Bd. of Managers of 195 Hudson St. v. Brown Assoc.

• Decision Date: 25 August 2009
• Docket Number: No. 07 Civ. 4058 (PKL).,07 Civ. 4058 (PKL).
• Citation: 652 F.Supp.2d 463
• Parties: BOARD OF MANAGERS OF the 195 HUDSON STREET CONDOMINIUM, Plaintiff, v. JEFFREY M. BROWN ASSOCIATES, INC. and Lexington Insurance Company, Defendants.
• Court: U.S. District Court — Southern District of New York

652 F.Supp.2d 463

BOARD OF MANAGERS OF the 195 HUDSON STREET CONDOMINIUM, Plaintiff, v. JEFFREY M. BROWN ASSOCIATES, INC. and Lexington Insurance Company, Defendants.

No. 07 Civ. 4058 (PKL).

United States District Court, S.D. New York.

August 25, 2009.

COPYRIGHT MATERIAL OMITTED

Judd Burstein P.C., Peter B. Schalk, Esq., Alexander M. Levy, Esq., New York, NY, for Plaintiff.

Rivelis, Pawa & Blum, LLP, Howard Blum, Esq., New York, NY, for Defendant Jeffrey M. Brown Associates, Inc.

OPINION AND ORDER

LEISURE, District Judge:

Plaintiff Board of Managers of the 195 Hudson Street Condominium (the "Board"), a manager and operator of a condominium association, filed this action premised on diversity jurisdiction on May 23, 2007. The Board seeks a declaration that it is entitled to recover from defendant Jeffrey M. Brown Associates ("JMB") an outstanding state court judgment against non-party K & J Construction Co., L.P. ("K & J") under an alter-ego theory of corporate veil-piercing. JMB moves to dismiss the complaint against it under Federal Rule of Civil Procedure 12(b). JMB contends that plaintiff's alter-ego claim against it is barred on the grounds of res judicata, collateral estoppel, and/or the Rooker-Feldman doctrine, based upon prior decisions rendered by the Supreme Court of the State of New York, New York County. For the following reasons, JMB's motion is GRANTED.

BACKGROUND

For purposes of this motion, well-pleaded allegations set forth in plaintiff's complaint are accepted as true, and all plausible inferences are drawn in plaintiff's favor. The Court has also reviewed documents of which the Court may take judicial notice.

This action arises out of a condominium construction project located at 195 Hudson Street, New York, New York ("195 Hudson Street"). 195 Hudson Street is a residential loft building that was previously used for industrial purposes. (Compl. ¶ 6.) Pursuant to a written contract with non-party condominium sponsor 195 Hudson Street Associates, LLC (the "Sponsor"), K & J served as construction manager on the project converting 195 Hudson Street from industrial to residential use. (Id. ¶ 7.) JMB formed K & J in 1998 for the purpose of performing non-union construction work in New York City. (Id. ¶ 8.)

I. State Court Proceedings

On May 23, 2000, Northeast Restoration Corp. ("Northeast"), a subcontractor on the conversion project, brought suit against K & J, the Sponsor, and the Sponsor's insurer in the Supreme Court of the State of New York, New York County, demanding payment for work, labor, and services performed on the conversion project, and seeking to foreclose on a mechanic's lien filed against 195 Hudson Street. (See Compl. filed in Index No. 602171/00 included herein as Def.'s Ex. 3.¹) On December 11, 2001, the state court granted partial summary judgment in favor of the Sponsor and its insurer, vacating and canceling the mechanic's lien and dismissing the action to foreclose on the mechanic's lien. (See Ne. Restoration Corp. v. K & J Constr. Co., L.P., No. 118784/03, Dec. 11, 2001 Mem. Decision, included herein as Def.'s Ex. 4.) The court's decision also directed Northeast to proceed under New York real estate trust fund law to recover amounts it was allegedly owed.² (Id. at 7.)

On February 19, 2002, Northeast filed a new suit against JMB, the Sponsor, and the Board in the Supreme Court of the State of New York, New York County (the "Northeast Litigation"), seeking to recover payment from (i) the Sponsor or Board via a statutory real estate trust fund, or (ii) from JMB under an alter-ego theory. (See Compl. filed in Index No. 600664/02, included herein as Def.'s Ex. 6.) Specifically, Northeast claimed that "[JMB] dominated and controlled the business and financial affairs of K & J, thereby rendering K & J the mere instrumentality and alter ego of [JMB]." (Id. ¶ 23.) In support of its corporate veil-piercing claim, Northeast alleged that K & J was a wholly-owned subsidiary of JMB, and that the two entities shared an office and overlapped in ownership, officers, directors, and personnel. (Id. ¶ 22.) Northeast further alleged that "[JMB's] domination and control over K & J resulted in K & J's wrongful failure and refusal to pay Northeast ... $168,057, which domination and control was for [JMB's] own financial benefit" (id. ¶ 27) and unjust enrichment (id. ¶ 32). The Board asserted cross-claims against JMB for common law indemnification and contribution in the event that the Board was found liable to Northeast. (See V. Answer Compl., sworn to on June 11, 2002, included herein as PL's Ex. C, ¶ ¶ 20-21.) JMB did not file or serve a reply to the cross-claims. (See Answer of Brown, entered on Feb. 21, 2003, included herein as Pl.'s Ex. E.)

JMB moved to dismiss pursuant to N.Y. C.P.L.R. § 3211(a)(1). (See Ne. Restoration Corp. v. K & J Constr. Co., L.P., Index Nos. 602171/00, 600664/02, Feb. 11, 2003 Order, entered on Feb. 13, 2003, included herein as Def.'s Ex. 8 ("Def.'s Ex. 8") at 1.) On February 11, 2003, Justice Edward Lehner converted JMB's motion to dismiss to a motion for summary judgment, granted summary judgment in favor of JMB, and severed the action against the other defendants. (See id. at 1.) Justice Lehner found that Northeast failed to raise a triable issue on its alter-ego theory, "as [Northeast] has not shown any misuse of the corporate form by [JMB] so as to warrant a piercing of the corporate veil and deprive it of the privilege of doing business as a separate corporation from its subsidiary." (Id. at 2.) Judgment was entered on April 8, 2003. (See Pl.'s Ex. F.) Subsequently, on May 4, 2004, Justice Lehner granted summary judgment in favor of the Board and the Sponsor on the statutory trust fund claim, and dismissed the complaint against them. See Ne. Restoration Corp. v. K & J Constr. Co., L.P., Index No. 602171/00, 4 Misc.3d 197, 776 N.Y.S.2d 780 (N.Y.Sup.Ct.2004) (included herein as Pl.'s Ex. H).

On October 29, 2003, the Board commenced an action in the Supreme Court of the State of New York, New York County against, inter alia, the Sponsor, K & J, and JMB in connection with alleged construction defects in the conversion project (the "Conversion Litigation"). (See V. Compl. filed in Index No. 118784/03, included herein as Def.'s Ex. 9 ("Def.'s Ex. 9").) With respect to K & J and JMB, the Board alleged (i) that K & J is "a related business entity" to JMB and that "the two related entities share an office at 330 Seventh Avenue, New York, New York" (id. ¶ 18), (ii) that JMB, as manager and supervisor of the construction activities undertaken on the conversion project, improperly constructed, supervised, and inspected the facilities involved in the construction project and thereby breached a duty of care owed to the Board to ensure the conversion project was performed in a "proper and workmanlike manner" (id. ¶¶ 19, 20, 125, 127), and (iii) that K & J, having contracted with the Sponsor for construction on the conversion project, improperly constructed, supervised, and inspected the facilities involved in the construction project and thereby breached a duty of care owed to the Board to construct and supervise the conversion project in a "proper and workmanlike manner" (id. ¶ 17, 119, 120; see also Compl. ¶ 9).

JMB moved to dismiss, asserting (i) collateral estoppel as a defense, to the extent the Board's pleading raised alter-ego allegations, and (ii) that, in the absence of a contractual relationship, JMB owed no duty to the Board. (See Bd. of Managers of the 195 Hudson St. Condo. v. 195 Hudson St. Assocs., LLC, No. 118784/03, June 30, 2004 Order, entered on July 8, 2004, included herein as Def.'s Ex. 10 ("Def.'s Ex. 10") at 1.) In support of its motion to dismiss, JMB submitted an affidavit setting forth facts regarding K & J's separate corporate existence from JMB, arguing that such facts established JMB was not liable for any alleged breaches of contract by K & J. (See JMB's Aff. Supp. Mot., sworn to on Nov. 21, 2003, included herein as Def.'s Ex. 7 ("Def.'s Ex. 7").) Specifically, JMB averred that, although certain employees of JMB worked directly for K & J on the conversion project, JMB billed K & J for those employees, and was reimbursed by K & J for the costs associated with those employees. (Id. at ¶ 20.) JMB also averred that it was not paid by the Sponsor and that there was no contractual relationship between the Sponsor and JMB that would give rise to a duty of care to the Board.³ (Id.)

On June 30, 2004, Justice Walter Tolub granted JMB's motion to dismiss. (Def.'s Ex. 10 at 1.) Justice Tolub determined that the Board was not a party to (i) the construction management agreement between the Sponsor and K & J or (ii) the oral agreement between JMB and K & J whereby JMB provided employees to K & J. (Id. at 2.) As a result, the complaint failed "to allege facts that would establish either an agreement that intentionally rendered [the Board] a third-party beneficiary or [that] an exception to the rule that no duty is owed to a non-contracting party applies." (Id. at 2.) Justice Tolub therefore dismissed the complaint against JMB in its entirety, severed the action against the remaining defendants, and directed the Clerk of Court to enter judgment.⁴ (Id.)

In April 2007, the Board settled its claims against the Sponsor. (Compl. ¶ 10.) As part of the settlement, the Sponsor assigned its breach of contract claims against K & J to the Board. (Id.) On May 9, 2007, a jury returned a verdict in favor of the Board on its breach of contract claims against K & J, and awarded the Board over $2 million in damages. (Id. ¶ 12.) On January 8, 2008, the state court entered judgment in that amount against K & J. See Bd. of Managers of the 195 Hudson St. Condo. v. 195 Hudson St. Assocs., LLC, 63 A.D.3d 523, 524, 881 N.Y.S.2d 84 (2009). The Appellate Division, First Department, affirmed the judgment on June 16, 2009. See id.

II. Instant Litigation

The Board...