Hudson Spring Partners, L.P. v. P & M Design Consultants, Inc.

• Decision Date: 22 November 2022
• Docket Number: 16716,Index No. 652648/21,Case No. 2022–00118
• Citation: 210 A.D.3d 553,179 N.Y.S.3d 44
• Parties: HUDSON SPRING PARTNERS, L.P., Plaintiff–Respondent, v. P & M DESIGN CONSULTANTS, INC., et al., Defendants–Appellants.
• Court: New York Supreme Court — Appellate Division

210 A.D.3d 553

179 N.Y.S.3d 44

HUDSON SPRING PARTNERS, L.P., Plaintiff–Respondent,

v.P & M DESIGN CONSULTANTS, INC., et al., Defendants–Appellants.

16716

Index No. 652648/21

Case No. 2022–00118

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

Entered November 22, 2022

Law Offices of Edward Weissman, New York (Edward Weissman of counsel), for appellants.

Law Office of Allan J. Berlowitz, New York (Joshua E. Fingold of counsel), for respondent.

Renwick, J.P., Manzanet–Daniels, Oing, Moulton, Gonza´lez, JJ.

Order, Supreme Court, New York County (Laurence Love, J.), entered October 22, 2021, which denied defendants’ motions to dismiss the complaint, unanimously affirmed, with costs.

The complaint states a cause of action for liability against defendantsRichard Poulin and Douglas Morris(together, the individual defendants) as alter egos of P+M Design Consultants, Inc., since a prior action has a res judicata effect on their alter ego liability in this action.In an earlier related action for unpaid rent, which resulted in the judgments underlying this action, this Court found that the complaint stated sufficient facts showing that defendant Poulin + Morris, Inc. and the individual defendants, who were the sole shareholders of Poulin + Morris, exercised complete dominion and control over P+M Design Consultants and used that control to perpetrate a fraud against plaintiff, thus abusing the privilege of doing business in the corporate form ( Hudson–Spring Partnership, L.P. v. P+M Design Consultants, Inc.,112 A.D.3d 419, 420, 976 N.Y.S.2d 57[1st Dept.2013];see alsoFern, Inc. v. Adjmi,197 A.D.2d 444, 445, 602 N.Y.S.2d 615[1st Dept.1993] ).As a result, we found that plaintiff had stated a sufficient basis for piercing the corporate veil and imposing liability on Poulin + Morris and the individual defendants( Hudson–Spring Partnership, L.P.,112 A.D.3d at 420, 976 N.Y.S.2d 57 ).

Given that P+M Design Consultants and Poulin + Morris, of which the individual defendants are the sole shareholders, were parties to that action, the doctrine of res judicata applies to compel a finding that plaintiff states a sufficient basis for piercing the corporate veil in this action; there is no one else who would have controlled the prior action on those companies’ behalf ( Buechel v. Bain,97 N.Y.2d 295, 308, 740 N.Y.S.2d 252, 766 N.E.2d 914[2001], cert denied535 U.S. 1096, 122 S.Ct. 2293, 152 L.Ed.2d 1051[2002];Avilon Auto. Group v. Leontiev,168 A.D.3d 78, 85, 91 N.Y.S.3d 379[1st Dept.2019] ).Further, the same law firm representing the defendants in this action also represented them in the prior lawsuit, further militating in favor of applying res judicata (seeWatts v. Swiss Bank Corp.,27 N.Y.2d 270, 278, 317 N.Y.S.2d 315, 265 N.E.2d 739[1970] ).

The complaint also states causes of action against Poulin + Morris for violations of former Debtor and Creditor Law §§ 273,273–a,274, and276(seeMiller v. Doniger,28 A.D.3d 405, 405, 814 N.Y.S.2d 141[1st Dept.2006] ).First, we note that only Debtor and Creditor Law § 276, which addresses actual fraud, is subject to the pleading requirements of CPLR 3016(b)(see e.g.Carlyle, LLC v. Quik Park 1633 Garage LLC,160 A.D.3d 476, 477, 75 N.Y.S.3d 139[1st Dept.2018] ).The other relevant Debtor and Creditor Lawsections, which address constructive fraud, are not subject to those requirements (seeGateway I Group, Inc. v. Park Ave. Physicians, P.C.,62 A.D.3d 141, 149–150, 877 N.Y.S.2d 95[2d Dept.2009] ).

As to former Debtor and Creditor Law § 273, the complaint sufficiently states a cause of action by alleging that Poulin + Morris is insolvent by reason of fraudulent conveyances, and that as of April 5, 2018, the company had only $721.29 in its bank account yet also has judgments totaling more than $500,000 against it.Thus, the complaint states not only that Poulin + Morris's insolvency arose through fraudulent conveyances, but that the fair salable value of Poulin + Morris's assets is less than the amount that will be required to pay its probable liabilities (seeDebtor and Creditor Law § 271[former (1)]); ( Matter of Wimbledon Fin. Master Fund, Ltd. v. Wimbledon Fund, SPC,162 A.D.3d 433, 434, 80 N.Y.S.3d 3[1st Dept.2018] ).

With respect to former Debtor and Creditor Law § 273–a, the complaint states a claim under that section by alleging that while Poulin + Morris was a defendant in an action for money damages, it made conveyances without fair consideration and that it has not satisfied the judgment in that action.For example, the complaint alleges that the individual defendants paid themselves "inflated" salaries in 2017, suggesting that Poulin + Morris did not receive a fair equivalent value (seeDebtor and Creditor Law § 272[former (a)]) for the salaries it paid the individual defendants.Similarly, the complaint alleges that Poulin + Morris made salary payments to the principals of the company even though the company was...