Opinion
22740/05.
Decided August 20, 2008.
Richard R. Rio, Esq. 386 Park Avenue South New York, NY 10016, Attorney for Plaintiff.
Eugene M. Bellin, Esq. 233 Broadway New York, NY 10279 Carolyn E., Attorney for Defendant.
In this action by plaintiff Cartis, LLC (plaintiff) against defendants Gotham Builders Renovators, Inc. (Gotham) and Christopher Leahy (collectively, defendants) to recover damages for breach of an agreement, Christopher Leahy moves for summary judgment dismissing plaintiff's complaint as against him. Plaintiff cross-moves for partial summary judgment in its favor on the issue of liability and for an order, pursuant to CPLR 3101 (d) (1) (iii), directing defendants to pay the fees and expenses incurred by its expert witness for his deposition.
In June 2002, plaintiff, the owner of a four-story building, located at 163 West 22nd Street, in Manhattan, hired Gotham, a building construction general contractor, to replace several courses of spandrel brickwork (the area between floors, above and below windows) between the west and east lot walls in the facade of the building. These bands of brick were substantially out of level and required leveling prior to the installation of new windows, and the specific purpose of the brickwork to be performed by Gotham was to make the brickwork and attendant windows level. The terms of the agreement were set forth in a written invoice dated November 19, 2002, and are further reflected in a written invoice dated June 8, 2003 and a quotation/agreement dated June 25, 2003. Christopher Leahy, who is the president and, due to the death of the other shareholder, Noel Tursi, in August 2003, is now the sole shareholder of Gotham, estimated that it would take three to four months to complete the project (Christopher Leahy's Dep. Transcript at 27).
Gotham commenced work on the building in November 2002. Shortly after Gotham started, it removed the front windows to perform the brickwork and covered the front area with sidewalk bridges, plastic sheeting, and netting, forcing the tenants of the building to endure months of cold, and noise and dust from the repair work. Due to these conditions, the tenants refused to pay plaintiff rent from May 2003 to March 2004. Gotham did not itself perform the work, but hired subcontractors, which Gotham did not supervise in the actual construction of the brickwork (Christopher Leahy's Dep. Transcript at 36-37). Gotham had problems with these subcontractors, and had to fire the first subcontractor because he was not performing, and his work had to be redone (Christopher Leahy'sDep. Transcript at 53). It took almost one year for Gotham to hire a new subcontractor to replace the subcontractor who was fired, causing a large gap in the progress of the work (Christopher Leahy's Dep. Transcript at 54).
When the bridge sidewalks, plastic sheeting, and netting were finally taken down in March 2004 and the front facade of the building exposed, the job architect, Robert Tan, observed that Gotham's final work looked "as if nothing was done" and "[i]f anything . . . the parapet above [looked] worse than it [previously] was"(Robert Tan's Dep. Transcript at 50, 56). Robert Tan called Christopher Leahy immediately to complain, and when Christopher Leahy arrived at the construction site, he, according to Robert Tan, admitted that he "ha[d] no idea what happened, conceded that it "obviously was not straight," "t[ook] full responsibility," and indicated that he would have the work redone (Robert Tan's Dep. Transcript at 57). However, at that point, since Gotham had already taken 16 months to do the work on the building (instead of the three to four months that it had projected) and had not performed adequately, plaintiff, by letter dated March 15, 2004, informed Gotham and Christopher Leahy that Gotham should cease and desist from any other construction work at the building, and demanded the return of the money which it had given Gotham for the work, as well as compensation for its lost rent and expenses.
On September 9, 2005, plaintiff filed this action against Gotham and Christopher Leahy. Plaintiff alleges that defendants breached the agreement by using inferior material and performing incomplete and defective construction work. In particular, plaintiff asserts that defendants installed the new brickwork on a substantial slant, installed bricks that were not uniform in type, finish, and color, and caused the spandrels and lintels to be seriously out of level, repeating the pre-existing condition. Plaintiff claims that as a result of defendants' defective work on the facade of the building, it was compelled to hire another contractor, Diamond Masonry, Inc., to demolish and repair the defects, at a cost of $46,183, plus $5,000 in additional fees to its architect for a new contract with the new contractor and other duplicated services. Plaintiff also claims that defendants further breached the agreement by not paying the balance due to Spring Scaffolding, the sidewalk bridge vendor hired by defendants, and the balance due to Dependable Windows Co., Inc., the window supplier/installer hired by defendants. Plaintiff seeks damages of $4,000 and $12,210, respectively, for its payments to Spring Scaffolding and Dependable Windows Co., Inc., on behalf of Gotham. In addition, plaintiff alleges that it further sustained damages of $6,018.25 and $ 6,000, for lost rents for apartment No. 1 and apartment #2 respectively, due to defendants' incomplete and defective construction work. Defendants interposed an answer on January 4, 2006. Plaintiff filed a note of issue and certificate of readiness on March 14, 2008.
In support of his motion for summary judgment dismissing plaintiff's complaint as against him, Christopher Leahy has submitted his sworn affidavit, wherein he asserts that the agreement which plaintiff alleges to have been breached was between plaintiff and Gotham, and that he was not an individual party to that agreement. Christopher Leahy explains that Gotham is a corporation which was incorporated in this State on October 7, 1996, and that he and his grandfather, Noel Tursi (who, as noted, died during the pendency of the instant contract) were the original two shareholders of Gotham. It is undisputed that Noel Tursi was Gotham's vice-president and secretary, and that Christopher Leahy, as president, managed the day-to-day business of Gotham. Christopher Leahy further explains that Gotham stopped entering into new agreements following Noel Tursi's death in August 2003, and, that during 2004, Gotham only completed work under contracts into which it had previously entered. Gotham ceased all its operations by the end of 2004.
It is well established that an officer who enters into a corporate contract, indicating the nature of his representative capacity on the contract, is generally not subject to personal liability ( see Salzman Sign Co., Inc. v Beck, 10 NY2d 63, 67; Noel v L M Holding Corp. , 35 AD3d 681, 682; Diaz v Siegel , 23 AD3d 251 , 252; Metropolitan Switch Bd. Co., Inc. v Amici Assoc., Inc ., 20 AD3d 455 , 455). Thus, where the other party is aware that the officer was acting for the corporation and there is no explicit evidence of the officer's intention to be personally liable under the contract, the officer cannot be held liable in his or her individual capacity ( see Noel, 35 AD3d at 682; Metropolitan Switch Bd. Co., Inc., 20 AD3d at 455; Weinreb v Stinchfield , 19 AD3d 482 , 483).
Christopher Leahy attests that he made it clear, at all times in his dealings with Frank Rio, plaintiff's managing and sole member, that he was acting in his capacity as president of Gotham and not in his personal capacity, and that he never signed any document in which he agreed to be personally liable for Gotham's corporate obligations. Nor has any document been proffered that would suggest otherwise. The November 19, 2002 invoice, the June 8, 2003 invoice, and the June 25, 2003 "Quotation Agreement", upon which plaintiff relies as proof of the agreement, all bear the letterhead of Gotham. The November 19, 2002 invoice expressly states that "Gotham. . . as contractor [, a]grees to perform the . . . work" described on the invoice. The June 25, 2003 quotation/agreement states that it is "[s]ubmitted by Contractor, Christopher Leahy, Presi[dent,] on behalf of Gotham," and similarly states that "Gotham . . . as contractor [, a]grees to perform the . . . work" described. In addition, plaintiff's checks for the work were made payable to the order of Gotham, not to Christopher Leahy, individually. Also, a letter dated September 16, 2003 from plaintiff regarding the work, as well as plaintiff's March 15, 2004 termination letter, are both addressed to Gotham, indicating plaintiff's awareness that it was dealing with a corporation. Thus, Christopher Leahy has established that he did not enter into the agreement with plaintiff in his personal capacity or agree to be personally liable thereunder ( see Salzman Sign Co., Inc., 10 NY2d at 67; Noel, 35 AD3d at 682; Diaz, 23 AD3d at 252; Metropolitan Switch Bd. Co., Inc., 20 AD3d at 455; Weinreb, 19 AD3d at 483).
In opposition to Christopher Leahy's motion, however, plaintiff does not claim that Christopher Leahy was personally a party to the agreement but, instead, contends that the corporate veil of Gotham should be pierced to hold Christopher Leahy responsible for Gotham's debts. In addressing this contention, it is noted that "[t]he law permits the incorporation of a business for the very purpose of enabling its proprietors to escape personal liability" ( Walkovszky v Carlton, 18 NY2d 414, 417; see also Matter of Total Care Health Indus. v Department of Social Servs., 144 AD2d 678, 679). A party seeking to pierce the corporate veil must, therefore, "establish that the owners, through their domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene" ( Matter of Morris v New York State Dept. of Taxation Fin., 82 NY2d 135, 142; see also Walkovszky, 18 NY2d at 417; Logan-Baldwin v L.S.M. Gen. Contrs., Inc ., 48 AD3d 1220 , 1220-1221; Fisher v Zaks , 48 AD3d 251 , 251; Brito v DILP Corp., 282 AD2d 320, 321; Shimamoto v S F Warehouses, 257 AD2d 334, 340; Marino v Dwyer-Berry Constr. Corp., 146 AD2d 750, 750-751).
Thus, in order to successfully pierce a corporate veil, it must be shown 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 [the] plaintiff's injury" ( Matter of Morris, 82 NY2d at 141; see also Fisher, 48 AD3d at 351; Heim v Tri Lakes Mercury, Inc., 25 AD3d 901, 902). The "[p]laintiff must plead and prove with specific facts that the corporation has been used to conduct the personal business of the owner or shareholder"( Brito, 282 AD2d at 321; see also Sheridan Broadcasting Corp. v Small , 19 AD3d 331 , 332).
In the case at bar, plaintiff's complaint contains no separate allegations against Christopher Leahy in his individual capacity nor does it contain any allegations whatsoever regarding or supporting a piercing of the corporate veil ( see Brito, 282 AD2d at 321; Shimamoto, 257 AD2d at 340). Plaintiff, however, in opposition to Christopher Leahy's motion, now argues that there are issues of fact as to whether Christopher Leahy disregarded the independent corporate existence of Gotham and used Gotham for the transaction of his personal, rather than corporate, business. Plaintiff notes that in January 2004, Christopher Leahy formed a new corporation called CJLNJ, Inc., which is incorporated in New Jersey, and in which he is the only officer and shareholder, and that, a year later, he formed another corporation called CJLNJ Builders, Inc., which is incorporated in New York, and in which he also is the sole shareholder. Plaintiff contends that former customers and employees of Gotham have become customers of CJLNJ, Inc. and CJLNJ Builders, Inc. Plaintiff argues that Christopher Leahy's formation of these new wholly owned corporations, which are in the same business and have the same customers as Gotham, show an intercorporate shuffling of assets for the purpose of rendering uncollectible any money judgment it may obtain in this action. However, the mere fact that Christopher Leahy is the sole shareholder of these corporations does not, in and of itself, constitute sufficient proof that he had exercised complete dominion and control over Gotham or that he formed or used these successor corporations to perpetrate a fraud or wrong upon plaintiff ( see Matter of Morris, 82 NY2d at 141; Port Chester Elec. Const. Co. v Atlas, 40 NY2d 652, 657; Bartowski v Lemcke, 25 AD3d 894, 896; Matter of Island Seafood Co. v Golub Corp., 303 AD2d 892, 895; Marino, 146 AD2d at 750-751; Matter of Total Care Health Indus., 144 AD2d at 679).
Plaintiff further asserts that Christopher Leahy continues to hold out to the public that he is doing business in the name of the defunct corporation, Gotham, on a business website, which describes Gotham as a general contractor and how Christopher Leahy started doing business as Gotham in 1983. Plaintiff notes that it is only upon close examination of the upper left portion of the first page of this website that it states, in small print, that it is actually CJLNJ, Inc. d/b/a Gotham. In response, however, Christopher Leahy explains that CJLNJ, Inc. and CJLNJ Builders, Inc. use the trade name of Gotham. He further explains that CJLNJ Builders, Inc. was incorporated in New York State on January 5, 2005 and that it filed a Certificate of Assumed Name pursuant to General Business Law § 130 to do business under the assumed name of Gotham.
Plaintiff contends that the timing and circumstances of Christopher Leahy's decision to terminate Gotham support an inference of an intent to place Gotham's assets out of its reach. Plaintiff states that when Christopher Leahy ceased doing business as Gotham, plaintiff was still a customer of Gotham. Contrary to this statement, though, Gotham did not cease doing business until the end of 2004, nine months after plaintiff terminated his contract on March 15, 2004. If the assets of defendant were transferred to these new corporate entities, plaintiff may have grounds to recover a judgment against these newly formed corporations; however, neither corporation is a named defendant herein.
Plaintiff also complains that Christopher Leahy never advised it that Gotham was winding down or going out of business. However, plaintiff was not a creditor of Gotham when it ceased doing business, and it has not been shown that Gotham ceased doing business to commit a wrongful or unjust act toward plaintiff ( see Fisher, 48 AD3d at 251; E.D.K. Enters., Inc. v C S Wholesale Grocers, Inc. , 30 AD3d 924 , 926). Rather, Christopher Leahy attests that Gotham stopped doing business due to the death of one its shareholders, and not for any reason related to plaintiff. In fact, plaintiff itself notes that Christopher Leahy testified, at his deposition, that he ceased doing business as Gotham in order to avoid the claims of his grandfather's estate (Christopher Leahy's Dep. Transcript at 7-9).
Plaintiff asserts that defendants have not been able to comply with its demands for bank checks made by Gotham for this project. Plaintiff contends that Christopher Leahy has, thus, not shown that he operated Gotham as an entity separate from himself. Christopher Leahy, however, testified, at his deposition, that Gotham had cancelled checks for these payments, but that he could not recover them because Gotham's computer had "crashed" (Christopher Leahy's Dep. Transcript at 39). Christopher Leahy, in his sworn affidavit, attests that Gotham maintained a separate corporate checking account. The deposit information on the back of plaintiff's cancelled checks confirms that the checks were deposited to Gotham's corporate account at Commerce Bank. Apparently, neither party has seen fit to subpoena the account records from the bank. Christopher Leahy further attests that Gotham's funds were never commingled with his own funds and that no personal expenses of his were ever paid by Gotham.
Discovery is now complete and there is no evidentiary proof that Christopher Leahy used Gotham for his personal gain, rather than for the business of the corporation ( see Port Chester Elec. Const. Co., 40 NY2d at 657; Brito, 282 AD2d at 321; Shimamoto, 257 AD2d at 340). There is no specific evidence adduced by plaintiff that Christopher Leahy transferred any asset of Gotham to himself. Thus, there is no showing that Christopher Leahy used his corporate position for "personal rather than corporate ends" to warrant the piercing of Gotham's corporate veil ( Brito, 282 AD2d at 321; Shimamoto, 257 AD2d at 340). Dismissal of plaintiff's complaint as against Christopher Leahy is, therefore, mandated ( see CPLR 3212 [b]).
In addressing plaintiff's cross motion, which seeks summary judgment in its favor on the issue of liability on its breach of contract claim, it is noted that the elements of a breach of contract claim are: "(1) the existence of a contract; (2) performance by the party seeking recovery; (3) non-performance by the other party; and (4) damages attributable to the breach" ( Sauer v Xerox Corp., 95 F Supp 2d 125, 128 [WD NY 2000], affd 5 Fed Appx 52 [2d Cir 2001]; Marks v New York Univ., 61 F Supp 2d 81, 88 [SD NY 1999]; Ballas v Virgin Media, Inc., 18 Misc 3d 1106 [A], 2007 NY Slip Op 52441 [U], *3 [2007]). Plaintiff asserts that it has established each of these elements. The entire deposition transcript of plaintiff by Frank Rio, plaintiff's managing and sole member, the entire deposition transcript of Robert Tan, and relevant portions of Christopher Leahy's deposition transcript have been submitted to the court demonstrating that each element has, in fact, been met.
Where the proponent of a motion for summary judgment has sustained its burden of tendering sufficient evidentiary proof to make a prima facie showing of its entitlement to judgment as a matter of law, the burden shifts to the opposing party to assemble and lay bare its evidentiary proof to demonstrate the existence of a genuine triable issue of fact ( see Alvarez v Prospect Hosp., 68 NY2d 320, 324; Zuckerman v City of New York, 49 NY2d 557, 562). In opposition to plaintiff's cross motion, Gotham does not dispute that the replacement of the brickwork on the facade of plaintiff's building had been improperly performed, and it concedes that its work was defective. However, Gotham states that it immediately indicated its intention to redo the unsatisfactory work, but that before it could make the repairs, plaintiff terminated the agreement by its March 15, 2004 letter. Gotham further states that on two occasions subsequent to that letter, it continued to offer to correct the deficiencies in the work.
Gotham asserts that if plaintiff had not terminated the agreement, it could have corrected the deficiencies and that it was unreasonable for plaintiff to terminate the agreement without affording it the opportunity to effect the corrections. Gotham argues that the termination of the agreement by plaintiff frustrated its ability to perform the corrective work and constituted a breach of the agreement on the part of plaintiff. Gotham states that any additional cost plaintiff incurred resulted from its own breach of the agreement by terminating defendant without giving it the opportunity to correct its defective work. Gotham thus contends that there are triable issues of fact as to which party breached the agreement which preclude the granting of plaintiff's cross motion.
Gotham's contention is without merit. It is undisputed that at the time plaintiff terminated the agreement with Gotham on March 15, 2004, Gotham's work had been ongoing for 16 months when it should have been finished in four months, tenants had not been paying rent to plaintiff for a year, Gotham had already fired one subcontractor and took a year to hire a second subcontractor, and the work was unsatisfactory and had to be redone after all of that time. Thus, there was a substantial material breach of the agreement by Gotham. Under those circumstances, plaintiff acted in a reasonable manner in refusing to allow Gotham to come back to make repairs. Where a party has materially breached a contract, the other party is not required to reinstate the contract and incur the risk of further nonperformance, faulty work, and additional loss ( see generally Janowitz Bros. Venture v 25-30 120th St. Queens Corp., 75 AD2d 203, 213). Gotham's argument relating to whether plaintiff incurred any unnecessary expenses in performing remediation work relate to the issue of damages, rather than the issue of its liability. Therefore, plaintiff is entitled to partial summary judgment against Gotham on the issue of liability as a matter of law ( see CPLR 3212 [b]).
The court now turns to plaintiff's cross motion, insofar seeks an order, pursuant to CPLR 3101 (d) (1) (iii), directing defendants to pay the fees and expenses incurred by Robert Tan in connection with his deposition. Defendants had served Robert Tan, the architect for the renovation of plaintiff's building, with a nonparty subpoena, demanding his attendance for deposition. At a compliance conference before the court, plaintiff argued that the use of a subpoena to depose Robert Tan was impermissible because it had designated him, in its response to defendants' combined demands dated October 24, 2006, as an expert witness which it expected to call for trial. Defendants, however, maintained that it wished to depose Robert Tan as a fact witness, not as an expert witness. By order dated December 12, 2007, the court directed that Robert Tan's deposition proceed, and his deposition was held on January 9, 2008.
Plaintiff argues that the court erred in directing the deposition of Robert Tan. It contends that since Robert Tan was its expert witness, defendants were required to show special circumstances to warrant his deposition, and it claims that defendants did not show this.
The court rejects plaintiff's argument. Since Robert Tan was an active participant in the negotiation of the agreement, had conversations with Frank Rio and Christopher Leahy, and made contemporaneous observations of the work being performed by Gotham, he was a fact witness in this case.
While plaintiff did identify Robert Tan as an expert architect which it expected to call as an expert witness at trial in its October 24, 2006 response to defendants' combined demands, Robert Tan testified, at his deposition, that before he received the subpoena, he did not enter into any agreement to testify as an expert on behalf of plaintiff (Robert Tan's Dep. Transcript at 67). Moreover, plaintiff, in that same October 24, 2006 response to defendants' combined demands, also identified Robert Tan as a fact witness to the occurrence and to the condition of the facade of the building prior to and following Gotham's performance of the work.
CPLR 3101 (d) does not apply to an expert who is a fact witness, and an adversary's expert can be deposed as to the facts ( see Kraus v Ford Motor Co., 38 AD2d 680, 680-681; Bernikow v Allstate Ins. Co., 78 Misc 2d 90, 91). Consequently, while Robert Tan, a nonparty witness, was designated as an expert witness for plaintiff, his deposition was sought by defendants, not to obtain a preview of his expected testimony at trial, as plaintiff's expert witness, but only as a fact witness and, thus, CPLR 3101 (d) did not apply to him ( see McCoy v State of New York , 52 AD3d 1212 , 1212; see also Rook v 60 Key Ctr., 239 AD2d 926, 927).
Plaintiff also argues that under CPLR 3101 (a) (4), examination of a nonparty expert must be made pursuant to a court order and upon a showing of special circumstances. CPLR 3101 (a) (4) does not require a court order in advance (although a court order was granted herein) and provides that there shall be full disclosure of all matter material and necessary in the defense of an action by any nonparty witness, upon notice, by a subpoena, "stating the circumstances or reasons such disclosure is sought or required" ( see De Stafano v MT Health Clubs, 220 AD2d 331, 331). While the court finds that Robert Tan was deposed as a fact witness, rather than an expert witness, special circumstances have been found to exist where there is a unique factual situation, such as where "the information sought to be discovered cannot be obtained from other sources'"( Brooklyn Floor Maintenance Co. v Providence Washington Ins. Co., 296 AD2d 520, 521-522, quoting Dioguardi v St. John's Riverside Hosp., 144 AD2d 333, 334; see also Bostrom v William Penn Life Ins. Co. of NY, 285 AD2d 482, 483). Thus, inasmuch as Robert Tan was intimately involved in the construction work performed by Gotham which is at the heart of this controversy, the court finds that, in any event, the existence of special circumstances was shown sufficient to warrant the deposition of Robert Tan ( see Kaufman v Lund Fire Prods. Co., Inc. , 8 AD3d 242, 243; Brooklyn Floor Maintenance Co., 296 AD2d at 521-522).
Plaintiff, in its cross motion, contends that Robert Tan should recover fees for his expert testimony at his deposition because the bulk of his testimony related to his experience and judgment as an architect. Contrary to plaintiff's contention, however, a review of Robert Tan's deposition discloses that Robert Tan was not asked for his "expert" opinion as to why Gotham's work was substandard. Rather, the questioning at Robert Tan's deposition focused on his involvement and actual observations with respect to the work performed by Gotham. Although plaintiff states that the questioning at Robert Tan's deposition focused on his expert qualifications and explanations of building terminology, Robert Tan merely testified as to his employment background and described the work that was done in this case.
With respect to compensation for his time, Robert Tan stated, at his deposition, that he was not, at that time, seeking to be compensated for his time at the deposition (Robert Tan's Dep. Transcript at 73), and an invoice which he submitted to plaintiff indicated "No Charge" next to the entries for his services related to the deposition. Robert Tan, in an affidavit annexed to plaintiff's reply affirmation, now asserts that he lost income appearing for the deposition, and that he should be compensated for the time he devoted to the deposition, which he computes to have a value of $2,110.50. However, inasmuch as the court finds that Robert Tan gave his testimony as a fact witness, he is not entitled to any compensation for expert witness fees.
Accordingly, defendants' motion for summary judgment dismissing plaintiff's complaint as against Christopher Leahy is granted. Plaintiff's cross motion, insofar as it seeks partial summary judgment in its favor on the issue of liability, is granted as against Gotham, and an inquest to determine plaintiff's damages shall be held at 10 A.M. on September 29, 2008 in Room 756. Plaintiff's cross motion, insofar as it seeks an order,
pursuant to CPLR 3101 (d) (1) (iii), directing defendants to pay the fees and expenses incurred by Robert Tan in connection with his deposition, is denied.
This constitutes the decision and order of the court.