Valisa MFG, LLC v 54 Group, Ltd.

[*1] Valisa MFG, LLC v 54 Group, Ltd. 2008 NY Slip Op 51017(U) [19 Misc 3d 1136(A)] Decided on May 8, 2008 Supreme Court, Westchester County Scheinkman, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 8, 2008
Supreme Court, Westchester County

Valisa MFG, LLC, Plaintiff,

against

The 54 Group, Ltd., Bugaway Brands, LLC, Howard Fried, Maako Corp., and Mark Morales, Defendants.



07472/05



APPEARANCES:

JOHN A. COLEMAN, JR., ESQ., P.C.

Attorney for Plaintiff

444 Madison Avenue Suite 805

New York, New York 10022

SAM P. ISRAEL, P.C,

Attorney for Defendant Bugaway Brands, LLC

1 Liberty Plaza 23rd Floor

New York, New York 10006

Alan D. Scheinkman, J.

Defendant Bugaway Brands, LLC ("Bugaway") moves for summary judgment against Plaintiff Valisa MFG, LLC ("Valisa" or "Plaintiff") as well as for fees and costs (Seq. No. 3)[FN1]. Valisa opposes the motion and moves separately, pursuant to CPLR 3025(b), to amend the complaint to interpose a cause of action against Howard Fried, who previously had been dismissed from the action by virtue of this Court's Decision and [*2]Order, entered July 11, 2007 (Seq. No. 4). These motions are consolidated for determination.

PROCEDURAL HISTORY

This action was commenced by the filing of a Summons and Complaint on May 6, 2005. The action was brought against Bugaway, The 54 Group, Ltd. ("54 Group"), Howard Fried, Maako Corp. ("Maako), and Mark Morales ("Morales"). This action was assigned to this Court upon the filing of a Request for Judicial Intervention, which was filed by Howard Fried, Maako Corp. and Morales incident to a motion for summary judgment.

On March 9, 2007, counsel appeared before for the Court for a Preliminary Conference and a discovery schedule was set. At a status conference held on June 8, 2007, the Court was advised that paper discovery largely had been completed.

By Decision and Order entered July 11, 2007, this Court granted the motion for summary judgment by Howard Fried, Maako Corp. and Morales and dismissed the Complaint as to those defendants, without prejudice to an application by Plaintiff, upon completion of discovery, to interpose a properly pleaded cause of action against Howard Fried for inducing breach of contract by 54 Group. In addition, the Court granted Plaintiff leave to amend the Complaint.

The Court held a conference with respect to discovery on August 10, 2007 and a schedule was established for the completion of discovery by October 12, 2007. Valisa attempted to schedule 54 Group's deposition without success and counsel for Valisa was advised by 54 Group's attorney, on October 3, 2007, that counsel was going to seek permission to be relieved of the representation. The next day, the Court conducted a telephone conference with counsel and advised counsel that depositions should be completed and that the Court did not intend to permit 54 Group's counsel to withdraw until discovery had been timely completed. On that same day, 54 Group's counsel filed an Order to Show Cause seeking to withdraw. While the Court signed the Order to Show Cause, and made the application returnable on October 19, 2007, the Court refused to stay its proceedings pending the return date. Nevertheless, the deposition of 54 Group did not take place, despite the efforts of Valisa to obtain it.

On October 12, 2007, the Court conducted a trial readiness conference at which the Court was advised that all discovery had been completed, except for the deposition of 54 Group. 54 Group's counsel stated that he had been instructed by the client not to do anything further, such instruction having been given in writing on October 4, 2007. The Court adjourned the conference to October 19, 2007 the same date as the motion to withdraw was returnable and instructed that 54 Group be present at the conference. [*3]

On October 19, 2007, while counsel for 54 Group appeared, his client did not, despite the fact that counsel had advised the client that the Court had instructed the client to appear. Rather than prejudice Valisa's ability to prosecute the case, and the rights of other Defendants to defend it, the Court withheld decision on the motion to withdraw, issued a Trial Readiness Order, and permitted Valisa to serve and file a Note of Issue. The Note of Issue was served on October 26, 2007 and filed on November 1, 2007.

By Decision and Order entered November 11, 2007, the Court granted the motion of 54 Group's counsel to be relieved, directed outgoing counsel to serve a copy of the Decision and Order upon 54 Group, and scheduled a further conference.

On January 4, 2008, Howard Fried, the principal of 54 Group, appeared without counsel. He advised the Court that 54 Group would not be retaining counsel, even though the Court informed Mr. Fried that a limited liability company had to appear by counsel. During the conference, arrangements were made for Mr. Fried to be deposed as a third-party and for the scheduling of the present motions. The deposition of Mr. Fried proceeded to completion, the motions have been made, but still no appearance has been made by 54 Group. The Court observes that Valisa has not submitted proof that it served its motion for a default judgment upon 54 Group.

BACKGROUND AND FACTS

The Complaint alleges that, as of 2002, 54 Group held certain rights to a non-toxic insect repellant which it marketed under the BugAway! brand. Howard Fried and Morales were the principals of 54 Group. Plaintiff claims it had expertise in applying scents to paper goods and sought to apply that expertise to BugAway! insect repellant.

In or about May, 2002, Valisa and 54 Group entered into a Licensing and Supply Agreement (the "Agreement") pursuant to which Valisa would manufacture and sell paper based insect repellent and other products, purchasing the insect repellent from 54 Group. The initial term of the Agreement was two years and four months, which would start upon the making of the first royalty payment by Valisa. Valisa had the right to renew the Agreement for two additional four year terms. Neither party could assign or transfer their rights under the Agreement without prior written consent of the other party.

The Agreement required that Valisa pay $75,000 on account of royalties, with $20,000 to be paid on signing of the Agreement and $55,000 to be paid four months later, if Valisa desired to continue the Agreement.

In September 2002, Valisa and 54 Group entered into an addendum to the [*4]Agreement. Under the Addendum, Valisa's manufacturing, marketing and selling rights were revised and the terms of the $55,000 payment were modified. Under the addendum, $30,000 would be paid four months after signing and $25,000 would be paid 10 days after satisfactory resolution of discussions between the parties' patent and trademark attorneys.

Valisa apparently paid a total of $75,000 in three installments ending on September 24, 2002.

On or about February 22, 2003, Fried sent Plaintiff and others an e-mail announcing that, as of March 1, 2003, the corporate office, Sharon Burnet and he no longer would be operating on behalf of 54 Group and Bugaway Brands. Valisa asserts that when it made inquiries about the situation, Howard Fried told Valisa, inter alia, that the 54 Group remained in business. Nevertheless, on or about July 23, 2003, Howard Fried, as President, and on behalf of 54 Group, notified Valisa that it wished to change the payee under the Agreement from Maako to 54 Group. This suggests that 54 Group was still operating as of July 23, 2003.

A. Bugaway Brands, LLC

On or about December 24, 2003 Bugaway LLC and 54 Group entered into an Asset Acquisition Agreement pursuant to which Bugaway acquired the assets of 54 Group in return for a payment of $122,027.92 and 36 units of Class B Interest in Bugaway valued at $15,000. Bugaway was formed by Donald Fried, the brother of Howard Fried, allegedly for the express purpose of acquiring the assets of 54 Group. According to an affidavit submitted by Donald Fried, Howard Fried was struggling, running the 54 Group out of his house, and kept asking for loans. Donald Fried says that, with his business experience, he believed that he might turn 54 Group's intellectual property into a success and, at the time, he had discussions with a San Francisco corporation, MJC Formula LLC ("MJC") who might be an ideal licensee. He also states that he believed that Valisa had never achieved any sales under the Agreement and that the Agreement "was no longer of any force". He also states that his vision was to focus on plastics, not on paper based repellents and air fresheners.

In Section 3 of the Asset Purchase Agreement, Bugaway expressly disclaimed several liabilities incurred by 54 Group. The Agreement, in relevant part, provides as follows:

Buyer shall not assume or be bound by any duties, responsibilities, obligations or liabilities, contracts, costs or expenses of seller or any other person or entity of any kind or nature, known, unknown, contingent or otherwise, by reason of any theory of law or equity except those specifically being purchased as part of the assets purchased under this Agreement ... . Id. at ¶2.

Appendix E of the Asset Purchase Agreement specifically excludes the [*5]Licensing and Supply Agreement between Valisa and 54 Group.

On or about September 10, 2004, Howard Fried notified Valisa that 54 Group no longer was doing business and was a defunct company, that the Agreement between the parties was null and void, and that all assets had been transferred to a new company, i.e., Bugaway, which took over the administration of intellectual property within its principal place of business at 20841 Prairie Street, Chatsworth, California and proceeded to obtain new customers and a new bank account.

Valisa contacted Howard Fried and notified him of Valisa's intention to renew the Licensing and Supply Agreement for the first four year option period. In a letter dated September 22, 2004, Howard Fried stated he assumed that Valisa had abandoned that Agreement and that it was terminated. He further stated that the purported "renewal" by Valisa was of no effect.

Once Bugaway purchased 54 Group's assets, its operations were conducted by Donald Fried, not his brother Howard. However, Howard Fried served as a consultant to Bugaway. Howard Fried also continued to use the same secretary he used when running 54 Group. However, no other 54 Group employees were retained by Bugaway.

Approximately two months after the execution of the Asset Purchase Agreement, Bugaway entered into a licensing agreement with MJC. Subsequently, in or about March 2006, MJC purchased the assets of Bugaway for a $500,000 down payment and additional payments over time. In February 2007, MJC rescinded its purchase of the assets from Bugaway after it discovered that certain elements that made up the Bugaway repellant formula were not exempt from regulation by the Federal Environmental Protection Agency.

B. The Complaint

Valisa's Complaint asserts five causes of action.[FN2] The First Cause of Action asserts that 54 Group breached the Agreement by refusing to extend it and seeks $191,000 in damages. The Second Cause of Action claims that Valisa paid [*6]$75,000 under the Agreement and $16,000 for supplies and seeks damages against Defendants of at least $91,000. The Third Cause of Action seeks the recovery of attorneys' fees and expenses against 54 Group under the terms of the Agreement. The Fourth Cause of Action asserts that Howard Fried and Bugaway procured 54 Group's breach of the Agreement and seeks $191,000 in damages against Fried and Bugaway. The Fifth Cause of Action sought to hold all Defendants liable for 54 Group's breaches on the theory that Bugaway, Howard Fried, Morales, and Maako were "alter egos" of 54 Group. The Fifth Cause of Action was previously dismissed as to Howard Fried, Morales, and Maako.

THE SUMMARY JUDGMENT STANDARD

The proponent of a motion for summary judgment carries the initial burden of production of evidence as well as the burden of persuasion. Alvarez v. Prospect Hospital, 68 NY2d 320 (1986). The moving party must tender [FN3] sufficient evidence to demonstrate as a matter of law the absence of a material issue of fact. Failure to make that initial showing requires denial of the motion, regardless of the sufficiency of the opposing papers. Weingrad v. New York University Medical Center, 64 NY2d 851, 643-644 (1985); St. Luke's-Roosevelt Hospital v. American Transit Insurance Co., 274 AD2d 511 (2d Dept. 2000); Greenberg v. Manlon Realty, Inc., 43 AD2d 986 (2d Dept. 1974). Once the moving party has made a prima facie showing of entitlement of summary judgment, the burden of production shifts to the opponent, who must now go forward and produce sufficient evidence in admissible form to establish the existence of a triable issue of fact or demonstrate an acceptable excuse for failing to do so. Zuckerman v. City of New York, 49 NY2d 557, 562 (1980); Tillem v. Cablevision Systems Corp., 38 AD3d 878 (2d Dept. 2007); Fleming v. Graham, 34 AD3d 525 (2d Dept. 2006).

The court's function on a motion for summary judgment is issue finding rather than issue determination. Sillman v. Twentieth Century Fox Film Corp., 3 NY2d 395 (1957). Since summary judgment is a drastic remedy, it should not be granted where there is any doubt as to the existence of a triable issue. Rotuba Extruders v. Ceppos, 46 NY2d 223 (1978). Thus, when the existence of an issue of fact is even arguable or debatable, summary judgment should be denied. Stone v. Goodson, 8 NY2d 8 (1960); Sillman v. Twentieth Century Fox Film Corp., supra.

BUGAWAY'S MOTION FOR SUMMARY JUDGMENT[*7]

Bugaway contends that the Court should grant summary judgment in its favor as to all of Valisa's claims. The Court will deal with each claim in turn.

A.The First and Third Causes of Action

In the First Cause of Action, Valisa alleges that 54 Group breached the Agreement with Plaintiff by refusing to extend it for an additional four year term and by declaring the agreement null and void. There is nothing set forth within the confines of the Third Cause of Action that references Bugaway and it is clear that Bugaway was not a party to the Agreement. (To the extent that the introductory allegations that precede the First Cause of Action allege that Bugaway is the "alter ego" of 54 Group, those allegations are separately discussed in regard to the Fifth Cause of Action).

In the Third Cause of Action, Plaintiff seeks attorneys' fees and expenses from Defendant 54 Group pursuant to Article X of the Agreement as a result of 54 Group's alleged breach of that Agreement. Again, this cause of action does not mention Bugaway either directly or indirectly and it is clear that Bugaway was not a party to the Agreement.

The First and Third Causes of Action must be dismissed as to Bugaway as it is well settled that one who is not party to an agreement cannot be bound by it. Black Car and Livery Ins., Inc. v. H & W Brokerage, Inc., 28 AD3d 595 (2d Dept. 2006); Blank v. Noumair, 239 AD2d 534 (2d Dept. 1997); Walz v. Todd & Honeywell, 195 AD2d 455 (2d Dept. 1993). See National Survival Game of New York, Inc. V. NSG of LI Corp., 169 AD2d 760, 761 (2d Dept. 1991) [corporations which were not parties to an agreement could not be bound by it]; Schwartz v. Greenfield, Stein and Weisinger, 90 Misc 2d 882, 884 (Sup. Ct. Queens Co. 1997) ["... no action for breach of contract could be brought by one not in privity of contract...."].

Here, the First and Third Causes of Action do not even facially allege liability on the part of Bugaway, and there is no evidence that Bugaway expressly assumed the underlying obligations of the agreement.

B.Second Cause of Action

Valisa's Second Cause of Action alleges that "Defendants" have been unjustly enriched in the sum of $91,000 by virtue of Valisa's payments to "Defendants" of $75,000 pursuant to the Agreement as well as an additional $16,000 for supplies pursuant to the Agreement. Defendants, says Valisa, have failed to comply with the terms of the Agreement by failing to allow Valisa to extend its term and by declaring the Agreement to be null and void.

To prevail on a claim of unjust enrichment, a plaintiff must establish that the defendant benefitted at the plaintiff's expense and that equity and good conscience require restitution. Whitman Realty Group, Inc. v. Galano, 41 AD3d 590, 593 (2d Dept. [*8]2007), citing Kaye v. Grossman, 202 F.3d 611, 615-616 (2d Cir. 2000); City of Syracuse v. R.A.C. Holding, 258 AD2d 905, 906 (4th Dept. 1999). Stated differently, "[t]o state a cause of action for unjust enrichment, a plaintiff must allege that it conferred a benefit upon the defendant, and that the defendant will obtain such benefit without adequately compensating plaintiff therefor." Smith v. Chase Manhattan Bank, USA, N.A., 293 AD2d 598, 600 (2d Dept. 2002), citing Nakamura v. Fujii, 253 AD2d 387, 390 (1st Dept. 1998); see Wolf v. National Council of Young Israel, 264 AD2d 416, 417 (2d Dept. 1999).

Here, Plaintiff has failed to show the existence of a triable issue of fact as to whether Bugaway was unjustly enriched. To the extent the Complaint may be read to suggest that Bugaway "failed to comply with the terms of the agreement", it is beyond doubt that such could not be the case as Bugaway was not a party to the Agreement between Valisa and 54 Group, and therefore, Bugaway had no legal obligation to comply with its terms. Likewise, there is no basis for a contention that Bugaway acted wrongfully by refusing to allow Plaintiff to extend the terms of an agreement to which Bugaway was not a party. Since Bugaway was not a party to the Agreement, there is no showing that Bugaway was under any duty to, or had any power to, have the Agreement extended.

To the extent Plaintiff argues that Bugaway was unjustly enriched by the monies paid by Plaintiff to 54 Group in accordance with Agreement to which Bugaway was not a party, this claim too must fail, because Plaintiff has not shown that Bugaway engaged in any conduct that resulted in any enrichment resulting from any benefit that Valisa conferred on Bugaway. While Valisa paid money to 54 Group in 2002, Bugaway acquired assets from 54 Group in 2003 for consideration. There is no evidence that any of the money that Valisa paid 54 Group in 2002 resulted in a benefit to Bugaway in 2003 or at any point thereafter.

Valisa's cause of action for unjust enrichment cannot succeed upon theories of recovery of assumption or assignment. There is no evidence that Bugaway expressly assumed 54 Group's liabilities; to the contrary, there is affirmative evidence that Bugaway expressly disclaimed such liabilities. (See, Howard Fried Aff., ¶12 and Ex. 2).

Accordingly, the Second Cause of Action fails.

C.Fourth Cause of Action

The Fourth Cause of Action alleges, in relevant part, that Bugaway "intentionally and wrongfully procured" 54 Group's breach of the Agreement.

A claim of tortious interference with contract requires proof of (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional procuring of the breach; and [*9](4) damages. White Plains Coat & Apron Co. v. Cintas Corp., 8 NY3d 422, 426 (2007); Foster v. Churchill, 87 NY2d 744 (1996), citing Israel v. Wood Dolson Co., 1 NY2d 116, 120 (1956);

Here, the first two of the elements of the cause of action are conceded: a contract existed between Valisa and 54 Group and the Bugaway had knowledge of the contract. Bugaway does not argue that Valisa cannot prove legally recoverable damages.[FN4], The question on this motion is whether there is evidence in the record that would support a finding that Bugaway intentionally procured the breaches of the contract by 54 Group claimed by Valisa, to wit, refusing to extend the Agreement and declaring it a nullity.

In this regard, the showing made by Bugaway in support of its motion is meager. According to Donald Fried's affidavit, 54 Group was in financial distress, Howard Fried and Morales were not experienced business people, Donald Fried believed he could make a go of 54 Group's intellectual property, and Donald Fried had a potential licensee in hand. Donald Fried also says he believed that Valisa had not achieved any sales under the Agreement and that the Agreement was not in force. He also suggests that his vision was to make plastic products, rather than paper based products.

The difficulty with these assertions is that, in order to accept them, it must be concluded that Donald Fried was correct in his view that the Agreement with Valisa was not in force, either because it expired by its own terms or because Valisa's failure to make any sales was proper cause for termination of the Agreement. The Agreement provided for a term of two years and four months starting from the signing of the Agreement and the first royalty payment. Since the Agreement was signed on May 30, 2002 and the first royalty payment was apparently made on that date, it is clear that the Agreement, by its own terms, would not expire until September, 2004. Moreover, Valisa had the right to extend the Agreement, which it attempted to do in September, 2004. There is nothing in the Agreement and Bugaway certainly does not point to anything therein that gives 54 Group the right to terminate the Agreement prior to the expiration of its term, or the right to prevent Valisa from extending it, for any reason, even for failure to achieve sales.

As a result, on this record, it has not been shown that the Agreement had lapsed or expired as of December, 2003, when Donald Fried, via Bugaway, acquired 54 Group's assets. It seems clear that 54 Group ceased operations when Bugaway [*10]acquired 54 Group's assets in exchange for consideration. Thus, there is evidence that 54 Group walked away, or tried to walk away from the Agreement with Valisa, after having received economic benefits from Bugaway. This is sufficient to raise a factual question as to whether Bugaway's offer to buy 54 Group's assets, and subsequent purchase of those assets, intentionally procured 54 Group's alleged breach of the Agreement. 54 Group had an ostensibly valid and continuing obligation to Valisa and, due to 54 Group's other obligations, 54 Group decided to sell out its assets to Bugaway and walk away from its Agreement with Valisa.

As noted, Valisa's evidence in opposition to this motion is meager, but, as also noted, it is Bugaway's burden, as the proponent of this motion for summary judgment, to demonstrate prima facie that there are no triable issues of fact and that it is entitled to judgment as a matter of law. This, Bugaway has not done. The affidavit of Donald Fried itself sets forth facts which may tend to establish that Bugaway, knowing that 54 Group was in distress and seeing a potential business opportunity, elected to buy out 54 Group's assets, knowing that this would make it impossible for 54 Group to honor its Agreement with Valisa.

While it is true that, after the acquisition, efforts were made, by Howard Fried, 54 Group, or a lawyer representing them, to make an arrangement with Valisa, it is also true that the agreement between Bugaway and 54 Group specifically excluded from the sale the obligations under the Valisa Agreement and that both 54 Group and Bugaway acted as if the Agreement with Valisa was no longer in force. If they are correct in this, then there would not be any liability. But if they were not, and the Agreement was in force, then there is a fair basis for arguing, based on Donald Fried's affidavit, that Bugaway procured 54 Group's alleged breach. At least, Donald Fried's affidavit fails to conclusively show that Bugaway did not intentionally procure the alleged breach.

The Court notes that, in opposition to the motion, Valisa relies on selected language from the deposition of Howard Fried: So getting back to my brother, in 04 - he brought the business in December 03 and later in 04 he kept saying, well let's do other things. At this juncture he was still very enthusiastic about the business. And when I could get his attention, he travels quite a bit, he says, we ought to go into - I am not comfortable with the fact that we share and we're out there selling wipes to Walgreen's and they [Valisa] are selling wipes to Walgreen's with the Bugaway name. Something is wrong here. (Howard Fried Dep. at 52:10-21).Valisa, however, omits the balance of this testimony:What do we do about it? Why don't you confront him. He [*11]hasn't done any business, he hasn't bought any oil. He is not going forward with his car fresheners, he is not going forward with his wipes as far as you know. I didn't know. (Howard Fried Dep. at 52:22 to 53:3).

Valisa also references later deposition testimony from Howard Fried in which he reiterates the above-quoted testimony: Q:Was your brother aware of 54 Group's alliance with Valisa?A:Very much so.Q:When did he become aware of it?A.Before and after the sale. As I mentioned in my previous testimony, it was in 04 that he was well aware that if we went into wipes, we would be sharing the product at retail and he felt very uncomfortable. Logically it made sense. And he said let's see if we can't cut the license, discuss it with them about withdrawing it. (emphasis added) (Howard Fried Dep: at 83:5-15).

Again Valisa fails to quote the balance of Mr. Fried's answer:

They don't seem to be doing anything, they haven't sold $1 worth of merchandise in two and a half years. (Howard Fried Dep: at 83:16-19).

Valisa argues that Howard Fried indicated that Bugaway regarded Valisa as a competitor and sought to terminate the Agreement so as to prevent Valisa from being able to distribute products using the Bugaway repellent. While Howard Fried's testimony could arguably be read to suggest that both Bugaway and Valisa were marketing wipes to Walgreens, there is no other evidence before the Court that suggests that either Bugaway or Valisa were ever marketing anything. In particular, in September 2004, Sven Dobler of Valisa wrote to Howard Fried and, in the course of the correspondence, stated that "[t]o date, we have had no commercial sales", though he also stated that Valisa was sending display boxes to golf courses. While Dobler has submitted an affidavit to this Court, he does not assert therein that Valisa was, in 2004 or at any time, marketing wipes to Walgreens or anyplace else. Likewise, there is no evidence before the Court that indicates that Bugaway was marketing wipes to Walgreens or anyplace else. Further, in the quoted testimony, Howard Fried, immediately after referring to marketing to Walgreens, testified that Valisa had not done any business, including business with wipes. He subsequently repeated that testimony. Accordingly, the Court views Howard Fried's statements in relation to his discussion with his brother about Walgreens as voicing concern about such a prospect not stating an actual fact. The testimony seems merely to reflect a concern over the possibility of two parties selling the same product under the same name, i.e., Bugaway [*12]did not want to be selling insect repellent wipes if Valisa already was doing so. It would seem that rather than procuring a breach, the transcript shows that Bugaway was mindful of Valisa's alleged contractual rights and was attempting not to trespass on them.

The Court notes that the Agreement did not give Valisa exclusive marketing rights with respect to wipes (see Agreement, §2.07), though the Addendum makes clear that Valisa would have a right of first refusal to manufacture, market and/or sell towelettes and wipes on an exclusive basis within the United States. Valisa does not assert that the Agreement was breached due to a failure of 54 Group to honor the right of first refusal.

Valisa also contends that, because it believes Bugaway and 54 Group shared a lawyer who wrote letters on behalf of 54 Group and Howard Fried, "there exists a triable issue of fact regarding Bugaway LLC's intentional procuring of the breach." Pltf. Memo of Law, p. 8. While Dobler annexes letters from the attorney, M. Armon Cooper, Esq., the letters indicate that Cooper referred to 54 Group as being the client represented. There is nothing in the letters which indicate that Cooper purported to be representing Bugaway. Indeed, Dobler, in his affidavit, agrees that Cooper "described himself in the letter as the attorney for the 54 Group...." The only reference to Bugaway is a statement by Cooper that Bugaway "has authorized Mr. [Howard] Fried to negotiate with Valisa the terms and conditions on which Bugaway Brands would be willing to supply Valisa with BugAway products described in the Contract...", suggesting that if the terms were "no less favorable to Valisa" than those of the Agreement, Valisa could not sustain any damages by reason of 54 Group's cessation of business. While this statement by Cooper indicates that Howard Fried had a close relationship with Bugaway (a point which is conceded by Bugaway after all, Bugaway was formed by Howard Fried's brother and Bugaway retained Howard Fried as a consultant), it falls short of showing that Cooper was representing Bugaway. Dobler's affidavit does not identify in what other respect it is claimed that Cooper represented Bugaway. But, in any event, even if it is assumed that 54 Group and Bugaway indeed had a common lawyer, it is not explained by Valisa how such joint representation would prove that Bugaway procured 54 Group's breach of the Agreement.

In response to a claim for contract interference, the defendant may raise a defense of economic interest "that it acted to protect its own legal or financial stake in the breaching party's business." White Plains Coat & Apron Co. v. Cintas Corp., 8 NY3d 422, 426 (2007). This defense applies where the defendants were significant stockholders in the breaching party's business. 8 NY3d at 422, citing Felson v. Sol CafÉ Mfg. Corp., 24 NY2d 682, 687 (1969); Foster v. Churchill, Jr., 87 NY2d 744 (1996). Here, it is unrefuted that Howard Fried, the sole principal of 54 Group, sold the assets of 54 Group to a company run by his brother, Donald Fried, because 54 Group was failing and needed money to satisfy its own obligations. 54 Group viewed the Agreement as having expired and no longer being in force and not extendable because 54 Group could not afford to stay in business. Howard Fried's actions in ceasing to [*13]operate the 54 Group were undertaken in the economic interest he had in 54 Group's business. Bugaway did not have any legal or financial stake in 54 Group's business so that the economic interest defense would not appear to be assertable by Bugaway.

While Valisa's arguments in opposition to the motion appear to be insufficient to create a triable issue of fact, it is settled that a motion for summary judgment must be denied, even if the opposition papers are insufficient to create a triable issue, where the proponent of the motion fails to make a prima facie showing of entitlement to judgment as a matter of law. Because Bugaway has not carried this burden, its motion must be denied.

It is apparently undisputed that the components of the products in question were later found not to qualify for exemption from EPA regulation (though Howard Fried may have originally been believed that the components were exempt) and, therefore, could not have been lawfully sold. Indeed, as part of its proposed amended complaint, Valisa asserts that insect repellant did not contain only exempt ingredients and that Howard Fried committed fraud in misrepresenting that the ingredients were exempt. Perhaps for this reason, Valisa does not seek loss of expected profits but, rather, return of its investment. While Bugaway points out that this money was not refundable under the Agreement, it remains that Valisa paid $75,000 and was supposed to receive a four year contract, which Valisa could extend for eight more years. That Valisa did not do anything for the first three years does not mean, in the absence of a provision in the Agreement providing for early termination, that Valisa could be deprived of the benefit of its bargain the right to try to develop the products over the remaining term. Valisa also alleges that it incurred $116,000 in development costs. On this motion, Bugaway has not shown that Valisa is not entitled to recover any damages.

Accordingly, Bugaway's motion for summary judgment as to the Fourth Cause of Action must be denied.

D.Fifth Cause of Action (Alter Ego Liability)

In order to state a claim for piercing the corporate veil, a showing must be made that: " (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and 2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury." Matter of Morris v. New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 (1993). Parent and subsidiary or affiliated corporations are, as a rule, treated separately and independently so that one will not be held liable for the contractual obligations of the other absent a demonstration [*14]that there was an exercise of complete dominion and control. See Meshel v. Resorts International. of New York, Inc., 160 AD2d 211, 213 (1st Dept. 1990). "Evidence of domination alone does not suffice without an additional showing that it led to equity fraud or malfeasance." TNS Holdings v. MKI Sec. Corp., 92 NY2d 335, 339 (1998).

Sheridan Broadcasting Corp., et al. v. Small, et al., 19 AD3d 331(1st Dept. 2005).

Conclusory allegations that the corporation acted as an alter ego' for the owners, without more, are insufficient. Since the decision on whether to pierce the corporate veil depends upon the particular facts and circumstances, see Damianos Realty Group, LLC v. Fracchia, 35 AD3d 344 (2d Dept. 2006), the pleading should allege facts and circumstances that, if proved, would support a conclusion that defendants "used such dominion and control [over the corporation] to commit a fraud or wrong against the plaintiff which resulted in injury". Id. Vague and conclusory allegations will not do. Levin v. Isayeu, 27 AD3d 425 (2d Dept. 2006).

Valisa's present Fifth Cause of Action alleges in relevant part as follows:

56.Upon information and belief, Defendants 54 Group, Bugaway, Fried, Maako and Morales are alter egos of each other. Defendants Fried and Morales operated Defendant 54 Group as their alter egos and Defendant Maako as the alter ego of Defendant 54 Group. Upon information and belief, Defendant Fried set up Defendant Bugaway as his own alter ego to be the alter ego of Defendant 54 Group in order to avoid creditors and in order to avoid 54 Group's obligations to Plaintiff under the Agreement.

The Complaint further asserts that Fried "completely dominated and controlled Defendants 54 Group and Bugaway and that Defendants used the corporate forms of Defendants 54 Group and Bugaway to defraud Plaintiff of its payments to Defendants and their affiliates." As a result, Plaintiff claims damages of $191,000.

In his affidavit in support of the motion, Donald Fried asserts that Bugaway is an entirely separate entity from 54 Group, formed in or around December 2003 as a limited liability company pursuant to Delaware law. Bugaway has a principal place of business in Chatsworth, California, and is engaged in the development of agricultural chemicals, insecticides and pesticides. Donald Fried is the President of Bugaway and Mena Finkel is the Chief Financial Officer. Bugaway has a phone number with an 818 area code. Fried asserts Bugaway obtained all new customers and opened its own bank account.

Donald Fried avers he was, at all relevant times, Bugaway's sole director and that he remains so today. He claims he runs the business and that while his [*15]brother Howard was one of 54 Group's two principals, he has no executive role in Bugaway. Instead, Howard was hired as a consultant with prior experience with the products. Donald Fried testified at his October 8, 2007 deposition as follows:

I was legally overseeing the whole - the running of the company. Howard was hired. He had nothing to do with the new company, other than we hired Howard as a consultant, since he had all the expertise in prior years with The 54 Group for the different vendors they had used to manufacture whatever product they sold at that time. And he and one other gentleman, besides being the consultant for the manufacturing, were to handle all of the sales of the product for 54 Group.

(Fried Aff., Ex. 12, Tr. pp. 21-22, ln. 21-8).

The only other employee retained by Bugaway is Howard Fried's secretary.

Contrary to Plaintiff's claims, and as indicated in this Court's previous decision, it has not been shown by admissible evidence that Bugaway and 54 Group share a telephone number or a physical address; they also have entirely separate bank accounts, financials, tax reporting, clients and accounts payable. There is no evidence that 54 Group was merely continued in the guise of Bugaway.

In its memorandum of law, Plaintiff asserts that triable issues of fact exist that indicate among other things, that (a) Bugaway is a continuation of 54 Group and (b) the sale of the assets of 54 Group to Bugaway was entered into fraudulently to escape the obligations of 54 Group to Valisa. However, the only evidence proffered by Plaintiff in support of its alter-ego claim against Bugaway is the same evidence it provided in defending its earlier claims against Howard Fried and Morales. The documents are unauthenticated, undefined and the conclusions drawn from them are refuted by Donald Fried's deposition testimony and authenticated exhibits.

As a general rule, a corporation that purchases the assets of another corporation is not responsible for the torts of the seller corporation. However, "[a] corporation may be held liable for the torts of its predecessor if (1) it expressly or impliedly assumed for the predecessor's tort liability, (2) there was a consolidation or merger of the seller and purchaser, (3) the purchaser corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations. (Citations omitted).

Kretzmer v. Firesafe Products Corp., 24 AD3d 158 (1st Dept. 2005).

Here, Donald Fried's affidavit shows that there has been no consolidation by merger and Valisa has not offered any admissible evidence that 54 Group was merely continued in the guise of Bugaway. As in Kretzmer, "plaintiff has failed to raise a triable issue as to the applicability of the above-enumerated exceptions" (Id. at 159).[*16]and there is insufficient evidence of any continuity of management , personnel, physical location, assets and general business operation. Indeed, in Kretzmer, the court noted that "[t]he mere hiring of some of the predecessor's employees is insufficient to raise a triable issue as to continuity of management. Id. Likewise, as in Kretzmer, there is no indication of fraud on the part of Bugaway.

In light of the foregoing, summary judgment should be granted to Bugaway with respect to the Fifth Cause of Action.

VALISA'S MOTION TO AMEND THE COMPLAINT

In this Court's previous Decision and Order, the Court dismissed Plaintiff's Fourth Cause of Action for tortious interference with contract as against Howard Fried "without prejudice to an application by Plaintiff Valisa Mfg., LLC, to be made upon the completion of disclosure in this action against Defendant Howard Fried for inducing breach of contract by the Defendant The 54 Group, Ltd." The cause of action was dismissed as against Howard Fried primarily on the grounds that an officer or director of a corporation is not personally liable for inducing breach of a contract with the corporation where the officer or director acted on behalf of the corporation and that Plaintiff had not shown any personal benefit to Howard Fried. The Court stated: "In order to hold a corporate official liable for inducing the corporation to breach its contract, it must be alleged and proved that the official's actions were taken outside the scope of employment, that the official personally profited from the acts, or that the officer committed any independently tortious acts." (Decision and Order, entered July 11, 2007, at 5) (citations omitted).

Plaintiff now seeks to amend its complaint in order to assert a properly pleaded cause of action against Howard Fried. This motion is not opposed.

In support of its motion to reassert a claim against Howard Fried, Plaintiff submits a proposed amended complaint which contains a revised Fourth Cause of Action alleging that Howard Fried and Bugaway intentionally and wrongfully procured 54 Group's breach of the Agreement by misrepresenting the EPA registration requirements of the insect repellant sold to Valisa and by transferring the assets of 54 Group to Bugaway. It is alleged that Fried knew or should have known that the insect repellant sold to Valisa did not contain only exempt ingredients and misrepresented this fact to Valisa, which, claims Valisa, is an independent tortious act of Howard Fried. Valisa also alleges that Howard Fried benefitted from the transfer of assets by becoming a consultant to Defendant Bugaway at an annual pay of $120,000, as he had been making no money at 54 Group.

These allegations are without merit. Even assuming, arguendo, that Valisa could prove that Howard Fried knew, or should have known, that a portion of the products he sold to Plaintiff were not in accordance with EPA registration requirements [*17](as would be required to prove a fraudulent misrepresentation)[FN5], Valisa has not shown what benefit there would be to Howard Fried to induce a breach of the contract with Valisa so that Bugaway (funded by Fried's brother) could assume the rights to a product which did not meet those same EPA requirements and, therefore, run into the same difficulties in marketing the product..

Further, Valisa cannot establish that the representations allegedly made by Fried were outside his role as an officer of 54 Group, but instead, for his own individual benefit. Indeed, there has also been no showing that at the time Fried made the alleged fraudulent statements about the EPA requirements of its product to Valisa, that he knew that upon the economic failure of 54 Group, his brother Donald Fried would form a different company in which he would be hired as a consultant and receive a salary. As such, Plaintiff's allegations do not suggest that Fried's alleged statements were made for personal gain.

Thus, the motion to amend the complaint to assert an additional cause of action against Howard Fried individually is denied. While generally leave to amend is to be freely given, it is well settled that where the proposed amendment to a pleading is palpably insufficient as a matter of law or is totally devoid of merit, leave to amend should be denied. See Hartford Casualty. Insurance Co. v. Vengroff Williams & Assoc., Inc., 306 AD2d 435 (2d Dept. 2003); Tarantini v. Russo Realty Corp., 273 AD2d 458, 459 (2d Dept. 2000); Alejandro v. Riportella, 250 AD2d 556, 557 (2d Dept. 1998).

BUGAWAY'S MOTION TO HOLD 54 GROUP IN DEFAULT

Valisa seeks an order declaring Defendant 54 Group to be in default. This motion should be granted. As noted previously, 54 Group initially appeared through counsel and the Court, on November 11, 2007, granted counsel for 54 Group permission to withdraw from the representation. Subsequently, on January 4, 2008, counsel for Bugaway, Howard Fried and Plaintiff appeared before the Court. No counsel appeared for 54 Group. Howard Fried advised the Court that 54 Group would not be retaining counsel. The court advised Mr. Fried that a corporation must proceed with counsel. Since that time, Defendant 54 Group has failed to appear for a deposition and failed to retain counsel.

CPLR 3126 provides: [*18]

If any party, or a person who at the time a deposition is taken or an examination or inspection is made is an officer, director, member, employee or agent of a party or otherwise under a party's control, refuses to obey an order for disclosure or willfully fails to disclose information which the court finds ought to have been disclosed pursuant to this article, the court may make such orders with regard to the failure or refusal as are just, among them.:

***

3. an order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or any part thereof, or rendering a judgment by default against the disobedient party.

Rule 3126 clearly authorizes the Court to hold 54 Group in default. In similar circumstances to the instant action, New York courts have awarded default judgments when a party has obstructed and impeded disclosure under the CPLR. See Langer v. Miller, 281 AD2d 338 (1st Dept. 2001); Arcuri & Sons, Inc. v. Alfonsi, 242 AD2d 313 (2d Dept. 1997).

Here, 54 Group avoided setting a date for deposition despite court-ordered deadlines set on June 8, 2007, August 10, 2007, and October 4, 2007. Additionally, as the Court advised Howard Fried, 54 Group's principal, CPLR 321 requires a corporation to appear by an attorney. Failure to do so is a default. See World on Columbus, Inc. v. L.C.K. Restaurant Group, Inc., 260 AD2d 323 (1st Dep't 1999). The Second Department similarly has held that a corporation that appeared for deposition without an attorney is in default. Lohmann v. Castleton Gallery, Inc., 252 AD2d 482 (2nd Dep't 1998). Here, 54 Group did not even appear for its deposition.

Prior counsel for 54 Group indicated its intention to withdraw on October 3, 2007 after consultation with 54 Group going back to August 2007. At a court appearance on October 12, 2007, 54 Group was ordered to appear on October 19, 2007, but did not. The Court subsequently granted 54 Group's counsel's motion to withdraw by order entered on November 11, 2007, and gave 54 Group thirty days to retain new counsel. Yet, by January 4, 2008, at the next court appearance, 54 Group had not retained counsel and through Howard Fried indicated that it would not retain counsel. Accordingly, it is appropriate to declare 54 Group to be in default.[FN6]

54 Group's default, while establishing its liability to Valisa, does not admit [*19]damages. See Siegel, Practice Commentary C3215:6, McKinney's Cons. Laws of NY, Book 7B, CPLR 3215 at 488. An assessment of damages is required. Since Valisa's damage claims against 54 Group are similar, if not identical, to the damage claims against Bugaway, the Court will hear the damage claims against 54 Group following the trial of the action as against Bugaway. Should there be a verdict in favor of Bugaway, the damages issues will be determined as against both defendants; in the event that Bugaway is exonerated of liability, the Court will hold a damages assessment solely against 54 Group. Valisa shall serve notice of the trial date, as well as a copy of this Decision and Order with notice of entry, upon 54 Group and upon Howard Fried, 54 Group's principal.

CONCLUSION The Court has considered the following papers:

1)Notice of Motion for Summary Judgment by Defendant Bugaway Brands, Ltd. (Seq. 3) dated February 14, 2007; Affidavit of Donald Fried sworn to February 14, 2008and the exhibits annexed thereto; Affirmation of Sam P. Israel, Esq., dated February 14, 2008 and the exhibits annexed thereto, submitted with proof of service;

2)Memorandum of law in Support of Motion by Defendant Bugaway Brands, Ltd., dated February 15, 2008, submitted with proof of service;

3)Affirmation of John A. Coleman, Jr., Esq. dated February 29, 2008 and the exhibits annexed thereto, submitted in opposition to the motion by Defendant Bugaway Brands, Ltd, with proof service;

4)Affidavit of Sven Dobler sworn to February 29, 2008 and the exhibits annexed thereto, submitted in opposition to the motion by Defendant Bugaway Brands, Ltd., with proof of service;

5)Plaintiff's Memorandum of Law in Opposition to Motion dated February 29, 2008, submitted with proof of service;

6)Reply Affirmation of Sam P. Israel, Esq. dated March 5, 2008 and the exhibits annexed thereto, submitted with proof of service;

7)Reply Memorandum of Law dated March 6, 2008, submitted with proof of service;

8)Notice of Motion to Amend the Complaint and for a Default by Plaintiff Valisa Mfg. LLC (Seq. 4) dated February 15, 2008; [*20]Plaintiff's Memorandum of Law dated February 15, 2008; Affirmation of Good Faith Efforts of John A. Coleman, Jr., Esq. dated February 14, 2008; Affirmation of John A. Coleman, Jr. Esq. dated February 14, 2008, and the exhibits annexed thereto.

Accordingly, for the reasons stated and based upon the papers aforesaid, it is hereby

ORDERED that the motion by Defendant Bugaway Brands, LLC made pursuant to CPLR 3212 for summary judgment in favor of said Defendant and dismissing the Complaint as against said Defendant is granted to the extent indicated below and is otherwise denied; and it is further

ORDERED that the motion by Defendant Bugaway Brands, LLC for summary judgment in favor of said Defendant and dismissing the Complaint as against it is granted to the extent that the First, Second, Third and Fifth Causes of Action are dismissed as to said Defendant; and it is further

ORDERED that the motion by Defendant Bugaway Brands, LLC for summary judgment in favor of said Defendant and dismissing the Complaint as against it is denied as to the Fourth Cause of Action; and it is further

ORDERED that the branch of the motion by Defendant Bugaway Brands, LLC which seeks an award of counsel fees and costs is denied; and it is further

ORDERED that the motion by Plaintiff Valisa Mfg, LLC to amend the complaint and for a default judgment against Defendant The 54 Group, Ltd. is granted to the extent indicated below and is otherwise denied; and it is further

ORDERED that the motion by Plaintiff Valisa Mfg, LLC to amend its Complaint is denied; and it is further

ORDERED that the motion by Plaintiff Valisa Mfg, LLC to adjudge Defendant 54 Group in default is granted; and it is further

ORDERED that the Court shall conduct a hearing to assess damages in favor of Plaintiff Valisa Mfg, LLC and against The 54 Group, Ltd., with such hearing to be held immediately following the trial of the liability issues between Plaintiff Valisa Mfg., LLC and Defendant Bugaway Brands, LLC; and it is further

ORDERED that Plaintiff Valisa Mfg. Co, LLC shall serve a copy of this Decision and Order with Notice of Entry upon The 54 Group, Ltd. and Howard Fried by not later than May 16, 2008; and it is further

ORDERED that counsel for all parties are directed to appear before this [*21]Court for a conference for the purpose of establishing a schedule for the trial of this action on Friday, May 23, 2008 at 9:30 a.m.

The foregoing constitutes the Decision and Order of this Court.

Dated:White Plains, New York

May8, 2008

E N T E R :

________________________________

Alan D. Scheinkman

Justice of the Supreme Court

APPEARANCES:

JOHN A. COLEMAN, JR., ESQ., P.C.

Attorney for Plaintiff

444 Madison Avenue Suite 805

New York, New York 10022

SAM P. ISRAEL, P.C,

Attorney for Defendant Bugaway Brands, LLC

1 Liberty Plaza 23rd Floor

New York, New York 10006 Footnotes

Footnote 1:Bugaway's papers do not articulate the basis upon which it moves for counsel fees. As Bugaway has not pointed to any statute, court rule or contractual provision as authorizing an award of attorneys fees to it under the circumstances presented, the branch of the motion seeking counsel fees is denied as a matter of law. To the extent that Bugaway seeks recoverable motion costs, that request is also denied, as a matter of discretion. See CPLR 8106.

Footnote 2:While this Court's Decision and Order entered July 11, 2007, granted Valisa leave to amend its Complaint with respect to its efforts to pierce the corporate veil of 54 Group. Such amendment was to be done within 20 days of July 11, 2007. None of the parties have submitted a copy of any Amended Complaint and none have made any reference to the existence of such a document. Valisa submits a copy of a proposed amended complaint offered as part of its effort to pull Howard Fried back into the case. Accordingly, the Court will assume that Valisa elected not to amend with respect to the veil-piercing theory and that the original Complaint remains the operative pleading of Valisa.

Footnote 3:There is no requirement that proof be submitted in the form of an affidavit, as opposed to other acceptable forms, such as deposition testimony. Muniz v. Bacchus, 282 AD2d 387 (1st Dept. 2001).

Footnote 4:Valisa's complaint claims damages in the form of the monies it paid out to 54 Group. It does not allege damages in the form of loss of profits expected from the deal, perhaps because Valisa recognizes that the repellant, it turned out later, was not exempt from regulation by the federal Environmental Protection Administration and it appears, therefore, that the repellant could not lawfully be marketed.

Footnote 5:Howard Fried's deposition testimony indicates that he asked a Dr. Enache to issue a letter, which Enache did, to the effect that the EPA finds the product to be exempt. Howard Fried testified that he was not a chemist and took Enache's statement "as gospel". However, Fried also testified that he did not have a copy of the formula and that, when the formula was later obtained by MJC, it was determined that the formula was not exempt.

Footnote 6:While Valisa did not serve its motion papers on 54 Group, that is understandable because there was no one to serve, 54 Group having defaulted in appearing subsequent to its counsel's withdrawal. There was no need to serve notice by mail, since 54 Group had originally appeared in response to the service of process. See CPLR 3215(g)(4).