| Grammas v Lockwood Assoc., LLC |
| 2012 NY Slip Op 03808 [95 AD3d 1073] |
| May 15, 2012 |
| Appellate Division, Second Department |
| Michael Grammas et al., Appellants, v LockwoodAssociates, LLC, et al., Respondents. |
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Lauterbach Garfinkel Damast & Hollander, LLP, Suffern, N.Y. (Howard Garfinkel ofcounsel), for respondents.
In an action, inter alia, to recover damages for fraud and breach of warranty, the plaintiffsappeal from an order of the Supreme Court, Westchester County (Murphy, J.), entered December8, 2010, which granted the defendants' motion pursuant to CPLR 3211 (a) (7) to dismiss thecomplaint insofar as asserted against the defendant Gil Porcelli.
Ordered that the order is reversed, on the law, with costs, and the defendants' motionpursuant to CPLR 3211 (a) (7) to dismiss the complaint insofar as asserted against the defendantGil Porcelli is denied.
The plaintiffs commenced this action related to their purchase of real property in MountKisco. The plaintiffs purchased the property from the defendant Lockwood Associates, LLC(hereinafter Lockwood). Lockwood, a limited liability company (hereinafter LLC), was formedfor the purpose of purchasing and developing real property, and was dissolved prior to thecommencement of this action. The defendant Gil Porcelli was the sole managing member ofLockwood at the time of the sale of the property, and continued in that capacity until Lockwood'sdissolution. In their complaint, the plaintiffs asserted causes of action sounding in fraud andbreach of warranty jointly against the defendants, and sought a judgment declaring thatLockwood and Porcelli were the alter egos of each other. The Supreme Court granted thedefendants' motion to dismiss the complaint insofar as asserted against Porcelli for failure to statea cause of action, concluding that, under the doctrine of piercing the corporate veil, the complaintdid not contain allegations sufficient to state a cause of action holding the defendant Porcellipersonally liable for actions he took as Lockwood's sole managing member. The plaintiffsappeal, and we reverse.
"On a motion to dismiss for failure to state a cause of action pursuant to CPLR 3211 (a) (7),'the sole criterion is whether the pleading states a cause of action, and if from its four cornersfactual allegations are discerned which taken together manifest any cause of action cognizable atlaw[,] a motion for dismissal will fail' " (Kopelowitz & Co., Inc. v Mann, 83 AD3d 793, 796 [2011], quotingGuggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]; see Leon v Martinez, 84NY2d 83, 87-88 [1994]). " 'The complaint must be construed liberally, the factual allegationsdeemed to be true, and the nonmoving party granted the benefit of every possible favorableinference' " (Kopelowitz & Co., Inc. v Mann, 83 AD3d at 797, quoting Hense v Baxter, 79 AD3d 814,815 [2010]).[*2]
"A member of a limited liability company 'cannot be heldliable for the company's obligations by virtue of his [or her] status as a member thereof' " (Matias v Mondo Props. LLC, 43 AD3d367, 367-368 [2007], quoting Retropolis, Inc. v 14th St. Dev. LLC, 17 AD3d 209, 210 [2005];see also Limited Liability Company Law §§ 609, 610). However, a partymay seek to hold a member of an LLC individually liable despite this statutory proscription byapplication of the doctrine of piercing the corporate veil (see Matias v Mondo Props. LLC, 43 AD3d 367 [2007]; Retropolis, Inc. v 14th St. Dev. LLC,17 AD3d 209 [2005]). In order to state a viable cause of action under the doctrine ofpiercing the corporate veil, the "plaintiff must allege facts that, if proved, indicate that theshareholder exercised complete domination and control over the corporation [or LLC] and'abused the privilege of doing business in the corporate [or LLC] form to perpetrate a wrong orinjustice' " (East Hampton Union FreeSchool Dist. v Sandpebble Bldrs., Inc., 16 NY3d 775, 776 [2011], quoting Matter ofMorris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 142 [1993]). Factors to beconsidered in determining whether an individual has abused the privilege of doing business in thecorporate or LLC form include the failure to adhere to LLC formalities, inadequate capitalization,commingling of assets, and the personal use of LLC funds (see East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc.,66 AD3d 122, 127 [2009], affd16 NY3d 775 [2011]; MillenniumConstr., LLC v Loupolover, 44 AD3d 1016 [2007]).
Contrary to the Supreme Court's determination, the plaintiffs adequately pleaded allegationsthat Porcelli engaged in acts amounting to an abuse or perversion of the LLC form to perpetrate awrong or injustice against the plaintiffs, including allegations that he dissolved Lockwood shortlyafter closing title to the property and that the defendants failed to reserve funds for the purposesof contingent liability (see East Hampton Union Free School Dist. v Sandpebble Bldrs.,Inc., 16 NY3d 775 [2011]). Accordingly, the Supreme Court should have denied thedefendants' motion pursuant to CPLR 3211 (a) (7) to dismiss the complaint insofar as assertedagainst Porcelli. Dillon, J.P., Angiolillo, Florio and Cohen, JJ., concur.