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THIS BREACH OF CONTRACT ACTION WAS BASED UPON A LEASE ENTERED BY A LIMITED LIABILITY COMPANY THE ASSETS OF WHICH WERE PURCHASED BY THE TWO DEFENDANT LIMITED LIABILTY COMPANIES; THE MAJORITY CONCLUDED THE COMPLAINT STATED A CAUSE OF ACTION UNDER THE THEORY THAT THE DEFENDANTS CONSTITUTED A “MERE CONTINUATION” OF THE ORIGINAL LESSEE’S BUSINESS; THERE WAS A TWO-JUSTICE DISSENT (FIRST DEPT).

The First Department, reversing Supreme Court, over a two-justice dissent, determined the breach of contract (commercial lease) cause of action against defendant limited liability companies which had purchased the assets of the original lessee (another limited liability company) should not have been dismissed. The majority concluded the complaint stated a cause of action under the theory that defendants constituted a “mere continuation” of the original lessee. The dissent argued the “mere continuation” theory does not apply where, as here, there are two purchasers of the original lessee’s assets:

… [W]e find that plaintiff has sufficiently stated a cause of action for breach of contract against [defendants] based on the “mere continuation” exception to the rule against successor liability. “Although no one factor is dispositive,” courts determining whether a successor corporation is a “mere continuation” of its predecessor have considered whether: (1) all or substantially all assets are transferred to the successor corporation; (2) the predecessor corporation has been effectively extinguished following the transaction; (3) the successor has assumed an identical or nearly identical name; (4) the successor has retained one or more of the same corporate officers, directors, and/or employees; and (5) the successor has continued the same business … . * * *

Neither the motion court nor defendants cite to any authority prohibiting application of mere continuation successor liability where more than one company has acquired the assets of the predecessor. We disagree with the dissent to the extent that it asserts that Schumacher (59 NY2d 239) stands for the proposition that the existence of more than one successor corporation necessarily bars application of the mere continuation doctrine. In Schumacher, there was only one successor … . Accordingly, it does not address the situation in the facts pleaded by plaintiff in this case. Avamer 57 Fee LLC v Hunter Boot USA LLC, 2025 NY Slip Op 04607, First Dept 8-7-25

Practice Point: The purchasers of a business which constitute a “mere continuation” of the seller’s business can be liable under a contract originally entered by the seller.

 

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THE STATUTE OF LIMITATIONS FOR BREACH OF FIDUCIARY DUTY BEGINS TO RUN WHEN THERE HAS BEEN AN OPEN REPUDIATION OF FIDUCIARY OBLIGATIONS; HERE THERE HAS NOT BEEN SUCH AN OPEN REPUDIATION; THE STATUTE NEVER BEGAN TO RUN AND THE MOTION TO DISMISS THE SHAREHOLDER DERIVATIVE ACTION AS UNTIMELY SHOULD NOT HAVE BEEN GRANTED (THIRD DEPT).

The Third Department, reversing Supreme Court, determined that this shareholder derivative action, which alleged breach of fiduciary duty, should not have been dismissed as time barred. Open repudiation of the the fiduciary obligation, which triggers the running of the statute of limitations, never occurred:

To dismiss a cause of action pursuant to CPLR 3211 (a) (5) on the ground that it is barred by the applicable statute of limitations, a defendant bears the initial burden of demonstrating, prima facie, that the time within which to commence the action has expired” … . “[C]laims alleging a breach of fiduciary duty do not accrue until there is either an open repudiation of the fiduciary obligation or a judicial settlement of the account” … . This is so because, “absent either repudiation or removal, the aggrieved part[y] [is] entitled to assume that the fiduciary would perform his or her fiduciary responsibilities” … . “The party asserting the statute of limitations defense bears the burden of proof on the issue” … . “Open repudiation requires proof of a repudiation by the fiduciary which is clear and made known to the beneficiaries” … . “Where there is any doubt on the record as to the conclusive applicability of a [s]tatute of [l]imitations defense, the motion to dismiss the proceeding should be denied, and the proceeding should go forward” … .

Here, defendants did not proffer, or even assert, that they have openly repudiated their obligations as fiduciaries or that the relationship has otherwise terminated. Lambos v Karabinis, 2025 NY Slip Op 03367, Third Dept 6-5-25

Practice Point: Here there was never an open repudiation of fiduciary obligations so the statute of limitations on the breach-of-fiduciary-duty cause of action never began to run.

 

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PURSUANT TO THE “INTERNAL AFFAIRS” DOCTRINE, PLAINTIFF, A NEW YORK CORPORATION AND BENEFICIAL OWNER OF SHARES IN BARCLAYS, AN ENGLISH CORPORATION, DID NOT HAVE STANDING TO BRING A DERIVATIVE SUIT ON BEHALF OF BARCLAYS AGAINST OFFICERS AND MANAGERS OF A NEW YORK AFFILIATE OF BARCLAYS IN NEW YORK (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Cannataro, over a comprehensive dissenting opinion, determined that the Business Corporation Law (BCL)  (sections 626(a) and 1319(a)(2)) has not displaced the “internal affairs” doctrine, a choice-of-law rule providing that the substantive law of the place of incorporation governs disputes about the rights and relationships of corporate shareholders and managers. The Court of Appeals affirmed the lower courts’ rulings that plaintiff, a New York corporation and a beneficial owner of shares in England-based Barclays, did not have standing to sue, on behalf of Barclays, directors and officers of Barclays New York-based affiliate in New York:

The corporation at the center of this appeal is Barclays PLC (Barclays), a bank holding company incorporated under the laws of England and Wales and headquartered in London. Plaintiff Ezrasons, Inc. is a New York corporation and a beneficial owner of Barclays shares. In 2021, plaintiff commenced this action on behalf of Barclays against almost four-dozen current and former Barclays directors and officers and a New York-based affiliate, Barclays Capital Inc. (BCI). The complaint alleged that the individual defendants, aided and abetted by BCI, breached fiduciary duties owed to Barclays under English law, causing significant injuries to the company. * * *

Supreme Court granted defendants’ motion to dismiss the complaint, explaining that under the internal affairs doctrine, foreign law governs the question of whether a plaintiff has the right to sue corporate management on behalf of a foreign corporation. The court rejected plaintiff’s argument that the legislature intended to override that choice-of-law rule when it enacted sections 626 (a) and 1319 (a) (2) of the BCL, agreeing with four decades of case law holding that those provisions “simply confer[] jurisdiction upon New York courts over derivative suits on behalf of out-of-state corporations, but do[ ] not require application of New York law in such suits” … .

The Appellate Division unanimously affirmed, agreeing with Supreme Court that plaintiff lacks standing to pursue this shareholder derivative action on behalf of Barclays … . … [T]he Appellate Division rejected plaintiff’s argument that sections 626 (a) and 1319 (a) (2) displace the internal affairs doctrine and preclude application of English standing law … . Ezrasons, Inc. v Rudd, 2025 NY Slip Op 03008, CtApp 5-20-25

Practice Point: Business Corporation Law sections 626(a) and 1319(a)(2) do not displace the “internal affairs” doctrine which provides that the substantive law of the place of incorporation (England in this case) governs disputes about the rights and relationships of corporate shareholders and managers. Here a New York corporation which holds shares of an English corporation could not sue the officers and managers of a New York affiliate of the English corporation in New York.​

 

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PLAINTIFF’S MOTION TO AMEND THE COMPLAINT TO ADD ALLEGATIONS SUPPORTING “PIERCING THE CORPORATE VEIL” SHOULD HAVE BEEN GRANTED, CRITERIA EXPLAINED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff’s motion to amend the complaint to add allegations supporting “piercing the corporate veil” in this breach of contract action should have been granted:

“Broadly speaking, the courts will disregard the corporate form, or, to use accepted terminology, pierce the corporate veil, whenever necessary to prevent fraud or to achieve equity” … . “Because a decision whether to pierce the corporate veil in a given instance will necessarily depend on the attendant facts and equities, the New York cases may not be reduced to definitive rules governing the varying circumstances when the power may be exercised” … . However, “[g]enerally, a plaintiff seeking to pierce the corporate veil must show 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 plaintiff’s injury. The plaintiff must adequately allege the existence of corporate obligation and that defendant exercised complete domination and control over the corporation and abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice” … . “[T]he corporate veil will be pierced to achieve equity, even absent fraud, when a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator’s business instead of its own and can be called the other’s alter ego. In determining whether to pierce the corporate veil, [g]enerally considered are such factors as whether there is an overlap in ownership, officers, directors and personnel, inadequate capitalization, a commingling of assets, or an absence of separate paraphernalia that are part of the corporate form” … . Another factor to be considered is whether the corporation and its owners shared “common office space” … . “A cause of action under the doctrine of piercing the corporate veil is not required to meet any heightened level of particularity in its allegations” … , and “a fact-laden claim to pierce the corporate veil is unsuited for resolution on a pre-answer, pre-discovery motion to dismiss” … . HLI Rail & Rigging, LLC v Franklin Exhibit Mgt. Group, LLC, 2025 NY Slip Op 02330, Second Dept 4-23-25

Practice Point: Consult this decision for a concise description of the criteria for “piercing the corporate veil” in the context of a motion to amend the complaint to add the relevant allegations.

 

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THE COMPLAINT SUFFICIENTLY ALLEGED FACTS THAT WOULD SUPPORT PIERCING THE CORPORATE VEIL (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the cause of action alleging that the corporate veil should be pierced should not have been dismissed. The complaint alleged failure to adhere to LLC formalities, inadequate capitalization, commingling of assets, and the personal use of LLC funds:

“To survive a motion to dismiss the complaint, a party seeking to pierce the corporate veil must allege facts that, if proved, establish that the party against whom the doctrine is asserted (1) exercised complete domination over the corporation with respect to the transaction at issue, and (2) through such domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against the plaintiff such that a court in equity will intervene” … . “Factors to be considered in determining whether an individual has abused the privilege of doing business in the corporate or LLC form include the failure to adhere to LLC formalities, inadequate capitalization, commingling of assets, and the personal use of LLC funds” … . “Additionally, the corporate veil will be pierced to achieve equity, even absent fraud, when a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator’s business instead of its own and can be called the other’s alter ego” … . “[A] fact-laden claim to pierce the corporate veil is unsuited for resolution on a pre-answer, pre-discovery motion to dismiss” … . Goldberg v KOSL Bldg. Group, LLC, 2025 NY Slip Op 01790, Second Dept 3-26-25

Practice Point: Here the allegations in the complaint that defendant failed to adhere to LLC formalities, inadequately capitalized the corporate entities, commingled assets, and personally used LLC funds sufficiently supported plaintiff’s seeking to pierce the corporate veil.

 

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THE RELIGIOUS NOT-FOR-PROFIT CORPORATION, THE OWNER OF THE RESIDENCE PROVIDED FOR THE TORAH READER AND HIS FAMILY, WAS ENTITLED TO A REAL-PROPERTY-TAX EXEMPTION (SECOND DEPT).

The Second Department, reversing Supreme Court, in a full-fledged opinion by Justice Ventura, determined the not-for-profit religious corporation was entitled to an exemption from real property tax for a residence used by Marcus, the Torah reader, and his family:​

This appeal provides this Court with an opportunity to clarify the standards courts should consider when deciding whether a covered not-for-profit corporation is entitled to a full tax exemption pursuant to RPTL 420-a for property allegedly utilized primarily in furtherance of exempt purposes. The circumstances presented here involve an Orthodox Jewish religious corporation seeking an exemption for a residential property used, inter alia, to house its Torah reader and his family. … [W]e conclude … that the petitioner demonstrated that the subject property was used primarily in furtherance of its religious purposes during the 2015 tax year. Therefore, the Supreme Court should have granted the petitioner’s motion for summary judgment on the petition to review the real property tax assessment for that year. * * *

… [T]he petitioner’s submissions established that it offered Marcus housing within walking distance of the synagogue in order to continue to retain his expert services as a Torah reader, as his religious beliefs prohibited him from driving to the synagogue on the Sabbath and on Jewish holy days, and he had a growing family which made walking from his prior apartment impractical … . The petitioner’s rabbi also stated that, upon learning that Marcus could not continue in his role as Torah reader without residing closer to the synagogue, “[t]he congregation was unable to identify any qualified Torah [r]eader within walking distance [thereof].” Considering … that “[t]he requirement of reading from the Torah” during services “is absolute and cannot be waived,” as explained by the rabbi, the petitioner’s religious “goal[s]” were “advance[d]” by providing Marcus with housing closer to the synagogue … . Matter of Harrison Orthodox Minyan, Inc. v Town/Village of Harrison, 2025 NY Slip Op 01634, Second Dept 3-19-25

Practice Point: Here a not-for-profit religious corporation was entitled to an exemption from real property tax for a residence provided to the Torah reader and his family because the residence was used “primarily in furtherance of its religious purposes” during the relevant tax year.​

 

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PLAINTIFF DID NOT PROVE DEFENDANT OWNER OF DEFENDANT CORPORATION WAS PROPERLY SERVED WITH THE SUMMONS AND COMPLAINT BY SUBSTITUTE SERVICE; EVEN PROPER SUBSTITUTE SERVICE WOULD NOT BE SUFFICIENT TO ACQUIRE PERSONAL JURISDICTION OVER A CORPORATION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the defendant owner of defendant corporation (Tatiana Batin) and the corporation (Godess … Spa …) were not properly served with the summons and complaint in this action alleging an employee of defendant corporation sexually abused plaintiff during a massage:

… [P]laintiff failed to demonstrate by a preponderance of the evidence that Batin was properly served with the summons and complaint pursuant to CPLR 308(2). The hearing evidence established that the address at which Batin was purportedly served pursuant to CPLR 308(2) was neither her actual dwelling place nor her usual place of abode as of the purported date of service … . Contrary to the Supreme Court’s determination, “‘[e]ven if a defendant eventually acquires actual notice of the lawsuit, actual notice alone will not sustain the service or subject a person to the court’s jurisdiction when there has not been compliance with prescribed conditions of service'” … .

… [P]laintiff failed to demonstrate by a preponderance of the evidence that Goddess was properly served pursuant to CPLR 311(a)(1), which required delivery of the summons and complaint to “an officer, director, managing or general agent, or . . . any other agent authorized . . . to receive service.” “Personal service on a corporation must be made to one of the persons authorized by the statute to accept service, and an attempt to serve such person by substitute service pursuant to CPLR 308(2) or (4) will be insufficient to acquire jurisdiction over the corporation” … . Here, even assuming, arguendo, that Batin had been properly served pursuant to CPLR 308(2), substituted service upon her pursuant to CPLR 308(2) would be insufficient to acquire personal jurisdiction over Goddess, as CPLR 311(a)(1) requires personal service directly upon a corporate representative … . Flatow v Goddess Sanctuary & Spa Corp., 2024 NY Slip Op 06029, Second Dept 12-4-24

Practice Point: At the hearing plaintiff did not prove defendant owner of defendant corporation was properly served with the summons and complaint by substitute service.

Practice Point: Personal jurisdiction over a corporation cannot be acquired by substitute service.

 

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THE PROCESS SERVER’S AFFIDAVIT DID NOT DEMONSTRATE THE PERSON SERVED WAS AN AGENT OF DEFENDANT CORPORATION; CLERK’S JUDGMENT VACATED (SECOND DEPT).

The Second Department, reversing Supreme Court and vacating the clerk’s (default) judgment for over $420,000, determined the process server’s affidavit did not demonstrate the person served with the summons and complaint was an agent of defendant corporation:

The plaintiff failed to establish that personal jurisdiction had been acquired over the defendant through proper service of process. Although a process server’s affidavit of service ordinarily constitutes prima facie evidence of proper service … , here, the affidavit of service contained no indication that Lewis was an agent of the defendant authorized to accept service on the defendant’s behalf (see CPLR 311[1][a] …). Accordingly, the Supreme Court should have granted, pursuant to CPLR 5015(a)(4), that branch of the defendant’s motion which was to vacate the clerk’s judgment. Bold Broadcasting, LLC v Wawaloam Reservation, Inc., 2024 NY Slip Op 05196, Second Dept 10-23-24

Practice Point: Here the process server’s affidavit did not demonstrate the person served with the summons and complaint had the authority to accept service for defendant corporation. The default judgment was vacated.​

 

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DESPITE THE FACT THAT THE ADDRESS FOR DEFENDANT CORPORATION ON FILE WITH THE SECRETARY OF STATE WAS INCORRECT, DEFENDANT WAS ENTITLED TO VACATE THE DEFAULT JUDGMENT ON THE GROUND DEFENDANT WAS NOT MADE AWARE OF THE ACTION IN TIME TO DEFEND (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant’s motion to vacate a default judgment should have been granted. Defendant’s address on file with the Secretary of State was incorrect and defendant alleged it did not receive actual notice of the action in time to defend. There was no evidence the failure to update the address on file with the Secretary of State was intentional, and defendant demonstrated a potentially meritorious defense:

Pursuant to CPLR 317, a party that was not personally served may defend against an action if it demonstrates that it did not have notice of the action in time to defend and that it has a meritorious defense … . “Service upon a corporation through delivery of the summons and complaint to the Secretary of State is not ‘personal delivery’ to the corporation” … .

Here, the defendant established its entitlement to relief from its default under CPLR 317 by demonstrating that the address on file with the Secretary of State at the time the summons and complaint were served was incorrect and, consequently, that it did not receive actual notice of the action in time to defend itself … . Further, “the evidence does not suggest that the defendant’s failure to update its address with the Secretary of State constituted a deliberate attempt to avoid service of process” … , and there is some evidence in the record suggesting that the plaintiff had knowledge of the defendant’s actual business address … . Galatro v Lake Pointe Owners, Inc., 2024 NY Slip Op 04375, Second Dept 9-11-24

Practice Point: Here defendant corporation’s failure to update its address for service of process on file with the Secretary of State was deemed unintentional. The corporation’s motion to vacate the default judgment on the ground it was not aware of the action should have been granted.

 

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HERE THERE WAS A QUESTION OF FACT WHETHER THE CORPORATE VEIL SHOULD BE PIERCED SUCH THAT THE DEFENDANT HOSPITAL WOULD BE DEEMED VICARIOUSLY LIABLE FOR THE ALLEGED MALPRACTICE BY A CORPORATION OWNED BY A HOSPITAL EMPLOYEE AND WHOSE OFFICE WAS IN THE HOSPITAL (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined there was a question of fact whether defendant hospital was vicariously liable for the purported medical malpractice by a corporation (Meeting House) under a piercing-the-corporate-veil theory:

Generally, … piercing the corporate veil requires a showing 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 plaintiff’s injury” … . “‘[T]he corporate veil will be pierced to achieve equity, even absent fraud, when a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator’s business instead of its own and can be called the other’s alter ego'” … . In determining whether to pierce the corporate veil, “[g]enerally considered are such factors as whether there is an overlap in ownership, officers, directors and personnel, inadequate capitalization, a commingling of assets, or an absence of separate paraphernalia that are part of the corporate form, such that one of the corporations is a mere instrumentality, agent and alter ego of the other” … .

… Meeting House failed to adhere to corporate formalities, such as holding board of directors’ meetings. Meeting House was owned and controlled by an employee of the hospital, whose office was in the hospital, pursuant to a contract with the hospital. The hospital had sole discretion over the number of shares and who would be the shareholders. Meeting House was also undercapitalized, since it appears that its assets consisted of a non-interest-bearing loan from the hospital … . Its budget and any amendments thereto had to be approved by the hospital. The common ownership, leadership, and control, and the common location on the grounds of the hospital and in the hospital itself, raised a triable issue of fact as to whether the corporate veil should be pierced … . Midson v Meeting House Lane Med. Practice, P.C., 2024 NY Slip Op 04261, Second Dept 8-21-24

Practice Point: Consult this decision for what it takes to raise a question of fact whether the corporate veil should be pierced in support of a vicarious liability theory.

 

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