Opinion
402464/05.
January 2, 2008.
DECISION/ORDER
In this commercial action, two of the defendants move to dismiss the complaint, while the plaintiff submits opposition and cross-moves to enter a default judgment against the non-moving defendant (collectively, motion sequence number 001). For the following reasons, the defendants' motion is denied, and the plaintiff's cross motion is granted.
BACKGROUND
The Parties
According to the complaint, plaintiff, Commissioners of the State Insurance Fund ("CSIF"), is an agency of the State of New York that engages in the business of providing workers compensation insurance and disability insurance to its clients in accordance with New York State law. CSIF alleges that the individual defendants, Manuel Ramos (Ramos) and Lenny Pereira (Pereira) are the shareholder/owners of the corporate defendant J.M.R. Concrete Corp. (JMR). Ramos and JMR have appeared in this action, but Pereira has not.
The Prior Action
On April 23, 1997, CSIF commenced an action ( State Insurance Fund v. J.M.R. Concrete of Long Island Corp., Index # 404300/97) in this court against judgment debtor J.M.R. Concrete of Long Island Corp. (JMR/LI) for unpaid premiums for a workers compensation insurance policy CSIF had issued to JMR/LI but cancelled, on March 12, 1996, for non-payment. Ramos and Pereira were two of the three shareholder/owners of JMR/LI at the time the action was commenced. JMR/LI filed an answer in the prior action on September 16, 1998, however CSIF did not submit a request for judicial intervention until June 6, 2003. After JMR/LI failed to appear at a preliminary conference hearing, CSIF moved to strike JMR/LI's answer and for the entry of a default judgment. The court granted CSIF's motion and, after an inquest before the Clerk, awarded CSIF a money judgment against JMR/LI in the amount of $411,026.35 on May 6 2004 ("the prior judgment"). The judgment was never paid nor collected.
The Current Action
CSIF commenced the instant action on July 25, 2005, seeking payment for the prior judgment against defendant J.M.R. Concrete Corp. ("JMR"), as alter ego of JMR/LI, and seeks to pierce the corporate veil to hold defendants Manual Ramos and Lenny Pereira liable in their individual capacities.
CSIF alleges that Ramos and Pereira incorporated JMR on January 11, 1996 as sole shareholders, officers and directors and thereafter transferred substantially all of JMR/LI's personnel, assets and business to JMR in an attempt to evade CSIF's prior judgment against JMR/LI. The complaint alleges that Ramos and Pereira adopted a name which is strikingly similar to judgment debtor JMR/LI's name, continued the business operations that judgment debtor JMR/LI had previously conducted, used substantially the same employees as were used by JMR/LI prior to the time its business operations ceased, continued to perform substantially the same type of work that was performed by JMR/LI and serviced the same clients as were serviced by JMR/LI. In addition CSIF alleges that the transfers of personnel, assets and business were made without consideration and were not made in good faith while JMR/LI was insolvent, or was rendered insolvent. CSIF thus alleges that the transfers were fraudulent and that as a result of the transfers, CSIF is unable to collect the prior judgment from JMR/LI.
Rather than answer, Ramos and JMR have interposed the instant motion to dismiss, pursuant to CPLR 3211 (a) (5), on the ground that CSIF commenced this action for fraudulent conveyance after the applicable six year statute of limitations had expired. CSIF opposes Ramos's and JMR's dismissal motion and cross-moves for the entry of a default judgment against Pereira on the grounds that his time to respond to the summons and complaint has expired.
DISCUSSION
Defendants' Motion
When evaluating a defendant's motion to dismiss, pursuant to CPLR 3211 (a), the test "is not whether the plaintiff has artfully drafted the complaint but whether, deeming the complaint to allege whatever can be reasonably implied from its statements, a cause of action can be sustained." Jones Lang Wootton USA v LeBoeuf, Lamb, Greene MacRae, 243 AD2d 168, 176 (1st Dept 1998), quoting Stendig, Inc. v Thorn Rock Realty Co., 163 AD2d 46, 48 (1st Dept 1990). To this end, the court must accept all of the facts alleged in the complaint as true, and determine whether they fit within any "cognizable legal theory." See e.g. Arnav Indus., Inc. Retirement Trust v Brown, Raysman, Millstein, Felder Steiner, L.L.P., 96 NY2d 300, 303 (2001).
Defendants argue that the allegations in the complaint should be read to state a claim that they transferred JMR/LI's assets to JMR via a fraudulent conveyance in violation of the Debtor Creditor Law. According to defendants, the fraudulent conveyance must have been made sometime between the date of JMR's incorporation on January 11, 1996 and the date that CSIF commenced the prior action on April 23, 1997. Defendants thus argue that because fraud claims are governed by a six-year statute of limitations [CPLR § 213 (8)], and because CSIF did not commence this action until July 25, 2005, this action must be dismissed because it was commenced after the expiration of the six-year statute of limitations.
CSIF responds that defendants' argument is based on a mischaracterization of their claim, that their claim is not a request to set aside a fraudulent conveyance, but is rather a request to enforce a judgment which is governed by a twenty-year statute of limitations [CPLR § 211 (b)], pursuant to which this action is timely. In Solow v. Domestic Stone Erectors, Inc. ( 229 AD2d 312 [1st Dept 1996]), the Court found that the plaintiff had adequately pled that the defendants were liable under an alter ego theory for a judgment that the plaintiff had previously obtained against a related judgment-debtor defendant. Id. The court specifically held that:
The references to fraud in the complaint do not purport to be separate causes of action for common-law fraud but are elements of plaintiff's claim to pierce the corporate veil. As the action is one to enforce a judgment against defendants who, if plaintiff prevails on the piercing question, will be treated as a single personality, it is governed by the 20-year Statute of Limitations of CPLR 211 (b) with respect to all of the defendants, and was timely commenced [internal citations omitted].
Id. at 313.
In Chase Manhattan Bank (Nat. Ass'n) v. 264 Water Street ( 174 AD2d 504 [1st Dept 1991]), the Appellate Division, First Department, upheld the trial court's denial of a defendants' dismissal motion that raised the same arguments as raised in the instant motion. The court specifically found that:
A court may pierce the corporate veil to reach the controlling parent, shareholder or director, upon a showing that said party exercised complete domination in respect to the transaction attacked so that the subsidiary had at the time no separate will of its own. Here, plaintiff specifically alleged that appellants masterminded a scheme to denude the subsidiary of its assets in order to render it unable to honor its obligations resulting in a loss to plaintiff. . . . [It is not] necessary that an unsatisfied judgment first be obtained to pierce the corporate veil. Further, plaintiff alleged sufficient allegations to sustain a cause of action to pierce the corporate veil by alleging that the individual defendant dominated and controlled the corporation and caused the corporation to make fraudulent conveyances.
Id. at 505. Bearing in mind that the court's function, when reviewing a motion to dismiss pursuant to CPLR 3211, is to accept all of the facts alleged in the complaint as true, and determine whether they fit within any "cognizable legal theory," ( Arnav Indus., Inc. Retirement Trust v. Brown, Raysman, Millstein, Felder Steiner, L.L.P., 96 NY2d at 303), the court finds that the complaint clearly alleges that Ramos and Pereira "dominated and controlled" JMR and JMR/LI, and caused JMR/LI "to make fraudulent conveyances" to JMR. Because of this, the court also finds that CSIF has adequately pled its theory of alter ego liability against the defendants, and that CSIF is therefore entitled to the benefit of the twenty-year statute of limitations on its claim against defendants, pursuant to the holding of Solow v Domestic Stone Erectors, Inc.
The court finds unavailing the arguments defendants make in their reply papers in support of their dismissal motion. Defendants first argue that, because the complaint contains a specific reference to the Debtor and Creditor law, it should be interpreted as stating a claim to set aside a fraudulent conveyance. The court rejects this argument pursuant to the portion of the Appellate Division's holding in Solow v Domestic Stone Erectors, Inc., that found that "[t]he references to fraud in the complaint do not purport to be separate causes of action for common-law fraud but are elements of plaintiff's claim to pierce the corporate veil." 229 AD2d at 313.
Defendants next argue that CSIF has failed to adequately allege that they are liable on an alter ego theory because the complaint "admits that [Ramos and Pereira] were only 2/3 shareholders of [JMR/LI] and did not set forth any other facts to support its claim that defendants exercised complete domination over [JMR/LI] and did not connect this domination with any wrong to plaintiff." See Reply Memorandum, at 3. The court rejects this argument pursuant to the liberal construction standard that is applicable to CPLR 3211 dismissal motions, finding that the complaint contains sufficient allegations from which to reasonably infer that Ramos and Pereira exercised complete control and domination over both JMR and JMR/LI.
Defendants next argue that the complaint should be dismissed as against Ramos because "plaintiff only seeks to have [JMR] be deemed the alter ego of the judgment debtor [JMR/LI]." See Reply Memorandum, at 3-4. This argument ignores the portion of the Appellate Division's holding in Solow v Domestic Stone Erectors, Inc. that, if plaintiff prevails on piercing the corporate veil, "the . . . defendants . . . will be treated as a single personality [emphasis added]." 229 AD2d at 313. Thus, the court rejects as meritless defendants' contention that Ramos cannot be held personally liable in the instant action.
Finally, the court rejects defendants' argument that the court is permitting an injustice by allowing CSIF to avoid the six-year fraud statute of limitations through "the simple maneuver of entering a default judgment . . . against . . . a defunct entity . . . and then magically and miraculously be[ing] given the benefit of an additional 20 years . . . to enforce that meaningless default judgment." (See, Reply Memorandum, at 4). Plaintiff could similarly argue that it would be an injustice to permit a defendant who has been found liable for money damages to avoid the debt by successfully committing fraud and thereby stripping the plaintiff of fourteen years worth of the time in which the law would have permitted him to attempt to collect it. Neither argument is appropriate on a motion to dismiss. Accordingly, the court finds that defendants' motion should be denied.
Plaintiff's Cross Motion
In its cross motion, CSIF requests the entry of a default judgment against Pereira pursuant to CPLR 3215, on the grounds that Pereira's time to answer or move with respect to the summons and complaint has expired. CSIF has presented proof that it effected "nail and mail" service of the summons and complaint on Pereira on August 16 and September 29, 2005, respectively, after having attempted to effect personal service on him on several other occasions. Because CSIF filed its affidavit of service with the County Clerk on August 24, 2005, CSIF is correct to assert that Pereira's time to answer or move with respect to the summons and complaint expired on October 3, 2005. Because Pereira has not done so and his time to answer has not been extended, CSIF is entitled to a default judgment against him for the amount demanded in the complaint. Accordingly, the court finds that plaintiff's cross motion should be granted.
DECISION
ACCORDINGLY, for the foregoing reasons, it is hereby
ORDERED that the motion, pursuant to CPLR 3211, of defendants Manuel Ramos and J.M.R. Concrete Corp. is, in all respects, denied; and it is further
ORDERED that the cross motion of the plaintiff Commissioners of the State Insurance Fund is granted is granted on default, and the Clerk of the Court is directed to enter judgment in favor of plaintiff and against defendant Lenny Pereira in the sum of $411,026.35, with interest as prayed for allowable by law [at the rate of_____% per annum from the date of May 6, 2004,] until the date of entry of judgment, as calculated by the Clerk, and thereafter at the statutory rate, together with costs and disbursements as taxed by the Clerk; and it is further
ORDERED that the balance of this action shall continue and that the parties shall appear for a preliminary conference in Room 581 at 111 Centre Street, New York, New York on February 17, 2006 at 9:30 a.m.