Opinion
No. 23207/2011.
2012-02-28
YUK YUNG YU and Nest & Ginseng, Inc., Plaintiffs, v. WAI MEI HO and Man Ho Ip, Defendants.
Law Offices of Xian Feng Zou, by William X. Zou, Esq., Flushing, for Plaintiffs. Hazel F. Chin Law Offices, P.C., by Hazel F. Chin, Esq., Flushing, for Defendants.
Law Offices of Xian Feng Zou, by William X. Zou, Esq., Flushing, for Plaintiffs. Hazel F. Chin Law Offices, P.C., by Hazel F. Chin, Esq., Flushing, for Defendants.
CHARLES J. MARKEY, J.
As an initial matter, the name of the corporation is misspelled in the summons and complaint. The Court, sua sponte, orders the change of the caption to reflect the correct name of the corporate party, specifically: NEST & GINGSENG INC. [and not “Ginseng”]. The Court directs the Clerk to correct the files and records to reflect the Court's order.
Plaintiff Yuk Yung Yu (“Yu”) is a 50% shareholder in Nest & Gingseng Inc. Defendants Wai Mei Ho and Man Ho Ip are each 25% shareholders in said corporation. Nest & Gingseng Inc. was formed on April 29, 2011, and a shareholder's agreement dated June 7, 2011, provides that these three shareholders will vote their shares for the election of the initial officers as follows: President, Yuk Yung Yu; Secretary Wai Mei Ho; and Treasurer, Man Ho Ip.
In April, 2011, Nest & Gingseng Inc. entered into a license agreement with J Mart Group Inc., whereby Nest & Gingseng was granted a license to prepare and sell its products at Space No. 112 in the shopping mall located at 136–20 to 136–30, Roosevelt Avenue, Flushing, in Queens County, New York. The license agreement permitted Nest & Gingseng to engage solely in the retail sale of ginseng and Clear mobile internet products.
Plaintiffs Yuk Yung Yu and Nest & Gingseng Inc. commenced this action on October 11, 2011. Plaintiff Yu asserts individual claims and does not allege that this is a shareholder's derivative action. Plaintiffs alleged in their complaint that, on September 26, 2011, defendants “suddenly and without the knowledge and consent or authorization of Plaintiff, sold off a large portion of the store's inventory at a discount and returned the remaining inventory to suppliers. Defendants' [sic] kept the proceeds for themselves, cleared the Corporation's bank accounts and closed the door. Defendants have refused all requests to return corporate funds and assets. Defendants have also refused all requests to provide access to corporate books and records.”
Plaintiffs also alleged, upon information and belief, that defendants have been negotiating with the landlord to start a competing ginseng business in the same mall. Plaintiffs allege that defendants, by virtue of their positions as corporate officers and employees, have misappropriated plaintiffs' “assets, skills, trade secrets, and confidential information,” which they intend to use to compete against the plaintiffs.
The first cause of action, for breach of fiduciary duty to the corporation and shareholders, alleges that defendants misappropriated corporate assets, including secretly and without authorization taking funds from the corporate bank account for their own use, with the intent of establishing a competing business, and seeks to recover monetary damages. The second cause of action for breach of duty to plaintiff Yu, re-pleads the allegations alleged in the first cause of action and seeks to recover monetary damages. The third cause of action for unfair competition re-pleads the allegations of breach of fiduciary duty and misappropriation of corporate assets for use in a competing business, and seeks to recover monetary damages. The fourth cause of action for conversion re-pleads the allegations of breach of fiduciary duty and misappropriation of corporate assets for use in a competing business, and seeks to recover monetary damages. The fourth cause of action alleges that defendants breached the shareholder's agreement, and re-pleads the allegations pertaining to the misappropriation of corporate assets for use in a competing business, and seeks to recover monetary damages.
Prior to the commencement of this action, plaintiffs moved, by order to show cause, dated October 10, 2011, for injunctive relief and access to the corporate books and records. The order to show cause and supporting papers were served on defendants' counsel in the court on October 11, 2011, pursuant to the terms of said order. It is unclear as to when the summons and compliant were served on the defendants. Defendants' counsel filed a notice of appearance on November 17, 2011.
Wei Mei Ho and Man Ho Ip commenced a proceeding for judicial dissolution of Nest & Ginseng, Inc., on October 14, 2011, under Index No. 23545/2011. An opinion in that proceeding is also being issued on this date and requires an evidentiary hearing to be held on April 2, 2012, at 10:15 A.M., before the undersigned, at the courthouse in Long Island City in Queens County.
Upon the foregoing papers, plaintiffs Yuk Yung Yu and Nest & Gingseng Inc. move for:
(1) a preliminary injunction enjoining defendants Wai Mei Ho and Man Ho Ip, or any third party acting on their behalf or in concert with them, from opening or operating a competing ginseng store or retailer in the New World Mall Shopping Center in Flushing, Queens County, New York;
(2) a preliminary injunction enjoining defendants Wai Mei Ho and Man Ho Ip, or any third party acting on their behalf or in concert with them, from withdrawing, liquidating, selling, transferring, removing, borrowing against, disposing of, pledging, or other wise hypothecating or encumbering any monies, stocks, shares, bonds, financial instruments, corporate assets of any nature, including, but not limited to, real estate, vehicles, equipment, inventory, supplies, accounts receivable, business checking accounts, business savings accounts/certificates of deposits and other financial instruments held in or by any bank, brokerage, financial advisor or similar financial institution, which items are the property of, under the control of, or which are held by Nest & Gingseng Inc.; and
(3) access to the corporate books and records of Nest & Gingseng.
Defendants Ho and Ip, in opposition to the within motion for injunctive relief, assert that plaintiffs are unable to demonstrate a likelihood of success on the merits, as the facts alleged in the complaint are in dispute. Defendants in their affidavits assert that plaintiffs' allegations are fabrications. Defendants each state that the corporation's inventory was seized by its suppliers after plaintiff Yu refused to pay for said goods; that Ho was one of the suppliers Yu failed to pay; that Yu was present on September 28, 2011 when the remaining goods and merchandise were seized by suppliers and that this was done with her full knowledge and approval; that Yu's husband and associate were present on September 26 and 27, 2011 when goods and merchandise were seized by the suppliers and that this was done with his full knowledge and approval; and that Yu failed to inform Ip that she had previously paid the New York State sales taxes, and, as a result, a duplicative payment was made, depleting the funds in the corporate bank account.
Defendants further state that Yu and the corporation's accountant were well aware of these bank transactions and that no such funds were used for the defendants personal gain. Defendants state that the shareholder's agreement does not contain a non-compete clause and that they should not be enjoined from pursuing investment or employment opportunities in the same industry they have been employed in for many years, in the same shopping mall. Defendants both allege that third parties have informed them that Yu is seeking to sell the corporation or her shares and that Yu is not operating the corporation in accordance with the shareholder's agreement. Finally, defendants both state that plaintiff Yu is in possession of the corporate books and records.
Plaintiffs, in their reply, have not submitted an affidavit from a party with personal knowledge of the facts. To the extent that plaintiff's counsel disputes the defendants' version of the facts, his affirmation lacks probative value, as he does not claim to have any personal knowledge of the facts.
A party moving for a preliminary injunction “must demonstrate by clear and convincing evidence (1) a likelihood of ultimate success on the merits, (2) irreparable injury absent the granting of the preliminary injunction, and (3) that a balancing of equities favors the movant's position” ‘ (EdCia Corp. v. McCormack, 44 AD3d 991, 993 [2nd Dept.2007], quoting Apa Sec., Inc. v. Apa, 37 AD3d 502, 503 [2nd Dept.2007]; see, Nobu Next Door, LLC v. Fine Arts Hous., Inc., 4 NY3d 839 [2005];W.T. Grant Co. v. Srogi, 52 N.Y.2d 496, 517 [1981];Masjid Usman, Inc. v. Beech 140, LLC, 68 AD3d 942, 942 [2nd Dept.2009] ).
Proof of a likelihood of success on the merits requires the movant to demonstrate a clear right to relief which is plain from the undisputed facts ( see, Cooper v. Board of White Sands Condominium, 89 AD3d 669 [2nd Dept.2011]; Related Properties, Inc. v. Town Bd. of Town/Village of Harrison, 22 AD3d 587 [2nd Dept.2005]; Abinanti v. Pascale, 41 AD3d 395, 396 [2nd Dept.2007]; Gagnon Bus Co., Inc. v. Vallo Transp. Ltd., 13 AD3d 334, 335 [2nd Dept.2004] ). Thus, while the existence of issues of fact alone will not justify denial of a motion for a preliminary injunction, the motion should not be granted where there are issues subverting the likelihood of success on the merits to such a degree that it cannot be said that the plaintiffs established a clear right to relief. (Advanced Digital Sec. Solutions, Inc. v. Samsung Techwin Co., Ltd., 53 AD3d 612 [2nd Dept.2008] ), quoting Milbrandt & Co. v. Griffin, 1 AD3d 327, 328 [2nd Dept.2003]; see also,CPLR 6312[c] ).
The movant must show that the irreparable harm is “imminent, not remote or speculative” (Golden v. Steam Heat, 216 A.D.2d 440, 442 [2nd Dept.1995] ). Moreover, “[e]conomic loss, which is compensable by money damages, does not constitute irreparable harm” (EdCia Corp. v. McCormack, 44 AD3d at 994;see, e.g., Mabry v. Neighborhood Defender Serv., Inc., 88 AD3d 505, 506 [1st Dept.2011]; Family–Friendly Media, Inc. v. Recorder Television Network, 74 AD3d 738 [2nd Dept.2010]; White Bay Enters., Ltd. v.. Newsday, Inc., 258 A.D.2d 520 [2nd Dept.1999] ); Schrager v. Klein, 267 A.D.2d 296 [2nd Dept.1999] ). The decision to grant or deny a preliminary injunction lies within the sound discretion of the Supreme Court ( see, Glorious Temple Church of God in Christ v. Dean Holding Corp., 35 AD3d 806, 807 [2nd Dept.2006] ).
The branch of plaintiffs' motion seeking a preliminary injunction is denied, as plaintiffs have failed to demonstrate a likelihood of success on the merits, and irreparable injury absent the granting of an injunction. As the facts are sharply disputed by the parties, plaintiffs cannot establish that they are likely to succeed on the merits based upon undisputed facts ( see, Radiology Assocs. Of Poughkeepsie, PLLC v. Drocea, 87 AD3d 1121 [2nd Dept.2011]; Advanced Digital Sec. Solutions, Inc. v. Samsung Techwin Co., Ltd., 53 AD3d 612, 613 [2nd Dept.2008]; Related Properties, Inc. v. Town Bd. of Town/Village of Harrison 22 AD3d 587, 590 [2nd Dept.2005]; Dental Health Assocs. v. Zangeneh, 267 A.D.2d 421, 421–422 [2nd Dept.1999], lv. to appeal denied after successive appeals,17 NY3d 703 [2011] ).
Plaintiff Yu also does not allege in her complaint that this is a shareholder's derivative action. To the extent that the complaint alleges a wrong against a corporation, a shareholder has no individual cause of action, though she loses the value of her investment or incurs personal liability in an effort to maintain the solvency of the corporation (Citibank v. Plapinger, 66 N.Y.2d 90, 93 [1985];Abrams v. Donati, 66 N.Y.2d 951, 954 [1985] ). Exceptions to this rule have been recognized when the wrongdoer has breached a duty owed to the shareholder independent of any duty owing to the corporation wronged ( see, General Rubber Co. v. Benedict, 215 N.Y. 18 [1915];Hammer v. Werner, 239 App.Div. 38 [2nd Dept.1933] ). Allegations of mismanagement or diversion of assets by officers or directors to their own enrichment, without more, plead a wrong to the corporation only, for which a shareholder may sue derivatively but not individually ( see, e.g., Niles v. New York Cent. & Hudson Riv. R.R. Co., 176 N.Y. 119 [1903];Carpenter v. Sisti, 45 A.D.2d 529, 531 [1st Dept.1974] ). A complaint in which the allegations confuse a shareholder's derivative and individual rights is subject to dismissal (Abrams v. Donati, 66 N.Y.2d 951, 954 [1985];Greenfield v. Denner, 6 N.Y.2d 867 [1959] ).
Plaintiffs, in support of their application for injunctive relief, merely repeat the conclusory allegations set forth in their complaint and fail to point to any imminent and non-speculative harm that would befall them in the absence of a preliminary injunction ( see, Golden v. Steam Heat, 216 A.D.2d at 442). Moreover, they have failed to demonstrate that any harm they would suffer would not be compensable by money damages ( see, EdCia Corp. v. McCormack, 44 AD3d at 994).
Plaintiffs' request for access to the corporate books and records is denied. Plaintiffs have failed to rebut the defendants' assertions that plaintiff Yu is in possession of the corporation's books and records. The fact that defendant Ip made a payment from the corporate bank account to the State tax authorities, does not in itself establish that defendants are in possession of the corporate books and records.
In view of the foregoing, plaintiffs' motion for injunctive relief and for access to the corporate books and records is denied.
The foregoing constitutes the decision, order, and opinion of the Court.