Labriola Props., Inc. v Madame Butterfly Cakes, Inc.

Appellate Term of the Supreme Court, Appellate Term, Second Department, 9th And 10th Judicial Districts

Decided on July 29, 2025

2024-872 S C

Present: : Jerry Garguilo, P.J., Timothy S. Driscoll, Elena Goldberg-Velazquez, JJ

Certilman Balin Adler & Hyman, LLP (Anthony W. Cummings of counsel), for appellants. Raimondi Law, P.C. (Christopher A. Raimondi and Anthony T. Wladyka, III of counsel), for respondent.

Appeal from an order of the Suffolk County Court (David A. Morris, J.) dated July 1, 2024. The order, insofar as appealed from and as limited by the brief, denied the branch of defendants' motion seeking to dismiss the sixth cause of action in the original complaint and to impose sanctions against plaintiff, and granted the branches of plaintiff's cross-motion seeking leave to amend the complaint to assert new fifth through ninth causes of action.

ORDERED that the order, insofar as appealed from, is modified by providing that the branches of plaintiff's cross-motion seeking leave to amend the complaint to assert (1) a negligence claim against Terry Haughy in the fifth cause of action, (2) piercing the corporate veil as the sixth cause of action, (3) successor liability as the seventh cause of action, (4) fraudulent conveyance as the eighth cause of action, and (5) voidable transaction as the ninth cause of action are denied; as so modified, the order, insofar as appealed from, is affirmed, without costs.

Plaintiff commenced this action to recover from defendants Madame Butterfly Cakes, Inc. (MBC) and Micheline G. Cummings for rent arrears and property damage on premises leased to MBC by plaintiff. The complaint asserted, as the third and fourth causes of action, breach of contract claims against Cummings in her capacity as guarantor for MBC under the lease, and, as the sixth cause of action, a negligence claim against Cummings in her individual capacity. By notice of motion dated February 23, 2024, defendants moved to dismiss the complaint and to impose sanctions against plaintiff pursuant to Rules of the Chief Administrator of the Courts (22 NYCRR) § 130-1.1, arguing, among other things, that plaintiff was aware that its claims against Cummings had been discharged in bankruptcy and that its act of filing the [*2]complaint despite this knowledge was frivolous.

Plaintiff consented to the dismissal of the third and fourth causes of action but opposed the rest of defendants' motion and cross-moved for leave to amend the complaint. Insofar as is relevant to this appeal, plaintiff sought leave to assert a claim of negligence against Cummings and proposed additional defendant Terry Haughy as the fifth cause of action; piercing the corporate veil against Cummings, Haughy, and proposed additional defendant Shuga Pie, Inc. (SPI) as the sixth cause of action; successor liability against Cummings, Haughy, and SPI as the seventh cause of action; fraudulent conveyance against Cummings and Haughy as the eighth cause of action; and voidable transaction against Cummings, Haughy, and SPI as the ninth cause of action. Defendants opposed plaintiff's cross-motion and argued that plaintiff should be sanctioned for asserting these new claims.

By order dated July 1, 2024, the County Court (David A. Morris, J.) granted the branches of defendants' motion seeking to dismiss the original complaint's third and fourth causes of action; denied the branches of defendants' motion seeking to dismiss the rest of the complaint and to impose sanctions against plaintiff; and granted plaintiff's cross-motion for leave to amend the complaint. On appeal, defendants contend that the County Court erred in granting plaintiff leave to amend the complaint to assert new fifth through ninth causes of action, that the original complaint's sixth cause of action should have been dismissed, and that the County Court should have imposed sanctions on plaintiff.

"Although leave to amend should be freely given in the absence of prejudice or surprise to the opposing party, the motion should be denied where the proposed amendment is palpably insufficient or patently devoid of merit" (Precious Care Mgt., LLC v Monsey Care, LLC, 221 AD3d 922, 924 [2023] [internal quotation marks omitted]; see Strunk v Paterson, 145 AD3d 700, 701 [2016]). "The burden of demonstrating prejudice or surprise, or that a proposed amendment is palpably insufficient or patently devoid of merit, falls upon the party opposing the motion" (Mitchell v Jimenez, 233 AD3d 773, 776 [2024] [internal quotation marks omitted]; see National Recruiting Group, LLC v Bern Ripka LLP, 183 AD3d 831, 832 [2020]). "In determining a motion for leave to amend a pleading, a court shall not examine the legal sufficiency or merits of a pleading unless such insufficiency or lack of merit is clear and free from doubt" (Dray v Staten Is. Univ. Hosp., 227 AD3d 664, 666 [2024] [internal quotation marks omitted]; see Faiella v Tysens Park Apts., LLC, 110 AD3d 1028, 1029 [2013]). " 'A determination whether to grant such leave is within the [trial court's] broad discretion, and the exercise of that discretion will not be lightly disturbed' " (Beharrie v MRAG Dev., LLC, 210 AD3d 945, 946 [2022], quoting Krigsman v Cyngiel, 130 AD3d 786, 786 [2015]).

With respect to the fifth cause of action in the proposed amended complaint, negligence against Cummings and Haughy, since there is no dispute that the three-year statute of limitations applicable to the negligence claim (see CPLR 214 [4]) had expired when plaintiff cross-moved for leave to amend the complaint, the question of whether Haughy may be added as a defendant to the negligence claim depends on whether the relation-back doctrine applies (see CPLR 203 [b]; Pirozzi v Garvin, 185 AD3d 848, 851 [2020]). To establish the applicability of the doctrine, a plaintiff must demonstrate that " '(1) both claims arose out of the same conduct, transaction, or occurrence; (2) the new defendant is united in interest with the original defendant, and by reason of that relationship can be charged with notice of the institution of the action such that he or she [*3]will not be prejudiced in maintaining a defense on the merits; and (3) the new defendant knew or should have known that, but for a mistake by the plaintiff as to the identity of the proper parties, the action would have been brought against him or her as well' " (Cedarwood Assoc., LLC v County of Nassau, 211 AD3d 799, 800 [2022], quoting Mileski v MSC Indus. Direct Co., Inc., 138 AD3d 797, 799-800 [2016]). "In a negligence action, the defenses available to two defendants will be identical, and thus their interests will be united, only where one is vicariously liable for the acts of the other" (Moceri v Town of Islip, 225 AD3d 856, 858 [2024] [internal quotation marks omitted]; see Xavier v RY Mgt. Co., Inc., 45 AD3d 677, 679 [2007]).

Here, since the negligence claim in the proposed amended complaint seeks to hold Cummings and Haughy liable only for their own alleged negligence, rather than vicariously liable for each other's alleged negligence, plaintiff failed to establish that Cummings and Haughy were united in interest as required to satisfy the second prong of the relation-back doctrine (see Moceri v Town of Islip, 225 AD3d at 858; Valdez v M.A. Angeliades, Inc., 222 AD3d 911, 913 [2023]; Finck v VL 10 1620 New Hwy., LLC, 203 AD3d 892, 894 [2022]; Weckbecker v Skanska USA Civ. Northeast, Inc., 173 AD3d 936, 937-938 [2019]). Consequently, the County Court should have denied the branch of plaintiff's cross-motion seeking leave to assert a negligence claim against Haughy.

So much of the negligence claim as is against Cummings is not time-barred, as it is undisputed that the original complaint, which asserted a nearly identical negligence claim against Cummings, was filed within the three-year statute of limitations (see Pirozzi v Garvin, 185 AD3d at 851). Furthermore, the negligence claim against Cummings in the proposed amended complaint is not palpably insufficient or patently devoid of merit (see Cirillo v Lang, 206 AD3d 611, 612 [2022]; Tirpack v 125 N. 10, LLC, 130 AD3d 917, 919 [2015]; Favia v Harley-Davidson Motor Co., Inc., 119 AD3d 836, 837 [2014]; Bennett v Long Is. Jewish Med. Ctr., 51 AD3d 959, 960-961 [2008]), and Cummings did not allege that she would be prejudiced by the proposed amendment to the negligence claim against her. Consequently, the County Court correctly granted the branch of plaintiff's cross-motion seeking leave to amend the negligence claim against Cummings.

Since the sixth cause of action in the original complaint, alleging negligence against Cummings, is superseded by the negligence claim against Cummings in the proposed amended complaint, this court need not address defendants' appellate contention regarding the sixth cause of action in the original complaint (see Pirozzi v Garvin, 185 AD3d at 852).

With respect to the sixth cause of action in the proposed amended complaint, piercing the corporate veil against Cummings, Haughy, and SPI, we note that piercing the corporate veil is an equitable remedy, and "County Court possesses limited jurisdiction and may exercise equity power only to the extent specifically provided by law" (Newhouse Props. v McGee, 139 AD2d 923, 923 [1988]; see NY Const, art VI, § 11; Judiciary Law §§ 190, 190-b). Here, it is undisputed that MBC, Cummings, Haughy, and SPI are residents of Suffolk County. Moreover, the causes of action against MBC for which plaintiff seeks to impose liability on Cummings, Haughy, and SPI demand a money judgment not exceeding $25,000. Thus, County Court has jurisdiction over these claims pursuant to Judiciary Law § 190 (3). We find that, pursuant to Judiciary Law § 190-b (1), which allows a County Court, in an action over which it has jurisdiction, to "render any judgment or grant either party any relief that the supreme court may [*4]render or grant in a like case," the County Court has jurisdiction to grant plaintiff the equitable relief of piercing the corporate veil in order to recover on these monetary claims (see Matter of Seidenberg v County Ct. of County of Rockland, 34 NY2d 499, 505 [1974]; Marine Midland Bank v Bowker, 89 AD2d 194, 197 [1982], affd 59 NY2d 739 [1983]; Matter of Myers v Blaise, 23 AD2d 518, 518 [1965]; DeSarro v Prudential Ins. Co. of Am., 263 App Div 792, 792-793 [1941]; see generally 1 Carmody-Wait 2d § 2:158, Jurisdiction of county courts as coextensive with supreme court; cf. Jersey Ins. Co. of New York v Parrish, 33 NYS2d 440, 443 [Erie County Ct 1942]; Majestic Tile Co., Inc. v Nicholls, 161 Misc 231, 235 [Nassau County Ct 1936]; Stappenbeck v Mather, 73 Misc 434, 444 [Oneida County Ct 1911]).

Turning to the merits of plaintiff's claim, "[g]enerally, a plaintiff seeking to pierce the corporate veil must show that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury" (Cortlandt St. Recovery Corp. v Bonderman, 31 NY3d 30, 47 [2018] [internal quotation marks omitted]; see Conason v Megan Holding, LLC, 25 NY3d 1, 18 [2015]). "At the pleading stage, a plaintiff must do more than merely allege that [defendant] engaged in improper acts or acted in 'bad faith' while representing the corporation. The plaintiff must adequately allege the existence of a corporate obligation and that defendant exercised complete domination and control over the corporation and abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice" (Louis Monteleone Fibres, Ltd. v Hudson Baylor Brookhaven, LLC, 228 AD3d 641, 644 [2024] [internal quotation marks omitted]; see East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc., 16 NY3d 775, 776 [2011]). "Factors to be considered in determining whether the owner has abused the privilege of doing business in the corporate form include, inter alia, whether there was a failure to adhere to corporate formalities, inadequate capitalization, commingling of assets, and use of corporate funds for personal use" (New Hackensack Realty, LLC v Lawrence Dev. Realty, LLC, 226 AD3d 799, 804 [2024] [internal quotation marks omitted]; see Sky-Track Tech. Co. Ltd. v HSS Dev., Inc., 167 AD3d 964, 965 [2018]). "A cause of action under the doctrine of piercing the corporate veil is not required to meet any heightened level of particularity in its allegations" (F & R Goldfish Corp. v Furleiter, 210 AD3d 643, 645 [2022]; cf. CPLR 3016).

" 'Piercing the corporate veil is an equitable concept that allows a creditor to disregard a corporation and hold its controlling shareholders personally liable for the corporate debt. Reverse-piercing flows in the opposite direction and makes the corporation liable for the debt of the shareholders' " (Moshell v Alter, 186 AD3d 712, 713 [2020], quoting Sweeney, Cohn, Stahl & Vaccaro v Kane, 6 AD3d 72, 75 [2004]). "In jurisdictions where reverse-piercing is recognized, the factors giving rise to the corporate entity being disregarded are those that apply in traditional veil-piercing cases" (1 James D. Cox & Thomas Lee Hazen, Treatise on the Law of Corporations § 7:18 [4th ed, Dec. 2024 update]; see Moshell v Alter, 186 AD3d at 713; Matter of Edrich v MMAL Corp., 134 AD3d 935, 936 [2015]; State of New York v Easton, 169 Misc 2d 282, 290 [Sup Ct, Albany County 1995]).

"New York does not recognize a separate cause of action for piercing the corporate veil" (Arco Acquisitions, LLC v Tiffany Plaza, LLC, 224 AD3d 798, 799 [2024]; see DiMauro v United, LLC, 122 AD3d 568, 569 [2014]). "[A]n attempt of a third party to pierce the corporate [*5]veil does not constitute a cause of action independent of that against the corporation; rather it is an assertion of facts and circumstances which will persuade the court to impose the corporate obligation on its owners" (Murphy v Jewell, 228 AD3d 676, 678 [2024] [internal quotation marks omitted]; see Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]). Here, plaintiff seeks to impose liability for its claims against MBC on Cummings and Haughy (as the alleged owners of MBC) through traditional piercing, and on SPI (as a corporation allegedly owned by Cummings and Haughy) through reverse-piercing.

With respect to Haughy, both he and Cummings submitted affirmations in opposition to plaintiff's cross-motion stating that Haughy has never been "an officer, shareholder or partner in [MBC] or [SPI]." Haughy further stated that he "ha[s] engaged in no asset transfers or transaction with in [sic] [MBC] or [SPI]." In its reply in further support of its cross-motion, plaintiff did not attempt to refute these statements. Thus, the veil-piercing allegations insofar as asserted against Haughy are palpably insufficient and patently devoid of merit (see Moon v Owadeyah, 223 AD3d 793, 795 [2024]; Global World Realty, Inc. v Zubli, 219 AD3d 1495, 1498 [2023]; Ruland v Leibowitz, 209 AD3d 1051, 1052 [2022]).

However, the veil-piercing allegations insofar as asserted against Cummings and SPI are not palpably insufficient or patently devoid of merit (see Cortlandt St. Recovery Corp. v Bonderman, 31 NY3d at 49; Murphy v Jewell, 228 AD3d at 678; Gold v 22 St. Felix, LLC, 219 AD3d 588, 590-591 [2023]; Hudson-Spring Partnership, L.P. v P+M Design Consultants, Inc., 112 AD3d 419, 420 [2013]; MBIA Ins. Corp. v Greystone & Co., Inc., 74 AD3d 499, 500 [2010]). Thus, though the County Court should have denied the branch of plaintiff's cross-motion seeking leave to assert piercing the corporate veil as a separate cause of action, the court correctly granted the branch of plaintiff's cross-motion seeking to add factual allegations supporting piercing MBC's corporate veil to impose liability on Cummings and reverse-piercing SPI's corporate veil to impose liability on SPI for plaintiff's claims against MBC (see Fiber Consultants, Inc. v Fiber Optek Interconnect Corp., 15 AD3d 528, 529 [2005]; Kapitus Servicing, Inc. v Zumma Mgt. Group, LLC, 81 Misc 3d 1222[A], 2023 NY Slip Op 51427[U], *7-8 [Sup Ct, NY County 2023]; Wheeler Ave. Laundry LLC v Modern Yonkers Realty LLC, 57 Misc 3d 1215[A], 2017 NY Slip Op 51441[U], *6 [Sup Ct, Westchester County 2017]).

With respect to the seventh cause of action in the proposed amended complaint, successor liability against Cummings, Haughy, and SPI, initially, we note that "successor liability is not a separate cause of action, but merely a theory for imposing liability on a defendant based on a predecessor's conduct" (Precious Care Mgt., LLC v Monsey Care, LLC, 221 AD3d at 925 [internal quotation marks omitted]). "The doctrine of successor liability does not create a new cause of action against the successor so much as it transfers the liability of the predecessor to the successor" (Marcum LLP v Fazio, Mannuzza, Roche, Tankel, Lapilusa, LLC, 65 Misc 3d 1235[A], 2019 NY Slip Op 52010[U], *2 [Sup Ct, Suffolk County 2019]). Here, plaintiff seeks to transfer liability for its claims against MBC to Cummings, Haughy, and SPI.

A corporation or other juridical person may be held liable for the obligations of its predecessor if: "(1) [it] expressly or impliedly assumed the predecessor's tort [or contract] liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations" (Lelchook v Société Générale de Banque au Liban [*6]SAL, 41 NY3d 629, 635 [2024] [internal quotation marks omitted]; see Schumacher v Richards Shear Co., 59 NY2d 239, 245 [1983]; Board of Trustees, Sheet Metal Workers' Natl. Pension Fund v Allure Metal Works, Inc., 209 AD3d 712, 714 [2022]). Here, the proposed amended complaint alleges that a general partnership consisting of Cummings and Haughy as well as SPI are both mere continuations of MBC, and that the transfer of business from MBC to the partnership then to SPI was intended to escape MBC's contract and tort obligations to plaintiff.

With respect to Cummings and Haughy, "plaintiff fails to cite any authority to support the proposition that the doctrine of successor liability may be applied against . . . natural person[s], when the doctrine developed as 'an exception to the general rule that, when one corporate or other juridical person sells assets to another entity, the assets are transferred free and clear of all but valid liens and security interests' " (Cleo Realty Assoc., L.P. v Uptown Birds, LLC, 135 AD3d 432, 434 [2016], quoting George W. Kuney, Successor Liability in New York, 79 NY St BJ 22, 22 [Sept. 2007]). To the extent that plaintiff was attempting to sue Cummings and Haughy's alleged general partnership by naming Cummings and Haughy individually, this attempt was unavailing, as a partnership may only be sued "by using the partnership name alone" or "by naming all of the partners individually and as co-partners doing business under the partnership name" (Vincent C. Alexander, Prac Commentaries, McKinney's Cons Laws of NY, CPLR C1025:1 [emphasis added]; see CPLR 1025). Thus, the successor liability allegations insofar as asserted against Cummings and Haughy are palpably insufficient and patently devoid of merit (see Precious Care Mgt., LLC v Monsey Care, LLC, 221 AD3d at 925; Jaliman v D.H. Blair & Co. Inc., 105 AD3d 646, 648 [2013]).

However, the successor liability allegations insofar as asserted against SPI are not palpably insufficient or patently devoid of merit (see Board of Trustees, Sheet Metal Workers' Natl. Pension Fund v Allure Metal Works, Inc., 209 AD3d at 714; Bibbo v Arvanitakis, 145 AD3d 657, 660 [2016]; DiMauro v United, LLC, 122 AD3d 568, 569 [2014]; Tap Holdings, LLC v Orix Fin. Corp., 109 AD3d 167, 176 [2013]). Therefore, though the County Court should have denied the branch of plaintiff's cross-motion seeking leave to assert successor liability as a separate cause of action, the court correctly granted the branch of plaintiff's cross-motion seeking to add factual allegations supporting the imposition of successor liability on SPI for plaintiff's claims against MBC (see Fiber Consultants, Inc. v Fiber Optek Interconnect Corp., 15 AD3d at 529; Kapitus Servicing, Inc. v Zumma Mgt. Group, LLC, 2023 NY Slip Op 51427[U], *7-8; Wheeler Ave. Laundry LLC v Modern Yonkers Realty LLC, 2017 NY Slip Op 51441[U], *6).

Causes of action "to have a conveyance set aside or declared null and void," such as the eighth and ninth causes of action in the proposed amended complaint here, seek ultimate relief that is "equitable in nature," and, thus, these causes of action are " beyond County Court's limited equity jurisdiction" (St. Johnland Nursing Home v Perlman, 134 Misc 2d 1048, 1051 [Suffolk County Ct 1987]; see NY Const, art VI, § 11; Judiciary Law §§ 190, 190-b; 1 Carmody-Wait 2d § 2:155, Equitable jurisdiction of county courts). Consequently, the County Court should have denied the branches of plaintiff's cross-motion seeking leave to assert fraudulent conveyance and voidable transaction claims.

"Pursuant to 22 NYCRR 130-1.1, sanctions may be imposed against a party or the party's attorney for frivolous conduct" (Cassagnol v Village of Hempstead, 214 AD3d 766, 768 [2023] [*7][internal quotation marks omitted]). Conduct is frivolous if "(1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; (2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or (3) it asserts material factual statements that are false" (22 NYCRR 130-1.1 [c]; see Matter of Congregation Ahavas Moische, Inc. v Katzoff, 134 AD3d 934, 934 [2015]). "The decision whether to impose costs or sanctions against a party for frivolous conduct, and the amount of any such costs or sanctions, is generally entrusted to the [trial] court's sound discretion" (U.S. Bank N.A. v Jack, 219 AD3d 1369, 1372 [2023] [internal quotation marks omitted]; see Notaro v Performance Team, 161 AD3d 1092, 1093 [2018]).

Here, defendants failed to establish that plaintiff engaged in frivolous conduct within the meaning of 22 NYCRR 130-1.1. Thus, the County Court providently exercised its discretion in denying the branch of defendants' motion seeking to impose sanctions against plaintiff (see FV-1, Inc. v Charles, 234 AD3d 941, 943 [2025]; NHD Nigani, LLC v Angelina Zabel Props., Inc., 161 AD3d 758, 761 [2018]; Darius Masonry, Inc. v NGL Contr., Ltd., 75 Misc 3d 131[A], 2022 NY Slip Op 50441[U] [App Term, 2d Dept, 9th & 10th Jud Dists 2022]).

Accordingly, the order, insofar as appealed from, is modified by providing that the branches of plaintiff's cross-motion seeking leave to amend the complaint to assert (1) a negligence claim against Terry Haughy in the fifth cause of action, (2) piercing the corporate veil as the sixth cause of action, (3) successor liability as the seventh cause of action, (4) fraudulent conveyance as the eighth cause of action, and (5) voidable transaction as the ninth cause of action are denied.

GARGUILO, P.J., DRISCOLL and GOLDBERG-VELAZQUEZ, JJ., concur.

ENTER:

Paul Kenny

Chief Clerk

Decision Date: July 29, 2025