Opinion ID: 344160
Heading Depth: 1
Heading Rank: 4

Heading: The Availability of Relief Against CUM and the Hudson Bay Defendants.

Text: 56 In his final order of February 13, 1976, dismissing Darin's complaint, Judge McFadden held that the complaint did not state a cause of action for rescission. But in addition, he held that even if it did state such a cause of action, rescission was not available against either CUM or the Hudson defendants. We hold that both of these conclusions were in error. 57 The claim was dismissed against CUM because the complaint shows no breach by defendant Commonwealth United Music, Inc. (CUM) of said Agreement (App. 199). This contention may be disposed of summarily. If Darin can prove that CUM is, indeed, a wholly-owned subsidiary of CUC as claimed in Darin's complaint then New York courts might pierce the corporate veil under at least two possible theories: CUM may be deemed an agent of CUC and thus liable to return the stock and assets to Darin solely because of a breach of the contract by CUC, Walkovszky v. Carlton, 18 N.Y.2d 414, 276 N.Y.S.2d 585, 223 N.E.2d 6 (N.Y.1966); Custer Builders, Inc. v. Quaker Heritage, Inc., 41 A.D.2d 448, 344 N.Y.S.2d 606 (1973); or the corporate existence of CUM may be ignored entirely, Cameron Equipment Corp. v. People, 31 A.D.2d 299, 297 N.Y.S.2d 326 (1969), aff'd, 27 N.Y.2d 634, 313 N.Y.S.2d 763, 261 N.E.2d 668 (1970); Kaminsky v. Kahn, 27 A.D.2d 248, 277 N.Y.S.2d 968 (1967), rev'd on other grounds, 20 N.Y.2d 573, 285 N.Y.S.2d 833, 232 N.E.2d 837 (1967). In either case, it would not be necessary to prove an independent breach by CUM. 58 The District Court also dismissed the claims against the Hudson defendants on the ground, presumably, that these defendants are good faith purchasers for value and could not be required to return the TM assets which they had bought from CUM. We do not agree that dismissal was proper at this time since the bona fides of these defendants is a question of fact. Our decision might be different if this were an indiscriminate round-up by Darin of all the present owners of TM assets or stock in order to force their return of the property. But Darin alleges facts which, if true, indicate that the Hudson defendants may not be bona fide purchasers. He alleges that these defendants knew that CUM was being sued by Darin at the time that they bought the TM assets, and that the TM stock was itself the subject matter of this suit. 59 We express no opinion on whether mere notice of a lawsuit is enough to dissipate the bona fide purchaser status of the Hudson defendants. Rather, we hold that Darin has alleged sufficient facts to entitle him to complete discovery before his complaint is subject to dismissal for failure to state a claim as to these defendants. 20 60 The Hudson defendants further argue that, assuming they are not bona fide purchasers and that therefore a constructive trust does arise in favor of Darin, this trust encompasses only the TM stock and not the assets. 61 This determination is to be made at trial by the district court judge who will be forging the equitable relief in this suit and not on a motion to dismiss the complaint. 21 62 The order striking portions of the complaint is modified as set forth herein. The order granting defendants' motion to dismiss is reversed.