Mohegan Lake Motors, Inc. v. Maoli et al

Filing 122

OPINION AND ORDER re: 105 MOTION for Summary Judgment . filed by Thomas Maoli, Celebrity Auto of Mohegan Lake, LLC, 112 CROSS MOTION for Summary Judgment . filed by Mohegan Lake Motors, Barry Rost, Mohegan Lake Moto rs, Inc., William Rost. For the foregoing reasons, the Buyer's motion for summary judgment is DENIED as to Mohegan's alter ego liability, fraudulent inducement, and breach of contract claims. The Seller's cross-motion for summary jud gment is GRANTED as to the Buyer's breach of contract claim against the Seller and that claim is dismissed. The parties are directed to appear for a telephonic pre-trial conference on October 13, 2021 at 2:00 PM. To access the telephonic pre-tri al conference, please follow these instructions: (1) Dial the meeting number: [phone]; (2) enter the Access Code: 1231334#; (3) press pound (#) to enter the conference as a guest. The Clerk of the Court is directed to terminate the motions at ECF Nos. 105 and 112. SO ORDERED.( Telephone Conference set for 10/13/2021 at 02:00 PM before Judge Nelson Stephen Roman.) (Signed by Judge Nelson Stephen Roman on 9/10/2021) (kv)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

9/10/2021

MOHEGAN LAKE MOTORS, INC.,
Plaintiff/Third-Party Defendant
-againstTHOMAS MAOLI, and CELEBRITY AUTO of
MOHEGAN LAKE, LLC,
-against-

No. 16-CV-6717 (NSR)
OPINION & ORDER

Defendants/Third-Party Plaintiffs

BARRY ROST and WILLIAM ROST
Third-Party Defendants.
NELSON S. ROMÁN, United States District Judge:
In 2015, Mohegan Lake Motors, LLC (“Mohegan”), owned by Barry Rost (individually
“Rost”) and his brother, William Rost (together with Barry Rost, “the Rosts”) entered into a
contract with Celebrity Auto of Mohegan Lake, LLC (“Celebrity”), a company formed by Thomas
Maoli (“Maoli”) to buy Mohegan’s car dealership. After months of due diligence, which Celebrity
extended twice, Celebrity sent a notice of termination. Mohegan filed this diversity action
asserting, inter alia, contract and fraud claims against Celebrity and Maoli (collectively, “the
Buyer” or “the Purchaser”). 1 The Buyer asserts counterclaims against Mohegan and third-party
claims against the Rosts (together with Mohegan “the Seller”) for breach of contract and
contractual indemnification. (ECF No. 80.) Before the Court are the Buyer’s motion for summary
judgment (ECF No. 105) and the Seller’s cross-motion for summary judgment (ECF No. 112).

1

The Court previously dismissed Mohegan’s claim for breach of the covenant of good faith
and fair dealing. (ECF No. 35.)
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For the following reasons, the Court DENIES the Buyer’s motion as to the Seller’s alter
ego liability, fraudulent inducement, and breach of contract claims and GRANTS the Seller’s
cross-motion, dismissing the Buyer’s breach of contract claim.
BACKGROUND
The facts in this section are drawn from the Buyer’s Statement of Undisputed Facts in
Support of its Motion for Summary Judgment (“SUMF” (ECF No. 107)), the Seller’s Response to
the SUMF (“RSUMF” (ECF No. 108)), the Seller’s Statement of Undisputed Facts in Support of
its Cross-Motion for Summary Judgment (“CSUMF” (ECF No. 114)), the Buyer’s Response to
the CSUMF (“CRSUMF” (ECF No. 119)), the Declaration of Marc Gross in Support of the
Buyer’s Motion for Summary Judgment (“Gross Supporting Decl.” (ECF No. 121)), the
Declaration of Jarod Taylor in Opposition to the Motion for Summary Judgment (“Taylor Opp’n
Decl.” (ECF No. 110)), the Declaration of Barry Rost in Opposition to the Motion for Summary
Judgment (“Rost Decl.” (ECF No. 111)), the Declaration of Thomas Maoli in Opposition to the
Seller’s Cross-Motion for Summary Judgment (“Maoli Decl.” (ECF No. 117)), Jarod Taylor’s
Declaration in Support of the Seller’s Cross-Motion for Summary Judgment (“Taylor Supp. Decl.”
(ECF No. 115)), and corresponding exhibits. Facts are undisputed except where indicated.
I.

Factual Background
A.

Undisputed Facts Regarding the Transaction

Rost owns the Mohegan Audi dealership (“the Dealership”) and some of the real estate
upon which the Dealership operates with his brother, William Rost.
Maoli owns and operates a number of car dealerships under various entities including
Celebrity Motorcar (“Maoli Dep. Tr.” at 106 (ECF Nos. 110-1, 115-3)), Lexus of Route 10,
Maserati of Morris County, BMW of Springfield NJ, and NMK SAAB (see ECF No. 110-28 email
signature block for Maoli indicating that he is “Dealer Principal” of the aforementioned entities).
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In or about 2014, Rost decided to sell the Dealership, engaged a broker—Tony Assalone
(“the Broker”)—to market the Dealership and find a suitable buyer, and authorized Audi to find
buyers. (“Rost Dep. Tr.” at 59, 72, 74, 78 (ECF Nos. 110-2, 121-1); see SUMF ¶ 1; RSUMF ¶ 1.)
At the time, Rost had health issues and did not have the funds to improve the Dealership to meet
Audi’s requirements. (Rost Dep. Tr. at 59-60.)
The Broker brought the deal to Maoli, with whom he had a prior professional relationship.
(“Assalone Dep. Tr.” at 94-96 (ECF Nos. 110-3 and 121-14); see also Rost Dep. Tr. at 82-83, 89).
Around June 2015, Rost and Maoli began discussing the potential sale of the Dealership. On June
16, 2015, in connection with the potential transaction, Maoli formed Celebrity of Mohegan Lake
(“Celebrity”), a New Jersey limited liability corporation (“LLC”), of which he was the sole
member. (“Formation Cert.” (ECF No. 110-20, 121-2); see SUMF ¶ 2; RSUMF ¶ 2.) Celebrity
was assigned an employer identification number by the Internal Revenue Service (“IRS Letter”
(ECF No. 121-3), but Celebrity never had any employees (Maoli Dep. Tr. at 109). Celebrity has
an undated operating agreement signed by Maoli indicating that Celebrity is an LLC, that Maoli
is the sole member with a 100% ownership interest. (ECF No. 110-21.)
On June 19, 2015, Celebrity and Mohegan executed a non-binding letter of intent (“LOI”).
(“LOI” (ECF Nos. 110-11, 121-5); see SUMF ¶ 4; RSUMF ¶ 4.)
As early as July 2015, Maoli was in conversations with Audi regarding the financing of
upgrades that would be required at the Dealership. (Maoli Dep. Tr. at 134-35; “July 9, 2015 email
from Maoli to Rick Fuller” (ECF No. 110-27).)
On August 19, 2015, an Order was entered in Maoli’s divorce proceeding enjoining him
from acquiring or selling any further business, or real or personal property during the pendency of

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the divorce action unless agreed to by the parties with court approval (the “Injunction”).
(“Injunction” (ECF Nos. 110-17, 121-8); see SUMF ¶ 11; RSUMF ¶ 11.)
On or about October 16, 2015, Mohegan and Celebrity entered into a written asset purchase
agreement (“APA”), pursuant to which Celebrity agreed to purchase certain enumerated assets of
the Dealership. (“APA” (ECF Nos. 115-1, 121-6); see SUMF ¶ 6; RSUMF ¶ 6; CSUMF ¶ 1;
RCSUMF ¶ 1.) Though the agreement was signed on or about October 16, 2015, the parties agreed
to postdate it to November 10, 2015, the date by which Maoli expected his divorce to be concluded.
(SUMF ¶ 9; RSUMF ¶ 9.) In an email to his attorney dated October 16, 2015, Rost explains
What we have is a postdated agreement signed by [Maoli], because he is in the
midst of a divorce and he expects it to be concluded before Nov. 10 . . . which is
the date he signed the agreement for.[ 2]
Next he says he is sending an Escrow Check to Bob Bass for the deposit of
$500,000 which I assume is also postdated. Obviously, not where I want to be . . .
not what I expected. However, I still believe he is a real buyer . . . . Now for the
major hurdle and I don’t know if we should wait to see if we have a bona fide deal
or act on it now.
[Maoli] says he cannot provide a personal guaranty for the $2.5 mil that I am
carrying as a result of his divorce and that he can’t show the liability. This is totally
a dealbreaker, unless you get together with Bob Bass and can get me a guaranty
from Lexus Rt. 10, that is the entity of Lexus Rt 10 that segregates the $2.5 mil so
that it is not encumbered . . that’s the jailhouse lawyer in me. I really don’t want or
need anyother [sic] surprises.[ 3]
I don’t whether [sic] you should act on it now . . though I think we should and what
course to take. Tom “assures” [the Broker], that he will come up with a guaranty
that will put any fears I have to rest . . . .

2

None of the filings address when Maoli’s divorce was concluded and the injunction lifted.
Rost avers that “the parties contemplated that $2.5 million of the $8 million purchase
price would be in the form of a loan from Mohegan to Celebrity in exchange for a note of the same
amount with a three-year repayment period. In that event, Celebrity would possess both the
business and would retain $2.5 million of the $8 million purchase price. Ultimately, the parties
agreed that Celebrity would pay the full $8 million purchase price at the closing. Mohegan
therefore no longer needed a guaranty for the $2.5 million since it was no longer going to be held
back.” (Rost Decl ¶ 11.)
3

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(“APA Email” ECF Nos. 110-7, 121-7.)
B.

Disputed Facts Regarding Disclosures

Maoli testified that prior to signing the LOI and the APA, he disclosed to the Seller that in
order to consummate the transaction Maoli would either need his divorce to be concluded or he
would need to get approval from the divorce court. (Maoli Dep. Tr. at 65-67, 83-84, 142, 175.) He
further testified that Section “4.2(e) is in the contract” because he disclosed the pending divorce
to the Seller. (Maoli Dep. Tr. at 171.) Maoli explained that Section 4.2(e) is “a condition of my
obligation to close,” (Maoli Dep. Tr. at 171) which “basically says that [the injunction] needs to
be lifted” in order for the transaction to go through (Maoli Dep. Tr. at 174).
Rost testified that prior to signing the APA he knew that Maoli was “in the midst of a
divorce,” which he initially learned from the Broker (Rost Dep. Tr. at 159), and that he knew Maoli
“expects [the divorce] to be concluded before Nov. 10 . . . which is the date he signed the agreement
for,” (APA Email); Rost Dep. Tr. at 219; see SUMF ¶ 8; RSUMF ¶ 8.) Rost insists that Maoli
never informed him that Maoli, and consequently Celebrity, was enjoined from entering into the
sale prior to the conclusion of divorce proceedings without court approval. (Rost Dep. Tr. at 22021; Rost Decl. ¶ 2 (“At no time did Thomas Maoli ever tell me that there was an injunction issued
by any court that prohibited or in any way restricted Maoli’s ability to enter into a contract for the
purchase of any business or any assets.”).) Rost did not make inquiries regarding Maoli’s ability
to consummate the transaction prior to entering into the APA. (Rost Dep. Tr. at 330; Rost Decl.
¶ 4 (“I did not review the records of New Jersey’s family courts before entering into the APA
because it did not occur to me that a family court judge would have issued an injunction against
Maoli personally that would prevent or impede this transaction.”). Rost further testified that he did
not learn about the divorce court’s injunction until after the transaction was terminated (Rost Dep.

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Tr. at 309; Rost Decl. ¶ 5 (“I first learned of the existence of this injunction from my litigation
counsel after Maoli terminated the APA. I do not know how he obtained the injunction”).)
The Broker also testified that while he was aware of Maoli’s ongoing divorce, Maoli never
told him that he was enjoined from closing on a car dealership without court approval during the
pendency of the divorce. (Assalone Dep. Tr. at 287-88.) The Area General Manager at Audi who
was involved in the transaction also testified that he was aware that Maoli’s divorce was making
it hard for Maoli to do business but was unaware that any injunction existed. (“Fuller Dep. Tr.” at
79, 200 (ECF No. 110-14).)
Rost avers that he “would not have entered into the LOI or the APA had [he] been told
about [the] injunction [against Maoli].” (Rost Decl. ¶ 6.)
C.

Undisputed Facts Regarding the Escrow Check

Pursuant to the APA, the Buyer was to place a $500,000 deposit in escrow within 3 days
of the effective date. (APA at 12.) The escrow agent is identified as Bass Sox Mercer, Attention:
Stuart Rosenthal. (APA at 3.)
On November 10, 2015, Maoli made out a check in the amount of $500,000 to Bass Sox
Mercer Attorney Trust Account, which notes in the memo line “Purchase of Mohegan Lake
Motors.” (“Escrow Check” (ECF No. 110-12).) Maoli testified that it appears this check was made
out from his personal account. (Maoli Dep. Tr. at 176-177.) Rost attests: “I believed that the escrow
payment had been deposited with the escrow agent, Stuart Rosenthal of Bass Sox Mercer, because
Maoli provided me a copy of a check that was made out to escrow.” (Rost Decl. ¶ 8.)
On November 23, 2015, Gary Gabriele, who worked for Maoli and was listed as the
authorized agent of Celebrity, emailed Elaine Keifrider, the executive assistant at Lexus of Route
10, stating with reference to the escrow check “I don’t believe I wrote this check out, nor is it
showing as cashed in the bank (or monies put in to cover it). Is this a legitimate check? My records
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are not in balance. If it has to be covered, let me know from where to pull the monies.” Keifrider
responded “[Maoli] had me do the check but the check was never sent.” (ECF No. 110-15.)
In May 2016, Buyer’s counsel emailed Celebrity’s termination notice to Seller’s counsel
and the Escrow Agent, copying Maoli. (“Emails Re Return of Depost” (ECF No. 110-16).) Seller’s
counsel responded to all but Maoli stating “I received an email from [the Escrow Agent] that the
deposit was never paid to him. Where is the deposit?” On May 7, 2016, [the Escrow Agent]
responded to the group stating “Just to be clear, please be advised that I am unequivocally stating
and representing to you that I have never received any funds as an escrow agent or otherwise with
regard to this matter.” (Id. (emphasis in original).)
D.

Undisputed Facts Regarding the Due Diligence Period

On or about December 3, 2015, Maoli opened a bank account for Celebrity at Valley
National Bank. (“Valley National Bank Account” (ECF No. 110-13).)
On December 4, 2015, the Broker alerted Maoli by email to [e-mail]
that Mohegan’s financial statements appeared to be missing $300,000 in profit. (ECF No. 110-28.)
Maoli copied Gabriele and Keifrider, both of whom had email addresses at lexusofroute10.com,
on his acknowledgement of receipt email. (Id.) By email dated February 4, 2015, Rost explained
to the Broker: the “year end statement . . . . includes a $300,000 charge up for LIFO adjustment
(good faith estimate). But . . . I deferred $325,000 of Audi incentives for last quarter (NOT
STANDARDS) and $67k from third quarter.” (“Feb. 4, 2016 Email from Rost to Assalone” (ECF
No. 110-29); see also Rost Dep. Tr. at 224-25.)
On January 5, 2016, Celebrity requested a 60-day extension of the due diligence period
through March 8, 2016. (“January Extension Letter” (ECF Nos. 117-1, 121-9).) This letter does
not provide any reason for the extension and merely states that if the Seller does not agree to the
extension, the Buyer will terminate the Agreement and be entitled to refund of its deposit. (Id.) On
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January 5, 2016, Mohegan agreed to extend the Due Diligence period for 60 days. (Id.; see SUMF
¶ 16; RSUMF ¶ 16.) By email the following day, Rost wrote to his attorney: “I spoke to Tom Maoli
yesterday and as the drop dead date of the original contract was January 7, 2016, he wanted an
extension . . . to which I agreed . . . . he said . . . that the full package was submitted to Audi on
Friday of last week and I believe that Audi is entitled to take up to 60 days for approval . . . .”
(“Email from Rost to Counsel re January Extension” (ECF No. 110-5.)) Rost consentend to the
extension requested by returning a signed version of the extension letter. (January Extension
Letter.)
One of Maoli’s staff—possibly the Director of New Franchise Development for Lexus of
Route 10 and Maserati of Morris County—emailed Maoli on February 3, 2016 relating a message
from Audi Financial regarding the opening of the Hawthorne Point Audi. (ECF No. 110-26.) Rost
testified that the Hawthorne Point location is about 20 miles from the Dealership, opened in
approximately October 2017, is the closest competitor of the Dealership, and that while the
existence of Hawthorne has enhanced Mohegan’s reputation because Mohegan is more proficient
in sales and service, Hawthorne’s existence has decreased Mohegan’s profits because Mohegan
has to lower its prices to match those at Hawthorne. (Rost Dep. Tr. at 50-53.)
By email dated February 23, 2016, the Area General Manager at Audi emailed Maoli to
schedule a meeting for Maoli with Audi Executives in Virginia on March 21, 2016, stating “I need
a firm commitment for you on this as we will not be able to cancel on them again” and also noting
that Audi still needed certain documents from Celebrity. (“Emails re Audi Meeting” (ECF No.
110-19).) Maoli responded that March 21, 2016 was not possible since he would be on a preplanned family vacation out of state at that time. (Id.)

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On March 4, 2016, Celebrity requested another 60-day extension of the Due Diligence
Period through May 7, 2016. (“March Extension Letter” (ECF Nos. 117-2, 121-9).) As with the
first extension letter, this letter does not provide any reason for the extension and merely states
that if the Seller does not agree to the extension, the Buyer will terminate the Agreement and be
entitled to refund of its deposit. (Id.) Maoli testified that in March or April 2016 he verbally asked
for an extension of due diligence because his divorce was not final. (Maoli Dep. Tr. at 279-80.)
When Seller’s counsel emailed Maoli (at his Route 10 Lexus email address) and his attorney to
ask why they needed the extension if the application to Audi is complete, Maoli stated that they
did not have Audi approval yet and “[w]e do not have our arms around [t]he building issues.”
(“Email Re Reason for Extension” (ECF No. 110-6).) Seller consented to the extension by signing
the extension letter. (March Extension Letter).
Rost avers that he “would not have agreed to any extension of the closing under the APA
had [he] been told of the injunction.” (Rost Decl ¶ 7.)
E.

Undisputed Facts Regarding the Dissolution of the Transaction and Discovery of
Buyer’s Failure to Make Deposit

Rost testified that he did not become aware that Maoli’s “personal issues” were delaying
closing until Audi informed him of this fact. (Rost Dep. Tr. at 219.)
On April 10, 2016, Rost emailed his attorney and the Broker stating, in relevant part:
[Maoli] has informed [the Broker] that he is experiencing a problem with Audi
Financial in approving his package as he claims they have changed the terms of his
financing to reflect a “necessary change in the pro-forma” as a result of the
inclusion of a new Audi dealer in Hawthorne. Because of this change, he decided
to cancel his face to face with Audi management (which they want before granting
approval) until they gave him the original agreed upon terms. If this is truly the
case, it is going to once again delay any possible closing. Additionally the buyer
has real and significant personal issues that is causing him distractions, which has
and will continue to further delay any closing.
I have been most reasonable in accommodating his situations, but I have exhausted
my patience and need closure.
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Along the way (last month), he informed me that he does not want the VW franchise
at all even at no cost, but he does WANT to assume the VW building at the time he
takes on Audi. I understand that view. This brings me to my points.
A- I want certainty and to that end, I propose that the $500,000 deposit immediately
become non-refundable and transfer to me as a condition for continuing to wait. It
would of course be a credit at closing. I would like that without any contingencies
in recognition for the extended wait I have endured and the compromises in rent,
real estate price, termination of VW etc. I would give him for that consideration, up
to six months additional to close the deal. However, I do believe that he still
wants to proceed, but he is even more distracted than usual . . . .
(“Apr. 10, 2016 Email between Rost and Counsel re Further Delays” (ECF No. 110-31).) On April
20, 2016, Rost emailed the Broker stating in relevant part:
I just want to clarify some points that I would like you [sic] consider regarding
Tom. I trust he will not cancel Monday night, but as the lottery says (hey you never
know.)
Under any scenario, I am going to insist on the $500 K deposit be made a hard
deposit and he can take up to 6 months to close.
I am very concerned that his inaction with Audi is going to result in the package
being kicked back to him for a potential restart. He is also risking burning bridges
and ruining his good auspices with Audi by not communicating.
I think that if he is looking for my assistance, and therefore looking to leverage me
and Audi, perhaps my lawsuit and the $672,000 plus $57,000 that they took
illegally (imho) from me can be a vehicle to broker an accommodation for Tom and
Audi.
Just a thought.
I checked the last extension . . . it runs through May 7, not the 2nd as I had thought.
If Tom is serious about continuing to honor the contract, he is going to have to
communicate that to Audi ASAP.
In the absence of these basic tenets, I don’t see any useful purpose in getting
together, but I am certainly not looking to close the door or blow up the deal, but I
really have been overly accommodating to all his needs and issues, and I’m really
really not of the mindset to “rework” this deal after ten months . . . .
(“Apr. 20, 2016 Email from Rost to Broker” (ECF No. 110-30); see Rost Dep. Tr. at 277-78
(stating that in April 2016 he demanded that the deposit become nonrefundable).) The Broker
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forwarded Rost’s email to Maoli. (Id.) Maoli refused to have the “deposit to go hard.” (Maoli Dep.
Tr. at 279; Maoli Decl. ¶ 14.)
By letter dated April 27, 2016, Audi informed the Buyer and Seller that it was withholding
its consent to the proposed sale of the Dealership, citing Maoli’s failure to provide various
requested and required documents and information necessary to demonstrate that the Buyer
satisfies Audi’s new dealer requirements. (“Audi Witholding Letter” (ECF No. 110-18.)
By letter dated May 3, 2016, Celebrity served written notice terminating the APA invoking
Section 8.1(h). (“Termination Letter” (ECF Nos. 110-9, 117-6, 121-12).) Maoli avers that
Celebrity terminated the APA because during the due diligence period, Celebrity learned, among
other things, that the financial statements provided by Mohegan did not reflect Mohegan’s true
financial status. (Maoli Decl. ¶ 5.) For example, Mohegan’s “adjusted” 2015 year-end financial
statement, provided to Celebrity in March 2016 showed a decrease in Mohegan’s 2015 “Net Profit”
of $253,755 (or 30%), from the “Net Profit” of $849,549.00 recorded in Mohegan’s January 2016
financial statement. (Maoli Decl. ¶¶ 6-7 (citing Exhibit C (“Net Profit” line 84 on page 2) and
Exhibit D (“Net Profit” line 84 on page 2).) In addition, Mohegan’s adjusted year-end 2015
financial statement also recorded as “Standard Bonus – Revenue” of $600,857.00 but Rost
acknowledged that this nearly $600,000 is not “income” but money that Mohegan believed Audi
owed to it and which was the subject of a lawsuit by Mohegan against Audi. (Maoli Decl. ¶¶ 3-4
(citing Exhibit C at page 2, line 66; Exhibit E at page 3).) Because of the foregoing, Maoli contends
that Mohegan operated at a loss in 2015, not with a year-end “Net Profit” of $595,794, which was
already 30% less than the profit previously disclosed in the January 2016 financial statement.
(Maoli Decl. ¶ 11.)

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F.

Mohegan’s Post-Termination Efforts

Once the APA was terminated, Rost stopped working with a broker to sell the Dealership.
(Rost Dep. Tr. at 70; see SUMF ¶ 26; RSUMF ¶ 26.) He also made no efforts to, nor has he offered,
the Dealership for sale. (Rost Dep. Tr. at 70; see SUMF ¶ 27; RSUMF ¶ 27.) Rost avers that after
the deal with Celebrity fell through, he determined that it would be best to conform the dealership
to Audi requirements before trying to sell. (Rost Dep. Tr. at 75.) As of the time of his deposition
in February 2019, Rost was working with Audi to modify Audi’s demands for the Dealership.
(Rost Dep. Tr. at 60.) In support of their summary judgment filings, Mohegan and the Rosts
submitted a report prepared on April 7, 2019 by REDCOM Design and Construction for the
renovation of the Dealership. (ECF No. 110-25.)
G.

Damage Calculations

In opposition to the motion for summary judgment, the Seller submitted an expert report
by Mandeep Trivedi dated April 23, 2019 assessing damages on behalf of the Buyer to be
approximately $4 million. (“Trivedi Report” (ECF No. 115-2); see CSUMF ¶ 5; RCSUMF ¶ 5.)
This damage calculation is lost profits based on Maoli’s subsequent inability to obtain financing
to purchase a Toyota dealership. (Maoli Dep. Tr. at 82; see CSUMF ¶ 6; RCSUMF ¶ 6.) In or
about June, 2016, Maoli started discussions to purchase a Toyota dealership. (Maoli Decl. ¶ 21.)
Maoli signed a non-binding letter of understanding for the proposed Toyota dealership transaction
in or around July 2017. (Trivedi Report at 5-6.) Maoli attests that he was unable to acquire
financing for this dealership because Mohegan breached the APA and filed this litigation against
Maoli personally. (Maoli Decl. ¶ 22.) Maoli testified that a bank told him it would not finance his
acquisition of the Toyota dealership because of a “potential contingent liability from [this] lawsuit”
and that Toyota told him it would not finance the deal because of “litigation.” (Maoli Dep. Tr. at
23-24; see Maoli Decl. ¶¶ 21-22.)
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The Seller also submitted a report from its own expert, William Murray, dated April 23,
2019, which calculates the fair market value of the assets contemplated by the APA as of May 31,
2016 as $5.4 million dollars. (“Murray Report” (ECF No. 110-24).) Murray was deposed on
October 22, 2019 and testified that he was not asked to consider mitigation. (“Murray Dep. Tr.” at
254 (ECF No. 121-12).)
H.

Relevant Provisions of the APA

The introductory paragraph of the APA defines the “Effective Date” as “the date of the last
signature to this Agreement” (APA at 1), which is November 10, 2015 (APA at 39). Section 3.5(a)
provides in relevant part: “Within 3 business days of the Effective Date, the Purchaser shall deliver
to the Escrow Agent the amount of Five Hundred Thousand and 00/100 Dollars ($500,000).” (APA
at 12.)
Section 4.1 provides in relevant part: “Time, Date and Place of Closing. Subject to the
provision of Article 8, the closing of the Transaction (the “Closing”) shall take place at such time
and location as the Parties shall mutually select on or before the 20th day following the satisfaction
(or appropriate waiver in writing) of the conditions set forth in Section 4.2 below . . . , unless the
Parties otherwise mutually agree (the “Closing Date”).” (APA at 13.)
Section 4.2 provides in relevant part: “Conditions to Obligations of the Purchaser . . .
(a) Accuracy of Representations. Each of the representations and warranties of the Seller and
Shareholders contained in this Agreement shall be true and correct in all material respects, in each
case on the date hereof and at as of the Closing Date . . . . (e) No Litigation. No Proceeding shall
be pending, or threatened, or reasonably foreseeable, before any court or other Governmental
Authority, wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would
(i) restrain, enjoin, prohibit or prevent consummation of the Transaction or any other transaction
contemplated by this Agreement, (ii) cause the Transaction to be rescinded following
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consummation, (iii) affect adversely the right of the Purchaser to own the Purchased Assets and to
operate the former business of the Seller (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect) or (iv) except for the Proceeding with Manufacturer disclosed in
Schedule 5.2(j), result in damages being imposed upon the Purchaser or its Affiliates.” (APA at
14.)
Section 4.3 provides in relevant part: “Conditions to Obligations of the Seller . . . .
(a) Accuracy of Representations. Each of the representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects in each case on the
date hereof and at as of the Closing Date as though made on and as of the Closing Date . . . (c) No
Litigation. No Proceeding shall be pending, or threatened, or reasonably foreseeable, before any
court or other Governmental Authority, wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (i) restrain, enjoin, prohibit or prevent consummation of any of the
Transaction or any other transaction contemplated by this Agreement, or (ii) cause the Transaction
to be rescinded following consummation . . . .” (APA 15.)
Section 5.1 provides “Representations and Warranties by the Purchaser. The Purchaser
hereby represents and warrants to the Seller as of the date hereof and as of the Closing Date as
follows . . . . (a)(ii) The execution, delivery and performance of this Agreement and the Other
Agreements to which it is a party by the Purchaser have been duly authorized by all requisite
company action. Except the Consent of the Manufacturer to the appointment of the Purchaser as
an authorized dealer in the Manufacturer’s products, no approval or consent of any other person is
required in connection with the execution, delivery, and performance by the Purchaser of this
Agreement and the Other Agreements to which it is a party.” (APA 19.)

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Section 8.1 provides in relevant part: “Termination and Abandonment: This agreement
may be terminated at any time prior to the closing: (a) by the Purchaser by Notice to the Seller, if
the conditions set forth in Section 4.2 have not been satisfied of the deliveries required by Section
4.4 shall not have been complied with . . . (b) by the Purchaser by Notice to the Seller, if there has
been a material breach by the Seller and/or the Shareholders of any representation, warranty
covenant or agreement set forth in this Agreement . . . (c) by the Seller by Notice to the Purchaser,
if the conditions set forth in Section 4.3 have not been satisfied or the deliveries required by Section
4.5 have not been complied with . . . (d) by the Seller by Notice to the Purchaser, if there has been
a material breach by the Purchaser of any representation, warranty covenant or agreement set forth
in this Agreement . . . (e) by mutual agreement of the Seller and Purchaser . . . (h) by the Purchaser,
on or before the expiration of the Due Diligence Period, if the Purchaser is dissatisfied with its due
diligence inspections . . . .” (APA 34-35.)
Section 8.2(a) provides “If this Agreement is terminated as provided in Section 8.1, this
Agreement shall forthwith become void, there shall be no liability or obligation on the part of any
Party or their respective officers, directors, partners. members. The Shareholders, principals,
agents or representatives, and the Escrow Agent shall return the Deposit to the Purchaser.” (APA
35.) Section 8.2(b)(i) provides that if the Agreement is terminated and abandoned pursuant to
Sections 8.1(c) or (d) due to breach or default by the Purchaser the seller shall be entitled to the
Deposit, which shall be the “Seller’s sole and exclusive remedy.” (APA at 35.) Section 8.2(b)(ii)
provides, inter alia, that if the Agreement is terminated or abandoned pursuant to Sections 8.1(a)
or (b) due to a breach by the Seller, then the escrow agent shall return the Deposit to the Purchaser.
(APA at 35.)
The APA contains a choice of law provision selecting New York. (APA at 36.)

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II.

Procedural History
Mohegan filed this action on August 25, 2016 alleging breaches of contract and of the

covenant of good faith and fair dealing against Maoli by way of alter-ego liability and against
Celebrity directly, and alleging fraud against Maoli. (ECF No. 1.)
Celebrity and Maoli moved to dismiss. (ECF No. 24.) The Court granted the motion in
part, dismissing Mohegan’s claim for breach of the covenant of good faith and fair dealing, and
denying the motion as to the remaining claims. (ECF No. 35.) Specifically, the Court held that
Mohegan had alleged (1) sufficient facts to state a claim for alter-ego liability where Celebrity’s
ability to perform under the APA was dependent upon Maoli’s finances and ability to do so, (2) that
Maoli had a duty to disclose that the divorce court had enjoined him from acquiring or selling any
businesses or real or personal property during the pendency of the divorce action unless agreed to
by the parties with court approval, and (3) under the superior knowledge doctrine, it was
appropriate to proceed with side by side claims of fraud and breach of contract. (Id.)
Celebrity and Maoli filed an amended answer to Mohegan’s complaint, and asserted a
counterclaim against Mohegan and a third-party claim against the Rosts for breach of contract and
contractual indemnification. (“Counterclaim” ECF No. 78.) Celebrity and Maoli allege that the
Seller breached the APA by misrepresenting Mohegan’s 2015 Net Profits in its financial
statements, and, further, that this lawsuit, which names both Celebrity and Maoli violates Section
§8.2(a) of the APA. Mohegan and the Rosts answered the counterclaim and third-party complaint.
(ECF No. 80.)
Celebrity and Maoli have moved for summary judgment in their favor, averring that
(1) there is no evidence from which a reasonable jury could conclude that (A) Celebrity is Maoli’s

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alter ego or (B) that Maoli used Celebrity to commit a fraud or other injustice; and further that
(2) Mohegan’s breach of contract claims are barred by its failure to mitigate. (ECF No. 105.)
Mohegan opposed Celebrity and Maoli’s motion filed a cross-motion for summary
judgment, averring that (1) Maoli used Celebrity to fraudulently induce the Seller into the APA
and then to secure repeated extensions of the Due Diligence period on false pretenses, and (2) the
Court must dismiss Celebrity and Maoli’s breach of contract claim because they have failed to
prove any injury where Maoli testified only that he was denied financing for the acquisition of
another dealership because of the contingent liability created by the existence of this lawsuit. (ECF
No. 112.)
LEGAL STANDARD
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment is
appropriate “if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The moving party bears
the initial burden of pointing to evidence in the record, “including depositions,
documents . . . [and] affidavits or declarations,” Fed. R. Civ. P. 56(c)(1)(A), “which it believes
demonstrate[s] the absence of a genuine issue of material fact,” Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). The moving party may support an assertion that there is no genuine dispute of a
particular fact by “showing . . . that [the] adverse party cannot produce admissible evidence to
support the fact.” Fed. R. Civ. P. 56(c)(1)(B). If the moving party fulfills its preliminary burden,
the onus shifts to the nonmoving party to raise the existence of a genuine issue of material fact.
Fed. R. Civ. P. 56(c)(1)(A); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Summary
judgment should be granted when a party “fails to make a showing sufficient to establish the
existence of an element essential to that party’s case.” Celotex, 477 U.S. at 322.

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A genuine dispute of material fact exists when “the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. Courts must “draw all
rational inferences in the non-movant’s favor,” while reviewing the record. Kirkland v.
Cablevision Sys., 760 F.3d 223, 224 (2d Cir. 2014) (citing Anderson, 477 U.S. at 248). At the
summary judgment stage “the judge must ask . . . not whether . . . the evidence unmistakably favors
one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the
evidence presented.” Anderson, 477 U.S. at 252. “Assessments of credibility and choices between
conflicting versions of the events are matters for the jury, not for the court on summary judgment.”
Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005); see also Hayes v. N.Y.C. Dep’t of
Corr., 84 F.3d 614, 619 (2d Cir. 1996) (“In applying th[e] [summary judgment] standard, the court
should not weigh evidence or assess the credibility of witnesses.”).
DISCUSSION
I.

Mohegan’s Alter Ego Liability Claims Against Maoli
A threshold issue is whether Maoli can personally be held liable for breach of contract or

fraud when he was acting on behalf of Celebrity during the transaction. 4 The Court concludes that
a dispute of material fact precludes summary judgment on this issue.

4

“New York law is unambiguous in the area of express choice of law provisions in a
contract. Absent fraud or violation of public policy, contractual selection of governing law is
generally determinative so long as the State selected has sufficient contacts with the
transaction.” United States v. Moseley, 980 F.3d 9, 20 (2d Cir. 2020). Additionally, “[i]n the
absence of substantive difference . . . a New York court will dispense with choice of law analysis;
and if New York law is among the relevant choices, New York courts are free to apply it.” Int’l
Bus. Machines Corp. v. Liberty Mut. Ins. Co., 363 F.3d 137, 143 (2d Cir. 2004). No conflict exists
between the laws of New Jersey and New York for piercing the corporate form. See Transmodal
Corp. v. EMH Assocs., Inc., No. CIV. 09-3057 (FSH), 2010 WL 3937042, at *5 (D.N.J. Oct. 1,
2010) (holding that there is no conflict between the veil-piercing laws of New York and New
Jersey); Pactiv Corp. v. Perk-Up, Inc., No. CIV. A. 08-05072 DMC, 2009 WL 2568105, at *6
(D.N.J. Aug. 18, 2009) (deciding on motion to dismiss that “[b]ecause the legal analysis required
to determine whether piercing the veil is appropriate under New Jersey law is substantially similar
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A.

Piercing the Corporate Veil

“The concept of piercing the corporate veil is a limitation on the accepted principles that a
corporation exists independently of its owners, as a separate legal entity, that the owners are
normally not liable for the debts of the corporation, and that it is perfectly legal to incorporate for
the express purpose of limiting the liability of the corporate owners.” Morris v. N.Y. Dep’t of Tax’n
& Fin., 82 N.Y.2d 135, 140 (N.Y. 1993). “[P]iercing the corporate veil requires a showing that:
(1) the owners exercised complete domination of the corporation in respect to the transaction
attacked; and (2) that such domination was used to commit a fraud or wrong against the
plaintiff which resulted in plaintiff’s injury.” Id. at 1160-61 (1993); see Atateks Foreign Trade,
Ltd. v. Priv. Label Sourcing, LLC, 402 F. App’x 623, 625 (2d Cir. 2010) (“A party urging piercing
of a corporate veil must generally prove that ‘(1) the owner has exercised such control that the
corporation has become a mere instrumentality of the owner, which is the real actor; (2) such
control has been used to commit a fraud or other wrong; and (3) the fraud or wrong results in an
unjust loss or injury to plaintiff.’” (quoting Freeman v. Complex Computing Co., 119 F.3d 1044,
1052 (2d Cir. 1997)).
New York courts consider ten overlapping factors to decide whether the requisite degree
of domination is present:
(1) the absence of the formalities and paraphernalia that are part and parcel of the
corporate existence, i.e., issuance of stock, election of directors, keeping of
corporate records and the like, (2) inadequate capitalization, (3) whether funds are
put in and taken out of the corporation for personal rather than corporate purposes,
(4) overlap in ownership, officers, directors, and personnel, (5) common office
space, address and telephone numbers of corporate entities, (6) the amount of
business discretion displayed by the allegedly dominated corporation, (7) whether
to that required by New York law, the Court need not address the choice of law question at this
time”). Additionally, the parties concede that New York and New Jersey have similar laws in this
area (Buyer’s Mem. In Support at 7-8 (ECF No. 106); Seller Opp’n Mem. at 13 n.1 (ECF No.
109)). Accordingly, the Court applies New York law. The analysis would be the same if New
Jersey law were applied.
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the related corporations deal with the dominated corporation at arms length,
(8) whether the corporations are treated as independent profit centers, (9) the
payment or guarantee of debts of the dominated corporation by other corporations
in the group, and (10) whether the corporation in question had property that was
used by other of the corporations as if it were its own.
Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 139 (2d Cir. 1991).
“A plaintiff need not demonstrate that all of the Passalacqua factors apply to support a finding
that defendant dominated the corporation. ‘[T]here is no set rule as to how many . . . factors must
be present in order to pierce the corporate veil.’” iPayment, Inc. v. 1st Americard, Inc., No. 15CV-1904 (JMF), 2017 WL 727538, at *3 (S.D.N.Y. Feb. 23, 2017) (quoting William Wrigley Jr.
Co. v. Waters, 890 F.2d 594, 600-01 (2d. Cir. 1989)).
The Second Circuit has observed that it is particularly difficult to determine whether veil
piercing is warranted in the case of:
small privately held corporations where the trappings of sophisticated corporate life
are rarely present. In such instances, preoccupation with questions of structure,
financial and accounting sophistication or dividend policy or history would
inevitably beckon the end of limited liability for small business owners, many, if
not most, of whom have chosen the corporate form to shield themselves from
unlimited liability and potential financial ruin.
Wm. Wrigley Jr. Co. v. Waters, 890 F.2d 594, 601 (2d Cir. 1989). Nonetheless, “veil piercing is
warranted when ‘an abuse of that form either through on-going fraudulent activities of a principal,
or a pronounced and intimate commingling of identities of the corporation and its principal or
principals.’” Atateks Foreign Trade, Ltd., 402 F. App’x at 626 (quoting Wm. Wrigley Jr. Co., 890
F.2d at 601). “[A]lthough there is no mechanical rule as to how many and to what degree the
factors outlined in Wrigley must be present to pierce the corporate veil, the courts apply the
preexisting and overarching principle that liability is imposed to reach an equitable result.”
Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 18 (2d Cir. 1996).

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With respect to whether “control has been used to commit a fraud or other wrong,”
Freeman, 119 F.3d at 1052, injustice beyond fraud suffices, see, e.g., Elec. Switching Indus., Inc.
v. Faradyne Elecs. Corp., 833 F.2d 418, 424 (2d Cir. 1987) (explaining that to pierce the corporate
veil, a party must allege “wrong, fraud, or the breach of a legal duty, or a dishonest and unjust act
in contravention of plaintiff’s legal rights”).
As long as there is evidence from which a reasonable jury could conclude that piercing the
corporate veil is warranted, “[t]he jury must decide whether—considering the totality of the
evidence—the policy behind the presumption of corporate independence and limited shareholder
liability—encouragement of business development—is outweighed by the policy justifying
disregarding the corporate form—the need to protect those who deal with the corporation.” Wm.
Passalacqua Builders, Inc., 933 F.2d at 139 (citation omitted); see Peterson for Lancelot Invs.
Fund, L.P. v. Imhof, No. 13-CV-0537, 2017 WL 1837856, at *12 (D.N.J. May 8, 2017) (“The issue
of piercing the corporate veil is submitted to the factfinder, unless there is no evidence sufficient
to justify disregard of the corporate form.”); see also Abu-Nassar v. Elders Futures Inc., No. 88
CIV. 7906 (PKL), 1991 WL 45062, at *12 (S.D.N.Y. Mar. 28, 1991) (denying motion for summary
judgment on alter ego liability claim where opposing party adduced evidence that sole shareholders
and principal officers intermingled personal and corporate funds and siphoned corporate funds for
their personal use, it was unclear whether the corporation maintained proper records, the
corporation had never held an official annual meeting, and was undercapitalized).
B.

Application

Maoli and Celebrity aver that no reasonable factfinder could conclude that Celebrity had
“no separate existence” and that, even if Maoli dominated Celebrity, no reasonable factfinder could
conclude that Maoli used Celebrity to perpetrate a fraud. Mohegan avers that Maoli used
Celebrity—which had no assets, no business, no employees, and no way to satisfy a judgment—
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to wrong Mohegan and therefore that Maoli is liable. As explained below, the Seller has adduced
evidence from which a reasonable jury could conclude that Maoli used Celebrity to perpetrate
injustice against the Seller.
Maoli’s Domination of Celebrity: The parties do not dispute that Celebrity is a separately
formed LLC with its own operating agreement and employer identification number. It is also
undisputed that Celebrity created a bank account in December 2015, after the APA was signed and
deadline for the Buyer to put the $500,000 deposit in escrow had passed. Maoli admits that it
appears that the escrow check (ostensibly securing Celebrity’s option to consummate the
transaction) was drawn from his personal account—which suggests a commingling of funds—and
he never funded Celebrity—going to the undercapitalization of Celebrity. Additionally, Celebrity
had no employees of its own and shared a mailing address. phone number, and staff with Maoli’s
other corporations, particularly Route 10 Lexus. Additionally, Maoli and his staff used email
addresses associated with Lexus of Route 10 for the written communications related to the
transaction. These facts could lead a reasonable jury to conclude that Maoli dominated celebrity.
See, e.g., Wm.Passalacqua Builders, Inc., 933 F.2d at 139-140 (noting that overlap in staff,
officers, and directors, and that employees of one corporation were sometimes paid as though they
actually-worked for another corporation were factors indicating that piercing the corporate veil
would be appropriate); Lakah v. UBS AG, 996 F.Supp.2d 250, 263 (S.D.N.Y. 2014) (holding that
defendant’s transfer of personal funds to the defendant corporation was evidence of domination
and control).
Abuse of Corporate Form to Perpetrate Fraud: As to the alleged wrongdoing, the Seller’s
alter ego liability claims are predicated on three alleged misrepresentations or omissions made by
Maoli who was acting on behalf of Celebrity, upon which the Seller relied to its detriment.

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The Buyer mistakenly contends that Seller’s alter ego claim fails because the alleged fraud
or injustice is related to the underlying fraud and breach of contract claims. (Buyer’s Mem in
Support at 11 (quoting NetJets Aviation, Inc. v. LHC Commc’ns, LLC, 537 F.3d 168, 183 (2d Cir.
2008)). This misstates what is required. The language in Netjets upon which the Buyer relies is
from Mobil Oil Corp. v. Linear Films, Inc., which held in a matter in which a subsidiary allegedly
infringed the plaintiff’s patents that
Any breach of contract and any tort—such as patent infringement—is, in some
sense, an injustice. Obviously this type of ‘injustice’ is not what is contemplated by
the common law rule that piercing the corporate veil is appropriate only upon a
showing of fraud or something like fraud. The underlying cause of action does not
supply the necessary fraud or injustice.
718 F. Supp. 260, 268 (D. Del. 1989). A plaintiff must allege “more” than the underlying fraud or
breach of contract in the sense that in addition to the fraud or breach of contract or other injustice
he or she must also allege that “the corporate structure itself [was] used to further the fraud or
injustice or ‘as a shield for’ unjust acts.” Partner Reinsurance Co. Ltd. v. RPM Mortg., Inc., No.
18 CIV. 5831 (PAE), 2020 WL 6690659, at *11 (S.D.N.Y. Nov. 13, 2020) (quoting Netjets, 537
F3d at 177) (emphasis added). Neither Netjets nor Mobil Oil Corp. stand for the broad proposition
that in order to pierce the corporate veil, a party must allege a fraud or injustice wholly separate
from the underlying contract or tort cause of action. Courts routinely pierce the corporate veil
where there is a nexus between the domination and the injustice, even if the injustice forms a basis
for the underlying cause of action, so long as the corporate form is used to perpetrate the injustice.
See, e.g., Travelers Prop. Cas. Co. of Am. v. Quickstuff, LLC., No. CV 14-6105 (RBK/JS), 2016
WL 7231605, at *9 (D.N.J. Dec. 14, 2016) (holding where defendant did not contest that various
entities “were mere instrumentalities for his business operation” that “the Court has already found
that Plaintiff is entitled to summary judgment against Diaz regarding his fraudulent transfer of

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assets from Quickstuff to A&C [because] [t]his fraudulent transfer is certainly an instance of Diaz
abusing the corporate form to perpetrate a fraud against Plaintiff).
The Court addresses the fraudulent inducement claim below, but notes that a reasonable
jury could conclude that Maoli abused Celebrity’s corporate form to obscure the fact that neither
he nor Celebrity could consummate the transaction during the pendency of the divorce without
approval from the divorce court while he continued to pursue an option to acquire . See, e.g., Aacon
Contracting, LLC v. Poppe, No. A-1500-11T2, 2012 WL 3064238, at *4 (N.J. Super. Ct. App.
Div. July 30, 2012) (affirming piercing of corporate veil and summary judgment award against
sole owner, shareholder, and officer of various corporate entities who used corporate form to make
false representation that induced plaintiff into contract).
Separately, Plaintiff may sustain an alter ego liability claim based upon certain alleged
misrepresentations by the Buyer during the due diligence period. First, Maoli avers that he sent a
copy of the $500,000 escrow check on behalf of Celebrity to Mohegan. There is no dispute that
Maoli made this representation to Rost and that the Buyer referenced the deposit in its letters
requesting extensions of the due diligence period. A member of Maoli’s staff told another member
that the check was not sent and the escrow agent claims never to have received the check. Maoli
further admits that this check appears to have been drawn from his personal account, which is
likely since a separate bank account was not created for Celebrity until nearly a month after the
check was purportedly sent to the escrow agent. While it is unclear from the evidence before the
Court whether Maoli’s misrepresentation regarding the Escrow Check was intentional, the
misrepresentation may nonetheless contribute to a finding that Maoli abused the corporate form of
Celebrity to perpetrate injustice.

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In contrast, the Seller’s argument that extensions of the due diligence period were obtained
based upon misstatements is insufficient to contribute to a finding that Maoli abused the corporate
form of Celebrity. Plaintiff avers that the Buyer sought extensions of the due diligence period on
false pretenses and that, if he had known about the injunction, he would never have extended the
due diligence period. None of the Buyer’s letters requesting extensions state the reasons for the
extension. Instead, when Rost reported to his attorney in January 2016 that the Buyer sought the
first extension because Audi was still reviewing the financial package. When the Buyer sought an
additional extension in March 2016, Seller’s counsel asked why the extension was necessary,
Maoli responded that they did not have Audi approval yet and “[w]e do not have our arms around
[t]he building issues.” Audi did not conclude its review and withhold its consent to the proposed
transfer of the dealership until April 27, 2016. To the extent this is a variation on the Seller’s
fraudulent inducement claim (i.e., that the Buyer failed to correct the misrepresentation that at the
time the parties entered into the APA no third-party consent was required for the Buyer to
consummate the transaction), that issue is discussed below. Otherwise, the Seller has failed to
demonstrate that the Buyer’s disclosure of some but not all of the reasons for extensions is a
material misstatement that in and of itself amounts to an injustice.
In sum, the Court must deny the Buyer’s motion for summary judgment on the alter ego
liability claim because the Seller has adduced evidence upon which a reasonable jury could find
that it is appropriate to pierce the corporate veil and hold Maoli personally liable.
II.

Fraudulent Inducement
Mohegan alleges that Maoli fraudulently induced the Seller to enter into the APA by

mispresenting that no third-party approval was required to consummate the deal. 5 The Buyer avers
5

Because there is no conflict between New York and New Jersey law regarding fraudulent
inducement or common law fraud, Integrated Constr. Enterprises, Inc. v. GN Erectors, Inc., No.
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that there is no evidence upon which a reasonable jury could conclude that Maoli or Celebrity
defrauded the seller. Whether this claim can be asserted against Maoli individually depends on the
alter ego liability discussed above, and issue which the Court cannot resolve at the summary
judgment stage. Assuming that the corporate veil can be pierced to hold Maoli individually liable,
the Court considers whether the fraudulent inducement claim survives summary judgment. As
explained below, if the jury concludes that alter ego liability is appropriate, then the Seller has
adduced sufficient evidence from which a reasonable jury could conclude that Maoli fraudulently
induced the Seller to enter into the APA.
A.

Fraudulent Inducement Claims

The elements of a claim for common law fraud are: (1) a material misrepresentation of a
presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an
intention that the other person rely on it; (4) reasonable reliance thereon; and (5) resulting damages.
Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569, 578-79 (N.Y. 2018).
Statements as to future or contingent events, to expectations or probabilities, or as to what will or
will not be done in the future, do not constitute misrepresentations, even though they may turn out
to be wrong. Stewart v. Jackson & Nash, 976 F.2d 86, 89 (2d Cir. 1992) (“While [m]ere promissory
statements as to what will be done in the future are not actionable, . . . it is settled that, if a promise
was actually made with a preconceived and undisclosed intention of not performing it, it
constitutes a misrepresentation of material existing fact upon which an action for recision [based
on fraudulent inducement] may be predicated.” (quoting Sabo v. Delman, 164 N.Y.S.2d 714, 716
(N.Y. 1957))).

16 CIV. 5561 (PAE), 2020 WL 614991, at *4 (S.D.N.Y. Feb. 10, 2020), and the choice of law
provision of the APA selects New York, the Court applies New York law. The result would be the
same if New Jersey law were applied.
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A party can prevail on a claim of fraud between parties with a contractual relationship
where it (1) demonstrates a legal duty separate from the duty to perform under the contract; (2)
points to a fraudulent misrepresentation that is collateral or extraneous to the contract; or (3) seeks
special damages that are unrecoverable as contract damages. Bridgestone/Firestone, Inc. v.
Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996). In other words, “a misrepresentation
of present facts is collateral to the contract (though it may have induced the plaintiff to sign the
contract) and therefore involves a separate breach of duty.” Merrill Lynch & Co. Inc. v. Allegheny
Energy, Inc., 500 F.3d 171, 184 (2d Cir. 2007) (quoting First Bank of the Americas v. Motor Car
Funding, Inc., 690 N.Y.S.2d 17, 21 (1st Dep’t 1999)).
B.

Application

The Buyer avers that it could not have fraudulently induced the Seller into the LOI or APA
because the pendency of Maoli’s divorce was disclosed and, moreover, any misrepresentation
regarding the divorce was an omission, which can only form the basis of a fraud claim if there was
a duty to disclose. The Court disagrees with the Buyer for two reasons: (1) the express warranty
in the APA constitutes an affirmative misrepresentation of fact; and (2) under the superior
knowledge doctrine, the Buyer had a duty to disclose the injunction.
As to the first issue, the Seller does not merely claim that Maoli fraudulently induced it
into the APA by omitting that the injunction barred consummation of the transaction without
approval of the divorce court. Rather, the Seller points to the Buyer’s express warranty in Section
5.1(a)(ii) of the APA that “as of the date hereof and as of the Closing Date . . . . [e]xcept the
Consent of the Manufacturer to the appointment of the Purchaser as an authorized dealer in the
Manufacturer’s products, no approval or consent of any other person is required in connection with
the execution, delivery, and performance by the Purchaser of this Agreement and the Other
Agreements to which it is a party.” (APA 19). In other words, the Seller contends that by signing
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the APA, Maoli on behalf of Celebrity affirmatively misrepresented that as of the effective date
no third-party consent—such as that of the divorce court—was required for the Buyer to
consummate the transaction. The existence of the injunction barring Maoli from entering into any
transactions during the pendency of the divorce proceeding without approval from the divorce
court makes the warranty that no third-party consent was required “ not a promise of performance,
but a [mis]statement of present fact. Accordingly, a fraud claim can be based on a breach of
contractual warranties notwithstanding the existence of a breach of contract claim.” First Bank,
690 N.Y.S.2d at 21.
Maoli contends that despite the language of the APA, he verbally disclosed both his divorce
and the injunction, which is why certain provisions and warranties appear in the APA. However,
the express warranty in Section 5.1(a)(ii) is patently inconsistent with the existence of the
injunction at the time the APA was executed and the Buyer cannot rely on any extrinsic statements
to contradict this plain language. “A contractual provision flatly contradictory to prior oral
assurances should cause most people—and particularly experienced, knowledgeable business
people—to pause.” Elias Bros. Restaurants, Inc. v. Acorn Enterprises, Inc., 831 F. Supp. 920, 924
(D. Mass. 1993) (fraud claim rejected where precise terms of contract prevented reasonable
reliance on prior oral statements); see also Pierce v. Atchison, Topeka & Santa Fe Ry. Co., 65 F.3d
562, 569-70 (7th Cir. 1995) (holding that reliance on oral statements inconsistent with written
contract is unreasonable as matter of law). Although introduction of extrinsic evidence to prove
fraud in the inducement is a well-recognized exception to the parol evidence rule, a party may not
seek to contradict the express terms of a writing to avoid obligations he knowingly assumes. See,
e.g., Davidowitz v. Patridge, No. 08 Civ. 6962, 2010 WL 5186803, *10 (S.D.N.Y. Dec. 7, 2010)
(holding that “sophisticated business persons are bound by a contract that they sign despite their

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failure to read it”); Guerra v. Astoria Generating Co., L.P. 779 N.Y.S.2d 563, 564 (2d Dep’t 2004)
(“A party that signs a document is conclusively bound by its terms absent a valid excuse for having
failed to read it.”) Even if the Court could consider the parol evidence, Maoli’s self-interested
testimony that he told the Seller that he would need divorce court approval unless the transaction
closed after his divorce was finalized is contradicted by that of Rost, the Broker, and the Audi Area
General Manager, all of whom acknowledged that they were aware that Maoli was in the midst of
a divorce but insisted that they were never told that Maoli was enjoined from consummating the
transaction.
As to the second issue—Maoli’s duty to disclose—the Court previously held that
Mohegan’s complaint plausibly alleged that the Seller had a duty to disclose under the superior
knowledge doctrine. (ECF No. 35 at 11-13.) The Buyer maintains that the injunction was publicly
available and avers that the Seller was effectively put on notice that Celebrity could not
consummate the transaction at the time the APA was signed because Maoli postdated the APA to
a date after which he believed his divorce would be concluded and, at an earlier stage of the
negotiation, indicated that he could not provide a guaranty or show personal liability because of
his pending divorce. None of the aforementioned statements amount to a disclosure of the
injunction.
Moreover, in opposition to the Buyer’s motion, the Seller has adduced evidence from
which a reasonable jury could conclude that Maoli had superior knowledge and it was reasonable
for the Seller to rely on the Buyer’s explicit warranties in the APA and forego its own inquiry into
any legal constraint on Maoli’s personal ability to enter into transactions—including transactions
through purportedly independent LLCs—during the pendency of his divorce. Maoli held Celebrity
out as a separate entity and explicitly warranted that no third-party consent was required to

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consummate the deal. “Where . . . a plaintiff has taken reasonable steps to protect itself against
deception, it should not be denied recovery merely because hindsight suggests that it might have
been possible to detect the fraud when it occurred. In particular, where a plaintiff has gone to the
trouble to insist on a written representation that certain facts are true, it will often be justified in
accepting that representation rather than making its own inquiry.” DDJ Mgmt., LLC v. Rhone Grp.
L.L.C., 15 N.Y.3d 147, 154 (N.Y. 2010).
The Buyer’s reliance on the doctrine of inquiry notice is misplaced. That doctrine generally
relates to whether a fraud claim has been brought within the statute of limitations. See, e.g., Gutkin
v. Siegal, 926 N.Y.S.2d 485, 486 (1st Dep’t 2011) (“The test as to when fraud should with
reasonable diligence have been discovered is an objective one. Where the circumstances are such
as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty
of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts
his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him.”
(citations and quotation marks omitted)); see also Catena v. Raytheon Co., 447 N.J. Super. 43, 57
n.1 (N.J. Super. Ct. App. Div. 2016) (“New York law also recognizes a form of ‘inquiry notice,’
which triggers the limitations period if the plaintiff knows facts which would lead a reasonable
person to inquire into possible fraud, but fails to pursue an investigation.”). Even if the Buyer has
adduced evidence from which a reasonable jury could conclude that the Seller should have
conducted some additional inquiry into whether Maoli’s statements about constraints on the
transaction due to his divorce—including timing of the transaction and Maoli’s ability to provide
a personal guaranty—were matters of preference or diversion of his attention or, as was actually
the case, legal barrier to consummating the transaction, there is no question that the Seller
discovered the alleged fraud and brought his claim within the limitations period. In other words,

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the doctrine of inquiry notice cannot overcome either the explicit warranty in the APA or the
superior knowledge doctrine.
In sum, the Court DENIES the Buyer’s motion for summary judgment on fraudulent
inducement because the Seller has adduced evidence upon which a reasonable jury could conclude
that the Buyer fraudulently induced the Seller to sign the APA. 6
III.

Breach of Contract Claims
Mohegan asserts a breach of contract claim against Celebrity and against Maoli

individually. The Buyer avers that Mohegan’s claim is barred by its failure to mitigate damages.
The Buyer also asserts a breach of contract and indemnification Counterclaim and Third-Party
claim against the Seller. The Seller avers that the Buyer’s breach of contract claim must be
dismissed because the Buyer failed to adduce any evidence of damages caused by the Seller’s
alleged breach. The Court addresses the parties’ respective claims and defenses in turn.
A.

Breach of Contract Claims

To prevail on a breach of contract claim, a party must prove the following elements: (1) a
valid contract existed between the parties; (2) the adversary breached the contract; (3) the party
performed its obligations under the contract; and (4) the party was damaged as a result of the
breach. 7 Clear Choice Enters., Inc. v. Cellebrite USA, Inc., No. 14-CV-3372 ADS SIL, 2015 WL
1469298, at *6 (E.D.N.Y. Mar. 28, 2015).

6

To the extent that the Seller contends that Maoli made material misrepresentations during
the Due Diligence period related to the escrow check or the reasons for extending the due diligence
period, misrepresentation in the performance of the contract cannot be the basis of a fraud
claim. See Rosenblatt v. Christie, Manson & Woods Ltd., 2005 WL 2649027, at *10 (S.D.N.Y.
Oct. 14, 2005) (“[A]lleged concealment of a breach is insufficient to transform what would
normally be a breach of contract action into one for fraud.”)
7
Because “there is no conflict regarding the elements of a breach contract claim in New
York and New Jersey,” Clear Choice Enters., Inc. v. Cellebrite USA, Inc., No. 14-CV-3372 ADS
SIL, 2015 WL 1469298, at *6 (E.D.N.Y. Mar. 28, 2015) (internal quotation marks and alterations
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Damages can be general or consequential/special. General damages “are the natural and
probable consequence of the breach” of a contract and include “money that the breaching party
agreed to pay under the contract.” Biotronik A.G. v. Conor Medsystems Ireland, Ltd., 22 N.Y.3d
799, 805 (N.Y. 2014) (citations omitted). “By contrast, consequential, or special, damages do not
directly flow from the breach.” Id. “Lost profits may be either general or consequential damages,
depending on whether the non-breaching party bargained for such profits and they are ‘the direct
and immediate fruits of the contract.” Id. Where the damages reflect a “loss of profits on collateral
business arrangements,” they are only recoverable when “(1) it is demonstrated with certainty that
the damages have been caused by the breach, (2) the extent of the loss is capable of proof with
reasonable certainty, and (3) it is established that the damages were fairly within the contemplation
of the parties.” Id.
Failure to mitigate damages is an affirmative defense to a breach of contract claim, which
“requires the defendant to establish not only that the plaintiff unreasonably failed to mitigate, but
that reasonable efforts would have reduced the damages.” Robin Bay Assocs., LLC v. Merrill Lynch
& Co., No. 07 CIV. 376 (JMB), 2008 WL 2275902, at *8 (S.D.N.Y. June 3, 2008). “Whether a
party puts forth sufficient effort to mitigate damages is a question of fact and typically resolved
during trial.” Id.
B.

Seller’s Breach of Contract Claim Against Buyer

Mohegan contends that rather than properly terminating the APA, Celebrity breached it
and seeks to hold both Celebrity and Maoli liable. The Buyer moves for summary judgment in its
favor on Mohegan’s breach of contract claim because Mohegan failed to mitigate damages after
the termination of the APA. Mohegan counters that it was only required to make reasonable efforts
omitted), and the choice of law provision in the APA selects New York, the Court applies New
York law. The result would be the same if the Court applied New Jersey law.
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to mitigate and that Maoli and Celebrity have failed to adduce any facts that that Mohegan
unreasonably failed to mitigate. The Court agrees with Mohegan that whether Mohegan’s actions
following the termination of the APA were reasonable is a question of fact reserved for the jury.
The parties do not dispute that after the APA was terminated, the Seller stopped working
with a broker or otherwise making efforts to sell the Dealership. Rost testified that following
termination, he determined that it would be best to conform the dealership to Audi requirements
before trying to sell. (Rost Dep. Tr. at 75.) As of the time of his deposition in February 2019, Rost
was working with Audi to modify Audi’s demands for the Dealership. (Rost Dep. Tr. at 60.)
Towards that end, and in support of their summary judgment filings, Mohegan and the Rosts
submitted a report prepared on April 7, 2019 by REDCOM Design and Construction for the
renovation of the Dealership. (ECF No. 110-25.) Based on the above, the Court finds that there is
sufficient evidence upon which a reasonable jury could conclude that the Seller made reasonable
efforts to mitigate. Accordingly, the Buyer’s motion for summary judgment in its favor of the
Seller’s breach of contract claim is DENIED.
C.

Buyer’s Breach of Contract Counterclaim and Third-Party Claim Against Seller

The Seller cross-moves for summary judgment on the Buyer’s claim against the Seller for
breach of contract. The Buyer avers that a question of material fact as to whether Toyota and
Sterling’s denial of financing to Maoli for a different dealership constitutes cognizable damages
caused by the Seller’s alleged breach of the APA. 8

8

The Buyer also claims for the first time in opposition to the Seller’s cross-motion for
summary judgment that the Seller’s filing of this action against Maoli personally violates Section
8.2(a) of the APA. The Counterclaim and Third-Party Complaint alleges that the Seller “breached
the terms of the APA by, among other things, breaching §4.2, and §5.2 and §7.1 of the APA.”
(Counterclaim ¶ 33.) The Counterclaim and Third-Party Complaint does not invoke Section 8.2 at
all. A party may not amend its allegations through subsequent briefing. See, e.g., Wright v. Ernst
& Young LLP, 152 F.3d 169, 178 (2d Cir. 1998) (finding no basis for plaintiff’s contention that
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The Counterclaim and Third-Party Complaint alleges that because of the Seller’s
misrepresentations regarding the financial status of the dealership, the Buyer (1) expended
additional resources after entering into the APA to ensure the sale would go through, (2) was
unable to enter into new financing and/or refinancing agreements, and (3) its goodwill has been
damaged such that it cannot “successfully conclude any new transactions to purchase automobile
dealerships. However, the only evidence the Buyer presented on summary judgment regarding
alleged damages is Maoli’s own testimony that he was unable to obtain financing to acquire a
Toyota dealership. The Buyer’s expert opines that as a result of the inability to acquire that Toyota
dealership, Maoli lost approximately $4 million in profits. Consequential damages in the form of
lost profits on collateral business arrangements are only recoverable where a party demonstrates
(1) that the damages have been caused by the breach, (2) the extent of the loss is capable of proof
with reasonable certainty, and (3) the damages were fairly within the contemplation of the parties.
E.g., Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 109 (2d Cir. 2007)
(distinguishing between general damages resulting from benefit of the bargain and speculative
profits on collateral transactions). The Buyer has failed to adduce evidence of at least the first and
third of these conjunctive prongs.
As to the first prong, Maoli has merely stated his own belief, unsupported by admissible
evidence, that third parties denied him financing for the Toyota dealership because of his ongoing
dispute with the Seller. (Maoli Dep. Tr. at 8-9.) Maoli’s recollection of statements made by third
parties regarding their reasons for denying him financing for the Toyota dealership constitute
inadmissible hearsay. Maoli’s own statements, unsupported by any admissible evidence

complaint stated a misrepresentation claim where plaintiff “mentioned it for the first time in her
opposition memoranda to the motion to dismiss”).
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confirming that financing was denied because of the Seller’s breach or this litigation, is insufficient
to create a dispute of material fact. See, e.g., Marvel Worldwide, Inc. v. Kirby, 777 F.Supp.2d 720,
730 (S.D.N.Y.2011) (“In opposing a motion for summary judgment, the non-movant may not rely
on inadmissible evidence, such as hearsay, to create a disputed issue of fact.”).
Moreover, as to the third prong, Maoli has adduced no evidence from which a reasonable
jury could conclude that any lost profits from Maoli’s efforts to acquire a different car dealership
after the termination of the APA were reasonably contemplated by the parties at the time they
entered into the APA. See, e.g., Travelers Ins. Co. v. Providence Washington Ins. Grp., 530
N.Y.S.2d 390, 391 (4th Dep’t 1988), amended on other grounds sub nom. Travelers Ins. Co., as
Assignee of Betty J. Millis, Also Known as Betty J. Hanehan, Respondent, v. Providence
Washington Ins. Grp., Appellant., 149 A.D.2d 985 (4th Dep’t 1989) (holding in action to recover
under mortgagee clause of standard fire insurance policy that “expenses of a foreclosure action
and payment of tax liens incurred after the fire cannot be deemed to have been within the
contemplation of the parties to the insurance contract”).
Accordingly, the Court must grant the Seller’s cross-motion for summary judgment as to
the Buyer’s breach of contract claim.
CONCLUSION
For the foregoing reasons, the Buyer’s motion for summary judgment is DENIED as to
Mohegan’s alter ego liability, fraudulent inducement, and breach of contract claims. The Seller’s
cross-motion for summary judgment is GRANTED as to the Buyer’s breach of contract claim
against the Seller and that claim is dismissed. The parties are directed to appear for a telephonic
pre-trial conference on October 13, 2021 at 2:00 PM. To access the telephonic pre-trial conference,

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please follow these instructions: (1) Dial the meeting number: [phone]; (2) enter the Access
Code: 1231334#; (3) press pound (#) to enter the conference as a guest.
The Clerk of the Court is directed to terminate the motions at ECF Nos. 105 and 112.
Dated:

September 10, 2021
White Plains, New York

SO ORDERED:
________________________________
NELSON S. ROMÁN
United States District Judge

36