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DOMINO MEDIA, INC. v. KRANIS

June 25, 1998

DOMINO MEDIA, INC., a dissolved corporation, Plaintiff, against ANN KRANIS and RICHARD KRANIS, Defendants.


The opinion of the court was delivered by: KAPLAN

MEMORANDUM OPINION

 LEWIS A. KAPLAN, District Judge.

 Defendant Richard Kranis conveyed his interests in two valuable pieces of real estate to his wife, defendant Ann Kranis, shortly after plaintiff Domino Media, Inc. ("Domino") sued him for legal malpractice. Domino subsequently obtained a judgment in excess of $ 1 million which Kranis has failed to satisfy. This action seeks to set aside these and certain other conveyances as fraudulent.

 Facts

 Prior Proceedings

 Domino's Action Against Maryland Casualty

 Domino, a former Colorado corporation, once operated a music recording business through its wholly owned subsidiary Media Sound, Inc. ("Media Sound"), at 311 West 57th Street, New York, New York. Noisy and disruptive construction activities for a 50 story tower adjacent to and surrounding Media Sound's recording studios began in August 1985. *fn1" This construction, which continued until 1988, rendered virtually impossible Media Sound's efforts to record music and consequently caused Domino to lose a substantial portion of its revenues. *fn2" As a result, Media Sound filed for Chapter 11 bankruptcy protection in February 1986, *fn3" and a year later Domino was suspended under Colorado law for failure to pay Colorado state taxes. *fn4"

 Eventually, Domino and Media Sound filed a claim in the amount of $ 1,068,385 under a business interruption insurance policy issued by Maryland Casualty Co. ("Maryland") for losses caused by the construction activities. *fn5" Maryland, however, refused to pay. In a letter dated February 24, 1987, Maryland claimed that Domino's policy was void and, in any event, that the claimed loss was not covered. *fn6" Consequently, on October 27, 1987, the United States Bankruptcy Court for the Southern District of New York, which was then responsible for the Media Sound bankruptcy, authorized the initiation of lawsuits against Maryland and against the construction companies responsible for Media Sound and Domino's losses. *fn7" Kranis was the lawyer hired to represent Domino and Media Sound in these two suits. *fn8"

 Kranis drafted and filed complaints on behalf of Domino and Media Sound against Maryland in August 1987 and against the construction companies in December 1987, both in the Supreme Court, New York County. *fn9" Because Kranis failed to comply with a court order to submit an amended complaint, however, Domino's complaint against Maryland was dismissed some time in late 1988 or early 1989. *fn10"

 During the pendency of these claims, Domino remained unable to pay its Colorado state taxes. In consequence, on January 1, 1991, it was administratively dissolved as a corporation pursuant to Colorado law. *fn11"

 Domino's Malpractice Action Against Kranis

 In August 1991, shortly after its dissolution, Domino brought a malpractice action against Kranis for damages in the amount of $ 1,250,000, the liability limit for the business interruption coverage provided for by the Maryland policy. *fn12" Kranis initially did little to defend himself against Domino. He failed to comply with numerous discovery orders, to appear at his deposition, or to respond to a motion by Domino to strike his answer. As a result, Justice Shainswit of the New York Supreme Court issued an order of default and ultimately struck Kranis' answer. *fn13" She then held an inquest, in August 1993, to determine the extent of Domino's damages. *fn14"

 While the issue of damages was pending, Kranis moved to dismiss the malpractice action on the theory that Domino lacked capacity to sue in the New York courts under N.Y. BUS. CORP. L. § 1312(a). Justice Shainswit denied this motion on November 10, 1994, finding that Kranis had waived the defense, that the argument was "incredible" given that Kranis himself had earlier drafted a complaint on behalf of Domino which listed Domino as "a foreign corporation . . . authorized to do business in the State of New York," and that Domino had "taken steps to" comply with the statute so as to permit suit in the New York courts. *fn15" The Appellate Division affirmed the denial of Kranis' motion and remanded to Justice Shainswit to decide the damages issue. *fn16"

 Not satisfied, Kranis again moved the dismiss the complaint, this time arguing that Domino had failed to establish damages because the only damages suffered were those of Domino's subsidiary, Media Sound, and on the added grounds that Domino lacked standing and the New York Supreme Court lacked jurisdiction over the case. On February 20, 1996, Justice Shainswit denied Kranis' motion and granted Domino's cross-motion to enter damages in the amount of $ 1,250,000. *fn17" Justice Shainswit found that the claim that Domino had not suffered damages was without merit and that the arguments regarding jurisdiction and damages already had been litigated, decided adversely to Kranis, and affirmed on appeal. *fn18"

 The Appellate Division unanimously affirmed this ruling. *fn19" It held that the record supported a finding of $ 1,250,000 in damages for Domino and that all of Kranis' other arguments, including arguments regarding Domino's capacity to sue and the court's jurisdiction, had been raised and disposed of and, in any event, were without merit. *fn20" Kranis' motion for reargument was denied, *fn21" and the New York Court of Appeals denied leave to appeal the decision. *fn22"

 Undeterred, Kranis moved to set aside the judgment. He asserted again, among other things, that Domino had not suffered any damages and that Domino lacked the capacity to sue under N.Y. BUS. CORP. L. § 1312(a). He argued also that Domino already had recovered the full amount owed to it under a settlement with the construction companies *fn23" and that the judgment against him therefore would give Domino a "double recovery." The state court rejected all of Kranis' contentions. *fn24" It ruled that the arguments that Domino had not suffered any damages and that it lacked capacity to sue already had been decided adversely to Kranis. It rejected Kranis' contention that the judgment should be set aside to avoid double recovery in light of the settlement with the construction companies on the grounds that the settlement was not based on "newly discovered evidence" and that Domino in any case had suffered damages "in excess of $ 14 million," so the judgment against Kranis would not produce a double recovery. *fn25" The Appellate Division not only affirmed the decision, but also imposed $ 2,500 in sanctions on Kranis for relitigating issues that were decided in prior appeals. *fn26"

 The Challenged Conveyances

 Kranis' efforts to avoid paying the malpractice judgment were not limited to filing repetitive motions in the state court. On December 1991, shortly after Domino filed the malpractice action against him, Kranis transferred his interests in two pieces of real estate to his wife, defendant Ann Kranis, for the sum of $ 10 each. *fn27" The two properties at issue are (1) a house and property located at 6, The Tulips, Roslyn Heights, New York, which had been held jointly by Mr. and Mrs. Kranis for over twenty years, and (2) apartment buildings and land located at 7-15 West 87th Street, along Central Park West, which had been solely in Richard Kranis' name since the 1960's.

 Domino contends also that in February 1993, while the malpractice action was pending, the defendants sold another property in East Hampton, New York, for $ 725,000 and bought a home in Naples, Florida, which is outside the reach of creditors under the Florida Homestead Law. *fn28" According to Domino, Kranis received a check payable to him in the amount of $ 72,500 and another check payable jointly to him and his wife in the amount of $ 653,874.71 for the sale of the East Hampton home, and Kranis transferred both sums to his wife without fair consideration. *fn29" Domino complains also that Kranis withdrew a total of $ 170,000.00 from two Chase Manhattan Bank savings accounts and transferred that sum, plus another $ 40,000 he received as attorney's fees, to defendant Ann Kranis without fair consideration. *fn30"

 Because the malpractice judgment against Kranis remains largely unsatisfied, *fn31" Domino commenced No. 97 Civ. 1992 on March 20, 1997 to set aside the conveyance of the West 87th Street property. At the same time, Domino commenced an action in the Eastern District to set aside the conveyance of the Roslyn Heights property. That action was transferred to this Court and denominated No. 98 Civ. 3767. *fn32"

 Domino's complaints in the two actions each state two causes of action. The first cause of action in 97 Civ. 1992 seeks to set aside as fraudulent the conveyance of the West 87th Street property to Ann Kranis, and the first cause of action in 98 Civ. 3767 seeks to set aside as fraudulent the conveyance of the Roslyn Heights property. The second causes of action in both complaints seek to set aside as fraudulent the transfer to Ann Kranis of the savings account withdrawals, the attorney's fees, and the sums for the sale of the East Hampton home.

 The defendants' answers deny that any of the transfers were fraudulent and also raise ten affirmative defenses. In the first and second, they assert that Domino lacked the capacity to sue under Colorado law in the prior action and lacks capacity to sue here because it is a dissolved corporation. The third affirmative defense claims that Domino's settlement with the construction companies offset or satisfied any liability to plaintiff, and that this action therefore is an attempt to recover double. The fourth and fifth defenses contend that Domino obtained its judgment against Kranis by fraud in that Media Sound, not Domino, suffered loss by virtue of the construction activities. The defendants allege in the sixth affirmative defense that the malpractice judgment also was obtained by fraud on the bankruptcy court. The seventh affirmative defense asserts that the real party in interest is Media Sound, not Domino, and that Domino therefore cannot maintain the instant action. In the eighth affirmative defense, the defendants contend that the second cause of action duplicates the Eastern District suit and that the instant action should be stayed. The ninth affirmative defense alleges that process served on the defendants was insufficient, and the tenth claims that an appeal is pending in the malpractice judgment in the New York Supreme Court which may be dispositive of this case.

 The Pending Motions

 The procedural posture of the motions now before the Court is somewhat unusual. Domino moved in No. 97 Civ. 1992, the original Southern District case, (a) to transfer the Eastern District action to this Court and (b) for summary judgment pursuant to FED. R. CIV. P. 56 to set aside the conveyances of the properties at issue in both cases. The defendants litigated the validity of the conveyances of both properties in No. 97 Civ. 1992 and cross-moved in that case for summary judgment on the grounds that the plaintiff lacked capacity to bring either action under Colorado state law, that N.Y. BUS. CORP. L. § 1312(a) likewise bars both suits because Domino is unauthorized to do business in New York, that Domino's judgment in the malpractice action was procured by fraud and, finally, that Domino is not entitled to recover because it already settled with the construction companies in the amount of the claim. After all of the parties had fully submitted their motions, the parties stipulated to the transfer of the Eastern District action to this Court and to the consolidation of both cases.

 As the parties fully briefed the merits of the real estate conveyances at issue in both cases, albeit only in No. 97 Civ. 1992, the Court regards these issues as properly before it despite the absence of a formal motion in No. 98 Civ. 3767. On the other hand, none of the motions addressed the second cause of action in either complaint, each of which related to the savings account withdrawals discussed above. *fn33" Consequently, the ...


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