First Capital Asset Management, Inc. v. NA PARTNERS, LP

• Decision Date: 17 December 2002
• Citation: 755 N.Y.S.2d 63,300 A.D.2d 112
• Parties: FIRST CAPITAL ASSET MANAGEMENT, INC., Respondent,<BR>v.<BR>N.A. PARTNERS, L.P., et al., Respondents, and<BR>SOHRAB VAHABZADEH, Appellant.
• Court: New York Supreme Court — Appellate Division

300 A.D.2d 112

755 N.Y.S.2d 63

FIRST CAPITAL ASSET MANAGEMENT, INC., Respondent,

v. N.A. PARTNERS, L.P., et al., Respondents, andSOHRAB VAHABZADEH, Appellant.

Decided December 17, 2002.

Concur — Williams, P.J., Rosenberger, Rubin, Friedman and Gonzalez, JJ.

This CPLR article 52 enforcement proceeding arises out of a prior action by petitioner-respondent First Capital Asset Management, Inc. (First Capital) against respondents N.A. Partners, L.P. (NAP), North American Consortium, Inc. (NACI), Sohrab Vahabzadeh (Vahabzadeh), the owner/principal of NAP and NACI, and others. In the prior action, First Capital alleged the breach of a stock purchase agreement which called for First Capital to sell 35% of the stock of a subsidiary to be formed to NAP/NACI for a purchase price of $4.5 million. It is undisputed that despite warranting in the stock purchase agreement that "[t]he Buyer has funds, or financing agreements to provide funds, sufficient to pay the Purchase Price at the closing," NAP/NACI failed to close on the transaction.

In May 1997, First Capital obtained a judgment in the amount of $4.5 million, plus interest and costs, against NACI and NAP in the prior action. However, in a February 27, 1997 order giving rise to said judgment, the IAS court also dismissed the complaint against Vahabzadeh individually. The court found that Vahabzadeh was not named as a "buyer" under the purchase agreement and that his signature in his individual capacity pertained only to obligations personal to him, such as a restrictive covenant. In June 1997, the IAS court denied First Capital's motion for reargument and renewal of the February 1997 order, concluding that its "dubious" theories of promoter and alter ego liability should have been raised on the original motion.

In August 2001, this Court reversed the grant of summary judgment to Vahabzadeh in the prior action (First Capital Asset Mgt. v North Am. Consortium, 286 AD2d 263), finding the agreement ambiguous as to his personal liability.

Meanwhile, in April 1998, First Capital commenced the instant article 52 proceeding to enforce the May 1997 judgment against Vahabzadeh, NAP, North American Capital Guaranty, Inc. (NACGI), the general partner of NAP, and the Estate of Soleyman Vahabzadeh, Vahabzadeh's father, with whom NACI or NAP purportedly had a financing agreement. In the sixth cause of action of its article 52 petition, First Capital sought to pierce the corporate veil of NACI and NACGI to hold Vahabzadeh personally liable for the May 1997 judgment on both an alter ego theory and under Texas Tax Code Annotated §§ 171.252 and 171.255, which impose liability on officers and directors for corporate obligations incurred at a time when the corporation's charter has been revoked for nonpayment of Texas franchise taxes.

In an October 30, 1998 judgment, the IAS court dismissed the article 52 petition as against Vahabzadeh on the ground of res judicata, since First Capital failed to raise these grounds when Vahabzadeh's individual liability was litigated in the prior action.^[*] In April 1999, this Court modified to reinstate the petition as against Vahabzadeh insofar as it alleged that he was the alter ego of NACI and NACGI (First Capital Asset Mgt. v N.A. Partners, 260 AD2d 179, lv denied 93 NY2d 817). We held that the dismissal against Vahabzadeh in the prior action was based on a finding that he was not personally liable under the terms of the stock purchase agreement, and thus did not preclude a proceeding to hold him personally liable under the theory of piercing the corporate veil, since the elements of proof required to sustain recovery under the two theories varied materially (id. at 181). Significantly, however, there is no mention in this Court's decision of First Capital's attempt to hold Vahabzadeh personally liable based on the provisions of the Texas Tax Code, and that portion of the petition was not specifically reinstated.

In September 2000, Vahabzadeh moved for dismissal of the reinstated portion of the article 52 petition, arguing that First Capital's veil-piercing theory was deficient as a matter of law. First Capital cross-moved for partial summary judgment on its claim to hold Vahabzadeh personally liable under the Texas Tax Code.

In a June 27, 2001 order giving rise to the judgment appealed from, the IAS court denied Vahabzadeh's motion to dismiss the petition and granted First Capital's cross motion for partial summary judgment. The court first noted that at the time NACI incurred liability under the stock purchase agreement, it had forfeited its franchise for failure to pay Texas corporate taxes, and was not reinstated until after that liability had been fully incurred. The IAS court concluded that under New York law, "the individual shareholders and officers of a corporation are legally responsible for contractual obligations where the contract was entered into after the corporation was dissolved for nonpayment of franchise taxes, even if the corporation was later reinstated," citing WorldCom, Inc. v Sandoval (182 Misc 2d 1021 [Sup Ct, NY County 1999]) and Poritzky v Wachtel (176 Misc 633 [Sup Ct, Putnam County 1941]). The court further stated that this result is mandated under New York or Texas law.

In addition, the IAS court rejected Vahabzadeh's arguments challenging the merits of First Capital's veil-piercing theory and noted that, in any event, this Court specifically revived the veil-piercing theory in its April 1999 order.

On appeal, Vahabzadeh argues that First Capital's claim that he may be held personally liable under New York or Texas tax law because the debt was incurred while NACI's corporate charter was revoked for nonpayment of franchise taxes is not properly before us, since the entire article 52 proceeding was dismissed in the October 1998 judgment and this Court only reinstated the claim seeking to pierce the corporate veil on an alter ego theory. First Capital's brief does not address this reviewability question, but it does argue that the weight of authority supports the IAS court's determination that individual shareholders and officers may be held liable for debts incurred after a corporation's charter has been revoked for nonpayment...