| Moran Enters., Inc. v Hurst |
| 2009 NY Slip Op 07807 [66 AD3d 972] |
| October 27, 2009 |
| Appellate Division, Second Department |
| Moran Enterprises, Inc., Appellant, v Margaret Hurst etal., Respondents. |
—[*1]
In an action, inter alia, to recover damages for legal malpractice, the plaintiff appeals, aslimited by its notice of appeal and brief, from so much of an order of the Supreme Court, NassauCounty (Cozzens, Jr., J.), entered January 17, 2008, as granted those branches of the motion ofthe defendant Margaret Hurst and the cross motion of the defendants Heath Berger andSteinberg, Fineo, Berger & Fischoff, P.C., which were pursuant to CPLR 3211 (a) (5) to dismissthe complaint insofar as asserted against each of them and as, in effect, denied, as academic, itscross motion to compel the defendant Margaret Hurst to answer the complaint.
Ordered that the order is modified, on the law, (1) by deleting the provision thereof grantingthat branch of the motion of the defendant Margaret Hurst which was pursuant to CPLR 3211 (a)(5) to dismiss the complaint insofar as asserted against her and substituting therefor a provisiondenying that branch of the motion, (2) by deleting the provision thereof granting that branch ofthe cross motion of the defendants Heath Berger and Steinberg, Fineo, Berger & Fischoff, P.C.,which was pursuant to CPLR 3211 (a) (5) to dismiss the complaint insofar as asserted againsteach of them and substituting therefor provisions denying that branch of the cross motion andgranting that branch of the cross motion which was pursuant to CPLR 3211 (a) (3) to dismiss thecomplaint insofar as asserted against the defendants Heath Berger and Steinberg, Fineo, Berger& Fischoff, P.C., and (3) by deleting the provision thereof denying, as academic, the plaintiff'scross motion to compel the defendant Margaret Hurst to answer the complaint and substitutingtherefor a provision granting the cross motion; as so modified, the order is affirmed insofar asappealed from, with one bill of costs to the plaintiff payable by Margaret Hurst and one bill ofcosts to Heath Berger and Steinberg, Fineo, Berger & Fischoff, P.C., payable by the plaintiff.
The plaintiff, Moran Enterprises, Inc. (hereinafter MEI), was incorporated in New York inJanuary 1996. On or before August 15, 2000, MEI retained attorney Margaret Hurst to representit in certain matters, including filing a Chapter 11 petition for bankruptcy on its behalf. InNovember 2000, Hurst left active practice and transferred her clients to another attorney. OnDecember 27, 2000, MEI was dissolved by the Secretary of State pursuant to Tax Law §203-a for failure to pay franchise taxes. On July [*2]23, 2001,MEI retained attorney Heath Berger and the law firm Steinberg, Fineo, Berger & Fischoff, P.C.(then known as Steinberg, Fineo, Berger & Barone, P.C.) (hereinafter together the Bergerdefendants) to file another Chapter 11 bankruptcy petition on its behalf.
On or about October 30, 2003, MEI and its principal commenced an action against Hurst, theBerger defendants, and other attorneys alleging, inter alia, legal malpractice. The Supreme Courtgranted the defendants' motions for summary judgment dismissing the action on the ground,among others, that MEI, as a dissolved corporation, lacked standing to commence the action andassert the claims therein. On appeal, in a decision and order dated September 19, 2006, thisCourt affirmed the dismissal of the action insofar as asserted by MEI on the ground that it failedto appear by an attorney as required by CPLR 321 (a). The decision and order did not address theissue of MEI's standing or capacity to bring suit (see Moran v Hurst, 32 AD3d 909 [2006]).
MEI retained counsel and, on or about March 15, 2007, commenced this action against Hurstand the Berger defendants making essentially the same allegations. Hurst made a pre-answermotion, inter alia, to dismiss the complaint insofar as asserted against her pursuant to CPLR3211 (a) (3), (5), (7) and (10), arguing that MEI did not have the legal capacity to sue since itwas a dissolved corporation and that, in any event, the action was barred by res judicata,collateral estoppel, and the statute of limitations, among other grounds. The Berger defendantscross-moved, inter alia, for summary judgment dismissing the complaint insofar as assertedagainst them pursuant to CPLR 3212, or in the alternative, to dismiss the complaint insofar asasserted against them pursuant to CPLR 3211 (a) (3), (5) and (7). MEI cross-moved to compelHurst to answer the complaint. The Supreme Court granted the defendants' motion and crossmotion to the extent of dismissing the complaint pursuant to CPLR 3211 (a) (5), finding that theaction was barred by res judicata. As such, it, in effect, denied MEI's cross motion as academic.MEI appeals.
The Supreme Court erred in dismissing the complaint pursuant to CPLR 3211 (a) (5). Theprinciple of res judicata bars relitigation of claims where a judgment on the merits exists from aprior action between the same parties involving the same subject matter (see Matter of Hunter, 4 NY3d260, 269 [2005]). Dismissal of the prior action insofar as asserted by MEI was upheld bythis Court on the ground that MEI failed to appear by an attorney as required by CPLR 321 (a)(see Moran v Hurst, 32 AD3d909 [2006]). Such was not a determination on the merits and thus res judicata does not applyto bar commencement of another action based on the same transactions (see Sclafani v StoryBook Homes, 294 AD2d 559 [2002]; Matter of Farkas v New York State Dept. of Civ.Serv., 114 AD2d 563 [1985]). Moreover, since the issue of MEI's capacity to commence anaction was not determined on appeal, collateral estoppel does not bar relitigation of that issue (see Tydings v Greenfield, Stein & Senior,LLP, 11 NY3d 195, 200 [2008]; Sabbatini v Galati, 43 AD3d 1136 [2007]; Bergstol v Town ofMonroe, 305 AD2d 348 [2003]).
Further, this action was timely commenced pursuant to CPLR 205 (a). Contrary to theBerger defendants' contention, the prior action was commenced by MEI within the meaning ofCPLR 205 (a), despite its dismissal for MEI's failure to appear by an attorney (see Carrick vCentral Gen. Hosp., 51 NY2d 242, 249 [1980]; George v Mt. Sinai Hosp., 47 NY2d170, 176-179 [1979]). Further, the prior action was not terminated by a final judgment on themerits or in another manner which would preclude application of CPLR 205 (a) to extend thestatute of limitations.
Although not addressed by the Supreme Court, that branch of the Berger defendants' crossmotion which was to dismiss the complaint insofar as asserted against those defendants on thealternate ground that MEI lacked the capacity to commence this action against those defendantsshould have been granted (see CPLR 3211 [a] [3]; Parochial Bus Sys. v Board ofEduc. of City of N.Y., 60 NY2d 539, 545 [1983]).
Pursuant to Tax Law § 203-a, the Secretary of State may dissolve a corporation byproclamation for the nonpayment of franchise taxes. Upon dissolution, the corporation's legalexistence terminates (see Lorisa Capital Corp. v Gallo, 119 AD2d 99, 109 [1986]). Adissolved corporation is prohibited from carrying on new business (see BusinessCorporation Law § 1005 [a] [1]) and does not enjoy the right to bring suit in the courts ofthis state, except in the limited respects specifically permitted by statute (see Vantrel Enters.v Vantage Petroleum Corp., 270 AD2d 412 [2000]; De George v Yusko, 169 AD2d865 [1991]; [*3]Lorisa Capital Corp. v Gallo, 119 AD2d99, 110-111 [1986]). Business Corporation Law § 1006 provides, in relevant part:
"(a) A dissolved corporation, its directors, officers and shareholders may continue tofunction for the purpose of winding up the affairs of the corporation in the same manner as if thedissolution had not taken place, except as otherwise provided in this chapter or by court order. Inparticular, and without limiting the generality of the foregoing: . . .
"(4) The corporation may sue or be sued in all courts and participate in actions andproceedings, whether judicial, administrative, arbitrative or otherwise, in its corporate name, andprocess may be served by or upon it.
"(b) The dissolution of a corporation shall not affect any remedy available to or against suchcorporation, its directors, officers or shareholders for any right or claim existing or any liabilityincurred before such dissolution, except as provided in sections 1007 (Notice to creditors; filingor barring claims) or 1008 (Jurisdiction of supreme court to supervise dissolution andliquidation)."
Hurst represented MEI prior to its dissolution. Accordingly, MEI retained the capacity tocommence an action against her arising from such representation (see BusinessCorporation Law § 1006 [b]; cf. Syzygy Sys. Corp. v Bader, 243 AD2d 336[1997]). However, the Berger defendants were not retained until after MEI was dissolved and,contrary to MEI's contention, this action does not relate to the winding up of its affairs(see Business Corporation Law § 1006 [a] [4]; [b]; 2 N. Broadway Food, Inc. v Anduze,33 AD3d 992 [2006]; St. James Constr. Corp. v Long, 253 AD2d 754 [1998];Syzygy Sys. Corp. v Bader, 243 AD2d 336 [1997]; see also In re C-TC 9th Ave.Partnership, 113 F3d 1304, 1309 [1997]). MEI therefore lacks the capacity to use the courtsof this state to enforce obligations arising out of the Berger defendants' representation of thecorporation until it has secured retroactive de jure status by payment of delinquent franchisetaxes (see 2 N. Broadway Food, Inc. vAnduze, 33 AD3d 992 [2006]; Syzygy Sys. Corp. v Bader, 243 AD2d 336[1997]; Brandes Meat Corp. v Cromer, 146 AD2d 666 [1989]; Lorisa Capital Corp. vGallo, 119 AD2d 99, 114 [1986]). Accordingly, the Supreme Court should have granted thatbranch of the cross motion of the Berger defendants which was to dismiss the complaint insofaras asserted against them pursuant to CPLR 3211 (a) (3).
As the complaint survives insofar as asserted against Hurst, MEI's cross motion to compelher to answer the complaint also should have been granted.
In light of our determination, the Berger defendants' remaining contentions have beenrendered academic. Dillon, J.P., Miller, Leventhal and Chambers, JJ., concur.