The opinion of the court was delivered by: Gershon, United States District Judge
Plaintiff Karen Kincaid Balmer is the court-appointed Receiver for Olympia Mortgage Corporation ("Olympia"), the mortgage company alleged to have perpetrated a massive fraudulent scheme against Federal National Mortgage Association ("Fannie Mae"). See Federal Nat'l Mortgage Ass'n v. Olympia Mortgage Corp., No. 04-4971 (E.D.N.Y. filed Nov. 16, 2004) ("Fannie Mae v. Olympia"). In her capacity as Receiver, plaintiff brings this action to pierce the corporate veil of defendants 1716 Realty LLC ("1716 LLC") and 1716 Realty Corporation ("1716 Corporation"), two entities owned by Olympia's principals and formed to manage an office building from which Olympia could conduct its business. Plaintiff moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, seeking a declaratory judgment that these entities are alter egos of Olympia and that Olympia is therefore the legal owner of defendants' assets. Alternatively, plaintiff moves for partial summary judgment on her claim for moneys had and received. Defendants also move for summary judgment on their counter-claim for rent allegedly due and owing from Olympia, or, in the event trial is needed, for consolidation of this case with the underlying action of Fannie Mae v. Olympia.
Olympia is a New York corporation that acted as a mortgage lender and servicer from 1986 until November 4, 2004, when the company surrendered its license following a suspension by the New York State Department of Banking. Olympia has no record of its directors being formally elected and only a single record of a corporate meeting held during its approximately 20 years of conducting business. From at least 1998, Olympia was an insolvent company.
On November 16, 2004, Fannie Mae, a government-sponsored private corporation that had purchased thousands of mortgages originated by Olympia and had retained Olympia to service those mortgages, filed suit against Olympia and various individuals and entities with an interest in that company alleging fraud and breach of contract.*fn1 In short, Fannie Mae alleges that, with respect to approximately 260 loans, Olympia failed to provide it notice when borrowers attempted to pay off their existing loans through refinancing. Instead, Olympia's principals collected the pay off amounts for themselves, and, in order to prevent Fannie Mae from learning of the refinancing, Olympia continued to make monthly payments on the loans and reported the status of the loans as "active."
On August 27, 2007, the court entered a Consent Judgment against Olympia on Fannie Mae's contract claims in the amount of $44,800,000. Olympia stipulated in the Consent Judgment that it breached its fiduciary duty to Fannie Mae and its contract with Fannie Mae to "remit loan payoff amounts owed to Fannie Mae in a timely manner and fully and honestly inform Fannie Mae with regard to the loans Olympia serviced for Fannie Mae." Olympia further admitted that, as a result of its breach, it "gained an improper financial benefit for itself."
Various other claims and counter-claims remain pending in Fannie Mae v. Olympia, including a claim against 1716 Corporation for actual and constructive fraud in violation of Article 10 of the New York Debtor and Creditor Law. Although the Receiver alleged various cross-claims against several individuals and entities in that action, she did not name 1716 Corporation as a cross-claim defendant. However, on February 11, 2005, the Receiver filed this action against 1716 Corporation and 1716 LLC.
The following facts are undisputed unless otherwise indicated:*fn2
Olympia, 1716 Corporation, and 1716 LLC are all entities owned by various members of four families, namely those of Avruhum ("Abe") Donner, Barry Goldstein, Leib Pinter, and Sam Pinter.*fn3 Olympia's principals formed 1716 Corporation on June 23, 1998 under New York State laws and 1716 LLC on September 7, 2000 as a Delaware limited liability company. Both of the companies were capitalized entirely by Olympia's profits; none of the defendants' owners contributed any equity to the companies. All of the costs associated with 1716 Corporation's formation, including filing and legal fees, were also borne by Olympia.
Defendants were formed to own and manage an office building on a parcel of real estate that had been purchased by Olympia in February 1998, before either defendant had been formed.*fn4 The decision was made pursuant to a "general agreement" among Olympia's principals that the company needed a "better physical structure and location . . . to advance the needs of the business." Olympia did not document the decision in writing but entered into a contract to purchase 1716 Coney Island Avenue, Brooklyn, New York ("the Property") for $575,000 and paid $10,000 on deposit. On or about September 17, 1998, Olympia sold the land to 1716 Corporation for $565,000, but funded $210,000 of the purchase price and guaranteed the balance in the form of a $355,000 loan from European American Bank. Olympia thereafter made all of the mortgage payments on the loan while it remained open and paid for subsequent property acquisition and development expenses, including architect fees, permit and extension costs, and mortgage lending fees. Olympia also guaranteed 1716 Corporation's construction loan obtained on June 22, 2000, without executing a written agreement regarding the terms of the loan, and it eventually provided all of the funds to pay off the loan. Defendants did not pay any interest or provide any security for repayment of the loan. Mr. Goldstein testified that because "[i]t was almost like lending it from one place to the other to be paid back . . ., [t]here was no interest that was supposed to have been paid."
In December 2002, 1716 Corporation entered into a new mortgage loan agreement, guaranteed by Olympia and 1716 Corporation's principals, with General Electric Capital Corporation for $1,550,000. Olympia's records indicate that the loan is a "receivable" from 1716 Corporation and that Olympia has made $208,370.00 in mortgage payments on the loan.
The loan remains a lien on the building. The proceeds of the loan, net of closing costs and final payment of the first mortgage loan with European American Bank, which amounted to $1,323,245.44., was wired to an Olympia account. Olympia's records indicate that the sum was distributed in the following manner: (1) $501,000 was immediately transferred to a purported religious not-for-profit entity named Kahal Somrei Hadath ("KSH") and controlled by Sam Pinter; (2) $200,000 was immediately transferred to Midwood Federal Credit Union ("Midwood") and used to pay off two personal loans to Sam Pinter and Leib Pinter for $100,000 each; (3) $205,000 was immediately transferred to an account at Midwood held by Yeshiva Yaakow Moshe and was later distributed to Sam Pinter and Leib Pinter's children and spouses through checks in either $15,000 or $20,000 amounts; (4) $426,946 was used for the following: operating expenses and construction costs for 1716 Corporation, other payments to related parties and related party noteholders, benefits for principal owners and related parties, personal credit card expenses, car payments, and payments to Fannie Mae for loans falsely noted as "active."
In addition to helping defendants purchase and construct the Property, Olympia paid for other of defendants' expenses. From 1998 to 1999, Olympia paid for 1716 Corporation's income and franchise taxes, insurance, architectural fees, and demolition and construction costs from its own operating account. In some instances, Olympia recorded these expenditures as company expenses rather than loans. Olympia also provided personnel services to defendants, such as accounting, bookkeeping, purchasing, and administration, without receiving compensation in return. An Olympia employee maintained all of defendants' files at its office, and defendants' mail was frequently delivered "in care of" Olympia. Olympia employees even wrote letters on behalf of 1716 Corporation using Olympia ...