M. Daniel Sweeney and Joan M. Hauswald, Plaintiffs, v. Jacob Waitz and Artisan Builders of the North Fork, Inc., Defendants.

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Supreme Court, Suffolk County, New York.

M. Daniel Sweeney and Joan M. Hauswald, Plaintiffs, v. Jacob Waitz and Artisan Builders of the North Fork, Inc., Defendants.


Decided: October 01, 2019

PLAINTIFFS pro se: M. DANIEL SWEENEY redacted Cutchogue, New York 11935 JOAN M. HAUSWALD redacted Cutchogue, New York 11935 DEFENDANTS' ATTORNEYS GOGGINS & ASSOCIATES 13235 Main Road, POB 65 Mattituck, New York 11952

Upon the reading and filing of the following papers in this matter: (1) Notice of Motion by defendants dated January 11, 2019, and supporting papers; (2) Opposition by plaintiffs dated January 23, 2019, and supporting papers; and (3) Affirmation In Reply by defendants dated February 12, 20019, it is

ORDERED that defendants' motion for summary judgment, pursuant to CPLR § 3212 dismissing the complaint against defendant Jacob Waitz is DENIED; and it is

ORDERED that defendants' motion for summary judgment, pursuant to CPLR § 3212 dismissing the first cause of action of the complaint sounding in negligence is GRANTED.

This action arises out of a contract for home improvement entered into between plaintiffs and defendant Artisan Builders of the Northfork, Inc. ("Artisan") on September 23, 2013 (the "home improvement contract") for work to be done on plaintiff's home at 4595 Skunk Lane, Cutchogue, New York (the "project"). Plaintiffs pro se allege in their complaint that the defendants were negligent in the installation of an attic air handler and in the removal of a support beam in the kitchen, and that they breached the home improvement contract by, among other things, failing to perform and/or complete key aspects of the project and by diverting and misappropriating to themselves monies that were required to be used to pay subcontractors or to be otherwise applied to performing and completing the project. Defendants now move for partial summary judgment (1) dismissing the complaint against Jacob Waitz on the grounds that as a matter of law, he cannot be held personally liable for the obligations of the corporate defendant Artisan, and (2) dismissing the first cause of action of the complaint, which sounds in negligence 1 , on the ground that neither defendant can be held liable on a tort theory of negligence for an alleged breach of a contractual obligation.

In support of their motion, defendants proffer, inter alia, the pleadings, an affidavit by defendant Jacob Waitz and the deposition testimony of plaintiff Joan Hauswald.

It is well settled that the proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case. Before summary judgment may be granted, it must clearly appear that no material and triable issue of fact is presented (see Alvarez v Prospect Hosp., 68 NY2d 320, 324, 508 NYS2d 923 [1986]; Zuckerman v City of New York, 49 NY2d 557, 427 NYS2d 595 [1980]). The movant has the initial burden of proving entitlement to summary judgment (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 487 NYS2d 316 [1985]). Failure to make such a showing requires denial of the motion, regardless of the sufficiency of the opposing papers (Winegrad v New York Univ. Med. Ctr., supra). Once such proof has been offered, the burden then shifts to the opposing party, who, in order to defeat the motion for summary judgment, must proffer evidence in admissible form . . . and must "show facts sufficient to require a trial of any issue of fact" (CPLR 3212 [b]; see Zuckerman v City of New York, 49 NY2d 557, 427 NYS2d 595 [1980]). As the court's function on such a motion is to determine whether issues of fact exist, not to resolve issues of fact or to determine matters of credibility, the facts alleged by the opposing party and all inferences that may be drawn from them are to be accepted as true (see Roth v Barreto, 289 AD2d 557, 735 NYS2d 197 [2d Dept 2001]; O'Neill v Fishkill, 134 AD2d 487, 521 NYS2d 272 [2d Dept 1987]).

In support of the first prong of the current motion, which seeks dismissal of the complaint as against defendant Waitz, Waitz avers in his affidavit that he is a stockholder and the president of Artisan. He states that Artisan entered into a home improvement contract with the plaintiffs, that Artisan invoiced the plaintiffs and that plaintiffs paid Artisan. Waitz further avers, among other things, that he never acted outside of his capacity as an officer and employee of the corporation and that he never agreed to be personally responsible for Artisan's obligations in connection with the subject home improvement contract.

It is a well-settled rule that "an agent for a disclosed principal 'will not be personally bound unless there is clear and explicit evidence of the agent's intention to substitute or superadd his personal liability for, or to, that of his principal' " (Salzman Sign Co. v Beck, 10 NY2d 63, 66-67, 217 NYS2d 55 [1961], quoting Mencher v Weiss, 306 NY 1, 2, 114 NE2d 177 [1953]). The general rule is that a corporation exists independently of its owners, who are not personally liable for its obligations, and that individuals may incorporate for the express purpose of limiting their liability (see East Hampton Union Free School Dist. v Sandpebble Builders, Inc., 66 AD3d 122, 126, 884 NYS2d 94 [2d Dept 2009]; Bartle v Home Owners Co-op, 309 NY 103, 106, 127 NE2d 832 [1955]; Seuter v Lieberman, 229 AD2d 386, 387, 644 NYS2d 566 [2d Dept 1996]). "Factors to be considered in determining whether the owner has 'abused the privilege of doing business in the corporate form' include whether there was a 'failure to adhere to corporate formalities, inadequate capitalization, commingling of assets, and use of corporate funds for personal use' " (East Hampton Union Free School Dist. v Sandpebble Builders, Inc., supra at 127, quoting Millenium Constr., LLC v Loupolover, 44 AD3d 1016, 1016-1017, 845 NYS2d 110 [2d Dept 2007]). The mere claim that the corporation was completely dominated by the defendant, or conclusory assertions that the corporation acted as his "alter ego," without more, will not suffice to support the equitable relief of piercing the corporate veil (see Flushing Plaza Associates No. 2 v Albert, 102 AD3d 737, 739, 958 NYS2d 713 [2d Dept 2013]; Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141-142, 603 NYS2d 807 [1993]; Abelman v Shoratlantic Dev. Co., 153 AD2d 821, 823, 545 NYS2d 333 [2d Dept 1989]). Some showing of a wrongful or unjust act toward the plaintiff is required (see Vivir of L I Inc. v Ehrenkranz, 145 AD3d 834, 835-836, 43 NYS3d 435 [2d Dept 2016]; Matter of Morris v New York State Dept. of Taxation & Fin., supra at 141-142). Corporate principals may be held personally liable if they participate in the commission of a tort in furtherance of company business (see Rothstein v Equity Ventures, LLC, 299 AD2d 472, 750 NYS2d 625 [2d Dept 2002]; see also 277 Mott Street LLC v Fountainhead Const., LLC, 83 AD3d 541, 541-542, 922 NYS2d 299 [1st Dept 2011]; Pludeman v Northern Leasing Systems, Inc., 10 NY3d 486, 491, 860 NYS2d 422 [2008]).

Waitz has established prima facie entitlement to summary judgment on the first prong of the defendants' motion, that he was acting as a disclosed agent for and employee of Artisan. The burden, thus, shifts to plaintiffs to raise a triable issue of fact with respect to Waitz's alleged personal liability. In opposition to the motion, although plaintiffs have provided no proof that there was a failure on the part of Waitz or any other stockholder of Artisan to adhere to corporate formalities or that the corporation was inadequately capitalized, they have provided evidence to support their claim that, among other things, during the course of the project, monies they paid that were required to be used by Artisan to pay subcontractors or to be otherwise applied to performing and completing the project were diverted and misappropriated by the defendants acting by and through Waitz. For example, plaintiff Hauswald testified at deposition that payments that plaintiffs made to defendants for purposes of paying various subcontractors were not received by the subcontractors, delaying the completion of the project and forcing plaintiffs to bear the expense of paying again for the work to be performed under the home improvement contract.

Section 70 of the Lien Law provides, in pertinent part:

The funds described in this section . . . received by a contractor under or in connection with a contract for an improvement of real property, or home improvement . . . and any right of action for any such funds due or earned or to become due or earned, shall constitute assets of a trust for purposes provided in section seventy-one of this chapter.

A corporation's officers are liable to the beneficiary of such a lien law trust for the diversion of trust funds (see Fleck v Perla, 40 AD2d 1069, 339 NYS2d 246 [4th Dept 1972]). "[I]t is no answer to such liability that the act was done while the officer or agent was acting for the corporation" (Fleck v Perla, supra at 1070). Where officers of a corporate trustee have converted trust funds for their own use, or knowingly participated in a diversion, they may be liable to the trust beneficiary in their individual capacities (South Carolina Steel Corp. v Miller, 170 AD2d 592, 595, 566 NYS2d 368 [2d Dept 1991]; citing Fleck v Perla, supra; Ace Hardwood Flooring Co., Inc. v Glazer, 74 AD2d 912, 426 NYS2d 69 [2d Dept 1980]; Ippolito v TJC Development, LLC, 83 AD3d 57, 920 NYS2d 108 [2d Dept 2011]). Indeed, an officer or agent of such corporate trustee who applies trust funds for any purpose other than the trust purposes of that trust is guilty of larceny and punishable as provided in the penal law (Lien Law § 79-[a]).

In short, plaintiffs have raised a triable issue of fact as to whether defendant Waitz applied funds meant for the subject home improvement project to other purposes. Accordingly, the first prong of defendants' motion, seeking summary judgment dismissing the complaint as against defendant Jacob Waitz, is denied.

With respect to the second prong of the defendants' motion, defendants assert that the first cause of action in the complaint, which alleges negligence in connection with the installation of an air handler in the attic above their bedroom and in reframing a portion of their house, must be dismissed as a matter of law. This cause of action alleges, among other things, that defendants negligently installed the air handler in plaintiffs' attic in a backward position so that the unit could not be accessed through the hatch as originally planned and that defendants negligently removed a load-bearing wall or support beam, which resulted in the kitchen ceiling sagging.

Based upon the allegations of the complaint, the defendants cannot be held liable on a tort theory of negligence because the plaintiffs' claims properly sound in breach of an express contract (see Rothstein v Equity Ventures, 299 AD2d 472, 474, 750 NYS2d 625 [2d Dept 2002]; Merritt v Hooshang Constr., 216 AD2d 542, 543, 628 NYS2d 792 [2d Dept 1995]; 431 Conklin Corp. v Rice, 181 AD2d 716, 717-718, 580 NYS2d 475 [2d Dept 1992]). In order to be able to hold defendants liable on a tort theory of negligence, the complaint must allege facts that, if proven, would establish that the defendants breached a duty of care independent of any asserted contractual obligation (see Old Republic Natl. Tit. Ins. Co. v Cardinal Abstract Corp., 14 AD3d 678, 680, 790 NYS2d 143 [2d Dept 2005], citing Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 389, 521 NYS2d 653 [1987]; Muldoon v Blue Water Pool Servs., 7 AD3d 496, 497, 775 NYS2d 583 [2d Dept 2004]); see also Felice v American A.W.S. Corp., 46 AD3d 505, 506-507, 846 NYS2d 656 [2d Dept 2007]). The first cause of action of the complaint does not allege such relationship among the parties independent of the home improvement contract, nor have plaintiffs come forward with any in opposition to the defendants' motion. Accordingly, the second prong of defendants' motion for summary judgment, seeking dismissal of the first cause of action of the complaint, currently pleaded as a claim for negligence, is granted, with leave granted to plaintiffs to amend the complaint, if they are so advised, to replead their claims in connection with the alleged misinstallation of the HVAC system, including the attic air handler, and improper framing, including the improper framing of the kitchen wall or beams, as claims for breach of contract. (See generally Mack-Cali Realty, L.P. v Everfoam Insulation Sys., Inc., 129 AD3d 676, 679 [2d Dept 2015].)

The court has considered the remaining contentions of the parties and finds that they do not require discussion or alter the determination herein.

The foregoing constitutes the decision and order of the court.

Dated: October 1, 2019

Riverhead, New York



1.   Defendants erroneously refer to the cause of action sounding in negligence in the complaint as the second cause of action.

Sanford Neil Berland, J.

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