Opinion
13829-2007.
Decided June 3, 2008.
Gail M. Blasie, P.C., Massapequa Park, New York, Attorney for Plaintiff.
Neal Trivedi, Esq., Dicrescio Trivedi, LLP, 400 Jericho Turnpike, New York Jericho, New York, Attorney for Defendant.
Upon the motion by plaintiff for partial summary judgment and ancillary relief, and the cross-motion by defendants for leave to serve an Amended Answer and compel plaintiff to post security for costs, and upon the Oral Argument held before the Court, it is
ORDERED , that the motion (motion sequence number 001) by plaintiff for partial summary judgment and dismissing the affirmative defenses and counterclaims of defendants is granted; and it is further
ORDERED , that the cross-motion (motion sequence number 002) of defendants for leave to serve and file a proposed Amended Answer and Counterclaims and compel plaintiff to post security for costs is determined as set forth herein below.
THE PLEADINGS
This is an action by plaintiff for recovery of certain monies owed by defendants both pursuant to a promissory note and an oral agreement. Plaintiff commenced the action by the filing of a Summons and Verified Complaint on or about May 31, 2007 and issue was joined by defendants' service of a Verified Answer with Affirmative Defenses and Counterclaims dated July 20, 2007. The Complaint sets forth three (3) causes of action: the first cause of action alleges breach of a promissory note and the second and third causes of action allege breach of an oral agreement for the repayment of monies loaned to defendants. Specifically, on the first cause of action, plaintiff alleges that on April 1, 2006, defendant Prakash Chauhan ("Chauhan") executed a promissory note in favor of plaintiff in the amount of $200,000.00. Pursuant to the note, Chauhan agreed to pay plaintiff monthly interest on the note in the amount of $2,000.00 until the note was fully paid. Plaintiff alleges that Chauhan has failed to make the required interest payment since June 1, 2006 to the present, and thus the note became due and payable in full because of said default. Additionally, pursuant to the terms of the note, Chauhan promised to pay a late charge of $100.00 for all payments made more than five days after the due date, thus plaintiff claims Chauhan owes $100.00 from June 1, 2006 and for every month thereafter.
On the second cause of action, plaintiff alleges that in July of 2005, he loaned the total sum of $17,500.00 to defendant Radiant Star, Inc. ("Radiant") and that Radiant promised to repay said amount on demand, with interest. Plaintiff asserts that Radiant has failed to repay any portion of the $17,500.00 owed, despite a demand for repayment. In the third cause of action, plaintiff alleges that on or about September 6, 2006, plaintiff loaned Chauhan the sum of $39,000.00 and that Chauhan promised to repay said amount, upon demand, with interest. Plaintiff alleges that he has demanded repayment of the $39,000.00, but Chauhan has failed and refused to make such repayment.
Only the first cause of action for breach of the promissory note is the subject of this motion for partial summary judgment.
Defendants served an Answer with Affirmative Defenses and Counterclaims. Defendants assert the affirmative defenses of denial of damages, failure to send notice of default, unclean hands, failure to state a cause of action against Radiant, and unjust enrichment. Defendant Chauhan also interposes counterclaims against plaintiff for breach of contract, breach of fiduciary duty, accounting, imposition of a constructive trust, fraud, unjust enrichment, conversion, diversion of assets, and legal fees. Specifically, Chauhan asserts that in 2005, plaintiff approached him regarding the possibility of a joint venture in the jewelry and diamond business and that in furtherance thereof, the parties formed three corporations, RAASi Holdings Corp., RAASi Guyana Ltd, and RAASi Diamond Jewelers Ltd. Chauhan alleges that he and plaintiff are each 50% shareholders in these corporations and agreed to share the profits and losses of such corporations equally. He attaches what he purports to be an agreement between the parties, an unsigned document titled "Business Model". In sum, Chauhan asserts that the $200,000.00 plaintiff loaned him was actually a capital contribution, used by Chauhan to purchase diamonds and other jewelry which he delivered to plaintiff in India. He claims that plaintiff opened a jewelry store in India with the jewelry purchased by Chauhan and that plaintiff has refused to give him an accounting of the profits and losses of the three corporate entities. Thus, Chauhan asserts counterclaims against plaintiff alleging that he breached the "agreement" between the parties to share equally in the profits of the three corporations. All of the counterclaims asserted by Chauhan are based on the same premise, that plaintiff misrepresented to him that he was a 50% shareholder in the three corporations and that Chauhan executed the promissory note in reliance on such misrepresentations.
The Court notes, as will be discussed more fully below, that in serving the Verified Answer, defendants unilaterally amended the caption to purportedly set forth a third party derivative action against plaintiff. However, defendant has not properly commenced said third party action and same is admitted by defendant in his answering papers.
PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
Plaintiff now moves, pursuant to CPLR Rule 3212, for partial summary judgment against defendant Chauhan in the amount of $200,000.00 with 12% interest from June 1, 2006 to the present and late fees from June 1, 2006 to the present. Plaintiff also moves, pursuant to CPLR § 3211(a)(3) and (6) for an Order dismissing defendants' counterclaims, or in the alternative, severing the counterclaims, and pursuant to CPLR § 3211(b) dismissing defendants' affirmative defenses. Finally, plaintiff seeks attorney's fees and costs. In support of the motion, plaintiff submits an affidavit, a copy of the promissory note, the pleadings, copies of checks, certificates of incorporation and income tax returns of the three corporations.
Plaintiff states that he met Chauhan, a diamond jewelry manufacturer, in 2001, when he was looking to purchase a diamond ring for his wife. At that time, plaintiff states that he was a software engineer, with his own business providing software solutions to brokerage firms. He contacted Chauhan again in 2004 to purchase jewelry and he states at that time Chauhan asked him for financial assistance. Plaintiff states that in May of 2004, he loaned Chauhan $50,000.00, which he understood would be used in Chauhan's new business, Radiant Star, Inc. He states he loaned Chauhan an additional $50,000.00 on July 23, 2004, another $50,000.00 on October 6, 2004 and finally, $50,000.00 on April 4, 2005. Copies of the checks evidencing payment of these amounts are annexed to the motion papers. Plaintiff admits that he and Chauhan agreed to form a business, RAAASi Holdings Corp., and that they are each 50% shareholders of said corporation. Plaintiff acknowledges that he and Chauhan planned to mine diamonds in Guyana and open a diamond retail store in India and that RAAASi Holdings Corp. was to be the holding corporation for the mining corporation in India. However, plaintiff asserts that the loans he made to Chauhan (and Radiant), were separate from the plans to mine diamonds in Guyana and open a jewelry store in India. Plaintiff states that in February of 2006, he asked Chauhan to sign a promissory note for the $200,000 he previously loaned to Chauhan and that Chauhan executed said note. Plaintiff states that from September 13, 2004 until May 6, 2006, Chauhan made all of the loan payments as required. Plaintiff argues that pursuant to the promissory note, Chauhan agreed to pay 12% interest due monthly, or $2,000.00 per month and that he has failed to pay from June 1, 2006 to the present, totaling $30,000.00 in interest. Further, the promissory note provided for an additional late fee of $100 for payments received more than five (5) days from the due date, and thus, an additional $1,500.00 is due and owing, for a total of $231,500.00 plus attorney's fees and costs.
Plaintiff also alleges that he loaned certain sums to Radiant, however, such are not at issue on this motion for summary judgment.
Plaintiff argues that the promissory note, wherein Chauhan agreed to repay the $200,000.00 loaned to him, was unconditional and completely unrelated to any business transactions regarding RAAASi Holdings Corp., or RAAASi Guyana Ltd. Plaintiff states that RAAASi Holdings Corp. was organized to be a holding corporation for RAAASi Guyana Ltd., which was set up to be a mining corporation in Guyana and RAAASi Holdings is a 90% shareholder of RAAASi Guyana. Plaintiff asserts that although the parties had plans to open a retail store in India, such plans never came to fruition and he does not have any ownership interest in any such company in India. He states that RAASi Holdings and RAAASi Guyana have not made any profits as evidenced by the tax returns annexed to the motion papers.
Based on the foregoing, plaintiff argues that there is no genuine issue of fact, Chauhan has no defense to the failure to pay pursuant to the terms of the promissory note, and summary judgment should be granted.
Additionally, plaintiff seeks dismissal of the counterclaims and affirmative defenses contained within the Verified Answer. Plaintiff argues that Chauhan's counterclaims are essentially derivative causes of action against the three corporations, requiring their addition as third-party defendants and that Chauhan cannot add new parties by way of a counterclaim. Rather, since these counterclaims are against parties not named in the complaint, they can only be added filing and serving a third-party summons and complaint on all parties. Additionally, plaintiff argues that Chauhan cannot even commence derivative actions against RAASi Guyana, Ltd because Chauhan is not a shareholder of said corporation and moreover, RAASi Guyana is a Guyanan corporation over which New York has no jurisdiction. With regard to RAASi Diamonds, plaintiff asserts that no such corporation exists.
With regard to the counterclaims for breach of contract, breach of fiduciary duty, unjust enrichment, conversion, and diversion, plaintiff argues that Chauhan, as a 50% shareholder of RAAASi Holdings, has no right bring this action directly, without naming the corporation, as such allegations contstitute a derivative and not direct suit. Additionally, plaintiff argues the counterclaim for an accounting is improper, in that an accounting is a form of relief and not a cause of action, and thus, must be dismissed. Likewise, plaintiff argues the counterclaim for imposition of a constructive trust over the corporations requires the addition of the corporations as parties and moreover, this equitable remedy is unavailable as Chauhan could be compensated with money damages. Finally, plaintiff argues that the counterclaim for fraud is insufficiently plead and also is really a derivative cause of action requiring the corporations be named as parties and that Chauhan is not entitled to legal fees. Plaintiff also seeks dismissal of the affirmative defenses on the ground they are bald, conclusory allegations that lack merit and are not proper affirmative defenses. Based on these arguments, plaintiff argues that the counterclaims and affirmative defenses must all be dismissed. In the alternative, plaintiff seeks severance of the counterclaims.
Finally, plaintiff seeks costs and attorneys fees pursuant to the terms of the promissory note, which provides that Chauhan would be responsible for all costs of collection incurred by plaintiff if defendant fails to pay according to the terms of the note.
DEFENDANT'S OPPOSITION AND CROSS-MOTION
Defendants oppose plaintiff's motion and also cross-move for leave to serve and file a proposed Amended Answer and Counterclaims and compel plaintiff to post security for costs, pursuant to CPLR § 8501(a).
In opposition, defendants submit an affidavit by Chauhan and certain email correspondence between Chauhan and plaintiff. Chauhan, in his affidavit, admits executing the promissory note, but denies any default thereon. Instead, he claims that plaintiff fraudulently induced him into executing the note by claiming that the funds were actually a capital investment toward a joint business partnership of opening a retail jewelry showroom in Indian. Chauhan claims that plaintiff never intended to open the showroom and that he does not owe any money to plaintiff. Chauhan claims that he and plaintiff agreed on a joint business partnership where plaintiff would make the initial capital investment of $250,000.00 and Chauhan would invest his experience, knowledge, time and effort in planning the mining operations. Chauhan admits, that such agreement was never incorporated into a formal written contract, however, he asserts that a series of emails, annexed to the opposition papers, demonstrate the parties agreement. These emails, however, appear to be negotiations between the parties regarding the interest rate of the promissory note and do not indicate that Chauhan is not responsible for repayment of the note.
Chauhan states that he traveled to Guyana at least 10 or 15 times between May 2004 and April 2005, at a cost of $10,000 to $20,000 per trip, in reliance on his "partnership agreement" with plaintiff and the advancement of the initial purported "capital investment". In sum, Chauhan alleges that plaintiff had a "fraudulent scheme" to open a retain jewelry showroom in India without including Chauhan, despite his efforts. Chauhan states that he has suffered damages that cannot be ascertained until full discovery is completed in this case.
Regarding the counterclaims against the corporations, defense counsel admits third party derivative action must be commenced, but states that he believes Chauhanhas pleaded and asserted valid and meritorious individual claims for breach of contract, fraud and misrepresentation.
Finally, defendants seek to compel plaintiff to post security, as he is not a resident of the State of New York or the United States. Defendants seek to compel plaintiff to post security in the amount of $50,000.00.
Plaintiff has submitted opposition to the cross-motion. Plaintiff argues that amendment of defendants' answer is not sufficient to assert the derivative causes of action, but again asserts that defendants must file and serve a and Third-Party Summons and Complaint naming and serving the corporations defendants allege are involved. Additionally, plaintiff argues that the request for $50,000.00 security is excessive and an attempt by defendants to block him from litigating his claim, when Chauhan already owes him $200,000.00.
Plaintiff argues that he never told Chauhan that the funds being loaned would be paid back from profits from a retail store in India and although he hoped to mine diamonds in Guyana, make jewelry and sell it in India, the promissory note was separate and apart from said plans. He states that any proposed business plans were never agreed to and are not binding contracts. Plaintiff asserts that the monies he gave Chauhan were to support Radiant Star, a company plaintiff has no interest in. Thus, plaintiff urges the Court to grant summary judgment on the promissory note and dismiss defendants' counterclaims and affirmative defenses.
RECOVERY ON PROMISSORY NOTE
It is well settled that a plaintiff meets his initial burden of demonstrating entitlement to summary judgment for recovery on a promissory note by submitting evidence that the defendant executed the promissory note and failed to make payments in accordance with its terms. Quest Commercial, LLC v. Rovner , 35 AD3d 576, 825 NYS2d 766 (2d Dept. 2006); Kowalski Enterprises, Inv., v. SEM International LLC , 250 AD2d 648, 672 NYS2d 427 (2d Dept. 1998); Moezinia v. Baroukhian , 247 AD2d 452, 668 NYS2d 688 (2d Dept. 1998). The burden then shifts to defendant to come forward with evidentiary proof in admissible form demonstrating the existence of a triable issue of fact. Thomson v. Rubenstein , 31 AD3d 434, 818 NYS2d 516 (2d Dept. 2006); Davis v. Lanteri , 307 AD2d 947, 763 NYS2d 470 (2d Dept. 2003).
In the case at bar, plaintiff has met his prima facie burden of demonstrating entitlement to judgment as a matter of law. Plaintiff has submitted a copy of the promissory note, admittedly executed by Chauhan, together with an affidavit stating that Chauhan has failed to make payments since June 1, 2006 to the present. The burden therefore shifted to defendant Chauhan to come forward with evidentiary proof demonstrating a genuine issue of fact. Here, defendant has failed to meet that burden. Although defendants claim plaintiff in fact loaned Chauhan the $200,000.00 as a capital investment in a jewelry business, such is belied by the unconditional terms of the promissory note. As the terms of the promissory note are clear and unambiguous, evidence outside the four corners of the document as to what was allegedly intended but unstated, to wit, Chauhan's claims regarding a capital contribution towards a joint venture, is inadmissible to vary the document. See, North Fork Bank v. Romet Corp. , 192 AD2d 591, 596 NYS2d 449 (2d Dept. 1993), citing, W.W.W. Assocs. v. Giancontieri , 77 NY2d 157, 565 NYS2d 440, 566 NE2d 639. Moreover, even if the Court were inclined to consider said theory, defendants have failed to allege facts sufficient to demonstrate that at the time the parties discussed entering into a joint venture, plaintiff never intended to honor said agreement. J.L.B. Equities, Inc., v. Mind Over Money, Ltd. , 261 AD2d 510, 691 NYS2d 65 (2d Dept. 1999). Thus, plaintiff is entitled to partial summary judgment on the promissory note in the amount of $200,000.00 plus late charges, and costs and attorney's fees in an amount to be determined at the trial of the remaining causes of action. The second and third causes of action, for recovery pursuant to oral agreements, are severed and continued.
COUNTERCLAIMS AND AFFIRMATIVE DEFENSES
As set forth above, plaintiff moves to dismiss the counterclaims and affirmative defenses and defendants seek leave to serve an Amended Verified Answer. Plaintiff argues and defendants essentially concede that certain of the claims are actually derivative claims asserted against corporate entities that are not parties to this action. In sum, defendants argue that plaintiff breached an agreement between the parties to share in the profits of RAASi Holdings Corp., RAAASi Guyana and RAASi Diamond and also breached his fiduciary duty to defendants. Likewise, he interposes counterclaims for unjust enrichment, conversion and diversion, all purportedly arising out of plaintiff's alleged failure to share profits of the corporate entities and plaintiff's alleged conversion/diversion of the corporate profits for personal use.
Here, the documentary evidence reflects that plaintiff and Chauhan are each 50% shareholders of RAASi Holdings and RAASi Holdings owns 90% of RAASi Guyana. Chauhan clearly has the right to commence a shareholder's derivative action against RAASi Holdings, but must do so by filing a Third Party Summons and Complaint naming this entity as a third-party defendant. Clearly, Chauhan cannot merely unilaterally amend the caption to include the corporate entity, nor can he assert counterclaims against an entity that is not a party to the action. The Court agrees with plaintiff that these counterclaims are in the nature of derivative claims and not individual claims of Chauhan. Therefore, the counterclaims contained within defendants' Verified Answer are dismissed, with leave to file and serve a Third Party Summons and Complaint against the proper defendants. The Court notes, however, that Chauhan may only commence a shareholder's derivative action against those corporations in which he is a shareholder. In light of this determination, that portion of defendants' cross-motion seeking leave to amend the Verified Answer is denied.
Likewise with regard to the affirmative defenses, same are also dismissed as without merit as they are really merely conclusory denials of plaintiff's claims disguised as affirmative defenses. Quest, supra .
SECURITY
CPLR § 8501 states:
Security for costs.
( a) As of right. Except where the plaintiff has been granted permission to proceedas a poor person or is the petitioner in a habaes corpus proceeding, upon motion by the defendant without notice, the court or a judge thereof shall order security for costs to be given by the plaintiffs where none of them is a domestic corporation, a foreign corporation licensed to do business in the state or a resident of the state when the motion is made.
Here, defendants seek an Order compelling plaintiffs to post security in the amount of $50,000.00.Plaintiff requests that he only be required to post $250.00. CPLR § 8503 provides that in counties outside the city of New York, security for costs shall be given by undertaking in an amount of $250.00, or such greater amount as fixed by the Court.Clearly, as plaintiff is admittedly not a resident of New York, or even the United States, but rather, India, and thus, defendant is entitled to an Order directing plaintiff to post security. The question therefore, is the amount of security required to be posted. Here, the Court is granting partial summary judgment to plaintiff in the amount of $200,000.00 and dismissing the affirmative defenses and counterclaims of defendants. Therefore, at this time, the Court is ordering that plaintiff post security for costs in the form of an undertaking in the amount of $1,000.00.
CONCLUSION
Plaintiff's motion for partial summary judgment is granted on the promissory note in the amount of $200,000.00 plus accrued late charges, and costs and attorney's fees in an amount to be determined upon settlement or trial of the remaining claims. The affirmative defenses and counterclaims contained within the Verified Answer are dismissedand defendants' cross-motion for leave to file an Amended Verified Answer and require plaintiff to post security for costs is determined to the extent set forth herein above.
Plaintiff's counsel shall file a copy of this Decision and Order with the Suffolk County Clerk within fifteen (15) days from the date herein and serve a copy upon defendants' counsel together with Notice of Entry within fifteen (15) days from receipt thereof from the Suffolk County Clerk. Defendants are granted leave to file a Third Party Summons and Complaint within thirty (30) days from service of a copy of this Order with Notice of Entry.
Counselare directed to appear for a preliminary conference in this matter on August 14, 2008 at 9:30 a.m. before the undersigned.
Submission of Judgment shall abide the conclusion of this action.
This constitutes the DECISION and ORDER of the Court.