Opinion
No. 067995/2014.
12-04-2014
INTELLIGENT PRODUCT SOLUTIONS, INC., Plaintiff, v. MORSTAN GENERAL AGENCY, INC., Defendant.
Meyer, Suozzi, English et al, Garden City, Attorneys for Plaintiff. Thompson Bukher, LLP, New York, Attorneys for Defendant.
Meyer, Suozzi, English et al, Garden City, Attorneys for Plaintiff.
Thompson Bukher, LLP, New York, Attorneys for Defendant.
Opinion
THOMAS F. WHELAN, J.
ORDERED that those portions of this motion (No.001) by the defendant wherein it seeks an order dismissing the complaint served due to the plaintiff's failure to join a necessary party is considered under CPLR 3211(a)(10) and 1001 and is denied; and it is further
ORDERED that those portion of this motion by the defendant for an order compelling arbitration of the claims interposed by the plaintiff and for a stay of this action pending an award is considered under CPLR 7503 and is denied; and it is further
ORDERED that the remaining portions of this motion by the defendant wherein it seeks an award of costs and attorneys fees and/or monetary sanctions is considered under 22 NYCRR Pat 130–1 and is denied; and it is further
ORDERED that the court declares that Single Entry Systems, Inc., is a necessary party defendant to this action and orders that it be summons to court by the plaintiff's service upon Single Entry Systems, Inc. the summons, complaint and a copy of this order pursuant to CPLR 311, within forty-five days of the date of this order; and it is further
ORDERED that a preliminary conference shall be held herein on Friday, February 20, 2015 at 9:30 a.m. in the courtroom of the undersigned located in the Supreme Court Annex Building of the Courthouse at One Court Street, Riverhead, New York 11901, at which, the court shall ascertain circumstances of the parties and of this action in light of the directives and other terms of this order and such other matters as may be brought before the court.
The plaintiff commenced this action by the filing of a summons and complaint on September 30, 2014. Therein, the plaintiff charges the defendant with being the alter ego of a company known as Single Entry Systems, Inc., [hereinafter SES] with whom the plaintiff contractually agreed to work with in the development, testing and upgrading of certain computer software applications known as Expert Insure and Expert Inspect and to retain the plaintiff to provide program management services to SES. After providing such services for approximately a year, SES advised the plaintiff in September of 2014 that it had no money to pay for services already performed and was considering the remedy of bankruptcy.
The complaint contains two causes of action by which the plaintiff seeks recovery from defendant Morstan of the sum of $465,450.00 in unpaid services it performed for SES. In the First cause of action, the plaintiff claims to have stated an account in which it is owed the sum of $465,450 by SES for services performed. In the Second, defendant Morstan is alleged to have been unjustly enriched by the services performed by the plaintiff. Recovery from the defendant Morstan is premised upon a piercing of the corporate veil of SES. In this regard, defendant Morstan is alleged to be an 80% shareholder of SES and it allegedly operates out of the same offices as does SES. The two corporations are alleged to have overlapping directors, officers and employees and co-mingled assets and liabilities.
Prior to answering, the defendant interposed the instant motion by which it seeks various forms of relief. Therein, the defendant claims that the plaintiff's failure to join SES as a party defendant is motivated by the plaintiff's desire to avoid the consequences of the arbitration clause that is set forth in the software development and maintenance contract between the plaintiff and SES. The defendant thus seeks dismissal of the complaint pursuant to CPLR 3211(10) on the grounds that the plaintiff failed to join a necessary party. Alternatively, the defendant seeks to compel arbitration and a stay of this action pursuant to CPLR 7503(c) and the imposition of sanctions, costs and fees against the plaintiff or its counsel.
The plaintiff opposes the motion to which opposition the defendant has replied. For the reasons stated, the motion is denied, except to the extent of the declarations and directives regarding the joinder of SES as a party defendant to this action.
It is well settled law that claims for the imposition of liability against a defendant that rest upon allegations that such defendant is liable to the plaintiff because it is an alter ego of another entity who has not been joined as a defendant, renders the non-joined entity a necessary party (see Mannucci v. Missionary Sisters of Sacred Heart of Jesus, 94 AD3d 471, 941 N.Y.S.2d 493 [1st Dept 2012] ; Corman v. LaFountain, 38 AD3d 706, 835 N.Y.S.2d 201 [2d Dept 2007] ). Indeed, a stand alone claim for recovery from a purportedly dominant alter ego entity is considered legally insufficient since New York does not recognize a separate cause of action to pierce the corporate veil (see DiMauro v. United, LLC, ––– AD3d ––––, 2014 WL 5638775 [2d Dept 2014] ; Gaetano Dev. Corp. v. Lee, 121 AD3d 838, 2014 WL 5151404 [2d Dept 2014] ; Rosen v. Kessler, 51 AD3d 761, 761, 856 N.Y.S.2d 861 [2d Dept 2008] ; Hart v. Jassem, 43 AD3d 997, 998, 843 N.Y.S.2d 121 [2d Dept 2007] ). Instead, corporate veil piercing is an equitable doctrine which allows a corporation's separate legal existence to be disregarded so as to attach liability to its operatives ordinarily insulated therefrom by the corporate form, so to prevent fraud and achieve equity (see Morris v. New York State Dept. of Taxation and Finance, 82 N.Y.2d 135, 603 N.Y.S.2d 807 [1993] ; Queens West Dev. Corp. v. Nixbot Realty Assoc., 121 AD3d 903, 2014 WL 5151295 [2d Dept 2014] ; Flushing Plaza Assoc. # 2 v. Albert, 102 AD3d 737, 738, 958 N.Y.S.2d 713 [2d Dept 2014] ; Baccash v. Sayegh, 53 AD3d 636, 639, 862 N.Y.S.2d 564 [2d Dept 2008] ).
By this motion, the defendant seeks dismissal of the complaint, not on legal insufficiency grounds, but upon grounds that the plaintiff's failure to join as a party defendant, SES, warrants dismissal of this action pursuant to CPLR 3211(a)(10) which provides for dismissal whenever “the court should not proceed in the absence of a person who should be a party”. The defendant contends that dismissal of the complaint is warranted since SES is a necessary party under controlling case authorities such as those cited above and the plaintiff failed to join it.
However, dismissal for failure to join a necessary party is proper only in very limited circumstances as a motion for such dismissal necessarily invokes application of the joinder provisions set forth in CPLR 1003 and 1001. These rules authorize a court to dismiss a complaint where a necessary party has not been joined only after it has determined that such party is indeed necessary and that is not subject to the jurisdiction of the court except upon its voluntary submission thereto or consent (see CPLR 1001[b] ; Windy Ridge Farm v. Assessor of Town of Shandaken, 11 NY3d 725, 726–727, 864 N.Y.S.2d 794 [2008] ). If jurisdiction can be obtained only by the entity's consent or voluntary appearance “the court, when justice requires, may allow the action to proceed without [the entity] being made a party” (Swezey v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 19 NY3d 543, 950 N.Y.S.2d 293 [2013] ; see CPLR 1003 ; 1001). Any such determination to proceed must be based upon the court's consideration of five numerated statutory factors set forth in CPLR 1001(b) (see id. ).
Here, the defendant established that SES, which is the allegedly dominated dummy corporation and the party in purported breach of its obligations under its contract with the plaintiff, is a necessary party under the theories advanced against its alter ego, defendant Morstan. However, the record is devoid of any evidence tending to establish that the non-joined entity, SES, is beyond the jurisdiction of this court due to the filing of a bankruptcy petition or otherwise (see Mannucci v. Missionary Sisters of Sacred Heart of Jesus, 94 AD3d 471, supra ). Pursuant to the mandates of CPLR 1001, this court is required to declare that SES is a necessary party defendant and to summon it to appear before the court (see Mega Sound & Light, LLC v. Commissioner of Labor, 99 AD3d 800, 952 N.Y.S.2d 210 [2d Dept 2012] ). It hereby does so by directing the plaintiff to effect its joinder by service of its initiatory process papers and pleading, together with a copy of this order within, forty-five days of the date of this order.
Of course, the joinder of SES, if available, may result in its invocation of the arbitration clause in its contract with the plaintiff as a contingent defense in bar to this action. The fact that the party to be joined has one or more defenses in bar to the claims of the plaintiff does not deprive the court of jurisdiction over such party and is thus not a ground upon which the court may decline to declare the joinder of such party as necessary and to summons it to court, as the party so summoned, may upon it appearance, waive such defense or be unsuccessful in its assertion thereof (see Windy Ridge Farm v. Assessor of Town of Shandaken, 11 NY3d 725, 726–727, supra ; Jenkins v. Astorino, 110 AD3d 882, 972 N.Y.S.2d 688 [2d Dept 2013] ; Alexy v. Otte, 58 AD3d 967, 871 N.Y.S.2d 741 [3d Dept 2009] ).
Accordingly, the court will not consider the effect of a bankruptcy filing, if any, nor any arbitration clause defense upon the jurisdictional availability of SES within the purview of CPLR 1003 and 1001(b) in its absence. Engagement in these matters prior to the joinder of SES would be prejudicial to its tactical strategies and substantive rights and would constitute an unfair judicial “blind-siding” of those joined herein who have not been given notice of, nor any opportunity to be heard with respect to these potential issues (see generally Evans v. Argent Mtge. Co., LLC, 120 AD3d 618, 992 N.Y.S.2d 49 [2D Dept 2014] ; Federal Mtge. Ass'n v. Anderson, 119 AD3d 892, 991 N.Y.S.2d 85 [2d Dept 2014] ; Rosenblatt v. St. George Health & Racquetball Assoc., LLC, 119 AD3d 45, 984 N.Y.S.2d 401 [2d Dept 2014] ). Nor will the court consider proceeding in the absence of SES upon consideration of five statutory factors set forth in CPLR 1001(b) since to do so would be premature (see Jenkins v. Astorino, 110 AD3d 882, supra ; Hearst Corp. v. New York State Police, 109 AD3d 32, 966 N.Y.S.2d 557 [3d Dept 2013] ).
Under these circumstances, the court denies those portions of the instant motion wherein the defendant seeks dismissal of this action pursuant to CPLR 3211(a)(10), 1003 and 1001 for failure to join a necessary party, namely, SES. In light, however, of the court's declaration that SES is a necessary party and its directive that it be joined by the plaintiff's service of the summons, complaint and a copy of this order within 45 days of the date thereof, such denial is without prejudice to a new application for the same relief if the joinder of SES has not been timely effected by the plaintiff or for some reason cannot be effected due to some jurisdictional impediment not now existing or known to the parties or the court or otherwise (see Hearst Corp. v. New York State Police, 109 AD3d 32, supra ).
The defendant's alternative demand for an order pursuant to CPLR 7503(c) compelling arbitration and directing the parties now joined herein to forthwith proceed with such arbitration and an order staying prosecution of this action pending issuance of the arbitration award is denied as premature due to the absence of SES as a party hereto. Such denial is, however, without prejudice to a new application for the same or other relief following the joinder or non-joinder of SES in accordance with the terms of this order.
The remaining portions of the instant motion wherein the defendant seeks an award of costs and counsel fees and the imposition of monetary sanctions pursuant to 22 NYCRR Part 130–1 is considered thereunder and denied. The court finds that the moving papers failed to demonstrate that the conduct complained of constitutes frivolous conduct as that term is defined in the above cited rules (see Stone Mtn. Holdings, LLC v. Spitzer, 119 AD3d 548, 990 N.Y.S.2d 39 [2d Dept 2014] ).