| Matter of Moak |
| 2012 NY Slip Op 00870 [92 AD3d 1040] |
| February 9, 2012 |
| Appellate Division, Third Department |
| In the Matter of the Estate of Gladys Johnson Moak, Deceased.Diane Johnson Ward, as Executor of Gladys Johnson Moak, Deceased, Respondent; James R.Moak et al., Respondents; and Ralph H. Drake et al., Appellants. |
—[*1] McNamee, Lochner, Titus & Williams, P.C., Albany (G. Kimball Williams of counsel), forDiane Johnson Ward, respondent.
Egan Jr., J. Appeal from a decree of the Surrogate's Court of Albany County (Doyle, S.),entered January 28, 2010, which partially granted petitioner's application, in a proceedingpursuant to SCPA 2103, to direct respondent Ralph H. Drake to deliver certain property todecedent's estate.
In 1994, respondent Woodfield Development Corporation, then owned in equal shares byPasquale Ferracane and respondent Ralph H. Drake, acquired certain real property located in theTown of Malta, Saratoga County with the intention of subdividing the land and constructingresidential housing. The initial plan called for respondent RHD Construction Corporation, anexcavation company owned solely by Drake, to prepare the site and for Ferracane to construct theactual residences. By early 1995, however, Woodfield had fallen behind on both the propertytaxes and the mortgage payments, and Drake began searching for additional investors. Aroundthis same time, Drake and respondent James R. Moak (hereinafter Moak), the latter of whom[*2]recently had filed for bankruptcy, met through a mutualacquaintance, and the two thereafter reached an agreement whereby Moak, also a builder, wouldpurchase lots in the subdivision and construct homes thereon.[FN1]Drake thereafter bought out Ferracane and became the sole owner of Woodfield.
Drake's finances continued to unravel and, by September 1995, he was—by his ownadmission—"running by hook or by crook . . . to get the subdivision done."According to Moak, it was at this point that Drake, who already had borrowed funds fromvarious family members, approached him and inquired as to the possibility of Moak borrowingmoney from his father, respondent Roger J. Moak, and his stepmother, Gladys Johnson Moak(hereinafter decedent). To that end, a check from decedent in the amount of $110,000 wasdeposited into an escrow account maintained by Moak's attorney and, shortly thereafter, threechecks in the amounts of $45,000, $30,000 and $17,000 were deposited into RHD's checkingaccount.[FN2]An additional $9,000 was deposited into RHD's checking account in a similar fashion in October1995. Although each of these deposits, in turn, was recorded as "Notes Payable—Officer"in RHD's cash receipts journal, Drake insisted that these transactions did not reflect a loan fromdecedent to either himself, RHD or Woodfield. Rather, according to Drake, this simplyrepresented money that Moak had elected to invest in the project and was entitled to recoup atsome later date. Thereafter, in January 1996 and April 1996, decedent wrote two checks payabledirectly to RHD in the amounts of $25,000 and $36,000, respectively, which were deposited intoRHD's bank account.[FN3]All told, $162,000 of decedent's funds were deposited into one or more bank accounts maintainedby RHD.
Despite insisting that none of the foregoing tenders constituted a loan from decedent to eitherhimself or any of his corporate entities, Drake thereafter wrote a series of checks from RHD'saccount payable to decedent and totaling $147,745.73. Specifically, Drake issued a check in theamount of $5,500 in September 1995 (bearing the notation "Debt Repayment"), a check in theamount of $115,495.73 in November 1995 (bearing the notation "Loan/Interest Repayment"), acheck in the amount of $25,250 in January 1996 (bearing the notation "Woodfield Loan") and,finally, a check in the amount of $1,500 in March 1996. Of these various tenders, only the finalcheck for $1,500 ultimately cleared.[*3]
Decedent died in June 1996, and petitioner thereaftercommenced this proceeding alleging, among other things, that the moneys advanced by decedentconstituted a loan that Drake, RHD and Woodfield (hereinafter collectively referred to asrespondents), in turn, failed to repay.[FN4]Respondents answered and cross-claimed against Moak for contribution and/orindemnification.[FN5]Following a trial, Surrogate's Court partially granted petitioner's application and ordered Drake toreimburse decedent's estate in the amount of $160,500, together with interest thereon. Thisappeal by respondents ensued.[FN6]
Initially, we have no quarrel with Surrogate's Court's decision to pierce the corporate veil andhold Drake personally liable for the corporate debts incurred by RHD and/or Woodfield.Contrary to respondents' assertion, "an attempt . . . to pierce the corporate veil doesnot constitute a cause of action independent of that against the corporation; rather it is anassertion of facts and circumstances which will persuade the court to impose the corporateobligation on its owners" (Matter of Morris v New York State Dept. of Taxation & Fin.,82 NY2d 135, 141 [1993]; see SugarFoods De Mexico v Scientific Scents, LLC, 79 AD3d 1551, 1552 [2010]). As ourreview of the underlying petition reveals facts sufficient "to give the court and parties notice ofthe transactions [or] occurrences . . . intended to be proved" (CPLR 3013),respondents' argument on this point must fail.
Further, the record before us contains ample evidence that Drake "exercised completedomination over [RHD and/or Woodfield] in the transaction[s] at issue and, in doing so, abusedthe privilege of doing business in the corporate form, thereby perpetrating a wrong that resultedin injury to [decedent]" (East HamptonUnion Free School Dist. v Sandpebble Bldrs., Inc., 66 AD3d 122, 126 [2009],affd 16 NY3d 775 [2011]; see Matter of Morris v New York State Dept. of Taxation& Fin., 82 NY2d at 141-142). In this regard, Drake's own testimony, together with therelated documentary evidence, reveals a pervasive pattern of "commingling of assets. . . and use of corporate funds for personal use" (East Hampton Union FreeSchool Dist. v Sandpebble Bldrs., Inc., 66 AD3d at 127 [internal quotation marks andcitation omitted]). Under these circumstances, we cannot say that Surrogate's Court erred inpiercing the corporate veil and [*4]imposing personal liabilityupon Drake for RHD and/or Woodfield's indebtedness to decedent.
Before addressing the particular causes of action upon which petitioner prevailed, we notethat although this Court indeed is vested with "broad authority in a nonjury trial to independentlyweigh the evidence and render [the] determination warranted by the record, we will defer to thetrial court's assessment of credibility issues given [its] ability to observe the witnesses' demeanorduring testimony" (Matter of Curtis,83 AD3d 1182, 1183 [2011] [internal quotation marks and citations omitted]). Here, Drakeand Moak presented divergent accounts of the circumstances under which decedent's fundsultimately found their way into RHD's checking account. Moak, believing that he and Drake hadan "understanding" that they "would be building the houses together," insisted that he prevailedupon decedent to extend a loan to RHD/Woodfield at Drake's behest and based upon Drake'srepresentation that such loan would be repaid in short order. Drake, on the other hand, steadfastlymaintained that Moak—and Moak alone—borrowed money from decedent that hethereafter elected—of his own volition—to invest in the subdivision project.Surrogate's Court discounted Drake's version of the underlying transactions and, based upon ourreview of the record as a whole, we discern no basis upon which to disturb that credibilitydetermination on appeal.
Turning to the specific causes of action at issue, although we agree with respondents thatthere is insufficient evidence to sustain Surrogate's Court's finding of fraud,[FN7]the record is [*5]replete with evidence to support petitioner'sremaining causes of action for constructive trust, unjust enrichment, implied contract andrestitution—all of which essentially distill to a cause of action for moneys had andreceived (see Matter of Witbeck, 245 AD2d 848, 850 [1997]). In this regard, a cause ofaction for moneys had and received is established when "(1) the defendant receive[s] moneybelonging to [the] plaintiff, (2) the defendant benefit[s] from receipt of the money, and (3) underprinciples of equity and good conscience, the defendant should not be permitted to keep themoney" (id. [internal quotation marks and citation omitted]; see State of New York v International AssetRecovery Corp., 56 AD3d 849, 852 [2008]).
Here, it is uncontroverted that funds originating from decedent and totaling $162,000 weredeposited into RHD's checking account between September 1995 and April 1996, and it isequally clear that Drake and his corporate entities benefitted from the receipt of these funds,which were used, at least in part, to cover outstanding insurance bills, payroll taxes and the costsassociated with getting the infrastructure in place for the subdivision. Additionally, despiteDrake's protestations to the contrary, there is ample proof in the record—including thenotations contained on the checks from RHD to decedent, the manner in which decedent's fundswere recorded in RHD's books and the assignment made by Drake to Moak in 1998 conveyinghis share of the profits on the project "until such time as the [moneys] invested by [decedent]have been repaid"—to establish that the funds received from decedent and deposited intoRHD's bank account were in fact a loan to respondents and, more to the point, that Drake, by hisconduct, acknowledged as much. The record further reflects that, with the exception of $1,500,respondents thereafter failed to repay decedent. Under these circumstances, we agree that equitydictates that decedent's estate be reimbursed for the remaining funds due.
As a final matter, respondents correctly note that Surrogate's Court erred in failing to addressboth their motion for a default judgment, which was made at the start of trial, and the merits oftheir cross claim against Moak for contribution and/or indemnification and, accordingly, weremit this matter to Surrogate's Court for this purpose. Respondents' remaining contentions, tothe extent not specifically addressed, have been examined and found to be lacking in merit.
Peters, J.P., Rose, McCarthy and Garry, JJ., concur. Ordered that the decree is affirmed, withcosts, and matter remitted to the Surrogate's Court of Albany County for further proceedings notinconsistent with this Court's decision.
Footnote 1: In conjunction therewith, therewas some discussion of Moak and Drake forming a company called D&M Builders to constructhomes on the project and, additionally, of Moak purchasing Ferracane's interest in Woodfield.Neither of these proposals, however, subsequently came to fruition. Further, although Drakewould later testify that his agreement with Moak was reduced to writing, he was unable toproduce a copy of the contract.
Footnote 2: Due to their various andrespective financial woes, neither Drake nor Moak maintained a personal checking accountduring this time period. Further, although not entirely clear from the record, it appears that Moakpocketed the difference between the $110,000 tendered by decedent and the $92,000 ultimatelydeposited into RHD's bank account.
Footnote 3: The $25,000 check bore thenotation "LOAN WOODFIELD," and the $36,000 check bore the notation "WOODFIELD."
Footnote 4: The petition sought damages inthe amount of $185,832.36, which apparently represented the $162,000 deposited into RHD'sbank account and certain additional funds allegedly appropriated by either respondents, Moak orhis father.
Footnote 5: Although respondents assertedthat the cross claim was filed against Moak and his father, it is clear from a review ofrespondents' answer that the cross claim pertained solely to Moak.
Footnote 6: RHD and Woodfield weredissolved by the Secretary of State in June 2001 and, although not entirely clear from the record,it appears that Moak and his father settled with decedent's estate prior to trial, which presumablyexplains why the decree issued by Surrogate's Court imposes liability upon Drake alone. Further,we note that although Moak was called as a witness by petitioner and indeed testified, neither henor his father otherwise appeared at trial and have not appealed from the underlying decree.
Footnote 7: Surrogate's Court found thatDrake, by executing certain checks in favor of decedent and instructing Moak not to cash them,"engaged in a scheme that fraudulently induced [decedent] into loaning him additional[moneys]." In this regard, we have no quarrel with the proposition that Drake's repeatedexecution of checks in favor of decedent at a point in time when he knew (or should have knownby virtue of his status as the sole corporate officer) that there were insufficient funds to cover thetenders in question evidenced a material representation and knowledge of its falsity, and it isequally clear that decedent sustained damages as a result thereof (see generally Maki v BassettHealthcare, 85 AD3d 1366, 1369 [2011] [elements of fraud], appeal dismissed17 NY3d 855 [2011], lv denied and dismissed 18 NY3d 870 [2012]; Societe GeneraleAlsacienne De Banque, Zurich v Flemingdon Dev. Corp., 118 AD2d 769, 773 [1986][drawing of checks with the knowledge that there were insufficient funds to cover themconstitutes "actionable fraud"]; A. Sam & Sons Produce Co. v Campese, 14 AD2d 487,487 [1961] ["drawing of checks without funds to meet them, when unexplained, is a badge offraud"]). Where petitioner's proof—and the court's findings—fall short, in our view,is with respect to the element of reliance. Both Moak and Drake testified that Drake never hadany contact—either orally or in writing—with decedent. And while petitioner pointsto the transaction history between decedent and respondents—as delineated by the checksdeposited into and drawn on RHD's bank account—as evidence of fraudulent inducement,i.e., tendering partial payments to decedent in an effort to procure additional funds, we find suchproof to be inconclusive—particularly in view of the fact that decedent continued to writechecks to RHD long after it became (or should have become) apparent that RHD's checks to herwere not clearing.