| Aglow Studios, Inc. v Karlsson |
| 2011 NY Slip Op 03007 [83 AD3d 747] |
| April 12, 2011 |
| Appellate Division, Second Department |
| Aglow Studios, Inc., Respondent, v Kent Karlsson et al.,Appellants, et al., Defendant. |
—[*1] Peter M. Levine, New York, N.Y., for respondent.
In an action, inter alia, to recover damages for conversion, the defendants Kent Karlsson andKarlsson & Ng, P.C., appeal, as limited by their brief, from so much of an order of the SupremeCourt, Westchester County (Adler, J.), entered March 10, 2010, as denied their motion forsummary judgment dismissing the complaint insofar as asserted against them, or alternatively,for leave to amend their answer.
Ordered that the order is reversed, on the law, with costs, that branch of the motion of thedefendants Kent Karlsson and Karlsson & Ng, P.C., which was for summary judgmentdismissing the complaint insofar as asserted against them is granted, and the motion is otherwisedenied as academic.
In June 2006, nonparty Junia Hissa Neiva formed and incorporated the plaintiff, AglowStudios, Inc. (hereinafter Aglow). During a period of time when Neiva was Aglow's sole officer,director, and shareholder, she paid some of her personal legal fees to the defendants KentKarlsson and Karlsson & Ng, P.C. (hereinafter together the defendants) from Aglow's corporateaccount. In June 2009, another individual acquired 100% ownership of Aglow. Subsequently,Aglow commenced this action seeking, inter alia, to recover the payments made to the defendantsfrom its corporate account based upon theories of conversion and money had and received. Thedefendants moved for summary judgment dismissing the complaint insofar as asserted againstthem or for leave to amend their answer to assert the defense of ratification. The Supreme Court,inter alia, denied the motion. We reverse.
"When an individual is sole shareholder of a corporation, he or she is the equitable ownerand, in the absence of an adverse effect upon the rights of creditors, may lawfully use thecorporation's property in payment of or as security for his or her own personal debt, if so desired"(Masek v Wichelman, 67 AD3d444, 446 [2009]; see Reif v Equitable Life Assur. Socy., 268 NY 269, 273-275[1935]; Pine v Hyed Realty Corp., 145 NYS2d 548 [1955], affd 1 AD2d 952[1956]; Field v Lew, 184 F Supp 23, 27 [1960], affd sub nom. Field v Bankers TrustCo., 296 F2d 109 [1961], cert denied 369 US 859 [1962]). The defendantsestablished their prima facie entitlement to judgment as a matter of law dismissing theconversion cause of action insofar as asserted against them. Contrary to the Supreme Court'sdetermination, the defendants were not required to establish that they made a reasonable inquiryinto whether Aglow had authorized the use of corporate funds to pay Neiva's legal fees; rather,the defendants were only required to demonstrate that such an inquiry would have revealed factssufficient to persuade them [*2]that Neiva was authorized to useAglow's corporate funds for her own benefit (see Reif v Equitable Life Assur. Socy., 268NY at 273; Field v Lew, 184 F Supp at 28). In this regard, the defendants established thatan inquiry would have revealed that, during the time period that the payments were made tothem, Neiva was Aglow's sole shareholder and officer and that the payments to the defendantswould not have had an adverse effect upon Aglow's creditors (see Reif v Equitable Assur.Socy., 268 NY at 275-277; Li-Bet Realty Corp. v Wiener, 20 AD2d 691, 692[1964]). In opposition, Aglow failed to raise a triable issue of fact as to whether the payments tothe defendants were authorized or as to whether the rights of its creditors were adversely affectedby the payments to the defendants.
The defendants also established their prima facie entitlement to judgment as a matter of lawdismissing the cause of action for money had and received insofar as asserted against them. Thedefendants established that the payments at issue were properly authorized by Aglow and that thepayments were made for legal services actually provided to Neiva. In opposition, Aglow failed toraise a triable issue of fact regarding whether the defendants possessed money that in equity andgood conscience they should not be permitted to retain (see Parsa v State of New York,64 NY2d 143, 148 [1984]; Matter of Witbeck, 245 AD2d 848, 850 [1997]).
Accordingly, the Supreme Court should have granted that branch of the defendants' motionwhich was for summary judgment dismissing the complaint insofar as asserted against them andshould have otherwise denied the motion as academic.
Aglow's contention that the branch of the defendants' motion which was for summaryjudgment was premature is improperly raised for the first time on appeal, and thus is not properlybefore us (see Burgos v Rateb, 64AD3d 530, 530 [2009]).
In light of our determination, the defendants' remaining contention has been renderedacademic. Rivera, J.P., Chambers, Hall and Lott, JJ., concur.