Wong v Moy

[*1] Wong v Moy 2009 NY Slip Op 50777(U) [23 Misc 3d 1114(A)] Decided on April 13, 2009 Supreme Court, New York County Kapnick, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 April 13, 2009
Supreme Court, New York County

Benny Wong and L & W Development, Inc., Plaintiffs,

against

Elma Moy and Florentine Music & Tutorial, Inc., Defendants.



601048/08



Plaintiffs were represented by Morton S. Minsley, Esq., 101 Lafayette Street, New York, New York, Tel: (212)346-0849

Defendants were represented by Edward J. Davis, Esq. and Monica Pa, Esq., Davis Wright & Tremaine, 1633 Broadway,

New York, New York 10019, Tel: 212-489-8230

Barbara R. Kapnick, J.

Plaintiff Benny Wong is the President of plaintiff L & W Development, Inc. ("L & W"). Defendant Elma Moy, who prior to 2006 was a social friend of Wong, is the President of defendant Florentine Music & Tutorial, Inc. ("Florentine").

In September 2006, Moy allegedly told Wong that she had owned a radio station for two years, but did not know how to manage the business and was encountering personnel problems.

According to the Complaint, "MOY claimed that the radio station business was formerly profitable, and, at the time of their discussions, the business was breaking even." After seeking Wong's advice, Moy invited Wong to join the business.

Wong and Moy eventually reached an agreement by which Wong invested and became a 50% owner of the business based upon the following conditions: (i) the radio station would relocate from 16 Bowery, 4th floor, New York, New York, to a new location; (ii) the parties would invest and build a modern radio station; (iii) the parties would buy new equipment; and (iv) Moy would provide an annual sales report to show the history of profitability of the radio station. [*2]

Moy and Wong signed a Shareholder Agreement on October 20, 2006 and formed the Chinese American Media Holding Inc. ("CAMH"), doing business as Chung Wah Commercial Broadcasting Co. Moy became President and Secretary of CAMH, and in consideration of receiving 50% of the shares of CAMH, Wong deposited $189,000.00 into an account of CAMH at the Bank of East Asia on Canal Street.

The radio station was thereafter relocated to a building located at 384 Broadway, New York, New York, which Moy had recently purchased. Plaintiffs claim that Moy promised that she would not charge the radio station any rent at this location.

There is no dispute that construction in the new space (on the second floor) was performed by plaintiff L & W at a purported cost in excess of $500,000.00. Initially, the station was to be located on the sixth floor and then the fifth floor. However, the Complaint alleges, in relevant part, as follows: 37) MOY claimed that her school would be relocated to 5th Floor and that the 2nd Floor would be more suitable for the radio station.38) In accordance with this request, and to accommodate MOY, WONG agreed to change the plans and locate the radio station in the second floor.

Despite Wong's requests, the cost of the construction was never shared by Moy, who allegedly claimed that she was running out of cash. Moy allegedly promised Wong that she would reimburse him in the near future.

Wong thereafter traveled to Hong Kong to order radios for the station. In or about July 2007, after consulting with Moy, Wong paid a non-refundable deposit of HKD 5000 to the supplier of the radios. Moy allegedly called Wong in Hong Kong two weeks later to put everything on hold'.

Moy and Wong met upon Wong's return to New York, at which time Wong suggested that he would withdraw from the partnership. However, on or about August 31, 2007, the parties entered into a written Shareholder Agreement (the "Agreement"), by which the parties modified their business relationship. Moy resigned from all positions in CAMH, agreed to reduce her share in the business to 25%, and agreed that she would no longer participate in the operation, management or disposition of the business.

The August 31, 2007 Agreement also provided that "[a]ny prior discussion or representation in contrary to the provisions set forth herein shall be deemed merged into and be controlled by this agreement."

The Agreement further provided that Moy would enter into a lease agreement with CAMH for the fifth floor of 384 Broadway (which it also referred to as "the space which has been renovated by Wong"), for a two year term at the rate of $8,000.00 per month. Wong claims to have received [*3]the lease on December 24, 2007. The lease, however, was dated September 1, 2007 and was for the second floor of the building. Wong never signed the lease agreement and never paid any rent.

In or about 2008, defendants' accountant provided plaintiff with the Income Tax Returns for 2005 and 2006, which purportedly showed that the radio station had operated at a loss during each year. Wong contends that he was thus fraudulently induced by Moy to invest in the radio station.

Plaintiffs' Complaint seek to recover damages against the defendants for breach of contract (first cause of action), fraud (second cause of action), and breach of fiduciary duty (third cause of action).

In addition, plaintiffs seek in the fifth' cause of action [FN1] a judgment enjoining and restraining the defendants from prosecuting the summary proceeding which defendant Florentine commenced in or about April 11, 2008 in the Civil Court under L & T Index No. 064987/08, to evict CAMH from the premises at 384 Broadway.

Plaintiffs now move by Order to Show Cause, under motion sequence number 001, for an order pursuant to CPLR §§ 602(b) and 325(b) removing the summary proceeding from the Civil Court and consolidating it with the present action.[FN2]

Defendant opposes the motion on the grounds that: (i) there is a strong presumption that a landlord-tenant dispute should be resolved in a summary proceeding before the Civil Court; and (ii) consolidation would unduly delay Florentine Music's right to immediate eviction of an unauthorized, nonpaying tenant.

Defendants move, under motion sequence number 002, for an order pursuant to CPLR §§ 3211(a)(7) and 3016(b) dismissing the Complaint in its entirety with prejudice for failure to state a cause of action.

That portion of the motion seeking to dismiss the Complaint asserted on behalf of L & W is granted, since L & W was not a party to any of the agreements on which this action is based.

Defendants argue that plaintiff Wong's claim for breach of contract should be dismissed on the grounds that: (i) the Complaint does not allege any provision of the parties' August 31, 2007 Agreement or any other agreement which Moy violated; and (ii) Moy discharged her obligations under the Agreement. [*4]

Plaintiff argues that Moy breached the August 31, 2007 Agreement by failing to provide a lease for the fifth floor. However, the reference to the fifth floor appears to be nothing more than a typographical error since the lease specifically referred to "the space which has been renovated" which all parties agree was the second floor.

Alternatively, plaintiff argues that Moy breached the October 20, 2006 Shareholder Agreement by failing to share the costs of relocation and construction. Although plaintiff acknowledges, as he must, that the August 31, 2007 Agreement contained a merger provision, plaintiff argues that the financial obligations set forth in the October 20, 2006 Shareholder Agreement are not contrary to the provisions of the August 31, 2007 Agreement, and thus are not merged into and controlled by the subsequent Agreement.

However, the August 31, 2007 Agreement was specifically intended to modify the parties' relationship and to resolve their outstanding liabilities and obligations to each other.[FN3] Accordingly, this Court finds that plaintiff's right under the earlier Shareholder Agreement to recover relocation and construction costs is merged into the subsequent Agreement. See, Purchase Partners II, LLC v Westreich, 50 AD3d 499 (1st Dep't 2008), lv to app denied, 12 NY3d 702 (2009).

That portion of defendants' motion seeking to dismiss plaintiff Wong's first cause of action for breach of contract must, therefore, be granted.

Defendants next move to dismiss the second cause of action for fraud on the grounds, inter alia, that the Complaint fails to plead the necessary elements of a fraud claim with the required specificity, and that the merger provision in the Agreement bars plaintiff's claim of fraud. See, Sorenson v Bridge Capital Corp., 30 AD3d 1144 (1st Dep't 2006).

However, even were plaintiff's claim for fraud to survive the merger provision, plaintiff has failed to demonstrate that he justifiably relied on the alleged misrepresentation. See, Serino v Lipper, 47 AD3d 70 (1st Dep't 2007), lv to app dism'd, 10 NY3d 930 (2008); Abrahami v UPC Constr. Co., 224 AD2d 231 (1996).Notably, Wong does not claim to have reviewed the radio station's books and records or to have undertaken any other due diligence to determine the profitability of the business prior to entering into the agreements with Moy. Plaintiff's second cause of action must, therefore, also be dismissed.

Defendants next argue that the claim for breach of fiduciary duty should be dismissed because the claim is derivative and not a direct claim and thus could be brought only, if at all, on behalf of CAMH. Moreover, defendants argue that because there are no allegations that defendant engaged in any bad faith or gross misconduct, the business judgment rule bars this claim as well.

Plaintiff argues in opposition that Moy violated her fiduciary duties to her fellow shareholder [*5]by commencing the summary proceeding against CAMH in the Civil Court.

However, [i]t is axiomatic that a shareholder has no individual cause of action to recover damages for a wrong against a corporation, even if that shareholder loses the value of his investment or incurs personal liability in an effort to maintain the solvency of the corporation (citation omitted). Allegations of mismanagement or diversion of assets by officers or directors for their own enrichment, without more, plead a wrong to the corporation only, for which a shareholder may sue derivatively but not individually (citation omitted).

Elenson v Wax, 215 AD2d 429 (2nd Dep't 1995).[FN4]

Plaintiff's third cause of action must, therefore, be dismissed.

Finally, this Court finds that plaintiff has failed to set forth a basis to enjoin the prosecution of the summary proceeding. Therefore, the fifth cause of action is also dismissed.

Accordingly, based on the papers submitted and the oral argument held on the record on January 21, 2009, defendant's motion to dismiss the Complaint in this action is granted in its entirety, and plaintiff's motion to remove the summary proceeding for consolidation with the instant action is denied as moot. The temporary restraining order contained in the Order to Show Cause staying the summary proceeding is hereby vacated.

The Clerk may enter judgment dismissing the Complaint with prejudice and without costs or disbursements.

This constitutes the decision and order of this Court. [*6]

Dated: April, 2009

BARBARA R. KAPNICK J.S.C. Footnotes

Footnote 1:The Complaint does not contain a fourth a cause of action.

Footnote 2:The Order to Show Cause, signed by the Hon. Helen E. Freedman on May 20, 2008, contains a temporary restraining order staying and enjoining the summary proceeding pending the hearing of this motion.

Footnote 3:The August 31, 2007 Agreement addressed, inter alia, the parties' respective shares of expenses, liabilities and taxes, as well as their right to receive certain proceeds.

Footnote 4:This case is distinguishable on its facts from those presented in Herman v Feinsmith, 39 AD3d 327 (1st Dep't 2007). In that case, the Court found that a shareholder of a subchapter S corporation, who was also a creditor, set forth a claim for individual relief, as well as a derivative claim. The Court noted that the individual had alleged specific breaches of his separate shareholders agreement and demonstrated that the corporation's assets had been sold off and its inventory disposed of or abandoned, without his knowledge or consent. Here, in contrast, there is no allegation that CAMH took any action without the knowledge of Wong, its controlling shareholder.