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Plaintiff’s Recovery for On-the-Job Injury Against “Alter Ego” of Plaintiff’s Employer Limited to Workers’ Compensation

The Second Department determined that defendant’s status as the “alter ego” of plaintiff’s employer limited plaintiff’s recovery for job-related injury to Workers’ Compensation:

“The protection against lawsuits brought by injured workers which is afforded to employers by Workers’ Compensation Law §§ 11 and 29(6) also extends to entities which are alter egos of the entity which employs the plaintiff” … . “A defendant moving for summary judgment based on the exclusivity defense of the Workers’ Compensation Law under this theory must show, prima facie, that it was the alter ego of the plaintiff’s employer” … . “A defendant may establish itself as the alter ego of a plaintiff’s employer by demonstrating that one of the entities controls the other or that the two operate as a single integrated entity” … .

Here, the defendant demonstrated its prima facie entitlement to judgment as a matter of law by establishing that it was the alter ego of the plaintiff’s employer, since the two companies operated as a single integrated entity … . Haines v Verazzano of Dutchess, LLC, 2015 NY Slip Op 06214, 2nd Dept 7-22-15

 

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Non-Resident Shareholders In an S Corporation Who Sold their Stock and Treated the Transaction as a “Deemed Asset Sale” Were Properly Assessed New York Income Tax on the New York-Source Aspects of the Sale

The Court of Appeals, in a full-fledged opinion by Judge Rivera, determined non-resident plaintiffs, shareholders in an S corporation who sold their stock and treated the transaction as a “deemed asset sale,” were properly assessed New York income taxes on the New York-source aspects of the sale pursuant to Tax Law 632. The court rejected the argument that the tax assessment violated Article 16 section 3 of the New York Constitution:

Based on the results of [an] audit, defendant New York State Department of Taxation and Finance assessed $167,000 in state income taxes on plaintiffs’ … transaction gains, relying on Tax Law § 632 (a) (2), which was amended in 2010 to provide, in relevant part, that “any gain recognized on [a] deemed asset sale for federal income tax purposes will be treated as New York source income.” Plaintiffs paid the taxes and thereafter demanded refunds, claiming that their corporate-derived income was obtained from the sale of … stock, which is considered intangible personal property and nontaxable.

After defendant rejected the refund demands, plaintiffs filed the instant declaratory judgment action against defendant and the Commissioner of the New York State Department of Taxation and Finance, challenging the tax as unconstitutional … . * * *

…. [T]here is no question that New York State’s Tax Law, including Tax Law § 632 (a) (2), as amended in 2010, contemplates the taxes that defendants assessed on the New York-source portion of plaintiffs’ deemed asset sale gains. * * *

Nothing changes the fact that plaintiffs sold something of value and reaped the benefits from that sale. Article 16, § 3 in no way supports plaintiffs’ attempts to avoid paying state taxes on those gains. Burton v New York State Dept. of Taxation & Fin., 2015 NY Slip Op 05624, CtApp 7-1-15

 

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Retroactive Application of Tax Law 632 Amendments, Which Clarified that Installment Payments Re: a Deemed Asset Sale Will Be Treated as New York-Source Income, Did Not Violate Plaintiffs’ Due Process Rights

The Court of Appeals, in a full-fledged opinion by Judge Stein, in an action raising many of the same income-tax-law issues raised in Burton v New York State Dept. of Taxation & Fin., 2015 NY Slip Op 05624, CtApp 7-1-15 (summarized directly above), determined plaintiffs’ due process rights were not violated by the retroactive application of Tax Law 632. The case concerned the taxation of installment payments re: a deemed asset sale of stock in an S corporation. The 2010 amendments of Tax Law 632 clarified that the installments will be treated as New York-source income and made the amendments retroactive for 3 1/2 years. The Court of Appeals determined: (1) plaintiffs’ interpretation of the prior law was not reasonable and therefore plaintiffs did not establish reliance on the prior law; (2) the length of the retroactive period was not excessive; and (3),  the amendment (correcting an error and preventing revenue loss) served a valid public purpose. The court explained the nature of the amendments and the analytical criteria for determining the validity of retroactive application:

Prior to its amendment, Tax Law § 632 mandated only that, as relevant here:

“In determining New York source income of a nonresident shareholder of an S corporation . . . there shall be included only the portion derived from or connected with New York sources of such shareholder’s pro rata share of items of S corporation income, loss and deduction entering into his federal adjusted gross income . . .”

The 2010 amendments clarified, among other things, that if the S corporation distributed an installment obligation under 26 USC § 453 (h) (1) (A) or made a deemed asset sale election under 26 USC § 338 (h) (10), “any gain recognized on the receipt of payments from the installment obligation . . . [or] on the deemed asset sale for federal income tax purposes will be treated as New York source income” (L 2010, ch 57, Part C § 2). The amendments were made retroactive to all taxable years beginning on or after January 1, 2007 — which represent those years for which the statute of limitations for seeking a refund or assessing additional tax was still open (L 2010, ch 57, Part C, § 4, amended L 2010, ch 312, Part B, § 1) — thus, effectively creating a 3½ year period of retroactivity. * * *

While “retroactive legislation does have to meet a burden not faced by legislation that has only future effects[,] . . . that burden is met simply by showing that the retroactive application of the legislation is itself justified by a rational legislative purpose” … . In analyzing whether a statute is harsh and oppressive — and, thus, arbitrary and irrational — this Court uses a balancing-of-equities test … :

“The important factors in determining whether a retroactive tax transgresses the constitutional limitation are (1) ‘the taxpayer’s forewarning of a change in the legislation and the reasonableness of . . . reliance on the old law,’ (2) ‘the length of the retroactive period,’ and (3) ‘the public purpose for retroactive application'” … . Caprio v New York State Dept. of Taxation & Fin., 2015 NY Slip Op 05625, CtApp 7-1-15

 

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The One-Year-and-Ninety-Day Time Limit for Bringing Suit Under the Public Authorities Law Is a Statute of Limitations, Not a Condition Precedent to Suit, and Is Therefore Subject to the Six-Month Extension for Recommencing a Suit Which Was Dismissed Without Prejudice Provided by CPLR 205(a)

The underlying medical malpractice action is against Erie County Medical Center Corporation, a public benefit corporation.  Pursuant to Public Authorities Law 3641, a notice of claim must be filed prior to the commencement of the lawsuit. Plaintiff had not filed a notice of claim. The action was dismissed without prejudice, subject to the terms of CPLR 205(a), which allows six months to recommence an action that has not been dismissed on the merits.  When the suit was recommenced, the defendant argued that the one-year-and-ninety-day time limit for bringing suit under the Public Authorities Law was not a statute of limitations subject to the CPLR 205(a) six-month extension, rather it was a condition precedent to suit and the (second) complaint must therefore be dismissed as untimely.  The Fourth Department determined the one-year-and-ninety-day time limit for suit under the Public Authorities Law was a statute of limitations, not a condition precedent, and the six-month extension provided by CPLR 205(a) applied:

It is well settled that CPLR 205 (a) does not apply when an act has to be performed within a statutory time requirement and is a condition precedent to suit (see Yonkers Contr. Co. v Port Auth. Trans-Hudson Corp., 93 NY2d 375, 378-379…). We recognize, by way of example, that the one-year statutory period for commencement of suit against the Port Authority Trans-Hudson Corporation set forth in McKinney’s Unconsolidated Laws of NY § 7107 has been held to be a condition precedent to suit not entitled to the tolling benefit of CPLR 205 (a) (see Yonkers Contr. Co., 93 NY2d at 378-379). As emphasized by the Court of Appeals in Yonkers, “Unconsolidated Laws § 7107 unambiguously allows an action against the Port Authority only upon the condition that any suit, action or proceeding prosecuted or maintained under this act shall be commenced within one year’ ” (id., 93 NY2d at 379). Here, Public Authorities Law § 3641 (1) (c) contains no similar express conditional language.

We note that CPLR 205 (a) has been held to apply to proceedings commenced under General Municipal Law § 50-i …, the language of which is identical to that of Public Authorities Law § 3641 (1) (c) at issue herein. We thus conclude that the express language of section 3641 (1) (c) does not support defendant’s contention that the one-year and 90-day period is a condition precedent and not a statute of limitations … . Benedetti v Erie County Med. Ctr. Corp., 2015 NY Slip Op 04964, 4th Dept 6-12-15

 

Sole Officer of Dissolved Corporation Personally Liable for Post-Dissolution Debts Attributed to “New Business”

The Third Department determined the sole officer of a corporation dissolved in 1997 was personally liable for the post-dissolution debts incurred for the purchase of fuel. The court explained the relevant law:

Business Corporation Law § 1005 (a) (1) provides, in relevant part, that, following dissolution, “[t]he corporation shall carry on no business except for the purpose of winding up its affairs.” Winding up, in turn, is defined as “the performance of acts directed toward the liquidation of the corporation, including the collection and sale of corporate assets” (…see Business Corporation Law § 1005 [a] [2]…). Notably, a dissolved corporation is precluded from engaging in new business … and “has no existence, either de jure or de facto, except for a limited de jure existence for the sole purpose of winding up its affairs” … . As a result, “[a] person who purports to act on behalf of a dissolved corporation is personally responsible for the obligations incurred” … . Long Oil Heat, Inc. v Polsinelli, 2015 NY Slip Op 04542, 3rd Dept 5-28-15

 

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Foreign Corporation’s Sole Residence for Venue Purposes Is the County Designated In Its Filed Application to Conduct Business in New York State

In the context of a dispute over proper venue, the Second Department determined that plaintiff foreign corporation’s sole residence in New York State is the county designated in its application for authority to conduct business in New York State as filed with the State. Therefore plaintiff’s bringing the action in Nassau County, where it alleged its principal place of business is located, as opposed to New York County, the county designated in its filed application, was improper:

…[T]he law is clear that “[f]or purposes of venue, the sole residence of a foreign corporation is the county in which its principal office is located, as designated in its application for authority to conduct business filed with the State of New York” …, regardless of where it transacts business or maintains its actual principal office (see CPLR 503[c]; Business Corporation Law § 102[a][10]…). We note that, since the plaintiff’s response to the defendants’ demand to change venue failed to set forth factual averments that were prima facie sufficient to show that its designation of Nassau County for trial of the action was proper, the defendants were authorized to notice their motion to change venue to be heard in Saratoga County (see CPLR 511[b]…). Further, the defendants are not responsible for the delay occasioned by the denial of their motion by the Supreme Court, Saratoga County.

In view of the foregoing circumstances, the Supreme Court should have granted the defendants’ motion to change the venue of the action from Nassau County to Saratoga County, despite the fact that an order granting class certification had already been issued in the action. American Bldrs. & Contrs. Supply Co., Inc. v Capitaland Home Improvement Showroom, LLC, 2015 NY Slip Op 04262, 2nd Dept 5-20-15

 

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Plaintiff Did Not Adequately Allege a Presuit Demand Would Be Futile

The First Department, noting that the presuit demand required by Business Corporation Law 626(c) applies to Limited Liability Companies, determined that plaintiff failed to adequately allege the presuit demand was excused as futile. The court noted that Business Corporation Law 625(c) does not differentiate between majority and minority shareholders and a corporation’s refusal to provide information is not on the list of circumstances where a demand is excused:

Pursuant to Business Corporation Law § 626(c), a plaintiff shareholder must “set forth in the complaint – with particularity – an attempt to secure the initiation of such action by the board or the reasons for not making such effort” … . Demand is excused due to futility when a complaint alleges with particularity that: (1) “a majority of the board of directors is interested in the challenged transaction”; or (2) “the board of directors did not fully inform themselves about the challenged transaction to the extent reasonably appropriate under the circumstances”; or (3) “the challenged transaction was so egregious on its face that it could not have been the product of sound business judgment of the directors” … . The demand requirement of Business Corporation Law § 626(c) also applies to members of New York limited liability companies … .

The complaint alleges only that since Sowers owns 80% of the LLC, it would be futile for plaintiff to make a demand upon him to consent to the filing of an action on the LLC’s behalf. However, this Court has made clear that Business Corporation Law § 626(c) “does not differentiate between minority and majority shareholders for demand purposes” … . We note that Sowers’ alleged concealment of financial information does not warrant a finding that demand was futile, since “[a] corporation’s refusal to provide information to its shareholders is not on the [] list of circumstances where demand is excused” … , Barone v Sowers, 2015 NY Slip Op 04195, 1st Dept, 5-14-15

 

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Corporate Officer May Be Personally Liable for Torts Committed in the Performance of Corporate Duties/Criteria for Determining a Motion to Dismiss for Failure to State a Cause of Action (Where Documentary Evidence Is Submitted) Explained

The Second Department determined defendant’s motion to dismiss for failure to state a cause of action was properly denied.  Plaintiff alleged he tripped and fell over a hole left when a for sale sign was removed. The defendant moved to dismiss alleging the property was owned by the corporation of which defendant was the sole shareholder.  The Second Department noted that an officer of a corporation may be personally liable for torts committed in the performance of corporate duties. The court explained its role in determining a motion to dismiss for failure to state a cause of action where documentary evidence is submitted: “When a defendant submits evidence in support of a motion to dismiss pursuant to CPLR 3211(a)(7), and the motion has not been converted into one for summary judgment, the criterion is whether the plaintiff has a cause of action, not whether he or she has stated one … . “[U]nless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, . . . dismissal should not eventuate… ‘. [quotations omitted] Orlando v New York Homes By J & J Corp., 2015 NY Slip Op 04104, 2nd Dept 5-13-15

 

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Delaware Pleading Requirements Not Met in Shareholders’ Derivative Action

The Second Department determined the shareholders’ derivative action alleging breach of a fiduciary duty was properly dismissed for failure to meet the pleading requirements of the controlling Delaware law:

As the parties agree, the laws of Delaware, the State of incorporation, govern the issues raised on this appeal … . Delaware Chancery Court Rule 23.1(a) provides that every shareholders’ derivative complaint shall “allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff’s failure to obtain the action or for not making the effort.” A plaintiff’s demand on the directors pursuant to Rule 23.1(a) will be excused “if the derivative complaint pleads particularized facts creating a reasonable doubt that (1) the directors are disinterested and independent or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment” … . Demand may also be excused in certain circumstances “where particularized factual allegations create a reasonable doubt that, as of the time the complaint was filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand” … . Here, the allegations of the amended complaint were insufficient to satisfy the pleading requirements of Rule 23.1(a). Walter v FalconStor Software, Inc., 2015 NY Slip Op 02112, 2nd Dept 3-18-15

 

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Corporation Is a Proper Respondent in an Article 78/Mandamus to Compel Proceeding

The Third Department determined that respondent corporation (CGFNS), which contracted with the state to provide credential verification services to the Department of Education for foreign-trained nurses, was a proper respondent in an Article 78/mandamus to compel proceeding.  The proceeding was brought by the foreign nursing school after CGFNS indicated it could not verify the school’s credentials:

CGFNS argues that it is not a “body or officer” subject to CPLR article 78 (CPLR 7802 [a]) and that it did not make a “determination” reviewable in this proceeding (CPLR 7803 [3]). CPLR 7802 (a) defines a “body or officer” against whom a CPLR article 78 proceeding may be instituted to include, as relevant here, “every court, tribunal, board, [or] corporation” (emphasis added). CGFNS is a not-for-profit corporation. Courts have recognized that corporations, both public and private, may be subject to CPLR article 78 as quasi-governmental bodies because they are “beholden to the [s]tate for their franchise or charter or the exercise of their functions” (… Siegel, NY Prac § 558 at 989; § 564 at 1001-1002 [5th ed 2011]). As a corporate entity, CGFNS is a “body or officer” subject to a writ of mandamus under CPLR article 78 (CPLR 7802 [a]; see CPLR 7803 [1], [3]…). Matter of American Univ. of Antigua v CGFNS Intl., 2015 NY Slip Op 02028, 3rd Dept 3-12-15

 

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