Appellate Division Refuses to Pierce Corporate Veil in Long Island City Taking

The Appellate Division, Second Department recently reversed an order of the Supreme Court, Queens County (Rios, J.) entered October 16, 2012 which granted the Condemnor’s motion for summary judgment dismissing the claim of Tennisport, Inc. for the taking of its trade fixtures, and additionally directed that an advance payment made to Tennisport be set off against the award for the compensation for the taking of the fee. In reversing, the Appellate Division held that the fee and fixture claims were made by separate and distinct legitimate corporations, and refused to pierce the corporate veil.

The property at issue was located on the Queens Waterfront in Long Island City. In 1973, Fred Botur, a tennis professional, leased the subject property to open a tennis club, which he incorporated as Tennisport, Inc. Thereafter, in 1979, Mr. Botur and his business partner Heinz Nixdorf purchased the property and formed Botnix Realty Corporation to hold the fee interest. Following Mr. Nixdorf’s death, Botnix was reorganized as Nixbot Realty Associates, which Mr. Botur effectively controlled 50.5% of. Mr. Botur and the other fee owners held the fee property as tenants in common.

The New York State Urban Development Corporation d/b/a Empire State Development condemned the property on February 25, 2002. An advance payment of $10 million was made to Tennisport as compensation for its trade fixtures. Tennisport filed a claim for additional compensation and Nixbot filed a claim for compensation for the taking of the fee. The Condemnor moved for summary judgment on two grounds. First, they argued that subject property’s improvements were inconsistent with the highest and best use made by the parties’ appraisers, and that, therefore, because the fixtures did not add value to the fee, Tennisport was not entitled to be compensated for them. Additionally, the City argued that because Mr. Botur was the sole owner of the trade fixture claimant and a majority (50.5%) owner of the fee, the property should be treated as if were owner-occupied and the City sought to recover its advance payment with interest from Tennisport.

In rejecting the that argument, the Appellate Division began with the general rule that a corporation has a “separate legal existence from its shareholders even when the corporation is wholly owned by a single individual.”  (Baccash v Sayegh, 53 AD3d 636, 639.) Accordingly, “a plaintiff seeking to pierce the corporate veil must demonstrate that the court must intervene in equity because the owners of the corporation exercised complete domination over it in the transaction at issue and, in doing so, abused the privilege of doing business in the corporate form, thereby perpetrating a wrong that resulted in injury to the plaintiff.” (East Hampton Union Free School Dis. v. Sandpebble Bldrs., Inc., 66 AD3d at 126)

In this instance, though Mr. Botur was the sole owner of Tennisport and exercised day to day control over Nixbot Realty, the Court found  “no allegation, much less any evidence, that Botur or the corporations perpetrated any fraud against the petitioner.” The Court also noted that the two corporations were formed at separate times for separate, legitimate purposes, and had executed a bona fide lease for the subject property. Though there was some evidence of a failure to adhere to corporate formalities such as board meetings, the Appellate  Division found no indication of improper commingling of assets or appropriation of funds for personal use.

Accordingly, the Court concluded that the Condemnor did not carry its prima facie burden of showing that Mr. Botur had abused the corporate form or that the subject property should be treated as owner-occupied for the purpose of determining just compensation. Because the Court held that the lower court had erred in denying the validity of the two claims, it also erred in directing that this award be set off against the eventual award to the fee claimants.

Goldstein, Rikon, Rikon &  Houghton, P.C. represented the Claimants in their appeal. The full decision can be read here.

Posted in Eminent Domain, Highest and Best Use, New York, Offer & Compensation, Trade fixtures
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