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Sunny Palace Rest. Corp. v. Chan

Supreme Court, Queens County, New York.
Dec 6, 2016
50 N.Y.S.3d 28 (N.Y. Sup. Ct. 2016)

Opinion

No. 17350–2014.

12-06-2016

SUNNY PALACE RESTAURANT CORP., d/b/a Sunny Palace, Albert Ng and Danny Wong, both Individually and Derivatively on behalf of themselves and all similarly situated shareholders of Sunny Palace Restaurant Corp., d/b/a Sunny Palace, Plaintiffs, v. Kamun CHAN, Sunny Ng, and Lotus Garden Restaurant Inc., d/b/a Lotus Garden, Defendants.


Upon the following papers numbered 1 to 7 read on this motion by the plaintiffs for summary judgment against defendant Kamun Chan and defendant Sunny Ng on the issue of liability arising under the third, fourth, fifth, sixth, seventh, eighth, ninth, and tenth causes of action:

Papers

Numbered

Notice of Motion–Affidavits–Exhibits

1–5

Answering Affidavits–Exhibits

6

Reply Affidavits

7

This is an action for breach of contract and other related relief.

The complaint alleges the following:

In January, 2013, plaintiff Albert Ng entered into an oral agreement with defendant Kamun Chan and defendant Sunny Ng whereby they would form a corporation to operate a Chinese restaurant. Plaintiff Danny Wong and two other individuals also agreed to become shareholders in the corporation. On February 22, 2013, the parties incorporated the Sunny Palace Restaurant Corp. which operated a Chinese Restaurant at 4200 Hylan Boulevard, Staten Island, New York.

Plaintiff Albert Ng, who made a capital contribution of over $200,000, owned 30% of the corporation's stock, and plaintiff Danny Wong, who made a capital contribution of over $60,000, owned 10% of the corporation's stock. Defendant Chan and defendant Sunng Ng also owned shares of the corporation's stock. Defendant Chan acted as the principal manager of the corporation, and he and defendant Sunny Ng had primary access to the company's books and records.

In or about July, 2014, defendant Chan falsely told the shareholders that the restaurant was losing money, and he requested further capital contributions from the other shareholders.

On or about October 9, 2014, defendant Chan sold the restaurant for $125,000 to defendant Lotus Garden Restaurant Inc. without informing any of the other shareholders except defendant Sunny Ng. After the completion of the sale, defendant Chan informed plaintiff Albert Ng that the business had been sold and that he and plaintiff Wong were "out."

After the sale, defendant Chan and defendant Sunny Ng continued to operate the restaurant under the new name "Lotus Garden" for pay or for profit.

Plaintiff Albert Ng and plaintiff Danny Wong began this action, which asserts both individual and derivative claims, by the filing of a summons and a verified complaint on December 1, 2014. The third cause of action alleges that defendant Chan and defendant Sunny Ng breached a contract with plaintiff Albert Ng and plaintiff Wong whereby the defendants promised to make available the corporate books and records. The fourth cause of action is for fraud arising from the facts and circumstances surrounding the secret sale of the restaurant. The fifth cause of action is for corporate waste caused by the unauthorized sale of the restaurant at below its fair market value. The sixth cause of action is for breach of fiduciary duty arising from such acts as (1) the failure to disclose the true financial condition of the company, (2) the failure to distribute the profits of the company to the shareholders, and (3) the secret sale of the restaurant. The seventh cause of action is for an accounting. The eighth cause of action alleges that defendant Chan converted the profits that the company generated. The ninth cause of action is for unjust enrichment arising from the sale of the restaurant and the operation of the restaurant after its sale. The tenth cause of action seeks the imposition of a constructive trust upon the money received by the defendants from the sale of the restaurant and its subsequent operation by the defendants.

Defendant Chan and defendant Sunny Ng served their answer on March 27, 2015, and defendant Lotus Garden Restaurant, Inc. served its answer on May 5, 2015.

The plaintiffs served upon the defendants their First Set of Interrogatories and a Notice to Produce which were not satisfactorily responded to. On February 8, 2016, the plaintiffs filed a motion to compel the defendants to respond to the interrogatories and notice to produce, and the defendants responded by providing a flash drive containing 739 images of receipts and invoices. The plaintiffs objected to the unorganized documents on the flash drive, and the parties eventually entered into a so-order stipulation which provided in relevant part: "Should defendant fail to produce said responses within thirty days, defendants will be precluded from presenting evidence regarding said items in defense." The plaintiffs allege that the defendants did not comply with the stipulation and are now effectively precluded from offering a defense to this action.

"[T]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact * * *." (Alvarez v. Prospect Hospital, 68 N.Y.2d 320, 324.) Plaintiff Albert Ng and plaintiff Danny Wong successfully carried their burden through the submission of their affidavits in support of the instant motion and through the depositions taken in this case. Plaintiff Albert Ng alleged that at the end of each business day, defendant Chan received all of the revenue generated by the restaurant, but the plaintiffs did not share in the profits generated by the business. Plaintiff Albert Ng alleged that he "reviewed the records that were provided to me before August of 2014 by Sunny Ng and they reflect that the restaurant had been a very profitable venture." Plaintiff Albert Ng further alleged that company records "demonstrate that the restaurant received over $89,000 in May of 2014, over $74,000 in June of 2014, and over $55,000 in July of 2014." He further alleged that based on his knowledge of the business, defendant Chan sold the restaurant for less than its fair market value. Monti Li, the representative of Lotus Garden, testified at her deposition that defendant Chan stated to her that he was the sole shareholder of Sunny Palace Restaurant Corp and that Chan executed documents stating that he was the sole shareholder of the corporation. Defendant Chan admitted at his deposition that (1) he sold the restaurant to Lotus Garden, (2) he did not inform any of the other shareholders of the closing, and (3) he signed two documents at the closing stating that he was the only shareholder of the selling corporation.

The court finds that the plaintiffs adequately proved prima facie the elements of their third cause of action for breach of contract (see, (McCormick v. Favreau, 82 AD3d 1537 ; Clearmont Prop., LLC v. Eisner, 58 AD3d 1052 ), their fourth cause of action for fraud (see, Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413 ; New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308 ; Watson v. Pascal, 27 AD3d 459 ; Cerabono v. Price, 7 AD3d 479 ; New York City Transit Authority v. Morris J. Eisen, P.C., 276 A.D.2d 78 ; American Home Assur. Co. v. Gemma Const. Co., Inc., 275 A.D.2d 616 ; Swersky v. Dreyer & Traub, 219 A.D.2d 321 ), their fifth cause of action for corporate waste (see, Aronoff v. Albanese, 85 A.D.2d 3 [transfer of assets without consideration or inadequate consideration], their sixth cause of action for breach of fiduciary duty (see, Daly v. Kochanowicz, 67 AD3d 78 ; Fitzpatrick House III, LLC v. Neighborhood Youth & Family Services, 55 AD3d 664 ; Kurtzman v. Bergstol 40 AD3d 588 ; Cassata v. Brewster–Allen–Wichert, Inc., 248 A.D.2d 710, 711 ["The shareholders of a close corporation owe each other a duty to act in good faith"], their seventh cause of action for an accounting (see, Lawrence v. Kennedy, 95 AD3d 955 ; Adam v. Cutner & Rathkopf, 238 A.D.2d 234 ; Palazzo v. Palazzo, 121 A.D.2d 2610, their eighth cause of action for conversion (see, Colavito v. New York Organ Donor Network, Inc., 8 NY3d 43 ), their ninth cause of action for unjust enrichment (see, Mandarin Trading Ltd. v. Wildenstein, 16 NY3d 173 ), and their tenth cause of action for the imposition of a constructive trust (see, County. of Nassau v. Expedia, Inc., 120 AD3d 1178 ).

The burden on this motion shifted to the defendants, requiring them to produce evidence showing that there is a genuine issue of fact which must be tried (see, Alvarez v. Prospect Hospital, supra . ) or to demonstrate the existence of a defense warranting the denial of summary judgment. (See, Plantamura v. Penske Truck Leasing, Inc., 246 A.D.2d 347.) The defendants in this case failed to carry their burden. The defendants did not submit affidavits or other evidence disproving the allegations of the verified complaint, and an affirmation by an attorney without personal knowledge of the facts lacks probative value. (See, Wesh v. Laidlaw, 59 AD3d 534.) Moreover, the conditional discovery order required the defendants to "categorize documents provided in 2/15/16 response by indicating which demand No. the document responds to w/in 30 days." This clause tracks CPLR 3122(c) which provides: "Whenever a person is required pursuant to such notice or order to produce documents for inspection, that person shall produce them as they are kept in the regular course of business or shall organize and label them to correspond to the categories in the request." (See, H.P.S. Mgmt. Co. v. St. Paul Surplus Lines Ins. Co., 127 AD3d 1018.) The defendants in this case did not comply with the conditional discovery order. Such an order is self-executing, and the defendants' failure to comply rendered it absolute. (Wilson v. Galicia Contracting & Restoration Corp., 10 NY3d 827 ; Archer Capital Fund, L.P. v. GEL, LLC, 95 AD3d 800.) The order, now absolute, has the effect of barring the defendants from submitting evidence sufficient to defeat the instant motion. (See, Archer Capital Fund, L.P. v. GEL, LLC, 95 AD3d 800.) Finally, the defendants' opposition papers make a passing reference to GOL § 5–701, "Agreements required to be in writing," and presumably they are relying on paragraph (a)(1) which requires a contract to be in writing where it "[b]y its terms is not to be performed within one year from the making thereof or the performance of which is not to be completed before the end of a lifetime." However, performance by the plaintiffs and the possibility that the parties may have operated the restaurant for only one year removed the bar of the Statute of Frauds. (See, Stevens v. Perrigo, 122 AD3d 1430 ; EDP Hosp. Computer Sys., Inc. v. Bronx–Lebanon Hosp. Ctr., 13 AD3d 476.) Accordingly, it is

IT IS ORDERED that plaintiffs' motion for summary judgment against defendant Kamun Chan and defendant Sunny Ng on the issue of liability arising under the third, fourth, fifth, sixth, seventh, eighth, ninth, and tenth causes of action is granted.

With regard to the seventh cause of action, defendant Kamun Chan and Sunny Ng are directed to serve plaintiff with an accounting within 30 days from the date of the order to be settled hereon.


Summaries of

Sunny Palace Rest. Corp. v. Chan

Supreme Court, Queens County, New York.
Dec 6, 2016
50 N.Y.S.3d 28 (N.Y. Sup. Ct. 2016)
Case details for

Sunny Palace Rest. Corp. v. Chan

Case Details

Full title:SUNNY PALACE RESTAURANT CORP., d/b/a Sunny Palace, Albert Ng and Danny…

Court:Supreme Court, Queens County, New York.

Date published: Dec 6, 2016

Citations

50 N.Y.S.3d 28 (N.Y. Sup. Ct. 2016)