ETAGE REAL ESTATE LLC v. STERN (2025)

Order, Supreme Court, New York (Arthur R. Engoron, J.), entered on or about May 15, 2024, which granted plaintiffs' motion for leave to amend the pleadings and to so-order certain subpoenas, unanimously modified, on the law, to deny the motion for leave to amend the pleadings, and otherwise affirmed, without costs.  Order, same court and Justice, entered on or about November 14, 2024, which denied defendants' motion to modify the underlying so-ordered subpoenas dated September 3, 2024 and for a protective order, and granted plaintiffs' motion to enforce the subpoenas, unanimously modified, on the law, to grant defendants' motion to the extent of limiting the time period covered by the subpoenas to the period from 2012 through 2019, and otherwise affirmed, without costs.

Supreme Court improperly granted the motion to amend the pleadings, as none of the causes of action would have survived a motion to dismiss (see Durst Pyramid LLC v. Silver Cinemas Acquisition Co., 222 A.D.3d 431, 432, 199 N.Y.S.3d 68 [1st Dept. 2023]).  Plaintiffs' first cause of action seeks to pierce the corporate veil of nonparty DJJMS LLC, the corporate debtor, in order to hold defendants, who are DJJMS's owners, liable for judgments against DJJMS.  However, the complaint fails to allege facts sufficient to show that defendants completely dominated DJJMS — a necessary factor for piercing the corporate veil (see Etage Real Estate LLC v. Stern, 211 A.D.3d 632, 633, 182 N.Y.S.3d 47 [1st Dept. 2022]).  Similarly, the breach of contract cause of action that formed the basis of the judgment against DJJMS is not the type of wrong that would warrant piercing the corporate veil (id. at 634, 182 N.Y.S.3d 47)

Plaintiffs' cause of action against defendants for fraudulent conveyance under the Debtor and Creditor Law would also not survive a motion to dismiss, as a claim for fraudulent conveyance may be asserted only by creditors of the transferor (Eberhard v. Marcu, 530 F.3d 122, 131 [2d Cir.2008]).  However, plaintiffs were not creditors of 105 West 57th Street Holdings, LLC, the transferor here;  rather, they were creditors of DJJMS, which held an interest in 105 West 57th Street Holdings.

As to the proposed cause of action under Penal Law § 175.45, plaintiffs have made no showing that the legislature intended to allow a private right of action under that statute (see Niagara Mohawk Power Corp. v. Testone, 272 A.D.2d 910, 911, 708 N.Y.S.2d 527 [4th Dept. 2000]).

Supreme Court properly compelled compliance with the subpoenas issued to nonparties JPMorgan Chase Bank, N.A., DJJMS's bank, and Cywiak & Company LLP, DJJMS's accountant, as the assets and transfers that DJJMS made during this period are relevant to both the veil piercing and the fraudulent conveyance causes of action (cf.  Moran v. Grand Slam Ventures, LLC, 221 A.D.3d 994, 996, 202 N.Y.S.3d 141 [2d Dept. 2023]).  However, the transaction underlying the judgment took place in December 2012, the allegedly improper transfer took place in 2013, and plaintiffs' underlying litigation against DJJMS lasted from 2017 through 2019.  Accordingly, the period covered by the subpoenas should be limited to the period from 2012 through 2019.  In addition, Supreme Court properly refused to strike the request for the company's tax returns.  Although a party seeking tax returns faces a heavy burden (Matthews Indus. Piping Co. v. Mobil Oil Corp., 114 A.D.2d 772, 772, 495 N.Y.S.2d 35 [1st Dept. 1985]), plaintiffs have sustained that burden, as defendants have failed to provide full information as to DJJMS's assets.

Finally, Supreme Court properly denied defendants' request to review the third-party productions for confidential information.  Any such concerns are properly addressed through a confidentiality agreement among the parties.