Mitchell v FBM, LLC

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Mitchell v FBM, LLC 2008 NY Slip Op 32056(U) July 17, 2008 Supreme Court, New York County Docket Number: 0114876/2007 Judge: Joan A. Madden Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. SCANNED ON 712212008 [* 1 ] b U F H t I V I t GUUKI 7 6 UF THE STATE OF NEW YORK - NEW YORK COUNTY )ION. 36AN A. MADDEN PRESENT: -+ice PART A . . [r index Number : 114876/2007 I 1 MITCHELL, JUSTIN vs. FBM, LLC MOTION DATE . SEQUENCE NUMBER : ## 001 MOTION CAL. N O . SUMMARY JUDGMENT ?d . . I .. . Notice o f Motion/ Order t o Show Cause Answering Affidavits on this motion to/for - - Affidavits - Exhibits Exhibits Replying Affidavits , ' 7 Yes Cross-Motion: ... - 'I PAPERS NUMBERED \ Upon the foregoing papers, it is ordered t h a t this motion 1 4 d&*.M &?4%. 3ated: Check one! 1 5 Check if appropriate FINAL DISPOSITION S N - F I N A L DISPO[7 DONOTPOST REFERENCE [* 2 ] Plaintiff inovcs for an order pursuaiit to CPLR 32 12 granting suiniiiary 011 liis first cause of action for a declaratory judgment that defendant FBM, LLC, is the successor-in intercst to and/or the alter corporatc cntity of Fidelity Borrowing, LLC ( Fidelity opposes the motion. The following facts are not disputed unless otherwise noted. commenced an action against Fidclity Borrowing seeking damages contract (Justin Mitchell v. Fidelity BorrowinE LLC, Index No. York County). By a decision and order entered May 3 1, 2007, the Appellate Division First Department determincd that plaintiff was entitled to suniniary judgment on his brcacli of contract claim against Fidelity Borrowing. The Appellate Division awardcd plaintiff damagcs in the amount of.$l60,000, plus interest from May 12, 2004, and remanded the issue of mitigation of daiiiagcs to the Supreme Court for a determination of how muck, if any, shodd be deducted for mitigation, or failure to mitigate damages. On rcmand, the court issucd a decision and order dated July 3 1 , 2007, which determined on consent that $5,000 be deducted from the total 1 . . . [* 3 ] amount awarded to plaintiff by the Appellate Division, First Department. On August 14, 2007, ajudgment was entered in plaintiff s favor in the sum of $155,00, together with intcrcst in the sum of $45,442.60, and costs and disbursements of $1,780.92, for a total amount of$202,224.53. On November 7, 2007, plaintiff commenced lhe instant action against FBM, LLC. The complaint asserts a h s t causc of action Tor a dcclaratoryjudgment that defendant FBM, LLC is the successor-in-interest and/or alter corporate entity of the judgment dcbtor, Fidelity Borrowing. The complaint also asserts second, third, forth, filth, sixth and seventh causes of action for fraudulent conveyance under various provisions of the Debtor and Creditor Law. Plaintiff is now moving for summary judgment on his first cause of action Tor a declaration that dcfendant FBM, LLC is the successor-interest and/or alter corporate entity of Fidelity Borrowing. Plaintiff submits an affidavit, the pleadings and other documents from the Fidelity Borrowing action, the pleadings in thc instant action, and othcr documents. In his affidavit, plaintiff asserts that defendant FBM, LLC is clearly tlic successor to Fidclity Borrowing and has searnlessly continued Fidelity Borrowing s operations. Specifically, pIaintXf alleges that from November 2002 until April 2006, Fidelity Borrowing was a mortgage brokcr, and that on August 23, 2005, approximately six months after filing its Answer in the Fidelity Borrowing Lawsuit, Fidclity Borrowing s principals filcd an application on behalf of defendant FBM, LLC to become a mortgage bank. Citing to New York Banking Law $590(2)(b), plaintiff asserts that a rnortgagc banker need not have a separate license to scrve as a mortgage broker, becausc a mortgage banker can act as both a mortgage banker and broker. Based on the Banking Law, plaintiff argues that since a moiqgage bank can also operate as a mortgage brokcr, there was no legitimatc reason for defendant to apply for a mortgage banking liccnse, as opposed to 2 [* 4 ] Fidelity Borrowing, and for Fidelity Borrowing to close its operations once defcndaiit obtained the license. Plaintiff alleges that there was no basis for transferring the business of Fidelity Borrowing to dekndant cxccpt as an illegal effort to avoid liability to him, sincc whcn Fidelity Borrowing ceased operations in April 2006, it was a valuable going conccrii with approximately 100 employees. Plaintiff asscrts that on April 1 1, 2006, dehidant obtaincd its mortgage banking liccnsc using thc tradc name Fidelity Borrowing, and on the same day, Fidelity Borrowing surrendered its mortgage broker liccnsc. Plaintiff states that he scarched telephone and bank records, and found no evidcncc that Fidelity Borrowing is still in business or has asscts, and found that Fidelity Borrowing s former bank accounts are closed. Plaintiff also asserts that defendant s website and Fidelity Borrowing s website, are identical, and that defendant is using the same toll-free telephone number as Fidelity Borrowing. Plaintiff states that a comparison of the two websitcs clearly indicatcs that, aside rrorn expanding the business to include mortgage banking in addition to mortgage brokering, no other changes in business occurred when defendant became thc successor to Fidelity Borrowing. Plaintiff argues that under the succcssor liability doctrine, thc expansion o r the business through the formation of defendant as thc successor to Fidelity Borrowing does not relieve defendant from liability for his judgment. Undcr that doctrine, tlie purchaser of a corporation is liable for the debts of its predecessor only when: 1) the purchaser expressly or impliedly assumcs the predecessor s tort liability; 2) t h e was a consolidation or merger of sellcr and purchaser; 3) the purchasing corporation was a mere continuation of the selling corporation; or 4)thc transaction is eiitercd into fraudulently to escape such obligations. See AT&S Transportation 3 [* 5 ] LLC v. Odyssey Logistics & Tcchnolow Cop., 22 AD3d 750, 752 (2 ldDept 2005). Plaintiff relies on the circuinstances of a de fiicto merger, in which the following factors are considered: 1 ) continuity of owiicrship; 2) cessation of ordinary business and dissolution of the prcdeccssor as soon as possible; 3) assuiiiption by thc succcssor of the liabilitics ordinarily necessary lor the uninterrupted continuation of the business of the acquircd corporation; and 4) continuity of management, personnel, physical location, assets and gcncral busincss operation. See id. PlaintilTasserts that his affidavit establishes the fxtors lor a de facto merger as there was a continuity of ownership betwccn dcfciidant and Fidelity Borrowing; Fidelity Borrowing ceased its ordinary business; defendant assumed the liabilities ordinarily ncccssary for the uninterrupted continuation of Fidelity Borrowing s business; and there was a continuity of management, pcrsonnel, physical location, assets and general business operations between the two entities. Plaintiff submits a copy of defcndant s mortgage banking application, which, according to plaintiff, shows that the principals of the two entitles are identical, i.e. Brian Ofsie and Robcrt J a p e . Plaintiff also rclics on Fidelity Borrowing s Fcbruary 2006 representations to the court in the other action, that it posscsscd furniture, fixtures and other assets worth $151,110. Plaintiff statcs that [gliven that defendant started and continued in business at thc same exact location as Fidelity Borrowing on April 11, 2006, without any interruption whatsoever, and that all of Fidelity Borrowing s fiiniiture, fixtures and assets are now in defendant s possession, defendant must have assumed all liabilities ordinarily necessary for the utiintcrrupted continuation of Fidelity Borrowing s business such a rent, utilities, tclephone bills, employees salaries and insurance. Defendant opposes the summary judgment, arguing that such relief is premature, since 4 [* 6 ] discovery has yet to commence. Defendant submits an attorney s alfinnation, an affidavit ol its mcmber, Brian Ofsie, and documents. Defendant asserts that plaintiff ignored its sole discovery dcinaiid to depose him, and instead brought the instant motion for summary .judgment, less than onc mouth after receipt of defendant s answer. D e h d a n t also asserts that in contrast to plaintiff, its does not possess the materials from the action against Fidelity Borrowing, sincc its has been iinablc to obtain those materials from Fidelity Borrowing s prior counsel. In his affidavit, Brian Ofsie states that dcfcndant was not formcd to conduct mortgage brokerage business, but to be an actual lender bank and that defendant is now a bank, licensed to conduct business in New York and several other states, that it has a $20 million liiie of credit for use in its origination of mortgage loans, and that its takes its own applications, Iias its own internal underwriters eiiiploycd by FBM, and makes its own determinations as to loan approval. Ofsie states that Fidclity Borrowing and defendant were simply in different lines of work, and that dcfendant was not formed with the intent of succeeding to Fidelity s business, nor did the timing of FBM s business operations have any rclationship to thc comrnenceiiicnt of plaintiffs lawsuit against Fidelity, or to plaintiffs judgment against Fidelity. Ofsie explains that FBM s business operations and the process of the licensing applications was started before plaintiffs lawsuit against Fidelity Borrowing. Ofsie also asserts that we sought to open a mortgage banking business because we wanted to be an originator of loans and since Fidelity already liad a mortgage broker s license, FBM was created. Ofsic further asserts that defendant did not take over or purchase Fidelity Borrowing s business, and that the businesses simply co-existed for 5 ~. . . . . _. . . __ _ . [* 7 ] some time, until the mortgage and real estate industry downturn simply made it iiiipossible to Fidelity to continue paying its bills. hi light of the forcgoing, plaintill. s motion for summary judgment is denied. Discovery has not yct comnwiced, so neither plaintiff nor dcfcndant has been deposed. After coniplction of discovcry, the molion may bc renewed, if the evidence warrants such relicf. Morcover, even though some factors are present to suggest successor liability and noticeably absent from defendant s papers is any statement as to whether it engages in mortgage brokering, the record as presented is inconclusive, and the parties conflicting affidavits raise issues of credibility which cannot be resolved in the context of summary judgnicnt. Accordingly, it is hcrcby ORDERED that plaintiffs motion for summary judgmcnt is denied with leave to renew upon the completion of discovery; and it is further ORDERED that the parties are directed to appear for a preliminary conference on July 24, 2008 at 9:30 a.m., Room 35 1, 60 Centre Street. DATED: July ENTER: ,2008 6

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