Opinion
007720-08.
Decided January 6, 2010.
DelBello Donnellan, Weingarten Wise Wiederkehr, LLP, Plaintiffs' counsel.
H. Fitzmore Harris, P.C., Defendants' counsel.
This matter is before the Court on 1) the motion for summary judgment filed by Defendants Streamline Agency, Inc. and Aubrey Dicks ("Defendants") on September 8, 2009, and 2) the motion to amend the Verified Answer filed by Defendants on September 25, 2009, which were submitted on November 23, 2009. For the reasons set forth below, the Court denies both motions in their entireties.
BACKGROUND
A. Relief Sought
In Motion Sequence Number 7, Defendants Streamline Agency Inc. ("Streamline") and Aubrey Dicks ("Dicks") move for an Order 1) pursuant to CPLR § 3212, granting the Defendants summary judgment against the Plaintiff Washington Title Insurance Company ("Washington Title"); and 2) pursuant to CPLR § 3211(a)(2), dismissing the action on the grounds that the court does not have subject matter jurisdiction over this action.
In Motion Sequence Number 8, Defendants move for an Order, pursuant to CPLR § 3025(b), directing that the Defendants' Verified Answer ("Answer") be amended to add the following affirmative defenses: 1) the court does not have subject matter jurisdiction over this action; 2) the party asserting the cause of action does not have legal capacity to sue; and 3) the matter should not proceed in the absence of a person who should be a party.
Plaintiff opposes Defendants' motions.
B. The Parties' History
Plaintiff is in the business of underwriting and providing title insurance. The verified complaint ("Complaint") alleges that Plaintiff entered into an Underwriting Agreement ("Agreement") with Streamline, pursuant to which Streamline was appointed a non-exclusive agent to represent the Plaintiff in issuing title insurance for real property in New York State. Plaintiff alleges that Dicks was the president of Streamline. Plaintiff further alleges that, as title agent, Streamline collected funds from buyers and sellers at the closing and held those funds in its escrow account. The funds in the escrow account were to pay for recording fees, transfer taxes, real estate taxes, water charges, outstanding mortgage balances and to satisfy other title impediments that might arise at a closing.
The gravamen of the Complaint is that Dicks, the sole shareholder of Streamline, went to the Bank of America branch where the escrow account was maintained and looted the funds for his own personal use. The funds in the escrow account were to be maintained in a separate designated trust account. The funds did not belong to Streamline or Dicks, but rather to the insureds of the Plaintiff and/or sellers of real property (Complaint ¶¶ 8-9). The Complaint sets forth four (4) causes of action: 1) conversion, 2) money wrongfully had and received, 3) accounting, and 4) breach of the Agreement by failing to return funds.
Defendants interposed a verified answer ("Answer") dated June 10, 2008. In the Answer, Defendants interposed eight affirmative defenses: 1) Defendant has a defense founded on documentary evidence; 2) Plaintiff was guilty of culpable conduct that limits Plaintiff's right to recover; 3) Plaintiff's recovery is barred by the doctrine of laches; 4) the pleadings fail to state a cause of action; 5) the amount recoverable should be reduced in proportion to Plaintiff's allegedly culpable conduct; 6) Plaintiff has not obtained personal jurisdiction over the Defendants; 7) the action is barred by the statute of frauds because Dicks did not sign the Agreement; and 8) the Agreement is void and unenforceable against Dicks and Streamline.
In support of the motion for summary judgment, Dicks argues that, as sole shareholder of Streamline, he had the right to withdraw funds from the escrow account. Dicks asserts that Michael Molberg, Esq. ("Molberg") of Molberg Associates with offices at 333 Earle Ovington Blvd., Uniondale, NY filed the corporate papers for Streamline. Dick also asserts that Molberg operated and managed Streamline. Dicks claims he was not aware of "the exact nature of the real estate business in which the corporation was engaged in until the business taxes were filed for the year 2005" (Dicks affidavit in support ¶ 7). Dicks filed tax returns based on the information that Molberg provided to him for the years 2005, 2006 and 2007. Dicks claims Molberg refused to open the books to him despite his many requests. He also asserts that Molberg charged Streamline fees of $3,000 per month, and collected commissions in the name of an entity called SPM Title ("SPM"), about which Dicks knew nothing. Dicks also asserts that he never signed any papers in connection with Washington Title, and never knew that Washington Title existed. Finally, Dicks makes the claim that when he closed the accounts they were all under the name of Streamline, "none of which belonged to Washington Title. To the best of my knowledge, Washington Title has no claim to any of the funds which were deposited in the accounts" (Dicks Aff. in Supp. at ¶¶ 13-14).
Annexed to Defendants' moving papers is a copy of the transcript from the deposition of Joseph A. DePietro ("DePietro") held on January 26, 2009 (Exhibit J to Ds' Motion for Summary Judgment). DePietro was an agency representative for Washington Title. DePietro testified that Streamline was a title company that had a relationship with another title company called SPM. Pietro characterized Streamline and SPM as a joint venture. In describing their relationship, DePietro testified that "Streamline needed to have a partner that knew title insurance. So, I believe his name is Morris Dicks, who owns a mortgage business, had files, had orders for title and wanted to be able to make money on them. So they created a joint venture with an existing company to produce titles and to legally get paid for them" (DePietro Tr. at pps. 32-33).
Defendants also provide a copy of the transcript of the deposition of Maria Tarasco ("Tarasco") held on March 23, 2009 (Ex. J to Ds' Motion for Summary Judgment). Tarasco was the Vice President of SPM from 2002 to 2008. Tarasco was in the title insurance business for almost 25 years. Her work for SPM included ordering titles, reading titles, putting the reports together and sending them out. She also prepared the closing packages for the individual who would be handling the closing. Tarasco explained the procedure that title companies follow in collecting the various government fees and taxes, as well as the different accounts they maintain, including general, clearing, operating and escrow accounts, and the purposes of those accounts Tarasco described the relationship of Streamline and SPM as a joint venture (Tr. at p. 31), and testified that her recollection was that Streamline was "up and running" in 2005, but she did not have any documentation reflecting the precise date of Streamline's start up (Tr. at 32-33). Tarasco testified that, although she was not an employee of Streamline, she did oversee its day to day operations (Tr. at 33). Both SPM and Streamline operated out of the same office space at 333 Earle Ovington Boulevard, Uniondale, NY, as did Molberg. SPM was the "core" of Streamline.
The escrow funds were monies collected for outstanding taxes, water charges or judgments. In the event SPM or Streamline wrongfully depleted the escrow funds, the aggrieved party would look to the Plaintiff, Washington Title, the underwriter, for reimbursement. Dicks' son operated a mortgage company known as Northside Capital that originated loans and referred business to Streamline. (According to the Streamline U.S. Corporate Income Tax Returns that Dicks signed, the business activity of Streamline is "Mortgage Broker"). Tarasco testified that she and Molberg were signatories on the Streamline Bank account. She learned in April, 2008, that Dicks "emptied" the escrow account. She also learned from telephone calls she received from several Bank of America branches (one located on Long Island and two in Brooklyn) that Dicks intended to clean out the accounts. At first he was not successful because when she received a call from the branch she alerted them to the facts about the escrow account.
Tarasco also testified that she had explained to Dicks the function and legal implications of the escrow accounts:
Q.In your conversations with Mr. Dicks did you ever explain to him the different type of accounts that Streamline had?
A.I did.
Q.And did your conversations include you explaining what the purpose of an escrow account is?
A.It most certainly did and I also explained to him the monies that are in these accounts do not belong to he [sic], do not belong to Streamline, do not belong to myself, do not belong to Michael Molberg, they are in fact third-party money.
Q.Were you able to converse with Mr. Aubry Dicks in English:
A.Yes.
Q.Did it appear to you that he had a problem understanding you?
A.Not at all.
Q.And what did you do when you found out that the escrow account was depleted?
A.I first placed a phone call yet again to Mr. Dicks letting him known that again this is the third-party money, it does not belong to you, it does not belong to me, it does not belong to Michael Molberg, it does not belong to Streamline, this is third-party money. I said "You need to return that money back to its accounts." I said, "if that's not done, you're going to force me to contact Washington Title and let them know what you have done and they will take legal action against you."
Q.How long after he depleted the funds did you have that conversation with him?
A.Well, I didn't actually — after that there came a point where I wasn't able to get him on the phone and it was just constantly his voice mail. (Tarasco Tr. at 115-116).
In further support of the motion for summary judgment, Defendants' attorneys include the copy of a transcript (Exhibit G) of the oral argument conducted in connection with Defendants' prior motion to dismiss the complaint, which the Honorable Leonard B. Austin (now a Justice of the Appellate Division, Second Department) denied on July 21, 2008 ("Prior Decision"). The following colloquy between Justice Austin and Defendants' attorney suggests that Dicks acknowledged that there were escrow monies in those accounts:
THE COURT: What about conversion?
[DEFENDANTS' COUNSEL]: They have not made any cause of action for conversion.
THE COURT: Don't I have, in the papers that have been submitted, a letter from your client acknowledging that the moneys that he was taking were escrowed moneys?
[DEFENDANT'S COUNSEL]: The letter I believe said they might be escrow. Buthe was taking the precaution in case —
THE COURT: With all due respect, Mr. Dicks' letter of March 17, 2008, Exhibit Bannexed to the Moberg affidavit, says, and I quote, I need a list of accounts payable from the existing escrow accounts. There's no words of limitation, are there?
[DEFENDANT'S COUNSEL]: No, Judge.
THE COURT: Okay. So Mr. Dicks in his own words has acknowledged the fact thatthere were escrowed moneys in those accounts. Maybe not all of it, but at least to some extent he has acknowledged that those moneys in whole or part were escrow.
Am I correct?
[DEFENDANT'S COUNSEL]: Yes, your Honor . . .
Ex. G at pp. 26-27.
C. The Parties' Positions
With respect to their Motion for Summary Judgment, Defendants submit, inter alia, that
1) Plaintiff has improperly named Dicks as a defendant, as Plaintiff has failed to allege facts that would warrant piercing the corporate veil; 2) Plaintiff has not demonstrated its right to an accounting, in light of the provisions of the Agreement stating that Streamline's obligation to provide Washington Title with an accounting is triggered upon termination of the Agreement, which has not occurred; 3) in the absence of allegations that Dicks signed the Agreement, or was otherwise a party to it, Dicks should not be bound by its terms; 4) the Agreement is void because it was signed by Mary Tarasco, who misrepresented herself as Streamline's president; 5) the cause of action for conversion must fail because Plaintiff has failed to demonstrate its right to possess the money in the accounts in question; and 6) in light of the Agreement, Plaintiff may not recover under an unjust enrichment theory.
With respect to Defendants' motion to amend their Answer, and add affirmative defenses, Defendants submit that the information on which they rely was not available to Defendants at the time they served their Answer. That information includes the deposition testimony of Moberg on January 26, 2009 regarding 1) a joint venture between SPM and Streamline, and 2) accounts that Moberg opened in Streamline's name. Defendants submit that Moberg's testimony that the funds in certain accounts were held for third parties and not for Washington Title raises issues as to whether Washington Title has standing to initiate this action. Thus, Defendants seek permission to assert the defenses that 1) the court does not have subject matter jurisdiction over this action; 2) Washington Title does not have standing to initiate this action; and the 3) the court should not proceed in the absence of the buyers and sellers of real property for whom the funds were maintained in escrow.
Washington Title opposes Defendants' Motion for Summary Judgment, arguing, inter alia, that 1) Dicks is properly named in the Complaint because, even if he did not control Streamline, he used his status as president and shareholder to commingle corporate and personal monies and use Streamline's escrow funds for his personal expenses; 2) even if Tarasco lacked authority to execute the Agreement, Dicks was still not authorized to remove funds from the escrow accounts; 3) Dicks' claimed lack of knowledge is undermined by his request to Moberg for an accounting of the monies being held in Streamline's escrow account; 4) Defendants' arguments regarding unjust enrichment are inapposite as Plaintiff is proceeding not on that theory, but rather on the theory of monies had and received; 5) the conversion claim is viable and inappropriate for summary judgment in light of outstanding factual issues including a) Tarasco's actual or apparent authority to execute the Agreement, and b) the continuing relationship between Washington Title and Streamline after the execution of the Agreement; 6) Plaintiff's cause of action for an accounting survives, notwithstanding any provision in the Agreement, by virtue of the fiduciary relationship between Plaintiff and Defendants; and 7) Plaintiff's cause of action for breach of contract survives, notwithstanding the fact that Dicks was not a party to the Agreement, because Dick's control over and improper use of funds in Streamline's accounts facilitated Streamline's breach of that Agreement.
Washington Title opposes Defendants' Motion to Amend their Answer on grounds including: 1) the motion is defective because the affirmation in support is from counsel, who does not have personal knowledge of the facts; 2) the motion is defective because it does not include the proposed amended answer that Defendants seek leave to file; 3) Defendants waived the affirmative defense of lack of capacity to sue because they failed to move the dismiss the Complaint on this ground, or to include this defense in their Answer; and 4) Defendants have failed to set forth meritorious grounds supporting the three proposed new affirmative defenses.
RULING OF THE COURT
I. Defendant's Motion for Summary Judgment
A. Standing
Standing to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant's request. Caprer v. Nussbaum, 36 AD3d 176 (2d Dept. 2006). During the oral argument leading to the Prior Decision, Defendants' counsel argued that Plaintiff lacks standing to bring this action because Plaintiff has not established that money is owed pursuant to the Agreement. Justice Austin responded by remarking that "Mr. Dicks helped them reach that threshold by referring to the moneys as escrow funds[,]" and denied Plaintiff's motion to dismiss the Complaint (Tr. at p. 30). As Justice Austin noted, there was a relationship between Stream Line and Washington Title with regarding to the taking of moneys to secure certain payments on behalf of parties for whom title was closed (Tr. at p. 28). Under all the circumstances, the Court concludes that Plaintiff has standing to pursue this lawsuit.
B. Principles of Summary Judgment
The party seeking summary judgment must establish an entitlement to judgment as a matter of law. Alvarez v. Prospect Hosp., 68 NY2d 320 (1986); Zuckerman v. City of New York, 49 NY2d 557 (1980). If the party moving for summary judgment fails to establish a prima facie entitlement to judgment as a matter of law, the motion must be denied. Winegrad v. New York University Medical Center, 64 NY2d 851 (1985); Widmaier v. Master Products, Mfg., 9 AD3d 362 (2d Dept. 2004); Ron v. New York City Housing Auth., 262 AD2d 76 (1st Dept. 1999). CPLR § 3212(b) further requires that, in ruling on a motion for summary judgment, the court must determine if the movant's papers justify holding as a matter of law "that there is no defense to the cause of action or that the cause of action or defense has no merit." In making this determination, the Court must view the evidence submitted by the moving party in a light most favorable to the non-movant. Marine Midland Bank, N.A. v. Dino Artie's Automatic Transmission Co., 168 AD2d 610 (2d Dept. 1990). The Court may only grant summary judgment when there are no issues of material fact and the evidence requires the court to direct judgment in favor of the movant as a matter of law. Friends of Animals, Inc. v. Associated Fur Mfrs., 46 NY2d 1065 (1979).
C. Causes of Action Alleged in the Complaint
Conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession. Colavito v. New York Organ Donor Network Inc. , 8 NY3d 43 , 49 (2006).
A cause of action for money had and received sounds in quasi contract and arises when, in the absence of an agreement, one party possesses money that in equity and good conscience he ought not retain. Goldman v. Simon Property Group , 58 AD3d 208 , 220 (2d Dept. 2008), quoting Rocks Jeans v. Lakeview Auto Sales Serv., 184 AD2d 502 (2d Dept. 1992). An action for money had and received is an obligation that the law creates in the absence of
agreement when one party possesses money that in equity and good conscience he ought not to retain and that belongs to another. Goldman, supra, at 220, citing Matter of Witbeck, 245 AD2d 848, 850 (3d Dept. 1997), quoting Parsa v. State of New York, 64 NY2d 143 (1984). Moreover, although the existence of a valid and enforceable contract governing a particular subject matter generally precludes recovery in quasi-contract, where there is a bona fide dispute as to the existence of a contract, or the application of a contract in the dispute in issue, a plaintiff may proceed upon a theory of quasi contract as well as breach of contract, and will not be required to elect his remedies. Goldman at 220.
To establish a cause of action for breach of contract, one must demonstrate: 1) the existence of a contract between the plaintiff and defendant, (2) consideration, 3) performance by the plaintiff, (4) breach by the defendant, and (5) damages resulting from the breach. Furia v. Furia, 116 AD2d 694 (2d Dept. 1986).
In order to maintain an action for an accounting, the party seeking the accounting must establish that a fiduciary or trust relationship exists. Schantz v. Oakman, 163 NY 148 (1900); Akkaya v. Prime Time Transport , 45 AD3d 616 (2nd Dept. 2007); and Darlagiannis v. Darlagiannis, 48 AD2d 875 (2nd Dept. 1975). D. Piercing the Corporate Veil
Generally, a corporation exists independently of its owners, who are not personally liable for the corporation's obligations. Moreover, individuals may incorporate for the express purpose of limiting their liability. East Hampton v. Sandpebble, 884 NYS2d 94, 98 (2d Dept. 2009), citing Bartle v. Home Owners Coop., 309 NY 103, 106 (1955) and Seuter v. Lieberman, 229 AD2d 386, 387 (2d Dept. 1996). The concept of piercing the corporate veil is an exception to this general rule, permitting, under certain circumstances, the imposition of personal liability on owners for the obligations of their corporations. East Hampton, 884 NYS2d at 98, citing Matter of Morris v. N.Y.S. Dept. Of Taxation, 82 NY2d 135, 140-41 (1993).
A plaintiff seeking to pierce the corporate veil must demonstrate that a court should intervene because the owners of the corporation exercised complete domination over it in the transaction at issue. Plaintiff must further demonstrate that, in exercising this complete domination, the owners of the corporation abused the privilege of doing business in the corporate form, thereby perpetrating a wrong that caused injury to plaintiff. East Hampton, 884 NYS2d at 98, citing, inter alia, Love v. Rebecca Dev., Inc. 56 AD3d 733 (2d Dept. 2008). In determining whether the owner has "abused the privilege of doing business in the corporate form," the Court should consider factors including 1) a failure to adhere to corporate formalities, 2) inadequate capitalization, 3) commingling of assets and 4) use of corporate funds for personal use. East Hampton, 884 NYS2d at 99, quoting Millennium Constr., LLC v. Loupolover , 44 AD3d 1016 , 1016-1017 (2d Dept. 2007).
E. Subject Matter Jurisdiction
The Supreme Court is a court of original, unlimited and unqualified jurisdiction that is competent to entertain all causes of actions unless its jurisdiction has been specifically proscribed. Matter of Fry, 89 NY2d 714, 718 (1997), quoting Kagen v. Kagen, 21 NY2d 532, 537 (1968) and Thrasher v. United States Liab. Ins. Co., 19 NY2d 159, 166 (1967). The Court concludes that Dick's alleged removal of funds affects Washington Title's ability to meet its obligations regarding unsatisfied liens, judgments and other encumbrances affecting title with respect to the policies that it issued through Streamline, and holds that the Supreme Court has subject matter jurisdiction over this action.
F. Application of Legal Principles to the Present Case
The Court concludes, based on the record before it, that 1) Plaintiff has standing to pursue this action; 2) the Supreme Court has subject matter jurisdiction over this action; 3) there are sufficient allegations regarding Dicks' control of the accounts and diversion of the accounts' funds to hold him personally liable; and 4) there are factual disputes regarding material issues, including Dicks' knowledge of the accounts in question and the extent to which he controlled Streamline, that preclude summary judgment. Accordingly, the Court denies Defendants' motion for summary judgment, and dismissal of the Complaint, in its entirety.
II. Defendant's Motion to Amend Answer
Pursuant to CPLR § 3025(c), the Court may permit pleadings to be amended before or after judgment to conform them to the evidence, upon such terms as may be just including the granting of costs and continuances. The decision whether to permit amendment of the pleadings is within the Court's discretion, and the Court should freely grant leave to amend pleadings, absent prejudice or surprise resulting directly from the delay. Sanford v. Sanford, 176 AD2d 932, 933 (2d Dept. 1991).
CPLR § 3211(a)(10) provides that a party may move for judgment dismissing one or more causes of action asserted against him on the grounds that the court should not proceed in the absence of a person who should be a party. In turn, CPLR § 1001(a) provides as follows:
Persons who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected bya judgment in the action shall be made plaintiffs or defendants. When a personwho should join as a plaintiff refuses to do so he may be made a defendant.
The Court is persuaded by Washington Title's argument that the outcome of this action will not affect the buyers and sellers of real property for whom the funds were maintained in escrow, in light of the fact that Washington Title remains obligated, as the title underwriter, under the title policies issued in connection with the transactions involving these buyers and sellers. Accordingly, the Court concludes that these buyers and sellers are not necessary parties in this action.
In light of, inter alia, 1) the age and procedural posture of this case, which is scheduled for a pre-trial conference on February 23, 2010, 2) the Court's conclusion that the court has subject matter jurisdiction over this case, 3) the Court's determination that Plaintiff has standing to bring this action, and 4) the Court's finding that the buyers and sellers at issue are not necessary parties in this action, the Court denies Defendants' motion to serve an amended answer.
All matters not decided herein are hereby denied. This constitutes the decision and order of the Court.
The Court reminds counsel of their required appearance before the Court for a pre-trial conference on February 23, 2010 at 9:30 a.m.