| Teachers Ins. Annuity Assn. of Am. v Cohen's Fashion Opt. of 485Lexington Ave., Inc. |
| 2007 NY Slip Op 08375 [45 AD3d 317] |
| November 8, 2007 |
| Appellate Division, First Department |
| Teachers Insurance Annuity Association of America et al.,Respondents, v Cohen's Fashion Optical of 485 Lexington Avenue, Inc. et al.,Appellants, et al., Defendants. |
—[*1] Stempel Bennett Claman & Hochberg P.C., New York City (Richard L. Claman of counsel),for respondents.
Order, Supreme Court, New York County (Carol Edmead, J.), entered January 5, 2007,which, insofar as appealed from, denied defendants' motion to dismiss the first and second causesof action seeking to pierce the corporate veil; denied defendants' motion to dismiss the fourthcause of action insofar as it alleges de facto merger liability against defendant Cohen FashionOptical, Inc.'s franchisee and against Cohen's Fashion Optical of 500 Lexington Avenue, Inc.;denied defendants' motion for summary judgment dismissing the complaint; and grantedplaintiffs' cross motion to amend the complaint so as to add additional parties, amend the fourthcause of action and add the proposed seventh cause of action for fraud, unanimously modified,on the law, to deny plaintiffs' cross motion insofar as it seeks to add the proposed seventh causeof action for fraud, and otherwise affirmed, without costs.
The court correctly denied defendants' motion to dismiss plaintiffs' first and second cause ofaction seeking to pierce the corporate veil of defendant Cohen's Fashion Optical of 485Lexington Avenue, Inc. (C-485) and hold the corporate parent, Cohen Fashion Optical, Inc.(C-Parent), liable for the breach of lease. In order to pierce the corporate veil, plaintiffs mustshow that (1) C-Parent exercised complete domination and control with respect to the transactionattacked, and (2) such domination was used to commit a fraud or wrong against them (seeMatter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]).Here, plaintiffs allege that C-Parent negotiated the lease on behalf of C-485 as tenant, whileholding itself out as the real party in interest, and, in direct violation of the lease and without anydisclosure to plaintiff landlord, installed a franchisee to operate the business, leaving ajudgment-proof C-485 an empty shell with no assets. This is sufficient to state a claim to piercethe corporate veil (see CC Ming [USA] Ltd. Partnership v Champagne Video, 232 AD2d202 [1996]; [*2]Fern, Inc. v Adjmi, 197 AD2d 444[1994]; Ventresca Realty Corp. vHoulihan, 41 AD3d 707 [2007]).
The court also correctly denied defendants' motion for summary judgment on these claims.Defendants' evidence does not conclusively establish that plaintiffs knew or should have knownthat C-485 was an empty shell against which they would have no recourse. The documentaryevidence submitted by defendants actually lends some support to plaintiffs' position that C-Parentdeliberately concealed this arrangement. Also, the affidavit of C-Parent's president, that he orallyinformed some unknown person at plaintiffs' predecessor of this arrangement, in direct violationof the express, written terms of the lease, is insufficient to grant defendants summary judgment.
The court also correctly sustained plaintiffs' claim against Cohen's Fashion Optical of 500Lexington Avenue, Inc. (C-500) and Cohen's Fashion Optical of 47th Street, Inc. (the franchisee)under the continuity of business or de facto merger doctrine. Plaintiffs allege, essentially, that thebusiness of C-485, conducted at the premises under the subject lease, was closed and movedacross the street, including all assets, necessary liabilities for the uninterrupted continuation ofthe business, management, personnel and ownership, leaving C-485 an empty, judgment-proofshell to avoid liability under the lease. This is sufficient to state a claim under this theory (see Matter of New York City AsbestosLitig., 15 AD3d 254, 256 [2005]). Defendants' assertion that C-485 never had any assetsand never operated the business, and that the franchisee operated the business at the premisesunder the C-485 lease, such that there could not have been any continuation of any business ofC-485, is unavailing. The franchise agreement and sublease, neither of which was ever disclosedto plaintiffs, on their face appear to have expired in 1993. There is no express provision that theywould continue upon future extensions of the prime lease, and so it is not clear that the franchiseeoperated the business at the subject premises. Moreover, at this early stage, prior to anydiscovery, it is unclear who the owner or owners are of the franchisee and C-500, whether theyare the same as C-485, or what the contractual relationship is between the franchisee and C-500.That C-485 has not been dissolved is not dispositive, since it has been left an empty shell (seeid.).
Although plaintiffs sufficiently allege all of the other elements of fraud in the inducement,they fail properly to allege damages that are not recoverable under the breach of contract claim(see 34-35th Corp. v 1-10 Indus. Assoc., 2 AD3d 711, 712 [2003]). All of plaintiffs'proposed damages are essentially claims for lost rent under the lease (compare DeerfieldCommunications Corp. v Chesebrough-Ponds, Inc., 68 NY2d 954, 956 [1986]). Thus, thecourt should have denied plaintiffs' cross [*3]motion to the extentthat it sought to add the seventh cause of action for fraud in the inducement.Concur—Andrias, J.P., Saxe, Nardelli, McGuire and Malone, JJ.