Court Opinion

ID: 4080756
Source: CourtListenerOpinion
Date Created: 2016-10-07 23:20:15.06548+00
Date Added: 2024-06-11T14:07:37.955685
License: Public Domain

SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

702
CA 15-02040
PRESENT: CENTRA, J.P., LINDLEY, CURRAN, TROUTMAN, AND SCUDDER, JJ.

BROADWAY WAREHOUSE COMPANY,
PLAINTIFF-APPELLANT-RESPONDENT,

                    V                             MEMORANDUM AND ORDER

BUFFALO BARN BOARD, LLC, DEFENDANT,
EMPIRE BUILDING DIAGNOSTICS, INC., EBD
MANAGEMENT, LLC, AND DAVID R. PFALZGRAF, JR.,
DEFENDANTS-RESPONDENTS-APPELLANTS.

BLAIR & ROACH, LLP, TONAWANDA (J. MICHAEL LENNON OF COUNSEL), FOR
PLAINTIFF-APPELLANT-RESPONDENT.

WEBSTER SZANYI LLP, BUFFALO (ANDREW O. MILLER OF COUNSEL), FOR
DEFENDANTS-RESPONDENTS-APPELLANTS EMPIRE BUILDING DIAGNOSTICS, INC.
AND EBD MANAGEMENT, LLC.

BOND SCHOENECK & KING, PLLC, BUFFALO (BRADLEY A. HOPPE OF COUNSEL),
FOR DEFENDANT-RESPONDENT-APPELLANT DAVID R. PFALZGRAF, JR.

     Appeals from an order of the Supreme Court, Erie County (Timothy
J. Walker, A.J.), entered March 30, 2015. The order, among other
things, denied in part plaintiff’s motion for partial summary judgment
and denied in part the cross motion of defendants Empire Building
Diagnostics, Inc., and EBD Management, LLC, for summary judgment
dismissing the second amended complaint against them.

     It is hereby ORDERED that the order so appealed from is
unanimously modified on the law by denying the motion in its entirety,
and as modified the order is affirmed without costs.

     Memorandum: Plaintiff, Broadway Warehouse Company, and
defendants Empire Building Diagnostics, Inc. (Empire), EBD Management,
LLC (EBD), and David R. Pfalzgraf, Jr., appeal from an order that
denied plaintiff’s motion for partial summary judgment on the second
cause of action in the consolidated second amended complaint
(complaint); granted plaintiff’s motion for partial summary judgment
against Pfalzgraf on the sixth cause of action; granted that part of
the cross motion of Empire and EBD seeking summary judgment dismissing
the second and third causes of action against them; and denied that
part of their cross motion seeking summary judgment dismissing the
fourth and fifth causes of action against them. We agree with
Pfalzgraf that Supreme Court erred in granting plaintiff’s motion
insofar as it sought partial summary judgment against him on the sixth
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                                                         CA 15-02040

cause of action, for breach of contract, and we therefore modify the
order accordingly.

     Plaintiff commenced this action seeking damages for, among other
things, the alleged breach of a January 2008 lease agreement between
plaintiff and defendant Buffalo Barn Board, LLC (BBB) pursuant to
which BBB leased a warehouse from plaintiff for the purpose of storing
lumber. Under the terms of the lease agreement, which was to expire
in July 2009, plaintiff was “grant[ed] a security interest . . . in
all of [BBB’s] personal property used on or about the premises,
including equipment, inventory and accounts,” and plaintiff was
authorized to “file an appropriate UCC financing statement . . . to
perfect or confirm such security interest.” Before plaintiff
perfected its security interest on June 23, 2009, BBB sold all of its
assets to EBD for $100 via an Asset Purchase Agreement (APA) dated May
28, 2009. The APA was intended to satisfy debts owed to Empire and
its principals, who were also principals of EBD.

     Subsequent to the APA, BBB sought and was granted several
extensions to the lease agreement, the last of which was granted on
October 20, 2009. In November 2009, BBB moved the lumber to a
facility owned by an entity that was itself owned in part by several
of the principals of Empire and EBD.

     By December 2009, BBB owed plaintiff over $70,000 under the terms
of the lease but, when notified of the amounts due and owing under the
lease, defendant David R. Pfalzgraf, Jr., an attorney representing,
inter alia, BBB, Empire, and EBD, asked plaintiff to “forebear from
commencing any actions for 90 days” as BBB attempted to remain solvent
through a restructuring of its business. By email, one of plaintiff’s
representatives agreed, but wrote that plaintiff “need[s] to be
reasonably assured that [plaintiff’s] security interest in BBB’s
inventory, etc. is not impaired while [plaintiff] defers initiating
action(s) as [Pfalzgraf] requested . . . To that end, [plaintiff]
requests that [Pfalzgraf] keep [plaintiff] informed every 30 days
about . . . anything that is happening or has happened (not in the
ordinary course of business) that has or might impair [plaintiff’s]
security interest.” Pfalzgraf responded, writing “We will update you
every 30 days. . .” As noted above, by the time of those emails, BBB
had already transferred all of its assets to EBD and had moved those
assets to a different facility.

     BBB eventually went out of business, and plaintiff secured a
judgment against BBB’s principal, based on his personal guarantee of
the lease. After BBB commenced bankruptcy proceedings, plaintiff
learned that BBB’s assets had been “commingled” with assets of others
and thus concluded that a replevin action was no longer a viable
remedy. As a result, plaintiff commenced this action against, inter
alia, Empire, EBD and Pfalzgraf. In “counts” (hereafter, causes of
action) two and three of the complaint, plaintiff alleged that Empire
and EBD were liable on the lease because they were silent partners
with BBB and had caused a dissolution of that partnership. In the
fourth and fifth causes of action, plaintiff further alleged that
Empire and EBD were liable for conversion and fraudulent conveyance of
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                                                         CA 15-02040

BBB’s assets. In addition, in the sixth and seventh causes of action,
plaintiff alleged that, as a result of the email agreement for
plaintiff to forbear pursuing any action against BBB, Pfalzgraf was
liable to plaintiff for breach of contract, as well as fraud and
misrepresentation.

     Contrary to the contention of plaintiff, the court properly
denied that part of its motion seeking summary judgment on the second
cause of action and properly granted that part of the cross motion of
Empire and EBD seeking summary judgment dismissing the second and
third causes of action against them. Plaintiff failed to establish as
a matter of law that Empire and EBD intended to act in a partnership
with BBB; rather, Empire and EBD established as a matter of law that
“there was [no] sharing of profits and losses, and [that] there was
[no] joint control and management of [BBB’s] business” (Fasolo v
Scarafile, 120 AD3d 929, 930, lv denied 24 NY3d 992; see Kyle v Ford,
184 AD2d 1036, 1036-1037). Although plaintiff submitted evidence that
Pfalzgraf mentioned that BBB was “business partners” with Empire while
representing BBB in bankruptcy proceedings, that reference was
preceded by statements that BBB and Empire were “two separately
incorporated businesses with separate and distinct ownership,” and
that the two entities would collaborate on projects to demolish barns
to refurbish the wood and sell it. Contrary to plaintiff’s
contention, the “use of partnership terminology is insufficient [to
establish or] to raise an issue of fact with respect to the existence
of a partnership” (Fasolo, 120 AD3d at 931; see Kyle, 184 AD2d at
1037).

     Although plaintiff contends that the court erred in failing to
conform the pleadings to the proof pursuant to CPLR 3025 (c) in order
to incorporate plaintiff’s new theories of liability based on, inter
alia, agency, we conclude that the court did not abuse or
improvidently exercise its discretion in failing to amend the
pleadings in the absence of any motion by plaintiff (see generally
Loomis v Civetta Corinno Constr. Corp., 54 NY2d 18, 23, rearg denied
55 NY2d 801). We decline to exercise our authority to do so as well,
inasmuch as Empire and EBD would be prejudiced by adding those new
theories of liability at this late stage in the proceedings, i.e., now
that discovery is complete (see Panasia Estate, Inc. v Broche, 89 AD3d
498, 498; Newburgh Winnelson Co. v Baisch Mech., Inc., 30 AD3d 495,
496; cf. River Val. Assoc. v Consol. Rail Corp., 182 AD2d 974, 976).

     Empire and EBD contend that the court erred in denying that part
of their cross motion seeking summary judgment dismissing the fourth
and fifth causes of action against them. We reject that contention.
Initially, we note that, based on the record before this Court, Empire
and EBD improperly contend for the first time on appeal that the court
erred in failing to analyze the conversion and fraudulent conveyance
claims against Empire and EBD separately (see Oram v Capone, 206 AD2d
839, 840). In any event, we conclude that, even assuming, arguendo,
Empire and EBD established their entitlement to judgment as a matter
of law on the conversion and fraudulent conveyance causes of action,
plaintiff raised triable issues of fact sufficient to defeat the cross
motion (see generally Zuckerman v City of New York, 49 NY2d 557, 562).
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                                                         CA 15-02040

With respect to the fourth cause of action, for conversion, “[t]wo key
elements of conversion are (1) plaintiff’s possessory right or
interest in the property . . . and (2) [a] defendant’s dominion over
the property or interference with it, in derogation of plaintiff’s
rights” (Colavito v New York Organ Donor Network, Inc., 8 NY3d 43, 50;
see Palermo v Taccone, 79 AD3d 1616, 1619-1620). In this case, it is
undisputed that BBB’s principal provided the lease agreement between
plaintiff and BBB, which provided plaintiff with a security interest
in BBB’s assets, to the principals of Empire and EBD before EBD
entered into the APA with BBB. Thus, “[a]lthough plaintiff’s security
interest was unperfected, plaintiff’s rights would be superior to
those of a buyer [such as Empire or EBD] who purchased [the secured
assets] with actual knowledge of plaintiff’s security interest”
(Reisdorf Bros. v Clinton Corn Processing Co., 130 AD2d 951, 951).
Here, plaintiff raised triable issues of fact whether the principals
of Empire and EBD had actual knowledge of plaintiff’s security
interest and, therefore, summary judgment on the conversion cause of
action was properly denied.

     With respect to the fifth cause of action, for fraudulent
conveyance, we conclude that Empire and EBD failed to meet their
initial burden of establishing their entitlement to judgment as a
matter of law (see generally Zuckerman, 49 NY2d at 562). While it is
well settled that “[n]o relief is available to a judgment creditor on
a [fraudulent conveyance] cause of action . . . against a party who .
. . is not a transferee of the assets or a beneficiary of an alleged
fraudulent conveyance” (Citicorp Trust Bank, FSB v Makkas, 127 AD3d
907, 908, lv denied 26 NY3d 901; see Federal Deposit Ins. Corp. v
Porco, 75 NY2d 840, 842), the evidence submitted by Empire and EBD
raised triable issues of fact whether Empire, as well as EBD,
benefitted from the conveyance of assets from BBB to EBD. Moreover,
despite the contentions of Empire and EBD that the assets were
“worthless” at the time of the conveyance, the evidence submitted by
Empire and EBD in support of their cross motion raised triable issues
of fact whether the conveyance was made without fair consideration or
whether BBB, as grantor of the assets, was insolvent or “rendered
insolvent by the conveyance” (Berner Trucking v Brown, 281 AD2d 924,
924; see Debtor & Creditor Law §§ 271 [1]; 272 [a]; 273-275; Tap
Holdings, LLC v Orix Fin. Corp., 109 AD3d 167, 176-177).

     Finally, addressing the sixth cause of action, for breach of
contract against Pfalzgraf, we conclude that the court erred in
granting that part of plaintiff’s motion seeking summary judgment on
that cause of action. As plaintiff conceded in its complaint,
Pfalzgraf was at all times acting “as an attorney at law and agent for
BBB and [its principal].” “An agent dealing on behalf of a disclosed
principal is not liable for [his or] her principal’s breach of
contract absent evidence that the agent intended to be bound
personally on the contract” (Sirles v Harvey, 256 AD2d 1227, 1228; see
Salzman Sign Co. v Beck, 10 NY2d 63, 67). Plaintiff failed to meet
its initial burden of establishing by “clear and explicit evidence”
that Pfalzgraf intended “to substitute or superadd his personal
liability for, or to, that of his principal” (Salzman Sign Co., 10
NY2d at 67 [internal quotation marks omitted]). Based on our
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                                                         CA 15-02040

conclusion, we do not address the other grounds raised by Pfalzgraf on
his appeal.

Entered:   October 7, 2016                      Frances E. Cafarell
                                                Clerk of the Court