Gateway I Group, Inc. v. Park Ave. Physicians, P.C.

• Court: New York Supreme Court — Appellate Division
• Writing for the Court: Dickerson
• Citation: Gateway I Group, Inc. v. Park Ave. Physicians, P.C., 62 A.D.3d 141, 877 N.Y.S.2d 95, 2009 NY Slip Op 1944 (N.Y. App. Div. 2009)
• Decision Date: 17 March 2009
• Docket Number: 2007-05715.
• Parties: GATEWAY I GROUP, INC., Respondent, v. PARK AVENUE PHYSICIANS, P.C., Defendant, and PARK AVENUE HEALTH CARE MANAGEMENT, INC., et al., Appellants.

62 A.D.3d 141

877 N.Y.S.2d 95

2009 NY Slip Op 01944

GATEWAY I GROUP, INC., Respondent, v. PARK AVENUE PHYSICIANS, P.C., Defendant, and PARK AVENUE HEALTH CARE MANAGEMENT, INC., et al., Appellants.

2007-05715.

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

Decided March 17, 2009.

Cozen O'Connor, New York City (Edward Hayum and Kevin M. Mattessich of counsel), for appellants.

Steven C. Hirsch, Garden City (Michael Lowe of counsel), for respondent.

OPINION OF THE COURT

DICKERSON, J.

Factual Background and Prior Action

The plaintiff, Gateway I Group, Inc., owns real property located at One North Lexington Avenue in White Plains. The defendant Park Avenue Physicians, P.C. (hereinafter Physicians) was the plaintiff's tenant at that property. In a prior action commenced by the plaintiff to recover unpaid rent from Physicians, the plaintiff was awarded the sum of $183,808.33, and Physicians was evicted from the property.

The Instant Action

The plaintiff commenced the instant action against Physicians, as well as the defendants Park Avenue Health Care Management, Inc. (hereinafter Health Care), Park Avenue Senior Medicine P.C. (hereinafter Senior Medicine), Park Avenue Geriatric Management, LLC (hereinafter Geriatric Management), and Brad Markowitz, by the filing of a summons and verified complaint dated February 10, 2006. In this action, the plaintiff asserts 34 causes of action, and seeks, inter alia, to recover the unpaid judgment as well as post-eviction rent.

On or about July 26, 2006, the plaintiff served an amended complaint, alleging that Physicians, which was dissolved on December 29, 2004, had been undercapitalized and failed to adhere to corporate formalities. The plaintiff also alleged that Markowitz, who was a stockholder, officer, and director of Physicians, used corporate funds for his own personal purposes and exercised complete domination and control over Physicians. The plaintiff further alleged that Physicians was the alter ego and a mere instrumentality of Markowitz. According to the plaintiff, Markowitz thus used Physicians to defraud the plaintiff and commit other wrongful acts against it.

The plaintiff also alleged that there was an overlapping and interlocking of owners, officers, and directors amongst Physicians and the defendants Health Care, Senior Medicine, and Geriatric Management; that Health Care, Senior Medicine, and Geriatric Management (hereinafter together the corporate appellants) used the same office space, equipment, and telephone number as Physicians; that the corporate appellants were stockholders of Physicians; that the corporate appellants exercised complete domination and control over Physicians, which they employed to commit wrongful acts against the plaintiff; that Markowitz and the corporate appellants abused the privilege of doing business in the corporate form of Physicians to perpetrate wrongs against the plaintiff; and that Physicians was the alter ego and a mere instrumentality of the corporate appellants. Based on these allegations, the plaintiff sought to recover from Markowitz, Health Care, Senior Medicine, and Geriatric Management (hereinafter together the appellants) under a theory of piercing the corporate veil.

In the first cause of action, the plaintiff asserted that, based on Physician's default under the lease and its subsequent eviction, Physicians—as well as the appellants under a theory of piercing the corporate veil—were liable to it for, inter alia, rental payments owed for the period beginning August 1, 2004 and ending July 31, 2006. In the second, third, and fourth causes of action, the plaintiff alleged that, on or about June 17, 1999, Physicians orally assigned the lease to the corporate appellants, and that, thereafter, based on a number of alleged factual circumstances, the corporate appellants held themselves out as Physicians' assignees, and that, having assumed the lease, the corporate appellants were obligated to pay rent and additional rent for a specified period of time. In the fifth, sixth, and seventh causes of action, the plaintiff alleged that, having assumed the lease, the corporate appellants were liable, under a theory of piercing the corporate veil, for post-eviction rent. In the eighth, ninth, and tenth causes of action, the plaintiff sought to recover from the corporate appellants in quantum meruit, based on their use and occupation of the subject property. In the remaining causes of action, the plaintiff alleged, inter alia, that Physicians conveyed its assets to the appellants, while insolvent and for no consideration, to operate as a corporate shield, that these conveyances violated Debtor and Creditor Law §§ 273, 273-a, 274, 275, 276 and 276-a, and that they should be set aside.

The Motion to Dismiss

On or about January 2, 2007, the appellants moved to dismiss the complaint in its entirety pursuant to CPLR 3211 (a) (7) and 3016 (b). With regard to the first cause of action, the appellants claimed that, because only Physicians was a signatory to the lease, they could not be held liable for any breach thereof. As to the second through seventh causes of action, the corporate appellants claimed, inter alia, that the alleged oral assignments of the lease by Physicians to them were voidable under the statute of frauds, as they contemplated a lease term in excess of one year. The corporate appellants also sought dismissal of the first, fifth, sixth, and seventh causes of action, claiming that the plaintiff's allegations in support of its corporate veil-piercing theory were impermissibly conclusory. The corporate appellants claimed that the causes of action by which the plaintiff sought to recover on a quantum meruit basis must be dismissed because there was a valid and enforceable lease in place requiring Physicians to pay rent on the subject property. As to the causes of action under the Debtor and Creditor Law, the appellants claimed that such causes of action were subject to the heightened pleading requirements of CPLR 3016 (b) as they sounded in fraud. The appellants asserted that the plaintiff failed to satisfy those heightened pleading requirements, as the amended complaint was conclusory in this regard, and merely echoed the language of the relevant sections of the Debtor and Creditor Law.

The Order Appealed From

In an order entered May 17, 2007, the Supreme Court denied the appellants' motion in its entirety, concluding that "[a] review of the amended verified complaint reveals that it states cognizable causes of action." We affirm.

Discussion

Motion to Dismiss for Failure to State a Cause of Action

"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]).

Breach of Lease

In the first cause of action, the plaintiff seeks to hold the appellants liable, under a theory of piercing the corporate veil, for Physicians' failure to pay rent in breach of its lease with the plaintiff. "A party seeking to pierce the corporate veil must establish that `(1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff's injury'" (Millennium Constr., LLC v Loupolover, 44 AD3d 1016, 1016 [2007], quoting Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]; see Hyland Meat Co. v Tsagarakis, 202 AD2d 552, 552 [1994]). The party seeking to pierce the corporate veil must further establish that the controlling corporation "abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene" (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d at 142; see Weinstein v Willow Lake Corp., 262 AD2d 634, 635 [1999]; Hyland Meat Co. v Tsagarakis, 202 AD2d at 552).

"Indicia of a situation warranting veil-piercing include: `(1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes, (4) overlap in ownership, officers, directors, and personnel, (5) common office space, address and telephone numbers of corporate entities, (6) the amount of business discretion displayed by the allegedly dominated corporation, (7) whether the related corporations deal with the dominated corporation at arms length, (8) whether the corporations are treated as independent profit centers, (9) the payment or guarantee of debts of the dominated corporation by other corporations in the group, and (10) whether the corporation in question had property that was used by other of the corporations as if it were its own'" (Shisgal v Brown, 21 AD3d 845, 848-849 [2005], quoting Wm. Passalacqua Bldrs., Inc. v Resnick Devs. S., Inc., 933 F2d 131, 139 [1991]).

"The concept is equitable in nature, and the decision whether to pierce the corporate veil in a given instance will depend on the facts and circumstances" (Hyland Meat Co. v Tsagarakis, 202 AD2d at 553; see Weinstein v Willow Lake Corp., 262 AD2d at 635).

Here, the plaintiff alleged that, between November 9, 2000 and July 31, 2004, Physicians and the appellants all shared a common address and a telephone number from which they operated their businesses. While...