Opinion
Index No. 654930/2017
01-10-2023
KULIARCHAR SEA FOODS (COX'S BAZAR) LTD., Plaintiff, v. SOLEIL CHARTERED BANK, Soleil Capitale Corporation, and Govind Srivastava, Defendants.
In this action on a $558,000 letter of credit (issued to facilitate the sale of shrimp), this court previously struck defendants’ answer for their consistent, repeated failures to comply with this court's discovery orders. ( Kuliarchar Sea Foods (Cox's Bazar) Ltd. v Soleil Chartered Bank , 2022 NY Slip Op 50691[U], at *3-4 [Sup Ct, NY County July 29, 2022].) Plaintiff now moves for default judgment. Defendants cross-move to "correct" this court's July 2022 order by limiting its effect to striking the answer of defendant Soleil Chartered Bank, not all three defendants (i.e. , Soleil Chartered Bank, Soleil Capital Corporation, and Govind Srivastava). Plaintiff's motion is granted in part and denied in part without prejudice. Defendants’ cross-motion is denied.
DISCUSSION
I. Defendants’ Cross-Motion to Modify This Court's July 2022 Order
Because the resolution of defendants’ cross-motion could affect the scope of any default judgment to which plaintiff might be entitled, this court addresses the cross-motion first.
Defendants contend that this court's July 2022 order contained an error: Although the triggering event for the order was the failure of defendant Soleil Chartered Bank, in particular, to produce a witness with knowledge for deposition, the order struck the answers of all three defendants (thereby exposing them to plaintiff's current default-judgment motion). (See NYSCEF No. 332 at 3.) Defendants assert that this disposition was merely a technical "mistake or typographical error by the court" that may, and should, be corrected under CPLR 5019 (a). (Id. )
As an initial matter, this court disagrees with defendants that the "correction" they seek would merely cure a "mistake, defect, or irregularity ... not affecting a substantial right of a party." ( CPLR 5019 [a].) Defendants’ argument for this correction is, in essence, that the scope of this court's July 2022 order must have stemmed from a typographical or clerical-type error, because otherwise this court would (assertedly) have exceeded its authority by "punish[ing] another party, that is S[oleil] C[apital] C[orporation] or Srivastava[,] for discovery conduct" only of Soleil Chartered Bank. (NYSCEF No. 332 at 3.) In reality, therefore, the argument raises a "dispute about the substance of what [this court's] order ... should contain," rather than merely pointing out that the court's order does not properly reflect the court's evident intention in its decision. ( Renaud v Renaud , 197 AD3d 515, 516 [2d Dept 2021] [internal quotation marks omitted].
Defendants thus do not seek a remedy available under CPLR 5019. Rather, they seek relief in the nature of reargument under CPLR 2221 (d). But the deadline to move to reargue a decision of Supreme Court is 30 days from service of notice of entry. ( CPLR 2221 [d] [3].) Plaintiff served notice of entry on August 1, 2022. (NYSCEF No. 299.) Defendant did not file this cross-motion until September 22, 2022 (NYSCEF No. 331)—weeks after the 30-day reargument period had expired. The cross-motion is time-barred.
Even if this court were inclined to overlook the cross-motion's untimeliness, the motion would fail on its merits. Defendants’ core argument on the cross-motion is that the court should distinguish among the actions (in particular, the discovery conduct) of each defendant, and that the discovery noncompliance of Soleil Chartered Bank does not reflect on Soleil Capital or Srivastava. (See NYSCEF No. 332 at 3.) Defendants’ argument is belied, though, by the fact that it is just that—defendants’ position collectively, not just the position of the two parties (Soleil Capital and Srivastava) who would be affected by the requested change to the July 2022 order. Similarly, it would be anomalous for this court's order to "specify that only Defendant SCB's answer is stricken," as defendants propose (id. ), because the three defendants filed a single answer that does not differentiate—at all—among their respective responses and defenses to plaintiff's complaint (see generally NYSCEF No. 52).
For that matter, throughout the sequence of events leading to this court's July 2022 order, the parties—and the court—treated defendants as being a group, not three distinct and individual actors. Thus, in fall 2021, plaintiff moved to strike defendants’ answer, singular, for failure to provide discovery. (See NYSCEF No. 183 [notice of motion].) The opposition to that motion refers throughout to the efforts by defendants, together, to comply with this court's discovery orders. (See generally NYSCEF No. 216 [memorandum of law].) Notably, the opposition refers to this court as having directed defendants "to produce another representative of S[oleil] C[hartered] B[ank]"; states that in (asserted) compliance with that order, "[d]efendants arranged for the deposition of an attorney ... for the Trustee of the Trust that owns SCB"; and goes on to say that in response to plaintiff's follow-up request, "[d]efendants agreed to produce another representative" of Soleil Chartered Bank." (Id. at 3.)
This court's order on that motion to strike, issued in November 2021, concluded that "defendants failed on several occasions without explanation or justification to produce a representative of defendant Soleil Chartered Bank with knowledge of [its] structure and operations’ "; imposed a $1,000 discovery sanction on "Defendants"; directed "Defendants" to produce a witness with knowledge from Soleil Chartered Bank; and provided that failure by "defendants" to comply with these directives would, absent good cause, lead to "defendants’ answer" being stricken on the written request of plaintiff. (NYSCEF No. 231 at 1-2.) There was no objection to the language or directives of this order as overbroad or unfairly punishing Soleil Capital and Srivastava for the misdeeds of Soleil Chartered Bank alone.
Similarly, plaintiff's ensuing motion to strike, filed in January 2022, asked this court to strike defendants’ answer, singular. (NYSCEF No. 278 [notice of motion].) Defendants’ opposition objected to plaintiff's claim that "Defendants’ answer should be stricken," arguing that "Defendants have produced each and every party noticed and/or requested by Plaintiff," and that "Defendants have also arranged for the deposition of the attorney for the Trust that owns SCB as well as one of the three top managers of SCB." (NYSCEF No. 290.) And, as noted above, after this court rejected defendants’ argument and struck the answer, no motion to reargue was filed. Only after plaintiff brought the current default-judgment motion did defendants argue, for the first time, that treating them as a group, and holding them jointly responsible for the failure to produce a witness with knowledge of Soleil Chartered Bank's structure and operations, would be improper. Too little, too late. That argument (about which the court is skeptical in any event) has long since been waived by defendants’ collective litigation conduct.
II. Plaintiff's Motion for Default Judgment
Given the striking of their answer, defendants are deemed to have admitted all the allegations in the complaint. (See Ramos v Stern , 100 AD3d 409, 410 [1st Dept 2012].) The "legal conclusions to be drawn from such proof," though—and whether the facts deemed established demonstrate that the plaintiff has a viable cause of action—"are reserved for the Supreme Court's determination." ( McGee v. Dunn , 75 AD3d 624, 624 [2d Dept 2010] [internal quotation marks omitted].)
Plaintiff contends first that it is entitled to $558,720 in contract damages from defendants, jointly and severally, under the letter of credit in that amount issued by Soleil Chartered Bank. This court agrees. The affidavits submitted by plaintiff's representatives sufficiently establish the amount owed by Soleil Chartered Bank under the letter of credit. And the Appellate Division, First Department, has already held that the complaint's allegations "state a claim against Soleil Capitale and Srivastava so as to pierce defendant Soleil Chartered Bank (SCB)’s corporate veil and hold Soleil Capitale and Srivastava liable as alter egos of SCB." ( Kuliarchar Sea Foods (Cox's Bazar) Ltd. v Soleil Chartered Bank , 168 AD3d 441, 441 [1st Dept 2019].)
In addition, Plaintiff seeks $398,349.70, representing amounts in interest that plaintiff had to pay on operating loans that plaintiff was forced to take out when defendants wrongly withheld payment on the letter of credit. (See NYSCEF No. 317 at 2-4 [affidavit of plaintiff's finance director]; NYSCEF No. 320 [certificate of plaintiff's bank attesting to amounts in accrued interest].) Plaintiff has adequately documented the amounts claimed as incurred interest. But this court must determine whether plaintiff has a cause of action for recovery of those amounts.
Plaintiff initially contends that the $398,349.70 is recoverable as direct contract damages, on the ground that the "payment of interest on these financings flow directly from the [letter of credit] itself, and, therefore, are the ‘natural and probable result of [the] breach.’ " (NYSCEF No. 330 at 11, quoting Kenford Co. v County of Erie , 73 NY2d 312, 319 [1989].) To that extent, this court disagrees. The agreement between plaintiff and Soleil Chartered Bank called for payment to be made under the letter of credit upon the satisfactory delivery by plaintiff of the containers of shrimp it was selling. When defendants breached that agreement, the natural and probable harm to plaintiff was the loss of the money owed under the letter of credit. That plaintiff's need to cover its resulting financial shortfall required plaintiff to take out additional loans from a third party (and thus bear interest costs) is a second-order effect—consequential damages, not direct. (See Biotronik A.G. v Conor Medsystems Ireland, Ltd. , 22 NY3d 799, 807-808 [2014] [distinguishing "lost profits" that "flowed directly from the contract itself" from those that "were, instead, the result of a separate agreement with a nonparty].)
Plaintiff has not established that it may obtain consequential damages for defendants’ breach of their obligations under the letter of credit. The letter of credit provides that it is subject to the most recent edition of the Uniform Customs and Practices for Documentary Credits (UCP), the UCP No. 600. (See NYSCEF No. 309 at 2 § F40E [letter of credit]; NYSCEF No. 322 at ¶ 6.) A letter of credit subject to the UCP is exempt from the provisions of article 5 of the Uniform Commercial Code, governing letters of credit. (See ITM Enters., Inc. v Bank of New York , 302 AD2d 359, 360 [2d Dept 2003].) But courts may properly rely on analogous UCC provisions that do not conflict with the UCP. (Id. )
The Appellate Division, Second Department, has previously applied UCC § 5-111, barring recovery of consequential damages for wrongful refusal to pay money under a letter of credit, to a letter of credit made subject to the UCP. (See id. at 360, 361.) In so doing, the Second Department necessarily held that § 5-111 ’s bar on consequential damages was consistent with the UCP. The latest edition of the UCP at the time of the decision in ITM Enterprises , however, was UCP No. 500, not No. 600. The record on this motion does not reflect whether the last revision of the UCP added a provision permitting the recovery of consequential damages in the circumstances presented here, such that the ITM Enterprises holding no longer controls—or whether plaintiff's consequential-damages claim is barred by that decision's application of UCC § 5-111.
Accordingly, for the foregoing reasons, it is
ORDERED that the branch of plaintiff's default-judgment motion seeking damages for the face amount of the letter of credit ($558,720) is granted, and plaintiff is awarded a money judgment against defendants, jointly and severally, for $558,720, with interest at the statutory rate running from October 3, 2016, plus costs and disbursements to be taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further
ORDERED that the branch of plaintiff's default-judgment motion seeking damages for interest costs incurred by plaintiff due to defendants’ refusal to make payment under the letter of credit ($398,349.70) is denied without prejudice; and it is further
ORDERED that plaintiff may seek entry of a supplemental default judgment under CPLR 3215 on plaintiff's claim against defendants for the $398,349.70 in interest costs, but must do so by motion on notice filed within 30 days of entry of this order or that claim will be dismissed; and it is further
ORDERED that plaintiff serve a copy of this order with notice of its entry on all parties and on the office of the County Clerk, which shall enter judgment accordingly.