Opinion
Index No. 650793/2022 Motion Seq. No. 003 NYSCEF Doc. No. 93
06-12-2023
HIEBER ASTORIA, LLC, HIEBER BROADWAY, LLC, HIEBER PLAINFIELD, LLC Plaintiff, v. FRED TAVERNA, THE MANAGEMENT GROUP INC., NY INTERIOR CONSTRUCTION OF NY, INC., Defendant.
Unpublished Opinion
MOTION DATE 03/13/2023
DECISION + ORDER ON MOTION
ANDREW BORROK, J.S.C.
The following e-filed documents, listed by NYSCEF document number (Motion 003) 66, 67, 68, 69, 70, 71, 72, 73 were read on this motion to/for DISMISSAL
Upon the foregoing documents, the defendants' motion to dismiss the Amended Complaint (the AC; NYSCEF Doc. No. 62) must be denied in its entirety. Simply put, the well-pled AC alleges sufficient facts, which taken as true as the Court must, are sufficient to pierce the corporate veil and hold Mr. Taverna personally liable (James v Loran Realty V Corp., 85 A.D.3d 619, 619 [1st Dept 2011]). For completeness, the allegations (as now pled) amount to more than Mr. Taverna's company over-charged us. As pled, the allegations, indicate that Mr. Taverna failed to observe corporate formalities so that he could overcharge and defraud the plaintiffs.
Relevant Facts and Circumstances
This is a case involving Mr. Taverna's alleged fraud and overcharging the plaintiffs for certain renovation work and for charging them for work that was never authorized and/or never performed. In perpetrating this scheme, Mr. Taverna is alleged to have abused the corporate form of his various entities such that at this early state of litigation the plaintiffs should be entitled to proceed against him personally.
To wit, according to the well pled AC, The Management Group Inc., NY (TMG) and NY Interior Construction of NY, Inc. (NYIC) are the mere alter egos of Mr. Taverna. He owned, dominated and controlled them as their sole shareholder and President and never observed proper corporate formalities because, among other things, Mr. Taverna regularly comingled funds of those two entities with each other and certain other bank accounts under his dominion and control and because he used these companies as his "personal piggy banks".
Reference is made to a Management Agreement (the Management Agreement; NYSCEF Doc. No. 2) dated September 23, 2003, between Jean Hieber and the Management Group, Inc. (TMG) pursuant to which the parties agreed that Mr. Taverna's company, TMG, would manage the properties located at 682-684 Fulton Ave., Hempstead, 60 Plainfield Floral Park, and 1445-1449 Broadway (the Properties) and only charge fair and reasonable prices. This as alleged he failed to do. More importantly as relevant to the instant motion, he commingled funds and misappropriated corporate assets for his own personal use, including leasing a portion of the property to his daughter so that she could sub-let it for a profit without first obtaining disinterested approval from the plaintiffs.
Pursuant to the Management Agreement, TMG was to (i) make a conscientious effort to hire reliable service people to maintain the Properties who would charge a fair and reasonable amount and (ii) deposit all owner funds in a special account and keep proper records and accounts of the Properties:
2. Will deposit all owner funds in a Special Custodial Account. Agent will pay Real Estate Taxes, utilities and service contractors on a timely basis and will notify owner if there are not sufficient funds to make said timely payments.
3. Keep proper records and accounts of all receipts of rent and disbursements and expenses including those for repairs and maintenance.
...
5. Will inform Owner of any repairs and replacements necessaiy to preserve the integrity of the premises. Will secure the approval of the Owner prior to authorizing trades people to make such repairs or replacements. Agent shall make a conscientious effort to obtain and use the services of reliable trades people known to the agent and whose charges are fair and reasonable. Agent will not enter into any new service contract without written approval of the owner.NYSCEF Doc. No. 2 §§ 2,3,5).
The AC alleges that Mr. Taverna caused his companies to breach the contract and his fiduciaiy duties by (i) failing to seek out competitive bids for maintenance and repairs and instead merely hired his own company, (ii) then, he overcharged the plaintiffs for work which he and his companies performed, (iii) transferred funds which belonged to the plaintiffs into bank accounts of entities which he controlled and (iv) charged the plaintiffs for renovations which were never authorized:
28. Rather than "make a conscientious effort" to find contractors who charged fair and reasonable prices by, for example, soliciting competitive bids for various repair and maintenance services that the Properties needed, TMG-at Taverna's direction-hired Taverna's construction company, NYIC, to perform repairs and
construction services for the Properties from 2003 until September 1, 2020, when Plaintiffs finally terminated the Management Agreement.
29. Upon information and belief, Taverna either (a) failed to memorialize the terms of any construction or services contracts between TMG and NYIC, or (b) personally signed any formalized agreements between TMG and NYIC on behalf of both sides, serving as his own counterparty.
30. This arrangement-by which NYIC was retained without soliciting bids to determine the best price for the services needed-allowed Taverna to not only collect both management fees and. construction fees (and to freely engage in double-billing, which he did), but to also profit from the work his own company did on the Properties.
33. But Plaintiffs learned in 2020 that the opposite was true. For example, Taverna was having NYIC charge Plaintiffs an additional 22.75% in fees for basic maintenance and repairs and, worse, was charging them for construction work that was not actually performed.
41. Using the Astoria property-a three-story walk-up building with a commercial unit on the first floor and three apartments on the second and third floors-as an example:
• Taverna and TMG had NYIC perform service call repairs, such as repairing the main door and a stove in an apartment, for which NYIC invoiced HA not only for the amount of the repair work, but also for fees totaling 22.75% of that amount, including a 15% contractor fee, along with general conditions (5.75%) and insurance (2% or 3%). On information and belief, Taverna routinely paid those excessive fees from HA's bank accounts to NYIC for any work NYIC claimed to have done at the Astoria property.
• In 2020, Taverna and TMG deceived Plaintiffs about the nature of work they caused to be done to the second-floor rear one-bedroom unit. Representing to Plaintiffs in communications in March, May, and July 2020 that the unit needed to be renovated, and Defendants would begin emptying it and obtaining proposals for the necessary work. In fact, Defendants had already completely gutted the unit and-without authorization-paid NYIC from HA's bank account: (a) more than $10,000 in February and March 2020 for the demolition work; and (b) more than $14,000 in March and April 2020 for
electrical and plumbing work. Those charges supposedly paid for work done to renovate the unit, which the April invoice stated was 68% complete. In reality, it was nowhere close to that. Worse, all of NYIC's invoices to HA for the work included additional fees of 22.75% or 23.75% for general conditions, insurance, and contractor fees, and all were stamped paid by TMG on the same date listed on the NYIC invoice.
• Taverna and TMG drained HA's bank account and made the Astoria building unable to pay for its own expenses by having NYIC perform expensive and unauthorized renovations, with HA paying over $200,000 to NYIC from 2018- 2020, leaving just $809.48 in HA's account as of May 2020.
• TMG and NYIC-both at Taverna's direction-renovated the third-floor unit without HA's authorization for a cost, on information and belief, that exceeded $130,000 (and in a manner that Plaintiffs later learned created illegal conditions), and then rented the unit to Taverna's daughter, Taylor Taverna, without a lease, all the while paying rent from a joint account and allowing her to sublet the bedrooms for a profit
56. At all relevant times, TMG and NYIC were the alter egos of Taverna, who, upon information and belief, exercised total control over both TMG and NYIC.
57. Upon information and belief, neither TMG nor NYIC observed any corporate formalities-such as having regular board meetings.
58. Upon information and belief, Taverna regularly siphoned funds from TMG and NYIC whenever he saw fit, regardless of whether doing so would leave either entity undercapitalized. On the contrary, he used the entities as his own personal piggy banks and intermingled funds between and among them regardless of whether those funds had designated purposes or were even properly the property of the entities in question(NYSCEF Doc. No. 62, ¶¶ 28-30, 33, 41, 56-58).
Discussion
On a motion to dismiss, the pleading is to be afforded a liberal construction, and the court is to accept the facts as alleged as true, accord the non-moving party the benefit of every favorable inference, and determine only whether the facts alleged fit any cognizable legal theory (Leon v Martinez, 84 N.Y.2d 83, 87-88 [1994]).
I. Breach of Contract (First Cause of Action) as against TMG and Mr. Tavenera is not dismissed
The elements of a claim sounding in breach of contract are (i) the existence of a contract, (ii) the plaintiffs performance, (iii) the defendant's breach, and (iv) resulting damages (Alloy Advisory, LLC v 503 W. 33rd St. Assocs. Inc., 195 A.D.3d 436, 436 [1st Dept 2021]).
The plaintiffs sufficiently allege breach of contract claims as against TMG and Mr. Taverna. The Management Agreement is a valid contract between the parties. The plaintiffs have fulfilled their obligations under the Management Agreement (NYSCEF Doc. 62 ¶ 74). As alleged in the AC, the defendants have breached the Management Agreement by (i) hiring NYIC for repair work instead of soliciting bids to ensure the best price for the plaintiffs, failing to deliver regular reports and information and (ii) commingling funds instead of keeping the rental deposits in the designated account.
In his papers, Mr. Taverna argues that he cannot be held personally liable for breach of contract because he did not use his complete domination over TMG and NYIC to commit a fraud or wrong against the plaintiffs (James, 85 A.D.3d at 619). Mr. Taverna is incorrect. As alleged in the AC, Mr. Taverna used his complete control over TMG and NYIC to defraud the plaintiffs by overcharging them and using funds designated for use on the Properties for his own personal use. This is sufficient to pierce the corporate veil and pursue the claim against Mr. Taverna personally at this stage of the litigation. Thus, his motion must be denied.
II. The Tortious Interference with Contract (Second Cause of Action) against Mr. Taverna is not dismissed
The elements of a claim sounding in tortious interference of contact are (i) the existence of a valid contract between plaintiff and a third party, (ii) the defendant's knowledge of that contract, (iii) the defendant's intentional procuring of the breach, and (iv) damages (Foster v. Churchill, 87 N.Y.2d 744, 750 [1996]). The well pled complaint sufficiently alleges that Mr. Taverna as the President of TMG had knowledge of the valid Management Agreement between Ms. Hieber and TMG and he is alleged to have used his complete control and domination of TMG to cause TMG breach the Management Agreement. Put another way, the fact that he is also happens to be the owner of TMG does not give him a free from liability card (S.F.P Realty Corp, v G.S. Rockaway Dev., Inc., 206 A.D.2d 417, 417 [2nd Dept 1994]; (Stern v H. DiMarzo, Inc., 77 A.D.3d 730, 731 [2d Dept 2010]).
III. The Breach of Fiduciary Duty (Third Cause of Action) against TMG and Taverna cannot be dismissed
The breach of fiduciary duty claim cannot be dismissed. Breaches of contractual obligations may also constitute the breach of a duty arising out of the relationship created by contract which is nonetheless independent of such contact (Bullmore v Ernst & Young Cayman Is., 45 A.D.3d 461, 463 [1st Dept 2007]). The plaintiffs allege that a fiduciary relationship was formed by virtue of the plaintiffs' delegation of authority to collect rent and arrange for repair and maintenance services for the Properties, creating a relationship of trust and confidence (NYSCEF Doc. No. 62 ¶ 85). As alleged in the AC, TMG and Mr. Taverna abused this relationship when it (i) failed to bid out the repair work, (ii) failed to find the most "fair and reasonable price" for that repair work, and (iii) willfully deposited funds into TMG's own account instead of the designated account created by the parties for tenant security deposits. This is sufficient.
IV. Breach of Contract (Fifth Cause of Action) against NYIC and Taverna
The elements of a claim sounding in breach of contract are (i) the existence of a contract, (ii) the plaintiffs performance, (iii) the defendant's breach, and (iv) resulting damages (Alloy Advisory, LLC., 195 A.D.3d at 436).
The plaintiffs allege an agreement between TMG and NYIC. In support of this alleged agreement, the plaintiffs adduce bank statements which show NYIC being paid out of the plaintiffs' bank account for repairs and work TMG was to complete. According to the plaintiffs, NYIC breached this agreement by (i) failing to complete work in a timely manner, if at all, (ii) charging TMG (and ultimately the plaintiffs) for work not done, and (iii) performing shoddy work on the work it did complete. This is sufficient.
V. Claim for Accounting (Seventh Cause of Action) against TMG and Mr. Taverna is not dismissed.
The plaintiffs are entitled to an accounting. Where a fiduciary relationship exists, an accounting of the fiduciary is appropriate when the fiduciary denies the plaintiff an accounting of its books and records (Atlantis Mgt. Group IILLC v Nabe, 117 A.D.3d 542, 543 [1st Dept 2019]). As discussed above, TMG and Mr. Taverna owed the plaintiffs a fiduciary duty by virtue of the relationship of trust and confidence. Because TMG and Mr. Taverna have refused the plaintiffs' requests for their books and records, the plaintiffs' claim for an accounting cannot be dismissed.
It is hereby ORDERED that the motion to dismiss is denied in its entirety.