Under One Silo: Fraudulent Inducement, Fraudulent Conveyance and Violation of GBL § 349

• Posted on: Mar 10 2023

By: Jeffrey M. Haber

In Standlee Premium Prods, LLC v. WGST, Inc., 2023 N.Y. Slip Op. 30625(U) (Sup. Ct., N.Y. County Mar. 2, 2023) (here), the court addressed three topics that we often write about: fraudulent inducement, fraudulent conveyance and GBL § 349. 

As to the former, the issue before the court was whether defendants made a material misstatement of present fact – i.e., whether defendants misrepresented their present intention to perform under the agreements knowing that WSGT was defunct and unable to perform. The court found issues of fact sufficient to defeat a motion for summary judgment.

The court also found issues of fact with regard to plaintiffs’ fraudulent conveyance claim. In that regard, the court held that the record did not conclusively demonstrate whether the payments made by WGST to WGST Productions were made without fair consideration. 

Finally, as to the latter issue, the court held that plaintiffs could not withstand the challenge to their GBL § 349 claim because neither plaintiff resided in New York and none of the acts claimed to violate the statute occurred in New York.   

Standlee Premium Prods, LLC v. WGST, Inc.

Standlee involved the sponsorship of an episode of the television show called Farmhouse Life. Plaintiff, an Idaho-based farm that cultivates various forage crops, including alfalfa and timothy grass, was allegedly contacted by defendant, Laura Hollander, in March 2019, about sponsoring an episode of Farmhouse Life. Hollander allegedly quoted the price for the sponsorship to be between $20,000 and $60,000. Standlee claimed that it declined the offer. Taking no for an answer, Hollander allegedly attempted to secure a deal for between $12,000 and $15,000. On March 28, 2019, Standlee claimed that it signed a contract with defendant, WGST, Inc. and wired $15,000 to it at or about that time. In exchange for that payment, WGST agreed to produce video segments with footage of Standlee to be aired on three television networks and also turn over all footage to Standlee.

After the Standlee contract was signed in late March, a crew visited Standlee’s farm and filmed in June 20129. Standlee claimed that it was unaware that WGST had filed dissolution paperwork in Florida at the time of filming. The dissolution papers were signed (typed, not handwritten) by defendant Hollander. Standlee claimed that WGST never provided any footage to Standlee, it did not air an episode of Farmhouse Life featuring Standlee, and it did not return the $15,000 plaintiff wired to WGST.

Plaintiff BSAK Ranch LLC, a ranch that produces grass-fed beef in Texas, allegedly suffered similar circumstances in terms of paying money to WGST and getting nothing for it. However, BSAK never dealt with Hollander. BSAK signed its contract and paid its $15,000 well after WGST was dissolved. 

Plaintiffs brought suit, alleging, among other things, breach of contract, fraudulent inducement, fraudulent conveyance and violation of GBL § 349.

Hollander moved for summary judgment. Hollander argued that she was only a salesperson, who was not responsible for WGST’s actions. As such, Hollander claimed that she should not be liable for the acts of others.

Regarding the breach of contract claim, Hollander maintained that because she was not a signatory to the agreement between Standlee and WGST, plaintiffs’ breach of contract claim should be dismissed. 

Regarding the fraudulent inducement claim, Hollander maintained that she did not make any misrepresentation because she never communicated with BSAK and did not know that WGST would not produce the footage at the time she was communicating with Standlee. Hollander argued that the record showed that WGST “fully intended on fulfilling the terms of the agreement at the time the [agreement] was entered into”. 

Regarding the fraudulent conveyance claim, Hollander argued that it should be dismissed because the cause of action was not alleged against her; rather, the cause of action was focused on WGST and WGST Productions Inc. 

Regarding the GBL § 349 claim, Hollander contended that it should be dismissed because she never engaged in deceptive practices and the acts complained of amounted to no more than a private contract dispute rather than an issue with a broader impact on consumers at large.

In response, plaintiffs contended that Hollander was liable for the contract breach. Plaintiffs claimed that Hollander was an officer of WGST. Despite her contentions that she was just a salesperson, plaintiffs maintained that Hollander signed her emails with “EVP” (Executive Vice President) and included this title on her LinkedIn profile and Zoominfo page. As such, plaintiffs argued that Hollander was personally liable for the breach of contract. 

Plaintiffs further claimed there were significant issues of material fact regarding their claims for fraudulent inducement. Plaintiffs argued that representatives of the defendants continued to represent that filming would be completed despite the fact the company was already defunct by the time filming took place. Plaintiffs said that Hollander was personally liable for the fraud by virtue of her position as an officer who worked closely with plaintiffs to ensure plaintiffs performed their end of the contract. 

Plaintiffs also maintained that Hollander was liable for violating the DCL under an alter ego theory of liability. According to plaintiffs, defendants fraudulently conveyed the assets of WGST to WGST Productions to prevent plaintiffs from collecting on the refund owed by defendants after failing to perform their end of the agreement. 

Additionally, plaintiffs contended that, for purposes of their GBL § 349 claim, defendants’ actions were consumer-oriented, as evidenced by the way defendants’s employees reached out to potential partners for the television series. Plaintiffs claimed that defendants reached out numerous times to companies and decided on two small family-oriented farming businesses, making their actions recurring and consumer-oriented. Plaintiffs further asserted that Hollander was personally liable for the violation of GBL § 349 because of her status as an officer of WGST, and her active and personal involvement in the procurement of plaintiffs as clients. 

In reply, Hollander contended that there was no evidence she intended to hold herself personally liable for the contracts with plaintiffs. Hollander further claimed that she was not a corporate officer, and the title “EVP” did not originate with her, as her email signature was formatted by a secretary at WGST. Moreover, Hollander argued that there was no evidence that she operated as an officer of WGST other than an email signature. Hollander further contended that plaintiffs’ alter-ego theory was unsupported. Hollander asserted that plaintiffs were unable to demonstrate there was both an abuse of the corporate form and such abuse was for the purpose of defrauding people. 

The court granted in part and denied in part the motion.

Breach of Contract

Noting that “[c]orporate officers may not be held personally liable on contracts of their corporations, provided they did not purport to bind themselves individually under such contracts,”¹ the court held that there was no evidence that Hollander agreed to bind herself individually to the agreement.² In fact, noted the court, she “did not sign the contracts with Standlee or BSAK.”³ Taken to its logical conclusion, the court said that “[u]nder plaintiff’s argument,” even if Hollander was an officer or WGST (which she denied), “Hollander and every other corporate officer would be personally liable for every contract a corporation enters into.”⁴ “Obviously,” concluded the court, “that argument fails; being an officer of a corporation does not mean you are personally liable for every contract anyone enters into on behalf of the corporation.”⁵

The court rejected any thought of a veil piercing claim, stating “Plaintiffs have not presented a material issue of fact to support a piercing the corporate veil [claim] to make Hollander personally liable under the contracts at issue here.”⁶

Fraudulent Inducement

The court held that since “Hollander had nothing to do with the BSAK contract”, she could not be “held for fraudulently inducing it”.⁷  

As to Standlee, the court found that there were issues of fact as to “whether Hollander fraudulently induced Standlee to enter the contract and pay the money”.⁸ The court explained that although Hollander claimed that “she did not know that the company was going to take Standlee’s money and run, the timeline and Hollander’s role in the dissolution of the corporation” were issues “for the trier of fact to decide”: 

Hollander’s name was on the dissolution documents which were filed less than three months after taking Standlee’s money and making promises that were not fulfilled. While Hollander testified her email signature was a “fancy” title for sales and marketing and declined knowing anything about her signature appearing on the Articles of Dissolution …, the finder of fact may or may not believe her. If the factfinder believes her, then this claim will fail. If the factfinder does not believe her, and believes instead that at the time she was making the sale to Standlee she knew the company was going to dissolve shortly, and she still induced Standlee to part with $15,000 with the knowledge that they probably would get nothing for it, then she may be found liable.⁹

Consequently, as to the fraudulent inducement claim asserted by Standlee, the court denied the motion.

Fraudulent Conveyance Under Debtor/Creditor Law

Under Debtor and Creditor Law § 273, “[a] conveyance that renders the conveyor insolvent is fraudulent as to creditors without regard to actual intent, if the conveyance was made without fair consideration”.¹⁰ Also, under DCL § 275, conveyances made without fair consideration are fraudulent when the conveyor “intends or believes that he will incur debts beyond his ability to pay as they mature.” 

The court found issues of fact as whether the payments by WGST to WGST Productions was done without fair consideration: 

Where did the plaintiffs’ money go? Plaintiff is a creditor. If the factfinder does not believe that Hollander was a mere contract salesperson (as she claims) but rather believes that she was involved in the dissolution and was responsible for paying money to persons or entities without fair consideration instead of refunding plaintiffs’ money (or refunding some money and handing over the footage), then Hollander may be liable under this cause of action.¹¹

General Business Law § 349

General Business Law § 349(a) provides that “deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful”. A Plaintiff alleging a violation of GBL § 349 must prove three elements: the challenged act or practice was consumer-oriented; it was misleading in a material way; and the plaintiff suffered injury as a result of the deceptive act.¹² “Private contract disputes, unique to the parties, for example, would not fall within the ambit of the statute.”¹³

Moreover, “some part of the underlying transaction must occur in New York State and the New York action of a defendant cannot merely be hatching a scheme or originating a marketing campaign in New York”.¹⁴ In Goshen v. Mut. Life Ins. Co., 98 N.Y.2d 314 (2002), the Court of Appeals found that to state a cause of action under GBL § 349, the plaintiff must allege that it was deceived in New York.

The court found that “[n]either plaintiff allege[d] that” they were deceived in New York.¹⁵ The court explained that both plaintiffs are resident in different states and “neither presented evidence that the communications and transactions between the parties occurred in New York.”¹⁶ “The protections of GBL do not extend to everyone in the world just because the forum selection clause in their contract lands them in New York courts”, said the court.¹⁷

Accordingly, the court dismissed the GBL § 349.

Footnotes

1. Westminster Constr. Co. v. Sherman, 160 A.D.2d 867, 868 (2d Dept. 1990).
2. Slip Op. at *6.
3. Id.
4. Id.
5. Id.
6. Id. at *7.
7. Id. at *8.
8. Id. at *9.
9. Id. at *8-*9.
10. CIT Group/Commercial Servs., Inc. v. 160-09 Jamaica Ave. Ltd. P’ship, 25 A.D.3d 301, 302 (1st Dept. 2006).
11. Slip Op. at *9.
12. Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, NA, 85 N.Y.2d 20, 25 (1995).
13. Id.
14. Mountz v. Global Vision Prods., 3 Misc. 3d 171, 177 (Sup. Ct., N.Y. County, 2003) (internal citations and quotations omitted).
15. Slip Op. at *10.
16. Id.
17. Id.

Jeffrey M. Haber 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.