County of Suffolk v. Love'M Sheltering, Inc.

• Decision Date: 19 April 2010
• Citation: 27 Misc.3d 1127,899 N.Y.S.2d 809
• Parties: COUNTY OF SUFFOLK, Plaintiff, v. LOVE'M SHELTERING, INC., and its officers and directors, Love'M, Inc., and its officers and directors, Richard Morrison, in his individual capacity, Mary Morrison, in her individual capacity, Defendants.
• Court: New York Supreme Court

899 N.Y.S.2d 809

27 Misc.3d 1127

COUNTY OF SUFFOLK, Plaintiff,

v.LOVE'M SHELTERING, INC., and its officers and directors, Love'M, Inc., and its officers and directors, Richard Morrison, in his individual capacity, Mary Morrison, in her individual capacity, Defendants.

Supreme Court, Suffolk County, New York.

April 19, 2010.

Christine Malafi, Suffolk County Attorney, by Jennifer K. McNamara, Assist County Atty., Hauppauge, for Plaintiff.

Solomon & Herrera, PLLC, Levittown, for Defendants.

THOMAS F. WHELAN, J.

ORDERED that this motion (# 001) by the plaintiff for a preliminary injunction restraining the Morrison defendants from accessing and depleting $950,921.90 of their recent lottery winnings, is considered under CPLR Article 63 and is denied; and it is further

ORDERED that the temporary restraining order set forth in the January 6, 2010 Order to Show Cause (Rebolini, J.) pursuant to which the disputed funds were placed in escrow, shall remain in effect for 15 days from the date of this order; and it is further

ORDERED that the cross motion (# 002) by the defendants for dismissal of the plaintiff's amended complaint and for the imposition of sanctions against the plaintiff is considered under CPLR 3211(a)(5) and 22 NYCRR Part 130-1 and is denied; and it is further

ORDERED that a preliminary conference is scheduled for May 18, 2010, at 9:30 a.m., in Part 33 at the courthouse located at 1 Court Street-Annex, Riverhead, New York.

The plaintiff commenced this action to enforce a judgment in the amount of $809,417.91 against defendants Morrison and Love'M Inc. which the plaintiff secured against defendant, Love'M Sheltering, Inc. (hereinafter "Sheltering") in January of 2008. This judgment was awarded upon the plaintiff's successful prosecution of its claim to recover overpayments made to Sheltering under a 1999 contract by which Sheltering agreed to provide emergency housing and other services to indigentresidents of Suffolk County. This claim was interposed as acounterclaim in a hybrid Article 78/declaratory judgment action commenced by Sheltering against the plaintiff in 2004 and was predicated upon the terms of the 1999 contract between the parties and a June 8, 2004 audit of Sheltering's fiscal operations from January 1, 2000 through December 31, 2000 by the Suffolk County Comptroller. Sheltering's challenges to the validity of the audit and the amount of overpayments to which the plaintiff claimed an entitlement were rejected by the trial court in an order dated April 7, 2005 ( see Index #14978/2004). The order of the trial court was affirmed by the Appellate Division, Second Department on October 24, 2006 ( see Love'M Sheltering, Inc. v. County of Suffolk, 33 A.D.3d 923, 824 N.Y.S.2d 98 [2d Dept. 2006] ).

In 2005, the plaintiff declined to renew its contract with Sheltering, a not-for-profit corporation which rented operating space from defendant, Love'M, Inc., a related not-for profit corporation. Both Sheltering, and Love'M, Inc. were formed, operated and/or controlled by the Morrison defendants. After the cancellation of its contract with the plaintiff, Sheltering ceased its operations in Suffolk County.

Subsequent to the entry of the plaintiff's January 28, 2008 judgment against Sheltering, the plaintiff issued an execution thereon. However, the execution was returned unsatisfied by the Sheriff, as no assets of Sheltering against which a levy could be made were found.

On December 22, 2009, the Morrison defendants won the Mega Millions Lottery Jackpot which yielded them a net payout of some $65,000,000.00. On January 6, 2010, which was one day prior to the Morrisons' scheduled collection of their jackpot winnings, the plaintiff commenced this action against the Morrisons, the two not-for-profit corporations described above and the New York State Lottery Commission. The plaintiff also moved, by presentation of an order to show cause, for a temporary restraining order and preliminary injunction enjoining the Morrisons' depletion of so much of their lottery winnings as equaled the plaintiff's unsatisfied money judgment against defendant Sheltering. At the proceedings conducted upon presentation of the order to show cause, the parties agreed that counsel for the Morrisons would hold, in an interest bearing escrow account, monies in the amount of $950,921.90 pending determination of the plaintiff's motion for a preliminary injunction. The agreement was incorporated into the terms of the January 6, 2010 order to show cause and it rendered the plaintiff's demands fora temporary restraining order, academic. The agreement likewise rendered academic, the plaintiff's pleaded claims for injunctive relief against the New York State Lottery Commission. Shortly thereafter, the plaintiff served an amended verified complaint which deleted all of its prior claims for injunctive relief against the defendants and dropped the New York State Lottery Commission as a party defendant to this action.

The amended complaint served by the plaintiff asserts three causes of action in which the plaintiff demands that the January 28, 2008 judgment it obtained against Sheltering be enforced against defendants, Love'M, Inc., Richard Morrison and Mary Morrison. These claims are predicated upon allegations that the court should pierce or disregard the corporate veil of Sheltering for purposes of the plaintiff's judgment and charge the Morrisons and Love'M, Inc. with liability therefor due to the domination and control over Sheltering and the other actionable excesses in which the Morrisons, individually or through Love'M, Inc., purportedly engaged. In response,and in lieu of answering the plaintiff's amended complaint, the defendants interposed their cross motion for dismissal of the plaintiff's complaint and for the imposition of monetary sanctions by reason of the plaintiff's engagement in purportedly frivolous conduct within the contemplation of 22 NYCRR Part 130-1.

The court first considers the defendants' cross motion, as its determination thereof may render the plaintiff's motion in chief and this action, moot. The defendants' demand for dismissal of the plaintiff's amended complaint is singularly premised upon allegations that the claims of the plaintiff are barred by applicable statutes of limitations which warrant the dismissal of such complaint pursuant to CPLR 3211(a)(5). In support of their position, the defendants rely upon the six year period of limitations applicable to breach of contract claims set forth in CPLR 213(2) and the two year discovery period of limitations applicable to fraud claims set forth in CPLR 213(8), both of which expired, according to the defendants, not later than December 31, 2006.

The court finds, however, that the defendants' reliance upon the provisions of CPLR 213 is misplaced and it thus rejects the defendants' demands for dismissal of the plaintiff's complaint as time barred pursuant to CPLR 3211(a)(5). Actions for enforcement of a judgment against those charged with control and domination of a corporate judgment debtor under corporate veil piercing theories are governed by the twenty yearstatute of limitations set forth in CPLR 211(b) that runs from the docketing of the judgment ( see CPLR 211[b]; The Commissioners of the State Ins. Fund v. Ramos, 38 A.D.3d 445, 831 N.Y.S.2d 320 [1st Dept. 2007]; Solow v. Domestic Stone Erectors, Inc., 229 A.D.2d 312, 645 N.Y.S.2d 17 [1st Dept. 1996] ).

Here, the plaintiff's claims for enforcement of its judgment against the Morrisons and Love'M Inc. are grounded in theories of piercing the corporate veil of Sheltering as they rest upon allegations that the Morrisons, individually and through Love'M Inc., dominated and controlled Sheltering to such an extent that it was the mere alter ego of the Morrisons, had no separate will of its own, was forced to use its own assets not in aid of its own business, but in aid of the personal interests of the Morrisons, and was employed to perpetrate a wrong or injustice against the plaintiff ( see Gateway I Group, Inc. v. Park Ave. Physicians, P.C., 62 A.D.3d 141, 877 N.Y.S.2d 95 [2d Dept. 2009] ). In determining whether to pierce the corporate veil, the factors to be considered by a court include failure to adhere to corporate formalities, inadequate capitalization, commingling of assets and use of corporate funds for personal use ( see Superior Transcribing Serv., LLC. v. Paul, 72 A.D.3d 675, 898 N.Y.S.2d 234 [2d Dept. 2010]; Millennium Constr., LLC v. Loupolover, 44 A.D.3d 1016, 845 N.Y.S.2d 110 [2d Dept. 2007] ). The instant action is thus one to enforce the plaintiff's judgment against Love'M Inc. and the Morrison defendants. Since this action was commenced well within twenty years of the docketing of the January 28, 2008 judgment, those portions of the defendants' motion for dismissal of the amended complaint pursuant to CPLR 3211(a)(5), are denied.¹

Also denied are the defendants' demands for an order imposing monetary sanctions against the plaintiff. The court finds that the conduct about which the defendants complain, namely, the plaintiff's commencement of this action and its continued prosecution of its demands for preliminary injunctive relief, do not constitute frivolous conduct within the contemplation of 22NYCCR Part 130-1.1(a). The mere commencement of an action and a demand for relief by way of order during the pendency of such action will not generally be considered frivolous where the party charged raises a genuine legal issue and there is no pattern of a series of unsuccessful applications for the same relief ( see Ofman v. Campos, 12 A.D.3d 581, 788 N.Y.S.2d 115 [2d Dept. 2004]; Stow v. Stow, 262 A.D.2d 550, 694 N.Y.S.2d 68 [2d Dept. 1999] ). Here, the plaintiff's claims are not without a basis in law or fact and thus give rise to genuine legal disputes. The defendants' unsubstantiated and conclusory claims that by commencement of this action, the plaintiff intended to harass and or intimidate the...