Ivory Development, LLC v. Roe , 25 N.Y.S.3d 686 ( 2016 )

State of New York
Supreme Court, Appellate Division
Third Judicial Department
Decided and Entered: January 21, 2016 520792
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IVORY DEVELOPMENT, LLC, et al.,
Appellants,
v MEMORANDUM AND ORDER
DUANE B. ROE JR. et al.,
Respondents.
________________________________
Calendar Date: November 19, 2015
Before: Peters, P.J., Lahtinen, Garry, Rose and Clark, JJ.
__________
Joseph J. Haspel, Goshen, for appellants.
Stoloff & Silver, LLP, Monticello (Richard A. Stoloff of
counsel), for respondents.
__________
Garry, J.
Appeal from an order of the Supreme Court (McGuire, J.),
entered October 30, 2014 in Sullivan County, which, among other
things, partially granted defendants' motion for partial summary
judgment dismissing the complaint.
In May 2006, defendant Duane B. Roe Jr. and plaintiff
Sullivan Farms II, Inc. (hereinafter SFII) – a company then owned
by Roe – entered into a retention agreement with plaintiff
Raymond Farms Plus, LLC by which Raymond retained Roe and SFII to
purchase and develop certain parcels of real property. The
agreement provided, among other things, that Roe would be
compensated by certain payments scheduled to be made upon
signing, then at the closing of each real estate purchase, and
finally upon the completion of Roe's contractual obligations.
Thereafter, as pertinent here, SFII purchased two properties,
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referred to by the parties as the Truex and Kaufman parcels.
Additionally, defendant Sullivan Farms, Inc. (hereinafter SF) –
another company owned by Roe – entered into a contract to
purchase another parcel of property, and, in June 2007, assigned
that real estate contract to plaintiff Seven Peaks, LLC. The
assignment agreement required Seven Peaks to convey part of the
property back to SF upon closing and imposed certain contractual
obligations on SF. SF assigned its rights under this agreement
to Freeman Properties, Inc. Part of the property was conveyed to
Freeman and part to Seven Peaks; SF's contractual obligations
were allegedly not fulfilled.
In February 2008, the parties signed an amended retention
agreement that, among other things, acknowledged that Roe had
received certain payments and reduced the amount of the final
payment due to him upon completion of his contractual
obligations. Roe did not complete all of these obligations
before the agreement's scheduled termination date, and the
agreement was not renewed.
In March 2010, plaintiffs, which are business entities
under common management, commenced this action against defendants
and Freeman alleging, among other things, breach of contract.1
Plaintiffs thereafter filed an amended complaint that did not
include Freeman as a named defendant. Following joinder of issue
and partial discovery, defendants moved pursuant to CPLR 3211 and
3212 for dismissal of the amended complaint's first and second
causes of action, which sought recovery of certain sums paid to
Roe, as well as the 12th through 15th causes of action, which
sought injunctive relief and damages related to the Seven Peaks
transaction. Plaintiffs opposed the motion and cross-moved for
leave to amend the caption to add Freeman as a defendant.
1
Although SFII was owned by Roe in 2006, plaintiff Ivory
Development, LLC, acquired ownership of the company in 2008. The
record fails to clearly reveal the notably complex relationships
among the multiple business entities that Roe and plaintiffs'
principals owned, used, and sometimes transferred among
themselves for the purpose of acquiring, developing and selling
real estate.
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Supreme Court denied the cross motion and partially granted
defendants' motion, by dismissing the first cause of action on
CPLR 3211 grounds and granting summary judgment dismissing the
second cause of action. The court further dismissed the 12th
through 15th causes of action against defendants for failure to
state a cause of action, and against Freeman, without prejudice,
on the ground that Freeman was not a party. Plaintiffs appeal.
Turning first to the claims related to payments to Roe, the
first cause of action alleged, as pertinent here, that certain
sums paid to Roe upon the closings of the Truex and Kaufman
purchases were not due to him at that time, but instead were
interim advances against future earnings – that is, against the
final payment that was not to become due until after completion
of all of Roe's contractual obligations. Plaintiffs alleged that
as Roe never completed these obligations, the Truex and Kaufman
payments were unearned and should be returned to them. In
dismissing this cause of action, Supreme Court found that the
amended complaint failed to allege that plaintiffs had made the
payments. The court concluded that plaintiffs lacked standing to
recover funds that they had not paid and, further, that there was
no cause of action for recovery of such payments.
We find that plaintiffs' first cause of action should not
have been dismissed on this ground. A plaintiff may submit
affidavits in opposition to a CPLR 3211 motion to rectify defects
in an inartfully pleaded complaint, and such affidavits must be
"given their most favorable intendment" (Cron v Hargro Fabrics,
91 NY2d 362, 366 [1998] [internal quotation marks and citation
omitted]). Here, one of plaintiffs' principals submitted an
opposing affidavit alleging that the payments to Roe were made by
a nonparty operating entity used by plaintiffs to manage their
real estate holdings, known as Black Creek Construction, LLC, and
that Black Creek had made the payments at plaintiffs' direction,
using plaintiffs' funds and acting in accord with the retention
agreement. Although a corporation does not generally have
standing to exercise the legal rights of another corporation,
even when the entities are affiliated through their ownership or
management (see Lyman Rice, Inc. v Albion Mobile Homes, Inc., 89
AD3d 1488, 1489 [2011]; Alexander & Alexander of N.Y. v Fritzen,
114 AD2d 814, 815 [1985], affd 68 NY2d 968 [1985]), a principal
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may sue on claims arising from actions taken by its agent (see
First Natl. Bank of Md. v Fancy, 244 AD2d 179, 179 [1997], lv
denied 92 NY2d 803 [1998]; see generally 24 NY Jur 2d, Agency and
Independent Contractors § 323). Plaintiffs' affidavit, in
effect, alleged that Black Creek acted as plaintiffs' agent in
making the payments to Roe. Thus, plaintiffs' first cause of
action should not have been dismissed on CPLR 3211 grounds.
Nonetheless, we find upon review that defendants proved
their right to relief as a matter of law pursuant to CPLR 3212,
by revealing that plaintiffs have no contractual right to recover
the Truex and Kaufman payments. Initially, defendants
demonstrated that the Kaufman transaction was not covered by the
retention agreement, as shown by a schedule enumerating the real
estate transactions to be governed thereby. The retention
agreement provided that additional properties could be added to
the list by agreement, but also required any contractual
modifications to be made in writing. The parties modified the
retention agreement by executing the amended agreement after the
Kaufman transaction had occurred. The amended agreement not only
failed to add the Kaufman transaction to the schedule of covered
properties, but further provided that no modifications other than
those enumerated had been made.2 Additionally, defendants
submitted an interrogatory response submitted by plaintiffs
several years after executing the amended agreement in which they
provided a list of "the only [parcels] acquired" pursuant to the
retention agreement; this list did not include the Kaufman
property. Plaintiffs failed to submit admissible evidence to
rebut this proof and reveal factual issues. Plaintiffs argued
that the Kaufman transaction was omitted from the list of covered
properties in error, but provided no proof of mutual mistake. A
unilateral mistake provides grounds for reformation of a contract
only when coupled with fraud (see Timber Rattlesnake, LLC v
Devine, 117 AD3d 1291, 1292 [2014], lv denied 24 NY3d 904
[2014]), and here plaintiffs made no such allegations.
2
The amended agreement references the Kaufman purchase in
a different section of the contract.
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In the second cause of action, plaintiffs alleged that a
$250,000 payment made to Roe when the retention agreement was
signed was an unearned advance against the final payment.
Supreme Court granted summary judgment dismissing the second
cause of action on the ground that nothing in the parties'
submissions could be construed to support plaintiffs' theory that
the parties intended to require Roe to return this payment if he
failed to earn the final payment. We agree with this conclusion.
Even when an employment agreement provides that interim payments
will be made as advances against sums that have not yet been
earned, no recovery is available for the excess of such payments
over amounts ultimately earned "in the absence of an agreement,
express or implied, by the agent or employee to repay such
excess" (Regent Fin. Group, LLC v Bedian, 97 AD3d 1116, 1117
[2012] [internal quotation marks and citations omitted]; see
Centerbank Mtge. Co. v Shapiro, 237 AD2d 477, 477 [1997]). Here,
nothing in the retention agreement provides for interim payments
against the final obligation, nor can anything in that agreement
or the amended agreement be construed to create an obligation on
Roe's part to return such payments. None of the listed payments
to Roe are described as loans or unearned advances. The amended
agreement provides that the $250,000 payment was made "in partial
satisfaction" of plaintiffs' obligations to Roe and includes no
language suggesting that the payment had not yet been earned.
This analysis applies with equal force to the claim asserted in
the first cause of action for return of the Truex payment. Had
the parties intended to identify either the Truex or the $250,000
payments as a loan or to condition Roe's retention of these
payments on his ultimate completion of all of his obligations,
they could have included language revealing this intent. They
did not do so, and "courts may not by construction add or excise
terms, nor distort the meaning of those used and thereby make a
new contract for the parties under the guise of interpreting the
writing" (Reiss v Financial Performance Corp., 97 NY2d 195, 199
[2001] [internal quotation marks and citation omitted]).
No issue of fact is created by the affidavit testimony of
one of plaintiffs' principals that the parties understood the
Truex and $250,000 payments to be interim advances that had not
yet been earned. Significantly, the affidavit makes no claim
that the parties agreed that Roe would return such advances, and
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even if it did, parol evidence may not be considered to create an
ambiguity where, as here, "a written agreement is complete, clear
and unambiguous on its face" (Wiggins v Kopko, 94 AD3d 1268, 1269
[2012]; accord Bank of Am., N.A. v Lang Indus., Inc., 127 AD3d
1457, 1458 [2015]). Thus, defendants demonstrated their
entitlement to partial summary judgment, and the first and second
causes of action were properly dismissed.
Turning to the Seven Peaks transaction, the 12th through
15th causes of action seek injunctive relief and damages on the
ground that Freeman failed to comply with certain contractual
obligations imposed upon SF in its assignment agreement with
Seven Peaks.3 Although these causes of action concern Freeman's
conduct, the caption of the amended complaint does not name
Freeman as a party, and a paragraph in the original complaint
that had identified Freeman as a defendant was deleted from the
amended version. In their cross motion, plaintiffs asserted that
Freeman was omitted in error, but Supreme Court refused to permit
them to amend the caption, and declined to address the merits of
defendants' motion seeking dismissal of the causes of action
against Freeman. The record reveals, however, that Freeman,
along with the other defendants, appeared and answered the
amended complaint. Freeman had been named as a defendant in the
original complaint and was properly joined as a party at that
time, and nothing in the record reveals that plaintiffs
subsequently expressed any intent to discontinue their claims
against it, although they had stipulated to withdraw certain
claims against other entities shortly before filing the amended
complaint. Additionally, the 12th through 15th causes of action
seek relief based solely upon Freeman's actions and make no
claims related to any other defendant. "At any stage of an
action, . . . [a] court may permit a mistake, omission, defect or
irregularity . . . to be corrected, upon such terms as may be
just" (CPLR 2001; see CPLR 1001 [b]; 3025 [b]). Here, given all
3
Plaintiffs' brief includes no challenge to Supreme
Court's dismissal of their claims against SF in the 12th through
15th causes of action. We thus deem any related issues to be
abandoned (see Devine Real Estate, Inc. v Brennan, 42 AD3d 646,
648 n [2007]).
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the circumstances and the absence of prejudice, we find that
plaintiffs should have been permitted to amend the caption to add
Freeman as a defendant (see Danise v Agway Energy Prods., 255
AD2d 731, 732 [1998]; compare Matter of Tagliaferri v Weiler, 1
NY3d 605, 606 [2004]; Tomlinson Bros. v State of New York, 15
AD2d 692, 693 [1962]).
However, turning to the merits of the parties' claims, we
find that defendants' motion for partial summary judgment
dismissing the 12th through 15th causes of action against Freeman
should be granted. It is well settled that an "'assignee of
rights under a bilateral contract is not obligated to perform the
duties under the contract unless he [or she] expressly assumes to
do so'" (Johnson v Nisbet, 68 AD3d 1333, 1337 [2009], lv denied
14 NY3d 704 [2010], quoting Todd v Krolick, 96 AD2d 695, 695
[1983], affd 62 NY2d 836 [1984]). Roe testified by affidavit
that he was the president of both SF and Freeman when the
assignment took place, that Freeman did not agree to assume SF's
obligations, and that it was under no obligation to Seven Peaks
to do so. No assignment agreement between SF and Freeman is in
the record, but the assignment agreement between Seven Peaks and
SF partially bears out Roe's assertions; this agreement provided
that SF was free to assign its rights to Roe or to any entity in
which Roe owned at least a 51% interest, but contained no
requirement that any such assignee must agree to assume SF's
obligations. In response, plaintiffs submitted no evidence
controverting defendants' assertions other than the affidavit of
their principal, who asserted that it would "defy logic" to
construe Seven Peaks' agreement with SF in any way other than to
require any assignee to assume SF's obligations under the
contract. This unsupported contention failed to establish issues
of fact.
Plaintiffs argue that there are triable issues of fact as
to whether Freeman is liable for SF's obligations as a successor
corporation, which may be held responsible for its predecessor's
obligations in the absence of an assumption agreement when, as
pertinent here, "there was a consolidation or merger of seller
and purchaser [or] . . . the purchasing corporation was a mere
continuation of the selling corporation" (Schumacher v Richards
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Shear Co., 59 NY2d 239, 245 [1983]).4 These exceptions to the
general rule are premised upon the concept that "a successor that
effectively takes over a company in its entirety should carry the
predecessor's liabilities as a concomitant to the benefits it
derives from the good will purchased" (Grant-Howard Assoc. v
General Housewares Corp., 63 NY2d 291, 296 [1984] [emphasis
added]). The "mere continuation" exception does not apply as the
undisputed evidence establishes that SF was not "fully
extinguished" by the assignment to Freeman, but instead continued
to exist as a separate entity and remained active for several
years thereafter (State Farm Fire & Cas. Co. v Main Bros. Oil
Co., 101 AD3d 1575, 1577 [2012]; see Schumacher v Richards Shear
Co., 59 NY2d at 245).
As for whether a de facto merger took place, relevant
factors "include whether there was any continuity of ownership,
management, personnel, physical location, assets or general
business operations" (Rosplock v Upstate Mgt. Assoc., Inc., 108
AD3d 825, 827 [2013]; see State Farm Fire & Cas. Co. v Main Bros.
Oil Co., 101 AD3d at 1578-1579). Here, there was continuity of
management and ownership, as Roe was an officer and owner of both
SF and Freeman. Plaintiffs failed, however, to establish the
existence of any other factors indicating a de facto merger. SF
was not legally dissolved until several years after the Seven
Peaks contract was assigned to Freeman. While legal dissolution
is not a prerequisite for a finding of de facto merger, SF did
not become "a mere 'shell' whose legal existence may be
disregarded" following the assignment (Matter of New York City
Asbestos Litig., 15 AD3d 254, 258 [2005]; see Fitzgerald v
Fahnestock & Co., 286 AD2d 573, 575 [2001]). Instead, SF, which
had been formed in 2004 for the purpose of buying and selling
real estate, continued to own and sell real property after the
4
A successor corporation may also be held liable for its
predecessor's obligations when "the transaction is entered into
fraudulently to escape such obligations" (Schumacher v Richards
Shear Co., 59 NY2d at 245), but that exception is inapplicable
here. Plaintiffs stipulated with defendants to withdraw any
fraud claims, and the amended complaint includes no fraud
allegations.
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2007 assignment; defendants submitted deeds and tax records
indicating that real property taxes were assessed against SF in
2008, 2009 and 2010 and that SF conveyed seven properties to
various buyers in the three years following the assignment.
Under these circumstances, Roe's mere common ownership and
management of the two entities is insufficient to establish the
existence of issues of fact as to a de facto merger (compare
State Farm Fire & Cas. Co. v Main Bros. Oil Co., 101 AD3d at
1578-1579; Matter of AT&S Transp., LLC v Odyssey Logistics &
Tech. Corp., 22 AD3d 750, 752-753 [2005]).
We reject plaintiffs' contention that partial summary
judgment on the 12th through 15th causes of action is premature
in that the parties have not yet conducted depositions. A party
who opposes summary judgment on the ground that the moving party
has exclusive knowledge and possession of pertinent facts that
can be revealed through further discovery "must make an
evidentiary showing to support that conclusion" (2 N. St. Corp. v
Getty Saugerties Corp., 68 AD3d 1392, 1395-1396 [2009], lv denied
14 NY3d 706 [2010]; accord Bailey v Dimick, 129 AD3d 1165, 1166
[2015]; see CPLR 3212 [f]). Here, plaintiffs' speculative
contentions identified no material information that might be
gained through depositions that is not already available from the
written discovery that has taken place and the affidavits and
other documents in this record (see Millington v Kenny & Dittrich
Amherst, LLC, 124 AD3d 1108, 1109 [2015]; Ullmannglass v Oneida,
Ltd., 121 AD3d 1371, 1373 [2014]; compare Wensing v Paris
Indus.-N.Y., 158 AD2d 164, 167 [1990]).
Peters, P.J., Lahtinen, Rose and Clark, JJ., concur.
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ORDERED that the order is modified, on the law, without
costs, by reversing so much thereof as (1) denied plaintiffs'
cross motion to amend the caption to add Freeman Properties, Inc.
as a defendant, and (2) dismissed the 12th, 13th, 14th and 15th
causes of action against Freeman without prejudice to renewal in
the event that Freeman became a defendant; cross motion to amend
the caption granted and partial summary judgment dismissing the
12th, 13th, 14th and 15th causes of action against Freeman
granted; and, as so modified, affirmed.
ENTER:
Robert D. Mayberger
Clerk of the Court