QUESTIONS OF FACT EXIST AS TO PLAINTIFF’S STANDING TO COMMENCE ACTION WHERE FORM OF COMPANY CHANGED FROM CORPORATION TO LLC

• Posted on: Sep 20 2024

By: Jonathan H. Freiberger

This BLOG has frequently addressed issues related to a party’s standing, in many different contexts, to commence litigation.[1] In prior BLOG articles we have explained that in order to prosecute a lawsuit, the plaintiff must have standing to do so. Thus, we have noted that“ [s]tanding involves a determination of whether the party seeking relief has a sufficiently cognizable stake in the outcome so as to cast the dispute in a form traditionally capable of judicial resolution. Graziano,v. County of Albany, 3 N.Y.3d 475, 479 (2004) (citations, internal quotation marks and brackets omitted). Put another way, “[s]tanding to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request.” Caprer v. Nussbaum, 36 A.D.3d 176, 182 (2^nd Dep’t 2006). Accordingly, the question of whether a plaintiff has standing is “is a threshold determination, resting in part on policy considerations, that a person should be allowed access to the courts to adjudicate the merits of a particular dispute that satisfies the other justiciability criteria.” Caprer, 36 A.D.3d at 182 (Citations omitted).

“‘Injury-in-fact has become the touchstone’ and requires ‘an actual legal stake in the matter being adjudicated.’” Big Apple Consulting USA, Inc. v. Belmont Partners, LLC, 20 Misc. 3d 1144(A) (Sup. Ct. Nassau Co. 2008) (quoting Soc. Of Plastics Indus. Inc. v. County of Suffolk, 77 N.Y.2d 761, 772 (1991)). The Carper Court noted that the “Court of Appeals has defined the standard by which standing is measured, explaining that a plaintiff, in order to have standing in a particular dispute, must demonstrate an injury in fact that falls within the relevant zone of interests sought to be protected by law”. Caprer, 36 A.D.3d at 183 (citing Matter of Fritz v. Huntington Hosp., 39 N.Y.2d 339, 346 (1976).

On September 18, 2024, the Second Department decided Whitson’s Food Service, LLC v. A.R.E.B.A.-Casriel, Inc., a case in which the defendant moved to dismiss based on standing. In 2021, Whitson’s Food Service Corp. (“Corp.”) entered into a contract with the defendant by which Corp. was to provide various food-related services. The contract provided that:

This Agreement and the rights granted hereunder may not be assigned by either Party, whether by operation of law, merger, change of ownership or otherwise, without the prior written consent of the other Party, and any unauthorized assignment shall be void ab initio.

Eight months after entering into the contract, Corp. merged with Whitson’s Food Services, LLC (“LLC”), the plaintiff in the action. Approximately one year later, LLC commenced an action for breach of contract and unjust enrichment based on the defendant’s failure to pay in excess of $400,000.00 due under the contract. The defendant moved to dismiss the complaint arguing, inter alia, that the plaintiff, LLC, was not a party to the contract and, therefore, lacked standing to commence the action. Similarly, the defendant argued that it had not consented to any assignment of Corp.’s contract rights to LLC. The Second Department affirmed the motion court’s denial of the defendant’s motion.

The Second Department found that the defendant satisfied its burden of establishing lack of standing because “[LLC] was not a party to the contract and that the defendant did not provide express consent to any assignment of the contract.” (Citation omitted.) Nonetheless, issues of fact were determined to exist because “[LLC] raised a question of fact as to its standing, primarily through its submission of an affidavit of its chief financial officer, who attested that the merger was a mere change in corporate form that had no effect on the beneficial ownership, possession, control, or daily operations of the business.” (Citation omitted.) Thus, “[u]nder the circumstances, [LLC] raised a question of fact as to whether the merger constituted an assignment that violated the nonassignment provision of the contract.” (Citations omitted.)

The Court also addressed LLC’s unjust enrichment claim.[2] In order to plead a claim for unjust enrichment the plaintiff must allege “that (1) the other party was enriched, (2) at that party’s expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered.” Georgia Malone & Company, Inc. v. Rieder, 19 N.Y.3d 511, 516 (2012) (citations and internal quotation marks omitted); see also Bedford-Carp Construction, Inc. v. Brooklyn Union Gas Co., 219 A.D.3d 1293, 1295 (2^nd Dep’t 2023) The theory of unjust enrichment lies as a quasi-contract claim and contemplates an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties.” Id. (citations internal quotation marks and brackets omitted). Claims of unjust enrichment are “rooted in the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another.” Id. (citations and internal quotation marks omitted). The Whitson’s Court noted that a “plaintiff may allege a cause of action to recover damages for unjust enrichment as an alternative to a cause of action alleging breach of contract.” (Citations and internal quotation marks omitted.) This can happen when the existence of a contract “is in dispute”. F&R Goldfish Corp. v. Furleiter, 210 A.D.3d 643, 646 (2^nd Dep’t 2022); see also Cheung v. Dolar Shop Restaurant Group, LLC, 229 A.D.3d 738, 740 (2^nd Dep’t 2024).

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Eds. Note: to find our BLOG articles related to standing, visit the “Blog” tile on our website and enter “standing” in the “search” box.

[2] Eds. Note: to find our BLOG articles related to unjust enrichment, visit the “Blog” tile on our website and enter “unjust enrichment” in the “search” box.