Herman v. Siegmund

• Decision Date: 04 June 1984
• Docket Number: No. 2,No. 1,1,2
• Citation: 102 A.D.2d 810,476 N.Y.S.2d 590
• Parties: Burton HERMAN, Plaintiff, v. John SIEGMUND, etc., et al., Defendants. (Matter). SIEGMUND CONSTRUCTION ENTERPRISES, INC., et al., Appellants, v. Burton HERMAN, et al., Respondents; Leo Bekermus, Intervenor-Respondent. (Matter).
• Court: New York Supreme Court — Appellate Division

Page 590

476 N.Y.S.2d 590

102 A.D.2d 810

Burton HERMAN, Plaintiff, v. John SIEGMUND, etc., et al., Defendants. (Matter No. 1).

SIEGMUND CONSTRUCTION ENTERPRISES, INC., et al., Appellants, v. Burton HERMAN, et al., Respondents;

Leo Bekermus, Intervenor-Respondent. (Matter No. 2).

Supreme Court, Appellate Division Second Department.

June 4, 1984.

Jaspan, Kaplan, Levin & Daniels, Garden City (A. Thomas Levin, Garden City, of counsel), for appellants.

Brookman & Brookman, P.C. (Michael D. Brookman, New York City, of counsel), New York City, for intervenor-respondent.

Before BRACKEN, J.P., and BROWN, NIEHOFF and BOYERS, JJ.

MEMORANDUM BY THE COURT.

In a proceeding, inter alia, to determine adverse claims, petitioners appeal, as limited by their brief, from so much of an order and judgment (one paper) of the Supreme Court, Suffolk County, dated February 9, 1983, as denied their application to set aside a sheriff's sale, and dismissed the petition.

Order and judgment reversed insofar as appealed from, on the law and the facts, without costs or disbursements, petition reinstated, and application to set aside the sale granted.

In 1972, Siegmund Homes, Inc. built three model homes on certain property owned by John Siegmund on Route 24 in Hampton Bays, New York. In October, 1972, the model homes were sold to Siegmund Enterprises, Ltd., a corporation which Siegmund had formed in February of that year. Siegmund Enterprises leased the models back to Siegmund Homes under an oral lease. After the transfer of the model homes, Siegmund Enterprises carried them on its books, and depreciated them on its corporate tax returns. In December, 1972, plaintiff Burton Herman's employment with Siegmund Homes was terminated and, in 1973, he commenced an action (Matter No. 1) against both Siegmund Homes and Siegmund individually for breach of his employment contract. On April 5, 1977, a judgment was entered against Siegmund Homes in the sum of $4,260.17. The complaint with respect to John Siegmund individually was dismissed.

In September 1976, John Siegmund formed Siegmund Construction Enterprises, Inc. After the incorporation of Siegmund Construction Enterprises, the at-will tenancy of Siegmund Homes in the model homes came to an end, and the homes were then leased to the new corporation under oral leases. In October, 1976, Siegmund Homes stopped doing business, and in December, 1976, it closed out its bank account. On November 29, 1977, acting pursuant to an execution, the Suffolk County Sheriff levied upon the model home called the "Sandpiper", and advertised the sale of all the right, title and interest which Siegmund Homes had in it. On or about December 2, 1977, the Sheriff received a letter from John Siegmund advising that the model home was owned by Siegmund Enterprises, was leased to Siegmund Construction Enterprises, and was located on property owned by Siegmund personally. In addition, on November 17, 1977, John Siegmund informed a deputy sheriff that Siegmund Homes was no longer in business, and by letter dated January 10, 1978, Siegmund notified the Sheriff that a formal dissolution of Siegmund Homes had been filed with the Secretary of State on December 23, 1977. As a result, and on the instructions of Herman's attorney, the sale was canceled.

On February 28, 1977, the Sheriff levied on two other model homes, Wildwood II and Shibui II, and a new sale date was set. On April 13, 1977, after several adjournments, these two homes and their contents were sold at auction to one Leo Bekermus. Prior to the distribution of the proceeds of the sale, appellants commenced the instant proceeding by order to show cause to vacate the Sheriff's sale on the ground that the levied property was in fact owned by Siegmund Enterprises and not by the judgment debtor, Siegmund Homes. The parties agreed that the application would be determined pursuant to CPLR 5239 and 5240. Thereafter, Special Term denied the application as untimely under CPLR 5239, but, on appeal, this court reversed and remitted the matter for a determination of the application on the merits (see Herman v. Siegmund, 69 A.D.2d 871, 415 N.Y.S.2d 681). After a hearing, Special Term held, inter alia, that: (1) the corporate veils of Siegmund Homes and Siegmund Enterprises should be pierced; (2) the application under CPLR 5239 was barred by laches; and (3) no special circumstances were shown for equitable relief under CPLR 5240. We reverse.

The law permits incorporation of a business for the very purpose of escaping personal liability (see, e.g., Walkovszky v. Carlton, 18 N.Y.2d 414, 417, 276 N.Y.S.2d 585, 223 N.E.2d 6; Bartle v. Home Owners Co-Op., 309 N.Y. 103, 106, 127 N.E.2d 832). However, when the privilege of incorporation has been abused, the corporate veil will be pierced "to prevent fraud or to achieve equity" (Port Chester Elec....