¶¶ 4-9; Del Bono Aff.; Cuneo Aff.) Dualstar has submitted only
Trident's contract with Central Synagogue and affidavits from Dualstar's
President and Chief Executive Officer since 1995, Gregory Cuneo ("Cuneo")
and Trident's former Vice President, Louis Del Bono ("Del Bono"), in
support of this contention.
Turner disputes these allegations and contends that Dualstar's practice
was to overlap its officers and directors with those of its
subsidiaries, to "bundle" contracts of its subsidiaries to service
customers such as Central Synagogue, and to control the finances of
subsidiaries such as Trident. (Turner Rule 56.1 Statement ¶¶ 4-9,
11-12.) In opposition to Dualstar's affidavits, Turner has submitted
portions of deposition testimony provided by Del Bono; Trident's president
in 1998, Peter Vrankovic ("Vrankovic"); Craig Patella; and press
releases, income statements, an insurance policy, and New York Department
of State filings from Dualstar. (Rodgers Aff. Exs. A-H.)
The circumstances giving rise to this action and its early history have
been set forth in a prior opinion of his Court, familiarity with which is
assumed. See Central Synagogue v. Turner Const. Co., 64 F. Supp.2d 347
(S.D.N.Y. 1999). Relevant proceedings are set forth below. Central
Synagogue originally filed a complaint in the New York Supreme Court on
February 25, 1999, seeking amounts in subrogation against defendants
Turner, Amis Inc. ("Amis"), and Aris Development Corporation ("Aris,"
and, together with Turner and Amis, the "Defendants"). Central's
complaint alleges state law claims of breach of contract, negligence, and
breach of fiduciary duty, and seeks damages for uninsured losses
sustained in the fire.
On December 27, 1999, Turner filed an Amended Third Party Complaint in
this Court against third-party defendants Trident (as both a division and
wholly-owned subsidiary of Dualstar), Dualstar, Atkinson Koven Feinberg
Engineers, LLP ("AKF"), Schuman Lichtenstein Claman Efron Architects
("SLCE") and Central Synagogue (collectively the "third-party
defendants"). Counterclaims were filed in both the state and federal
actions. Central Synagogue filed a complaint against the third-party
defendants on February 2, 2000.
By order of June 28, 2000, the state action and this action were
determined to be "coordinated cases," as a result of which the rights and
liabilities of all parties are to be decided by this Court.
On May 22, 2000, Central Synagogue filed a Fourth Party Complaint
against Fourth Party Defendant, Acordia, Inc. ("Acordia"). That action
was consolidated with the instant case by order of July 28, 2000.
Turner filed a Second Amended Complaint on February 8, 2001, adding
Amtex Electrical Corporation ("Amtex") as a third-party defendant. Among
other claims, the Second Amended Complaint alleges negligence and breach
of contract against Trident and Dualstar. Both Trident and Dualstar have
filed counterclaims against Turner and cross-claims against the remaining
third-party defendants. Dualstar filed the instant motion on March 14,
Turner filed a brief in opposition on April 18, 2001, whereupon the
motion was deemed fully submitted.
I. Legal Standard for Summary Judgment
Rule 56(c) of the Federal Rules of Civil Procedure provides that a
motion for summary judgment may be granted when "there is no genuine
issue as to any material
fact and that the moving party is entitled to a judgment as a matter
of law." The Second Circuit has repeatedly noted that "as a general
rule, all ambiguities and inferences to be drawn from the underlying facts
should be resolved in favor of the party opposing the motion, and all
doubts as to the existence of a genuine issue for trial should be
resolved against the moving party." Brady v. Town of Colchester,
863 F.2d 205, 210 (2d Cir. 1988) (citing Celotex Corp. v. Catrett,
477 U.S. 317, 330 n. 2, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)
(Brennan, J., dissenting)); see Tomka v. Seiler Corp., 66 F.3d 1295, 1304
(2d Cir. 1995); Burrell v. City Univ., 894 F. Supp. 750, 757 (S.D.N Y
1995). If, when viewing the evidence produced in the light most favorable
to the non-movant, there is no genuine issue of material fact, then the
entry of summary judgment is appropriate. See Burrell, 894 F. Supp. at
758 (citing Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d
Cir. 1991)). Materiality is defined by the governing substantive law.
"Only disputes over facts that might affect the outcome of the suit
under the governing law will properly preclude the entry of summary
judgment. Factual disputes that are irrelevant or unnecessary will not be
counted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct.
2505, 91 L.Ed.2d 202 (1986). "[T]he mere existence of factual issues
— where those issues are not material to the claims before the
court — will not suffice to defeat a motion for summary judgment."
Quarles v. General Motors Corp., 758 F.2d 839, 840 (2d Cir. 1985).
However, "the issue of corporate disregard is generally submitted to
the jury." American Protein Corp. v. AB Volvo, 844 F.2d 56, 59 (2d Cir.
1988) (citing Walter E. Heller & Co. v. Video Innovations, Inc.,
730 F.2d 50, 53 (2d Cir. 1984) (listing appropriate criteria under New
York law for jury to decide whether corporate veil should be pierced)),
cert. denied, 488 U.S. 852, 109 S.Ct. 136, 102 L.Ed.2d 109 (1988)).
While all reasonable ambiguities and inferences should be resolved
against the moving party, those inferences must be supported by
affirmative facts and must be based on relevant, admissible evidence. See
Fed.R.Civ.P. 56. A party seeking to defeat a summary judgment motion
cannot "`rely on mere speculation or conjecture as to the true nature of
facts to overcome the motion.'" Lipton v. Nature Co., 71 F.3d 464, 469
(2d Cir. 1995) (citation omitted).
II. Piercing the Corporate Veil
Courts may pierce the veil cloaking a parent corporation from liability
for the conduct of its subsidiary if "necessary to prevent fraud or to
achieve equity." Gartner v. Snyder, 607 F.2d 582, 586 (2d Cir. 1979)
(quoting Port Chester Elec. v. Atlas, 40 N.Y.2d 652, 656, 389 N.Y.S.2d 327,
331, 357 N.E.2d 983, 986 (1976)) (emphasis added). As a general rule, a
party seeking to pierce the corporate veil must demonstrate that "the two
corporations operated as a single economic entity such that it would be
inequitable . . . to uphold a legal distinction between them." Fletcher
v. Atex, Inc., 68 F.3d 1451, 1458 (2d Cir. 1995) (internal quotation
marks and citations omitted); see also 1 Fletcher Cyclopedia, §
41.20, at 596 ("The alter ego doctrine is applied to avoid the inequity
of one corporation using another corporation to shield itself from
A. Choice of Law
Under New York's choice of law principles, "[t]he law of the state of
incorporation determines when the corporate form will be disregarded and
liability will be imposed on shareholders." Fletcher, 68
F.3d at 1456 (quoting Kalb, Voorhis & Co. v. American Fin. Corp.,
8 F.3d 130, 132 (2d Cir. 1993)). Because Trident and Dualstar
are Delaware corporations, Delaware law determines whether Dualstar may
be held liable for Trident's conduct. Id.; Gabriel Capital, L.P. v.
NatWest Finance, Inc., 122 F. Supp.2d 407, 432 (S.D.N.Y. 2000).
However, both Dualstar and Turner cite Wm. Passalacqua Builders, Inc.
v. Resnick Developers South, Inc., 933 F.2d 131 (2d Cir. 1991) and other
New York state cases as enumerating the relevant standards for piercing
the corporate veil. In 1991, two years before the rule employed in
Fletcher was established, Passalacqua applied New York substantive law
despite the fact that New York's choice of law rules might otherwise have
warranted the application of Florida law. 933 F.3d at 127. The
Passalacqua Court reasoned that the parties had agreed to employ New York
law by relying solely upon New York law in briefing the veil-piercing
issue, and that in any case, Florida and New York standards for piercing
the corporate veil were "virtually identical." Id.; see also Heller, 730
F.2d at 52 (under New York law, "in the absence of a strong
countervailing public policy, the parties to litigation may consent by
their conduct to the law to be applied.").
The New York cases cited by the parties in this case do not involve
Delaware corporations, and are therefore substantively inapposite
according to Fletcher's more recent and more specific choice of law
rule. There is apparently no choice of law provision in the contract
between Trident and Central Synagogue. (McKenna Aff. Ex. B.)
Notwithstanding Fletcher, some courts have followed Passalacqua and
adopted the law the parties agree to employ rather than the law of the
state of incorporation where there is no substantive difference between
the two state law approaches to piercing the corporate veil. See, e.g.,
Quinn v. Teti, 234 F.3d 1262, 2000 WL 1616806 (S.D.N.Y. Oct. 27, 2000)
(table) (summarily affirming district court's application of New York law
to veil-piercing of Idaho corporation where the parties had agreed to
apply New York law); Kempf v. Mitsui Plastics, Inc., No. 96 Civ. 1106
(HB), 1996 WL 673812, *3 & n. 1 (S.D.N.Y. Nov. 20, 1996) (applying law
briefed by the parties rather than law of state of incorporation); S.J.
Berwin & Co. v. Evergreen Entertainment Group, Inc., No. 92 Civ. 6209
(WK), 1995 WL 606094, *2 & n. 2 (Oct. 12, 1995) ("Although it is clear
that Delaware law should have applied to the piercing claim from the
outset . . . the conduct of the parties, and the fact that Delaware's
piercing standard is not all that different from the one used in New York
suggest that New York law should continue to apply.").
As the standards for piercing the corporate veil are substantially
similar under Delaware and New York law, see, e.g., Harrison v. NBD
Inc., 990 F. Supp. 179, 183 (E.D.N.Y. 1998) (noting similarity in
standards for piercing corporate veil in New York and Delaware), New York
law will be applied as per the parties' submissions.
B. New York Law
New York law allows courts to pierce the corporate veil either where a
fraud has been committed, or where the corporation has been so dominated
by an individual or corporate parent that the subsidiary is relegated to
the status of a mere shell, instrumentality, or alter ego. See
Passalacqua, 933 F.2d at 138; Carte Blanche, 2 F.3d at 25 (courts may
pierce veil in one of two circumstances: "to prevent fraud or other
wrong, or where a parent dominates and controls a subsidiary.");
Itel Containers Int'l Corp. v. Atlanttrafik Exp. Serv. Ltd.,
909 F.2d 698, 703 (2d Cir. 1990) ("New York law allows
the corporate veil to be pierced either when there is fraud or when the
corporation has been used as an alter ego.") (emphasis in original));
Gartner, 607 F.2d at 586 ("Because New York courts disregard corporate
form reluctantly, they do so only when the form has been used to achieve
fraud, or when the corporation has been so dominated by an individual or
another corporation . . ., and its separate identity so disregarded, that
it primarily transacted the dominator's business rather than its own and
can be called the other's alter ego.").
Dualstar contends that the corporate parent's domination of the
subsidiary must have been designed for the purpose of injuring a party to
the action in order to pierce the corporate veil pursuant to New York
law. However, Turner need not demonstrate this element in order to
prevail. The Passalacqua Court, although construing New York law to
require that the domination have led to the wrong at issue, 933 F.2d at
138, affirmed the jury's piercing of the parent's veil in order to impose
liability for damages arising out of its subsidiary's construction
contract breach. The Court did not require any showing that the
relationship between the two corporations had any causal relationship to
the contract dispute, but instead found that the disregard for the
corporate form was itself sufficient to warrant piercing the veil for
equitable reasons. 933 F.2d at 140. In light of this reasoning, in this
contract action, Turner need not show that the relationship between
Dualstar and Trident had any bearing on the conduct that gave rise to
Whether a subsidiary is an alter ego of its corporate parent is a
fact-intensive inquiry that must take into consideration a variety of
factors: (1) failure to observe corporate formalities; (2)
undercapitalization; (3) intermingling of corporate funds; (4) overlap in
corporate officers, directors, and personnel; (5) common office space,
address and telephone numbers; (6) the amount of business discretion
exercised by the subsidiary corporation; (7) whether the two companies
deal with each other at arm's length; (8) whether the corporations exist
as independent sources of profit; (9) the guarantee of the subsidiary's
debts by the parent; and (10) common use of corporate property.
Passalacqua, 933 F.2d at 139; see also William Wrigley Jr. Co. v.
Waters, 890 F.2d 594, 600 (2d Cir. 1989) ("failure to pay dividends,
insolvency at the time of a transaction, siphoning of corporate funds by
the dominant shareholder and nonfunctioning of other officers and
directors, either individually or in combination, may evidence a
corporation that is a mere shell and therefore susceptible to being
bypassed in fashioning an appropriate remedy."); Heller, 730 F.2d at 53
(citing, inter alia, absence of corporate formalities and perpetration of
fraud by means of corporate vehicle as relevant factors in piercing
corporate veil). No single one of these factors is dispositive;
"liability is imposed to reach an equitable result."
Bridgestone/Firestone, Inc. v. Recovery Credit Services, Inc., 98 F.3d 13,
18 (2d Cir. 1996) (citation and internal quotations omitted).
III. The Motion for Summary Judgment Is Denied
As Dualstar was not a party to Trident's contract with Central
Synagogue, it owed no direct duty of care to Central Synagogue. See Carte
Blanche (Singapore) Pte., Ltd. v. Diners Club Intern., Inc., 2 F.3d 24,
25 (2d Cir. 1994) ("Generally speaking, a parent corporation and its
subsidiary are regarded as legally
distinct entities and a contract under the corporate name of one is not
treated as that of both."). Nonetheless, summary judgment is
inappropriate because Turner has established a genuine question of
material fact as to whether Dualstar dominated Trident to the extent that
Dualstar may be held liable for Trident's conduct. Trident and Dualstar
had different telephone numbers at the same address, 11-30 47th Avenue,
Long Island City, New York.
While it is unclear whether they share office space within that
building, Dualstar is authorized to receive service of process for
Trident at that address. (Rodgers Aff. Ex. H.)
The deposition testimony of former Trident president, Peter Vrankovic
("Vrankovic"), reveals that Dualstar was the sole source of Trident's
funding, both during the initial incorporation and during its subsequent
operation. (Rodgers Aff. Ex. B at 9-11.)
Vrankovic's testimony does not indicate that the funds Dualstar
provided to Trident were structured as loans, but rather suggests that
Dualstar was repaid directly from Trident's profits. (Rodgers Aff. Ex. C
at 9-12 (Vrankovic).)*fn1 Vrankovic also testified that he left Trident
in part due to uncertainty about where Trident's profits were going. (See
Turner Br. at 9-10.) In addition, Dualstar, Trident, Integrated and CMA
are covered by the same insurance policy. (Rodgers Aff. Ex. F (Kemper
Insurance Policy) at "Named Insured" unnumbered page (CC 76 49).) These
unrebutted facts demonstrate that the two companies are more financially
intertwined than the average parent and subsidiary. See Passalacqua, 933
F.2d at 139.
Moreover, evidence submitted by Turner establishes that Dualstar has a
practice of sharing corporate officers with its subsidiaries, including
Trident. (Rodgers Aff. Ex. E at 19-24.) Most notably, Gregory Cuneo is
the Chairman or CEO of Dualstar and three of its wholly owned
subsidiaries" Trident, Integrated, and CMA. Joseph Chan is the Vice
President and Chief Financial Officer of both Dualstar and Integrated.
Steven Yager served as Dualstar's Executive Vice President at the same
time he held that position at CMA. Ronald Fregara, who was another
Executive Vice President at Dualstar, held that position at the same time
as he served as President of CMA. Trident's former project manager, Craig
Patella, now holds the same position at CMA. This overlap of corporate
officers indicates that Dualstar and Trident may not be as independent as
Dualstar claims. See Passalacqua, 933 F.2d at 139.
These facts suggest that the relationship between Dualstar and Trident
went beyond the mere "interlocking directorates" between parent and
subsidiary that are a "commonplace circumstance of modern business,"
American Protein Corp. v. AB Volvo, 844 F.2d 56, 60 (2d Cir. 1988),
cert. denied, 488 U.S. 852, 109 S.Ct. 136, 102 L.Ed.2d 109 (1988). As in
Passalacqua, where the Court affirmed piercing the corporate veil to hold
a parent corporation liable for the breach of its subsidiary's
construction contract, Turner has presented sufficient admissible
evidence pertaining to financial control, intermingling of funds, and
overlap of officers, to raise genuine questions of material fact.
The issue of Dualstar's liability for Trident's conduct in relation to
the destruction of the Central Synagogue should therefore be assessed by
For the foregoing reasons, Dualstar's motion for summary judgment is
It is so ordered.