| Abbott v Crown Mill Restoration Dev., LLC |
| 2013 NY Slip Op 06116 [109 AD3d 1097] |
| September 27, 2013 |
| Appellate Division, Fourth Department |
| Jonathan Abbott, Respondent, v Crown MillRestoration Development, LLC, Appellant. (Appeal No. 3.) |
—[*1] Kenny & Kenny, PLLC, Syracuse (Justin D. Howland of counsel), forplaintiff-respondent.
Appeal from an order of the Supreme Court, Onondaga County (Anthony J. Paris,J.), entered August 29, 2012. The order, insofar as appealed from, denied the motion ofdefendant to vacate the judgment and dismiss the amended complaint.
It is hereby ordered that the order so appealed from is unanimously modified in theexercise of discretion by granting the motion in part and vacating the default judgmentonly insofar as it awarded damages in a specified amount and as modified the order isaffirmed without costs and the matter is remitted to Supreme Court, Onondaga County,for a new assessment of damages in accordance with the following memorandum: Theplaintiff in appeal Nos. 1 through 3 commenced a Labor Law and common-lawnegligence action (underlying action) against Crown Mill Restoration Development,LLC (Crown Mill), a defendant in appeal Nos. 1 and 2 and the defendant in appeal No.3, seeking damages for injuries he allegedly sustained when he fell from a ladder whileworking on premises owned by Crown Mill. After Crown Mill failed to appear at adamages inquest, Supreme Court entered a default judgment against Crown Mill.Plaintiff thereafter commenced an action seeking to enforce the judgment against thedefendants in appeal Nos. 1 and 2 (hereafter, defendants), including Crown Mill's owner,Vito William Lucchetti, Jr., and various other entities owned by Lucchetti, based upon atheory of piercing the corporate veil (enforcement action). Defendants moved to dismissthe amended complaint in the enforcement action for failure to state a cause of action,contending that the exclusivity provisions of the Workers' Compensation Law precludedrecovery against them, and they sought to stay discovery pending the determination ofthe motion. Crown Mill thereafter moved to vacate the default judgment in theunderlying action, contending, inter alia, that it had a reasonable excuse for its default,i.e., law office failure, and several meritorious defenses, including that the Workers'Compensation Law barred recovery against it. In appeal No. 1, defendants appeal froman order that, inter alia, denied their motion to dismiss the amended complaint in theenforcement action except as to defendant Marcellus Group, LLC and, in appeal No. 2,they appeal from an order denying their motion for a stay of discovery and for a [*2]protective order in the same action. In appeal No. 3, CrownMill appeals from an order that, inter alia, denied its motion to vacate the defaultjudgment and to dismiss the amended complaint in the underlying action.
Addressing first appeal No. 3, we conclude that the court properly denied CrownMill's motion insofar as it sought to vacate the default judgment pursuant to CPLR 5015(a) (1) because Crown Mill failed to establish a reasonable excuse for its default (see generally Matter of County ofLivingston [Mort], 101 AD3d 1755, 1755 [2012], lv denied 20 NY3d862 [2013]; Fremming vNiedzialowski, 93 AD3d 1336, 1336 [2012]). Although "[t]he determinationwhether an excuse is reasonable lies within the sound discretion of the motion court" (Lauer v City of Buffalo, 53AD3d 213, 217 [2008]; seeDiaz v Diaz, 71 AD3d 947, 948 [2010]) and the court may under appropriatecircumstances accept law office failure as a reasonable excuse for a default (seeLauer, 53 AD3d at 217;Montefiore Med. Ctr. v Hartford Acc. & Indem. Co., 37 AD3d 673, 673-674[2007]; Hageman v HomeDepot U.S.A., Inc., 25 AD3d 760, 761 [2006]), a pattern of willful default orneglect should not be excused as law office failure (see Santiago v New York City Health & Hosps. Corp., 10AD3d 393, 394 [2004]; Shouse v Lyons, 265 AD2d 901, 902 [1999]; see also Edwards v Feliz, 28AD3d 512, 513 [2006]). Further, a party's failure to retain counsel when providedsufficient time in which to do so does not constitute a reasonable excuse for a default(see Diaz, 71 AD3d at 948; City of New York v Simmonds, 172 AD2d1081, 1081 [1991]; Mauro v Mauro, 148 AD2d 684, 685 [1989]).
Here, the damages inquest was initially scheduled for March 2008, and thenadjourned to July 2008. On the day before the scheduled inquest, Crown Mill filed achapter 7 bankruptcy petition, thus automatically staying the underlying action. Plaintiff,the court, and Crown Mill's own attorneys, who did not represent Crown Mill withrespect to the bankruptcy and were named as creditors, were not advised of the petitionuntil the morning of the inquest. After the bankruptcy petition was dismissed inDecember 2008 based on Crown Mill's failure to cooperate with the bankruptcy trustee,Crown Mill's attorneys sought permission to withdraw as counsel based upon a conflictof interest, i.e., Crown Mill's failure to pay for legal services rendered. The court grantedthe motion on Crown Mill's default, providing in its order that Crown Mill had 30 daysfrom the date of service of the order with notice of entry within which to obtain newcounsel and to notify the court thereof. During the nearly five months between the orderrelieving its attorneys and the rescheduled inquest date, Crown Mill did not communicatewith the court regarding any attempt to retain new counsel, nor did it seek anadjournment of the inquest date (cf. Russo v Tolchin, 35 AD3d 431, 435 [2006]). Rather,Lucchetti met with an attorney two business days before the inquest to discuss herpossible representation of Crown Mill at the inquest. According to Lucchetti, CrownMill's former attorneys told him that the inquest was scheduled for September 23, 2009when in fact the scheduled date was two days earlier, although nothing in the recordsubstantiates that assertion, and the court in its written decision indicated that its filecontains no notation of an appearance in court on that date (see Morris vMetropolitan Transp. Auth., 191 AD2d 682, 683 [1993]; cf. Hageman, 25AD3d at 761). Notably, Crown Mill waited until January 2012, more than two years afterits default and 11 months after service of the judgment, to seek to vacate the default (see Marrero v Crystal Nails, 77AD3d 798, 799 [2010]; Shouse, 265 AD2d at 902; cf. Russo, 35AD3d at 435). Moreover, as the court noted, Crown Mill's failure to appear at theinquest was not an isolated incident but, rather, such failure was the continuation of alengthy pattern of delay and neglect (see e.g. Marrero, 77 AD3d at 799;Bennett v Nardone, 276 AD2d 854, 855 [2000], lv dismissed 96 NY2d 754[2001]; cf. Montefiore, 37 AD3d at 673). We thus conclude that the courtprovidently exercised its discretion in determining that Crown Mill failed to provide areasonable excuse for its default (see Shouse, 265 AD2d at 902). Because CrownMill failed to establish a reasonable excuse for the default, we need not determinewhether it had a potentially meritorious defense to the underlying action (seeFremming, 93 AD3d at 1336-1337; Diaz, 71 AD3d at 948).[*3]
We further conclude that the court properlydenied Crown Mill's motion insofar as it sought to vacate the default judgment pursuantto CPLR 5015 (a) (3), on the grounds of fraud or misrepresentation (see generallyWoodson v Mendon Leasing Corp., 100 NY2d 62, 68 [2003]; VanZandt v VanZandt, 88AD3d 1232, 1233 [2011]). Crown Mill failed to meet its burden of establishingfraud, misrepresentation, or other misconduct on the part of plaintiff sufficient to entitleit to vacatur of the judgment (see U.S. Bank N.A. v Allen, 102 AD3d 955, 955 [2013];Matter of Shere L. v Odell H., 303 AD2d 1023, 1024 [2003]; see generallyVanZandt, 88 AD3d at 1233).
Under the circumstances of this case and "in the interests of substantial justice"(Woodson, 100 NY2d at 68), however, we deem it appropriate to exercise "ourbroad discretionary power" to grant in part the motion to vacate the default judgmentonly insofar as it awarded damages in a specified amount and to remit the matter toSupreme Court for a new assessment of damages following an inquest (Piatt v Horsley, 108 AD3d1188, 1189 [2013]; seeQuigley v Coco's Water CafÉ, Inc., 43 AD3d 1132, 1133 [2007];Monette v Bonsall, 29 AD2d 839, 840 [1968]). We agree with Crown Mill that theadditional evidence it presented in support of its motion raised an issue whether thedamages awarded to plaintiff after the inquest were excessive (see Quigley, 43AD3d at 1133). We therefore modify the order in appeal No. 3 accordingly, and we remitthe matter to Supreme Court for a new assessment of damages following an inquestbefore a different justice (see generally id.; Monette, 29 AD2d at 840).
Turning next to appeal No. 1, we conclude that the appeal must be dismissed. Theamended complaint seeks judgment against defendants in the amount of the judgment inthe underlying action against Crown Mill based upon a theory of piercing the corporateveil and, based on our determination in appeal No. 3, the award of damages in thatspecified amount is vacated and the matter is remitted for a new assessment of damages.In the interest of judicial economy, however, we note that the court properly denieddefendants' motion, with the exception of one defendant, seeking to dismiss the amendedcomplaint in the enforcement action for failure to state a cause of action. It is well settledthat, "[w]hen reviewing a motion to dismiss pursuant to CPLR 3211, we must accept astrue the facts as alleged in the complaint and submissions in opposition to the motion,accord plaintiff[ ] the benefit of every possible favorable inference and determine onlywhether the facts as alleged fit within any cognizable legal theory" (10 Ellicott Sq. Ct. Corp. v VioletRealty, Inc., 81 AD3d 1366, 1367 [2011], lv denied 17 NY3d 704[2011]; see Williams vBeemiller, Inc., 100 AD3d 143, 148 [2012], amended on rearg 103AD3d 1191 [2013]). "A plaintiff seeking to pierce the corporate veil must establish thatthe owners, through their domination, abused the privilege of doing business in thecorporate form, thereby perpetrating a wrong that resulted in injury to the plaintiff. . . Factors to be considered in determining whether [a corporation] hasabused [that] privilege . . . include whether there was a failure to adhere tocorporate formalities, inadequate capitalization, commingling of assets, and use ofcorporate funds for personal use" (McCloud v Bettcher Indus., Inc., 90 AD3d 1680, 1681[2011] [internal quotation marks omitted]). " 'A decision to pierce the corporate veil is afact-laden decision' " (Dromgoole v T-Foots, Inc., 309 AD2d 1186, 1187[2003]).
Here, plaintiff alleged, inter alia, that defendants Marcellus Group, LLC (MarcellusGroup), Marcellus Group Construction, LLC (Marcellus Construction), Ja Spa, LLC (JaSpa) and Crown Mill are solely owned by Lucchetti; that Lucchetti was chief executiveofficer, chairman of the board of directors, president, principal executive officer,principal accounting and financial officer, and 92% shareholder of defendantMacReport.Net, Inc. (MacReport); and that Crown Mill, Marcellus Group, MarcellusConstruction, Ja Spa, MacReport, and defendants Sono Pizza & Pasta Factory, Inc.(Sono Pizza) and MacReport.Net Media Publishing, Inc. (Mac Media) sharedadministrative offices and utilized common equipment, and that the same employeesperformed clerical, administrative, accounting and executive duties for all thecorporations. Plaintiff further alleged that Lucchetti (1) failed to adhere to corporateformalities, failed to keep [*4]adequate recordsconcerning governance and financial accounting, and failed to retain sufficient earningsfrom corporate operations to meet financial obligations before distributing those earningsto himself; (2) "completely dominated" and intentionally undercapitalized Crown Mill;and (3) conducted the business of Crown Mill "in disregard of its formalities in a mannerthat suited [his] own personal convenience." We conclude that plaintiff's allegations aresufficient to survive a CPLR 3211 motion (see generally Williams, 100 AD3d at148; 10 Ellicott Sq. Ct. Corp., 81 AD3d at 1367).
Finally, with respect to appeal No. 2, defendants sought an automatic stay ofdiscovery or a protective order staying discovery pending determination of their motionto dismiss the enforcement action. The court ruled on defendants' motion, and thus theappeal from the order denying the requested relief must be dismissed as moot (seegenerally Tennant v Bristol Labs., Div. of Bristol-Myers Co., 155 AD2d 936, 936[1989]). Present—Scudder, P.J., Smith, Fahey and Peradotto, JJ.