Wisell v Indo-Med Commodities, Inc.

[*1] Wisell v Indo-Med Commodities, Inc. 2006 NY Slip Op 52457(U) [14 Misc 3d 1209(A)] Decided on November 27, 2006 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through January 24, 2007; it will not be published in the printed Official Reports.

Decided on November 27, 2006
Supreme Court, Nassau County

John T. Wisell, Sr., Plaintiff,

against

Indo-Med Commodities, Inc., Philmanex Inc. and Shabbir Abidali, Individually and in His Capacity as Sole Director of Indo-Med Commodities., Defendants and Counterclaimants, Scala Wisell Co. Inc. and Indo-Med North America, Inc., Counterclaim Defendants.



Indo-Med Commodities, Inc., Philmanex Inc. and Shabbir Abidali, Individually and in His Capacity as Sole Director of Indo-Med Commodities., Defendants and Counter claimants,

against

Scala Wisell Co. Inc. and Indo-Med North America, Inc., Counterclaim Defendants.



3015-00



ATTORNEYS FOR PLAINTIFF AND

COUNTERCLAIM DEFENDANTS

Neufeld & O'Leary, Esqs.

230 Park Avenue

New York, New York 10169

ATTORNEYS FOR DEFENDANTS

COUNTERCLAIMANTS

Ackerman, Levine, Cullen, Brickman & Limmer, LLP

175 Great Neck Road

Great Neck, New York 11021

Leonard B. Austin, J.

Plaintiff John T. Wisell ("Wisell") and counterclaim Defendant Indo-Med North America, Inc. ("IMNA") move pursuant to CPLR 4404 to set aside this Court's decision after trial or correct certain findings in the decision.

As this is a motion to set aside this Court's decision of May 2, 2006, familiarity with the decision will be assumed. Findings of fact and conclusions of law made by the Court in its decision will be repeated here as necessary to explain the basis of the determination of this motion.

BACKGROUND

This is an action for an accounting which arises from various claims. Defendant Indo-Med Commodities, Inc. ("IMUSA") is a domestic corporation which is engaged in the food brokerage business. IMUSA purchases food commodities, including macadamia nuts, dried fruit, coconut, and sprinkles, in various international markets and sells them in the United States. Wisell was an independent broker for IMUSA who assisted the company in selling its products to various American customers. IMUSA is wholly-owned by Indo-Mediterranean Commodities, Ltd. ("IMUK"), a corporation organized under the laws of the United Kingdom.

On January 1, 1996, Wisell and his company, counterclaim Defendant Scala Wisell, entered into an oral joint venture agreement with IMUSA. Under the terms of the joint venture, Wisell became the president of IMUSA. Wisell and IMUK agreed to share the profits and losses of the joint venture in the ratio of 1/3 for Wisell and 2/3 for IMUK. IMUK was to provide the financing for the joint venture. Wisell was not to receive any compensation, except his share of the profits of the business.

While president of IMUSA, Wisell engaged in numerous breaches of fiduciary duty including, unbeknownst to IMUK, forming a new, competing business, counterclaim Defendant Indo-Med North America ("IMNA"). Wisell transferred the inventory and assets of IMUSA to IMNA, diverted monies from IMUSA to Scala Wisell, paid unauthorized salaries and benefits to his wife and relatives and misused corporate bank accounts.

By transferring business to IMNA, Wisell also breached certain contracts which he had entered into with IMUSA. Additionally, Wisell violated the Lanham Act, 15 USC § 1114(1)(a), by adopting IMUSA's trademark, which the Court found was a "strong mark," clearly indicating the source of IMUSA's commodities. Because IMUSA's mark is so fanciful and distinctive, by copying it, Wisell created a likelihood of confusion among IMUSA's customers and suppliers so as to foster diversion of IMUSA's business opportunities to IMNA. Although awarding IMUSA monetary damages, the Court declined to award attorney's fees or treble damages for the Lanham Act violation. The Court also permanently enjoined Wisell, IMNA, and any other entity controlled by Wisell from using the name "Indo-Med" or IMUSA's trademark. Gen. Bus. Law § 133; Bus. Corp. Law § 360-l.

On consent of the parties, the Court appointed James T. Ashe, CPA as a neutral forensic evaluator with respect to the issue of damages. The Court accepted Mr. Ashe's calculations, made various adjustments based upon the evidence presented and found total damages against [*2]Wisell and IMNA in the amount of $1,486,873.20 plus interest from December 31, 2001. Because of Wisell's deliberate wrongdoing, his fraudulent motive and other outrageous circumstances, the Court also awarded punitive damages in the sum of $150,000.Finally, the Court directed Wisell and IMNA to reimburse IMUSA for its share of the forensic accounting fees and pay all outstanding balances due the Mr. Ashe.[FN1]

In moving to set aside the Court's decision, Wisell and IMNA argue that the Court overlooked or misconstrued certain facts supporting their defense of unclean hands. Movants claim that IMUK and Shabir Abidali ("Abidali"), its principal officer, ceased paying for inventory for IMUSA and otherwise providing financing for the IMUSA venture. Movants also claim that Abidali submitted false invoices in connection with the purchase of coconuts from one of IMUSA's suppliers.

DISCUSSION

A.Legal Standard

CPLR 4404(b) provides that after a trial not triable of right by a jury, upon the motion of any party or on its own initiative, the court may set aside its decision or any judgment entered thereon. The court may make new findings of fact or conclusions of law, with or without taking additional testimony, render a new decision and direct entry of judgement, or it may order a new trial of a cause of action or separable defense. This provision encompasses all of the motions commonly associated with the post-trial stage of an action. These include a motion for a judgment notwithstanding the verdict, on the grounds that the movant is entitled to judgment as a matter of law, and also a motion for a new trial, on the grounds that the verdict or decision is against the weight of the evidence. Siegel, Practice Commentary C4401:1 P. 405 et seq. (McKinney's 1992). The granting of relief under CPLR 4404, such as ordering a new trial or making new findings, is subject to the discretion of the trial court. Carney v. Carney, 236 AD2d 574, 575 (2nd Dept. 1997).

B.Unclean Hands

The doctrine of unclean hands may bar equitable relief if the plaintiff is guilty of immoral, unconscionable conduct, directly relating to the subject matter of the litigation, and defendant was injured by such conduct. National Distillers & Chemical Corp. v. Seyopp Corp., 17 NY2d 12,15-16 (1966). Since unclean hands is an equitable defense, it is not available in an action seeking exclusively money damages. Manshion Joho Center Co. v. Manshion Joho Center, Inc., 24 AD3d 189, 190 (1st Dept. 2005). While the defense of unclean hands may theoretically be raised to defeat the right to an accounting, it has rarely, if ever, been successfully asserted in this manner. See, Carola v. Grogan, 102 AD2d 934 (3rd Dept. 1984).

In its decision, the Court noted that, because of a problem with cash flow, IMUK at times failed to pay suppliers promptly and kept insufficient funds in IMUSA's accounts with Habib American Bank. However, the Court found that, except in isolated instances, Wisell's ability to do business through IMUSA was not seriously impeded. With regard to inaccurate information provided to U. S. Customs, the Court noted that the cost figures for desiccated coconut were understated on the Customs forms. However, since desiccated coconut was not subject to import [*3]duty, Wisell was not injured by the erroneous filings. Because IMUK seeks money damages in this accounting proceeding, its misconduct was not unconscionable and Wisell was not injured by the misconduct. Thus, Wisell's claim of unclean hands is without merit.

C.Double Counting Damages

Wisell and IMNA further argue that the Court, in effect, "double counted" by awarding IMUK the return of its initial investment plus an adjustment for unauthorized expenses which were disallowed by the Court. Partnership Law § 71 provides certain rules for settling accounts between partners after dissolution, subject to contrary provision in the partnership agreement. Since the joint venture agreement between Wisell and IMUSA did not contain any provisions governing the winding up of the joint venture,[FN2] the order of payment established by § 71 is controlling. Section 71(b) provides the priority order of payment of liabilities of the partnership as follows: (1) liabilities owing to creditors other than partners; (2) liabilities owing to partners other than for capital and profits; (3) liabilities owing to partners in respect of capital; and (4) liabilities owing to partners in respect of profits. Since liabilities owing to partners other than for capital and profits ranks first in priority as between the partners, Wisell and IMNA were properly charged for unauthorized expenses which Wisell incurred to the detriment of IMUSA.

The Court further concludes that it properly credited IMUK for the return of its initial investment without any deduction for losses incurred by the joint venture. Unlike an ordinary tort or contract case, the function of an action for breach of fiduciary duty is not merely to compensate Plaintiff for harm committed by Defendant. Rather, the purpose of such an action is to discourage agents and trustees from dealing for their own benefit in matters to which their agency or trust relates by removing all inducement to breach their trust. Diamond v. Oreamuno, 24 NY2d 494, 498 (1969). Thus, for example, corporate officers will have to account to the corporation for gains realized from transactions in the company's stock, even though the corporation was not injured by the officers' trading. Id.

Moreover, if the breach of fiduciary duty is deliberate, the beneficiary's recovery is not limited to the loss of the investment. Where a trustee engages in deliberate self-dealing, by selling trust property for inadequate consideration to an entity in which the trustee has an interest, the trustee may be liable for "appreciation damages." Matter of Rothko, 43 NY2d 305, 322 (1977). The beneficiary is entitled to be made whole, that is to be put into the position that he would have been in had there been no breach of trust. Id. Thus, the beneficiary is entitled to the amount by which the trust property increased in value, not merely the amount of the loss of the investment.

In the present case, Wisell's breach of fiduciary duty consisted of appropriating a joint venture opportunity by diverting business to his own company IMNA which he formed for that very purpose and named it so as to cause confusion among IMUSA's customers and suppliers. To discourage such a gross violation of the duty of loyalty and to compensate IMUK for business diverted to Wisell's rival company, IMUK is entitled to the return of its investment without any deduction for losses. Thus, the Court properly credited IMUK with the amount of its original investment.

D.Cost of the Forensic Accountant

The parties stipulated to the procedure utilized in this matter for the forensic evaluation [*4]of their competing claims as to the finances of IMUSA before, during and after Wisell's tenure as its president by James T. Ashe, CPA. The parties also stipulated that they would equally bear Mr. Ashe's fee subject to reapportionment at the end of the trial.

Wisell and IMNA object to that part of the Court's decision which directed them to pay the full cost of the forensic accountant. Ordinarily, the trial court can rely on the parties and the adversary system to reach the truth fairly by calling their own experts. See, Advisory Committee Notes to Fed Rule Evid R 706. However, the practice of shopping for experts, the venality of some experts, and the reluctance of many reputable experts to involve themselves in litigation, have become matters of deep concern. Id. In federal court, the inherent power of a trial judge to appoint an expert of the judge's own choosing is virtually unquestioned. See, Comer v. Schriro, 463 F.3d 934 (9th Cir. 2006). The trend is increasingly to provide for their use, particularly in non-jury trials where there is no danger that the opinion of the court-appointed expert will be "outcome-determinative," or give an unfair advantage to one of the parties. Advisory Committee Notes to Fed Rule Evid R 706, supra.

Rule 706 of the Federal Rules of Evidence provides a detailed procedure for the appointment of court-appointed experts in the federal court. Rule 706(b) provides that expert witnesses so appointed are entitled to reasonable compensation in whatever sum the court may allow. In civil actions and proceedings, other than condemnation, the compensation shall be paid by the parties in such proportion and at such time as the court directs, in like manner as other costs.

Since New York does not have an evidence code, there is no precise state analogue to Fed Rule of Evid. R 706. However, the Uniform Rules for the Trial Courts provide for the testimony of a court-appointed expert in a matrimonial action. See 22 NYCRR 202.18; and Mohammad v. Mohammad, 23 AD3d 476 (2nd Dept. 2005).Pursuant to this rule, the court may appoint an appropriate expert to give testimony with respect to custody or visitation or an accountant, appraiser, actuary or other appropriate expert to give testimony with respect to equitable distribution or a distributive award. See, Brandes, The Rule of Court - Appointed Valuation Experts, 219 NYLJ 80, p. 3, col. 1 (4/28/98). While the procedure for appointment under 202.18 is more streamlined than under Rule 706, the provision concerning compensation is identical.

With the dissolution of a business, as with the breakup of a marriage, sorting out the parties' finances may require the specialized knowledge of an accountant. See, Bitetto v. F.Chau & Assoc., LLP, 10 Misc 3d 595 (Sup Ct., Nassau Co. 2005). 22 NYCRR 202.18 does not pre-empt the field. The Court has inherent power to appoint an accountant or other appropriate expert where complex financial data must be analyzed to resolve the litigation. In this case, the parties agreed that it was appropriate to appoint a forensic accountant as a neutral evaluator on the issue of analysis of the business relationship of the parties and damages in this case. Because the Court found that Wisell was guilty of serious breaches of fiduciary duty, it was appropriate to impose the full cost of the court-appointed accountant on Wisell and IMNA. This is especially true when it is remembered that the Court declined to grant attorneys fees or treble damages based upon Wisell's Lanham Act violations.

E.Interest

Finally, Wisell and IMNA challenge the award of interest on the ground that IMUK's certificate of incorporation prohibited it from charging interest, reflecting the religious beliefs of [*5]IMUK's principals. However, the restriction on charging interest in IMUK's certificate of incorporation refers to loans or contracts made by the corporation.

It does not restrict the power of the court to award interest on a claim successfully litigated by the corporation.

CPLR 5001(a) authorizes the court in its discretion to award interest in, among other suits, an action of an equitable nature. The CPLR provision also authorizes the court to set the rate of interest and the date from which it shall be computed. Since a claim for breach of fiduciary duty is of an equitable nature, the court has discretion to award interest on such a claim. Matter of Janes, 90 NY2d 41, 55 (1997). Similarly, the court has discretion to award interest upon an accounting. Shubert v. Lawrence, 27 AD2d 292, 297 (1st Dept. 1967). In view of the flagrant nature of Wisell's breach of fiduciary duty and IMUK's entitlement to a reasonable return on its investment, the Court was well within its discretion in awarding interest.

Accordingly, it is,

ORDERED, that the motion of Plaintiff John Wisell and counterclaim Defendant Indo-Med North America Inc. to set aside this Court's Decision after Trial or correct findings contained therein is denied.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

November 27, 2006Hon. LEONARD B. AUSTIN, J.S.C. Footnotes

Footnote 1:By so-ordered stipulation dated June 19, 2006, the parties corrected the Court' s decision in certain respects. This decision is intended to adopt those corrections.

Footnote 2: Although drafts of a joint venture agreement were exchanged, it was never executed.