Weiss v. Markel, N.Y. App. Div., Judgment, Law, casemine.com

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Docket Number

Attorney(S)

Hinshaw & Culbertson, LLP, New York, N.Y. (Richard Supple and Philip Touitou of counsel), for appellants. Steven G. Legum, Mineola, N.Y., for respondent.

Judges

Reinaldo E. Rivera

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Smart Summary

Factual and Procedural Background

The plaintiff, Ilan Weiss, as assignee of Aqua–Trol Corporation, brought an action against defendants Adam David Markel and Adam David Markel, P.C. The complaint alleges that in 2007, Markel, who was then the plaintiff's attorney and business partner, intentionally conveyed false information causing the plaintiff to personally fund a loan to Colatrella Builders, Inc., which subsequently defaulted. The defendants allegedly drafted mortgage documents improperly naming Aqua–Trol as the mortgagee instead of the plaintiff, despite the plaintiff having funded the loan. Aqua–Trol had been dissolved in 2004 for failure to pay franchise taxes. The plaintiff claims to have been assigned Aqua–Trol's rights. The defendants moved to dismiss the amended complaint pursuant to CPLR 3211(a), and the Supreme Court denied the motion. The defendants appeal from this order.

Legal Issues Presented

Whether the plaintiff has standing to bring the first three causes of action as an assignee of Aqua–Trol Corporation.
Whether the first three causes of action alleging fraud, legal malpractice, and breach of fiduciary duty should be dismissed for lack of standing and capacity to sue.
Whether the plaintiff, suing in his individual capacity on the remaining causes of action, is bound by the caption identifying him only as an assignee of Aqua–Trol.

Arguments of the Parties

Appellants' Arguments

The defendants argued that the first three causes of action should be dismissed pursuant to CPLR 3211(a)(1), (3), and (7) because the plaintiff lacked standing and capacity to sue as an assignee of a dissolved corporation.
They contended that the plaintiff failed to produce a written assignment from Aqua–Trol as required by the loan participation agreement.
The defendants asserted that Aqua–Trol, being dissolved, lacked capacity to sue and that neither the de facto corporation doctrine nor the corporation by estoppel doctrine applied.
They further argued that the plaintiff was bound by the caption and could not sue in his individual capacity.

Respondent's Arguments

The plaintiff maintained that he was suing as an assignee of Aqua–Trol and also in his individual capacity for certain causes of action.
He did not produce a written assignment but alleged that Aqua–Trol assigned its rights to him.
The plaintiff contended that the caption's failure to indicate his individual capacity was a trivial defect that did not prejudice the defendants and should be disregarded.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 926 N.Y.S.2d 532	Standing requirement and burden on plaintiff to prove standing.	Used to determine that plaintiff failed to prove standing as assignee without a written assignment.
Tycon Tower I Inv. Ltd. Partnership v. Burgee Architects, 234 A.D.2d 748, 651 N.Y.S.2d 637	Requirement of written assignment for standing.	Applied to hold that absence of written assignment warranted dismissal of causes of action.
Cohn v. Rothman–Goodman Mgt. Corp., 155 A.D.2d 579, 547 N.Y.S.2d 881	Consideration of assignment validity.	Referenced in relation to assignment requirements.
Moran Enters., Inc. v. Hurst, 66 A.D.3d 972, 888 N.Y.S.2d 109	Capacity of dissolved corporations to sue.	Applied to conclude Aqua–Trol lacked capacity to sue as a dissolved corporation not winding up affairs.
Matter of Hausman, 51 A.D.3d 922, 858 N.Y.S.2d 330, affd. 13 N.Y.3d 408	De facto corporation doctrine.	Found not applicable to the case.
Lorisa Capital Corp. v. Gallo, 119 A.D.2d 99, 506 N.Y.S.2d 62	Corporation by estoppel doctrine.	Found not applicable to the case.
Boslow Family Ltd. Partnership v. Glickenhaus & Co., 7 N.Y.3d 664, 827 N.Y.S.2d 94, 860 N.E.2d 711	Clarification of corporation by estoppel doctrine.	Referenced to support inapplicability of doctrine.
Tedesco v. A.P. Green Indus., Inc., 8 N.Y.3d 243, 832 N.Y.S.2d 141, 864 N.E.2d 65	Capacity of dissolved corporations to sue and related doctrines.	Supported conclusion that dissolved corporation lacked capacity.
Mortgage Elec. Registration Sys., Inc. v. Rambaran, 97 A.D.3d 802, 949 N.Y.S.2d 694	Assignee stands in shoes of assignor.	Applied to hold plaintiff would lack capacity as assignee of dissolved corporation.
County of Sullivan v. Edward L. Nezelek, Inc., 42 N.Y.2d 123, 397 N.Y.S.2d 371, 366 N.E.2d 72	Trivial defects in pleadings and non-prejudice standard.	Used to justify disregarding caption defect regarding plaintiff's individual capacity.
Albilia v. Hillcrest Gen. Hosp., 124 A.D.2d 499, 508 N.Y.S.2d 10	Allowance for disregarding technical pleading defects.	Supported court’s discretion to overlook caption error.

Court's Reasoning and Analysis

The court analyzed the defendants' motion to dismiss the amended complaint under CPLR 3211(a). It agreed that the first three causes of action should be dismissed due to the plaintiff's failure to establish standing as an assignee of Aqua–Trol. The plaintiff did not produce a written assignment as required by the loan participation agreement, and thus could not prove standing. Further, Aqua–Trol was a dissolved corporation at the time of the loan and had no capacity to sue because the loan was unrelated to winding up its affairs. The court rejected applicability of the de facto corporation and corporation by estoppel doctrines. Since an assignee's rights are derivative of the assignor’s, the plaintiff also lacked capacity to sue on those causes. However, the court found no valid grounds to dismiss the plaintiff's remaining causes of action brought in his individual capacity. It rejected the defendants' argument that the plaintiff was bound by the caption as an assignee only, noting that the caption’s failure to indicate individual capacity was a minor defect that caused no prejudice and was properly disregarded under CPLR 2001.

Holding and Implications

The court modified the Supreme Court’s order by granting the defendants’ motion to dismiss the first, second, and third causes of action pursuant to CPLR 3211(a)(3), and affirmed the order as modified without costs or disbursements.

The direct effect of this decision is that the plaintiff’s claims based on Aqua–Trol’s rights are dismissed for lack of standing and capacity to sue. The plaintiff’s individual claims remain viable. The opinion does not establish new precedent but clarifies the application of standing and capacity doctrines relating to dissolved corporations and assignee rights in this context.

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Ilan WEISS, as assignee of Aqua–Trol Corporation, respondent, v. Adam Da

REINALDO E. RIVERA

Hinshaw & Culbertson, LLP, New York, N.Y. (Richard Supple and Philip Touitou of counsel), for appellants. Steven G. Legum, Mineola, N.Y., for respondent.
REINALDO E. RIVERA, J.P., PLUMMER E. LOTT, SANDRA L. SGROI, and ROBERT J. MILLER, JJ.

In an action to recover damages for fraud, legal malpractice, and breach of fiduciary duty, the defendants appeal from an order of the Supreme Court, Nassau County (Parga, J.), entered June 1, 2012, which denied their motion to dismiss the amended complaint pursuant to CPLR 3211(a).

ORDERED that the order is modified, on the law, by deleting the provision thereof denying those branches of the defendants' motion which were to dismiss the first, second, and third causes of action pursuant to CPLR 3211(a), and substituting therefor a provision granting those branches of the motion; as so modified, the order is affirmed, without costs or disbursements.

In his complaint, the plaintiff alleged that in 2007, the defendant Adam David Markel, who at that time was the plaintiff's attorney and business partner, and the defendant Adam David Markel, P.C., intentionally conveyed false information that caused him to provide funds from his personal bank account to finance a loan to Colatrella Builders, Inc. (hereinafter Colatrella). Colatrella defaulted on the loan shortly after it was issued.

According to the plaintiff, when the defendants drafted the mortgage documents related to the loan, they improperly named Aqua–Trol Corporation (hereinafter Aqua–Trol) as the mortgagee, rather than the plaintiff, even though they knew that the plaintiff had personally funded the loan. In 2004, Aqua–Trol had been dissolved by proclamation of the New York State Secretary of State for failure to pay franchise taxes. The plaintiff alleged that Aqua–Trol has assigned its rights to him.

The plaintiff filed an amended complaint in 2012. According to the caption, the plaintiff is suing as an assignee of Aqua–Trol. The first three causes of action, which allege that the defendants committed fraud, legal malpractice, and breach of fiduciary duty in the course of their dealings with Aqua–Trol, are consistent with this language. However, it is clear that the remaining three causes of action allege that the defendants committed fraud, legal malpractice, and breach of fiduciary duty against the plaintiff personally.

The defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7) and, in effect, CPLR 3211(a)(3), and the Supreme Court denied the motion.

The Supreme Court correctly determined that the defendants were not entitled to dismissal of the first, second, and third causes of action pursuant to CPLR 3211(a)(1) and (7). However, those branches of the defendants' motion which were, in effect, to dismiss those causes of action pursuant to CPLR 3211(a)(3) should have been granted.

The first three causes of action must be dismissed because the plaintiff failed to prove his standing after the issue of standing was raised by the defendants ( see Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 279, 926 N.Y.S.2d 532). Although the loan participation agreement reflects that any assignment from Aqua–Trol to the plaintiff must be in writing, the plaintiff neither alleged the existence of nor produced a written assignment ( see Tycon Tower I Inv. Ltd. Partnership. v. Burgee Architects, 234 A.D.2d 748, 748–749, 651 N.Y.S.2d 637;cf. Cohn v. Rothman–Goodman Mgt. Corp., 155 A.D.2d 579, 547 N.Y.S.2d 881).

Moreover, the defendants would still be entitled to dismissal of the first, second, and third causes of action even if the plaintiff had a valid assignment. With limited exceptions, a dissolved corporation “does not enjoy the right to bring suit in the courts of this state” ( Moran Enters., Inc. v. Hurst, 66 A.D.3d 972, 975, 888 N.Y.S.2d 109). When the loan transaction at issue occurred, Aqua–Trol was a dissolved corporation, and there is no suggestion that the loan was related to the winding up of Aqua–Trol's affairs ( seeBusiness Corporation Law § 1005[a] [1] ). Contrary to the Supreme Court's determination, it is apparent from the record that neither the de facto corporation doctrine ( see Matter of Hausman, 51 A.D.3d 922, 924, 858 N.Y.S.2d 330,affd.13 N.Y.3d 408, 893 N.Y.S.2d 499, 921 N.E.2d 191;Lorisa Capital Corp. v. Gallo, 119 A.D.2d 99, 110–111, 506 N.Y.S.2d 62) nor the corporation by estoppel doctrine ( see Lorisa Capital Corp. v. Gallo, 119 A.D.2d at 112, 506 N.Y.S.2d 62;cf. Boslow Family Ltd. Partnership v. Glickenhaus & Co., 7 N.Y.3d 664, 668–669, 827 N.Y.S.2d 94, 860 N.E.2d 711) is relevant to this case. Accordingly, Aqua–Trol lacks capacity to sue the defendants for their actions in connection with the loan ( see Moran Enters., Inc. v. Hurst, 66 A.D.3d at 974–976, 888 N.Y.S.2d 109;cf. Tedesco v. A.P. Green Indus., Inc., 8 N.Y.3d 243, 246–248, 832 N.Y.S.2d 141, 864 N.E.2d 65). Because an assignee stands in the shoes of the assignor ( see Mortgage Elec. Registration Sys., Inc. v. Rambaran, 97 A.D.3d 802, 804, 949 N.Y.S.2d 694), the plaintiff, as assignee, would similarly lack capacity to sue.

The defendants failed to assert any valid grounds for the dismissal of the plaintiff's remaining causes of action, brought in his individual capacity. We reject the defendants' contention that the plaintiff is bound by the caption, and thus can only be deemed an assignee of Aqua–Trol. The plaintiff's failure to note in the caption that he is also suing in his individual capacity is, under the circumstances of this case, a trivial defect that has not prejudiced the defendants in any way ( see County of Sullivan v. Edward L. Nezelek, Inc., 42 N.Y.2d 123, 126, 397 N.Y.S.2d 371, 366 N.E.2d 72;Albilia v. Hillcrest Gen. Hosp., 124 A.D.2d 499, 500, 508 N.Y.S.2d 10), and will be disregarded ( seeCPLR 2001).

Weiss v. Markel