Hai Ming Yuen v Can Zhong Liang
Annotate this CaseDecided on October 14, 2005
New York City Criminal Court, Kings County
Hai Ming Yuen, Plaintiff,
against
Can Zhong Liang and SAMMY LIU, Defendants.
41187 / 02
Plaintiff appeared by Steven T. Gee, Esq., defendant Can Zhong Liang appeared pro se, and Sammy Liu appeared by Raymond W.M. Chin, Esq.
Jack M. Battaglia, J.
This action first appeared on the calendar for trial on June 26, 2002, and was adjourned 15 times to August 16, 2005, when an application for further adjournment was denied. Plaintiff Hai Ming Yuen and defendant Sammy Liu were represented by counsel; defendant Can Zhong Liang was self-represented. Notwithstanding this history, the Court is required to dismiss the action as outside the subject matter jurisdiction of the Civil Court. "Neither the broadest reading of the complaint nor the parties' own litigation course can transform this matter into an action for money damages over which the lower courts would have jurisdiction." (Briscoe v White, 8 Misc 3d 1, 2 [App Term, 9th and 10th Jud Dists 2004].)
The Amended Complaint alleges two causes of action. In the First, Plaintiff alleges that he and Defendants were "partners" and "shareholders", each owning one-third of a corporation named "Luen Fat Restaurant, Inc.", which operated a Chinese restaurant on Staten Island (Amended Complaint, ¶¶ 5-8), and that Defendants "sold the restaurant" "with the intent of dissolving the corporation", but Plaintiff "has not received his one-third share of the proceeds from the sale of the restaurant" (id., ¶¶ 9-10). No legal theory is specified, but in a post-hearing submission Plaintiff characterizes the First Cause of Action as one for "breach of fiduciary duty". The Second Cause of Action, based upon the same allegations as the First, is for "conversion". The Amended Complaint seeks damages of $23,000.00.
Because of the history of the action, Plaintiff was given the opportunity on the trial date to introduce evidence that would support Civil Court jurisdiction over a claim that appeared to the Court to require an accounting. Plaintiff testified that when the business was purchased by Luen Fat Restaurant, Inc. in June 1999, he and defendant Can Zhong Liang each owned one-half of the corporation. Approximately one month later, defendant Sammy Liu (also known as "Sammy Wong") acquired an interest, with the result that each of the participants owned a one-[*2]third interest.
There was no evidence that a certificate of incorporation for Luen Fat Restaurant, Inc. was ever filed, or that corporate formalities were honored. Plaintiff testified that no stock certificates were issued. Plaintiff and defendant Can Zhong Liang were actively involved in the operation of the restaurant, while, it appears, Sammy Liu was a major vendor to the business through another corporation that he owned.
Plaintiff worked at the restaurant until May 2001, when, after a dispute with Can Zhong Liang, he left, never again to return. In January 2002, Plaintiff received a letter from Sammy Liu, advising that, at a shareholders' meeting in October 2001, it had been agreed that "Luen Fat Restaurant be sold and accounts settled to creditors, and a distribution of remaining assets, if any, to shareholders and the Restaurant as an incorporated body be dissolved"; that in November 2001, the "Luen Fat Restaurant was sold to Chan for total $60,000.00, with $53,000 in cash and the remaining $7,000.00 continency due and payable three months from the closing"; and that the "accounts are being tallied", and a "[c]omplete report shall be provided to the shareholders, and final statements be made." Plaintiff has not received the promised accounting or any distribution from assets.
"It is well established that an action at law may not be maintained by one partner against another for any claim arising out of the partnership until there has been a full accounting except
where the alleged wrong involves a partnership transaction which can be determined without an examination of the partnership accounts." (Kriegsman v Kraus, Ostreicher & Co., 126 AD2d 489, 490 [1st Dept 1987]; see also Gaentner v Benkovich, 18 AD3d 424, 427 [2d Dept 2005]; Stark v Goldberg, 297 AD2d 203, 204-05 [1st Dept 2002].) "The New York City Civil Court has limited equitable jurisdiction..., and within those limitations it lacks jurisdiction over partnership accountings." (Priel v Linarello, 7 Misc 3d 64, 66 [App Term, 2d and 11th Jud Dists 2005]; see also Bury v Cigna Healthcare of New York, Inc., 254 AD2d 229, 229 [1st Dept 1998], Briscoe v White, 8 Misc 3d at 2-3.)
If, however, the claim is for "diversion of a discrete fee [that] can be determined without examination of partnership accounts" (see McLaughlin & Stern, LLP v Lipkin, 288 AD2d 65, 65 [1st Dept 2001]), an action for the equitable remedy of an accounting is not required (see id.), and the Civil Court would have subject matter jurisdiction to make a monetary award in the "discrete" amount.
Viewed from the perspective of the Business Corporation Law, upon the sale of all or substantially all of the assets of Luen Fat Restaurant, Inc., Plaintiff would be entitled to "payment of the fair value of his shares" (see BCL §910[a]) a right enforceable in an appraisal proceeding (see BCL §623) unless the sale was "conditioned upon the dissolution of the corporation and the distribution of substantially all of its net assets to the shareholders" (see BCL §910[a][1][B]), in which case he could seek judicial supervision of the dissolution (see BCL §1008.) He could not circumvent the statutory proceedings with an action seeking essentially the same relief as [*3]damages for breach of fiduciary duty. (See Walter J. Schloss Associates v Arkwin Industries, Inc., 61 NY2d 700, 703 [1984], rev'g on dissenting opinion below 90 AD2d 149 [2d Dept 1982]; but see Collins v Telcoa International Corp., 283 AD2d 128, 133 [2d Dept 2001].) Each of those proceedings must be brought in Supreme Court (see BCL §623[b][1], §1008[a]), and Civil Court has no jurisdiction over them. (See Koshy v Thomas, 185 Misc 2d 102, 103-04 [Civ Ct, Richmond County 2000].)
In any event, Plaintiff's pleaded causes of action for breach of fiduciary duty and conversion are based upon the same facts, and seek the same remedy, money damages representing "Plaintiff's share of the sale proceeds of the restaurant." (See Amended Complaint, ¶¶ 12-16.) A "cause of action sounding in conversion" may be asserted in the corporate context. (See Collins v Telcoa International Corp., 283 AD2d at 134; see also Hoffman v Unterberg, 9 AD3d 386, 388-89 [2d Dept 2004]; Imprimis Investors LLC v Insight Venture Management, Inc., 300 AD2d 109, 110 [1st Dept 2002].)
"Money may be the subject of conversion if it is specifically identifiable and there is an obligation to return it or treat it in a particular manner." (Hoffman v Unterberg, 9 AD3d at 388; see also Key Bank of New York v Grossi, 227 AD2d 841, 843-44 [3d Dept 1996]["the proceeds of the sales were sufficiently identifiable for the purposes of an action for conversion"].) "[A] fiduciary may be liable for conversion of money, even if not earmarked." (Steingut v Guaranty Trust Co. of New York, 161 F2d 571, 573 [2d Cir 1947]; see also Musico v Champion Credit Corp., 764 F2d 102, 110-11 [2d Cir 1985].) "[T]hose in control of a business must deal fairly with the interests of the investors and this is so regardless of whether the business is in corporate or partnership form." (Lichtyger v Franchard Corp., 18 NY2d 528, 536 [1966].)
At the August 16 proceeding, Plaintiff attempted to show with his testimony and defendant Can Zhong Liang's (defendant Sammy Liu was not present) that the "share of the sale proceeds" he seeks is "specifically identifiable" without an examination of the books and records of the partnership / corporation. But, among other things, Can Zhong Liang disputed that Plaintiff was a one-third owner of the business, and testified that the business was losing money, that he had not received anything from the sale of the restaurant, and that the vendor owned by defendant Sammy Liu had not been paid for two years.
In short, whether viewed in the context of partnership law or corporation law, Plaintiff's action, although framed as one for money damages, cannot be resolved without the equitable remedy of an accounting. Courts of equity have "entertained jurisdiction of like cases from time immemorial." (See King v Barnes, 109 NY 267, 286 [1888].) "[T]he remedy of accounting...is a necessary step in many forms and varieties of pecuniary relief, and sometimes is an essential preliminary in establishing rights of property in land or chattels." (Id. [internal quotation marks and citations obmitted].)
In this case, an accounting is an "essential preliminary" in determining whether there is any money, "specifically identifiable" or not, that has been converted. Since Civil Court does not [*4]have subject matter jurisdiction to order an accounting, it can not award a money judgment for any conversion.
This action is dismissed, without prejudice to an action in a court of appropriate jurisdiction. (See CPLR 205[a]; Campbell v Fairfield Presidential Associates, 5 Misc 3d 130[A],
2004 NY Slip Op 51296[U][App Term, 2d and 11th Jud Dists].)
October 14, 2005
Judge, Civil Court
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