Res Judicata and Piercing The Corporate Veil

Publication Source: New York Law Journal

A recent decision by Supreme Court Justice Thomas F. Whelan of Suffolk County provides instructive guidance on the manner and timing of asserting claims against corporate officers or shareholders in the context of a transaction involving the corporation with which they are affiliated.

In Rosen v. Kessler, 26718-06, Justice Whelan held that plaintiffs were barred by the doctrine of res judicata from bringing a subsequent action against a corporate officer to enforce a judgment obtained against the corporation, where the same individual had been dismissed from the earlier case against both the corporation and the individual, albeit not necessarily based on the same legal theories.

In Rosen, the plaintiffs initially brought an action against a corporate construction contractor and its president alleging various causes of action arising from a residential construction contract, including breach of contract, breach of warranty, negligence and fraud. See Rosen v. Watermill Development Corp., 1 A.D.3d 424, 768 N.Y.S.2d 474 (2d Dep't 2003). Both defendants in that prior litigation moved to dismiss several causes of action alleged in the complaint. The court below granted the motion in part, but denied that part of the motion seeking to dismiss the causes of action against the corporate officer in his individual capacity.

The Appellate Division, Second Department, reversed in part, dismissing all claims against the corporate officer. The case caption was then modified by the court below to reflect the complete dismissal against the corporate officer and to confirm that the corporation was the only remaining defendant. A judgment was then entered against the corporation under CPLR 3126. Apparently without adequate remedy against the corporation, plaintiffs then instituted a new action against the same individual under Article 52 of the CPLR to hold the corporate officer liable for the debt of the corporate judgment debtor under the theory of piercing the corporate veil.

Read the full article in the attached PDF.

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Kevin Schlosser is a Shareholder at Meyer, Suozzi, English & Klein, P.C., where he is Chair of the Litigation and Alternative Dispute Resolution Department which has a full roster of available private judges from virtually all disciplines of law. Mr. Schlosser also authors the popular blog, “New York Fraud Claims,” which analyzes the latest developments concerning civil fraud claims under New York law.

Reprinted with permission by the New York Law Journal.