| A&M Global Mgt. Corp. v Northtown Urology Assoc.,P.C. |
| 2014 NY Slip Op 02157 [115 AD3d 1283] |
| March 28, 2014 |
| Appellate Division, Fourth Department |
| A&M Global Management Corp., Respondent-Appellant, vNorthtown Urology Associates, P.C., Defendant, John M. Roehmholdt,Appellant-Respondent, and Jacek T. Sosnowski, Respondent. (Appeal No.1.) |
—[*1] Hogan Willig, PLLC, Amherst (Robert Michalak of counsel), forplaintiff-respondent-appellant. Hurwitz & Fine, P.C., Buffalo (Earl K. Cantwell of counsel), fordefendant-respondent.
Appeal and cross appeal from a judgment of the Supreme Court, Erie County (JohnA. Michalek, J.), entered October 17, 2012. The judgment awarded plaintiff moneydamages against defendant John M. Roehmholdt and dismissed plaintiff's claims againstdefendant Jacek T. Sosnowski.
It is hereby ordered that the judgment so appealed from is unanimously affirmedwithout costs.
Memorandum: Defendants John M. Roehmholdt and Jacek T. Sosnowski were thesole directors and equal shareholders of defendant Northtown Urology Associates, P.C.(Northtown), and both were employed by Northtown as physicians. Northtown leasedfrom plaintiff certain office space for a 10-year-term beginning in March 2004.
Sometime in 2006, Sosnowski began negotiations to move his practice out of stateand, either at the end of October or in early November of that year, he signed a contractto do so. On November 20, 2006, Sosnowski advised Roehmholdt of his intention tomove out of state, and the two, through their attorneys, subsequently entered intonegotiations to determine the extent of Northtown's obligations to Sosnowski under theirexisting employment and buy/sell agreements. Sosnowski accepted the majority of themedical equipment and certain office furniture owned by Northtown in full satisfactionof Northtown's obligations to him, acceding to that arrangement only because Northtownrefused to satisfy its obligations to him in cash. Sosnowski ceased practicing withNorthtown by mid-January 2007, and he resigned as a director of the corporation on orabout January 23, 2007, tendering his stock to the corporation on that same date.[*2]
At that time, Roehmholdt did not believe that hecould continue Northtown's practice without the assistance of another physician, nor didhe believe that he could have recruited another physician in sufficient time to continuethe Northtown practice. Consequently, in mid-December 2006, Roehmholdt beganemployment negotiations with another urology practice, Western New York UrologyAssociates (WNYUA). WNYUA was not interested in Northtown's medical equipmentor its office space, but was interested in employing Roehmholdt and accepting hispatients, and Roehmholdt was eventually hired by WNYUA.
In conjunction with his hiring at WNYUA and at WNYUA's expense, on or aboutJanuary 15, 2007, Roehmholdt sent a letter to his and Sosnowski's patients informingthem that, starting on February 5, 2007, he would practice with WNYUA, that "all officeappointments [would] be seen at [WNYUA], and that patients were free to pick up theirmedical records from him if they wished to see a different urologist." Roehmholdt alsostated in the letter that, "[i]n considering how [he] could best continue to serve all of thepatients in the practice, [he] came to the conclusion that joining a strong, progressivegroup that practices caring and competent urology would serve [patients] best.[WNYUA] enjoys a well earned reputation as a leader in its field and offers to itspatients state of the art care." He further stated in the letter that he would "continue to seeall patients as before, just in a different office location."
On February 2, 2007, Sosnowski picked up the agreed-upon medical equipment andoffice furniture and moved out of state. Northtown subsequently vacated the premises itleased from plaintiff and, beginning with the March 2007 payment, ceased paying rent toplaintiff. Plaintiff commenced this action seeking damages for, inter alia, Northtown'salleged breach of its lease with plaintiff. Supreme Court (Curran, J.), granted in partplaintiff's motion seeking summary judgment against Northtown on the first throughfourth and sixth causes of action by granting partial summary judgment againstNorthtown on liability on the first, second and sixth causes of action, which alleged,respectively, that Northtown was in default under the lease, that plaintiff was entitled torecover from Northtown money that it had expended for Northtown's specialized use ofthe property, and that Northtown was obligated to pay plaintiff reasonable attorneys' feesand costs associated with this action. The court also granted plaintiff a money judgmentagainst Northtown on the third cause of action, which alleged that Northtown was liablefor certain operating costs. In addition, the court, inter alia, granted the respective crossmotions of Roehmholdt and Sosnowski for summary judgment dismissing the eighth"cause of action," by which plaintiff sought to pierce Northtown's corporate veil in orderto recover damages from Roehmholdt and Sosnowski individually, but also affordedplaintiff leave to amend the complaint "to re-plead any facts necessary to add allegationsfor recovery against . . . Sosnowski and Roehmholdt on the basis ofpiercing the corporate veil."
Plaintiff subsequently served a revised amended complaint in which it assertedadditional facts supporting its attempt to pierce Northtown's corporate veil in order torecover damages from Roehmholdt and Sosnowski individually. Defendants joined issuethrough separate answers, and the matter eventually proceeded to a bench trial, prior towhich the parties stipulated that the damages against Northtown would be $200,000.Following trial, Supreme Court (Michalek, J.), granted a judgment that, inter alia,awarded plaintiff money damages against Roehmholdt pursuant to the theory of piercingthe corporate veil, dismissed plaintiff's remaining causes of action against Roehmholdt,including the seventh cause of action, for fraudulent conveyance, and dismissed therevised amended complaint against Sosnowski. Following further motion practice, thecourt granted an order that, inter alia, awarded Sosnowski attorneys' fees and costsagainst plaintiff. That order also awarded plaintiff attorneys' fees and costsagainst Roehmholdt, but the amount awarded was less than what plaintiff had requested.In appeal No. 1, Roehmholdt appeals and plaintiff cross-appeals from the judgment and,in appeal No. 2, plaintiff appeals from the order.[*3]
Contrary to Roehmholdt's contention in appealNo. 1, we conclude that the court did not err in piercing the corporate veil and findingRoehmholdt personally liable for Northtown's obligations to plaintiff. As a preliminarymatter, we note that, "[o]n an appeal from a judgment rendered after a nonjury trial, ourscope of review is as broad as that of the trial court (see Matter of Capizola v Vantage Intl., 2 AD3d 843, 844[2003]). Upon such a review, the record should be 'viewed in the light most favorable tosustain the judgment' (Farace v State of New York, 266 AD2d 870, 871 [1999];see Parone v Rivers, 84 AD2d 686 [1981]), and this Court should evaluate 'theweight of the evidence presented and grant judgment warranted by the record, giving duedeference to the trial court's determinations regarding witness credibility, so long as thosefindings could have been reached upon a fair interpretation of the evidence' (New York Tel. Co. v Harrison &Burrowes Bridge Contrs., 3 AD3d 606, 608 [2004] [internal quotation marksand citations omitted]). '[T]he decision of the fact-finding court should not be disturbedupon appeal unless it is obvious that the court's conclusions could not be reached underany fair interpretation of the evidence, especially when the findings of fact rest in largemeasure on considerations relating to the credibility of witnesses' (Thoreson vPenthouse Intl., 80 NY2d 490, 495 [1992] [internal quotation marks omitted],rearg denied 81 NY2d 835 [1993])" (Matter of City of Syracuse Indus. Dev. Agency [Alterm, Inc.],20 AD3d 168, 170 [2005]).
With respect to piercing the corporate veil, we note that it is not " 'a cause of actionindependent of that against the corporation; rather it is an assertion of facts andcircumstances which will persuade the court to impose the corporate obligation on itsowners' " (Nasca vDelMonte, 111 AD3d 1427, 1429 [2013], quoting Matter of Morris v NewYork State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]). " 'A plaintiffseeking to pierce the corporate veil must establish that the owners, through theirdomination, abused the privilege of doing business in the corporate form, therebyperpetrating a wrong that resulted in injury to the plaintiff . . . Factors to beconsidered in determining whether [a corporation] has abused [that] privilege. . . include whether there was a failure to adhere to corporate formalities,inadequate capitalization, commingling of assets, and use of corporate funds for personaluse' " (Abbott v Crown MillRestoration Dev., LLC, 109 AD3d 1097, 1101 [2013]; see Last Time Beverage Corp. v F& V Distrib. Co., LLC, 98 AD3d 947, 951 [2012]; Fantazia Intl. Corp. v CPL FursN.Y., Inc., 67 AD3d 511, 512 [2009]).
The burden of establishing that the corporate veil should be pierced is a heavy one(see Colonial Sur. Co. vLakeview Advisors, LLC, 93 AD3d 1253, 1255 [2012]) but " '[b]roadlyspeaking, the courts will disregard the corporate form, or, to use accepted terminology,pierce the corporate veil, whenever necessary to prevent fraud or to achieve equity' " (Matter of Mercury Factoring, LLCv Partners Trust Bank, 75 AD3d 1101, 1103 [2010], quoting Morris, 82NY2d at 140). "A decision to pierce the corporate veil is a fact-laden [determination]"(Abbott, 109 AD3d at 1101 [internal quotation marks omitted]), and "[n]o onefactor is dispositive" (Fantazia, 67 AD3d at 512).
Applying those rules here, and viewing the evidence in the light most favorable tosustain the judgment (see Farace, 266 AD2d at 871), we conclude that the court'sdecision to pierce the corporate veil to hold Roehmholdt liable for Northtown'sobligations to plaintiff is supported by a fair interpretation of the evidence (seegenerally Alterm, Inc., 20 AD3d at 170). The record establishes that Roehmholdtmade no effort to continue the Northtown business and, through his solicitation ofNorthtown clients, took much more lucrative employment at WNYUA. Moreover, therecord also establishes that Roehmholdt chose not to "cash out" Sosnowski fromNorthtown, subsequently wrote to Northtown's clients and took them as his own, usedapproximately $80,000 in Northtown funds to satisfy a line of credit for which he waspersonally liable and which may have encumbered Northtown's accounts receivable,issued a check for approximately $1,800 to himself for "Northtown . . .expenses," and paid for the collection of Northtown's accounts receivable.[*4]
Contrary to plaintiff's contention on its crossappeal in appeal No. 1, we conclude that the court properly granted the motions ofRoehmholdt and Sosnowski for a directed verdict pursuant to CPLR 4401 seekingdismissal of the cause of action for fraudulent conveyance. "It is well settled that adirected verdict is appropriate where the . . . court finds that, upon theevidence presented, there is no rational process by which the fact trier could base afinding in favor of the nonmoving party . . . In determining whether to granta motion for a directed verdict pursuant to CPLR 4401, the trial court must afford theparty opposing the motion every inference which may properly be drawn from the factspresented, and the facts must be considered in a light most favorable to the nonmovant"(Brenner v Dixon, 98 AD3d1246, 1247 [2012] [internal quotation marks omitted]). Plaintiff's cause of action forfraudulent conveyance was based on Debtor and Creditor Law §§ 273 and276 and, pursuant to section 273, "[e]very conveyance made and every obligationincurred by a person who is or will be thereby rendered insolvent is fraudulent asto creditors without regard to his actual intent if the conveyance is made or the obligationis incurred without a fair consideration" (emphasis added). "A person is insolvent whenthe present fair salable value of his assets is less than the amount that will be required topay his probable liability on his existing debts as they become absolute and matured"(§ 271 [1]). Here, plaintiff failed to establish the "insolvency" element of section273 inasmuch as it failed to demonstrate that Northtown was insolvent at the time of theconveyances at issue (see Colacino v Poyzer, 178 AD2d 964, 966 [1991]; see also Matter of Steele, 85AD3d 1375, 1377 [2011]). Thus, plaintiff failed to establish Debtor and CreditorLaw § 273 as a basis for the cause of action for fraudulent conveyance.
Next, Debtor and Creditor Law § 276 provides that "[e]very conveyance madeand every obligation incurred with actual intent . . . to hinder, delay, ordefraud either present or future creditors, is fraudulent as to both present and futurecreditors." A creditor seeking legal redress pursuant to that section must prove by "clearand convincing evidence that a defendant had the [actual] intent to hinder, delay ordefraud creditors" (Jensen v Jensen, 256 AD2d 1162, 1163 [1998] [internalquotation marks omitted]) and, because direct evidence of fraudulent intent is oftenelusive, "courts will consider badges of fraud which are circumstances that accompanyfraudulent transfers so commonly that their presence gives rise to an inference of intent"(Dempster v OverviewEquities, 4 AD3d 495, 498 [2004], lv denied 3 NY3d 612 [2004][internal quotation marks omitted]). Badges of fraud include: (1) a close relationshipbetween the parties to the transfer; (2) the inadequacy of consideration; (3) thetransferor's knowledge of the creditor's claims and the transferor's inability to pay them;(4) the retention of control of the property by the transferor after the conveyance; (5) thefact that the transferred property was the only asset sufficient to pay the transferor'sobligations; (6) the fact that the same attorney represented the transferee and transferor;and (7) a pattern or course of conduct by the transferor after it incurred its obligation tothe creditor (see Cadle Co. vOrganes Enters., Inc., 29 AD3d 927, 928 [2006]; Dempster, 4 AD3d at498). We note, however, that the presence of one or more badges of fraud does notnecessarily compel the conclusion that a conveyance is fraudulent (see Taylor-Outtenv Taylor, 248 AD2d 934, 935 [1998]).
Here, even assuming, arguendo, that there was a close relationship betweenNorthtown to Sosnowski in the transfer of the medical equipment and office furniture,i.e., that there was evidence of the first badge of fraud, we conclude that such transferwas for adequate consideration and, thus, that plaintiff failed to establish the presence ofthe second badge. In view of Northtown's accounts receivable, the transferred assets werenot the only assets by which Northtown could have satisfied its obligations to plaintiff,and thus plaintiff failed to establish the presence of the fifth badge. Moreover, the assetswere not retained by the transferor, Northtown, after the conveyance, and the sameattorney could not have represented both Northtown and Sosnowski, and thus plaintifffailed to establish the presence of the fourth and sixth badges, respectively. Although theseventh badge—concerning a pattern or course of conduct—arguably [*5]applies here, the transfer of office and medical equipmentprobably benefitted Northtown in the short term inasmuch as it allowed Northtown toavoid outlaying cash, and thus any such pattern or course of conduct did not impairNorthtown's ability to pay its rent to plaintiff and, thus, plaintiff failed to establish thepresence of the third badge. Consequently, under those circumstances and mindful of thedeferential standard of review, we decline to disturb the court's determination withrespect to Debtor and Creditor Law § 276 as a basis for the cause of action forfraudulent conveyance inasmuch as plaintiff failed to establish sufficient badges of fraudto give rise to an inference of fraudulent intent.
Contrary to plaintiff's further contention on its cross appeal in appeal No. 1, weconclude that the court did not err in granting a directed verdict in favor of Sosnowski onthe issue of piercing the corporate veil. Viewed in the light most favorable to thenonmoving party (see generally Szczerbiak v Pilat, 90 NY2d 553, 556 [1997];Brenner, 98 AD3d at 1247), the record establishes that, on November 30, 2006,Sosnowski announced that he would resign from Northtown effective February 2, 2007,and that Sosnowski had only one conversation with Roehmholdt after Sosnowskitendered his resignation and before Sosnowski actually left the practice on January 23,2007. The record further establishes that Sosnowski only reluctantly accepted equipmentand furniture, instead of cash, in satisfaction of Northtown's obligations to him, and thathe had no part in Roehmholdt's decision to shutter the Northtown practice and encourageits patients to treat with Roehmholdt's new employer, WNYUA.
We reject plaintiff's contention in appeal No. 2 that the court erred in awardingattorneys' fees, costs and expenses against Roehmholdt in an amount less than plaintiffhad requested. "Under the general rule in New York, attorneys' fees are deemedincidental to litigation and may not be recovered unless supported by statute, court rule orwritten agreement of the parties" (Flemming v Barnwell Nursing Home & Health Facilities, Inc.,15 NY3d 375, 379 [2010], citing Hooper Assoc. v AGS Computers, 74NY2d 487, 491 [1989]). Here, there is no dispute that plaintiff is entitled to an award offees from Roehmholdt—the lease between Northtown and plaintiff provides for anaward of attorneys' fees in favor of plaintiff because plaintiff prevailed in this action and,even as a nonparty to the lease, Roehmholdt is responsible for that award by virtue of thecourt piercing Northtown's corporate veil. With respect to the amount of the court'saward, we note that, "[i]n evaluating what constitutes . . . reasonableattorney[s'] fee[s], factors to be considered include the time and labor expended, thedifficulty of the questions involved and the required skill to handle the problemspresented, the attorney's experience, ability, and reputation, the amount [of money]involved, the customary fee charged for such services, and the results obtained" (Matter of Dessauer, 96 AD3d1560, 1561 [2012] [internal quotation marks omitted]). "[I]t is well settled that a trialcourt is in the best position to determine those factors integral to fixing [attorneys'] fees. . . and, absent an abuse of discretion, the trial court's determination willnot be disturbed" (Pelc vBerg, 68 AD3d 1672, 1673 [2009] [internal quotation marks omitted]). Uponour review of the record, we conclude that the court did not abuse its discretion in fixingthat award.
Finally, we agree with plaintiff in appeal No. 2 that the court erred in awardingattorneys' fees and costs to Sosnowski (see generally Flemming, 15 NY3d at379), and we therefore modify the order accordingly. " '[A] court should not infer aparty's intention to waive the benefit of the rule unless the intention to do so isunmistakably clear from the language of the promise' " (Mount Vernon City School Dist. vNova Cas. Co., 19 NY3d 28, 39 [2012], quoting Hooper Assoc., 74NY2d at 492). "Furthermore, a party may not recover attorneys' fees arising fromlitigation with the other party to a contract unless an intent to provide for suchreimbursement 'is unmistakably clear from the language of the promise' " (Colonial Sur. Co. v Genesee Val.Nurseries, Inc., 94 AD3d 1422, 1423 [2012], quoting Hooper Assoc., 74NY2d at 492). Here, Sosnowski sought attorneys' fees under an article of the leasebetween Northtown and plaintiff that states, in relevant part, that "in the event that anylegal matter, dispute, action or proceeding exists or is commenced by or [*6]between the Lessor and Lessee under thisLease, the prevailing party shall be entitled to reasonable attorney's fees in such matter"(emphasis added). Inasmuch as the lease defines the "lessor" as plaintiff and the "lessee"as Northtown, we are constrained to conclude that the court erred in awarding attorneys'fees and costs to Sosnowski, a nonparty to the lease, because the lease contains noauthority for such an award (cf. Colonial Sur. Co., 94 AD3d at 1423; seegenerally Hooper Assoc., 74 NY2d at 492), and there is no basis for holding himresponsible for Northtown's obligations to plaintiff. Present—Scudder, P.J., Fahey,Peradotto, Lindley and Sconiers, JJ.