Jang v Cho

[*1] Jang v Cho 2005 NY Slip Op 51860(U) [9 Misc 3d 1130(A)] Decided on March 10, 2005 Supreme Court, New York County Freedman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 10, 2005
Supreme Court, New York County

YOUNG H. JANG and OK J. KIM, Plaintiffs,

against

BYUNG W. CHO and HWAN S. OH, Defendants.



601484/04



Attorneys for Plaintiffs

Levy & Schneps, P.C.

1615 Northern Boulevard

Manhasset, New York 11030

By: Lewis R. Mandel, Esq.

(516) 365-3000

Attorneys for Defendant Byung W. Cho

McLaughlin & Stern, LLP

260 Madison Avenue

New York, New York 10016

By: Paul H. Levinson, Esq.

(212) 448-1100

Attorneys for Defendant Hwan S. Oh

Sankel, Skurman & McCartin, LLP

750 Third Avenue, 29th Floor

New York, New York 10017

By: Claudio Dessberg, Esq.

(212) 682-2288

Helen E. Freedman, J.

In motion sequence 001, defendant Byung W. Cho (Cho) moves, pursuant to CPLR 3211 (a) (1) and (a) (7) and CPLR 3016 (b), for an order dismissing the first through sixth and the ninth causes of action in the complaint as against him, and also seeking dismissal of the demand for punitive damages in the second cause of action. Defendant Hwan S. Oh (Oh) cross-moves, pursuant to CPLR 3211 (a) (7) and CPLR 3016 (b), for an order dismissing the second, fifth and ninth causes of action as against him. In motion sequence 002, Cho moves, pursuant to 3211 (a) (1) and (a) (7) and CPLR 3016 (b), for an order dismissing Oh's cross claims as against him.

This action concerns a stock purchase agreement, dated August 26, 2003, among defendants Cho and Oh and plaintiff Young H. Jang (Jang) for Prestige First Avenue Cleaning Corporation, a dry cleaning and laundry service for hotel guests' clothing and hotel employees' uniforms for approximately 30 hotels in New York City. Prior to August 26, 2003, Cho owned all of the shares of the capital stock of Prestige. Pursuant to the Stock Purchase Agreement ("Agreement"), Cho agreed to sell, and Jang and Oh agreed to buy, all of the Prestige stock. The $2,000,000 purchase price for Prestige was payable as follows: $50,000 upon signing the Stock Purchase Agreement; $950,000 upon closing; and a $1,000,000 promissory note secured by a purchase money mortgage, to be paid over a term of seven years with 5% annual interest also at closing. The $50,000 was paid.

The Agreement also states that it is conditioned upon the buyers obtaining a loan in the amount of at least $500,000 within 45 days of the signing of the Stock Purchase Agreement, and upon obtaining the landlord's consent, if required under the lease.

The parties also agreed that they would retain Cho to act as Prestige's agent to continue soliciting business from the hotels which had been clients of Prestige. Cho informed Prestige's customers that he was still associated with Prestige.

By October 13, 2003, Jang and Oh had not secured a $500,000 loan as contemplated in the Stock Purchase Agreement. Moreover, Cho was unable to transfer the Prestige stock to Jang and Oh because an entity known as Eastern Funding was holding it as collateral for an outstanding $473,000 loan to Prestige, that Cho personally guaranteed.

On October 13, 2003, Jang, Oh and Cho executed a Modification Agreement that made several changes to the Stock Purchase Agreement. The Modification Agreement provided that, [*2]as of October 13, 2003, Jang and Oh would operate Prestige as managers, would be responsible for Prestige's liabilities and expenses, would be entitled to Prestige's profits, and would have the right to operate the business as if they were its owners.

Jang and Oh paid Cho $465,000 upon execution of the Modification Agreement, over and above the $50,000 that they had paid to Cho on August 26, 2003. Jang and Oh also executed and delivered to Cho purchase money promissory notes in the aggregate principal amount of $1,000,000, payable in monthly installments for seven years, with 5% annual interest, as provided for in the Stock Purchase Agreement. They also assumed the obligation of discharging a $473,000 outstanding loan from Eastern Funding by April 13, 2005. The parties agreed that, upon their payment of the loan, Cho would transfer the Prestige stock to them pursuant to the terms of the Stock Purchase Agreement.

The Modification Agreement also provided that, following its execution, Oh and Jang would retain the first $150,000 of accounts receivable due and owing to Prestige as of October 15, 2003, as a loan from Cho, to be used as operating funds, and that such amount would be repaid to Cho no later than January 30, 2004 (the Accounts Receivable Loan).

On October 13, 2003, Jang, Oh and plaintiff Ok J. Kim (Kim) entered into an agreement (the Shareholders' Agreement) that recognized that each of them would own one third of the Prestige stock when the sale of the stock was completed under the terms of the Agreement.

According to the complaint, Cho began drawing the weekly sum of $2000 from the account of Prestige, which he said he would use for expenses needed to retain Prestige's hotel business. Cho also received $5000 per month for his services.

On October 13, 2003, Oh assumed responsibility for maintaining Prestige's financial books and records, and on January 14, 2004, Oh informed plaintiffs that Prestige's business was short of cash. At that time, Jang, Kim and Oh each advanced $20,000 to Prestige. Plaintiffs assert that they asked Oh to provide them with an accounting of Prestige's receipts and disbursements, but that Oh refused to do so.

Plaintiffs also contend, in February 2004, Oh demanded another $80,000 cash infusion cover additional cash shortfalls, but they refused to comply, because Oh failed to provide them with an accounting. According to the complaint, in February 2004, an independent accountant reviewed Prestige's books and informed plaintiffs that Cho had been engaged in irregularities involving misuse and misapplication of Prestige's funds.

Upon learning of the alleged irregularities, plaintiffs stopped payment on Kim's $33,000 check to Cho that had been intended as the final installment repayment of the Accounts Receivable Loan. According to the complaint, on March 7, 2004, Oh's wife got into an argument with a Prestige employee on the Prestige premises. The employee called the New York Police Department (NYPD). Jang's and Kim's husbands, who had been working at Prestige, were present at the time. When two police officers arrived, Oh demanded that Jang's and Kim's husbands be removed from the premises. According to the complaint, the officers directed them to leave, despite their assurances that they were married to the owners of the business.

Jang and Kim and their husbands later returned to the premises. By that time, Cho had arrived, and the police were called again. Cho then told the police that he was the owner of Prestige and demanded that Jang, Kim and their husbands be removed from the premises. The police ordered the latter to leave, despite plaintiffs' assertions that they were the owners of the [*3]business.

On March 8, 2004, Cho's attorneys wrote to plaintiffs asserting that Cho had "lawfully (under the authority of the [NYPD]) foreclosed upon the collateral and taken possession of the collateral and the premises pursuant to the Security Agreement (Chattel Mortgage), dated October 13, 2003."

Oh claims that Cho then took over the management and operations of Prestige. Oh states that Cho told him that, by virtue of plaintiffs' purported default under the Agreement, Cho had the right to terminate the Agreement and to take back the business and assets of Prestige. Oh asserts that Cho told him that he would be willing to transfer 50% of the Prestige shares to Oh if Oh were willing to continue to work at Prestige and to contribute additional money for those shares. Oh states that he and his wife therefore continued to work at Prestige, until June 2004, at which time Cho advised Oh that he would not transfer any part of the shares of Prestige to him. Oh states that on June 19, 2004, Cho directed him not to return to the premises of Prestige, and has since denied Oh access to the business and premises of Prestige.

The complaint contains nine causes of action, and Oh's cross-claim against Cho contains six causes of action.

The first cause of action in the complaint, as against Cho, sounds in breach of contract. Plaintiffs argue that they performed all of their obligations under the Agreement, but that Cho failed to deliver the Prestige stock to them, thereby breaching the Agreement. The second cause of action, against Cho and Oh, sounds in fraud. The third cause of action, as against Cho, seeks rescission of the Agreement and the return of all monies that plaintiffs paid to Cho and contributed to Prestige. The fourth and fifth causes of action sound in conversion, against both defendants. The sixth and seventh causes of action sound in breach of implied covenant of good faith and fair dealing, against Cho and Oh. The eighth cause of action alleges breach of fiduciary duty against Oh. The ninth cause of action claims both defendants violated 42 USC § 1983.

Plaintiffs argue that Cho currently in possession of the business and assets of Prestige that he agreed to sell to them, and that he retains their $500,000 down payment, plus approximately $160,000, that plaintiffs paid on Cho's behalf for the so-called Eastern Funding debt and the purchase money notes that plaintiffs paid on Cho's behalf, plus approximately $345,000 of proceeds from accounts receivable generated while plaintiffs and Oh were operating Prestige through March 7, 2004. In sum, plaintiffs claim that Cho possesses a million dollars of their money, and that he unlawfully took back their business by misusing the offices of the NYPD.

Cho argues that documentary evidence rebuts the first cause of action for breach of contract because it shows that plaintiffs did not fulfill their contractual obligations and that the conditions precedent that obligate Cho to fulfill his obligations have not transpired.

Cho asserts that the cause of action for fraud should be dismissed as a matter of law because it lacks the requisite particularity as to his alleged involvement. He maintains that the third cause of action for rescission is unfounded and should be dismissed as a matter of law, because it is a proper remedy only for fraud in the inducement of a contract, not for fraud that allegedly occurs after the formation of the contract.

Cho argues that the fourth and causes of action for conversion fail to state claims separate from those set forth in the breach of contract claim. He also maintains that the cause of action sounding in breach of the implied covenant of good faith and fair dealing is duplicative of the [*4]breach of contract claim. He argues that the ninth cause of action, sounding in violation of 42 USC § 1983, should be dismissed because none of his alleged conduct rose to the level of being "under the color" of law, as required by the statute.

Finally, Cho states that the claim for punitive damages should be dismissed because the alleged wrongful acts stem from conduct directed at private parties, not at the public; as such there is no basis to award punitive damages.

In support of his claim that he has not breached the Agreements Cho contends that full payment and satisfaction of the Eastern Funding loan is a condition precedent to his obligation to transfer the shares of Prestige stock. Cho also states that April 13, 2005 is the date set for the "Closing," the date by which two events must occur: (a) the Eastern Funding loan must be paid in full by plaintiffs; and (b) Cho must obtain any consent from the landlord of the building where Prestige is located for the assignment of the lease. Cho argues that, inasmuch as plaintiffs have not discharged the Eastern Funding loan, and, the closing date has not yet passed, Cho has not breached the Agreement.

Cho states that plaintiffs' admission that they stopped payment on a check that Kim had tendered to Cho in the amount of $33,333, which had been "intended as the final installment repayment of the Accounts Receivable Loan of $150,000," is an admission that they and not he breached the Agreement.

In opposition to Cho's motion, plaintiffs aver that Cho had the police unlawfully remove plaintiffs from Prestige's place of business, frustrating their ability to generate the necessary revenues to fulfill their obligation to make further payment; that they performed all of their obligations under the Agreement through March 7, 2004; and that Cho breached the Agreement by causing plaintiffs to be unlawfully ousted from the premises of Prestige.

As to the fraud claim, plaintiffs contend that Cho and Oh, acting in concert, made false representations to plaintiffs concerning the capital requirements needed for Prestige's operations in order to induce an engineered default in the repayment of the Accounts Receivable Loan to enable Cho to demand the return of Prestige's business.

Oh has filed an answer to the complaint that contains cross claims against Cho, many of which are based on the same facts and on identical or similar legal grounds as the causes of action asserted in the complaint against Cho. Thus, Oh cross-moves for dismissal of the claims asserted in the complaint against both Cho and Oh, the second, fifth and ninth causes of action. At the same time, Oh opposes that part of Cho's motion that seeks dismissal of the claims in the complaint brought against Cho only.

In motion 002, Cho seeks dismissal of all six of the cross claims brought by Oh against him, sounding in: (1) breach of the Agreement, and seeking damages; (2) breach of the Agreement, and seeking its rescission; (3) unjust enrichment; (4) fraud; (5) conversion; and (6) violation of Article 9 of the U.C.C.

The breach of contract claims, both in the Complaint and Cross-claim by Oh seeking monetary damages as against Cho, should not be dismissed. Several issues concerning what actually transpired among the parties, have been raised. The documentary evidence is inconclusive and does not warrant dismissal of the claim as a matter of law.

Plaintiffs' cause of action for fraud is adequately set forth as against Oh, in that they claim that Oh misrepresented a need for an additional cash infusion when the request as part of a [*5]scheme to disable plaintiffs financially. But there are no allegations indicating that Cho made any statements upon which plaintiffs relied, separate from the Agreement itself. Thus, the fraud claim is dismissed as against Cho, but survives as against Oh.

As to the rescission claims, ". . . rescission is available where a party lacks a 'complete and adequate remedy at law and where the status quo may be substantially restored'". Alper v Seavey, 9 AD3d 263, 264 (1st Dept 2004), quoting Rudman v Cowles Communications, 30 NY2d 1, 13 (1972). In this case, there is no indication that a complete and adequate remedy at law is unavailable; therefore, the claim and cross claim seeking rescission for breach of the Agreement are dismissed.

The claims in both the complaint and Oh's cross claims alleging conversion, as well as plaintiffs' sixth cause of action sounding in breach of the implied covenant of good faith and fair dealing as against Cho, are also dismissed as duplicative of the breach of contract claims. See Wolf v National Council of Young Israel, 264 AD2d 416 (2d Dept 1999) (conversion claim duplicative of breach of contract claim); Engelhard Corp. v Research Corp., 268 AD2d 358 (1st Dept 2000) (breach of implied convenant of good faith and fair dealing duplicative of breach of contract claim). Oh's cross claim for unjust enrichment is similarly dismissed, as it is undisputed that a valid and enforceable contract exists. Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382 (1987). Oh's cross claim against Cho sounding in fraud is also dismissed, as the allegations do not set forth with requisite specificity the elements of a fraud claim pursuant to CPLR 3016(b). The sixth cross claim, alleging various violations of Article 9 of the U.C.C. is also dismissed, because Oh's claims simply relate to Cho's alleged breach of the Agreement.

Plaintiffs' ninth cause of action, sounding in violation of 42 USC § 1983, survives. That statute imposes civil liability upon a party who "under color of law" subjects, or causes to be subjected, any United States citizen to the deprivation of any rights, privileges or immunities secured by the United States Constitution and laws. "Private persons, jointly engaged with state officials in the prohibited action, are acting 'under color' of law for purposes of [42 USC § 1983]." United States v Price, 383 US 787, 794 (1966). The claim is not dismissed because "the question of state involvement is always a factual inquiry." Ginsberg v Healey Car & Truck Leasing, Inc., 189 F3d 268, 271 Fn. 1 (2d Cir 1999), quoting Dahlberg v Becker, 748 F2d 85, 92 (2d Cir 1984). The Ginsberg court noted, however, that such claims can be dismissed on a summary judgment motion, where there is no evidence that a state and private party acted in concert.

Although the fraud claim against Oh survives, that part of the claim that seeks punitive damages is dismissed because the allegations here do not rise to the level of "high moral culpability," and the wrongs alleged are of a private nature, such that the public was not the victim. See 164 Mulberry St. Corp. v Columbia Univ., 4 AD3d 49 (1st Dept 2004).

The seventh and eighth causes of action in the complaint, brought only against Oh, are not the subject of any of the motions or cross motions before the court at this time, and thus continue.

Accordingly, it is

ORDERED that the motion to dismiss, motion sequence 001, is granted, to the extent that the second through sixth causes of action of the complaint are dismissed as against Cho, and the motion is otherwise denied; and it is further [*6]

ORDERED that the cross motion to dismiss, motion sequence 001, is granted in part, to the extent that the fifth cause of action of the complaint is dismissed as against Oh, and the cross motion is otherwise denied; and it is further

ORDERED that the motion to dismiss, motion sequence 002, is granted, to the extent that the second through sixth cross claims are dismissed, and the motion is otherwise denied; and it is further

ORDERED that Cho is directed to serve an answer to the complaint within 15 days after receipt of this decision. Parties are directed to appear on May 3, 2005 for a preliminary conference at 9:30 a.m. in Room 208.

Dated: March 10, 2005

ENTER:

Helen E. Freedman, J.S.C.

Appearances