| Kain Dev., LLC v Krause Props., LLC |
| 2015 NY Slip Op 06002 [130 AD3d 1229] |
| July 9, 2015 |
| Appellate Division, Third Department |
[*1]
| Kain Development, LLC,Respondent-Appellant, v Krause Properties, LLC, et al.,Appellants-Respondents, et al., Defendants. |
Anderson Byrne, LLC, Saratoga Springs (Elizabeth Byrne-Chartrand of counsel), forappellants-respondents.
Stockli Slevin & Peters, LLP, Albany (Scott D. Lukowski of counsel), forrespondent-appellant.
McCarthy, J.P. Cross appeals from an order of the Supreme Court (Crowell, J.),entered March 10, 2014 in Saratoga County, which, among other things, partially granteda motion by defendants Krause Properties, LLC and Gail Krause for summary judgmentdismissing the amended complaint against them.
In October 2005, plaintiff entered into a contract for the purchase and sale of certainreal property with defendant Krause Properties, LLC whereby plaintiff was to purchaseapproximately 17 acres of waterfront property, located along the Mohawk River in theTown of Halfmoon, Saratoga County, for the purpose of constructing, among otherthings, a residential condominium project. The purchase price to Krause Properties wasto be the sum total equal to $19,642.88 per condominium unit for which the projectultimately obtained approvals, up to a maximum sale price of $6.3 million. In addition,plaintiff executed a $760,000 promissory note in favor of Krause Properties, secured by amortgage on certain real property. In the event that the contract was terminated pursuantto its terms, Krause Properties agreed to repay certain funds advanced by plaintiff.
In July 2013, plaintiff commenced the instant action seeking to, among other things,[*2]foreclose the mortgage on the property and recoupthose monies previously advanced to Krause Properties and to the president of KrauseProperties, defendant Gail Krause (hereinafter collectively referred to as the Krausedefendants). Eventually, plaintiff filed an amended verified complaint setting forthcauses of action seeking foreclosure pursuant to RPAPL article 13, damages for breachof contract, return of converted funds, foreclosure of an equitable lien and imposition ofa constructive trust. The Krause defendants answered and asserted a counterclaim forbreach of contract. Subsequently, the Krause defendants moved for, among other things,summary judgment dismissing the amended complaint and discharge of the subjectmortgage. Plaintiff responded and cross-moved for the disqualification of the Krausedefendants' counsel based on a purported conflict of interest. Thereafter, Supreme Court,among other things, denied plaintiff's motion to disqualify the Krause defendants'counsel and partially granted the Krause defendants' summary judgment motion bydismissing (1) plaintiff's amended complaint as against Krause, individually, and (2)plaintiff's third cause of action for conversion. The Krause defendants now appeal andplaintiff cross-appeals.
Initially, Supreme Court properly found that disqualification of the Krausedefendants' counsel, Michele Anderson, was not warranted. As is relevant here, "[a]lawyer who has formerly represented a client in a matter shall not thereafter representanother person in the same or a substantially related matter in which that person'sinterests are materially adverse to the interests of the former client unless the formerclient gives informed consent, confirmed in writing" (Rules of Professional Conduct [22NYCRR 1200.0] rule 1.9 [a]; see former Code of Professional Responsibility DR5-108 [a] [1] [22 NYCRR 1200.27 (a) (1)]; Campbell v McKeon, 75 AD3d 479, 480-481[2010]).[FN1]Plaintiff's proof that it had provided payment to Anderson was not inconsistent withAnderson's sworn statement that such payments were made on behalf of Krause for legalservices that Anderson provided to her. In the absence of any other proof indicating thatAnderson had an attorney-client relationship with plaintiff—not to be confusedwith the proof merely indicating that Anderson worked with plaintiff as a result of herrepresentation of the Krause defendants and regarding projects for which the relevantparties' interests were aligned—plaintiff failed to meet its burden of establishing aconflict of interest for which disqualification would be justified or appropriate (see Abselet v Satra Realty,LLC, 85 AD3d 1406, 1407 [2011]; Cunningham v Anderson, 66 AD3d 1207, 1209 [2009],lv denied 14 NY3d 710 [2010]).
Next, the Krause defendants argue that this Court should dismiss this action due to aprior pending action with the same parties based upon the same causes of action (seegenerally CPLR 3211 [a] [4]). Although the Krause defendants at various timesrecited facts related to the allegedly prior pending action, it never requested that SupremeCourt dismiss the instant action on that basis. Accordingly, this argument is notpreserved for our review (seeHush v Taylor, 84 AD3d 1532, 1533 [2011]).
In addition, we reject plaintiff's argument that the Krause defendants' motion forsummary judgment should be denied in its entirety to allow plaintiff to conduct furtherdiscovery. As to this issue, plaintiff failed to establish through proof that any of theKrause defendants had exclusive knowledge and possession of material facts necessaryto oppose the motion (see [*3]Millington v Kenny & Dittrich Amherst, LLC,124 AD3d 1108, 1109 [2015]; 2 N. St. Corp. v Getty Saugerties Corp., 68 AD3d 1392,1395-1396 [2009], lv denied 14 NY3d 706 [2010]).
Turning to the merits of the Krause defendants' motion, they established as a matterof law that plaintiff repudiated the contract, warranting dismissal of plaintiff's breach ofcontract cause of action. "Anticipatory repudiation occurs when a party attempt[s] toavoid its obligations by advancing an untenable interpretation of the contract" (Fonda v First Pioneer Farm Credit,ACA, 86 AD3d 693, 694 [2011] [internal quotation marks and citationsomitted]). Upon a showing of such anticipatory repudiation, the nonrepudiating party isentitled to forgo further performance and to claim damages for total breach (seeid. at 694-695; O'Connor vSleasman, 14 AD3d 986, 987-988 [2005]).
The plain terms of the contract allowed plaintiff to terminate the contract uponcertain conditions. In order to effectuate such termination, the contract required plaintiffto provide written notice within three days of the expiration of the "Inspect Period (theDue Diligence Deadline)" as to certain contingencies and written notice by eitherthe last day of the "Approvals Contingency Period" or "Financing Contingency Period"in regard to the remaining and respective contingencies allowing for such termination.Per the terms of the contract, both the "Approvals Contingency Period" and the"Financing Contingency Period" commenced upon the "Due Diligence Deadline" andended 36 months thereafter. Therefore, according to the plain terms of the contract,plaintiff's entitlement to terminate the contract upon any described contingency expiredno later than 36 months after the due diligence period expired.
Turning to the expirations of the aforementioned deadlines, the contract furtherexplicitly provided that the legal counsel to the parties to the contract were authorized toexecute by letter any agreement to "extend or adjourn" deadlines described in theagreement. The Krause defendants submitted an April 2006 letter from plaintiff's counselasserting that it served as the "Due Diligence Termination Notice" unless the Krausedefendants chose to grant an additional 90-day extension to the due diligence deadline.Although there is an issue of fact as to whether the Krause defendants granted that90-day extension, a September 2006 letter from plaintiff's counsel renders such issueimmaterial. The September letter acknowledges that plaintiff "w[ould] continue toproceed" under the contract "rather than . . . cancelling the contract underthe Due Diligence contingency."
Therefore, the unrebutted evidence established that plaintiff's objectivemanifestations did not terminate the contract pursuant to any relevant contingency duringthe due diligence period and that such period expired in 2006, triggering thecommencement of both the "Approvals Contingency Period" and the "FinancingContingency Period" (see generally Brown Bros. Elec. Contrs. v Beam Constr.Corp., 41 NY2d 397, 399 [1977]; Sokoloff v National City Bank of N.Y.,239 NY 158, 170 [1924]). Both the aforementioned periods expired, according to theterms of the contract, 36 months thereafter, or in 2009. The Krause defendants andplaintiff submitted consistent evidence that plaintiff thereafter contacted Krause in June2012 and attempted to terminate the contract pursuant to a contingency related togovernmental approvals.
Accordingly, regardless of whether plaintiff was entitled, at some point, to terminatethe contract pursuant to the terms of the agreement, the unambiguous terms of thecontract and any related agreements as to extensions established that the various periodsallowing for such termination all had expired no later than 2009. Further, contrary toplaintiff's contention that it [*4]provided terminationnotice in its April 2006 letter,[FN2] its own representation in the September2006 letter was that it had not terminated the agreement and that it wished to proceedpursuant to the contract and other negotiated agreements, the latter of which wereunrelated to any of the aforementioned extension periods. Given plaintiff's and theKrause defendants' agreement that plaintiff unequivocally stated its intention to stopperforming pursuant to the contract in June 2012, and given that the Krause defendantsestablished as a matter of law that plaintiff repudiated, rather than terminated, thecontract at that point in time, plaintiff's breach of contract cause of action must bedismissed.
The Krause defendants also established their entitlement to judgment as a matter oflaw dismissing the cause of action for an equitable lien upon the Canal Properties thatKrause purchased in her own name and with plaintiff's funds. A cause of action for anequitable lien "is dependent upon some agreement express or implied that there shall be alien upon specific property" (James v Alderton Dock Yards, 256 NY 298, 303[1931]; see Miller vMarchuska, 31 AD3d 949, 951 [2006]). An October 2007 email from plaintiff'sprincipal, Brad Desai, to Krause asserted Desai's desire to "secure [plaintiff's] funds"provided to her for the purchase of the Canal Properties by way of a mortgage on theproperty. Krause responded the next day and agreed to "pay [plaintiff] back any moniesused to purchase the [Canal Properties] if [plaintiff] determined to terminate pursuant toone of the remaining contingencies [of the contract]," but made no mention of amortgage. Neither Desai's deposition nor any other evidence submitted in opposition tothe Krause defendants' motion suggested that Krause ever agreed that the CanalProperties would be held as security for the monies provided by plaintiff, despite the factthat Desai explicitly raised the subject during their negotiations. Accordingly, given thatthe Krause defendants established as a matter of law that Krause did not agree that theCanal Properties be held as a security for the advance from plaintiff, equity does notpermit plaintiff a lien on the Canal Properties (see Teichman v Community Hosp. ofW. Suffolk, 87 NY2d 514, 521 [1996]; Miller v Marchuska, 31 AD3d at951).
The Krause defendants were also entitled to summary judgment dismissing the causeof action for a constructive trust. A constructive trust is warranted "when property hasbeen acquired in such circumstances that the holder of the legal title may not in goodconscience retain the beneficial interest" (Sharp v Kosmalski, 40 NY2d 119, 121[1976] [internal quotation marks, brackets and citation omitted]). A plaintiff establishesentitlement to such a trust upon proving " 'a confidential or fiduciaryrelationship, a promise, a transfer in reliance thereon and unjust enrichment' " (Rafferty Sand & Gravel, LLCv Kalvaitis, 116 AD3d 1290, 1291 [2014], quoting Enzien v Enzien, 96 AD3d1136, 1137 [2012]).
Even viewing the evidence in the light most favorable to plaintiff, the interactionsbetween plaintiff and the Krause defendants lead to the single reasonable conclusion thattheir agreements were the result of arm's length business transactions and that the Krausedefendants were never plaintiff's fiduciary. As a single example showing theunambiguous nature of this business relationship, in the same email that Krause wroteagreeing to purchase the Canal Properties, she communicated to Desai that any furthercorrespondence between them should take place between respective legal counsel.Accordingly, plaintiff did not have any special relationship with either of the Krausedefendants so as to warrant a constructive trust in [*5]relationship to any advances that plaintiff made to them (see Hydro Invs. v TrafalgarPower, 6 AD3d 882, 886 [2004]; compare Mei Yun Chen v Mei Wan Kao, 97 AD3d 730,730 [2012]).
Nonetheless, by stating its constructive trust cause of action, plaintiff also necessarilypleaded that Krause Properties was unjustly enriched by the advances pursuant to thecontract and that Krause was unjustly enriched based upon the advances for theacquisition of the Canal Properties. A person or entity is unjustly enriched "whenretention of the benefit received would be unjust considering the circumstances of thetransfer and the relationship of the parties" (Enzien v Enzien, 96 AD3d at 1139[internal quotation marks and citations omitted]; see Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173,182-183 [2011]). The Krause defendants' evidence submitted in support of their motionfails to establish as a matter of law that, in light of plaintiff's repudiation of the contract,their respective retention of the various monetary advances provided by plaintiff wouldbe just. Accordingly, the Krause defendants failed to establish that they were entitled tosummary judgment as to unjust enrichment (see Rosenzweig v Friedland, 84 AD3d 921, 925-926[2011]; First Frontier Pro Rodeo Circuit Finals v PRCA First Frontier Circuit,291 AD2d 645, 646 [2002]).
Further, to the extent that certain of the aforementioned monetary advances wereprovided pursuant to the contract that the Krause Properties—but notKrause—was bound by, the Krause defendants failed to establish as a matter oflaw that plaintiff could not pierce the corporate veil in order to recoup any portion ofsuch advances from Krause upon a theory of unjust enrichment. Absent fraud, thecorporate veil may be pierced in order to achieve equity when a corporation has been sodominated by individuals or other entities that it primarily transacts the dominators'business instead of its own (seeFernbach, LLC v Calleo, 92 AD3d 831, 832-833 [2012]; Campone v Pisciotta Servs.,Inc., 87 AD3d 1104, 1105 [2011]; Matter of Island Seafood Co. v GolubCorp., 303 AD2d 892, 893 [2003]; Austin Powder Co. v McCullough, 216AD2d 825, 827 [1995]). This inquiry includes consideration of factors such as theoverlap in ownership, officers, directors and personnel, the capitalization of thecorporation, any commingling of assets and the presence, or absence, of the formalitiesthat attend the corporate form (see Matter of Island Seafood Co. v Golub Corp.,303 AD2d at 893-894; Austin Powder Co. v McCullough, 216 AD2d at827).
In her affidavit provided in support of the Krause defendants' motion for summaryjudgment, Krause explained that the funds provided, pursuant to the agreement, byplaintiff to her were intended to provide her family a living stipend, despite the fact thatKrause was not a party to such agreement. When viewed in the light most favorable toplaintiff, Krause's admission, and her failure to specify that such stipend was the result ofany properly recognized corporate formalities, could reasonably be interpreted asindicating that there was no distinction between the funds and business of KrauseProperties and the funds and business of Krause. Because Krause's own affidavit raises atriable issue of fact as to whether Krause Properties was simply her alter ego, SupremeCourt erred in concluding that the Krause defendants established as a matter of law thatplaintiff could not pierce the corporate veil (see Burton F. Clark, Inc. v Hillside Cos., Inc., 121 AD3d1236, 1237-1238 [2014]).
Finally, the Krause defendants failed to establish as a matter of law that plaintiffcould not foreclose on a mortgage on certain real property. The Krause defendants arguethat under the terms of the mortgage, plaintiff was not entitled to accelerate the note andmortgage and that, therefore, Krause Properties did not default. Under the terms of themortgage, plaintiff was entitled to accelerate the note and mortgage in the event thatKrause Properties failed to satisfy certain obligations set forth in the mortgage. One suchobligation was that Krause Properties pay the relevant property taxes for the real propertysecured. In her affidavit in support of the Krause [*6]defendants' motion for summary judgment, Krauseconcedes that such property taxes were not paid. Accordingly, the Krause defendantsfailed to establish that they were entitled to summary judgment dismissing plaintiff'sforeclosure cause of action (seegenerally NY Professional Drywall of OC, Inc. v Rivergate Dev., LLC, 100 AD3d216, 221 [2012]).
The remaining arguments raised by the parties are either premature, academic and/orwithout merit.
Egan Jr., Devine and Clark, JJ., concur. Ordered that the order is modified, on thelaw, without costs, by reversing so much thereof as (1) granted the motion by defendantsKrause Properties, LLC and Gail Krause for summary judgment dismissing the unjustenrichment cause of action against Gail Krause, and (2) denied said defendants' motionfor summary judgment dismissing the causes of action for breach of contract, equitablelien and constructive trust; motion denied and granted to said extent and the causes ofaction for breach of contract, equitable lien and constructive trust dismissed against saiddefendants; and, as so modified, affirmed.
Footnote 1:Certain conductunderlying the argument (i.e., the alleged representation of plaintiff) occurred as early as2007 and, therefore, the cross motion alleges conduct that occurred both prior to andafter April 1, 2009, the effective date of the Rules of Professional Conduct.
Footnote 2:Notably, plaintiff'scontention on this appeal that it terminated the contract in 2006 is inconsistent with itsassertion in its amended complaint that it properly terminated the contract in 2012.