Opinion
106787/2009.
January 14, 2011.
Cardinez Law Offices, By Jason Cardinez, Esq., New York, New York, for Plaintiff.
Laurence H.Olive, Esq., New York, New York, for Defendants.
DECISION and ORDER
Papers Numbered
Notice of Mot. and Affirm. in Supp of Mot................. 1 Affirm. in Opp............................................ 2 Reply Affirm.............................................. 3 Authorized Sur-Reply...................................... 4Defendants move post-answer to dismiss plaintiff's complaint pursuant to an unspecified paragraph of CPLR 3211(a). Plaintiff Style Master Fashion, Inc. ("Style Master") alleges in its complaint that in December 2003, defendant Armand Wang ("Wang"), non-party Xiaojian Fang ("Fang") and non-party Zhenghua Zhong ("Zhong") met in China to discuss the founding of Style Master, with Wang and Fang taking a thirty percent stake each in the company, and Zhong holding the remaining forty percent.
Style Master was incorporated in the State of New York with the stated purpose of conducting wholesale apparel trade. Wang, Fang and Zhong were all initially directors of Style Master. In January 2004, Wang prepared a business plan for Style Master that sought a total initial capitalization of $500,000.00. Wang, Fang and Zhong all pledged to contribute capital in proportion to their holdings. Fang provided her share of $150,000.00 through Zhejiang Gabriel Holding Group Co., Ltd, a corporation organized under the laws of the People's Republic of China ("Gabriel Holding"). Wang and Zhong allegedly did not have the funds to make their capital contributions and therefore asked Liyong Sun ("Sun"), Fang's spouse, to lend them their pledged capital contribution of the remaining $350,000.00 through Gabriel Holding, and Sun agreed to the request. Shortly threafter, Gabriel Holding allegedly wired $500,000.00 to Style Master.
In March 2004, Wang and Zhong allegedly pledged to Sun in writing that Style Master would be profitable in three years and that they would repay the loan of the $350,000.00. (Compl., ¶ 8). Sometime in 2005, Sun demanded that Wang and Zhong repay the $350,000.00 loan, but neither did. In lieu of cash repayment, Zhong allegedly agreed to transfer the forty percent share in Style Master to Gabriel Holding. (Compl., ¶ 9). Sometime in 2006, Wang also allegedly transferred his thirty percent share in Style Master in satisfaction of the loan. "To reflect this understanding, in September 2006, Style Master prepared corporate documents, including the issuance of a stock certificate confirming that Gabriel Holding was the sole shareholder as of the date of Style Master's incorporation and related board resolutions. The entire board of Style Master, including Defendants Wang and Gu, executed the board resolutions. Wang and Gu also executed the stock certificate." (Compl., ¶ 11).
Style Master also alleges that Wang and Gu both did not carry out their duties as directors of Style Master with due diligence and failed to provide an adequate accounting to Gabriel Holding of how Style Master's capital was spent or to provide a report on Style Master's financial status. Style Master alleges that Wang and Gu raided corporate funds, paying themselves significant amounts out of the capital invested by Gabriel Holding, without authorization from the board of Style Master or Gabriel Holding. (Compl., ¶ 13). Style Master further alleges in the complaint that "on or around the beginning of March 2009, Style Master obtained a forged copy of the September 2006 board resolution which states that Wang is the sole shareholder of Style Master. On information and belief, Wang prepared the forged board resolution with the intention of wrongfully asserting legal control and ownership over Style Master or otherwise casting doubt on Gabriel Holding' sole ownership of Style Master." (Compl., ¶ 14).
In response to the alleged misconduct," Gabriel Holding executed a unanimous written shareholder consent terminating Wang and Gu as directors of Style Master, for cause, on March 23, 2009. Sun and Fang, the remaining directors on the board of Style Master, subsequently executed a board resolution terminating Wang and Gu from all other employment with Style Master on March 23, 2009."(Compl., ¶ 15). Based on the foregoing allegations, Style Master alleges six causes of action for breach of fiduciary duty of care and loyalty, fraud, accounting, constructive trust, preliminary and permanent injunction and a judgment declaring respective rights and duties of all parties.
About three weeks before the commencement of this action, on April 21, 2009, Wang, individually and on behalf of Style Master, commenced an action against Zhejiang Gabriel Holding Group Co., Ltd., Liyong Sun, Xiaojian Fang, Jeffrey J. Chang Associates, and Jeffrey J. Chang ("Wang's Action"). These two actions have been consolidated for the purpose of joint discovery and trial.
In Wang's action, Wang alleges that on January 5, 2005, Wang, Fang and Zhong agreed to terminate their agreement, leaving Wang as Style Master's sole owner. (Wang's Compl., ¶ 6). In return, Sun and Fang agreed to accept a sum certain from Wang to be paid "at some future date." Zhong also transferred her interest in Style Master to Wang at Sun's insistence. (Wang's Compl., ¶ 8). Wang further alleges that Wang paid out to Fang, Sun or to others on their behalf various sums of money and provided valuable services, which together satisfy or exceed the agreed upon consideration pursuant to the January 5, 2005 agreement. (Wang's Compl., ¶ 9)
Sometime in August 2006, Sun asked Wang to sponsor Fang for an L-1 Visa. (Wang's Compl., ¶ 10). Defendant Jeffrey J. Chang, Esq. ("Chang"), principal of defendant Jeffrey J. Chang Associates, allegedly contacted Wang on behalf of Sun and Fang and asked Wang to temporarily transfer proof of ownership of Style Master to Gabriel Holding and Wang agreed. (Wang's Compl., ¶ 11). Once Fang received an L1 visa, the transfer of ownership was expected to have been reversed. On August 16, 2006, Chang copied an interoffice e-mail to Wang, outlining the plans to amend tax returns and back date the corporate ownership documents in support of the L1 visa application. (Wang's Compl., ¶ 14).
On September 14, 2006, Rafael Pacquing, Esq., an associate at Chang Associates, sent an email to Wang, "describing the need for a board resolution authorizing the issuance of a stock certificate, advising that Zhejiang Gabriel Holding Group Co., Ltd was the only shareholder from the inception of the formation of the corporation, and that there were no other previous shareholders, among other things, all in support of the L-1 application." (Wang's Compl., ¶ 15).
On January 25, 2007, Fang received an L1 visa. In December 2008, Wang allegedly made several requests for the return of the stock certificate, but Fang told him to wait until Sun received her green card. (Wang's Compl., ¶ 19). In response, Wang informed Fang that Style Master would withdraw Fang's L1 visa petition, after which Wang received copies of Style Master's Board resolutions, removing him from the position of management and employment with Style Master. (Wang's Compl., ¶ 20). In Wang's complaint, Wang asserts causes of action for ultra vires acts, rescission, Racketeer Influenced and Corrupt Organization Act violations pursuant to 18 U.S.C. § 1962 et seq., and legal malpractice.
Before this action and Wang's action were consolidated for purposes of discovery and trial, Wang and Gu filed an answer in Style Master's action on October 19, 2009, denying all substantive allegations in the complaint and asserting a number of affirmative defenses. On June 30, 2010, Wang and Gu brought this motion to dismiss the complaint. While the motion does not specify on which paragraph of CPLR 3212(a) Wang and Gu rely, their attorney argues that the complaint must be dismissed because Sun has no authority to act on behalf of Gabriel Holding, alleged in the complaint to be the main shareholder of Style Master.
According to Wang's and Gu's exhibits, translated from Chinese, Sun became the subject of a criminal investigation by Shaoxing County Public Security Bureau on November 12, 2008 in relation to suspected misappropriation of Gabriel Holding's funds, and was ordered detained on November 20, 2008. According to these documents, Sun is currently a fugitive in the People's Republic of China. Wang and Gu also submit an affidavit by Lin Xu, an attorney admitted to practice law in the People's Republic of China and employed with the High Mark Law Firm, dated September 27, 2010. Xu attests that Gabriel Holding fell into bankruptcy and, at the request of Style Master, was placed under the control of a trustee appointed by the People's Court of Shaoxing County in Zhejian Province. Xu also attests that as of May 31, 2010, Gabriel Holding did not own any stock of Style Master Fashion, Inc and the only long term equity holdings indicated are in Shaoxing Commercial Bank, Zhejiang Zhiye Real Estate Group and Zhiejiang Shaoxing Rural Cooperative Bank. According to the trustee's audit, as of May 31, 2010, Gabriel Holding did not have any assets in the United States of America and is not knowingly involved in any judicial proceeding in the United States.
Further, Xu provides a legal expert's opinion that because Sun was placed on the fugitive list, according to Article 4(3) of Regulations on Register of Legal Representative of Enterprises, Sun could not be registered as a legal representative of an enterprise. According Article 8 of the same regulation, if Sun were a legal representative at the time of the placement on the wanted list, he would have to be relieved and the enterprise would have change its representative. Xu concludes that as of November 20, 2008, Sun could no longer represent Gabriel Holding under the Chinese law.
Discussion
Because Wang and Gu argue that Sun may not be a legal representative of Gabriel Holding and because the trustee of Gabriel Holding never authorized the filing of this action, the motion is most likely grounded in CPLR 3211(a)(3). Under CPLR 3211(a)(3), a party may move for judgment dismissing one or more causes of action on the ground that "the party asserting the cause of action has not legal capacity to sue."
Style Master objects under CPLR 3211(e) to this motion as late, because Wang and Gu filed this motion about eight-and-a-half months after filing the answer. CPLR 3211(e) provides that the defendant's motion against a claim under CPLR 3211(a) must be made within the responding time, before the answer is filed, except for motions based on paragraphs 2 (subject matter jurisdiction), 7 (insufficiency of the cause of action), and 10 (non-joinder of a party).
Here, CPLR 3211(e) precludes the Court's consideration of the motion on the grounds of CPLR 3211(a)(3), because this motion was not filed pre-answer. Wang and Gu do not offer any excuse for filing this motion late, nor do they adequately address the merits of Style Master's CPLR 3211(e) objection. Wang and Gu rely on the Court's preliminary conference order, dated May 19, 2010, in claiming that the Court permitted them to file a late motion. On the contrary, the "additional directives" section of the preliminary conference order states only that "plaintiff intends to file a motion to dismiss against Sun, Fang Gabriel Holding on or before July 1, 2010." This language does not evince any intention on the Court's part to address the merits or the procedural posture of the contemplated motion, but is merely a record of the discovery progress. Accordingly, defendants' motion to dismiss is denied as untimely.
Even if the Court interpreted the motion as requesting dismissal under CPLR 3211(a)(7), which would render moot the timeliness issue, the motion must be denied on the merits. When considering a CPLR 3211(a)(7) motion to dismiss based on the pleadings, the "sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law." Guggenheimer v Ginzburg, 43 N.Y.2d 268, 275 (1977). "On a motion to dismiss for a failure to state a cause of action, only the allegations of the petition may be considered, and 'affidavits may be received for a limited purpose only, serving normally to remedy defects in the complaint.'" 211 West 56 th Street Assocs. v Dept. of Housing Preservation and Development, 78 A.D.2d 793, 794 (1st Dep't 1980).
Here, Wang and Gu do not argue that the complaint is defective on its face. Their argument, that Sun misrepresented his relationship to Style Master, supported with a legal expert's affidavit and copies of documents issued in China, is more appropriate on a motion for summary judgment under CPLR 3212(b).
Under CPLR 3211(c), either party may request the Court to convert a motion under CPLR 3211 into one under CPLR 3212 after "adequate notice to the parties." Lack of adequate notice precludes sua sponte conversion by the Court. See Mihlovan v Elena Grozavu, 72 N.Y.2d 506, 508 (1988); see also 211 West 56 th Street Assocs., 78 A.D.2d at 794. In the absence of written notice, requirement of "adequate notice" may be satisfied where the parties are "'deliberately charting a summary judgment course'" or where the case involves "purely legal questions rather than any issues of fact." Miholvan, 72 N.Y.2d at 508 (citations omitted).
Here, Wang and Gu never requested in writing that the motion be treated as one for summary judgment. Nor can it be said that both parties "deliberately chart[ed] a summary judgment course," because Style Master's objections to Wang and Gu's motions are all based on procedural failings under CPLR 3211, without addressing the substance matter of the litigation. It would also be inappropriate to treat this motion as one for summary judgment at this stage of litigation, because there are numerous unsettled issues of fact and credibility that will have a direct bearing on the outcome of the two related actions.
The parties conducted a preliminary conference on May 19, 2010 and held compliance conferences on September 1, 2010, October 27, 2010 and December 15, 2010. The parties are currently exchanging documents, with depositions scheduled in the near future. Under these circumstances, it is in the interests of judicial economy to permit the parties to complete the outstanding discovery and subsequently file motions for summary judgment, at which point the Court may rule on a complete record. Therefore, the Court denies defendants Wang's and Gu's motion to dismiss under CPLR 3211 and declines to convert it to a motion for summary judgment under CPLR 3212.
In accordance with the foregoing, it is
ORDERED that the motion by defendants Armand Wang and Jiewei Gu to dismiss the complaint pursuant to CPLR 3211(a) is denied. The parties shall proceed with discovery as ordered at the latest status conference held on December, 15, 2010 and shall appear for a scheduled status conference on February 16, 2011 at 2:15 p.m.
This constitutes the decision and order of the Court.