### Etage Real Estate LLC v Stern 2024 NY Slip Op 31864(U) May 15, 2024 Supreme Court, New York County Docket Number: Index No. 656322/2019 Judge: Arthur F. Engoron Cases posted with a "30000" identifier, i.e., 2013 NY Slip

Op 30001(U), are republished from various New York State and local government sources, including the New

York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.INDEX NO. 656322/2019 NYSCEF DOC. NO. 170 RECEIVED NYSCEF: 05/15/2024

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### SUPREME COURT OF THE STATE OF NEW YORK NEWYORK COUNTY PRESENT: HON. ARTHUR F. ENGORON Justice 

## -------------------X

ETAGE REAL ESTATE LLC, DAVLA CONSULTING, INC., Plaintiffs,

- V
- MICHAEL STERN, DAVID JURACICH, Defendants. 

## -------------------X PART
INDEX NO. 656322/2019 MOTION DATE 08/21/2023 MOTION SEQ. NO. 005 DECISION + ORDER ON MOTION 37

The following e-filed documents, listed by NYSCEF document number (Motion 005) 140, 141, 142, 143, 144,145,146,147,148,149,150,151,152,153,154,155,156,157,160,161,162,163,164,165,166, 167 were read on this motion to AMEND PLEADINGS Upon the forgoing documents, after oral argument on April 8, 2024, and for the reasons stated hereinbelow, plaintiffs' motion, pursuantto CPLR 3025, to amend the complaint and to grantthe so-ordering ofcertain subpoenas ad testificandum and duces tecums is granted. Background On May 1 7, 2017, plaintiffs, Etage Real Estate LLC ("Etage") and Dav laConsulting, Inc. ("Davla"), sued non-party DJJMS in Supreme Court, NewYork County, Index No. 652659/2017. NYSCEF Doc. No. 91. On July 25, 2019, after multiple defaults in that action by DJJMS, the Clerk entered $746,588.84 injudgments against DJJMS: $144,795.62 in favor of Etage, $579,182.47 in favorofDavla, and $22,580.75 in legal fees,jointly and severally (the "Underlying Judgment"). NYSCEF Doc. No. 90. On October 18, 2019, plaintiffs commenced the instant action against defendants, Michael Stem and David Juracich, asserting two causes ofaction essentially seeking to hold defendants liable for the Underlying Judgment by piercing DJJMS's corporate veil. NYSCEF Doc. No. 1. The facts atthe heart ofall this are: defendants each have a 50% interest in DJJMS; DJJMS has an interest innonparty 105 West 57th Street Holdings, LLC ("Holdings"); and Holdings, of which defendant Stem was a managing member, hadan interest, allegedly worth $18,000,000, in certainproperty located at 105-107 West 57th Street, buttransferred that interest, for zero consideration, to nonparty 111 West 57th FE LLC. In a Decision and Order dated September 22, 2021 (the "PriorDecision"), this Court: quashed a subpoena issued by plaintiffas "extremely overbroad," granted plaintiffs cross-motion for summaryjudgmentand, accordingly, denied a request to unseal parts ofthe record as moot. NYSCEF Doc. No. 114.

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### [* 1]INDEX NO. 656322/2019 NYSCEF DOC. NO. 170 RECEIVED NYSCEF: 05/15/2024

2 of 4 On December 29, 2022, the Appellate Division, First Department, reversed the Prior Decision, noting ''that a claim for veil piercing is not a standalone cause ofaction" and, "[i]n any event, piercing the corporate veil is a fact-laden claim not well suited for summaryjudgment resolution." Etage Real Estate LLC v Stem, 211 AD3d 632,632 (1st Dept 2022). Further, the First Department did not find "sufficient, undisputed facts to showthat defendants exercised complete domination ofDJJMS," orthat, "as a matter oflawthere was a failure to adhere to corporate formalities, inadequate capitalization, commingling ofassets, and use ofcorporate funds for personal use," to warrant veil piercing. Id. at 633 (internal quotations and citations omitted). The First Department also held, inter alia, that as "Holdings' transfer oftheproperty at issue is tantamount to a transfer by DJJMS ofits interest in Holdings, suchtransfer would constitute a breach ofthe consulting agreements, but 'a simple breach ofcontract, without more, does not constitute a fraud orwrong warranting thepiercing ofthe corporate veil."' Etage at 634 (internal citation omitted). Plaintiffs now move, pursuantto CPLR 3025(b) and ( c), to amend their complaint, and for the Courtto so-ordertwo modified versions ofthe subpoenas quashed by the PriorDecision. NYSCEF Doc. No. 140. Plaintiffs' proposed amended complaint includes three causes ofactionto hold defendants liable for the debts ofDJJMS and to pierce the corporate veil: (1) "onthe ground offraud, material misstatements offact, improper submission offalse and inflated financial statements to obtain loans and a fraudulent scheme to delay plaintifffrom exercising its rights and obtainjudgment against DJJMS"; (2) pursuantto Debtor and Creditor Law§ 276-a; and (3) onthe ground that defendants luredplaintiffs into the underlyingtransaction throughthe production offalse financial statements, thus violating New York Penal Law§ 175.45. NYSCEF Doc. No. 143. In support, plaintiffs argue that leave to amend should be freely given, especially as the proposed amended complaint is specifically crafted to conform to the First Department's decision andthe documentary evidence produced to date, and so should not prejudice or surprise defendants. Plaintiffs also argue that theirnewproposed subpoenas are curtailed in scope from the ones this Courtpreviously found extremely overbroad and should help adduce facts necessary to show defendants dominate and control DJJMS sufficient to pierce the corporate veil. In opposition, defendants argue that the motion should be denied because, inter alia, the proposed amended complaint: would not survive a motion to dismiss; still has a cause ofaction to pierce the corporate veil, which the FirstDepartmenthas noted is not a standalone cause of action; fails to address the First Department'spoint that, while non-party Holdings' transfer of property would constitute a breachofthe consulting agreements, a "simple breach," without more, does not warrant piercing a corporate veil; has a second cause ofaction that does not assert a claim against the alleged transferor in the in the underlying real estate deal; cited a New York Penal Lawprovision that does notprovide plaintiffs a private right ofaction and, further, any such action would be untimely. Defendants also argue against so-ordering the instant subpoenas

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### [* 2]INDEX NO. 656322/2019 NYSCEF DOC. NO. 170 RECEIVED NYSCEF: 05/15/2024

3 of 4 because they are overbroad and because plaintiffs failed to file a 22 NYCRR202.7 affirmation of good faith. In reply, plaintiffs cite Matter ofMorris v New York State Dept. ofTaxation and Fin., 82 NY2d 135, 140 (1993) (internal citations and quotations omitted), for the general rule that "[b]roadly speaking, the courts will disregard the corporate form, or, to use accepted terminology, pierce the corporate veil, whenever necessary to prevent fraud orto achieve equity," and argue that, here, the Court should allowplaintiffto amend the complaintinthe interest ofequity. Plaintiffs further argue, inter alia, that: they are not asserting piercing the corporate veil as a separate, standalone cause ofaction but, instead, as a meansto enforce the Underlying Judgment oras a means to enforce anyjudgment obtained underthe new causes ofaction; the First Departmentreversed the Prior Decision, a motion for summaryjudgment, simply to allow more facts to be ascertained; andthat the proposed second and third causes ofaction incorporate Debtor and Creditor and Penal Law claims as reasons for piercing the corporate veil and are therefore timely, pursuantto Solowv Dom. Stone Erectors, Inc., 229 AD2d 312, 313 (1st Dept 1996) ("As the action is one to enforce ajudgment against defendants who, ifplaintiffprevails onthe piercing question, will be treated as a single personality, it is governed by the 20-year Statute ofLimitations ofCPLR211(b) withrespectto all defendants and is therefore timely."). Discussion CPLR 3025(b) provides, inrelevant part, that "[a] party may amend his orherpleading, or supplement it by setting forth additional or subsequent transactions oroccurrences, at any time by leave ofcourt orby stipulation ofall parties. Leave shall be freely given upon such terms as may bejust including the granting ofcosts and continuances." Generally, leave to amend should be "granted inthe absence ofevidence ofsubstantial prejudice or surprise orthat the proposed amendments were palpably insufficient orpatently devoid of merit." JPMorgan Chase Bank, N.A. v Low Cost Bearings N.Y. Inc., 107 AD3d 643,644 (1st Dept 2013) (internal citations and quotations omitted). However, a "proposed amendment that cannot survive a motionto dismiss should notbepermitted." Scott v Bell Atl. Corp., 282 AD2d 180, 185 (1st Dept 2001), affd as mod sub nom. Goshen v Mut. Life Ins. Co. ofNew York, 98 NY2d 314 (2002). In deciding a motion to dismiss, the Court will "liberally construe the complaint, and accept as true the facts alleged inthe complaint and any submissions in opposition to the dismissal motion. We also accord plaintiffs the benefit ofevery possible favorable inference." 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 151-52 (2002). Here, as the proposed amended complaint would neitherprejudice nor surprise defendants and, liberally construed, is neither devoid ofmerit nor futile, the Court will grant plaintiffs leave to amend. The amended complaint seeks topierce the corporate veil not as a standalone cause of actionbut as a means to enforce the other causes ofaction and the Underlying Judgment. Further, the Court will so.;.order and annex to this Decision and Orderplaintiff's proposed subpoenas, amended so that the sixth item ofthe demand onAaron Cywiak is for "Copies ofall

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4 of 4 financial statements for Michael Stem
..." instead of"Copies ofall financial statements and related Documents for Michael Stem
..." Conclusion Plaintiffs' motion for leave to amend their complaint is hereby granted, the proposed supplemental summons and amended complaint, annexed as Exhibit A-3 to the moving papers (NYSCEF Doc. No. 144), are hereby deemed served and filed.

5/15/2024

DATE CHECK ONE:

APPLICATION: CHECK IF APPROPRIATE: 

# MAY 16 

# 2024

CASE DISPOSED GRANTED**□** DENIED SETTLE ORDER INCLUDES TRANSFER/REASSIGN

656322/2019 ETAGE REAL ESTATE LLC vs. STERN, MICHAEL Motion No. 005 

## HON.~ENGORON

ARTHUR F. ENGORON, J.S.C. NON-FINAL DISPOSITION GRANTED IN PART SUBMIT ORDER FIDUCIARY APPOINTMENT

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