East Hampton v. Sandpebble

• Decision Date: 28 July 2009
• Docket Number: 2007-08334.
• Citation: 2009 NY Slip Op 05998,884 N.Y.S.2d 94,66 A.D.3d 122
• Parties: EAST HAMPTON UNION FREE SCHOOL DISTRICT, Respondent, v. SANDPEBBLE BUILDERS, INC., et al., Appellants.
• Court: New York Supreme Court — Appellate Division

66 A.D.3d 122

884 N.Y.S.2d 94

2009 NY Slip Op 05998

EAST HAMPTON UNION FREE SCHOOL DISTRICT, Respondent, v. SANDPEBBLE BUILDERS, INC., et al., Appellants.

2007-08334.

Appellate Division of the Supreme Court of New York, Second Department.

Decided July 28, 2009.

Esseks, Hefter & Angel, LLP, Riverhead (Theodore D. Sklar of counsel), for appellants.

Morgan, Lewis & Bockius, LLP, New York City (Bernard J. Garbutt III, Marc J. Shanker and Shana Cappell of counsel), for respondent.

OPINION OF THE COURT

FISHER, J.

The individual defendant, Victor Canseco, is the principal owner and president of the corporate defendant, Sandpebble Builders, Inc. (hereinafter Sandpebble). The primary issue on this appeal is whether the complaint is sufficient to state a cause of action against Canseco personally for the wrongs of the corporation under the doctrine of piercing the corporate veil.

The complaint names as defendants both Sandpebble and Canseco, as Sandpebble's president and principal owner. It asserts causes of action jointly against them, referring to them, for the most part, as "the defendants." The complaint alleges that in April 2002 the plaintiff, East Hampton Union Free School District (hereinafter the district), entered into an agreement with the defendants, subject to an $18 million municipal bond offering, whereby the defendants would provide construction services to the district in consideration of, inter alia, five percent of the total project cost. In 2004, however, after the Board of Education of the district failed to ratify the agreement, the district abandoned it. Thereafter, in 2005, in anticipation of a new project, the district entered into an estimating services contract with the defendants whereby the defendants would provide certain estimates for use by the district's architects in connection with the new project. The complaint alleges that, although the district paid the defendants the sum of $200,000, the defendants never performed under the agreement, thereby delaying the project. Despite the defendants' failure to perform however, the district proposed to them a new construction management agreement in connection with the new project, and an agreement in principle was reached in June 2006. The terms of this agreement were less favorable to the defendants than were the terms of the abandoned 2002 agreement.

The complaint alleges that, notwithstanding this agreement in principle, the defendants refused to execute the contract. The parties reopened negotiations and agreed to a change in the terms, but, again, the defendants refused to execute the contract. According to the complaint, this sequence of renegotiation, agreement in principle, and refusal to execute was repeated twice more until, by letter dated September 15, 2006, the defendants "rejected the contract ... terminated negotiations with the school district, and stated that [they] were `ready, willing and able' to perform," but only under the terms of the 2002 agreement. Ultimately, the district contracted with a different provider.

In the complaint, the district alleges that the defendants never intended to perform in connection with the new project, and that their repeated demands for new terms constituted bad faith and unfair negotiating tactics designed to delay progress of the project in order to pressure the district to offer them the more advantageous terms of the 2002 agreement. The complaint alleges throughout that the wrongful conduct was engaged in by "the defendants." With respect to Canseco specifically, the complaint alleges only that he is "the President and principal owner of Sandpebble," that he "exercised and exercises complete dominion and control over Sandpebble," that he "exercised complete dominion and control over Sandpebble, including, but not limited to, all the acts and omissions of Sandpebble as alleged herein," that he "used such dominion and control to direct the acts and omissions of Sandpebble as alleged herein, and to commit a wrong against the School District which resulted in injury, harm and damages to the School District," that he "exercised such dominion and control over Sandpebble while [he] and Sandpebble were engaging in the bad faith and unfair negotiating tactics alleged herein," and that therefore he is "liable herein, jointly and severally with Sandpebble, for all the acts, omissions, debts, obligations and liabilities of Sandpebble."

The defendants moved pursuant to CPLR 3211 (a) (1) and (7) to dismiss the complaint insofar as asserted against Canseco individually. The Supreme Court denied the motion (2007 NY Slip Op 34427[U]), and the defendants appeal.

As an initial matter, we find that the Supreme Court properly denied that branch of the defendants' motion which was to dismiss the complaint insofar as asserted against Canseco individually under CPLR 3211 (a) (1), inasmuch as the documentary evidence that the defendants submitted in support of that branch of their motion did not establish a defense as a matter of law (see Martinez v La Colonia Rest., 55 AD3d 801 [2008]).

With respect to that branch of the defendants' motion which was pursuant to CPLR 3211 (a) (7), the principles governing this appeal are familiar.

"On a motion to dismiss the complaint pursuant to CPLR 3211 (a) (7) for failure to state a cause of action, the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Breytman v Olinville Realty, LLC, 54 AD3d 703, 703-704 [2008]; see Leon v Martinez, 84 NY2d 83, 87 [1994]; Smith v Meridian Tech., Inc., 52 AD3d 685, 686 [2008]).

Thus, "a motion to dismiss made pursuant to CPLR 3211 (a) (7) will fail if, taking all facts alleged as true and according them every possible inference favorable to the plaintiff, the complaint states in some recognizable form any cause of action known to our law" (Shaya B. Pac., LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 AD3d 34, 38 [2006]; see Leon v Martinez, 84 NY2d at 87-88; Fisher v DiPietro, 54 AD3d 892, 894 [2008]; Clement v Delaney Realty Corp., 45 AD3d 519, 521 [2007]). Moreover, the sufficiency of a complaint must be measured against what the law requires of pleadings in the particular case. As our dissenting colleagues correctly point out, the complaint here is not required to meet any heightened level of particularity in its allegations (cf. CPLR 3016). Instead, it need only contain "[s]tatements ... sufficiently particular to give the court and parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved and the material elements of each cause of action" (CPLR 3013). The issue that now divides the court is whether, under the doctrine of piercing the corporate veil, the complaint contains allegations sufficient to state a cause of action holding Canseco personally liable for actions he took as Sandpebble's president and principal owner.^*

The general rule, of course, is that a corporation exists independently of its owners, who are not personally liable for its obligations, and that individuals may incorporate for the express purpose of limiting their liability (see Bartle v Home Owners Coop., 309 NY 103, 106 [1955]; Seuter v Lieberman, 229 AD2d 386, 387 [1996]). The concept of piercing the corporate veil is an exception to this general rule, permitting, in certain circumstances, the imposition of personal liability on owners for the obligations of their corporation (see Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 140-141 [1993]). A plaintiff seeking to pierce the corporate veil must demonstrate that a court in equity should intervene because the owners of the corporation exercised complete domination over it in the transaction at issue and, in doing so, abused the privilege of doing business in the corporate form, thereby perpetrating a wrong that resulted in injury to the plaintiff (id.; see Love v Rebecca Dev., Inc., 56 AD3d 733 [2008]; Millennium Constr., LLC v Loupolover, 44 AD3d 1016 [2007]).

The complaint here certainly alleges that the district sustained damages by reason of the wrongful conduct of Sandpebble, and that Canseco exercised complete "dominion and control" over the corporation in its dealings with the district. But, if, standing alone, domination over corporate conduct in a particular transaction were sufficient to support the imposition of personal liability on the corporate owner, virtually every cause of action brought against a corporation either wholly or principally owned by an individual who conducts corporate affairs could also be asserted against that owner personally, rendering the principle of limited liability largely illusory. Thus, the party seeking to pierce the corporate veil must also establish "that the owners, through their domination, abused the privilege of doing business in the corporate form" (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d at 142; see Gateway I Group, Inc. v Park Ave. Physicians, P.C., 62 AD3d 141 [2009]; Lawlor v Hoffman, 59 AD3d 499 [2009]; Love v Rebecca Dev., Inc., 56 AD3d at 733). Factors to be considered in determining whether the owner has "abused the privilege of doing business in the corporate form" include whether there was a "failure to adhere to corporate formalities, inadequate capitalization, commingling of assets, and use of corporate funds for personal use" (Millennium Constr., LLC v Loupolover, 44 AD3d at 1016-1017; see Gateway I Group, Inc. v Park Ave. Physicians, P.C., 62 AD3d 141 [2009]; AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d 6, 24 [2008]).

Notably, even under the liberal "notice pleading" requirements of CPLR 3013, a complaint still must allege, inter alia, "the material elements of each cause of action" asserted....