Dowlings Inc. v. Homestead Dairies Inc.

• Decision Date: 27 October 2011
• Citation: 932 N.Y.S.2d 192,88 A.D.3d 1226,2011 N.Y. Slip Op. 07557
• Parties: DOWLINGS, INC., Appellant,v.HOMESTEAD DAIRIES, INC., et al., Respondents.
• Court: New York Supreme Court — Appellate Division

88 A.D.3d 1226

932 N.Y.S.2d 192

2011 N.Y. Slip Op. 07557

DOWLINGS, INC., Appellant,

v.HOMESTEAD DAIRIES, INC., et al., Respondents.

Supreme Court, Appellate Division, Third Department, New York.

Oct. 27, 2011.

Mark A. Schneider, Plattsburgh, for appellant.Robert J. Slye, Watertown, for respondents.Before: MERCURE, J.P., ROSE, MALONE JR., KAVANAGH and GARRY, JJ.GARRY, J.

Appeal from an order and judgment of the Supreme Court (Demarest, J.), entered December 3, 2010 in St. Lawrence County, which, among other things, granted defendants' cross motion for summary judgment dismissing the fifth amended complaint.

Defendant Homestead Dairies, Inc., a family-owned New York corporation, formerly operated four retail stores in St. Lawrence County. In the late 1990s, its principals and corporate officers were defendant Robert Squires Sr. (hereinafter the father) and his children, defendants Robert Squires Jr. (hereinafter the son), Jane Squires Ward and David Squires. Plaintiff, a Vermont corporation operating a wholesale goods business, supplied merchandise to Homestead. By 1999, Homestead was experiencing financial difficulties that prevented it from paying plaintiff and other creditors. Homestead attempted to salvage its business by, among other things, retaining a business consultant to devise a turn-around plan and requesting additional credit from plaintiff. Plaintiff granted this request, but Homestead eventually closed its stores and filed bankruptcy proceedings.

In August 2004, plaintiff commenced this action seeking to recover damages for unpaid invoices and related costs and asserting claims of fraud and fraudulent conveyance ( see Debtor and Creditor Law §§ 273, 274, 275, 276). Supreme Court permitted plaintiff to amend the complaint several times. In the course of the proceedings, the court also held, among other things, that plaintiff could not pierce the corporate veil to hold the individual defendants liable for Homestead's debts, granted partial summary judgment dismissing all claims against Jane Squires Ward and David Squires, and limited plaintiff's remaining causes of action to a claim of fraud against the father restricted to conduct occurring on or after August 26, 1998, and claims against the son of fraudulent conveyance under Debtor and Creditor Law §§ 273, 274, 275, and 276 for conduct occurring between August 26, 1998 and December 1998. In March 2010, the court denied plaintiff's motion to serve a fourth amended complaint, holding, among other things, that having been put to its proof on prior summary judgment motions, plaintiff could not submit additional proof as to the applicable statute of limitations. When plaintiff moved to amend its complaint a fifth time, defendants cross-moved for summary judgment dismissing all claims against them. In December 2010, the court granted defendants' motion and dismissed the fifth amended complaint in its entirety. Plaintiff appeals.

Initially, plaintiff asserts that Supreme Court erred in restricting its fraud and fraudulent conveyance claims to conduct occurring after August 25, 1998–that is, six years before the action was commenced. “A fraud cause of action must be commenced within six years from the time the fraud was committed or within two years from the time the fraud was discovered or could have been discovered through reasonable diligence” ( Giarratano v. Silver, 46 A.D.3d 1053, 1056, 847 N.Y.S.2d 698 [2007]; see CPLR 213[8]; Sargiss v. Magarelli, 12 N.Y.3d 527, 532, 881 N.Y.S.2d 651, 909 N.E.2d 573 [2009] ). Plaintiff asserts that the father induced it to grant Homestead additional credit by misrepresenting Homestead's ability to pay its debts at a time when he allegedly knew that Homestead was insolvent and would be unable to make the payments. Plaintiff's president, John Mitiguy, testified that the challenged statement was made at a meeting that took place sometime in 1998, but he was unable to identify the date.¹ Plaintiff argues that the action is timely even if the statement was made before August 25, 1998, because the two-year discovery limitations period should have been applied, rather than the six-year period. In September 2001, however, Homestead's business consultant communicated to Mitiguy via e-mail, stating that Homestead was in severe financial distress, and reporting his discovery of “many items that have been committed fraudulently by the Squires Family.” The consultant described allegedly preferential payments to certain creditors and asserted that the company had “substantial” hidden assets.² Mitiguy acknowledged receipt of this e-mail, and was thus shown to be aware of the consultant's allegations of fraud, but the action was not commenced until more than two years later. We therefore agree with Supreme Court's application of the six-year limitations period of CPLR 213(8), and find that plaintiff's claim was appropriately limited.

We reject plaintiff's claim that defendants are estopped from relying on the statute of limitations because their conduct caused it to delay commencing the action. Mitiguy testified that he did not remember having any conversations with members of the Squires family after a meeting that took place in 1999, and there is no evidence that “subsequent and specific actions by defendants somehow kept [plaintiff] from timely bringing suit” ( Pulver v. Dougherty, 58 A.D.3d 978, 980, 871 N.Y.S.2d 495 [2009], quoting Zumpano v. Quinn, 6 N.Y.3d 666, 674, 816 N.Y.S.2d 703, 849 N.E.2d 926 [2006]; see Cellupica v. Bruce, 48 A.D.3d 1020, 1021, 853 N.Y.S.2d 190 [2008] ).

Next, we agree with Supreme Court that even if the alleged misrepresentation was made after August 25, 1998 so that the fraud claim is timely, plaintiff did not establish the existence of material issues of fact as to whether a fraud occurred. To prove this claim, plaintiff must establish that it sustained damages because the father knowingly misstated or omitted a material fact “with the intention of inducing [plaintiff's] reliance on the misstatement, which caused it to reasonably rely on the misrepresentation” ( Nigro v. Lee, 63 A.D.3d 1490, 1492, 882 N.Y.S.2d 346 [2009] [internal quotation marks and citations omitted]; see Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421, 646 N.Y.S.2d 76, 668 N.E.2d 1370 [1996]; Young v. Williams, 47 A.D.3d 1084, 1086, 850 N.Y.S.2d 262 [2008] ). Promises of future performance, alone, are insufficient to sustain a claim of fraud ( see Moon v. Clear Channel Communications, 307 A.D.2d 628, 631, 763 N.Y.S.2d 157 [2003] ), and “[t]he mere fact that the expected performance was not realized is insufficient to demonstrate that [the promisor] falsely stated its intentions” ( Edelman v. Buchanan, 234 A.D.2d 675, 676, 650 N.Y.S.2d 874 [1996] [internal quotation marks and citation omitted]; see Sears v. First Pioneer Farm Credit, ACA, 46 A.D.3d 1282, 1285, 850 N.Y.S.2d 219 [2007] ). The father asserted by affidavit that plaintiff knew Homestead was in financial distress when he requested additional credit, that he made the request as part of a good faith effort to cure Homestead's default, and that he never intended to fail to repay the corporation's creditors. Plaintiff provided no evidence controverting these claims or otherwise demonstrating that the father's promise was “made with a present, albeit undisclosed, intent not to perform” ( Moon v. Clear Channel Communications, 307 A.D.2d at 631, 763 N.Y.S.2d 157 [internal quotation marks and citations omitted] ), and Supreme Court thus correctly granted summary judgment dismissing this claim.

With regard to the fraudulent conveyance claims, plaintiff asserts that at some time before the son left Homestead in December 1998, he converted several hundred thousand dollars of corporate funds to his own use, and that as a result, Homestead forced him out of his role as the corporation's treasurer and commenced two lawsuits against him.³ The constructive fraud claims, asserted pursuant to Debtor and Creditor Law §§ 273, 274 and 275, are governed by a six-year limitations period, commencing on the date of the allegedly fraudulent transfer, without regard to the date of plaintiff's discovery of the transfer ( see CPLR 213[1]; Citicorp Trust Bank, FSB v. Makkas, 67 A.D.3d 950, 952–953, 889 N.Y.S.2d 656 [2009]; Ehrler v. Cataffo, 42 A.D.3d 424, 425, 840 N.Y.S.2d 375 [2007]; Metzger v. Yuenger Woodworking Corp., 33 A.D.3d 678, 679, 824 N.Y.S.2d 96 [2006] ), and so were also properly limited to conduct occurring after August 25, 1998.

As to the merits of the constructive fraud claims, defendant asserts that there was no evidence that the son conveyed any property of Homestead's to himself between August 26, 1998 and the termination of his corporate role in December 1998, and plaintiff offered nothing to refute this claim. Moreover, plaintiff did not respond to defendants' motion for summary judgment with evidence that any alleged conveyance during that time frame rendered the son insolvent ( see Debtor and Creditor Law § 273), left Homestead with unreasonably small capital ( see Debtor and Creditor Law § 274), or was done with the intent or belief that he would incur debts beyond his ability to repay ( see Debtor and Creditor Law § 275). Thus, Supreme Court properly dismissed these claims ( see Matter of Shelly v. Doe, 249 A.D.2d 756, 757–758, 671 N.Y.S.2d 803 [1998] ).

Plaintiff's claim pursuant to Debtor and Creditor Law § 276 is subject to a different limitations period; this claim must be commenced within six years from the date of the transfer or two years from the date when the fraud was or should have been discovered, whichever is longer ( see CPLR 203[g]; 213[8]; Citicorp Trust Bank, FSB v. Makkas, 67 A.D.3d at 953–954, 889 N.Y.S.2d 656; Ehrler v. Cataffo, 42 A.D.3d at 425, 840 N.Y.S.2d 375). Plaintiff asserts that it did not learn of the alleged transfers by the son or of Homestead's litigation against him until well after plaintiff's action...