The opinion of the court was delivered by: Alice Schlesinger, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the printed Official Reports.
Joel Klein in 1996 began working for Opinion One as their Executive Director. Opinion One was succeeded by Opinion One Holding Company ("Holding"), and Klein, in January of 2003, signed an employment contract with it. The contract was for a term of three years but could be terminated for cause, but "cause" was not easily shown. And if Klein were to be terminated without cause, he would be entitled to a generous severance payment. This is what happened.
Klein was terminated in February of 2004 allegedly because Opinion One was "ceasing its operations" because the company "was in default under certain obligations to a secured creditor of the company that holds liens against all assets of the company..." (See letter of February 20, 2004 signed by President and CEO Thomas J. Zoretich).
Klein then sought arbitration and attempted to include Cavi Acquisition, the successor to Opinion One/Holding, as well as Loeb Holding Corporation. These entities resisted the arbitration and their inclusion, but this Court did find the termination arbitrable and believed Cavi should be included in it.
The arbitration was held in June of 2005 and the result was a finding that the termination had been without cause and in violation of the employment contract. Therefore, Klein was entitled to his severance payment and was awarded $434,583 plus attorney's fees of $150,000.
None of this money has yet been collected, but not for lack of effort on Klein's part. First, Klein obtained a judgment in the amount of the award plus interest, on default against Cavi in Federal Court on September 29, 2005. Shortly before that, Cavi sold its assets to Interviewing Services of America ("ISA"), pursuant to an Agreement of Sale signed by Zoretich on behalf of Cavi and by William J. Wilson and Bruce Lev on behalf of Loeb. These entities, essentially Loeb, the only remaining company, agreed to indemnify ISA for any litigation costs or claims earlier identified in Schedule 3.6 of the Agreement as Klein's. Finally, the Agreement provided that all amounts due to Cavi under it were to be paid to Loeb.
The history is more complicated than detailed above but it was essentially these events, together with the continued failure of Klein to collect on his judgment, that caused him to initiate this Petition (originally dated April 13, 2006 but amended on December 5, 2007), wherein Klein describing himself as a "judgment creditor" and Cavi as the "judgment debtor" and Loeb as Cavi's "alter-ego", seeks to pierce the corporate veil against Loeb and collect his unpaid judgment against it. The relief sought is pursuant to CPLR §5225.
Following the commencement of these proceedings, much in the way of discovery and motions followed. Finally, cross-motions for summary judgment were made and decided (and appealed) and Klein filed a Note of Issue pursuant to this Court's direction by April 30, 2008. In it he demanded a trial by jury.
And that is what this motion, hopefully the last one before the controversy is actually tried, is about. Is the petitioner here, who seeks to pierce the corporate veil and collect his award from Loeb, entitled to a trial by jury or, as the defendants argue, are his claims essentially equitable in nature and thereby triable before a judge.*fn1
At the outset, It should be stated that there is no case precisely on point that either the parties or the Court has been able to find in New York, although there is one, that fits this category decided in New York, but by the Second Circuit in a federal case Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F2d 131 (1991). This is an opinion cited by petitioner and one can certainly see why. On virtually identical facts, vis-a-vis the kind of claim asserted, the kind of relief sought, and the entities against whom the relief was sought, the court found that a jury trial was warranted.The defense says this decision is based on federal principles and thus not relevant. Yet the principles articulated therein arguably do pertain to both controversies.
In Passalacqua, there was a 1972 contract entered into between plaintiff and Resnick Developers South, Inc. (Resnick) to construct a project in Florida. Disputes arose during construction leading Passalacqua to seek arbitration and to obtain an award, leading to a final judgment which was entered in Florida in 1981. The amount was in excess of $1 million for Resnick's breach of contract. Part of this award was recovered by an assignee of Passalacqua under a bond guaranteed by principals of Resnick, but a large balance remained. This led the successor plaintiff to institute an action in the United State District Court for the Southern District against separate Resnick entities and family members to pierce the corporate veil and recover the balance of the judgment. (There were other counts in the complaint but these were all dismissed). The defendants there, similar to this controversy, before trial moved to strike the plaintiff's jury demand, a motion that was denied. A trial was then held, wherein the court vis-a-vis certain defendants and the jury vis-a-vis others, found there was no "alter ego" relationship and thus Resnick (from whom the judgment could not be collected) was solely liable.
An appeal was taken. With regard to the jury question, the parties then put forth the precise positions which are espoused here in this motion. Plaintiff in Passalacqua contended that what it was seeking was enforcement of a money judgment which indicates a legal action. But defendants contended that because plaintiff had already secured a money judgment (there against Resnick, here against Cavi) its claim for money is merely incidental to the equitable piercing claim and did not require a jury trial.
The defendants' position was rejected, essentially for two reasons. First, the court found that the nature of the relief sought was relief typically achieved in an action at law. The court found that this was analogous to a time when creditors having obtained a judgment against a corporation in equity, then were able to enforce that judgment against the individual stockholders at law. While the relief did have its roots in both law and equity, the court cited to a United States Supreme Court precedent Beacon Theatres, Inc. v. Westover, 359 US 500 (1959) for the principle that a ...