Opinion
300438 TSN 06.
Decided January 16, 2008.
Lauterbach, Garfinkel Damast Hollander, LLP, Attorneys for plaintiff.
By David J. Wolkenstein, Esq., Andrew J. Spinnell, Esq., Attorney for defendants.
Upon a reading of the foregoing cited papers on this motion and cross motion for summary judgment it is the decision and order of this court that the motion is denied as to defendants First Class and Levy and granted without opposition as to defendant Fine Dining Associates LLC. The cross motion is denied.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY Alle Processing Corporation (hereinafter "Plaintiff") is a wholesale supplier of meat and poultry. Pursuant to an agreement entered into in January 1996 Plaintiff agreed to supply First Class Restaurant Corp., d/b/a Haikara Grill (hereinafter "First Class") with meat products. Concomitant with the signing of the agreement and as part of a credit application, defendant Steven Levy (hereinafter "Levy"), president of the corporation, signed a personal Guaranty of the payment obligations for the goods, meat and poultry supplied by plaintiff to First Class.The personal guaranty stated as follows:
"I (we) Steven Levy . . . In consideration of your extending credit at my(our) request to . . . hereinafter referred to as "the company" of which I (we) am (are) president, hereby personally guarantee to you the unconditional and direct payment of any and all obligations of the company and I (we) hereby agree to bind myself (ourselves, jointly and severally) to pay to you upon demand any sum which may become due to you by the company whenever the company shall fail to pay the same and whether or not you have exhausted your remedies against the company. It is understood that this guaranty shall be a guaranty and indemnity for such indebtedness of the company. I (we) do hereby waive notice of default, non-payment and notice thereof and consent to any modification or renewal of the credit agreement hereby guaranteed."
Plaintiff extended credit to First Class and provided meat and poultry products from January 1996 until September 2005. Plaintiff mailed invoices to "Haikara Grill" which First Class paid on a regular basis. During the period July 1, 2005 through September 19, 2005 Plaintiff alleges that it delivered products to First Class for the reasonable value and agreed price of $26,559.32 which goods were accepted and for which payment has not been received.
Plaintiff started an action in Supreme Court New York County under index No. 604251/2005, seeking to recover $26,559.32 for the delivered products. Issue was joined in that action by the service of an answer wherein First Class and Levy made a General Denial to the allegations and asserted three Affirmative defenses. Following joinder of issue Plaintiff moved for summary judgment alleging the same grounds it now alleges in this motion. First Class and Levy opposed the motion with an affidavit from their attorney Terry L. Meltzer, Esq., and documentary evidence. In his affidavit Mr. Meltzer stated, in essence, that First Class was not liable for payment of the products delivered and neither was Levy, because "in April 2004 approximately one and a half years before the invoices which are the basis of this lawsuit and before any dispute arose between the parties, Fine Dining Associates, a New York corporation, commenced doing business as "Haikara Grill" at 206 East 63rd. Street. Mr. Levy's personal Guaranty was part of the credit application and was for goods sold and delivered to defendant First Class Restaurant Corp., only. Mr. Levy's personal guaranty would not apply to any deliveries made to another corporation." [See affirmation in opposition to plaintiff's motion for summary judgment in Supreme Court action].
By decision and order dated June 26, 2006 theSupreme Court denied the motion against defendant First Class finding "it cannot be determined at this juncture and in the absence of discovery whether the named defendant, First Class Restaurant Corp., d/b/a Haikara Grill is liable as a matter of law. . . . Although defendant failed to challenge any specific invoice and alleged partial payment, defendants' general denial coupled with their opposition papers, sufficiently puts in issue the question of delivery or non-delivery of goods to the named defendant. Therefore summary judgment against defendant First Class Restaurant Corp., d/b/a Haikara Grill cannot be granted at this juncture." The Courtalso denied the motion against defendant Levy, finding that defendants have raised an issue of fact as to whether Mr. Levy's written guaranty applies to the invoices attached to the verified complaint. Since it cannot be determined whether the subject invoices reflect deliveries made to Haikara Grill under First Class Restaurant Corp., to which Mr. Levy's guaranty expressly applies, or to Haikara Grill under Fine Dining Associates, Summary judgment against Mr. Levy cannot be granted." [see written decision moving papers exh. E].
Following its decision the case was transferred to the Civil Court pursuant to CPLR § 325(d).
Plaintiff brought a new action in Supreme Court against defendant Fine Dining Associates, LLC, d/b/a Haikara Grill under index No. 109237/2006. Defendant Fine Dining served an answer identical to the one submitted in the action against First Class. Following joinder of issue Plaintiff moved for summary judgment on the same grounds as in the previous motion. Supreme Court again denied the motion finding that the decision under index No. 604251/05 is law of the case and by virtue of the transfer of the action Supreme Court had been deprived of subject matter jurisdiction. The Court Sua Sponte dismissed the case.
Plaintiff then served an Amended Summons and Verified Complaint naming all the parties in this action. Defendants served an Amended answer asserting the same denial and defenses as in the previous answer. Following joinder of issue plaintiff moves for summary judgment against all the defendants. Defendant Fine Dining Associates, LLC, d/b/a Haikara Grill (hereinafter "Fine Dining") does not oppose the motion. Defendants First Class and Levy oppose the motion and also cross move for summary judgment.
In opposition to the motion and in support of the cross motion defendants First Class and Levy submit the affidavit of Steven Levy. In his affidavit Mr. Levy states that he is the managing member of Fine Dining and former president of First Class. First Class did business as "Haikara Grill" on the ground floor at 1016 Second Avenue. Fine Dining did business as "Haikara Grill" at 206 East 63rd. Street. First Class stopped doing business on or about June 21, 2005. At or about that time defendant Fine Dining started doing business. A Certificate of assumed name was filed in Albany and a copy of this certificate should have been sent by the Department of Corporations to the Clerk of New York County. He only signed a guaranty for the obligations of First Class and not for the obligations of Fine Dining. He states Plaintiff should have been on notice that it was dealing with a different entity because the checks issued by First Class are different from the checks issued by fine dining. In addition, the address for both entities is different and this should have been further evidence to Plaintiff that it was dealing with a different entity.
In opposition to the cross motion, and in further support of its motion, Plaintiff submits the affidavit of Sam Hollander, its vice president. Mr. Hollander states that the defendants never advised plaintiff that Fine Dining was using the name Haikara Grill, or request that deliveries be made to Fine Dining instead of First Class or request a new credit agreement be entered into between Plaintiff and Fine Dining. Plaintiff was never aware of the existence of Fine Dining, never agreed to deliver any products to it or invoice it, because its invoices were always to Haikara Grill.
LEGAL ANALYSIS
In order to prevail on a motion for summary judgment, the proponent must make a prima facie showing of entitlement to judgment as a matter of law, through admissible evidence, eliminating all material issues of fact.(Klein V. City of New York, 89 NY2d 833; Ayotte V. Gervasio, 81 NY2d 1062, Alvarez v. Prospect Hospital, 68 NY2d 320). Once the moving party has satisfied these standards, the burden shifts to the opponent to rebut that prima facie showing, by producing contrary evidence, in admissible form, sufficient to require a trial of material factual issues(Kaufman V. Silver, 90 NY2d 204; Amatulli V. Delhi Constr. Corp.,77 NY2d 525; Iselin Co. V. Mann Judd Landau, 71 NY2d 420). In determining the motion, the court must construe the evidence in the light most favorable to the non-moving party(SSBS Realty Corp. V. Public Service Mut. Ins. Co., 253 AD2d 583; Martin V. Briggs, 235 192).
Plaintiff's submissions and documentary evidence, as well as defendants' submissions and documentary evidence reveal that there is a corporation, First Class, with Mr. Levy as its president, and a partnership, Fine Dining, with Mr. Levy as its managing member. Both entities operate under the assumed name of "Haikara Grill" and are in the restaurant business. First Class' obligations were personally guaranteed by Mr. Levy, as evidenced by the personal guaranty signed by him and submitted along with the credit application. After establishing a business relationship for years in which Plaintiff provided First Class meat products on credit, relying on the personal guaranty of defendant Levy, suddenly and without notice defendant Levy stopped operating under the corporate name and instead began operating under the partnership, although it retained the assumed name of "Haikara Grill". Under this new entity he continued to request delivery of meat products, which Plaintiff provided, billed and was paid for.
The question to be answered is, does the personal guaranty signed by defendant Levy for First Class extend to deliveries made to Fine Dining?
"A suretyship relation exists whenever a person becomes responsible for the debt of another. A guarantee is a contract by which the guarantor promises to make payment if the principal debtor defaults. It is collateral to the contractual obligation between the creditor and the principal. Being a contract, it must be construed according to the terms of the agreement and cannot be altered, extended or enlarged by the creditor or debtor, without the guarantor's consent, since he cannot be held responsible to guarantee a performance different from that which he intended or specified in the guarantee. When there is a change in the entity of the principal debtor, it must be determined if the change in the entity has the effect of creating a principal with a new identity the debts of which the guarantor never intended to guarantee when he executed the agreement. Factors to be assessed include: changes in business name, form, composition, management or ownership, involvement of the guarantor in the business and whether the guarantor participated in the changes. The test is to determine whether the changes in the entity significantly alter the business dealings between the debtor and the creditor and the nature of the guarantor's undertaking, in particular the degree of risk the guarantor is being obligated to assume. (Fehr Bros., Inc. V. Scheinman, 121 AD2d 13, 509 NYS2d 304 [1st. Dept. 1986]; Bernardi Bros., Inc., v. Great Lakes Distributing, Inc., 712 F.2d 1205 [7th Cir.]; Teledyne Mid-America Corporation v. HOH Corporation, 486 F.2d 987 [9th Cir.]; Essex International Inc. V. Clamage, 440 F.2d 547 [7th Cir.]; United States Shoe Corporation v. Hackett, 793 F.2d 161 [7th Cir.]; Alton Banking Trust Company v. Sweeney, 135 Ill. App.3d 96, 89 IllDec. 926, 481 NE2d 769)." See also Nebco Inc., v. Nebraska, 270 Neb. 484, 704 N.w.2d 777).
The case of New York American, Inc., v. Hub Advertising Agency, 136 Misc. 596, 240 N.Y.S. 367 [City Ct. NY, 1930]), seems to be squarely on point with the facts of this case. There the entity was changed from a partnership to a corporation by simply adding the letters "INC." after the partnership name. The directors, including the guarantor, named in the certificate of incorporation were the same, the entity carried on the same business at the same address and continued to do business with the plaintiff, who continued to extend credit. The question for the court was the following: "Does the guaranty under the circumstances disclosed extend to the corporation?" The court answered the question in the affirmative, because the guarantor participated in the change to the corporate entity and became a stockholder and director without at any time giving notice to the plaintiff of the changed conditions, although the plaintiff continued to furnish credit."
Mere formalistic changes in the identity of a principal obligor do not discharge the surety. The appropriate inquiry focuses on the extent to which the changes in form of the entity whose debts are guaranteed significantly alter the business dealing between the principal obligor and the creditor and whether they have a potentially adverse impact on the nature of the surety's undertaking, particularly in the degree of risk the surety assumed in guaranteeing payment or performance (State of New York v. International Fidelity Insurance Co., 152 AD2d 77, 547 NYS2d 466 [3rd. Dept. 1989]). In that vein, a corporate president would not be released from a personal guarantee of corporate debt, even if changes in the corporate structure had increased the risk to the guarantor, where the changes were initiated by the guarantor, who continued to purchase merchandise on credit without seeking to terminate the guarantee agreement (Fehr Bros., Inc., v. Scheinman, 121 AD2d 13, 509 NY S. 2d 304 [1st. Dept. 1986]); nor would liability as a guarantor terminate where it is demonstrated that the guarantor continues to accept materials from plaintiff on behalf of dissolved corporations, without informing plaintiff of their dissolution, the business relationship remains unchanged after the corporate dissolution and the materials delivered and nature of the work remain the same (Fairview Block Supply Corp., v. Miscione, Inc., et al., 167 AD2d 814, 563 NYS2d 375 [3rd. Dept. 1990]; Sellmore Industries, Inc. V. Energy Savers of WNY, Inc., 265 AD2d 927, 695 NYS2d 804 [4th. Dept. 1999]).
A guarantor may terminate his guaranty by notice to the creditor revoking his liability for obligations that may be incurred subsequent to the notice (27th Street Associates, LLC, v. Lehrer, 4 AD3d 165 772 NYS2d 28 [1st. Dept. 2004]). Defendant Levy alleges that notice was given to the creditor in the nature of paying with checks in the name of "Haikara Grill" bearing an address different from that of First Class. This has been found to be insufficient notice (See New York American, Inc., v. Hub Advertising Agency, Inc., 136 Misc. 596, 240 N.Y.S. 367, Supra).
It therefore appears the guaranty extends to the obligations of Fine Dining, an entity operating under the same assumed name("Haikara Grill") as defendant First Class, that has Mr. Levy, the guarantor, as its managing member, who is also a person who participated in the entity change, and whose business relationship with the Plaintiff has remained unchanged.
CONCLUSION
The answer to the question appearing to be in the affirmative, this court nevertheless must deny Plaintiff's motion for summary judgment against the defendants First Class and Levy. Plaintiff makes a motion for summary judgment under the same facts and on the same grounds as the motion he made in Supreme Court prior to the transfer of this case to Civil Court. Supreme court in denying Plaintiff's motion for summary judgment found that "defendant's general denial, coupled with their opposition papers, sufficiently puts in issue the question of delivery or non-delivery of goods to the named defendant and whether defendant First Class is liable for the invoices as a matter of law." Similarly Supreme court ruled under the same facts that summary judgment against Mr. Levy cannot be granted. The "law of the case" doctrine prevents a contrary result. "Once a point is decided within a case, the doctrine of the law of the case makes it binding not only on the parties, but on the court as well. No other judge of coordinate jurisdiction may undo the decision. The order embodying the finding is open to appellate review but may not be negated by any other judge of the same court."(People v. Evans, 94 NY2d 499, 727 NE2d 1232, 706 NYS2d 678; New York Higher Education Services v. Starr, 158 AD2d 771, 551 NYS2d 363 [3rd. Dept. 1990]; Siegle, NY Prac § 448, at 756). The recourse left to Plaintiff is to make a motion to reargue before the same judge that decided the motion in Supreme Court, or appeal that court's decision(See CPLR 2221; Lewis Constr. V. Gush 110 AD2d 1017; La Freniere v. Capital Dist. Transp. Auth., 105 AD2d 517). That opportunity appears to have been lost.
Summary judgment against defendant Fine Dining, who does not now oppose the motion, is granted without opposition.
Defendants First Class and Levy's cross motion for summary judgment is also denied as it appears the personal guaranty may extend to the obligations incurred by Fine Dining, and supreme court previously found there was an issue of fact as to whether the goods were delivered to defendant First Class.
Accordingly for the foregoing stated reasons, the motion for summary judgment against defendants First Class and Levy is denied. The motion against defendant Fine Dining is granted without opposition. The Clerk of the court shall enter judgment in favor of plaintiff and against defendant Fine Dining Associates, LLC d/b/a "Haikara Grill" in the amount of $26,559.32, plus costs and disbursements. The cross motion for summary judgment by defendants First Class and Levy for an order dismissing the case as against them is denied.
This constitutes the decision and order of this court.