Opinion
Index No. 904161-21
11-19-2021
STATE of New York, Plaintiff, v. SPECTRA ENGINEERING, ARCHITECTURE & SURVEYING P.C., John H. Shafer PE, and Robert C. Lafleur PE, Defendants.
Letitia James, Attorney General, Attorney for Plaintiff, (Amanda R. Stern, of counsel), The Capitol, Albany, New York 12224 Hodgson Russ, LLP, Attorneys for Defendants, (Scott C. Paton, of counsel), 677 Broadway, Suite 301, Albany, New York 12207
Letitia James, Attorney General, Attorney for Plaintiff, (Amanda R. Stern, of counsel), The Capitol, Albany, New York 12224
Hodgson Russ, LLP, Attorneys for Defendants, (Scott C. Paton, of counsel), 677 Broadway, Suite 301, Albany, New York 12207
Richard M. Platkin, J.
Defendants Spectra Engineering, Architecture & Surveying P.C. ("Spectra"), John H. Shafer PE and Robert C. LaFleur PE move under CPLR 3212 for summary judgment dismissing the complaint filed by plaintiff State of New York ("State") (see NYSCEF Doc No. 2 ["Complaint"]). The State opposes the motion.
BACKGROUND
A. The Contract
The State, acting through the New York State Department of Transportation ("DOT"), contracted with Spectra on January 1, 2013 to inspect certain culverts (see Complaint, ¶ 8 & Ex. A ["Contract" or "Agreement"]). Spectra was to receive a fixed fee for its work, together with an overhead allowance "based on actual allowable expenses incurred during the [Contract term], subject to audit" (Contract, art 2, p. 3). This action concerns the overhead payments made to Spectra.
During the term of the Contract, Spectra was entitled to receive monthly partial payments (see id. , art 5, p. 5), "subject to periodic and final audit" (id. , p. 6). Prior to the first audit, Spectra was to use a provisional "overhead allowance ... estimated at the start of work," which was 186% of Spectra's "[a]ctual [d]irect [t]echnical [s]alaries" (id. , art 2, p. 3).
Thereafter, "[f]or monthly billing purposes" Spectra was obliged to use "the latest available overhead percentage established by audit," subject to the 186% cap (id. , pp. 3-4). The Contract required DOT to audit Spectra's actual expenses annually (see id. , p. 4), and, correspondingly, obliged Spectra to submit expense data to DOT "for each calendar year of the [A]greement through the calendar year in which the final bill is accepted by the State's representative" (id. , p. 3).
The Contract also made provision for the final payment. "For the purpose of establishing the final payment under the Agreement, the actual allowable overhead percentage determined by audit for each [fiscal year] shall be applied to that ... period but such percentage shall not exceed [186%]" (id. , p. 4). Thus, the Contract contemplated a final reconciliation between the overhead percentages used by Spectra in its monthly bills and the actual overhead rate for each year, as determined by an audit of Spectra's actual expenses for the year.
The State's obligation to make the final payment was subject to a "60 calendar day audit period" and then a "30 calendar day interest-free period" (id. , art 6, p. 6). However, these periods did not begin to run until Spectra submitted a "complete" application for final payment (id. ). This required Specta to submit all of the documentation needed for the final audit, including "[o]verhead schedules" for each year of the Contract (id. ).
At the conclusion of the final audit, the State was to provide a draft audit report to Spectra, to which the firm had ten days to respond (see id. , art 6, p. 7). "The acceptance by [Spectra] of final payment shall operate as and shall be a release to the State from all claims and liability to [Spectra]" (id. ).
Finally, the Contract required Spectra to "maintain all books, documents, papers, accounting records and other evidence pertaining to cost incurred ... during the period of this Agreement and for [six years thereafter]" (id. ).
B. Performance of the Contract
Spectra inspected culverts for DOT pursuant to the Contract during calendar years 2013, 2014 and 2015 (see NYSCEF Doc No. 21 ["LaFleur Aff."], ¶¶ 5-8). The proof submitted by Spectra shows that it submitted 24 monthly payment requests to DOT, running from June 11, 2013 through May 27, 2015 (see id. , ¶ 8). DOT's final payment was made on June 18, 2015 (see id. , ¶ 9; see also NYSCEF Doc Nos. 22-23 [payment requests and log of receipts]).
DOT disputes only the date of the last payment, contending that it actually was made on June 8, 2015 (see NYSCEF Doc No. 35 ["Stuhlman Aff."], ¶ 12).
C. Spectra's Dissolution
According to defendants, LaFleur acquired Shafer's ownership interest in Spectra on January 1, 2017 (see LaFleur Aff., ¶ 14; NYSCEF Doc No. 19 ["Shafer Aff."], ¶ 11; see also NYSCEF Doc No. 20 [stock purchase agreement]). Thus, from January 1, 2017 on, LaFleur is said to have been Spectra's only shareholder and director (see LaFleur Aff., ¶ 15).
Later in 2017, Spectra began winding down its affairs (see id. , ¶ 16). By the close of 2018, Spectra had ceased operations entirely, and the corporation was dissolved in December 2018 (see id. , ¶¶ 16-17; see also NYSCEF Doc No. 25 [certificate of dissolution]). Defendants maintain that Spectra was without assets at the time of the dissolution, such that there was no distribution of corporate assets at or after the dissolution (see LaFleur Aff., ¶¶ 23-24).
D. DOT's Audit
In November 2020, DOT issued a "Contract Closeout Audit Report" (Complaint, Ex. B ["Audit Report"]). DOT's auditors found that Spectra's overhead costs were overstated in the total sum of $251,412 (see id. , p. 2). A copy of the draft report was provided to LaFleur and Shafer, but LaFleur advised DOT that Spectra had been dissolved, and he was without authority to respond on behalf of the dissolved corporation (see Stuhlman Aff., ¶¶ 16-17).
E. This Litigation
The State commenced this action on May 13, 2021, and defendants joined issue through service of a verified answer alleging 19 affirmative defenses (see NYSCEF Doc No. 14 ["Answer"]). The State's first four causes of action seek recovery of the alleged overpayments under theories sounding in breach of contract, monies had and received, conversion, and unjust enrichment. The fifth cause of action seeks recovery of a 22% collection fee under State Finance Law § 18.
Immediately following joinder of issue and prior to the taking of any discovery, defendants moved for summary judgment dismissing the State's Complaint (see NYSCEF Doc No. 15). Defendants argue principally that the State's claims are barred by the expiration of the statute of limitations, the State's claim for unjust enrichment is precluded by the Contract, and the Complaint fails to state a viable cause of action against Shafer and LaFleur in their personal capacities. The State opposes the motion in all respects.
Oral argument on the motion was held on November 5, 2021, and this Decision & Order follows.
ANALYSIS
"[T]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact" ( Alvarez v Prospect Hosp. , 68 NY2d 320, 324 [1986] ).
Where the requisite showing has been made, "the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" (id. ). All evidence must be viewed in the light most favorable to the non-moving party (see Branham v Loews Orpheum Cinemas, Inc. , 8 NY3d 931, 932 [2007] ), but "mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient" to defeat the motion ( Zuckerman v City of New York , 49 NY2d 557, 562 [1980] ).
A. Breach of Contract (1st Cause of Action)
Defendants contend that the bulk of the State's claim for breach of contract is barred by the expiration of the statute of limitations. Defendants further argue that Shafer and LaFleur (collectively, "Individual Defendants") are not liable to the State in their personal capacities regardless of whether the State possesses a viable claim against Spectra.
1. Statute of Limitations
The statute of limitations for a breach-of-contract claim is six years (see CPLR 213 [2] ), and the claim generally "accrues at the time of the breach," even where the "injured party [is] ignorant of the existence of the wrong or injury" ( Ely-Cruikshank Co. v Bank of Montreal , 81 NY2d 399, 402-403 [1993] [internal quotation marks and citation omitted]; see CPLR 203 [a] ).
Where "a contract provides for continuing performance over a period of time, each breach may begin the running of the statute anew such that accrual occurs continuously and plaintiffs may assert claims for damages occurring up to six years prior to filing of the suit" ( Airco Alloys Div. v Niagara Mohawk Power Corp. , 76 AD2d 68, 80 [4th Dept 1980] ). However, "so much of the causes of action asserted by [plaintiff] as accrued more than six years prior to ... commencement ... must be dismissed as time-barred" ( Westchester County Correction Officers Benevolent Assn., Inc. v County of Westchester , 65 AD3d 1226, 1228 [2d Dept 2009] ).
Defendants read the Complaint to allege that Spectra breached the requirement that it " ‘only bill for overhead expenses at the rate determined by an audit on a yearly basis’ " (NYSCEF Doc No. 28 ["MOL"], p. 4, quoting Complaint, ¶ 22 [emphasis added]). From this, defendants argue that "the six-year limitations period began to run anew each time Spectra submitted an allegedly inaccurate [bill]" (id. ). As so measured, 16 of the 24 monthly payment requests made by Spectra were outside of the limitations period (see NYSCEF Doc No. 22).
The applicable limitations period is six years, but Executive Orders issued in response to the COVID-19 pandemic tolled the statute of limitations for 228 days from March 20, 2020 until November 3, 2020 (see Brash v Richards , 195 AD3d 582, 583-585 [2d Dept 2021] ; Foy v State of New York , 71 Misc 3d 605, 608 [Ct Cl 2021] ). Thus, under defendants’ theory of accrual, invoices submitted before September 27, 2014 — six years and 228 days prior to the commencement of this action — are untimely.
Defendants further contend that the State cannot revive its time-barred claims through the 2020 "closeout" audit. Defendants emphasize the Contract's "60 calendar day audit period for final payments" (Contract, art 6, p. 6). According to defendants, all of the documentation required to conduct the final audit was timely provided to DOT (see LaFleur Aff., ¶ 10), and DOT did not object to Spectra's final payment request (see id. , ¶ 11). Thus, from defendants’ perspective, DOT closed out the Contract in June 2015 without complaint (see id. , ¶ 12).
The State responds that its cause of action against Spectra accrued in November 2020, when defendants refused to comply with the Audit Report's finding that Spectra had been overpaid in the sum of $251,412 (see NYSCEF Doc No. 41 ["Opp Mem"], p. 5). The State insists that the 60-day audit period in the Contract was not intended to preclude DOT from ensuring that the provisional overhead rates used in the monthly bills were reconciled with Spectra's actual overhead rates, and that reconciliation could not occur until DOT audited Spectra's 2015 financial information (see Stuhlman Aff., ¶¶ 11-12). Relatedly, DOT asserts that Spectra did not provide the necessary financial information for computation of its 2015 actual overhead rate until June 28, 2016, more than one year after the final payment to Spectra (see id. , ¶¶ 13-14; see also NYSCEF Doc No. 39).
In claiming a November 2020 accrual date, the State also cites: (1) the constitutional and statutory provisions governing audits; (2) the "no-waiver" clause of the Contract, which provides that "[n]either the State's review, approval or acceptance of, nor payment for, the services required under this contract shall be construed to operate as a waiver of any rights under this contract ..., and [Spectra] shall be and remain liable to the State ... for all damages ... caused by [Spectra's] ... breach of contract" (Contract, art 27, p. 16); and (3) the contractual requirement that Spectra maintain six years’ worth of records.
Initially, the Court is unpersuaded by defendants’ reading of the State's claim as limited to challenging the monthly bills submitted by Spectra. A fair reading of the Complaint supports the State's position that the claim for breach of contract encompasses Spectra's alleged failure to reconcile the amounts billed for overhead on its monthly invoices with the actual overhead rates "determined by an audit on a yearly basis" (Complaint, ¶ 22). In fact, the Complaint specifically refers to a DOT policy concerning overhead billing adjustments that obliges consultants such as Spectra to promptly "submit adjustments to previously submitted invoices ... if the previously billed overhead rate is different than the subsequently approved provisional overhead billing rate" (NYSCEF Doc No. 36 ["Instruction 12-01"], pp. 1-2; see Complaint, ¶ 11).
As so construed, the claim that Spectra breached the Contract by failing to reconcile the overhead rates used in its monthly bills with the actual overhead rates determined by audit is timely in all respects, even without regard to the belated November 2020 audit.
Under the plain language of the Contract, the State's time to conduct a final closeout audit did not even begin to run until DOT was supplied with all of the necessary financial documentation (see Contract, art 6, p. 6). That documentation included "a CONR-385 (Annual Financial, Ownership and Accounting Practices Report) ... for ... the calendar year in which the final bill is accepted by the State's representative" (id. , art 2, p. 3). Without Spectra's CONR-385 for 2015, DOT could not compute "the actual allowable overhead percentage determined by audit for [2015]," which is used to "establish[ ] the final payment" (id. , p. 4).
Thus, the Contract expressly contemplates that DOT would receive a CONR-385 in the year following the agency's acceptance of Spectra's final bill.
The record shows that Spectra did not submit 2015 financial data to DOT until June 28, 2016 (see Stuhlman Aff., ¶¶ 13-14; see also NYSCEF Doc No. 39). Only then could Spectra's "final application" be "considered complete," triggering DOT's 60-day audit period (id. , art 6, p. 6). Therefore, enforcement of the State's reconciliation rights under the Contract did not become possible, and DOT did not possess a legal right to demand a reconciliation repayment, until Spectra's application for final payment was complete (see Bank of NY Mellon v Dieudonne , 171 AD3d 34, 37 [2d Dept 2019], lv denied 34 NY3d 910 [2020] ). As this action was commenced within six years and 228 days of Spectra's June 28, 2016 submission of the information needed for DOT to audit Spectra's 2015 actual overhead rate by audit, the claim is timely.
The same conclusion follows even if DOT were obliged to enforce its reconciliation rights on an annual basis, rather than awaiting final audit. DOT determined Spectra's 2013 overhead rate by audit on December 5, 2014 (see Stuhlman Aff., ¶¶ 6-7; see also NYSCEF Doc No. 37), thereby triggering Spectra's obligation to request adjustments to previously submitted invoices within 60 days (see Stuhlman Aff., ¶ 8; Instruction 12-01, pp. 1-2). Thus, insofar as Spectra allegedly breached the Contract by failing to reconcile the overhead figures used in its monthly bills with the actual overhead rate determined by audit for monthly bills submitted in 2013, the claim is timely, whether measured from the date of the audit (December 5, 2014) or the expiration of the 60-day period for Spectra to remedy its overbilling (February 3, 2015) (see Instruction 12-01, pp. 1-2).
Accordingly, the branch of the motion seeking dismissal of the first cause of action as barred by the expiration of the statute of limitations is denied in all respects.
2. Claims Against the Individual Defendants
The Individual Defendants argue that they were not parties to the Contract and took no actions concerning the Contract in their personal capacities. They further contend that liability cannot attach under Business Corporation Law ("BCL") § 1006 because the State was not a creditor of Spectra at the time of the corporation's dissolution, no assets of Spectra were distributed, and the State may not rely on BCL § 1006 to challenge pre-dissolution conveyances.
The State recognizes the Individual Defendants’ lack of contractual privity, but contends that Shafer and LaFleur may be held liable for Spectra's contractual liabilities under BCL § 1006 as the former shareholders of the dissolved corporation (see Complaint, ¶¶ 18-20).
It is well settled that "[a] dissolved [business] corporation may sue or be sued" for pre-dissolution obligations ( Matter of Ford v Pulmosan Safety Equip. Corp. , 52 AD3d 710, 711 [2d Dept 2008] ; see BCL § 1006 (b) ["(t)he dissolution of a corporation shall not affect any remedy available ... against such corporation ... for ... any liability incurred before such dissolution"]; Cava Constr. Co., Inc. v Gealtec Remodeling Corp. , 58 AD3d 660, 661 [2d Dept 2009] ; see also Calabrese Bakeries, Inc. v Rockland Bakery, Inc. , 102 AD3d 1033, 1035 n 6 [3d Dept 2013] ).
"Thus, a corporation undergoing dissolution continues to exist for the purpose of and for as long as is necessary to satisfy and provide for its debts and obligations and it may sue or be sued on these obligations until its affairs are fully adjusted" (Matter of Rodgers v Logan , 121 AD2d 250, 253 [1st Dept 1986] [citations omitted]). "After dissolution, shareholders who have received distribution of remaining assets of the corporation hold these assets in trust for the benefit of creditors" ( Wells v Ronning , 269 AD2d 690, 692 [3d Dept 2000] ). "As a result, the shareholders remain jointly and severally liable to existing creditors of the corporation" ( Rodgers , 121 AD2d at 253 ).
"Normally, a creditor must exhaust his or her remedies against the corporation by obtaining a judgment against it and having it returned unsatisfied. Where this is impossible or futile, an action may be maintained directly against the directors or shareholders to the extent that they received from or continue to hold assets which were the corporation's" ( Wells , 269 AD2d at 692-693 [citation omitted]; see Sands Bros. Venture Capital II LLC v Park Ave. Bank , 190 AD3d 658, 659 [1st Dept 2021] ["Under the circumstances of the case, it would be futile for plaintiffs to obtain a judgment and have the execution return unsatisfied before instituting an action directly against (the defunct corporation)."]).
In seeking to establish the inapplicability of the foregoing theory of recovery, the Individual Defendants first argue that the State was not a "creditor" of Spectra's at the time of its December 2018 dissolution. "The State had not asserted any claim against Spectra ... and gave Spectra no reason to anticipate such a claim" (MOL, p. 14).
The Court does not find this argument to be persuasive. Case law makes clear that "corporate liabilities" include "contractual obligations and contingent claims" ( Rodgers , 121 AD2d at 253 ), and the State possessed a contractual right of action against Spectra for overpayments at the time of the dissolution. And given that the Contract contemplates a final audit based on financial records "for ... the calendar year in which the final bill is accepted by the State's representative" (Contract, art 2, p. 3), the Court is unconvinced by the Individual Defendants’ position that they could not have anticipated a post-dissolution claim (cf. Rodgers , 121 AD2d at 252-254 ). Defendants’ invocation of laches fails for essentially the same reason.
Indeed, the proof adduced by the State in opposition to the motion shows that Spectra was on notice of its failure to reconcile its prior billings with the approved provisional overhead rates set on December 5, 2014, July 3, 2015 and June 30, 2016 (see Stuhlman Aff., ¶¶ 7-9, 19; see also NYSCEF Doc Nos. 37-39). The State also submits proof that an earlier Spectra contract with the State had been subject to audit more than seven years after final payment was made by DOT (see Stuhlman Aff., ¶ 21; see also NYSCEF Doc No. 40).
The Individual Defendants further argue that no assets were distributed to them at the time of Spectra's dissolution (see LaFleur Aff., ¶ 24; Shafer Aff., ¶ 13). Relatedly, Shafer argues that he was not a shareholder or director at the time (see Shafer Aff., ¶ 13; see also NYSCEF Doc No. 20). As the State observes, however, it has not had the opportunity for discovery, and information concerning the distribution of Spectra's assets and the relationship between and among Spectra and the Individual Defendants lies largely in the exclusive possession of defendants. Under the circumstances, the Court finds this branch of defendants’ motion to be premature under CPLR 3212 (f).
Finally, to the extent that the State is challenging the pre-dissolution conveyance of Spectra's assets, the Court agrees with defendants that such claims fall outside the scope of BCL § 1006.
Based on the foregoing, the Court finds that the Individual Defendants have not demonstrated their entitlement to the dismissal of the contractual claim (see Rodgers , 121 AD2d at 253-254 ; see also Singer v Riskin , 137 AD3d 999, 1000-1001 [2d Dept 2016] ).
The same conclusion regarding the Individual Defendants follows as to all of the other causes of action alleged in the Complaint that have not been shown to be time-barred or inadequately pleaded.
B. Monies Had and Received (2nd Cause of Action)
A claim for monies had and received is a quasi-contractual cause of action consisting of the following elements: "(1) the defendant received money belonging to the plaintiff, (2) the defendant benefitted from receipt of the money, and (3) under principles of equity and good conscience, the defendant should not be permitted to keep the money" ( Goel v Ramachandran , 111 AD3d 783, 790 [2d Dept 2013] ). The claim is subject to a six-year limitations period (see CPLR 213 [2] ; County of Suffolk v Suburban Hous. Dev. & Research, Inc. , 160 AD3d 607, 610 [2d Dept 2018] ).
Given the existence of the Contract, a binding and enforceable agreement governing the subject matter of the parties’ dispute, it seems doubtful that the State may pursue a quasi-contractual remedy against defendants. Nonetheless, to the extent that the State possess a viable quasi-contractual claim, Spectra's retention of monies paid by the State for overhead expenses did not become wrongful until the State was permitted the opportunity to audit the rates using Spectra's actual financial data. Accordingly, the claim for monies had and received is timely for essentially the same reasons as the contractual claim.
C. Conversion (3rd Cause of Action)
"Conversion is the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights" (State of New York v Seventh Regiment Fund , 98 NY2d 249, 259 [2002] [internal quotation marks and citation omitted]). A claim of conversion is subject to a three-year limitations period that runs from the date on which the alleged conversion took place (see Vigilant Ins. Co. of Am. v Housing Auth. of City of El Paso, Tex. , 87 NY2d 36, 44-45 [1995] ; see also CPLR 214 [3] ).
Even assuming that a claim for conversion lies where, as here, "damages are merely being sought for breach of contract" ( Peters Griffin Woodward, Inc. v WCSC, Inc. , 88 AD2d 883, 884 [1st Dept 1983] ), the claim is untimely as it was interposed more than three years after Spectra's retainage of the overpayments became wrongful. Accordingly, the third cause of action is dismissed.
Under the circumstances of this case, defendants’ retention of the overpayments was wrongful under the Contract even without any demand for repayment by the State. The Court therefore rejects the State's contention that the cause of action did not accrue until the Attorney General's April 2021 demand.
D. Unjust Enrichment (4th Cause of Action)
1. Statute of Limitations
"Under New York law, there is no identified statute of limitations period within which to bring a claim for unjust enrichment" ( Maya NY, LLC v Hagler , 106 AD3d 583, 585 [1st Dept 2013] ). The six-year limitations periods of CPLR 213 (1) or (2) generally are applied, but a claim of unjust enrichment may be governed by the three-year limitations period of CPLR 214 (3) where the allegations of wrongful conduct sound in a recognized tort, including conversion (compare Board of Mgrs. of the Chelsea 19 Condominium v Chelsea 19 Assoc. , 73 AD3d 581, 582 [1st Dept 2010] ; DiMatteo v Cosentino , 71 AD3d 1430, 1431 [4th Dept 2010] ; Lambert v Sklar , 30 AD3d 564, 566 [2d Dept 2006], with Knobel v Shaw , 90 AD3d 493, 495 [1st Dept 2011] ; Elliott v Qwest Communications Corp. , 25 AD3d 897, 898 [3d Dept 2006] ). However, where the alleged liability "had its genesis in the contractual relationship of the parties," the six-year statute of limitations ordinarily is applied ( Wikiert v City of New York , 128 AD3d 128, 138-139 [2d Dept 2015] [internal quotation marks and citations omitted], lv denied 26 NY3d 902 [2015] ). The cause of action for unjust enrichment accrues upon the occurrence of the wrongful act giving rise to the restitutionary duty (see Yarbro v Wells Fargo Bank, N.A. , 140 AD3d 668, 669 [1st Dept 2016] ).
Applying the foregoing principles, the State's unjust enrichment claim is subject to the same limitations analysis as the contractual claim, rendering the fourth cause of action timely.
2. Legal Sufficiency
Defendants contend that the unjust enrichment claim is precluded by the existence of the Contract, a binding and enforceable agreement governing the parties’ dispute. The Court agrees.
"Unjust enrichment occurs when in equity and good conscience, a party obtains or possesses value that rightfully belongs to another party" ( Henning v Henning , 103 AD3d 778, 780-781 [2d Dept 2013] [internal quotation marks, brackets and citations omitted]). It is a quasi-contractual " ‘obligation which the law creates, in the absence of any agreement’ " (State of New York v Barclays Bank of NY , 76 NY2d 533, 540 [1990], quoting Miller v Schloss , 218 NY 400, 407 [1916] ). As such, "[t]he existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter" ( Clark-Fitzpatrick, Inc. v Long Is. R.R. Co. , 70 NY2d 382, 388 [1987] ).
The Contract is a valid and enforceable agreement intended to comprehensively govern the relationship of the State and Spectra regarding the consulting engagement, including the compensation to which Spectra was entitled and the State's audit rights. As the State's unjust enrichment claim concerns the same subject matter, it is precluded (see Concavage Mar. Constr., Inc. v Lou-Al-John Corp. , 191 AD3d 843, 845 [2d Dept 2021] ; Conklin v City of Saratoga Springs , 267 AD2d 841, 842 [3d Dept 1999] ).
In so concluding, the Court rejects the State's argument that it may pursue a quasi-contractual remedy against the Individual Defendants, who are non-parties to the Contract. The Individual Defendants are being sued on the theory that they are former shareholders holding funds in trust for the benefit of the dissolved corporation's creditors, including contractual and contingent claimants, but such a theory necessarily depends on establishing the liability of the dissolved corporation (see Complaint, ¶¶ 17-20 [suing the Individual Defendants "as shareholders"]). As Spectra cannot be held liable to the State on a quasi-contractual theory, neither can the Individual Defendants.
Accordingly, the fourth cause of action is dismissed.
E. State Finance Law § 18
Finally, defendants seek dismissal of the claim to recover the 22% collection fee under State Finance Law § 18 because "there is no legitimate basis upon which the State can recover the full $251,412 that was demanded by the Attorney General" (MOL, pp. 15-16). Inasmuch as defendants have failed to substantiate the foregoing contention as a matter of law, the branch of the motion seeking dismissal of the fifth cause of action must be denied.
CONCLUSION
Accordingly, it is
ORDERED that the third and fourth causes of action are dismissed; and it is further
ORDERED that defendants’ motion is granted to the extent indicated in the preceding paragraph and otherwise denied in accordance with the foregoing; and finally it is
ORDERED that a remote preliminary conference shall be scheduled, and the parties are directed to confer in advance of such conference regarding: (1) a schedule for discovery and the filing of the note of issue; and (2) the use of mediation or other forms of alternative dispute resolution to bring about an early resolution of this action.
This constitutes the Decision & Order of the Court, the original of which is being uploaded to NYSCEF for electronic entry by the Albany County Clerk. Upon such entry, counsel for plaintiff shall promptly serve notice of entry on all parties entitled thereto.
Papers Considered :
NYSCEF Doc Nos. 15-28, 33-43; and
Transcript of Oral Argument, held on November 5, 2021.