SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
846
CA 12-02373
PRESENT: SCUDDER, P.J., SMITH, FAHEY, AND PERADOTTO, JJ.
JONATHAN ABBOTT, PLAINTIFF-RESPONDENT,
V MEMORANDUM AND ORDER
CROWN MILL RESTORATION DEVELOPMENT, LLC,
DEFENDANT-APPELLANT.
(APPEAL NO. 3.)
CERIO LAW OFFICES, SYRACUSE (DAVID W. HERKALA OF COUNSEL), FOR
DEFENDANT-APPELLANT.
KENNY & KENNY, PLLC, SYRACUSE (JUSTIN D. HOWLAND OF COUNSEL), FOR
PLAINTIFF-RESPONDENT.
Appeal from an order of the Supreme Court, Onondaga County
(Anthony J. Paris, J.), entered August 29, 2012. The order, insofar
as appealed from, denied the motion of defendant to vacate the
judgment and dismiss the amended complaint.
It is hereby ORDERED that the order so appealed from is
unanimously modified in the exercise of discretion by granting the
motion in part and vacating the default judgment only insofar as it
awarded damages in a specified amount and as modified the order is
affirmed without costs and the matter is remitted to Supreme Court,
Onondaga County, for a new assessment of damages in accordance with
the following Memorandum: The plaintiff in appeal Nos. 1 through 3
commenced a Labor Law and common-law negligence action (underlying
action) against Crown Mill Restoration Development, LLC (Crown Mill),
a defendant in appeal Nos. 1 and 2 and the defendant in appeal No. 3,
seeking damages for injuries he allegedly sustained when he fell from
a ladder while working on premises owned by Crown Mill. After Crown
Mill failed to appear at a damages inquest, Supreme Court entered a
default judgment against Crown Mill. Plaintiff thereafter commenced
an action seeking to enforce the judgment against the defendants in
appeal Nos. 1 and 2 (hereafter, defendants), including Crown Mill’s
owner, Vito William Lucchetti, Jr., and various other entities owned
by Lucchetti, based upon a theory of piercing the corporate veil
(enforcement action). Defendants moved to dismiss the amended
complaint in the enforcement action for failure to state a cause of
action, contending that the exclusivity provisions of the Workers’
Compensation Law precluded recovery against them, and they sought to
stay discovery pending the determination of the motion. Crown Mill
thereafter moved to vacate the default judgment in the underlying
action, contending, inter alia, that it had a reasonable excuse for
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its default, i.e., law office failure, and several meritorious
defenses, including that the Workers’ Compensation Law barred recovery
against it. In appeal No. 1, defendants appeal from an order that,
inter alia, denied their motion to dismiss the amended complaint in
the enforcement action except as to defendant Marcellus Group, LLC
and, in appeal No. 2, they appeal from an order denying their motion
for a stay of discovery and for a protective order in the same action.
In appeal No. 3, Crown Mill appeals from an order that, inter alia,
denied its motion to vacate the default judgment and to dismiss the
amended complaint in the underlying action.
Addressing first appeal No. 3, we conclude that the court
properly denied Crown Mill’s motion insofar as it sought to vacate the
default judgment pursuant to CPLR 5015 (a) (1) because Crown Mill
failed to establish a reasonable excuse for its default (see generally
Matter of County of Livingston [Mort], 101 AD3d 1755, 1755, lv denied
20 NY3d 862; Fremming v Niedzialowski, 93 AD3d 1336, 1336). Although
“[t]he determination whether an excuse is reasonable lies within the
sound discretion of the motion court” (Lauer v City of Buffalo, 53
AD3d 213, 217; see Diaz v Diaz, 71 AD3d 947, 948) and the court may
under appropriate circumstances accept law office failure as a
reasonable excuse for a default (see Lauer, 53 AD3d at 217; Montefiore
Med. Ctr. v Hartford Acc. & Indem. Co., 37 AD3d 673, 673-674; Hageman
v Home Depot U.S.A., Inc., 25 AD3d 760, 761), a pattern of willful
default or neglect should not be excused as law office failure (see
Santiago v New York City Health & Hosp. Corp., 10 AD3d 393, 394;
Shouse v Lyons, 265 AD2d 901, 902; see also Edwards v Feliz, 28 AD3d
512, 513). Further, a party’s failure to retain counsel when provided
sufficient time in which to do so does not constitute a reasonable
excuse for a default (see Diaz, 71 AD3d at 948; City of New York v
Simmonds, 172 AD2d 1081, 1081; Mauro v Mauro, 148 AD2d 684, 685).
Here, the damages inquest was initially scheduled for March 2008,
and then adjourned to July 2008. On the day before the scheduled
inquest, Crown Mill filed a chapter 7 bankruptcy petition, thus
automatically staying the underlying action. Plaintiff, the court,
and Crown Mill’s own attorneys, who did not represent Crown Mill with
respect to the bankruptcy and were named as creditors, were not
advised of the petition until the morning of the inquest. After the
bankruptcy petition was dismissed in December 2008 based on Crown
Mill’s failure to cooperate with the bankruptcy trustee, Crown Mill’s
attorneys sought permission to withdraw as counsel based upon a
conflict of interest, i.e., Crown Mill’s failure to pay for legal
services rendered. The court granted the motion on Crown Mill’s
default, providing in its order that Crown Mill had 30 days from the
date of service of the order with notice of entry within which to
obtain new counsel and to notify the court thereof. During the nearly
five months between the order relieving its attorneys and the
rescheduled inquest date, Crown Mill did not communicate with the
court regarding any attempt to retain new counsel, nor did it seek an
adjournment of the inquest date (cf. Russo v Tolchin, 35 AD3d 431,
435). Rather, Lucchetti met with an attorney two business days before
the inquest to discuss her possible representation of Crown Mill at
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the inquest. According to Lucchetti, Crown Mill’s former attorneys
told him that the inquest was scheduled for September 23, 2009 when in
fact the scheduled date was two days earlier, although nothing in the
record substantiates that assertion, and the court in its written
decision indicated that its file contains no notation of an appearance
in court on that date (see Morris v Metropolitan Transp. Auth., 191
AD2d 682, 683; cf. Hageman, 25 AD3d at 761). Notably, Crown Mill
waited until January 2012, more than two years after its default and
11 months after service of the judgment, to seek to vacate the default
(see Marrero v Crystal Nails, 77 AD3d 798, 799; Shouse, 265 AD2d at
902; cf. Russo, 35 AD3d at 435). Moreover, as the court noted, Crown
Mill’s failure to appear at the inquest was not an isolated incident
but, rather, such failure was the continuation of a lengthy pattern of
delay and neglect (see e.g. Marrero, 77 AD3d at 799; Bennett v
Nardone, 276 AD2d 854, 855, lv dismissed 96 NY2d 754; cf. Montefiore,
37 AD3d at 673). We thus conclude that the court providently
exercised its discretion in determining that Crown Mill failed to
provide a reasonable excuse for its default (see Shouse, 265 AD2d at
902). Because Crown Mill failed to establish a reasonable excuse for
the default, we need not determine whether it had a potentially
meritorious defense to the underlying action (see Fremming, 93 AD3d at
1336-1337; Diaz, 71 AD3d at 948).
We further conclude that the court properly denied Crown Mill’s
motion insofar as it sought to vacate the default judgment pursuant to
CPLR 5015 (a) (3), on the grounds of fraud or misrepresentation (see
generally Woodson v Mendon Leasing Corp., 100 NY2d 62, 68; VanZandt v
VanZandt, 88 AD3d 1232, 1233). Crown Mill failed to meet its burden
of establishing fraud, misrepresentation, or other misconduct on the
part of plaintiff sufficient to entitle it to vacatur of the judgment
(see U.S. Bank N.A. v Allen, 102 AD3d 955, 955; Matter of Shere L. v
Odell H., 303 AD2d 1023, 1024; see generally VanZandt, 88 AD3d at
1233).
Under the circumstances of this case and “in the interests of
substantial justice” (Woodson, 100 NY2d at 68), however, we deem it
appropriate to exercise “our broad discretionary power” to grant in
part the motion to vacate the default judgment only insofar as it
awarded damages in a specified amount and to remit the matter to
Supreme Court for a new assessment of damages following an inquest
(Piatt v Horsley, 108 AD3d 1188, 1189; see Quigley v Coco’s Water
Café, Inc., 43 AD3d 1132, 1133; Monette v Bonsall, 29 AD2d 839, 840).
We agree with Crown Mill that the additional evidence it presented in
support of its motion raised an issue whether the damages awarded to
plaintiff after the inquest were excessive (see Quigley, 43 AD3d at
1133). We therefore modify the order in appeal No. 3 accordingly, and
we remit the matter to Supreme Court for a new assessment of damages
following an inquest before a different justice (see generally id.;
Monette, 29 AD2d at 840).
Turning next to appeal No. 1, we conclude that the appeal must be
dismissed. The amended complaint seeks judgment against defendants in
the amount of the judgment in the underlying action against Crown Mill
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based upon a theory of piercing the corporate veil and, based on our
determination in appeal No. 3, the award of damages in that specified
amount is vacated and the matter is remitted for a new assessment of
damages. In the interest of judicial economy, however, we note that
the court properly denied defendants’ motion, with the exception of
one defendant, seeking to dismiss the amended complaint in the
enforcement action for failure to state a cause of action. It is well
settled that, “[w]hen reviewing a motion to dismiss pursuant to CPLR
3211, we must accept as true the facts as alleged in the complaint and
submissions in opposition to the motion, accord plaintiff[] the
benefit of every possible favorable inference and determine only
whether the facts as alleged fit within any cognizable legal theory”
(10 Ellicott Sq. Ct. Corp. v Violet Realty, Inc., 81 AD3d 1366, 1367,
lv denied 17 NY3d 704; see Williams v Beemiller, Inc., 100 AD3d 143,
148, amended on rearg 103 AD3d 1191). “A plaintiff seeking to pierce
the corporate veil must establish that the owners, through their
domination, abused the privilege of doing business in the corporate
form, thereby perpetrating a wrong that resulted in injury to the
plaintiff . . . Factors to be considered in determining whether [a
corporation] has abused [that] privilege . . . include whether there
was a failure to adhere to corporate formalities, inadequate
capitalization, commingling of assets, and use of corporate funds for
personal use” (McCloud v Bettcher Indus., Inc., 90 AD3d 1680, 1681
[internal quotation marks omitted]). “ ‘A decision to pierce the
corporate veil is a fact-laden decision’ ” (Dromgoole v T-Foots, Inc.,
309 AD2d 1186, 1187).
Here, plaintiff alleged, inter alia, that defendants Marcellus
Group, LLC (Marcellus Group), Marcellus Group Construction, LLC
(Marcellus Construction), Ja Spa, LLC (Ja Spa) and Crown Mill are
solely owned by Lucchetti; that Lucchetti was chief executive officer,
chairman of the board of directors, president, principal executive
officer, principal accounting and financial officer, and 92%
shareholder of defendant MacReport.Net, Inc. (MacReport); and that
Crown Mill, Marcellus Group, Marcellus Construction, Ja Spa,
MacReport, and defendants Sono Pizza & Pasta Factory, Inc. (Sono
Pizza) and MacReport.Net Media Publishing, Inc. (Mac Media) shared
administrative offices and utilized common equipment, and that the
same employees performed clerical, administrative, accounting and
executive duties for all the corporations. Plaintiff further alleged
that Lucchetti (1) failed to adhere to corporate formalities, failed
to keep adequate records concerning governance and financial
accounting, and failed to retain sufficient earnings from corporate
operations to meet financial obligations before distributing those
earnings to himself; (2) “completely dominated” and intentionally
undercapitalized Crown Mill; and (3) conducted the business of Crown
Mill “in disregard of its formalities in a manner that suited [his]
own personal convenience.” We conclude that plaintiff’s allegations
are sufficient to survive a CPLR 3211 motion (see generally Williams,
100 AD3d at 148; 10 Ellicott Sq. Ct. Corp., 81 AD3d at 1367).
Finally, with respect to appeal No. 2, defendants sought an
automatic stay of discovery or a protective order staying discovery
pending determination of their motion to dismiss the enforcement
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CA 12-02373
action. The court ruled on defendants’ motion, and thus the appeal
from the order denying the requested relief must be dismissed as moot
(see generally Tennant v Bristol Labs., Div. of Bristol-Myers Co., 155
AD2d 936, 936).
Entered: September 27, 2013 Frances E. Cafarell
Clerk of the Court