Matter of Central Eight Realty v Polumbo

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Matter of Central Eight Realty v Polumbo 2011 NY Slip Op 32666(U) October 6, 2011 Supreme Court, New York County Docket Number: 108063/11 Judge: Donna M. Mills 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. SCANNEDON 1011212011 [* 1] 4 I I SUPRJ3ME COURT OF THE STATE OF NEW YORK1 FW$ENT : DONNA M, MTLbS ,, , , , ,,,, PART , , 58 , I ,,,, Justice I C&WTRAL EIGHTBEALTI: I W E X N6. Jp8067/1,1,, MQTIDNDATE Petitipner, -V- MQTTON NO. 001 SBQ. I e following papers, riumbered 1 to swering Affidavits- Bxh;bits CRosS-MOTION: DECIDED I ACCORDANCE WITH ATTAcmD N .. . . . . . , [* 2] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK : IAS PlfiRT 5 8 _________--_____-________-----_X ----__-_-_ Application of CENTRAL EIGHT REALTY Petitioner, Index No. For an Order Pursuant to Article 7 5 ' 108063/11 DECISION AND JUDGMENT of the CPLR Compelling Arbitration of Certain Controversy UNFILED JUDGMENT fhis Judgment has not been entered bv the Countv Clerk and wtice ofentry cannot be sewed based her&, To obtaln entry, counsel or authorized representative must appear i person at the Judgtnent Clark'e Deak (Room n -against- WlB). RANDY POLUMBO and PLANT CONSTRUCTION, LLC , Respondents. _____________________--_-______--------__-__----__ HON. DONNA MILLS J -X .: Petitioner, Central Eight Realty LLC, (Central Eight), has brought a proceeding under CPLR 7503 to compel reepondents Plant Construction LLC (Plant) and Randy Polumbo (Polumbo) who are , , allegedly "alter egos" of 3-D Laboratory Inc., (3-D), to join an arbitration currently pending between Central Eight and 3 - D , as a result of a dispute under a construction agreement (Contract) to which respondents were not-signatories. In order to prove its entitlement to the relief sought, petitioner now moves by order 1 [* 3] to show cause dated July 15, 2011, claiming it requires expedited depositions pursuant to CPLR 408 from: (I) Polumbo; (ii) Plant; (iii) four employees of both 3-D /Plant: Paul ne Kow, Edit Nagey, Jenner La Bassiere, Marina Faelli; (iv) three named clients of 3 - D /Plant: Roy Tisch, Gordon Sumner (aka Sting and Joshua Rechnitz and (v) architect Lee Mindel. Respondents vehemently oppose the application, cross move to dismiss the petition and seek sanctions, costs and attorneys fees pursuant to Uniform Rule, 22 NYCRR §130-1.1, f o r frivolous conduct in causing significant delay in the underlying arbitration. F o r the reasons set forth below, the reBpondents' cross motion to dismiss is granted and petitioner's application is denied. E a ckground Central Eight is an entity owned by Mortimer Sackler (Sackler) that owns a high end townhouse (the Townhouse) located at 8 East 75th Street. Tn December 2 0 0 6 , Central Eight entered to t h e Contract with construction company 3-D, owned by polumbo, to perform renovations and administrative services on the Townhouse, which is the private home of S a c k l e r , in one year for the sum of $5.7 million. (Contract, Petitioner's Ex A ) . Both Sackler and Polumbo signed the Contract in their capacities as 2 [* 4] president of their respective corporations. In April 2008 the Contract was modified whereby Central Eight agreed to pay 3-D an additional $478,000 in exchange f o r 3-D's promise to substantially complete all work by January 2009 (Amendment, Petitioner's Ex A - 1 ) . Communication broke down and on November 5, 2009, 3 - D served Central Eight with a demand to arbitrate seeking $344,000 in damages f o r unpaid work which was substantially complete, and for punitive damages, later amended in August 2010 to $803,000 in damages. On November 11, 2009, Central Eight officially terminated the Contract. In December 2009 C e n t r a l Eight answered the demand and asserted a $1,000,000 counterclaim, now estimated by Central Eight to be over $2,000,000. In February 2010 Plant was created by Polumbo. The parties state t h a t they unsuccessfully attempted to mediate in early 2010. The Panel set the hearing date for June 2011, a year and a half after the arbitration was commenced in . order to allow f o r appropriate discovery. In July 2011 Central Eight commenced this proceeding claiming that Plant and Polumbo are \\alter egos" of 3-D and that it is entitled to "pierce the corporate veil" of Plant because Plant dominated 3 - D and used the domination to commit a wrong 3 [* 5] which resulted in petitioner's injury (Verified Petition dated July 1 2 , 2011, qy 1, 11-15). It is petitioner's position that it 3-D's termination of some of its existing contracts and its transferring those contracts to Plant during the arbitration proceedings is sufficient proof of domination to warrant compelling respondents to arbitrate in the underlying arbitration (Verified Petition 5 2 - 5 6 ) . Petitioner claims that it has been injured as a result of the domination because it can potentially win a judgment in the arbitration and 3-D can potentially not have sufficient fundB to pay the judgment. The arbitration has been stayed, pending determination of thiB proceeding (Stipulation of parties dated July 29, 2011). The A r b i tra tion Procedures The Contract between Central Eight and 3 - D establishes detailed procedures for resolving any disputes that arise between t h e parties including the procedure f o r joinder of parties. Specifically, the Contract requires submission of any dispute "arising out of or relating to this Contract'' to the architect and then, if it ia not resolved, it is subject to mediation as a condition precedent to submission to arbitration. It states that the parties shall endeavor to resolve their dispute by mediation (Contract,§9.10.1- 9.10.4 annexed as Ex A to Petitioner's Order 4 [* 6] I. ' to Show Cause). It thereafter states: Claims . . . relating to the Contract that are not resolved by mediation . . . shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect . . . [which award shall be final]. . . no arbitration arising out of . . . the Contract Documents shall include, by consolidation, joinder or in any other manner, any person or entity not a party to the Agreement . . . unless it is shown at the time the demand is filed that (1) such person or entity is substantially involved in a common question of fact or law, (2) the presence of such person or entity is required if complete relief is to be accorded in the arbitration, ( 3 ) the interest or responsibility of such person or entity in t h e matter is not insubstantial . . . [tlhe agreement herein ahall be specifically enforceable under applicable law in any court having jurisdiction. The A r b i t r a t i o n The three member panel was convened in August 2010. In March 2011, after many montha of discovery, Central Eight notified the Panel that it expects to seek a ruling on whether it is entitled to discovery of Plant, which it considers to be 3-D's successor corporation, created after the arbitration was commenced, assertedly to avoid paying a potential judgment on Central Eight's counterclaims. In the Panel's March 29, 2011 ruling, it stated that: From the information provided to date-and o n l y based on that scant information-Respondent ,should be aware of the Panel's initial view that documents regarding the formation of another company that is not 5 [* 7] a party to this proceeding and apparently was not involved in any of the matters at issue in this dispute, would not appear to be discoverable at this stage of the proceedings. Respondent is encouraged to provide the Panel with additional information and legal authority that would bolster its arguments (Notice of Cross Motion Ex F, annexed to Affidavit of Randy Polumbo dated July 22, 2011). On April 6, 2011, petitioner filed its motion in t h e arbitration proceedings t o compel production of Plant documents (Cross Motion, Ex H), in order to support its future application to j o i n Plant in the arbitration, in order to avoid to the "prospect of a second litigation to enforce a [potential] award against Plant"(Re8pondent's Ex G , H). In support, Central Eight referenced three 3-D construction projects that have now become Plant projects. In an April 20, 2011 o r d e r the Panel denied Central Eight's motion for discovery from Plant stating t h a t it \\basnot been presented with any information to suggeat that Plant Construction to the Panel" (Panel's April 20, 2011 Ruling, Respondent's Ex J) After many months of discovery, the parties' June 2011 hearing date was once again postponed to September 2011, "primarily due to [Central Eightl's failure to adhere to two prior scheduling orders regarding discovery" (Panel's April 13 6 [* 8] Ruling, Respondent s Ex K). Thereafter, this proceeding waB commenced. Discussion After a full and thorough review of all of the relevant I I I papers at issue, the Court finds that the portion of the application which seeks permission to obtain disclosure pursuant to CPLR 408, is denied in the broad discretion of this court (Matter of Shore, 109 AD2d 8 4 2 [2nd Dept 19851; McLaughlin, Practice Commentaries, Mckinney s Cons Laws of NY, Book 7B, CPLR arbitration, and t h e importance of conservation of the court s times, courts are cautioned against permitting the parties from using the courts as a vehicle to protract litigation which would only serve to frustraLe . . . the initial intent of the parties (Matter of N a t i o n w i d e Gen Ins Co v Investors Ins Co, 37 ample need f o r the discovery sought from this court (Grossman v McMahon, 261 AD2d 54 ), Dept 19991), which can be applied f o r and thus, the requested discovery is denied. In addition, that portion of the cross motion which seeks to 7 [* 9] dismiss the petition to "pierce t.he corporate veil" of 3-D and compel respondents to arbitrate, is granted for the following reasons : "Those seeking to pierce the corporate veil ... bear a heavy burden of showing that t h e corporation was dominated as to the transaction attacked and that such domination waa the instrument of fraud or otherwise resulted in wrongful or inequitable consequences... [elvidence of domination alone does not suffice without an additional showing that it led to inequity, fraud or malfeasance" (internal citations omitted) (TNS Holdings, Inc., v MKI S e c u r i t i e s C o r p . , 9 2 NY2d 3 3 5 [1998]). Applying the "alter ego" test here, petitioner has failed t o meet its heavy burden of demonstrating that 3-D was dominated as to the transaction attacked since importantly, that domination and alleged wrongful conduct did not occur within "the transaction attacked" (id.). Rather, petitioner has conceded that it is relying on events occurring after t h e Contract was terminated, and after the arbitration was commenced, and t h u s , the application to dismiss the petition is granted. That portion of the c r o s s motion that seeks to impose sanctions is denied in the discretion of the court. Accordingly, it is hereby 8 [* 10] ADJUDGED t h a t t h e petition is denied and it is further ADJUDQED that t h e proceeding, including t h e motion f o r discovery, is dismissed and finally, that t h e s t a y of the arbitration is v a c a t e d . UNFILED JUDGMENT 7hf8judgment has not been entered by the County dark m notice ofentry cannot be served based hereon. To d obtain entry, coWt9el or authorized representative must aPPear in person at the Judgment Clerk's Desk (Room 1418). 9

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