Lead Opinion
OPINION OF THE COURT
The individual defendant, Victor Canseco, is the principal owner and president of the corporate defendant, Sandpebble Builders, Inc. (hereinafter Sandpebble). The primary issue on this appeal is whether the complaint is sufficient to state a cause of action against Canseco personally for the wrongs of the corporation under the doctrine of piercing the corporate veil.
The complaint names as defendants both Sandpebble and Canseco, as Sandpebble’s president and principal owner. It asserts causes of action jointly against them, referring to them, for the most part, as “the defendants.” The complaint alleges that in April 2002 the plaintiff, East Hampton Union Free School District (hereinafter the district), entered into an agreement with the defendants, subject to an $18 million municipal bond offering, whereby the defendants would provide construction services to the district in consideration of, inter alia, five percent of the total project cost. In 2004, however, after the Board of Education of the district failed to ratify the agreement, the district abandoned it. Thereafter, in 2005, in anticipation of a new project, the district entered into an estimating services contract with the defendants whereby the defendants would provide certain estimates for use by the district’s architects in connection with the new project. The complaint alleges that, although the district paid the defendants the sum of $200,000, the defendants never performed under the agreement, thereby delaying the project. Despite the defendants’ failure to perform,
The complaint alleges that, notwithstanding this agreement in principle, the defendants refused to execute the contract. The parties reopened negotiations and agreed to a change in the terms, but, again, the defendants refused to execute the contract. According to the complaint, this sequence of renegotiation, agreement in principle, and refusal to execute was repeated twice more until, by letter dated September 15, 2006, the defendants “rejected the contract . . . terminated negotiations with the school district, and stated that [they] were ‘ready, willing and able’ to perform,” but only under the terms of the 2002 agreement. Ultimately, the district contracted with a different provider.
In the complaint, the district alleges that the defendants never intended to perform in connection with the new project, and that their repeated demands for new terms constituted bad faith and unfair negotiating tactics designed to delay progress of the project in order to pressure the district to offer them the more advantageous terms of the 2002 agreement. The complaint alleges throughout that the wrongful conduct was engaged in by “the defendants.” With respect to Canseco specifically, the complaint alleges only that he is “the President and principal owner of Sandpebble,” that he “exercised and exercises complete dominion and control over Sandpebble,” that he “exercised complete dominion and control over Sandpebble, including, but not limited to, all the acts and omissions of Sand-pebble as alleged herein,” that he “used such dominion and control to direct the acts and omissions of Sandpebble as alleged herein, and to commit a wrong against the School District which resulted in injury, harm and damages to the School District,” that he “exercised such dominion and control over Sandpebble while [he] and Sandpebble were engaging in the bad faith and unfair negotiating tactics alleged herein,” and that therefore he is “liable herein, jointly and severally with Sandpebble, for all the acts, omissions, debts, obligations and liabilities of Sand-pebble.”
The defendants moved pursuant to CPLR 3211 (a) (1) and (7) to dismiss the complaint insofar as asserted against Canseco individually. The Supreme Court denied the motion (
With respect to that branch of the defendants’ motion which was pursuant to CPLR 3211 (a) (7), the principles governing this appeal are familiar.
“On a motion to dismiss the complaint pursuant to CPLR 3211 (a) (7) for failure to state a cause of action, the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory” (Breytman v Olinville Realty, LLC,54 AD3d 703 , 703-704 [2008]; see Leon v Martinez,84 NY2d 83 , 87 [1994]; Smith v Meridian Tech., Inc., 52 AD3d 685, 686 [2008]).
Thus, “a motion to dismiss made pursuant to CPLR 3211 (a) (7) will fail if, taking all facts alleged as true and according them every possible inference favorable to the plaintiff, the complaint states in some recognizable form any cause of action known to our law” (Shaya B. Pac., LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, LLP,
The general rule, of course, is that a corporation exists independently of its owners, who are not personally liable for its obligations, and that individuals may incorporate for the express purpose of limiting their liability (see Bartle v Home Owners Coop.,
The complaint here certainly alleges that the district sustained damages by reason of the wrongful conduct of Sand-pebble, and that Canseco exercised complete “dominion and control” over the corporation in its dealings with the district. But, if, standing alone, domination over corporate conduct in a particular transaction were sufficient to support the imposition of personal liability on the corporate owner, virtually every cause of action brought against a corporation either wholly or principally owned by an individual who conducts corporate affairs could also be asserted against that owner personally, rendering the principle of limited liability largely illusory. Thus, the party seeking to pierce the corporate veil must also establish “that the owners, through their domination, abused the privilege of doing business in the corporate form” (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d at
Notably, even under the liberal “notice pleading” requirements of CPLR 3013, a complaint still must allege, inter alia, “the material elements of each cause of action” asserted. Conduct constituting an abuse of the privilege of doing business in the corporate form is a material element of any cause of action seeking to hold an owner personally liable for the actions of his or her corporation under the doctrine of piercing the corporate veil. Here, nothing in the complaint asserts or suggests that Canseco, in his dealings with the district, acted other than in his capacity as president and principal owner of Sand-pebble, or that he failed to respect the separate legal existence of the corporation, or that he treated its corporate assets as his own, or that he undercapitalized the corporation, or that he did not respect corporate formalities, or that he, in any other way, abused the privilege of doing business in the corporate form (see AHA Sales, Inc. v Creative Bath Prods., Inc.,
We respectfully disagree with our dissenting colleagues that the complaint’s use of the words “bad faith” sufficiently spells out the element of abusing the privilege of doing business in the corporate form. The requirement of bad faith generally applies not to the doctrine of piercing the corporate veil, but to a cause of action against a corporate officer for inducing the breach of a contract. Thus, in the principal case cited by the dissent in support of its view, the Court of Appeals held that
“[a] corporate officer who is charged with inducing the breach of a contract between the corporationand a third party is immune from liability if it appears that he is acting in good faith as an officer . . . [and did not commit] independent torts or predatory acts directed at another” (Murtha v Yonkers Child Care Assn., 45 NY2d at 915 ; see Buckley v 112 Cent. Park S., Inc.,285 App Div 331 , 334 [1954]).
Here, the complaint does not assert a cause of action against Canseco for inducing the breach of a contract between Sand-pebble and the district, nor does it allege that, independent of his actions on behalf of the corporation, he committed “torts or predatory acts” directed at the district. Thus, we cannot join the dissenters in affording talismanic effect to the words “bad faith.”
It is true that, in opposition to the motion to dismiss, the district offered the affidavits of its counsel and of its Superintendent of Schools. Where a party offers evidentiary proof on a CPLR 3211 (a) (7) motion, the focus of the inquiry turns from whether the complaint states a cause of action to whether the plaintiff actually has one (see Guggenheimer v Ginzburg,
Finally, we reject the district’s argument that dismissal of the complaint against Canseco is inappropriate at this stage inasmuch as evidence may eventually be discovered that would justify piercing the corporate veil. The policy inherent in allowing individuals to conduct business in the corporate form so as to shield themselves from personal liability would be seriously
Accordingly, because the complaint fails to state a cause of action as against Canseco personally under the doctrine of piercing the corporate veil, and because the district has not offered any evidence to establish or suggest that it actually has such a cause of action against him, the order is modified, on the law, by deleting the provision thereof denying that branch of the defendants’ motion which was pursuant to CPLR 3211 (a) (7) to dismiss the complaint insofar as asserted against the defendant Victor Canseco individually, and substituting therefor a provision granting that branch of the motion; as so modified, the order is affirmed.
Notes
To the extent that the district contends on appeal that the complaint asserts a claim against Canseco for conduct undertaken individually in his own right, and not only for the obligations of Sandpebble under the doctrine of piercing the corporate veil, the argument is not properly before us as it was not made at the Supreme Court. We further note that the district does not argue that Canseco is liable as an officer of Sandpebble for inducing the breach of the contracts between the district and Sandpebble in bad faith (see Murtha v Yonkers Child Care Assn.,
Concurrence in Part
We disagree with the conclusion of the majority that the complaint fails to state a cause of action against the defendant Victor Canseco for the alleged wrong committed by the defendant Sandpebble Builders, Inc., under a “piercing the corporate veil theory” as to the 2006 construction services contract. For reasons set forth below, we agree with the Supreme Court’s denial of that branch of the defendants’ motion which was to dismiss as to that cause of action, but disagree with the Supreme Court’s denial of that branch of the defendants’ motion which was to dismiss the cause of action against the defendant Victor Canseco for the alleged wrong committed by the defendant Sandpebble Builders, Inc., under a “piercing the corporate veil theory” as to the 2005 estimating services contract.
This appeal illustrates the tension that sometimes exists between the requirement of CPLR 3013 that pleadings provide sufficient detail of the plaintiffs grievances to enable the defendant to prepare a defense, and the liberal “notice pleading” requirements of CPLR 3026.
Complaints, including those which seek to pierce corporate veils, are subject to the “notice pleading” requirements of CPLR 3013, which are to be liberally construed (see CPLR 104, 3026; Severino v Salisbury Point Co-ops.,
We agree with the majority that each of the three requirements for piercing the corporate veil—domination and control,
In actions where a piercing of the corporate veil is at issue, the required element of “domination and control” must be alleged (see CPLR 3013). A determination as to domination and control necessarily depends upon the attendant facts and equities of an action (see Matter of Morris v New York State Dept. of Taxation & Fin.,
However, an allegation of domination and control is not, standing alone, sufficient to state a cause of action for personal
I. The 2006 Construction Services Contract
With the foregoing as backdrop, the Supreme Court properly found that the complaint adequately pleaded a cause of action against Canseco for the alleged wrong committed by the corporate defendant under a “piercing of the corporate veil” theory as to the 2006 construction services contract (see Ventresca Realty Corp. v Houlihan,
The complaint alleges in paragraph 91, as to the second requirement, that Canseco’s dominion and control was used to commit a wrong against the plaintiff which resulted in injury.
The complaint further alleges in paragraph 92, relative to the third requirement for piercing the corporate veil, that the individual defendant exercised his dominion and control over the corporate defendant to engage in acts of bad faith and unfair negotiating tactics. Specifically, the “exercise” of dominion and control as alleged in paragraph 90 of the complaint, and the affirmative “use” of dominion and control as alleged in paragraphs 91 and 92 to commit wrongs and engage in bad faith and unfair negotiating tactics, reasonably speak, within the broader context of corporate veil allegations, to the perpetration of alleged wrongs through the corporate form. In other words, the reasonable intendment of paragraphs 91 and 92 is the abuse of the privilege of doing business in corporate form.
Additionally, while corporate officers cannot be held personally liable for the corporation’s breach of contract simply because the officer undertook the challenged actions on the corporation’s behalf (see Murtha v Yonkers Child Care Assn.,
Our conclusion that the plaintiffs complaint adequately states a cause of action against Canseco to recover for the alleged wrong committed by the corporate defendant under a “piercing the corporate veil theory” as to the 2006 construction services contract is bolstered by the fact that this action falls outside the scope of CPLR 3015 and 3016. Particularity is required under CPLR 3015 in any matter involving a condition precedent, the state of a party’s incorporation, a judgment, decision or determination, the denial of negotiable instrument signatures, and licensure to do business in certain consumer actions. Similarly, CPLR 3016 requires the pleading of factual particulars in actions sounding in defamation, fraud, separation or divorce, enforcement of a judgment, foreign law, the sale or delivery of goods, automobile-related personal injury involving Insurance Law § 5104, and certain corporate actions not relevant here. None of the particularity requirements as set forth in CPLR 3015 or 3016 apply to the corporate veil allegations of this contract action and, accordingly, we reject the defendants’ arguments which, in effect, impose upon the plaintiff heightened pleading expectations not contemplated by the CPLR.
The defendants’ corporate veil remedy, if any, resides within the summary judgment provisions of CPLR 3212 after relevant
II. The 2005 Estimating Services Contract
Whereas the plaintiffs complaint alleged that Canseco used his dominion and control over Sandpebble to engage in bad faith and unfair negotiating tactics relative to the 2006 construction services contract, and thereby to commit a wrong against the school district, no such allegations of personal wrongdoing are present in the cause of action that seeks damages for the alleged breach of the parties’ 2005 estimating services contract. Instead, the complaint’s allegations regarding the 2005 estimating services contract read as a standard corporate breach of contract, with no reference to bad faith, unfair negotiating tactics, fraud, or other behavior that could arguably expand liability beyond the corporate veil. The affidavit of Dr. Raymond D. Gualtieri, submitted in opposition to the defendants’ motion to dismiss, focuses upon the circumstances of a 2006 construction management services contract, but makes no reference to the 2005 estimating services contract and thereby fails to cure the corporate veil inadequacies regarding the earlier contract (see generally Leon v Martinez,
III. The Defendants’ Motion Based On Documentary Evidence
With respect to the branch of the defendants’ motion which was for dismissal of the plaintiffs complaint pursuant to CPLR 3211 (a) (1), the court properly determined that the documentary evidence which the defendants submitted in support of their motion failed to resolve all factual issues as a matter of law and failed to disprove the school district’s allegations (see Fleming v Kamden Props., LLC,
In our view, the remaining contentions are without merit or have been rendered academic.
Spolzino, J.P, and Miller, J., concur with Fisher, J.; Dillon, J., and Eng, JJ., concur in part and dissent in part, and vote to modify the order by deleting the provision thereof denying that
Ordered that the order is modified, on the law, by deleting the provision thereof denying that branch of the defendants’ motion which was pursuant to CPLR 3211 (a) (7) to dismiss the complaint insofar as asserted against the defendant Victor Canseco individually, and substituting therefor a provision granting that branch of the motion; as so modified, the order is affirmed, with costs to the defendants.
. Were the plaintiff seeking to pierce the corporate veil on the basis of fraud, as distinguished from bad faith, the particularity of the pleading would be required under CPLR 3016 (b) (see e.g. Sheridan Broadcasting Corp. v Small,
. Our result here does not reach or address circumstances where the piercing of the corporate veil is directed at an individual shareholder whose acts or omissions Eire directed by a corporate board or governing body.