Opinion
Index No.: 652833/2014
10-26-2016
88 BROAD STREET, LLC, Plaintiff, v. STONE & BROAD INC., a New York State corporation that was dissolved by proclamation and/or had its authority annulled on March 25, 1992, PHILIP SCHWARZMAN, M.D., individually, MADELINE SCHWARZMAN, individually, "JOHN DOE #1" through "JOHN DOE #10", being and intended to be other as yet unidentified shareholders, officers and/or principals of the dissolved corporation, Stone & Broad, Inc., the entity BLANK ASSOCIATES, "JANE DOE #1" through "JANE DOE #10", being and intended to be other as yet unidentified partners or owners of the entity known as Blank Associates, and "PHILIP DOE #1" through "PHILIP DOE #10", being and intended to be other as yet unknown individual recipients of the assets of Isaac Blank and Blank Associates and/or any recipient entities they may control, Defendants.
DECISION & ORDER
:
Defendants Philip Schwarzman, M.D. and Madeline Schwarzman (collectively, the Individual Defendants), Stone & Broad Inc. (Tenant), and Blank Associates (Blank) move, pursuant to CPLR 3211, for partial dismissal of the amended complaint (the AC). Plaintiff 88 Broad Street, LLC (Landlord) opposes and cross-moves for relief that is either moot, withdrawn, or duplicative of its opposition to the motion to dismiss. For the reasons that follow, defendants' motion is granted in part and denied in part, and plaintiff's cross-motion is denied as moot.
I. Factual Background & Procedural History
As this is a motion to dismiss, the facts recited are taken from the AC (see Dkt. 43) and the documentary evidence submitted by the parties.
References to "Dkt." followed by a number refer to documents filed in this action on the New York State Courts Electronic Filing system (NYSCEF).
This case concerns disputes between Landlord and Tenant under a triple net lease (the Lease) (Dkt. 53) of a building located at 88 Broad Street in Manhattan (the Building). The Lease was originally entered into by predecessors of Landlord and Tenant in 1932 and was extended on a number of occasions. The most recent extension was executed in July 1991 and had a term of May 1, 1992 to April 30, 2013. Landlord claims that Tenant was represented by one of its shareholders, Isaac Blank (Isaac), when the 1991 extension was executed. Isaac died in 2005. The Individual Defendants, allegedly, currently own and control Tenant.
According to the AC, the Building also has an address of 17 Stone Street.
When the 1991 extension was executed, Tenant was an active New York corporation. On August 7, 1991, Tenant entered into a sublease with non-party 88 Broad Realty Corp. (Subtenant) for a term of August 1, 1991 to April 29, 2013, pursuant to which Subtenant was to pay rent to Blank, not Tenant. See Dkt. 54 at 23 (the Sublease), 25 (section 2.2, providing that rent is to be paid to Blank). Isaac signed the Sublease on behalf of Tenant (Blank was Isaac's surname). See id. at 56 (indicating Isaac was Tenant's President). Blank, allegedly, was and still is owned and controlled by shareholders of Tenant. The following year, in March 1992, Tenant was dissolved by proclamation for failure to pay taxes. Tenant's corporate status was reinstated 24 years later, in 2015 (after this action was commenced and) after it paid its back taxes.
Landlord commenced this action on September 17, 2014 by filing its original complaint. Landlord filed the AC on November 11, 2015, which asserts five causes of action: (1) breach of various provisions of the Lease (discussed below); (2) violations of New York Debtor and Creditor Law (DCL) §§ 273 and 274; (3) violations of DCL § 276; (4) an award of attorneys' fees under DCL § 276-a; and (5) a claim to treat defendants "as a single personality." Landlord also seeks to impose liability onto the Individual Defendants by piercing the corporate veils of Tenant and Blank. Alternatively, Landlord seeks to hold those that owned and controlled Tenant personally liable due to Tenant's corporate status being dissolved between 1992 and 2015. To the extent only Tenant may be held liable, Landlord asserts DCL claims challenging transactions, such as Blank's receipt of Tenant's rent under the Sublease, that allegedly were fraudulent due to lack of consideration at a time when Tenant was insolvent. Landlord also seeks legal fees under paragraph 24 of the Lease. See Dkt. 53 at 54-55.
While most of the causes of action concern which defendants may be held liable, the bulk of the AC is devoted to the myriad alleged breaches of the Lease. Landlord first alleges a breach of paragraph 5, which provides:
The Tenant shall and will, at its own cost and expense, take good care of the demised premises and keep the same, including any and all buildings, structures and improvements at any time during the term of this lease, and any and every part thereof, both inside and outside, and the sidewalks and curbs adjoining the same and the appurtenances thereto, in good order and condition, and shall and will at its own cost and expense, at all times during the term of this lease, make and do any and all inside and outside repairs and replacements in, to or upon the interior and exterior of any building or structure at any time during the term of this lease standing on said demised premises and the appurtenances thereto, including vaults, sidewalks, water, sewer and gas connections, pipes and improvements and all other fixtures, machinery and equipment, now or hereinafter contained in or connected with said demised premises and/or used in their operation, and the Tenant shall and will, at its own cost and expense, make, any and all the aforementioned repairs and replacements, whether ordinary or extraordinary, structural or otherwise, and the Tenant hereby releases and discharges the Landlords from any obligation whatsoever to make any such repairs and replacements.See Dkt. 53 at 15-16 (emphasis added). Landlord claims this provision was breached because, at the end of the leasehold, the Building was in serious disrepair and in need of extensive work. The AC contains a laundry list of issues.
The parties' dispute regrading whether some of the disrepair was caused by Superstorm Sandy in 2012 (despite Landlord allegedly notifying Tenant of the disrepair in 2011) raise questions of fact not amenable to resolution on a motion to dismiss.
See AC ¶ 38:
(a) the Tenant failed to remedy the serious water infiltration condition whereby water was permitted to infiltrate the cellar through the foundation walls and cellar floor slab whenever it rained, (b) the Tenant permitted a serious mold condition to develop in the basement, (c) the Tenant failed to abate the asbestos condition allowed to exist at the building permitting air borne particles of asbestos to migrate in the building, (d) the Tenant failed to replace the fire damaged wooden joists located in the ceilings on the first, second and third floors of the building, (e) the Tenant failed to maintain the roof, parapet walls and copings to prevent water infiltration into the building causing water damage, inter alia, to the beams including rotting of the beams and damage to the structural support for the first floor and other portions of the building, (f) the Tenant failed to remove the decommissioned cell tower and structures located on the roof at the end of the lease term with Sprint Nextel and all of its connections throughout the building, (g) the Tenant failed to repair the cellar ceiling, (h) the Tenant failed to properly maintain the storm and sanitary sewer drains throughout the building, (i) the Tenant failed to repair and/or replace the windows and their masonry openings at the upper floors, (g) the Tenant failed to repair and/or replace the west entrance/exit to/from the stairway and upper floors which was damaged and obstructed ingress and egress, (k) the Tenant failed to maintain the stairway and landings at each floor which were in deteriorated condition and the stringers, risers and treads, landings, and the interior surfaces in the stairway area require restoration or replacement, (l) the Tenant failed to maintain the general interior of the building on each of the floors and permitted them to become outdated, damaged and neglected; (m) the Tenant allowed the floor surfaces to become cracked and uneven thereby creating trip hazards throughout the building, (l) [sic] the Tenant permitted the wall and ceiling surfaces to become extensively water damaged, (n) the Tenant failed to replace the Heating, Ventilation and Air Conditioning equipment located throughout the building that were of poor quality and outdated, (o) the Tenant failed to maintain the sidewalks in front of the building on the Broad Street and Stone street sides in a safe condition and they permitted the sidewalk to remain uplifted, raised, un-level, uneven, cracked, broken, and/or in a poor state of repair and (p) in numerous other ways the Tenant neglected the condition of the building permitting [its] overall condition to seriously deteriorate causing the Landlord to pay "an enormous expense just to make the property rentable."
Landlord also alleges breaches of paragraph 16, which provides:
The Tenant, at the end or other expiration of the term of this lease, shall and will peaceably leave, surrender and yield up to the Landlords said demised premises and the appurtenances, together with any and all buildings, improvements, betterments, alterations and additions therein, thereto and thereon, and any and all equipment and machinery used or required for the operation of said demised premises or any part thereof, in good order and condition, reasonable wear and tear excepted. Nothing herein contained however shall be deemed to modify the rights if the Tenant with respect to the removal of any trade or business fixtures, movable partitions or furniture to the extent authorized and permitted by the provisions of article TENTH hereinbefore contained.See Dkt. 53 at 35 (emphasis added). Landlord claims that, as a result of Tenant's breach of its obligation under paragraph 5 to make repairs, the Building was left in a state beyond what may be considered "reasonable wear and tear."
Next, Landlord alleges breaches of paragraph 3, in which:
The Tenant covenants and agrees that the Tenant shall and will, at its own cost and expense, during the entire term of this lease promptly execute and comply with any and all present and future rules, orders, ordinances, regulations, statutes and requirements of law, irrespective of the nature of the work required to be done, extraordinary as well as ordinary, of federal, state, city, county, borough ...See Dkt. 53 at 10 (emphasis added). The AC sets forth an extensive list of violations allegedly not remediated by Tenant. Additionally, Landlord claims Tenant breached paragraph 4 (see id. at 12) by failing "to inform [Landlord] that there was a serious fire in the building which resulted in the supporting wooden floor beams being burnt and damaged over a large area under three of the floors." See AC ¶ 47. Furthermore, Landlord claims Tenant breached paragraphs 1 and 2 (see Dkt. 53 at 6) by failing to pay rent and other amounts owed under the Lease between October 2012 and April 2013.
See AC ¶ 45:
Defendant Stone and the remaining defendants failed to cure and have lawfully "signed off" or removed the following violations and open permits affecting the building and/or comply with outstanding Department of Buildings (DOB) orders: (a) DOB Violation V081688ECBPA08AP01 ACTIVE00/00/1988, (b) Open DOB Application 100317532 (for general interior construction) (c) Open DOB application 100350763 (for a fire suppression system) (d) Three Open Electrical Permits i.e. three (3) open electrical application with the Bureau of Electrical Control: M194237, M087898, and M087501 all dating to 1991 for unspecified, general and I or unknown work. (e) Three open sidewalk violations, (f) one ECB violation, number 34053257X, (g) compliance with the 11/3/12 vacate order issued by DOB and failed to submit a report by a NYS licensed professional engineer or registered architect certifying (i) there is no standing water in the building, (ii) the building is structurally sound, (iii) all required safety systems, including, but not limited to, fire alarms, sprinklers, standpipes, carbon monoxide and smoke detectors, are in good working order, (iv) the building is otherwise safe to occupy, (v) and the building has electrical power or a working emergency generator to power all required safety systems, (h) timely file RPIE forms with the Department of Finance causing increased real estate taxes and penalties, (i) failed to timely obtain Department sign-offs for the exterior wall sign on the Stone street side of the building.
Defendants concede that these alleged breaches are properly pleaded and raise questions of fact that require discovery and, thus, cannot be resolved on this motion to dismiss. However, on November 16, 2015, defendants moved for partial dismissal of the AC on three grounds: (1) Landlord failed to state a claim for breach of the Lease against all of the defendants other than Tenant because Tenant is the only defendant that is a party to the Lease; (2) some of Landlord's claims for breach of the Lease against Tenant are time-barred; and (3) Landlord's DCL claims are time-barred and insufficiently pleaded. On January 27, 2016, Landlord opposed and cross-moved for relief that is now either withdrawn or moot. Defendants filed their reply on April 6, 2016. The court reserved on the motion after oral argument. See Dkt. 80 (8/2/16 Tr.).
In its notice of cross-motion, Landlord seeks: (1) an order denying defendants' motion to dismiss; (2) a default judgment against Tenant (this prong of the motion was withdrawn on July 18, 2016) (see Dkt. 79); (3) a ruling on the statute of limitations issues raised on the motion to dismiss; (4) an order directing defendants' counsel to provide contact information for the "Doe" defendants and leave to serve them with alternative service; and (5) an order directing that discovery commence. See Dkt. 59. Discovery will be addressed at the preliminary conference ordered herein.
The court disregards Landlord's April 12, 2016 submissions (Dkt. 75-77) because they constitute an unauthorized sur-reply (the papers principally address the original motion and replies on cross-motions are not permitted). The court also disregards defendants' letter response to that sur-reply (Dkt. 78). In the ordering language below, the court directs the e-filing clerk to strike these documents from the record.
II. Discussion
A. Legal Standard
On a motion to dismiss, the court must accept as true the facts alleged in the complaint as well as all reasonable inferences that may be gleaned from those facts. Amaro v Gani Realty Corp., 60 AD3d 491 (1st Dept 2009); Skillgames, LLC v Brody, 1 AD3d 247, 250 (1st Dept 2003), citing McGill v Parker, 179 AD2d 98, 105 (1st Dept 1992); see also Cron v Hargro Fabrics, Inc., 91 NY2d 362, 366 (1998). The court is not permitted to assess the merits of the complaint or any of its factual allegations, but may only determine if, assuming the truth of the facts alleged and the inferences that can be drawn from them, the complaint states the elements of a legally cognizable cause of action. Skillgames, id., citing Guggenheimer v Ginzburg, 43 NY2d 268, 275 (1977). Deficiencies in the complaint may be remedied by affidavits submitted by the plaintiff. Amaro, 60 NY3d at 491. "However, factual allegations that do not state a viable cause of action, that consist of bare legal conclusions, or that are inherently incredible or clearly contradicted by documentary evidence are not entitled to such consideration." Skillgames, 1 AD3d at 250, citing Caniglia v Chicago Tribune-New York News Syndicate, 204 AD2d 233 (1st Dept 1994). Further, where the defendant seeks to dismiss the complaint based upon documentary evidence, the motion will succeed if "the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law." Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326 (2002) (citation omitted); Leon v Martinez, 84 NY2d 83, 88 (1994).
B. Liability of the Individual Defendants and Blank
Defendants argue that Landlord's claim for breaches of the Lease should be dismissed as against the Individual Defendants and Blank, who are not parties to the Lease. Landlord relies on the rule that, ordinarily, only parties to a contract can be sued for breach [see Leonard v Gateway II, LLC, 68 AD3d 408 (1st Dept 2009)] and that Tenant having its corporate status reinstated precludes liability against its shareholders and directors. See Lodato v Greyhawk N. Am., LLC, 39 AD3d 496, 497 (2d Dept 2007) ("as a general rule, when a dissolution is annulled, the entity's corporate status is reinstated nunc pro tunc, and contracts entered into during the period of dissolution are 'retroactively validated.'") (emphasis added), quoting Lorisa Capital Corp. v Gallo, 119 AD2d 99, 113 (2d Dept 1986). Landlord responds that its proffered theories of liability, such as veil piercing and "single personality" liability, should permit it to maintain its claims for breach of the Lease against the Individual Defendants and Blank. Moreover, Landlord argues that the bad faith exception to the nunc pro tunc reinstatement rule in Lodato applies. See id. at 497 ("an individual who has 'no actual knowledge of the dissolution,' and thus has not 'fraudulently represented the corporate status' of the dissolved entity, will not be held personally liable for the obligations undertaken by the entity while it was dissolved") (citation omitted); see also Spinnell v JP Morgan Chase Bank, N.A., 59 AD3d 361 (1st Dept 2009) (recognizing "the liability of an individual shareholder for fraud or acts taken in bad faith while a revived formerly tax-defunct corporation's charter was void").
This court recently addressed this bad faith exception in 115 W. 27th Street Assocs. LLC v Perez, 2016 WL 4410882, at *6-10 (Sup Ct, NY County 2016). It should be noted that, while Landlord does not actually plead a cause of action for fraud, Landlord suggests that defendants defrauded Landlord by committing the myriad alleged breaches of the Lease. However, as defendants correctly contend, "a cause of action for fraud may [only] be maintained where a plaintiff pleads a breach of duty separate from, or in addition to, a breach of the contract." Wyle Inc. v ITT Corp., 130 AD3d 438, 440 (1st Dept 2015) (emphasis added), quoting Non-Linear Trading Co. v Braddis Assocs., Inc., 243 AD2d 107, 118 (1st Dept 1998). Thus, Landlord's claims for breach of the Lease do not amount to fraud. See N.Y. Univ. v Cont'l Ins. Co., 87 NY2d 308, 316 (1995) ("where a party is merely seeking to enforce its bargain, a tort claim will not lie"), citing Sommer v Fed. Signal Corp., 79 NY2d 540, 552 (1992) ("where plaintiff is essentially seeking enforcement of the bargain, the action should proceed under a contract theory.").
In reply, defendants correctly aver that Landlord does not assert a claim for breach of any contract entered into after Tenant's corporate charter was voided. The current version of the Lease, as noted above, was entered into in 1991, prior to Tenant's charter being voided in 1992. The cases cited by the parties speak to contractual obligations "incurred" and "undertaken" by a company after the corporation was dissolved. See Lodato, 39 AD3d at 497; see also Long Oil Heat, Inc. v Polsinelli, 128 AD3d 1296, 1298 (3d Dept 2015) (noting that "a dissolved corporation is precluded from engaging in new business" and that "[a]s a result, '[a] person who purports to act on behalf of a dissolved corporation is personally responsible for the obligations incurred.'") (emphasis added), quoting 80-02 Leasehold, LLC v CM Realty Holdings Corp., 123 AD3d 872, 874 (2d Dept 2014) (dissolved corporation only "retains a limited de jure existence solely for the purpose of winding up its affairs"). Landlord cites no authority for the proposition that a contract entered into by an active corporation that subsequently has its charter voided may give rise to personal liability on the part of the corporation's shareholders. In other words, there is no authority for the proposition that the owners of a company incur personal liability under contracts previously entered into once the corporation is dissolved. For this reason, the court will not hold that the Individual Defendants may not avail themselves of the nunc pro tunc reinstatement rule or that the bad faith exception applies.
It is unsurprising that no such authority exists. The Lodato line of cases is premised on the notion that a defunct company taking on a new liability is a fraudulent act that should be answered for by the company's principals. While Tenant is allegedly a shell subject to veil piercing, Landlord does not allege that defendants committed the type of fraud set forth in Lodato by contracting on behalf of Tenant after it was dissolved in 1992.
It should be noted that the status of a company is a matter of public record and can be ascertained in mere seconds on the website of the New York Department of State, Division of Corporations.
That being said, Landlord has pleaded sufficient facts to warrant discovery on its claim that Tenant's corporate veil should be pierced to enforce the allegedly breached obligations under the Lease against Tenant's shareholders. "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, that the owners are normally not liable for the debts of the corporation, and that it is perfectly legal to incorporate for the express purpose of limiting the liability of the corporate owners." Morris v NY State Dep't of Taxation & Finance, 82 NY2d 135, 140 (1993). "The doctrine of piercing the corporate veil is typically employed by a third party seeking to go behind the corporate existence in order to circumvent the limited liability of the owners and to hold them liable for some underlying corporate obligation." Id. at 140-41. "In order to pierce the corporate veil, a plaintiff must show [1] that the dominant corporation exercised complete domination and control with respect to the transaction attacked, and [2] that such domination was used to commit a fraud or wrong causing injury to the plaintiff." Fantazia Int'l Corp. v CPL Furs New York, Inc., 67 AD3d 511, 512 (1st Dept 2009). In other words, the plaintiff must show both an abuse of the corporate form (the domination prong) and that such abuse was committed for the purpose of defrauding plaintiff (the fraud prong). TNS Holdings, Inc. v MKI Secs. Corp., 92 NY2d 335, 339 (1998) ("Evidence of domination alone does not suffice without an additional showing that it led to inequity, fraud or malfeasance."); see Cobalt Partners, L.P. v GSC Capital Corp., 97 AD3d 35, 40 (1st Dept 2012); Damianos Realty Group, LLC v Fracchia, 35 AD3d 344 (1st Dept 2006) ("The mere claim that the corporation was completely dominated by the defendants, or conclusory assertions that the corporation acted as their 'alter ego,' without more, will not suffice to support the equitable relief of piercing the corporate veil").
The First Department has held that while veil piercing is an inherently fact specific inquiry and that "no one factor is dispositive", the following factors should be considered:
the disregard of corporate formalities; inadequate capitalization; intermingling of funds; overlap in ownership, officers, directors and personnel; common office space or telephone numbers; the degree of discretion demonstrated by the alleged dominated corporation; whether the corporations are treated as independent profit centers; and the payment or guarantee of the corporation's debts by the dominating entity.Tap Holdings, LLC v Orix Fin. Corp., 109 AD3d 167, 174 (1st Dept 2013) (citations omitted). The First Department also has held that "[a]llegations that corporate funds were purposefully diverted to make it judgment proof or that a corporation was dissolved without making appropriate reserves for contingent liabilities are sufficient to satisfy the pleading requirement of wrongdoing which is necessary to pierce the corporate veil on an alter-ego theory." Baby Phat Holding Co. v Kellwood Co., 123 AD3d 405, 407-08 (1st Dept 2014) (emphasis added), citing Grammas v Lockwood Assocs., LLC, 95 AD3d 1073, 1075 (2d Dept 2012).
Landlord has sufficiently pleaded both the domination and fraud prongs. In addition to allegations of overlapping control over Tenant and Blank by the Individual Defendants (and Isaac before them), Landlord alleges that Tenant transferred its only substantial asset - the revenue it was owed under the Sublease - to Blank for no consideration. This, allegedly, resulted in Tenant's insolvency, making it incapable of fulfilling its financial obligations under the Lease, such as making the contractually required repairs. Landlord further alleges that Tenant was made to be intentionally insolvent so Tenant could not be held legally responsible for its obligation to ensure the Building was in "in good order and condition" at the end of the leasehold. Tenant's principals permitting Tenant to have its corporate status canceled for failure to pay taxes, allegedly, was for the same purpose and had the same consequences. After Isaac's death, the Individual Defendants allegedly continued Isaac's practice of having Blank receive the rent due under the Sublease to ensure Tenant would remain judgment proof.
While discovery, obviously, is necessary to substantiate these claims, the court finds that the facts pleaded in the AC permit a reasonable inference that the abuse of Tenant's corporate form was for the purpose of harming Landlord. See 2406-12 Amsterdam Assocs. LLC v Alianza LLC, 136 AD3d 512, 512-13 (1st Dept 2016) ("The complaint, together with plaintiff's affidavits in opposition to defendants' motion, sufficiently alleges that defendant Alianza Dominicana transferred all of its assets to a newly formed entity, defendant Alianza LLC, which was 90% owned by Alianza Dominicana and had no employees and no function but to hold those assets away from creditors and, in particular, plaintiff."); Teachers Ins. Annuity Ass'n of Am. v Cohen's Fashion Optical of 485 Lexington Ave. Inc., 45 AD3d 317, 319 (1st Dept 2007) ("Plaintiffs allege, essentially, that the business of C-485, conducted at the premises under the subject lease, was closed and moved across the street, including all assets, necessary liabilities for the uninterrupted continuation of the business, management, personnel and ownership, leaving C-485 an empty, judgment-proof shell to avoid liability under the lease."); Weinstein v Willow Lake Corp., 262 AD2d 634, 635 (2d Dept 1999) ("Here, while the plaintiff entered into a written commercial lease only with Willow Lake, the complaint alleges instances in which Parkway held itself out as creating, controlling, and being responsible for the leased premises. It appears that the extent of Willow Lake's involvement was limited to the mere signing of the lease. Hence, the plaintiff's allegations may support recovery against either or both of the defendants for the rent not paid to the plaintiff."); see also Baby Phat, 123 AD3d at 407 ("Wrongdoing in this context does not necessarily require allegations of actual fraud. While fraud certainly satisfies the wrongdoing requirement, other claims of inequity or malfeasance will also suffice").
In addition to veil piercing, Landlord relies on the "single personality" basis for liability set forth by the First Department in Solow v Domestic Stone Erectors, Inc., 269 AD2d 199, 200 (1st Dept 2000) (Solow II) and Solow v Domestic Stone Erectors, Inc., 229 AD2d 312, 313 (1st Dept 1996) (Solow I). This doctrine, whose jurisprudential underpinnings are unclear, is rarely invoked by courts. In Solow II, the First Department distinguished the "single personality" doctrine from traditional veil piecing:
Solow I cites a single case, Chase Manhattan Bank (N.A.) v 264 Water St. Assocs., 174 AD2d 504 (1st Dept 1991), that supposedly supports the existence of a "single personality" doctrine. That case, however, involved traditional veil piercing. See Chase, 174 AD2d at 505. The court's independent research revealed that the Solow cases are the only New York appellate cases to have used the expression "single personality." The few cases that cite Solow either actually involve traditional veil piercing [see Pourquoi M.P.S., Inc. v WorldStar Int'l, Ltd., 91 AD3d 839, 840 (2d Dept 2012)] or are post-judgment enforcement proceedings. See Holme v Global Minerals & Metals Corp., 63 AD3d 417, 418 (1st Dept 2009). Indeed, as one federal district court indicates, Solow does not really stand for the proposition that the "single personality" doctrine is a distinct basis for liability, but rather that the result of veil piercing (which requires the fraud prong to be satisfied) is that parties "can be treated as a single personality for the purpose of enforcing the judgment." See Hewlett Packard Co. v Computer Specialists, Inc., 2007 WL 1434989, at *7 (SDNY 2007).
The corporate defendants mischaracterize the theory of this case, which does not involve traditional veil-piercing to hold corporate owners, shareholders or other corporations liable for corporate obligations. Instead, as we have held, the theory of this case is that all four defendants should be treated as a single personality by reason of defendant Cohen's use of "his domination and control over all three corporations to transfer assets of the debtor corporation to the other two corporations so as to make the firm incapable of honoring its obligation to plaintiff."Solow II, 269 AD2d at 199-200, quoting Solow I, 229 AD2d at 313 (emphasis added).
To the extent there really exists a distinct single personality doctrine, in this case, that basis for liability is duplicative of Landlord's well pleaded veil piercing claim. The "single personality" cause of action affords no other relief and, like veil piercing, should not be maintained as an independent cause of action. See PK Rest., LLC v Lifshutz, 138 AD3d 434, 436 (1st Dept 2016) ("piercing the corporate veil is not a cause of action independent of a cause of action against the corporation"), citing Ferro Fabricators, Inc. v 1807-1811 Park Ave. Dev. Corp., 127 AD3d 479, 480 (1st Dept 2015) ("alter-ego liability is not an independent cause of action"), accord Morris, 82 NY2d 135 at 141.
C. DCL Claims
Landlord asserts claims for constructive fraudulent conveyance under DCL §§ 273 and 274. See Ray v Ray, 108 AD3d 449, 451 (1st Dept 2013); CIT Group/Comm. Servs., Inc. v 160-09 Jamaica Ave. Ltd. P'ship, 25 AD3d 301, 302 (1st Dept 2006). Landlord also asserts claims for intentional fraudulent conveyance under DCL § 276, which provides that "[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors." Wall St. Assocs. v Brodsky, 257 AD2d 526, 529 (1st Dept 1999); see RTN Networks, LLC v Telco Group, Inc., 126 AD3d 477, 478 (1st Dept 2015).
The claim is called constructive fraud because intent need not be proven. See DCL § 273 ("Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.") (emphasis added); DCL § 274 ("Every conveyance made without fair consideration when the person making it is engaged or is about to engage in a business or transaction for which the property remaining in his hands after the conveyance is an unreasonably small capital, is fraudulent as to creditors and as to other persons who become creditors during the continuance of such business or transaction without regard to his actual intent.") (emphasis added).
Defendants argue that Landlord's DCL claims are time-barred. DCL claims, "like other actions based on fraud, [must] be commenced within six years from the date of the fraud, or within two years after the plaintiff discovered the fraud, or could with reasonable diligence have discovered it, whichever is longer." Miller v Polow, 14 AD3d 368 (1st Dept 2005), citing Avalon LLC v Coronet Props. Co., 306 AD2d 62, 63 (1st Dept 2003) ("[plaintiff's causes of action [under the DCL] should have been dismissed because the purported fraudulent conveyance [occurred] more than six years prior to commencement of this action"). The two year from discovery rule [see CPLR 213(8)] only applies to claims for actual fraud; "a claim for constructive fraud is governed by the six-year limitation set out in CPLR 213(1), and [] such a claim arises at the time the fraud or conveyance occurs." Jaliman v. D.H. Blair & Co., 105 AD3d 646, 647 (1st Dept 2013), quoting Wall St. Assocs., 257 AD2d at 530. "A claim for actual fraud under [DCL] § 276 must be brought within six years of the fraud or conveyance, or within two years of discovery, whichever period is longer." Bloomfield v Bloomfield, 280 AD2d 320, 321 (1st Dept 2001).
The primary alleged fraudulent transfer - the Sublease, which caused rent to be paid to Blank, instead of Tenant - occurred in 1991. Since this action was commenced in 2014, the six-year statute of limitations has long run. In its opposition brief, Landlord does not address this issue, nor does Landlord explain why it could not have discovered the terms of the Sublease by 2012, two years prior to this action being commenced. The DCL claims relating to the Sublease, therefore, are dismissed as time-barred.
Landlord also claims that two other contracts amount to fraudulent transfers on the part of Tenant. The claim regarding the first - a 2006 "Advertising Display Agreement" entered in by Philip Schwarzman (not Tenant) with the proceeds payable to Blank [see Dkt. 55 at 64] - became time barred in 2012. The claim regarding the second - a 2009 Sweepstakes Agreement entered into by Blank, which states that Blank "controls" the Building [see id. at 67] - would not have become time barred until 2015, after this action was commenced. Nonetheless, for the reasons set forth in defendants' briefs, the AC does not sufficiently plead that this contract supports a claim under the DCL. Landlord's explanation of this claim is extremely confusing. Simply put, Landlord seems to suggest that Blank entering into a contract regarding the Building is a per se fraudulent transfer since Blank, unlike Tenant, has no rights to the Building. This appears to be another incarnation of Landlord's veil piercing theory (that is, Blank is Tenant's alter ego) which, as noted above, is properly pleaded in the AC. That said, the fact that Blank represented that it controls the Building is yet another factor that supports the notion that Tenant and Blank are indeed alter egos.
It is not clear (nor is it explained) why Blank was not legally entitled to enter into a contract related to the Sublease or Building despite not being the actual sublessor.
Of course, if Tenant and Blank are found to be alter egos, practically, the DCL claims would be academic because Landlord could enforce a judgment against all of the defendants. Hence, there would be no need to separately seek to claw back the alleged fraudulent transfers.
The court dismisses the DCL claims regarding the Sweepstakes Agreement without prejudice and with leave to replead if a cogent explanation can be proffered as to why such contract can support an independent claim for fraudulent transfer. The other DCL claims, regarding the Sublease and Advertising Display Agreement, are dismissed with prejudice.
Landlord's cause of action for attorneys' fees under DCL § 276-a must be dismissed because a claim under § 276-a requires the plaintiff to prevail on its underlying DCL claims, all of which are dismissed herein.
D. Timeliness of Claims for Breaches of the Lease
Finally, defendants argue that the claims asserted against them for breaches of the Lease that accrued on or before September 17, 2008, six years before this action was commenced, are time barred. Pursuant to CPLR 213(2), breach of contract claims have a six-year statute of limitations, which "begins to run from the time when liability for wrong has arisen even though the injured party may be ignorant of the existence of the wrong or injury." ACE Secs. Corp., Home Equity Loan Trust, Series 2006-SL2 v DB Structured Prods., Inc., 25 NY3d 581, 594 (2015), quoting Ely-Cruikshank Co. v Bank of Montreal, 81 NY2d 399, 402 (1993).
In opposition, Landlord avers that defendants should be estopped from pleading a statute of limitations defense. Landlord relies on Simcuski v Saeli, 44 NY2d 442 (1978), where the Court of Appeals held "that a defendant may be estopped to plead the Statute of Limitations where plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action." See id. at 448-49. None of the parties' briefs, however, properly set forth the applicable standard. As this court recently explained:
"The doctrine of equitable estoppel is an extraordinary remedy.'" [Pahlad v Brustman, 33 AD3d 518, 519 (1st Dept 2006), aff'd 8 NY3d 901 (2007), quoting E. Midtown Plaza Hous. Co. v City of New York, 218 AD2d 628 (1st Dept 1995) ("that extraordinary remedy is only applicable in circumstances where there is evidence that plaintiff was lulled into inaction by defendant in order to allow the statute of limitations to lapse")]. "For the doctrine to apply, a plaintiff may not rely on the same act that forms the basis for the claim—the later fraudulent misrepresentation must be for the purpose of concealing the former tort." [Ross v Louise Wise Servs., Inc., 8 NY3d 478, 491 (2007), citing Zumpano v Quinn, 6 NY3d 666, 674 (2006)]. "[W]here the alleged concealment consisted of nothing but defendants' failure to disclose the wrongs they had committed [,] ... defendants [are] not estopped from pleading a statute of limitations defense." [Corsello v Verizon NY, Inc., 18 NY3d 777, 789 (2012), citing Ross, 8 NY3d at 491-92]. In other words, "[e]quitable tolling is unavailable" where the plaintiff does not allege "an act of deception [] separate from the ones for which they sue." See id.Bank of N.Y. Mellon v WMC Mort., LLC, 2016 WL 4691539, at *2 (Sup Ct, NY County 2016) (emphasis in original omitted; bold added for emphasis).
In addition to the duplication of fraud and contract claims noted earlier, this standard makes clear that the severity of Tenant's alleged breaches is irrelevant to a tolling inquiry since the breach of contract itself cannot, without more, amount to malfeasance that justifies tolling.
In its opposition brief, Landlord contends that defendants should be estopped from asserting a statute of limitations defense, but only for one of its alleged breaches - "defendants' duty to speak and inform Plaintiff of the fire loss to the joists." See Dkt. 64 at 28. Landlord then indicates that it addresses defendants' concealment on page 21 of its brief, where Landlord writes:
[Landlord] alleges defendants concealed the fire damage to most of the ceiling structural joists that entailed a costly repair. When the lease term expired, [Landlord] discovered the extensive fire damaged condition that was violative of paragraph 16 of the net lease. Considering the extent of the fire charred beams, it is reasonable to infer that [Tenant] was aware of the extensive fire damage.See id. at 22. Here, while Landlord alleges that Tenant's failure to repair the fire damage and failure to notify Landlord of that fire damage amount to breaches of the Lease, Landlord does not explain how Tenant prevented Landlord from timely commencing suit. Nonetheless, earlier in Landlord's brief, Landlord notes that the AC contains the allegation that Tenant concealed the fire damage. See id. at 5. Moreover, in the affidavit submitted by Landlord's managing agent, it is alleged that Tenant covered up the charred beams on the ceiling and floor so the fire damage would not be visible. See Dkt. 50 at 3. Tenant does not rebut this allegation. The court, therefore, finds that the question of whether this concealment may justify tolling the statute of limitations may be probed in discovery.
All of Landlord's other claims for breaches of the Lease that accrued on or before September 17, 2008 are time barred. Landlord failed to proffer any argument as to why its claim for such breaches are timely. Landlord's tolling argument is restricted to the fire damage, which is distinct from the other alleged breaches, such as building violations. That being said, as Tenant concedes, Landlord's claim under paragraph 16 to "surrender [the Property] ... in good order and condition, reasonable wear and tear excepted" did not accrue until the end of the leasehold and, therefore, is timely. Accordingly, it is
ORDERED that the motion for partial dismissal of the amended complaint by defendants Philip Schwarzman, M.D., Madeline Schwarzman, Stone & Broad Inc., and Blank Associates is granted with respect to the second through fifth causes of action and the breaches of contract alleged in the first cause of action that accrued on or before September 17, 2008 other than the fire damage, which are hereby dismissed, and the motion is otherwise denied; and it is further
ORDERED that plaintiff's cross-motion is denied as moot to the extent set forth herein; and it is further
ORDERED that Dkt. 75-78 are hereby stricken from the record, and defendants' counsel shall promptly serve a copy of this order on the e-filing clerk, who is directed to seal such documents from all parties; and it is further
ORDERED that the parties are to appear in Part 54, Supreme Court, New York County, 60 Centre Street, Room 228, New York, NY, for a preliminary conference on November 29, 2016, at 11:30 in the forenoon. Dated: October 26, 2016
ENTER:
/s/_________
J.S.C.