 11 Misc 3d 1069(A) (Sup. Ct. NY Co. 2006).

KeySpan's assertion that any breach of contract by RKI must have occurred years before KeySpan Services, Inc. acquired RKI is not sufficient, on this record, to warrant summary judgment. It appears that RKI had not fulfilled all of its contractual obligations until years after KeySpan Services acquired RKI. The extent to which contractual breaches occurred during that time period and concomitantly

KeySpan Services Inc.'s, as well as KeySpan's, potential liability for them are far from [*5]clear.

Nassau's request for permission to amend its complaint to add KeySpan Corporation's subsidiaries as party defendants cannot be granted. The request has not been made in the proper form. CPLR 2214, 2215. Thus, it cannot be considered at this time. See, Blam v. Netcher, 17 AD3d 495 (2nd Dept. 2005). See also, Siegel, New York Practice 4th §249.

Accordingly, it is,

ORDERED, that Defendant KeySpan Corporation's motion for summary judgment is denied without prejudice to renew after the completion of discovery; and it is further,

ORDERED, that counsel shall appear for a status conference on June 22, 2007 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

May 22, 2007Hon. LEONARD B. AUSTIN, J.S.C.