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MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM IN THIS BREACH OF CONTRACT ACTION, BASED UPON DOCUMENTARY EVIDENCE, SHOULD NOT HAVE BEEN GRANTED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Manzanet-Daniels, reversing Supreme Court, determined the motion to dismiss based on documentary evidence should not have been granted in this breach of contract action. Plaintiff and defendant had entered a Share Purchase Agreement (SPA) in which plaintiff agreed to purchase defendant, Symbio, for between $100 and $110 million. The opinion is fact specific and cannot be fairly summarized here:

Plaintiff’s claims are not definitively contradicted by the documentary evidence. The record (to the extent there is one on this motion pursuant to CPLR 3211) demonstrates the existence of issues of fact concerning when plaintiff determined that there was a matter that might give rise to a right of indemnification so that it was required to give notice pursuant to section 8.03(a) of the parties’ contract. …

Further, defendants’ defense of a condition precedent is not conclusively established. Even if section 8.03(a) might be construed as a condition precedent (which is highly doubtful), there has been no showing regarding the materiality of the provision as would be necessary given that nonoccurrence of the condition would lead to a draconian forfeiture.  XI Lux Holdco S.A.R.L. v SIC Holdings, LLC, 2019 NY Slip Op 02437, First Dept 3-28-19

 

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DEFENDANT WAS NOT AN ALTER EGO OF PLAINTIFF’S EMPLOYER, PLAINTIFF WAS NOT DEFENDANT’S SPECIAL EMPLOYEE, PLAINTIFF WAS ENTITLED TO SUMMARY JUDGMENT ON HIS LABOR LAW 240 (1) CAUSE OF ACTION BASED UPON THE ALLEGATION THE LADDER MOVED FOR NO APPARENT REASON, NOTWITHSTANDING EVIDENCE PLAINTIFF MAY HAVE SAID HE PLACED THE LADDER ON A DROP CLOTH (SECOND DEPT).

The Second Department, modifying Supreme Court, determined defendant’s affirmative defenses alleging it was an alter ego of plaintiff’s employer and plaintiff was its special employee, thereby insulating defendant from anything other than liability under the Workers’ Compensation Law, should have been dismissed. Summary judgment was properly awarded to plaintiff on his Labor Law 240 (1) cause of action. Plaintiff alleged the ladder he was on moved for no apparent reason. The fact that plaintiff apparently told a co-worker that he set the ladder on a drop cloth merely raised a question of his contributory negligence, which is not a defense to a Labor Law 240 (1) action:

“Labor Law § 240(1) imposes a nondelegable duty upon owners and general contractors to provide safety devices to protect workers from elevation-related risks” … . The sole proximate cause defense applies where the plaintiff, acting as a “recalcitrant worker,” misused an otherwise proper safety device, chose to use an inadequate safety device when proper devices were readily available, or failed to use any device when proper devices were available … . Contributory negligence on the part of the worker is not a defense to a Labor Law § 240(1) cause of action … .

Here, the plaintiff made a prima facie showing of entitlement to  … judgment as a matter of law on the issue of liability on the Labor Law § 240(1) cause of action, by submitting evidence that the ladder on which he was standing moved for no apparent reason, causing him to fall … . In opposition to the plaintiff’s prima facie showing, the defendant failed to raise a triable issue of fact as to whether the plaintiff’s own acts or omissions were the sole proximate cause of his injuries … . Contrary to the defendant’s contention, the deposition testimony of the plaintiff’s coworker implying that, after the accident, the plaintiff might have told the coworker that the plaintiff had set the ladder up on top of a drop cloth, even if true, would render the plaintiff only contributorily negligent, a defense not available under Labor Law § 240(1) … . Salinas v 64 Jefferson Apts., LLC, 2019 NY Slip Op 02370, Second Dept 3-27-19

 

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JUDGE SHOULD NOT HAVE, SUA SPONTE, GRANTED A PRELIMINARY INJUNCTION IN THIS TRADEMARK INFRINGEMENT CASE, CORPORATE OFFICERS PROPERLY SUED IN THEIR INDIVIDUAL CAPACITIES (SECOND DEPT).

The Second Department, modifying Supreme Court, determined that defendants’ motion to dismiss the trademark infringement, trademark dilution and unfair competition causes of action was properly denied. The court noted that the complaint properly alleged torts by defendants in their individual capacities without alleging facts supporting piercing the corporate veil. The Second Department held that the judge, sua sponte, should not have granted the preliminary injunction:

” [P]reliminary injunctive relief is a drastic remedy which will not be granted unless a clear right thereto is established under the law and the undisputed facts upon the moving papers, and the burden of showing an undisputed right rests upon the movant'” … . “As a general rule, the decision to grant or deny a preliminary injunction lies within the sound discretion of the Supreme Court” … . “In exercising that discretion, the Supreme Court must determine if the moving party has established: (1) a likelihood of success on the merits, (2) irreparable harm in the absence of an injunction, and (3) a balance of the equities in favor of the injunction” … . ” [A]bsent extraordinary circumstances, a preliminary injunction will not issue where to do so would grant the movant the ultimate relief to which he or she would be entitled in a final judgment'” … .

The plaintiff did not request a preliminary injunction  … [T]he record in this case lacks evidence establishing, among other things, irreparable harm or extraordinary circumstances warranting a preliminary injunction that would, in effect, depart from the status quo and grant the plaintiff its ultimate relief … . The evidence at this stage further fails to demonstrate that the plaintiff possesses a likelihood of success on the merits … . The court therefore improvidently exercised its discretion in sua sponte awarding preliminary injunctive relief to the plaintiff. Emanuel Mizrahi, DDS, P.C. v Angela Andretta, DMD, P.C., 2019 NY Slip Op 02315, Second Dept 3-27-19

 

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PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT SHOULD HAVE BEEN GRANTED, A DE FACTO MERGER OF THE JUDGMENT DEBTOR WITH THE CURRENT DEFENDANT WAS DEMONSTRATED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined plaintiff judgment-creditor’s motion for summary judgment should have been granted. Plaintiff alleged a de facto merger between defendant Luigi’s Bakery Corp and its predecessor Luigi’s Family Bakery, making the Bakery Corp. liable for the Family Bakery’s debt:

Factors courts consider in determining whether a de facto merger has occurred include “continuity of ownership; . . . a cessation of ordinary business and dissolution of the predecessor as soon as practically and legally possible; . . . assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the predecessor; and . . . a continuity of management, personnel, physical location, assets, and general business operation” … . Not all of these factors are required to demonstrate a merger; ” rather, these factors are only indicators that tend to show a de facto merger’ ” … .

Here, defendants admitted to continuity of ownership between Family Bakery and Bakery Corp., and to two of the other factors of a de facto merger: cessation of ordinary business operations, and continuity of management, personnel, physical location, and general business operation. In both their answer and their bill of particulars, defendants admitted that the successor corporation, Bakery Corp., was formed in the same month that the predecessor corporation, Family Bakery, ceased operations. They also admitted that the successor corporation used the same address and phone number as the predecessor corporation. We therefore conclude that the court erred in determining that there are issues of fact with respect to the date of incorporation of the successor corporation or the date of dissolution of the predecessor corporation. A case for de facto merger can be made without a legal dissolution where, as here, the predecessor company “has become, in essence, a shell” … . Energy Coop. of Am., Inc. v Luigi’s Family Bakery, Inc., 2019 NY Slip Op 02211, Fourth Dept 3-22-19

 

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DEFENDANT’S MOTION TO VACATE A DEFAULT JUDGMENT SHOULD HAVE BEEN GRANTED DESPITE FAILURE TO UPDATE THE ADDRESS ON FILE WITH THE SECRETARY OF STATE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant’s motion to vacate a default judgment should have been granted, despite defendant’s failure to update its address with the Secretary of State:

There was no evidence that the defendant received actual notice of the summons delivered to the Secretary of State, which does not constitute personal delivery, in time to defend this action ). Although the defendant did not explain why it failed to update its address with the Secretary of State, “there is no necessity for a defendant moving pursuant to CPLR 317 to show a reasonable excuse for its delay” … . Furthermore, there is no basis in the record to conclude that the defendant deliberately attempted to avoid service, especially since the plaintiff had actual knowledge of the defendant’s Westchester County… business address at least two months before the summons and complaint were filed in this action and, thus, could have attempted to serve the defendant personally pursuant to CPLR 311 … . Nor is there any evidence that the defendant was placed on notice that the address on file with the Secretary of State was incorrect … . Moreover, the defendant met its burden of demonstrating the existence of a potentially meritorious defense … . Berardi Stone Setting, Inc. v Stonewall Contr. Corp., 2019 NY Slip Op 02053, Second Dept 3-20-19

 

PLAINTIFF IN THIS DERIVATIVE STOCKHOLDER ACTION DID NOT SUFFICIENTLY ALLEGE THAT A DEMAND FOR RELIEF ON THE BOARD COULD BE EXCUSED, COMPLAINT PROPERLY DISMISSED (FIRST DEPT).

The First Department determined the complaint in this shareholder derivative action was properly dismissed for failure to first make a demand for relief on the board. The Rales criteria were not met:

Under Rales, “a court must determine whether . . . the particularized factual allegations of a derivative stockholder complaint create a reasonable doubt that, as of the time the complaint is filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand” … . The ” mere threat of personal liability . . . is insufficient to challenge either the independence or disinterestedness of directors'” … . However, “a substantial likelihood” of liability “disables [a director] from impartially considering a response to a demand by” a stockholder … .

“Where, as here, directors are exculpated from liability except for claims based on fraudulent, illegal or bad faith conduct, a plaintiff must . . . plead particularized facts that demonstrate that the directors acted with scienter, i.e., that they had actual or constructive knowledge that their conduct was legally improper” … .

Even though the complaint alleges that BMS’ audit committee and senior management knew about gaps in the company’s internal controls, it fails to establish bad faith or scienter … .

Plaintiff’s contention that defendants face a substantial likelihood of liability because they signed 10-K’s that contained false statements is also unavailing. It is true that “when directors communicate publicly . . . about corporate matters[,] the sine qua non of directors’ fiduciary duty to shareholders is honesty” … . However, “to establish liability for misstatements when the board is not seeking shareholder action, shareholder plaintiffs must show that the misstatement was made knowingly or in bad faith” … . Deckter v Andreotti, 2019 NY Slip Op 01717, First Dept 3-12-19

 

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DEFENDANT SOLE SHAREHOLDER OF DEFENDANT CORPORATION WAS NOT ENTITLED TO SUMMARY JUDGMENT ON THE ACTION AGAINST HIM PREMISED UPON PIERCING THE CORPORATE VEIL, THERE WERE QUESTIONS OF FACT WHETHER THE WARRANTY PROVISIONS OF THE CONTRACT WERE VIOLATED AND WHETHER DEFENDANT CORPORATION WAS STRIPPED OF ASSETS SUCH THAT IT COULD NOT MEET ITS CONTRACTUAL OBLIGATIONS (SECOND DEPT).

The Second Department, over a partial dissent, reversing (modifying) Supreme Court, determined that defendant Brookstein, the sole shareholder of corporate defendant DKM, was not entitled to summary judgment in the action against him based upon piercing the corporate veil:

“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… . 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 … . 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 … .

A plaintiff seeking to pierce the corporate veil bears a heavy burden… . “Veil-piercing is a fact-laden claim that is not well suited for summary judgment resolution” … .

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 [plaintiff] 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 … . Town-Line Car Wash, Inc. v Don’s Kleen Mach. Kar Wash, Inc., 2019 NY Slip Op 01443, Second Dept 2-27-19

 

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MOTION TO DISMISS THE NEGLIGENCE ACTION AGAINST DEFENDANT SECURITY COMPANY IN THIS THIRD PARTY ASSAULT CASE SHOULD NOT HAVE BEEN GRANTED, THE EVIDENCE SUBMITTED BY THE DEFENDANT DID NOT RULE OUT LIABILITY BASED UPON THE RELATIONSHIP BETWEEN THE DEFENDANT SECURITY COMPANY AND THE COMPANY PROVIDING SECURITY AT THE TIME OF THE ASSAULT (SECOND DEPT).

The Second Department determined defendant security company’s motion to dismiss the complaint should not have been granted in this third party assault case. The complaint alleged the security company’s negligence resulted in the murder of plaintiff’s decedent at an assisted living facility. The defendant alleged it did not provide security there at the time of the murder. However, the documentary evidence submitted by defendant did not rule out the possibility the defendant company could be liable based upon its relationship with the company which was providing security at the time of the murder:

Generally, “a corporation which acquires the assets of another is not liable for the torts of its predecessor”… . However, such liability may arise if the successor corporation expressly or impliedly assumed the predecessor’s tort liability, there was a consolidation or merger of seller and purchaser, the purchaser corporation was a mere continuation of the seller corporation, or the transaction was entered into fraudulently to escape such obligations… .

Moreover, “[w]here, as here, evidentiary material is submitted and considered on a motion pursuant to CPLR 3211(a)(7) . . . the motion should not be granted unless the movant can show that a material fact as claimed by the plaintiff is not a fact at all and unless it can be said that no significant dispute exists regarding it”… . ” Accordingly, consideration of such evidentiary materials will almost never warrant dismissal under CPLR 3211(a)(7) unless the materials establish conclusively that [the plaintiff] has no [claim or] cause of action'”… .

Contrary to the Supreme Court’s determination, the documentary and affidavit evidence submitted by USSA in support of its motion failed to conclusively establish that the plaintiff had no cause of action against it. More particularly, that evidence failed to demonstrate that the exceptions to the general rule of a successor corporation’s nonliability where there was a de facto merger between the purchaser and the seller, or where the purchaser is a mere continuation of the seller, do not apply to this case … . Shea v Salvation Army, 2019 NY Slip Op 01441, Second Dept 2-27-19

 

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THE TERMS OF THE PURCHASE CONTRACT INDICATED BUYER, WHO PURCHASED THE PROPERTY KNOWING IT WAS CONTAMINATED BY OIL, WOULD INDEMNIFY SELLER FOR COSTS RELATED TO THE ENVIRONMENTAL CONDITIONS, QUESTION OF FACT WHETHER BUYER, WHO SIGNED THE CONTRACT ‘ON BEHALF OF AN ENTITY TO BE FORMED,’ WAS INDIVIDUALLY LIABLE (FOURTH DEPT).

The Fourth Department determined that the terms of the purchase contract for property contaminated by oil indicated the buyer would indemnify the seller for costs associated with the condition of the property. The Fourth Department further held there was a question of fact whether the buyer signed the contract in his individual capacity in that he signed “on behalf of an entity to be formed:”

The purchase contract provided that a “Phase One Environmental report” had been completed on the property and that Marks, the “Buyer” of the property, was in receipt of the environmental report and “approve[d] of same.” The contract further provided that Atkin was the “Seller,” the property “was not in compliance with federal, state and/or local laws/ordinances,” the Buyer agreed to purchase the property “as is,” the “Buyer accept[ed] the property as is, with no representations or warranties as to environmental conditions” of the property, and the Buyer “release[d] and indemnifie[d] Seller with respect to any claims as to environmental conditions on or related to the property.” Thus, the terms of the contract establish that, prior to entering into the contract, both Atkin and Marks were generally aware of the property’s historical environmental contamination by the Exxon defendants and their predecessor, and the language in the indemnification provision, considered in light of the contract as a whole and the circumstances of the sale of the property, clearly and unambiguously expresses the intent of the parties that the Buyer would indemnify the Seller with respect to any claims regarding environmental conditions related to the property … . …

Although it is well settled that “[a]n individual who acts on behalf of a nonexistent corporation can be held personally liable” … , the determination “[w]hether a person is personally obligated on a preincorporation transaction depends on the intention of the parties” … . One Flint St., LLC v Exxon Mobil Corp., 2019 NY Slip Op 00752, Fourth Dept 2-1-19

 

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A CORPORATION’S REGISTRATION WITH THE DEPARTMENT OF STATE IS NO LONGER DEEMED CONSENT TO BE SUED IN NEW YORK, FORD’S AND GOODYEAR’S MOTIONS TO DISMISS FOR LACK OF PERSONAL JURISDICTION SHOULD HAVE BEEN GRANTED, THE SUIT STEMMED FROM A ROLLOVER ACCIDENT IN VIRGINIA (SECOND DEPT).

The Second Department, in full-fledged opinion by Justice Brathwaite-Nelson, determined that a products liability case (stemming from a traffic accident in Virginia) against Ford, the manufacturer of the vehicle which rolled over, and Goodyear, the manufacturer of a tire which allegedly failed, could not be brought in New York. The plaintiffs alleged general jurisdiction over both companies based upon business done generally in New York and registration with the NY Department of State. The plaintiffs did not allege long-arm jurisdiction. Neither the vehicle nor the tire was manufactured or purchased from the defendants in New York. The plaintiff had purchased the vehicle from a New York nonparty and had used the vehicle in New York.

We consider on these appeals whether, following the United States Supreme Court decision in Daimler AG v Bauman (571 US 117), a foreign corporation may still be deemed to have consented to the general jurisdiction of New York courts by virtue of having registered to do business in New York and appointed a local agent for the service of process. We conclude that it may not. * * *

We agree with those courts that asserting jurisdiction over a foreign corporation based on the mere registration and the accompanying appointment of an in-state agent by the foreign corporation, without the express consent of the foreign corporation to general jurisdiction, would be “unacceptably grasping” under Daimler (Daimler AG v Bauman, 571 US at 138).

The Court of Appeals does not appear to have … relied upon its consent-by-registration theory since International Shoe was decided. We think that this is a strong indicator that its rationale is confined to that era … and that it no longer holds in the post-Daimler landscape. We conclude that a corporate defendant’s registration to do business in New York and designation of the secretary of state to accept service of process in New York does not constitute consent by the corporation to submit to the general jurisdiction of New York for causes of action that are unrelated to the corporation’s affiliations with New York. Aybar v Aybar, 2019 NY Slip Op 00412, Second Dept 1-23-19

CPLR 3211(a)(8)

 

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