Opinion
37370/07.
Decided June 24, 2008.
Raymond B. Grunewald, Esq., Attorney for Plaintiff, New York, NY.
Ilya Braz, Esq., Attorney for Defendant, New York, NY.
Plaintiff Yefim Melamed moves pursuant to CPLR 3215 for a default judgment against defendants Yelena Mamedova-Braz and Maya Gurevich for failure to answer the summons and verified complaint. Defendants cross-move to dismiss the complaint pursuant to CPLR 3211 [a] [2] for lack of subject matter jurisdiction, CPLR 3211 [a] [7] for failing to state a cause of action in the pleadings, and CPLR 213 for commencing this action after the six year statute of limitations expired. In the alternative, defendants move to permit defendants leave to file and serve an answer if the court does not dismiss this action.
BACKGROUND
This action arises out of an oral agreement whereby plaintiff allegedly agreed to provide consulting services for Community Related Services, Inc. ("Community"). Plaintiff is the sole shareholder of Advanced Human Resources, Inc. ("AHR"), Alliance Human Resources, Inc. ("Alliance"), and Human Problems Solutions, Inc. ("HPS"). All three corporations provide consulting and marketing services for Russian speaking alcohol and substance abuse treatment businesses. Defendants Yelena Mamedova-Braz ("Mamedova-Braz") and Maya Gurevich ("Gurevich") are co-owners and officers of Community. Plaintiff alleges that Community was an "outpatient Alcohol and Substance Abuse treatment clinic" and "is presently an outpatient chemical dependency clinic."
Plaintiff alleges in the complaint that he acted as a consultant for Community from 1995 to the end of 2001 and provided a clinical director and qualified treatment counselors. Plaintiff alleges that in January of 1998, defendants "entered into an oral agreement indicating that [plaintiff] would receive payments of 10% of the gross revenue generated by COMMUNITY in exchange for plaintiff['s] continuing consulting and ongoing marketing advice and assistance." Between 1998 and 2001, plaintiff alleges that "defendants [Mamedova-]BRAZ and GUREVICH and COMMUNITY paid plaintiff consulting fees by making the payments to plaintiff MELAMED'S corporations AHR, ALLIANCE and HPS by check from COMMUNITY to AHR, ALLIANCE or HPS, checks which totaled in excess of $723,651.00." Plaintiff alleges that in 2000, Gurevich "who was responsible for COMMUNITY finances," requested that plaintiff modify the agreement and accept 7% — 8% of Community's gross fees in compensation and plaintiff agreed.
The plaintiff repeatedly refers to Community as a defendant in the complaint. While Community is not a defendant in this matter, Community is a defendant in a related action before this court, Yefim Melamed v Yelena Mamedova-Braz, Maya Gurevich and Community Related Services, Inc., Sup Ct, Kings County, Demarest, J., index No. 32675/06. However, the complaint was dismissed as to the individual defendants in that matter after a traverse hearing determined that service was improper. Their dismissal lead to the filing of the present action against the individual defendants.
In September 2001, plaintiff alleges he received checks from Community signed only by Gurevich as Mamedova-Braz refused to sign as the required dual signatory on Community's bank account. In a November 2001 meeting at Community's office, plaintiff claims that he accepted the defendants' offer to pay the plaintiff a fixed salary of $215,000 instead of the percentage share previously agreed to. Plaintiff alleges that in December of 2001, defendants gave the plaintiff checks, on behalf of Community, for October, November and December of 2001 signed only by Gurevich. Plaintiff claims that defendants "said they would calculate the difference between what they had actually received since April 1998 to December 2001 and what they had paid and would give [plaintiff] the difference." Although it is not set forth in the allegations, it appears that plaintiff's complaint is predicated upon the fact that he was unable to negotiate the checks for October, November and December of 2001. It is not clear whether plaintiff continued to work for Community after December 2001. Plaintiff has alleged breach of contract and breach of implied partnership agreement causes of action in the complaint. Plaintiff served a summons and verified complaint on the defendants on October 17, 2007 and defendants have not filed an answer. Plaintiff served defendants with the motion for default judgment on December 13, 2007.
DISCUSSION
Pursuant to CPLR 3012 [a], "[s]ervice of an answer or reply shall be made within twenty days after service of the pleading to which it responds." Under CPLR 3215 [a], "[w]hen a defendant has failed to appear, plead or proceed to trial of an action reached and called for trial, or when the court orders a dismissal for any other neglect to proceed, the plaintiff may seek a default judgment against him." Although more than twenty days has passed without the defendants serving an answer, and defendants did not move to dismiss until served with plaintiff's motion for a default judgment, the court, in it's discretion, may deny a motion for entry of default where there is a "lack of prejudice to the plaintiffs from the delay" and "the existence of potentially meritorious defenses" ( Yonkers Rib House, Inc. v 1789 Cent. Park Corp ., 19 AD3d 687, 688 [2d Dept 2005]; see also Sitigus Foods Corp. v 72-02 N. Blvd. Realty Corp., 293 AD2d 597 [2d Dept 2002]) ("A court may excuse a default in answering upon a showing of a meritorious defense and a justifiable excuse for the default"). Defendants allege in their cross-motion that they were informed that plaintiff would move to consolidate the present action with the related matter currently before this court, Yefim Melamed v Yelena Mamedova-Braz, Maya Gurevich and Community Related Services, Inc., Sup Ct, Kings County, Demarest, J., index No. 32675/06, and intended to stipulate to have the previous answer deemed served for the consolidated action. Therefore, plaintiff's motion for entry of default judgment pursuant to CPLR 3215 is denied as the defendant possessed the significant meritorious defenses discussed below, plaintiff did not intend to abandon their defenses and defendants' delay was minimal.
Turning to defendants' cross-motion, when addressing a motion to dismiss for failure to state a cause of action pursuant to CPLR 3211 [a] [7], the allegations in the complaint should be accepted as true and the court must determine whether such facts fit any cognizable legal theory ( Morales v Copy Right, Inc. , 28 AD3d 440 [2d Dept 2006]). The plaintiff's first cause of action alleges that Mamedova-Braz and Gurevich "engaged in a deliberate breach of contract with MELAMED" by failing to pay plaintiff 10% of Community's gross revenue, 7 — 8% of the gross fees of Community, or a proposed $215,000 fixed salary. However, officers of a corporation with which a party contracts "may not be held personally liable on the contract [where] they [do] not bind themselves individually under that contract" ( Gordon v Teramo Co., 308 AD2d 432, 433 [2d Dept 2003]; see Maranga v McDonald T. Corp. , 8 AD3d 351, 352 [2d Dept 2004]; Westminster Constr. Co. v Sherman, 160 AD2d 867, 868 [2d Dept 1990]). Dismissal of the complaint as to individual officers is appropriate where the plaintiff "fail[s] to allege facts implying individual abuse of the privilege of doing business in the corporate form resulting in harm" ( Chestnut Hill Partners, LLC v Van Raalte , 45 AD3d 434 , 435 [1st Dept 2007]; see Matter of Morris v New York State Dept. of Taxation Fin., 82 NY2d 135, 141-142).
Construing the allegations of the complaint in the light most favorable to the plaintiff and giving the plaintiff every possible favorable inference ( Andre Strishak Assocs, P.C. v Hewlett Packard Co., 300 AD2d 608, 609 [2d Dept 2002]), the plaintiff's complaint does not contain any allegations that Mamedova-Braz or Gurevich bound themselves individually to the contract, acted other than in their capacity as officers for Community or abused the privilege of doing business in the corporate form. Plaintiff alleges the contract work was as a consultant for Community, all money received by the plaintiff for the services at issue was through business checks issued by Community, the contract payments were to be based on Community's gross revenues and fees, and the alleged breach of contract occurred when the required signatories did not sign the check issued by Community. As the complaint did not allege that the defendants entered a contract with the plaintiff in their individual capacities, and there are no allegations which would support the piercing of the corporate veil of Community, the first cause of action must be dismissed pursuant to CPLR 3211 [a] [7] for failure to state a cause of action ( see Maranga, 8 AD3d at 352; Chestnut Hill, 45 AD3d at 435; Matter of Morris, 82 NY2d at 141-142).
The plaintiff's second cause of action for "breach of implied partnership agreement" must be dismissed as plaintiff cannot enter a partnership agreement with defendants individually where the defendants have operated their business as a corporation and plaintiff has not alleged any relationship between himself and defendants outside of the contract he alleges with Community. Where "parties adopt the corporate form, with the corporate shield extended over them to protect them against personal liability, they cease to be partners and have only the rights, duties and obligations of stockholders. They cannot be partners inter sese and a corporation as to the rest of the world" ( D'Orazio v Mainetti , 24 AD3d 915 , 916 [3d Dept 2005]). "The law is clear that if a business is conducted as a corporation, it cannot at the same time be carried on as a partnership. The two are mutually exclusive and cannot coexist" ( Carpenter v Weichert, 51 AD2d 817, 818 [3d Dept 1976]; see D'Orazio, 24 AD3d at 916). Therefore, as the complaint alleges that plaintiff "provided and continued to provide defendants with essential business advice in setting up and operating COMMUNITY" and there are no allegations that the defendants created a partnership independent of Community, plaintiff could not have entered a partnership with defendants as they have adopted the corporate form of Community and cannot operate the business as a partnership ( see Carpenter, 51 AD2d at 818; D'Orazio, 24 AD3d at 916).
Furthermore, it not clear that plaintiff would have standing to maintain this action as it appears that if the plaintiff entered a contract with Community, he did so as an officer of AHR, Alliance, and/or HPS. A sole shareholder of a corporate entity does not have standing to bring an action in his own name for a wrong committed against the shareholder's corporation ( Fulgum v Town of Cortlandt Manor , 19 AD3d 444 , 445 [2d Dept 2005]; Schleidt v Stamler, 106 AD2d 264, 265 [1st Dept 1984]). The complaint alleges that the plaintiff is the sole shareholder of three corporations, AHR, Alliance, and HPS, that provide "consulting and marketing services for Russian speaking alcohol and substance abuse treatment businesses." The complaint further alleges that Community "paid plaintiff consulting fees by making the payments to plaintiff MELAMED's corporations AHR, ALLIANCE and HPS by check from COMMUNITY to AHR, ALLIANCE or HPS, checks which totaled in excess of $723,651.00." While plaintiff alleged that he was the individual that entered the oral agreement at issue, all payments for services in this matter were issued to the corporations AHR, Alliance and HPS. Based upon the allegations, clearly Community was paying these corporations for their services and plaintiff's participation was solely as an officer of one or more of these corporate entities. Thus, if any breach occurred, the wrong was committed against the corporations and the individual plaintiff would lack standing ( see Fulgum, 19 AD3d at 445; Schleidt, 106 AD2d at 265).
CONCLUSION
Accordingly, defendants' cross-motion pursuant to CPLR 3211 [a] [7] to dismiss the complaint for failure to state a cause of action is granted. Defendants' remaining grounds for dismissal are deemed moot. Plaintiff's motion for default judgment is denied.
The foregoing constitutes the decision and order of the court.