Am. Federated Title Corp. v. GFI Mgmt. Servs., Inc., 13–cv–6437 AJN.
| Decision Date | 15 August 2014 |
| Docket Number | No. 13–cv–6437 AJN.,13–cv–6437 AJN. |
| Citation | 39 F.Supp.3d 516 |
| Parties | AMERICAN FEDERATED TITLE CORP., Plaintiff, v. GFI MANAGEMENT SERVICES, INC., Allen I. Gross, and Edith Gross, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Franklin Lewis Zemel, Joshua Morgan Atlas, Lori G. Adelson, Arnstein & Lehr LLP, Fort Lauderdale, FL, Mark Edward McGrath, Robert Sanford Friedman, Sheppard, Mullin, Richter & Hampton, LLP, New York, NY, for Plaintiff.
Joseph Zelmanovitz, Stahl & Zelmanovitz, New York, NY, Abraham Neuhaus, Neuhaus & Yacoob LLC, Brooklyn, NY, for Defendants.
Defendants GFI Management Services, Inc. (“GFI Management”), Allen I. Gross, and Edith Gross move pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss Count I of Plaintiff American Federated Title Corp.'s amended complaint, which seeks to hold Defendants liable for a prior judgment entered against two corporate entities alleged to be Defendants' alter egos. For the following reasons, Defendants' motion is denied.
The following factual allegations are drawn from Plaintiff's amended complaint, Dkt. No. 20, and for purposes of Defendants' motion are assumed to be true. See Kassner v. 2d Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir.2007).
Plaintiff is a Florida corporation that acts as trustee for a number of land trusts holding real property in Florida. Am. Compl. ¶¶ 5, 12. In 2000, Plaintiff leased four properties to three entities owned and controlled by the Grosses (the “A & M Entities”). Id. ¶¶ 13, 16. After the A & M Entities entered into the leases, GFI Management, an “operating entity” also controlled by the Grosses, took control of and managed the properties. Id. ¶¶ 19, 47.
In 2007, Allen Gross notified Plaintiff that he was interested in buying the properties that the A & M Entities had leased. Am. Compl. ¶ 21. He formed an entity called GFI Acquisition, LLC (“GFI Acquisition”), which entered into a purchase and sale agreement with Plaintiff under which Plaintiff would sell the properties to GFI Acquisition for $41,457,647. Id. ¶¶ 22–23. When that contract was signed, Allen Gross negotiated an “adjournment” of rent that the A & M Entities owed to Plaintiff, under which that rent would instead be added to the purchase price paid for the properties by GFI Acquisition. Id. ¶ 24. Plaintiff also agreed to delay the closing date for the sale of the properties. Id. ¶ 25. During this period, Defendants continued collecting subtenant rent (through the A & M Entities) without paying anything to Plaintiff. Id.
On the closing date for the purchase, GFI Acquisition failed to attend the closing, pay any agreed-upon deposits, or prepare closing documents as it had agreed to do under its contract with Plaintiff. Am. Compl. ¶ 26. GFI Acquisition and the A & M Entities then sued Plaintiff in Florida state court, a lawsuit that Plaintiff challenged as a “sham.” Id. ¶¶ 27–28. Thereafter, two of the A & M Entities filed for bankruptcy in the Southern District of New York, the Florida claims against Plaintiff were transferred to that court, and those claims were eventually dismissed on summary judgment. Id. ¶¶ 29–30. As part of the bankruptcy proceeding, Plaintiff asserted its own claims against the A & M Entities for unpaid rent and against GFI Acquisition for breaching the purchase and sale contract. Id. ¶ 31.
On October 20, 2010, Plaintiff, the A & M Entities, and GFI Acquisition entered into a settlement stipulation resolving Plaintiff's claims. Am. Compl. ¶ 31; see id. Ex. 4. Pursuant to the terms of that stipulation, the bankruptcy court entered a final judgment providing that Plaintiff was entitled to $7,000,000 from the A & M Entities and $500,000 from GFI Acquisition. Id. ¶ 34; see id. Ex. 5.
Plaintiff then sought post-judgment discovery in New York state court pursuant to § 5222 of New York's Civil Practice Law and Rules (“CPLR”). The A & M Entities and GFI Acquisition initially refused to provide such discovery until the court granted Plaintiff's motion for contempt and motion to compel. Am. Compl. ¶ 39. After the A & M Entities and GFI Acquisition then produced roughly 3,000 pages of documents, Plaintiff uncovered what it alleges are abuses of the entities' corporate form by Defendants.Id. ¶ 42.
To date, Plaintiff “has been unable to identify any recoverable assets of the A & M Entities or GFI Acquisition that are currently still in those entities' possession,” and the bankruptcy court's final judgment “remains completely unsatisfied.” Am. Compl. ¶ 48.
Plaintiff brought this action on September 12, 2013. Defendants moved to dismiss Plaintiff's veil-piercing claim (Count I) on November 26, 2013, and pursuant to Rule 3.F of this Court's individual practices in civil cases, Plaintiff amended its complaint in response to Defendants' motion. Defendants again moved to dismiss Count I on February 10, 2014, and that motion was fully submitted as of March 24, 2014. The parties have been engaged in discovery on Plaintiff's other claims pursuant to a case management plan and scheduling order entered by the Court on May 30, 2014. Dkt. No. 47.
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. At this stage, the Court must draw all reasonable inferences in favor of the non-moving party, see Kassner, 496 F.3d at 237, but it need not “accept as true a legal conclusion couched as a factual allegation,” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. In addition to the amended complaint itself, the Court may consider documents attached as exhibits, incorporated by reference, or relied upon by Plaintiff in bringing suit, as well as judicially noticeable matters. See Halebian v. Berv, 644 F.3d 122, 131 n. 7 (2d Cir.2011) ; In re Harbinger Capital Partners Funds Investor Litig., No. 12–cv–1244 (AJN), 2013 WL 5441754, at *15 n. 6 (S.D.N.Y. Sept. 30, 2013).
Additionally, as explained below, the Court assumes arguendo that certain of Plaintiff's allegations must meet the heightened pleading standards of Rule 9(b). See infra section III.C. Under Rule 9(b), a plaintiff alleging fraud must state “with particularity” the circumstances that amount to fraud. “This means the who, what, when, where, and how: the first paragraph of any newspaper story.” DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.1990) (Easterbrook, J.). See generally 5A Charles Alan Wright et al., Federal Practice & Procedure: Civil § 1298 (3d ed. 2004 & Supp.2014). Although the Rule provides that “[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally,” Fed.R.Civ.P. 9(b), “plaintiffs are still required to plead the factual basis which gives rise to a ‘strong inference’ of fraudulent intent.” Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir.1990).
Plaintiff's amended complaint contains four counts. Count I, entitled “Alter Ego/Piercing the Corporate Veil,” alleges that Defendants dominated and controlled the A & M Entities and GFI Acquisition, and used their control to prevent Plaintiff from recovering the full amount of the bankruptcy court's judgment against those entities. Am. Compl. ¶¶ 105–109. Counts II, III, and IV allege fraudulent conveyances under sections 273, 273–A, and 276 of New York's Debtor and Creditor Law, respectively. Id. ¶¶ 110–128. Defendants move to dismiss Count I on three grounds: (1) that there is no independent cause of action for piercing the corporate veil, (2) that Plaintiff's claim is barred by res judicata, and (3) that Plaintiff's claim is inadequately pled. Plaintiff contends that Defendants waived their first two arguments by failing to raise them in their prior motion to dismiss, see Pl. Opp. at 4, but the Court need not address this issue because Defendants' arguments fail on their merits.
As Plaintiff's complaint makes clear, this is “an action for post-judgment relief” seeking recovery on a federal judgment owed to Plaintiff by A & M Entities and GFI Acquisition. Am. Compl. ¶ 1. Federal Rule of Civil Procedure 69(a) provides that when a plaintiff seeks a post-judgment writ of execution, “[t]he procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located.” Plaintiff has invoked New York's CPLR § 5225(b), see Pl. Opp. at 7, which allows a judgment creditor to institute a “special proceeding” against an entity in custody or possession of money owed to it by a judgment debtor:
Upon a special proceeding commenced by the judgment creditor, against a person in possession or custody of money or other personal property in which the judgment debtor has an interest, or against a person who is a transferee of money or other personal property from the judgment debtor, where it is shown that the judgment debtor is entitled to the possession of such property or that the judgment creditor's rights to the property are superior to those of the transferee, the court shall require such person to pay the money, or so much of it as is sufficient to satisfy the judgment, to the judgment creditor and, if the amount to be so paid is insufficient to satisfy the judgment, to deliver any other personal property, or so much of it as is of sufficient value to satisfy the judgment, to a designated sheriff .......
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