Town-Line Car Wash, Inc. v. Don's Kleen Mach. Kar Wash, Inc.

• Decision Date: 27 February 2019
• Docket Number: 2016–12041,Index No. 3526/12
• Citation: 169 A.D.3d 1084,95 N.Y.S.3d 227
• Parties: TOWN–LINE CAR WASH, INC., Appellant, v. DON'S KLEEN MACHINE KAR WASH, INC., et al., Defendants, Barry Brookstein, Respondent.
• Court: New York Supreme Court — Appellate Division

169 A.D.3d 1084

95 N.Y.S.3d 227

TOWN–LINE CAR WASH, INC., Appellant,

v. DON'S KLEEN MACHINE KAR WASH, INC., et al., Defendants,Barry Brookstein, Respondent.

2016–12041

Index No. 3526/12

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

Argued—October 9, 2018

February 27, 2019

DECISION & ORDER

In an action, inter alia, to recover damages for breach of contract, the plaintiff appeals from an order of the Supreme Court, Nassau County (Stephen A. Bucaria, J.), entered October 21, 2016. The order granted the motion of the defendant Barry Brookstein for summary judgment dismissing the complaint insofar as asserted against him, and denied the plaintiff's cross motion for summary judgment on the issue of liability on the cause of action to pierce the corporate veil insofar as asserted against the defendant Barry Brookstein.

ORDERED that the order is modified, on the law, by deleting the provision thereof granting the motion of the defendant Barry Brookstein for summary judgment dismissing the complaint insofar as asserted against him, and substituting therefor a provision denying the motion; as so modified, the order is affirmed, without costs or disbursements.

The plaintiff, Town–Line Car Wash, Inc. (hereinafter Town–Line), purchased a car wash business from the corporate defendant, Don's Kleen Machine Car Wash, Inc. (hereinafter DKM), of which the defendant Barry Brookstein was the sole shareholder. In this action, inter alia, to recover damages for breach of certain warranties contained in the contract of sale, Town–Line seeks to pierce the corporate veil to hold Brookstein liable for DKM's alleged obligation to Town–Line. In the order appealed from, the Supreme Court granted Brookstein's motion for summary judgment dismissing the complaint insofar as asserted against him, and denied the plaintiff's cross motion for summary judgment on the issue of liability on the cause of action to pierce the corporate veil insofar as asserted against Brookstein. Town–Line appeals.

"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 N.Y. 103, 106, 127 N.E.2d 832 [1955] ; Seuter v. Lieberman, 229 A.D.2d 386, 387, 644 N.Y.S.2d 566 [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 N.Y.2d 135, 140–141, 603 N.Y.S.2d 807, 623 N.E.2d 1157 [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 [the corporation] 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. [at 140–141, 603 N.Y.S.2d 807, 623 N.E.2d 1157] ; see Love v. Rebecca Dev., Inc., 56 A.D.3d 733 [2008] ; Millennium Constr., LLC v. Loupolover, 44 A.D.3d 1016 [2007] )" ( East Hampton Union Free School Dist. v. Sandpebble Bldrs., Inc., 66 A.D.3d 122, 126, 884 N.Y.S.2d 94, affd 16 N.Y.3d 775, 919 N.Y.S.2d 496, 944 N.E.2d 1135 ; see Cortlandt St. Recovery Corp. v. Bonderman, 31 N.Y.3d 30, 47, 73 N.Y.S.3d 95, 96 N.E.3d 191 ).

A plaintiff seeking to pierce the corporate veil bears a heavy burden (see ABN AMRO Bank, N.V. v. MBIA Inc., 17 N.Y.3d 208, 235, 928 N.Y.S.2d 647, 952 N.E.2d 463 ). "Veil-piercing is a fact-laden claim that is not well suited for summary judgment resolution" ( First Bank of Ams. v. Motor Car Funding, 257 A.D.2d 287, 294, 690 N.Y.S.2d 17 ).

Here, Brookstein did not establish his prima facie entitlement to judgment as a matter of law dismissing the complaint insofar as asserted against him. It is undisputed that Brookstein dissolved DKM without making any reserves for contingent liabilities, despite the existence of a provision in the contract of sale pursuant to which DKM agreed to indemnify Town–Line for any breach of warranty for a period of 7½ years after the closing of the sale. This factor was sufficient to raise a triable issue of fact as to whether Brookstein stripped the corporation of assets, leaving DKM without sufficient funds to pay its contractual contingent liabilities (se e Matter of Agai v. Diontech Consulting, Inc., 138 A.D.3d 736, 737, 29 N.Y.S.3d 441 ; cf. Baby Phat Holding Co., LLC v. Kellwood Co., 123 A.D.3d 405, 407–408, 997 N.Y.S.2d 67 ). Accordingly, the Supreme Court should have denied Brookstein's motion for summary judgment dismissing the complaint insofar as asserted against him, regardless of the sufficiency of the plaintiff's opposing papers (see Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 ).

However, we agree with the Supreme Court's denial of Town–Line's cross motion for summary judgment on the issue of liability on its cause of action to pierce the corporate veil insofar as asserted against Brookstein and to thereby hold Brookstein liable for DKM's alleged breach of contract. Triable issues of fact exist as to whether Brookstein exercised complete domination of DKM in the transaction at issue and whether he abused the corporate form to commit a wrong or fraud causing injury to Town–Line (see James v. Loran Realty v. Corp., 20 N.Y.3d 918, 919, 956 N.Y.S.2d 482, 980 N.E.2d 532 ; Open Door Foods, LLC v. Pasta Machs., Inc., 136 A.D.3d 1002, 1005, 25 N.Y.S.3d 357 ).

BALKIN, J.P., COHEN and MILLER, JJ., concur.

CHAMBERS, J., concurs in part and dissents in part, and votes to affirm the order, with the following memorandum:

I would affirm the Supreme Court's order. Therefore, I respectfully dissent in part.

In March 2004, the plaintiff, Town–Line Car Wash, Inc. (hereinafter Town–Line), entered into an agreement with the defendant Don's Kleen Machine Kar Wash, Inc. (hereinafter DKM), to purchase all or substantially all of DKM's assets. At the time, DKM's business consisted of "operating a car wash and automobile detailing business located at 762 Smithtown Bypass, Smithtown, New York, and no other business." The purchase price included a down payment of $ 200,000, a cash payment of $ 1,100,000 at the time of closing, and a note in the principal amount of $ 1,200,000, payable by Town–Line over a period of 180 months in equal monthly installments of $ 10,785.94. Town–Line reserved the right to prepay the note at any time without penalty.

The agreement also included a comprehensive indemnity provision for any...