A recent decision from Westchester Commercial Division Justice Linda Jamieson addressed two issues that arise in commercial landlord-tenant relationships: (i) whether a landlord can pierce the corporate veil to hold a tenant’s corporate representative liable under leases; and (ii) the timeliness of claims for past due rent.

Piercing the Corporate Veil

In Hoffman Investors Corp., et al. v. Precision Techniques, Inc., et al., Index No. 70712/17, a New Rochelle-based landlord entered into leases with related corporate tenants. The businesses were owned by Paul Mangione. After Tenants vacated, Landlord sued Tenants and Mangione for unpaid rent and damage to the Premises. Defendants moved to dismiss all claims against Mangione on the grounds that he only executed the leases in his corporate capacity. Landlord argued that the Court should pierce the corporate veil to hold him liable because:

  • Tenants “were really all one and the same corporation and that there was complete and absolute overlap in the corporate ownership”
  • Tenants “occupied contiguous space [and] used the same telephone number”; and
  • “upon information and belief, there was no separate stock ownership, election of directors or separate corporate records.”

To pierce the corporate veil, a party must establish that “(1) the owners exercised complete domination of the corporation with respect to the transaction at issue, and (2) such domination was used to commit a fraud or wrong against against the party seeking to pierce the corporate veil which resulted in the injury to that party.” Agai v. Diontech Consulting, Inc., 138 A.D.3d 736, 737 (2d Dep’t 2016).

Justice Jamieson dismissed all claims against Mangione because Landlord failed to allege that Mangione:

  • used his alleged domination “to commit a fraud or wrong against plaintiff”;
  • “personally abused the corporate form for his personal gain”; and/or
  • “personally emptied the coffers of defendants in order to line his own pockets deliberately at plaintiffs’ expense.”

All Landlord alleged was that a new company formed by Mangione was the beneficiary of the alleged wrongdoing via his alleged fraudulent conveyance of Tenants’ assets to the new company. In rejecting that argument, Justice Jamieson noted that “[i]f plaintiffs’ allegations are accurate, then they may be able to seek recourse against [the new company], which is already a defendant.”

While the decision sheds light on what is not sufficient to pierce, Justice Jamieson provided guidance on what is by citing Agai. In Agai, the veil was pierced as “appellants dominated Diontech, [] Diontech did not adhere to any corporate formalities such as holding regular meetings and maintaining corporate records and minutes, … appellants used corporate funds for personal purposes, and … appellants stripped Diontech of assets as they wound down the business, leaving it without sufficient funds to pay its creditors.” Id.

The Timeliness of Claims for Past Due Rent

Tenants sought to limit Landlord’s claim for unpaid rent to six years prior to the filing of the complaint. Landlord argued that by sending Tenants invoices reflecting the rent and arrears owed, it renewed the statute of limitations each month. Justice Jamieson disagreed, holding that it is “well-settled” that the clock starts “from the date on which the rent payments became due.”

Nevertheless, Justice Jamieson acknowledged an exception to the general rule. The Court held that the statute of limitations can be renewed where “the defendants repeatedly acknowledged owing the entire debt, and reassured the plaintiffs that they planned to pay all of the outstanding arrears” (citing Stillman v. LHLM Group Corp., 2013 N.Y. Slip. Op. 33032 (Sup. Ct. N.Y. County Dec. 3, 2013)).

Administrative Takeaway: Justice Jamieson admonished the parties that “[w]hen citing an unreported case, counsel must submit a copy to the Court.”

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