In this action by plaintiff Trystate Mechanical, Inc. (plaintiff) to recover damages for breach of contract, unjust enrichment, and quantum meruit, defendant Tefco, LLC (Tefco) moves for an order, pursuant to CPLR 3211, dismissing plaintiff's complaint as against it.

Chapeau, Inc. d/b/a BluePoint Energy, Inc. (Chapeau) was in the business of providing electrical power and thermal energy through co-generation systems (Cogen Systems) constructed, owned, and operated by it at the site of a customer. In December 2006, Chapeau contracted with Macy's East Division of Federated Retail Holdings, Inc. (Macy's) to provide discounted electrical power and thermal energy through Cogen systems to be constructed at Macy's stores located in Brooklyn and White Plains, New [*2]York. The terms of each of these contracts were set forth in a Discount Energy Purchase Agreement (DEPA).

With respect to Macy's store in Brooklyn, Chapeau, as owner, entered into a DEPA dated July 2006 and a First Amendment to the DEPA dated December 17, 2006, with Macy's, as customer, under which Macy's agreed to purchase discounted electrical power and thermal energy from Chapeau for use by its Brooklyn store, once Chapeau had constructed, installed, and was prepared to operate a Cogen System that was to be constructed on the roof of that store. Under the DEPA, the Cogen System was to be wholly owned by Chapeau, and it was to be operated and maintained by Chapeau. The DEPA was for an initial term of 10 years. Over that 10-year period from the date of commencement of the DEPA, Chapeau was to furnish Macy's with discounted, more economical heat and electrical energy service, which was to be purchased by Macy's in accordance with a schedule contained in the DEPA. With respect to Macy's property in White Plains, Macy's entered into a DEPA on December 12, 2006, which contained similar terms. Thereafter, Chapeau proceeded to construct and install the Cogen Systems at Macy's stores in Brooklyn and White Plains, New York.

Chapeau entered into one or more agreements with plaintiff, a subcontractor, in which plaintiff agreed to furnish project management services, labor, and materials in connection with the Cogen System at Macy's Brooklyn store. Plaintiff claims that between May 30, 2007 and February 22, 2008, it furnished these services, labor, and materials to Chapeau in the aggregate value of $394,568.92, but payment in the amount of $167,260.02 remains due and owing to it from Chapeau.

Chapeau also entered into an agreement with plaintiff, whereby plaintiff agreed to furnish project management services, labor, and equipment in connection with cooling towers, chillers, and associated accessories for Macy's White Plains store. Plaintiff claims that between September 1, 2007 and mid-March 2008, it furnished materials in the aggregate value of $393,300.86 at Macy's White Plains store, but it has not been paid in full, and payment in the amount of $88,300.86 remains due and owing to it from Chapeau.

Tefco is a Virginia limited liability company with its principal place of business in California, which was formed for the purposes of financing Chapeau's operations, purchasing Chapeau's Cogen System projects, and assuming the related contractual obligations thereunder. Tefco became the largest shareholder of Chapeau, and was capitalized with $26 million from an investor group that included, as a significant member owning approximately 36%, Gordon V. Smith, a shareholder and director of Chapeau. On December 19, 2007, Chapeau signed a Joint Venture Agreement with Tefco. Pursuant to a Turnkey Project Acquisition, Loan and Security Agreement dated March 20, 2008 between Tefco and Chapeau (the Turnkey Agreement), which purported to amend and restate the Joint Venture Agreement, Tefco loaned Chapeau $10 million in advances made between December 19, 2007 and March 6, 2008. All of Chapeau's assets [*3]were pledged to Tefco as collateral for these loans. Specifically, under Section 5.1 of the Turnkey Agreement, Chapeau granted Tefco a security interest in all of its accounts, inventory, equipment, general intangibles, and other property of any kind, with such security interest to continue in full force and effect until the secured obligations were fully paid. In March 2008, Tefco filed UCC-1 Financing Statements.

The Turnkey Agreement obligated Tefco to purchase each of six Cogen Systems, which included the Cogen Systems at Macy's Brooklyn store and Macy's White Plains store (and four other similar Cogen Systems at Starwood Resorts), subject to other terms and conditions, upon their completion. On April 24, 2008, Macy's executed a Consent to Assignment, under which it consented to the assignment of the DEPA for its Brooklyn store from Chapeau to Tefco.

On June 30, 2008, Tefco and Chapeau executed a Turnkey Project Purchase Agreement for each of the six Cogen Systems (the Purchase Agreement), including the Cogen Systems at Macy's Brooklyn store and White Plains store. Each Purchase Agreement was to be finalized with a transfer of title and assignment and assumption agreement, upon the satisfaction of certain closing conditions, including the completion of the Cogen System. Only three of the Cogen Systems were completed by Chapeau and sold to Tefco.

Since the Cogen System at Macy's Brooklyn store was completed, Tefco, on June 30, 2008, purchased Macy's Brooklyn store's Cogen System. In connection with this acquisition by Tefco, Chapeau assigned and Tefco assumed the DEPA for Macy's Brooklyn store, pursuant to an Assignment and Assumption of DEPA dated June 30, 2008 (the Assignment Agreement). The Cogen System at Macy's White Plains store was not completed (although some installation of equipment occurred there), and, therefore, it was not purchased by Tefco.

In September 2008, Tefco sent Chapeau notice that it was in default under the terms of the Turnkey Agreement, and Tefco initiated a foreclosure sale. On October 31, 2008, Chapeau filed a voluntary Chapter 11 bankruptcy case in the United States Bankruptcy Court for the District of Nevada, which stayed the foreclosure sale by Tefco. At that time, Chapeau also made a motion before the Bankruptcy Court for an order, pursuant to 11 USC §§ 363 and 365 (the Section 363 motion) to approve the sale of its assets free and clear of liens, claims, and encumbrances.

Since plaintiff was not paid by Chapeau, plaintiff, on October 7, 2008, filed a notice of mechanic's lien on account of private improvement with the Kings County Clerk's office for the sum of $167,260.02 for the project management services, labor, and equipment it furnished in connection with the Cogen System at Macy's Brooklyn store. In connection with that lien, plaintiff acknowledged that no funds were ever paid to Chapeau for the installation, construction, or operation of the Cogen System at Macy's Brooklyn store.

On November 17, 2008, plaintiff filed an opposition to Chapeau's Section 363 [*4]motion, arguing that it had a lien on certain assets of Chapeau, which should remain in trust. At a November 24, 2008 hearing, the Bankruptcy Court Judge, in discussing plaintiff's claims, stated that "in the absence of payment there's no trust." On November 24, 2008, the Bankruptcy Court denied Chapeau's motion to approve a Section 363 sale and, upon Chapeau's motion, converted the Chapter 11 proceeding to a Chapter 7 liquidation of Chapeau. Thereafter, Craig Wyosnick was appointed as the Chapter 7 Trustee (the Trustee).On January 16, 2009, Tefco was granted relief by the Bankruptcy Court to hold its foreclosure sale outside of bankruptcy. Notice of the sale was sent to all creditors and purported creditors of Chapeau, including plaintiff. The Notification of Disposition of Collateral stated that on February 3, 2009, Tefco would sell the collateral, which consisted of all of the personal property of Chapeau, including without limitation, all of its right, title and interest in and to all accounts, inventory, equipment, general intangibles (including all contracts), intellectual property, all other property of any kind, and all books and records, to the highest qualified bidder on February 3, 2009, pursuant to the applicable provisions of Title 8.9A of the Virginia Commercial Code and UCC article 9.

On January 27, 2009, an entity called BluePoint Energy, LLC filed with the Nevada Department of State to do business there. The corporate filing for BluePoint Energy, LLC listed Tefco as its managing member. BluePoint Energy, LLC is wholly owned by Tefco, and is its newly formed subsidiary.

On January 30, 2009, plaintiff filed its proof of claim against Chapeau in the Bankruptcy Court for $255,560.88. On February 2, 2009, plaintiff faxed and mailed a letter to Tefco, informing it of its claimed interest in the Brooklyn and White Plains Cogen Systems, and that a transfer of Chapeau's assets to it would expose it to liability as a transferee. Plaintiff did not attend the foreclosure sale, which was held on February 3, 2009. At the foreclosure sale, Tefco bid $1.6 million for most of Chapeau's assets, which did not include the assets located at Macy's Brooklyn store because those assets had previously been assigned to Tefco on June 30, 2008.

On March 13, 2009, plaintiff filed this action ^[FN1] in the Supreme Court, Westchester [*5]County, against Tefco to recover damages for breach of contract, unjust enrichment, and quantum meruit. Plaintiff, in its complaint, claims that it is entitled to be paid for the project management services, labor, and equipment which it furnished in connection with the Cogen System at Macy's Brooklyn store, for which it claims to be owed payment in the amount of $167,260.02, and in connection with the Cogen System at Macy's White Plains store, for which it claims to be owed payment in the amount of $88,300.86. Plaintiff's complaint alleges that all of Chapeau's right, title, and interest to the Cogen Systems at Macy's Brooklyn store and White Plains store were assigned to Tefco, and that Tefco is Chapeau's successor in interest, and, therefore, liable to it for Chapeau's breach of contract. Plaintiff's complaint also alleges that Tefco is otherwise indebted to it in quantum meruit and unjust enrichment since it received the benefit of its work, labor, services, and materials without paying for it.

After the filing of this action, Tefco executed an Amended Transfer Statement Pursuant to UCC 9-619 dated March 30, 2009, which purported to replace and supersede the Transfer Statement Pursuant to UCC 9-619 that had been executed by Tefco on February 3, 2009 (and which has not been submitted to the court). The Amended Transfer Statement Pursuant to UCC 9-619 contains, in Schedule B, a list of certain assets, i.e., all equipment and/or personal property and/or assets or intangibles owned by Chapeau, located at or associated with Macy's store in White Plains, which, Tefco claims, were not purchased by it and were excluded from the foreclosure sale.

On June 14, 2009, Tefco filed an adversary proceeding in the Bankruptcy Court against Chapeau, plaintiff, and other alleged creditors and lien holders of Chapeau, seeking a determination as to the extent, priority, and validity of the liens and claims (the adversary proceeding). On June 16, 2009, Tefco filed a motion to stay this action, pending the resolution of the adversary proceeding in the Bankruptcy Court, and on July 20, 2009, this action was stayed by the Supreme Court, Westchester County, where it was then pending. On July 15, 2009, plaintiff moved in the Bankruptcy Court for an order of abstention under 28 USC § 1334 (c) (1). On September 24, 2009, the Bankruptcy Court granted plaintiff's motion for abstention, and issued Findings of Fact and Conclusions of Law. In its Findings of Fact and Conclusions of Law, the Bankruptcy Court concluded that abstention was warranted since issues of New York law predominate, and if this New York action is resolved in favor of either Tefco or plaintiff, no assets would flow into the bankruptcy estate. On October 16, 2009, the Supreme Court, Westchester County, lifted the stay in this action by scheduling a preliminary conference. By order dated January 25, 2010, this action was transferred from the Supreme Court, Westchester County, to this court, upon the stipulation of the parties.

In considering Tefco's instant motion to dismiss under CPLR 3211 (a) (7) for [*6]failure to state a claim, the court notes that, upon such a motion, it must accept the allegations of the complaint as true and accord the plaintiff the benefit of every possible favorable inference, determining only whether the alleged facts fit within any cognizable legal theory (see Polonetsky v Better Homes Depot, 97 NY2d 46, 54 [2001]; Leon v Martinez, 84 NY2d 83, 87-88 [1994]; CBS Corp. v Dumsday, 268 AD2d 350, 352 [2000]). Here, plaintiff's complaint alleges that Tefco is liable to it as a successor in interest to Chapeau for the monies owed to it by Chapeau for the work performed by it at Macy's Brooklyn store and White Plains store.

In support of its motion, Tefco notes that "an assignee or successor will not be bound to the terms of a contract absent an affirmative assumption of the duties under the contract," and argues that it never affirmatively assumed Chapeau's duties under its contracts with plaintiff (see Amalgamated Tr. Union Local 1181, AFL-CIO v City of New York, 45 AD3d 788, 790 [2007]). Tefco relies upon the general rule that a corporation which acquires the assets of another is not liable for the debts of its predecessor (see Shumacher v Richards Shear Co., 59 NY2d 239, 244-245 [1983]; Kretzmer v Firesafe Prods. Corp., 23 AD3d 158, [2005]; Matter of New York City Asbestos Litig.,15 AD3d 254, 255 [2005]). However, there are exceptions to this general rule, under which the purchaser of the assets of a corporation will be held liable for the liabilities of that predecessor corporation, which are as follows: "(1) [if the purchaser has] expressly or impliedly assumed the predecessor's liability, (2) [if] there was a consolidation or merger of [the] seller and [the] purchaser, (3) [if] the purchas[er] was a mere continuation of the selling corporation, or (4) [if] the transaction is entered into fraudulently to escape such obligations" (Shumacher, 59 NY2d at 245; see also Matter of AT & S Transp., LLC v Odyssey Logistics & Tech. Corp., 22 AD3d 750, 752 [2005]). Tefco argues that plaintiff has failed to specifically allege any of these exceptions, and that it, therefore, cannot be held liable to plaintiff as a successor to Chapeau.

Plaintiff, however, has specifically alleged Tefco's successor liability in its complaint. In opposition to Tefco's motion, plaintiff amplifies this allegation by asserting that since Tefco purchased Chapeau via a purchase of its assets, there has been a de facto merger. It is well established that a transaction structured as a purchase of assets may be deemed to fall within the exception to the general rule as a de facto merger, and permit the imposition of successor liability (see AT & S Transp., LLC, 22 AD3d at 752; Matter of New York City Asbestos Litig., 15 AD3d at 256). "The hallmarks of a de facto merger are the continuity of ownership; cessation of ordinary business and dissolution of the [predecessor] as soon as possible; assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and, continuity of management, personnel, physical location, assets and general business operation'" (AT & S Transp., LLC, 22 AD3d at 752, quoting Fitzgerald v Fahnestock & Co., 286 AD2d 573, 574 [2001]). In considering these factors, they must be "analyzed in a flexible manner that disregards mere questions of form and asks whether, in substance, [*7]it was the intent of the successor to absorb and continue the operation of the predecessor" (AT & S Transp., LLC, 22 AD3d at 752).

Plaintiff asserts that there is a continuity of ownership. This element has been held to be established when "the shareholders of the predecessor corporation become direct or indirect shareholders of the successor corporation as the result of the successor's purchase of the predecessor's assets" (Matter of New York City Asbestos Litig.,15 AD3d 254 [2005]). There is evidence indicating that Tefco and Chapeau have been under common ownership or control based upon documents filed by Chapeau with the Securities and Exchange Commission which state that Tefco was formed "for the purpose of owning turnkey projects employing Chapeau's Environ Gen(c) Energy Modules," and Tefco was "capitalized with $26 million from an investor group that includes as a significant member owning approximately 36%, Gordon V. Smith, a shareholder and director of Chapeau." Both Tefco and Gordon V. Smith, who is a 40.565% member of Tefco, own numerous shares in Chapeau. Gordon V. Smith was also a director of Chapeau. Furthermore, Tefco admits that it contributed the assets which it purchased from Chapeau to BluePoint Energy, LLC, which, as previously noted, is Tefco's wholly owned subsidiary (and which lists Tefco as its managing member). Discovery may provide further documentation of the intertwined relationship between Tefco and Chapeau (see Ladenburg Thalmann & Co. v Tim's Amusements, 275 AD2d 243, 248 [2000]).

Tefco, in response, asserts that the interrelationship between it and Chapeau is not evidence of a de facto merger. Tefco argues that since it and Gordon V. Smith were already shareholders of Chapeau prior to any alleged de facto merger and prior to Tefco's purchase of Chapeau's assets at the foreclosure sale, they did not become members of the successor entity as the result of the successor's purchase of the predecessor's assets. This argument is unavailing. As noted above, Tefco was formed for the very purpose of purchasing the Cogen Systems and the DEPAs from Chapeau, and pursuant to the Turnkey Agreement, it was expected to acquire all of the Cogen Systems and DEPAs upon their completion. It thus appears that Tefco's succession to Chapeau's assets was contemplated prior to the actual transfer and had been planned prior to the performance of plaintiff's work upon the Cogen Systems.

As to the other factors requisite to a finding of a de facto merger, it is noted that, with respect to the element of "cessation of ordinary business and dissolution of the [predecessor] as soon as possible," Chapeau's Chapter 7 bankruptcy petition will result in its liquidation, and there is no provision for the continuation of Chapeau's corporate existence in any way. Furthermore, the foreclosure notice listed, in addition to all physical property and financial assets, "all books and records," as well as all "intellectual property," which supports the view that a further separate corporate existence of Chapeau, following such a sale, would be impossible.

As to the element of "assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation," [*8]the Notification of Disposition of Collateral filed by Tefco indicates that Tefco purchased the existing contracts of Chapeau. In fact, even the Amended Statement Pursuant to UCC 9-619 lists, in paragraph 2, that the collateral includes all contracts, and Schedule A of that Amended Statement specifically lists 10 executory contracts purchased by Tefco. The Turnkey Agreements, under which Tefco is currently performing, expressly provided that Chapeau's energy supply obligations under the DEPAs with Macy's would be assumed by Tefco.

With respect to the element of "continuity of management, personnel, physical location, assets and general business operation," it is undisputed that Tefco's subsidiary, BluePoint Energy, LLC has hired some of Chapeau's personnel, including Steven P. Brandon, which BluePoint Energy, LLC's website lists as its Chief Operations Officer. According to the Nevada Secretary of State's website, Steven P. Brandon served as President to Chapeau. Notably, in Steven P. Brandon's biography on this website, he does not differentiate his service to Chapeau from his current position, which is arguably indicative that the companies are so closely related as to not be distinct from each other.

It is undisputed that Tefco is presently the owner of the Cogen System located at Macy's Brooklyn store and the related DEPA. Tefco contends, however, that while it did complete the purchase of Macy's Brooklyn store's Cogen System and assumed the DEPA for that location, under the Assignment Agreement, it did not assume any liability to plaintiff. Tefco relies upon paragraph 3 of the Assignment Agreement, which provided that "[t]he Assignee absolutely and unconditionally assumes from the Assignor, and the Assignee shall be obligated to perform, and hereby undertakes to perform, all of the Assignor's obligations, duties and liabilities under the DEP[A] arising on or after the Effective Date." Tefco contends that since the Effective Date of the Assignment Agreement is stated to be June 30, 2008, it did not assume any liability to plaintiff for goods or services provided to Chapeau prior to June 30, 2008.

Tefco's contention is rejected. Chapeau's alleged liability to plaintiff had already accrued and was in existence as of the Effective Date of the Assignment Agreement. In acquiring the physical assets which had been provided and/or installed by plaintiff, with knowledge of the unpaid claim of plaintiff, Tefco would succeed to the obligation of Chapeau to pay plaintiff. Paragraph 1 of the Assignment Agreement provides for the "unconditional" and "absolute" assumption of all of assignor's right, title and interest under the DEPA, including rights relating to the equipment. Thus Tefco acquired the equipment subject to any lien plaintiff might assert against the property. Any attempt to avoid payment to plaintiff by the assignment of the Cogen System would constitute a fraudulent transfer (see, e.g. UCC § 2-402 (2), (3)). A transaction may not be entered into fraudulently to escape a legal obligation (see Debtor and Creditor Law § 278 [1]; Holme v Global Mins. & Metals Corp., 63 AD3d 417, 417-418 [2009]; Fitzgerald, 286 AD2d at 575).

As to Macy's White Plains store, since the Cogen System was not completed, the [*9]Cogen System and the DEPA were not assigned by an Assignment Agreement. However, the Notification of Disposition of Collateral provided that on February 3, 2009, Chapeau would sell all of its collateral, which consisted of all of Chapeau's personal property, without limitation, including all of its interest in accounts and equipment. While Tefco, following plaintiff's commencement of this action, executed an Amended Transfer Statement purporting to retroactively exclude the assets associated with Macy's White Plains store from its UCC 9-619 purchase, the effectiveness of such Amended Transfer Statement remains an issue before the Bankruptcy Court which is expected to address the issue of what assets were purchased by Tefco at the foreclosure sale at a hearing scheduled for September 30, 2010.^[FN2] On January 30, 2009, plaintiff filed a claim in the Nevada Bankruptcy Court against Chapeau for the sums demanded in this action. Thus, the decision of the Bankruptcy Court may obviate the need for a an adjudication here.

In order to avoid the potential for a conflict in the rulings of this court and the Bankruptcy Court, this court will await the determination of the Bankruptcy Court following the September 30, 2010 trial before addressing whether Tefco owns the assets at Macy's White Plains store. In any event, it is unnecessary to reach this issue on this motion to dismiss by Tefco because plaintiff has stated a claim against Tefco on a theory of successor liability based on Tefco's acquisition of Chapeau's assets at Macy's Brooklyn store.

Upon examination of plaintiff's complaint, the court finds that plaintiff has stated a cognizable claim against Tefco based upon successor liability, which must be explored through discovery (see generally Polonetsky, 97 NY2d at 54). Accordingly, Tefco's motion for an order, pursuant to CPLR 3211, dismissing plaintiff's complaint is denied.

This constitutes the decision and order of the court.

ENTER,

J.S.C.