| D'Mel & Assoc. v Athco, Inc. |
| 2013 NY Slip Op 02324 [105 AD3d 451] |
| April 4, 2013 |
| Appellate Division, First Department |
| D'Mel & Associates,Respondent-Appellant, v Athco, Inc., et al., Defendants, and Stuart Goldman etal., Appellants-Respondents. |
—[*1] Jeffrey M. Cassuto, New York, for respondent-appellant.
Order, Supreme Court, New York County (Richard F. Braun, J.), entered September13, 2012, which, insofar as appealed from, denied the motion of defendants-appellantsStuart Goldman and Michael Goldman for summary judgment dismissing the ninth andtenth causes of action, unanimously reversed, on the law, without costs, and the motiongranted. The Clerk is directed to enter judgment in favor of the Goldmans, in theirindividual capacities, dismissing the complaint.
Plaintiff is a creditor of defendants Athco, Inc. (Athco) and Athco Imports, Inc.(Imports). At all relevant times, defendant Stuart Goldman (Stuart) was the 100%shareholder, president, and CEO of Athco. From the time Imports was incorporated untilMarch 26, 2009, defendant Michael Goldman (Michael)—Stuart's son—wasthe 100% shareholder of Imports. Stuart was the CEO of Imports.
Plaintiff contends that the following constituted fraudulent conveyances: Athco'stransfer of certain orders that it was unable to fill to Imports, for no consideration; andMichael's transfer of his Imports shares to defendant Liberty Apparel, Inc., for noconsideration. The ninth cause of action seeks to pierce Athco's corporate veil to imposepersonal liability on Stuart, and the tenth cause of action seeks to pierce Imports'corporate veil to impose personal liability on Michael.
"In order for a plaintiff to state a viable claim against a shareholder of a corporationin his or her individual capacity for actions purportedly taken on behalf of thecorporation, plaintiff must allege facts that, if proved, indicate that the shareholderexercised complete domination and control over the corporation and abused theprivilege of doing business in the corporate form to perpetrate a wrong or injustice" (East Hampton Union Free SchoolDist. v Sandpebble Bldrs., Inc., 16 NY3d 775, 776 [2011] [emphasis added andinternal quotation marks omitted]). "Factors to be considered in determining whether theowner has abused the privilege of doing business in the corporate form include whetherthere was a failure to adhere to corporate formalities, inadequate capitalization,commingling of assets, and use of corporate funds for personal use" (East [*2]Hampton Union Free School Dist. v Sandpebble Bldrs.,Inc., 66 AD3d 122, 127 [2d Dept 2009], affd 16 NY3d 775 [2011][internal quotation marks omitted]). In opposition to the Goldmans' motion for summaryjudgment, plaintiff failed to proffer any evidence of the above factors. Contrary toplaintiff's claim, the factors mentioned in East Hampton remain relevant even ina fraudulent conveyance case (see Symbax, Inc. v Bingaman, 219 AD2d 552,554 [1st Dept 1995]).
It is true that, as a general rule, "a corporate officer who participates in thecommission of a tort may be held individually liable, . . . regardless ofwhether the corporate veil is pierced" (Fletcher v Dakota, Inc., 99 AD3d 43, 49 [1st Dept 2012][internal quotation marks omitted]). However, that is not the theory of the ninth and tenthcauses of action; they specifically allege that the corporate entities of Athco and Importsshould be disregarded. Moreover, as far as appears in the record, plaintiff did not requestleave to replead in opposition to the Goldmans' motion. In any event, in the specificcontext of fraudulent conveyances (as opposed to torts generally), theGoldmans—who were not transferees of either conveyance—cannot be heldliable without piercing the corporate veil unless they benefited from the conveyances(see Federal Deposit Ins. Corp. v Porco, 75 NY2d 840, 842 [1990]).
There is no evidence in the record that Michael benefited from either conveyance. Itis true that Stuart became the CEO of Imports. "However, receipt of a salary from thetransferee corporation as an officer of the corporation is not sufficient to render theofficer a transferee or beneficiary of the transfer" (Roselink Invs., L.L.C. vShenkman, 386 F Supp 2d 209, 227 [SD NY 2004]). As for the second transfer,there is no evidence in the record that Stuart benefited from the sale of Michael's Importsshares for no consideration.
The tenth cause of action should have been dismissed for the additional reason thatMichael's sale of his Imports shares did not constitute a fraudulent conveyancevis-à-vis plaintiff. Debtor and Creditor Law § 273 states, "Everyconveyance made . . . by a person who is or will be thereby renderedinsolvent is fraudulent as to creditors without regard to his actual intent if the conveyanceis made . . . without a fair consideration." The tenth cause of action allegesthat Michael transferred his Imports shares without fair compensation, but it does notallege that this transfer rendered Michael insolvent. Second, plaintiff is not a creditor ofMichael, as opposed to Imports (see Martes v USLIFE Corp.,927 F Supp 146, 148 [SD NY 1996]). Third, the sale of Michael's Imports sharesto Liberty did not affect Imports' assets, i.e., its ability to pay plaintiff'scommissions (see id.).
Even if, arguendo, the sale of Michael's Imports shares for no considerationconstituted a fraudulent conveyance and if Michael benefited therefrom, plaintiff'sremedy is not to obtain $140,000 in damages from Michael; rather, it is to set aside theconveyance or attach the shares (see Debtor and Creditor Law § 278 [1]).
The Goldmans' notice of appeal was limited to their motion and the ninth and tenthcauses of action; it did not mention plaintiff's cross motion or the eighth cause of action.Therefore, we cannot consider their argument—which relates to plaintiff's crossmotion on the [*3]eighth cause of action—that thecourt erred by finding, as a matter of law, that the transfer from Athco to Imports wasmade for inadequate consideration and with actual intent to hinder, delay, or defraudcreditors (see Torres v City ofNew York, 41 AD3d 312, 313 [1st Dept 2007]). Concur—Tom, J.P.,Andrias, Saxe, Abdus-Salaam and Gische, JJ. [Prior Case History: 2012 NY Slip Op32375(U).]