Opinion
No. 654414/2013.
11-13-2014
TRANSASIA COMMODITIES LIMITED, Plaintiff, v. NEWLEAD JMEG, LLC, Newlead Holdings Limited, Michael Zolotas and Jan Berkowitz, Defendants.
Eric D. Freed, esq. of Cozen O'Conner P.C, for plaintiff. Evan K. Farber, esq. of Reed Smith LLP, for defendants.
Eric D. Freed, esq. of Cozen O'Conner P.C, for plaintiff.
Evan K. Farber, esq. of Reed Smith LLP, for defendants.
Opinion
CHARLES E. RAMOS, J.
This is an action brought by TransAsia Commodities Limited (TransAsia) against NewLead JMEG, LLC (NewLead JMEG), NewLead Holdings Limited (NewLead Holdings), Michael Zolotas (Zolotas) and Jan Berkowitz (Berkowitz) (collectively, the defendants) arising out of TransAsia's attempt to purchase several hundred thousand tons of coal from the defendants.
In motion sequence numbers 002, 003, and 004, which are consolidated herein, defendants move to dismiss the complaint as against NewLead Holdings and Berkowitz for lack of personal jurisdiction, for failure to state the alter-ego claims as against Berkowitz and Zolotas, and for a stay of discovery.
The facts set forth herein are allegations set forth in the pleadings, unless otherwise noted.
TransAsia, a United Kingdom entity, is involved in international trading of commodities including coal and crude oil. NewLead Holdings is an international shipping company, incorporated in Bermuda with its principal place of business in Greece, and is listed on the NASDAQ stock exchange. Zolotas is a citizen of Greece, and president and CEO of NewLead Holdings.
In April 2012, NewLead Holdings, through its wholly-owned subsidiary NewLead US, entered into a joint venture agreement with J Mining & Energy Group, an entity formerly owned by Berkowitz and dissolved in 2008. The joint venture established NewLead JMEG, a Delaware corporation with its principal place of business in South Carolina, for the purpose of purchasing and trading energy commodities, principally coal. Berkowitz serves as CEO and managing member of NewLead JMEG and is domiciled in South Carolina. Zolotas also served as chairman of NewLead JMEG.
According to NewLead Holdings' public filings, Berkowitz was appointed with full power to execute and legally bind NewLead Holdings in any and all contracts relating to coal mining and sales of coal in the United States and to act on behalf of NewLead Holdings in the negotiation of coal deals.
In the spring of 2013, TransAsia became aware that Shree Cement (Shree), an Indian based company, was interested in purchasing high sulfur coal in the United States. TransAsia began to look for suitable suppliers.
Tom Zabrodsky (Zabrodsky), a commodities trader working for TransAsia, met with Berkowitz in North Carolina to learn more about Berkowitz and NewLead and to negotiate a purchase of coal for resale to Shree. Berkowitz communicated to Zabrodsky that he worked for NewLead Holdings and that NewLead JMEG owned coal mines and a wash plant. Berkowitz also represented that NewLead owned the coal being offered for sale to TransAsia and that NewLead JMEG was not a coal broker. Berkowitz represented that he could supply high sulfur coal from NewLead JMEG's coal mines in Kentucky for shipment to Shree in India via New Orleans. As a further inducement for TransAsia to purchase coal from NewLead JMEG, and as proof that it owned the subject coal, Berkowitz provided TransAsia with several analysis reports prepared by SGS North America, Inc. (SGS), a recognized assayer of coal, purporting to show the quality of the coal that Berkowitz owned.
On June 14, 2013, in reliance upon representations made by Berkowitz regarding NewLead's ability to deliver coal, TransAsia entered into a Coal Sales Agreement (CSA) with Shree. Pursuant to the terms of the CSA, TransAsia agreed to sell and deliver 110,000 metric tons of coal to Shree.
On June 21, 2013, TransAsia in turn entered into a Coal Purchase Agreement (CPA) with NewLead JMEG. Berkowitz signed the CPA on behalf of NewLead JMEG. The CPA contained a clause stating that “each party irrevocably submits to the exclusive jurisdiction of the courts of the state of New York and the United States District Court located in the borough of Manhattan.”
Under the CPA, NewLead JMEG was obligated to provide TransAsia with an initial shipment of 110,000 metric tons of coal which was to be delivered to TransAsia FOB the vessel at New Orleans. The contract price was set at $75.00 USD per metric ton equating to approximately $8,250,000 for the initial shipment (Exhibit B of Compl., CPA). The coal was to be transported by NewLead JMEG from Kentucky down the Mississippi River, where it would meet a ship chartered by TransAsia in New Orleans. From New Orleans it would be shipped to India.
In order to fulfill the CSA with Shree to transport coal to India, TransAsia needed to charter a vessel large enough to carry thousands of tons of coal. In accordance with the CPA and relying on Mr. Berkowitz's representations, TransAsia signed a contract with the UBC Ottawa (the Ottawa) to steam from Germany to New Orleans, pick up the coal to be delivered by NewLead JMEG, and transport said coal to India (the Ottawa contract). The cost of these services was set at $3,915,750 and delay damages were set at a daily rate of $19,300.
In accord with its contractual duties, TransAsia's bank, NBAD Private Bank SA., issued a Letter of Credit that was advised through NewLead JMEG's bank, BNP Paribas SA. NewLead JMEG was informed by BNP Paribas of its receipt of this Letter of Credit.
On August 24, 2013, 2 days prior to the Ottawa's arrival in New Orleans, Zolotas emailed TransAsia, stating that there was an “issue” because the coal supplier had “changed gears at the last minute.” Zolotas told TransAsia that in order to receive the coal, they needed to amend the financial terms of the transaction, and sought a $1,000,000 prepayment from TransAsia in order to pay the supplier for the shipment. TransAsia refused to make this payment, as it was not encompassed in the CPA.
The Ottawa arrived in New Orleans on August 26, 2013. TransAsia provided NewLead JMEG with the requisite notice of its arrival in accordance with the CPA. However, no coal was delivered to New Orleans by NewLead JMEG.
Despite this, Zolotas repeatedly assured TransAsia that the “coal is there for you and your clients.” Subsequently, TransAsia was informed that the coal had been transported to New Orleans under the name of an unidentified supplier rather than from the NewLead JMEG owned coal mine. Zolotas made another demand for the $1,000,000 prepayment. TransAsia demanded information regarding the coal supplier but was never provided this information. TransAsia repeatedly inquired as to the missing coal. Zolotas promised to “manage and resolve it,” and repeatedly assured TransAsia that the coal was in New Orleans. Berkowitz provided similar assurances, promising to send TransAsia the SGS composite analysis done for coal that he claimed was in New Orleans and ready to be loaded.
On August 27, 2013, TransAsia requested its letter of credit be cancelled. Within days, TransAsia received notice from NewLead that the Letter of Credit was cancelled. Zolotas acknowledged that NewLead JMEG had not performed pursuant to the CPA, and promised TransAsia that NewLead will cover TransAsia's losses.
Upon learning of NewLead JMEG's breach of the CPA, TransAsia sought to arrange an alternate source of coal for Shree, but was unable to find a grade acceptable to the company, and Shree was compelled to procure alternate cargo from a separate supplier.
TransAsia needed to inform the Ottawa owners in order to provide them with the opportunity to find alternate cargo before the lay-period closed on September 5, 2013. TransAsia requested written confirmation from NewLead JMEG that no coal would be available for loading onto the Ottawa. On September 4, 2013, Zolotas provided TransAsia with official notice that NewLead JMEG would not be able to load the Ottawa.
Upon receipt of this notice, TransAsia informed the vessel owner and released the vessel. The Ottawa sat on demurrage in New Orleans for at least 20 days until the vessel owner was able to find alternative cargo.
The defendants are accused of inducing TransAsia to enter into the CPA by repeatedly representing that NewLead owned the coal, controlled the shipping of coal from the mine to the load out station, and that it would take 14 days for the coal to reach New Orleans. Moreover, as proof that NewLead JMEG owned the subject coal, Berkowitz and Zolotas allegedly provided several forged analysis reports purporting to show the specifications of the coal NewLead JMEG was selling to TransAsia. The forged reports were prepared falsely under the name of SGS.
TransAsia also alleges a fraudulent scheme by the defendants to inflate the share price of NewLead Holdings on the NASDAQ stock exchange. In order to achieve that goal, the defendants allegedly created NewLead JMEG, a shell company, and represented to the stock buying public that its subsidiary, NewLead JMEG, was an active, viable and profit-making coal mining and trading company. TransAsia alleges that in fact NewLead JMEG had no coal mines, no coal, and no ability whatsoever to engage in the coal business. Between December 2012 and August 2013, the defendants caused NewLead JMEG to sign a series of multi-million dollar contracts for the sale of coal, despite its inability to perform on those contracts. One of those contracts was the CPA with TransAsia. The contracts were then touted by NewLead Holdings in its public filings and press releases, in an effort to inflate its stock price and prevent the de-listing of the company by the NASDAQ exchange. Defendants failed to perform on any of the said contracts.
TransAsia suffered damages totaling approximately $6.2 million, including but not limited to direct damages for non-performance with Shree and Ottawa, and TransAsia's costs of financing the Letter of Credit. In addition, TransAsia has sustained consequential damages as a result of defendants' conduct, including but not limited to lost profits, an inability to obtain the required capital to conduct its business, obtaining credit terms at more disadvantageous rates, and loss of its business reputation.
In this action TransAsia is claiming breach of contract against NewLead JMEG, common law fraud and fraudulent inducement against all defendants, civil conspiracy against Zolotas and Berkowitz, and alter-ego liability against all defendants.
Discussion
A.Personal Jurisdiction
Mr. Berkowitz and NewLead Holdings, move to dismiss the complaint for lack of personal jurisdiction under CPLR 301 and 302.
A plaintiff bears the ultimate burden of proof on the issue of personal jurisdiction since they are the party seeking to assert it over a defendant (see Jacobs v. Zurich Ins. Co., 53 A.D.2d 524, 384 N.Y.S.2d 452 [1st Dept 1976] ). However, on a motion to dismiss, courts do not require the plaintiff to make a prima facie showing of personal jurisdiction, but only to demonstrate that facts “may exist” to exercise personal jurisdiction over the defendant (see CPLR § 3211[d] ; American BankNote Corp. v. Daniele, 45 A.D.3d 338, 340, 845 N.Y.S.2d 266 [1st Dept 2007] ).
Under constitutional due process principles, a court must have a jurisdictional basis before exercising its powers over a party (Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 466 [1988] ). In general, New York courts may obtain personal jurisdiction over a party based on (1) consent to jurisdiction in New York, (2) domicile in New York (CPLR 301 ), (3) general jurisdiction (CPLR 301 ), (4) or specific jurisdiction by means of the long arm statute as to a non-domiciliary (CPLR 302 ).
Consent exists when a party voluntarily agrees to submit to the jurisdiction of this Court. There is no dispute that NewLead JMEG and Zolotas have consented to jurisdiction in this Court (See May 6, 2014 Transcript at 29:6–8; 30:17–23).
A defendant who is a New York domiciliary is amenable to the jurisdiction of New York courts (See CPLR 301 ; Milliken v. Meyer, 311 U.S. 457 [1940] ). Berkowitz is a citizen of North Carolina where he resides (Compl.¶ 5). NewLead Holdings is a Bermuda company with its principal place of business in Greece (Id . at ¶ 2). Thus, jurisdiction based on domiciliary grounds does not apply to either Berkowitz or NewLead Holdings.
General jurisdiction can also exist under CPLR 301 when an entity has engaged in such continuous and systematic course of “doing business” that it is deemed “present” in New York (Landoil Resources Corp. v. Alexander & Alexander Services, Inc., 77 N.Y.2d 28, 33 [1990] ). A corporation is not doing business in the State for purposes of conferring jurisdiction merely because its shares are listed on a New York stock exchange (Deer Consumer Products, Inc. v. Little, 35 Misc.3d 374, 387, 938 N.Y.S.2d 767 [Sup Ct, New York County, 2012], citing Gilson v. Pittsburgh Forgings Co., 284 F.Supp. 569 [SDNY 1968], Robbins v. Ring, 9 Misc.2d 44, 166 N.Y.S.2d 483 [Sup Ct, New York County, Special Term 1957] ). To hold otherwise would render almost every corporation listing its shares in New York subject to the jurisdiction of New York, without satisfying other jurisdictional requirements (id., citing Joseph Walker & Sons v. Lehigh Coal & Navigation Co., 8 Misc.2d 1005, 167 N.Y.S.2d 632 [Sup Ct, New York County, Special Term 1957] ).
The United States Supreme Court has stated that exceptional cases may exist where a corporation's activities in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that State (Daimler AG v. Bauman, 565 U.S. ––––, ––––, 134 S.Ct. 746, 761, 187 L.Ed.2d 624 n19 [2014] ).
TransAsia alleges that NewLead Holdings is subject to general jurisdiction in New York because it is listed on a New York stock exchange, hires New York based attorneys and financial advisers, and has previously consented to this Court's jurisdiction in other matters. Hiring New York attorneys and consultants, and past jurisdictional consent on unrelated matters does not constitute doing business in the state. TransAsia further asserts in its brief, without mention in the Complaint and without supportive evidence, that Zolotas's apartment in New York is owned and its upkeep paid for by NewLead Holdings and serves as the functional equivalent of its New York office, and that Zolotas, on behalf of NewLead Holdings, repeatedly enters into contracts, in New York with New York companies (See TransAsia Opp. Brief, dated 3/10/14, at 12–13).
NewLead Holdings has admitted that it does attend meetings in New York State, but fails to specify the frequency and whether the meetings were in relation to the transaction at issue (NewLead Holdings Memo. Of Law, citing Theodoropoulos Aff. ¶ 5). Further, TransAsia alleges that NewLead Holdings possesses and rents property in New York for the last three years, which NewLead Holdings disputes (Exhibit B of TransAsia Supp. Letter in Opposition to Motions to Dismiss, June 6, 2014).
NewLead Holdings' activities, as alleged, do not rise to the level of having a “presence” in New York to support a finding of general jurisdiction over it (compare Braynt v. Finnish Nat. Airline, 15 N.Y.2d 426, 432 [1965] [Requisite minimum contacts were satisfied when a defendant foreign airline has a lease on a New York office, employs several people in New York, has a bank account in New York, does public relations and publicity work for defendant in New York including maintaining contacts with other airlines and travel agencies, transmits requests for space to defendant in Europe, and helps to generate business] ).
Long-arm jurisdiction may also be exercised over any non-domiciliary who “transacts any business within the state” (CPLR 302[a][1] ). A party who never physically enters New York may be held to “transact business” in the State when its activities here are purposeful and a substantial nexus exists between the transaction and the claim asserted (Kreutter, 71 N.Y.2d at 467, 527 N.Y.S.2d 195, 522 N.E.2d 40 ). An individual defendant does not subject himself to jurisdiction in New York unless he is doing business in New York state individually rather than on behalf of a corporation (See Brinkman v. Adrien Carriers, Inc., 29 A.D.3d 615, 617, 815 N.Y.S.2d 196 [2nd Dept 2006]citing: Laufer v. Ostrow, 55 N.Y.2d 305, 313 [1982] ).
TransAsia argues there is long-arm jurisdiction over Berkowitz since he has been in New York for business in his individual capacity on several occasions (Compl.¶ 8). However, TransAsia does not link Berkowitz's those business activities in New York to TransAsia's claims. In opposition, Berkowitz represents that he has been in the state twice within the last five years for purposes of conducting business on behalf of NewLead JMEG (Aff. of Berkowitz in Support of Motion to Dismiss, ¶ 12). This is not sufficient to establish long-arm jurisdiction over him because TransAsia has failed to allege a substantial nexus between Berkowitz's New York activities and the underlying transaction and claims asserted (See Kreutter, 71 N.Y.2d at 467, 527 N.Y.S.2d 195, 522 N.E.2d 40 ).
With respect to NewLead Holdings, TransAsia alleges identical New York activities as to long arm-jurisdiction as alleged under general jurisdiction. Although TransAsia asserts that NewLead Holdings entered into fraudulent transactions to boost its stock on the NASDAQ stock exchange, TransAsia does not allege that it relied on the inflation of NASDAQ stock listings to enter into the underlying transactions. TransAsia also does not allege a “substantial nexus” between its claims and the alleged New York contacts of NewLead Holdings, such as the rental property and meetings (Kreuter, 71 N.Y.2d at 467, 527 N.Y.S.2d 195, 522 N.E.2d 40 ).
In further support, TransAsia alleges that Berkowitz was the alter-ego of Newlead JMEG, and NewLead Holdings was the alter-ego of Zolotas and vice-versa, and that the Court should impute jurisdiction over NewLead JMEG and Zolotas to Berkowitz and NewLead Holdings. Where personal jurisdiction exists over a defendant, jurisdiction over his alter-ego is proper as well (So. New Eng. Tel. Co. v. Global NAPs Inc., 624 F.3d 123, 138 [2d Cir.2010] ). “It is also well established that the exercise of personal jurisdiction over an alter ego corporation does not offend due process” (Transfield ER Cape Ltd. v. Indus. Carriers, Inc., 571 F.3d 221, 224 [2d Cir2009] ). Thus, this Court need only determine whether TransAsia has sufficiently alleged an alter-ego relationship between the defendants.
B. Alter Ego
In support of the jurisdictional arguments that alter-ego liability exists in addition to TransAsia's claims for alter-ego liability, TransAsia has sufficiently pled alter-ego relationships between the defendants.
A plaintiff claiming alter-ego liability over a defendant is required to allege: 1) complete domination of the corporation with 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 (Baby Phat Holding Co., LLC v. Kellwood Co., 120 A.D.3d 428, 991 N.Y.S.2d 592 [1st Dept 2014] ). Courts consider whether the parent company engaged in self-dealing, commingled funds, or lacked corporate formalities (Hartej Corp. v. Pepsico World Trading Co., 255 A.D.2d 233, 680 N.Y.S.2d 237 [1st Dept 1998] ), in addition to under-capitalization (ABN AMRO Bank, N.V. v. MBIA Inc., 17 N.Y.3d 208, 229 [2011] ).
TransAsia alleges that NewLead JMEG was created by NewLead Holdings, Zolotas, and Berkowitz for the express purpose of fraudulently signing contracts for the sale of coal it never intended or was capable of delivering (Compl.¶ 121). TransAsia alleges that Berkowitz exercised complete domination and control over NewLead JMEG and used the shell company to induce TransAsia to enter into the CPA (id. at ¶ 123, 928 N.Y.S.2d 647, 952 N.E.2d 463 ). TransAsia also alleges that Zolotas is the alter-ego of NewLead Holdings “and/or vice versa”, and exercised complete domination and control over it with respect to the negotiations with TransAsia and the CPA (id. at ¶ 124, 928 N.Y.S.2d 647, 952 N.E.2d 463 ).
TransAsia also alleges that Zolotas and Berkowitz, both individually and as the alter egos of NewLead JMEG and NewLead Holdings, fraudulently induced TransAsia to enter into and perform the CPA by intentionally misrepresenting and knowingly omitting material facts as to their ability to perform under the CPA (id. at ¶ 125, 928 N.Y.S.2d 647, 952 N.E.2d 463 ). In addition, defendants lied about shipping the coal to New Orleans, provided false barging schedules, provided false SGS analyses for coal that they falsely claimed they owned, falsely claimed that they had a supplier of coal that would enable them to fulfill the CPA, and made multiple intentionally false statements intended to prevent TransAsia from discovering their fraud (id. at ¶ 125, 928 N.Y.S.2d 647, 952 N.E.2d 463 ). The pleadings allege that TransAsia reasonably relied on such representations and omissions in entering into and performing the CPA, and which caused TransAsia's damages (id. at ¶ 126, 928 N.Y.S.2d 647, 952 N.E.2d 463 ).
TransAsia also alleges that NewLead Holdings U.S. is the sole member of NewLead JMEG, a wholly owned subsidiary of NewLead Mojave Holdings LLC, and that NewLead Holdings is the sole member of NewLead Mojave Holdings LLC (id. at ¶ 116–119, 928 N.Y.S.2d 647, 952 N.E.2d 463 ). The operation of these entities appears to be contingent on and intertwined with the operations of NewLead Holdings such that there is commonality of financial and strategic resources, directors and officers, and at all relevant times, NewLead Holdings used the assets of these entities for its own purpose (id. at ¶ 120, 928 N.Y.S.2d 647, 952 N.E.2d 463 ).
TransAsia also alleges that none of these entities were adequately capitalized apart from, perhaps, NewLead Holdings (id. at ¶ 121, 928 N.Y.S.2d 647, 952 N.E.2d 463 ). The fraudulent scheme was perpetrated to allow NewLead Holdings, Zolotas, and Berkowitz to benefit and then utilize the corporate form to frustrate attempts obtain relief against NewLead JMEG, a sham company (id. ). NewLead Holdings, Zolotas, and Berkowitz regularly moved cash and other assets between NewLead Holdings and its subsidiaries in order to satisfy listing requirements with the NASDAQ through artificially inflating share prices for NewLead Holdings and to avoid creditors (id. at ¶ 122, 928 N.Y.S.2d 647, 952 N.E.2d 463 ).
These allegations defeat defendants' arguments that TransAsia has not made sufficient allegations to satisfy the “agent” or its “mere department” tests. The cases upon which defendants rely are not analogous in that there were no allegations of an alter-ego theory of personal jurisdiction (See e.g. Daimler AG, 134 S Ct at 759 ; Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181 [2d Cir1998] ; Delagi v. Volkswagenwerk AG, 29 N.Y.2d 426, 430 [1972] [general jurisdiction over a foreign corporation through its affiliate which is subject to New York jurisdiction when there exists at least a parent-subsidiary relationship and the subsidiary's activities must be so complete that the subsidiary is in fact merely a department of the parent]; OneBeacon America Ins. Co. v. Newmont Mining Corp., 82 A.D.3d 554 [2011] [Court did not have long-arm jurisdiction over foreign corporation in insurance dispute on theory that domestic company was acting as its agent when it purchased insurance policies at issue, where there was no evidence that foreign corporation exercised control over domestic company with respect to its purchase of insurance] ).
Thus, the alter-ego claims were sufficiently pled to satisfy longarm jurisdiction over Berkowitz and NewLead Holdings, and to defeat Zolotas's and Berkowitz's motion to dismiss the alter-ego claims.
C. Stay of Discovery
This Court denies defendants' motion to stay discovery as moot.
Accordingly, it is
ORDERED that defendants' motions to dismiss (Sequence No. 002, 003, and 004) is denied as to all causes of action.
ORDERED that defendants' motions to stay discovery is denied.
ORDERED that defendants shall serve an answer to the complaint within 20 days of notice of entry.