Bowman Import/export L.T.D. v F.J. Elsner N. Am. L.T.D.
Annotate this CaseDecided on October 13, 2004
Supreme Court, New York County
BOWMAN IMPORT/EXPORT LTD., Plaintiff,
against
F.J. ELSNER NORTH AMERICA LTD., and F.J. ELSNER & CO. GESELLSCHAFT mbH, Defendants.
603756/03
Attorneys for Plaintiff Bowman
Verner Simon, P.C.
1350 Broadway, 8th Floor
New York, New York 10018
By: Paul W. Verner, Esq.
Alec Sauchik, Esq.
(212) 502-5500
Attorneys for Defendants
Kavanagh Maloney & Osnato LLP
415 Madison Avenue
New York, New York 10017
By: Steven M. Cordero, Esq.
(212) 207-8400
Helen E. Freedman, J.
In this action between shipping financiers, plaintiff Bowman Import/Export Ltd. ("Bowman") seeks to recover money that it paid to defendants on the grounds that they procured the payment through fraud. Defendants F.J. Elsner North America Ltd. ("Elsner N.A."), and F.J. Elsner & Co. Gesellschaft GmbH ("Elsner Vienna"), who were not parties to Bowman's financing contracts, move pursuant to CPLR §§ 3211 and 3016(b) for an order dismissing the complaint. For the reasons set forth below, the motion is granted and the complaint is dismissed.
Transactions
This lawsuit arises from a series of transactions among defendants, Bowman, and non-parties NASL Corporation ("NASL"), an import/exporter, and Trans Commodities Food AG ("TCF"), a food supplier. Plaintiff's central allegation is that defendants conspired with NASL and TCF to deceive Bowman into advancing funds to purchase a shipment of cargo from TCF that it had already sold to defendants.
NASL, a New York corporation, imports frozen meat products from the United States to former Soviet states and countries in Eastern Europe. Elsner N.A., a Delaware corporation doing business in New York, is a wholly-owned subsidiary of Elsner Vienna, an Austrian corporation that is not authorized to do business in this state.
Elsner Vienna and Bowman financed NASL's operations with a series of transactions structured as follows: NASL would contract to purchase cargo from a financier with money that it had lent; thereafter, the financier would purchase the cargo from TCF, who was responsible for shipping it overseas. While in transit, the cargo would remain the property of the financier. When the cargo reached its destination port, the financier would transfer title to NASL, who would then re-sell the products and re-pay the financier's loan with its income stream. [*2]
On March 3, 1999, Elsner Vienna entered into an agreement with NASL to finance its purchase of a cargo of meat to be shipped aboard the M/V Atmoda. This contract will be referred to as the "Elsner-Atmoda Contract." On May 6, 1999, Elsner Vienna entered into a similar contract with NASL under which it would purchase the cargo aboard the M/V Vasilij Poleschuk once Elsner Vienna had purchased it from TCF (the "Elsner-Poleschuk Contract"). That cargo will be referred to as the "Poleschuk Cargo". The Elsner-Poleschuk Contract further provided that it would only "become operative" if by May 11 NASL had paid the remaining amount due under the Elsner-Atmoda Contract.
On May 7, 1999, however, Bowman also entered into a contract with NASL to finance its purchase of the Poleschuk Cargo from Bowman once Bowman had purchased it from TCF (the "NASL-Bowman Contract"). In other words, NASL entered into incompatible financing arrangements with Elsner Vienna and Bowman, inasmuch as TCF could not sell the Poleschuk Cargo to both financiers.
When it entered into the NASL-Bowman Contract, Bowman also executed an agreement with TCF to purchase the Poleschuk Cargo for resale to NASL (the "TCF-Bowman Contract"). The contract payment terms provided that, for undisclosed reasons, Bowman was to pay $1,802,390.48 of the total due TCF directly to Elsner N.A., which was not a party to the TCF-Bowman Contract. Hereinafter this partial payment will be referred to as the "Third-Party Payment". Bowman alleges that TCF intentionally contracted to sell Bowman the Poleschuk Cargo after TCF had already sold it to Elsner Vienna, and intended to use Bowman's Third Party Payment to pay off NASL debt's to Elsner Vienna under the Elsner-Atmoda Contract. The parties do not explain why TCF answered for NASL's debt.
On May 7, 1999, Bowman's bank, Parex Bank Corp. ("Parex"), sent NASL a letter (the "Parex Letter") confirming that $2 million (the "Reserved Funds") had been "reserved" in Bowman's account to purchase the Poleschuk Cargo from TCF, and that it would release the Reserved Funds to NASL once it presented certain documents.[FN1]
Thereafter, "persons working for [defendants], NASL, TCF or some combination of these parties" allegedly created a counterfeit letter (the "Forged Letter") from the Parex Letter by, among other things, removing all identifying references to the Poleschuk Cargo. The Forged Letter appeared to be a letter from Parex to NASL indicating that the Bowman account held the Reserved Funds to purchase an unspecified cargo of frozen chicken.
On the same day that NASL received the Parex Letter, it sent the Forged Letter to Elsner N.A., allegedly to demonstrate to defendants that NASL had secured funds to repay the amount it owed under the Elsner-Atmoda Contract and could proceed with the purchase of the Poleschuk Cargo under the Elsner-Poleschuk Contract.
Claims
As indicated above, plaintiffs claim that defendants conspired with NASL and TCF to deceive Bowman into advancing funds to NASL in respect of cargo that TCF had already sold to [*3]defendants. Plaintiffs claim that the contents of the Forged Letter "surprised" the defendants, and raised or should have raised suspicions of fraud, because it indicated that Parex would transfer the Reserved Funds to NASL once it had presented various shipping and ownership documents for cargo, but did not identify the specific cargo or the ship it was aboard. The complaint implies but does not state that this lack of specificity was atypical of shipping transactions.
The complaint next alleges that TCF issued "several letters and sworn statements" to confirm that Bowman owned the Poleschuk Cargo.[FN2]
At Bowman's direction, on May 10, Parex transfered the Third-Party Payment to Elsner N.A.'s bank account, pursuant to the Bowman-TCF Contract.
According to plaintiff, defendants "knew or should have known" that the Third-Party Payment "was made by [Bowman] in connection with [the Bowman-TCF Contract] to purchase [the Poleschuk Cargo], and not by NASL in connection with the [Elsner-Atmoda Contract.]" Plaintiff claims that Bowman had never had business dealings with defendants, and implies but does not state that it should have inquired why TCF had instructed Bowman to make the Third-Party Payment to Elsner N.A.
When Bowman discovered that Poleschuk Cargo had already been sold to defendants, it demanded that they return the Third-Party Payment. They refused. Bowman then commenced this action and purportedly served both defendants by using a messenger to deliver two copies of the summons and complaint, one for each defendant, to Elsner N.A. In addition, pursuant to Business Corporation Law § 307, Bowman (i) served a copy of the summons and complaint upon the Secretary of State for the State of New York and (ii) mailed a copy of the summons and complaint to Elsner Vienna at its offices in Vienna.
Moving for dismissal, defendants contend that the Court lacks personal jurisdiction over Elsner Vienna and that plaintiff fails to state a cause of action against either defendant. In the first cause of action of its complaint, Bowman asserts that Elsner N.A. is the alter ego of Elsner Vienna and that service of process on Elsner N.A. obtained jurisdiction over both entities. The second through the sixth causes of action in Bowman's complaint are for restitution and unjust enrichment; misrepresentation and fraudulent concealment; conspiracy to commit fraud; intentional interference with contractual relationships and prospective business advantage; and a declaratory judgment on the issue of detrimental reliance.
Discussion of Claims
Alter Ego Status
There are threshold issues as to (1) whether under an "alter ego" theory the actions of Elsner N.A. can be imputed to its parent, Elsner Vienna or vice versa, which played no direct part in many of the complained-of events and (2) whether jurisdiction has been obtained over Elsner Vienna.
Piercing the corporate veil requires a showing that "the owners exercised complete domination of the corporation in respect to the transaction attacked"; and (ii) "that such domination was used to commit fraud or wrong against the plaintiff which resulted in plaintiff's [*4]injury." Morris v New York State Dept. of Fin., 82 NY2d 135, 141 (1993) (citations omitted). New York courts have also considered factors such as (i) the absence of corporate formalities, records, personnel, or other indicia of corporate existence; (ii) inadequate capitalization; (iii) diversion of corporate funds to personal use; (iv) overlap in ownership, officers, directors, and personnel; (v) common office space, address and telephone numbers; (vi) the absence of arm's-length transactions; and (vii) intermingling of payment obligations, debts, profits, or property. Wm. Passalacqua Bldrs., Inc. v Resnick Devs. South, Inc., 933 F 2d 131, 139 (2nd Cir 1991); Forum Ins. Co. v Texarkoma Transp. Co., 229 AD2d 341, 342 (1st Dept 1996).
Here, plaintiff does not allege that Elsner N.A. failed to engage proper corporate procedures, is inadequately capitalized, or has diverted funds to or shares offices with Elsner Vienna. Further, despite Bowman's allegations to the contrary, Elsner N.A. has demonstrated that it has no directors in common with Elsner Vienna. Accordingly, the alter ego claim fails.
Personal Jurisdiction over Elsner N.A.
Defendants argues that Bowman never properly served Elsner Vienna because (i) Bowman served Elsner N.A., which is not Elsner Vienna's agent for service of process; and (ii) Elsner Vienna, which is an overseas corporation that is not authorized to do business in New York, and cannot be served simply by mailing it a summons and complaint.
Bowman contends that in the absence of prejudice to Elsner Vienna, the service of process upon its wholly-owned subsidiary suffices. In support, Bowman cites ABKCO Indus., Inc. v Lennon, 52 AD2d 435 (1st Dept 1976), and Geffen Motors Inc. v Chrysler Corp., 54 Misc 2d 403 (Sup Ct, Oneida County 1967). In both ABKCO Indus., Inc. (52 AD2d at 439) and Geffen Motors Inc. (54 Misc 2d at 404); however, in these cases the court sustained jurisdiction after determining that the entity served was a mere department of the corporation and not a separate entity.
The Secretary of State for the State of New York confirms that plaintiff attempted to serve Elsner Vienna pursuant to BCL § 307, which provides for service of process upon a foreign corporation that does business in this state without authority. However, service under the statute is deficient without an allegation that there is no post office address specified for Elsner Vienna to receive service. Stewart v Volkswagen of Am., Inc., 81 NY2d 203, 208 (1993).
Further, BCL § 307 does not apply to entities over which the Court lacks general or long-arm jurisdiction. (Wright v 299 Union Ave. Corp., 288 AD2d 382, 382 [2nd Dept 2001]). For general jurisdiction under CPLR 301, Bowman must establish that Elsner Vienna engaged in such a continuous and systematic course of doing business in New York, that a finding of its "presence" in this jurisdiction is appropriate. Delagi v Volkswagenwerk A.G. of Wolfsburg, Germany, 29 NY2d 426, 430-431 (1972). Bowman argues that, even if Elsner Vienna does not directly conduct business in New York, Elsner N.A.'s activities in the state should be imputed to its corporate parent. But that alter ego claim has already been rejected.
Bowman also failed to establish a basis for long-arm jurisdiction over Elsner Vienna. Bowman has not submitted proof that Elsner Vienna supplies goods or services, committed a tortious act, regularly conducts business, derives substantial revenue, or owns real property in New York. See CPLR 302.
Elsner Vienna's receipt of the Third-Party Payment from Elsner N.A. does not suffice to confer jurisdiction over it. See Bankers Commercial Corp. v Alto, Inc., 30 AD2d 517, 517 (1st [*5]Dept 1968).
Accordingly, the complaint as against Elsner Vienna is dismissed for lack of personal jurisdiction.
Misrepresentation and Fraudulent Concealment
To state a cause of action for misrepresentation, Bowman must allege that defendants misrepresented a material fact, which they knew to be false, with the intention of inducing reliance and upon which Bowman reasonably relied, and in that way suffered damages. Mayes v UVI Holdings, Inc., 280 AD2d 153, 161 (1st Dept 2001); Megaris Furs, Inc. v Gimbel Bros., Inc., 172 AD2d 209, 213 (1st Dept 1991).
Since Bowman acknowledges that it had no business dealings with defendants whatsoever, it could not have relied upon any of their representations.
As to concealment, Bowman asserts that defendants knew or should have known about the TCF-Bowman Contract and that TCF and NASL were defrauding Bowman because (i) the wire transfer confirmation accompanying the Third-Party Payment referred to a contract unknown to defendants; and (ii) defendants did not disclose to Parex that they had received the Forged Letter. Bowman argues that defendants remained silent on a material matter that they were obliged to disclose, and that such behavior constituted fraudulent concealment.
In support, Bowman relies upon cases like First Citizens Bank & Trust Co. of Utica v Sherman's Estate, 250 App Div 339 (4th Dept 1937), which are based upon a contract between the plaintiff and defendant, a bank and a surety. The court in First Citizens Bank & Trust Co. found that the "contract of suretyship is a contract uberrimae fidei." Id. at 345 (citation omitted). Here, plaintiff and defendants lacked privity and defendants had no duty to speak for any other reason.
The acceptance of payment of a debt requires no inquiry as to the source of the money. See Ketchum v Stevens, 19 NY 499, 511 (1859); Hatch v Fourth Nat. Bank, 147 NY 184, 191-192 (1895). Moreover, defendants had no legal obligation to discern the identity of the payor, or why it wished to discharge NASL's debt, as long as such discharge was for value. See Banque Worms v BankAmerica Intl., 77 NY2d 362, 368 (1991). To find otherwise would disrupt and disorganize all business operations with risk and uncertainty. Id., 77 NY2d at 368.
Conspiracy to Commit Fraud Fourth Cause of Action
The complaint alleges that defendants, NASL, and TCF were engaged in a common scheme to defraud Bowman. In New York, a cause of action for conspiracy to commit fraud cannot stand alone, but stands or falls with the underlying tort. Romano v Romano, 2 AD3d 430, 432, (2nd Dept 2003); Alexander & Alexander of New York, Inc. v Fritzen, 68 NY2d 968, 969 (1986).
Thus, to maintain the cause of action for civil conspiracy, Bowman must allege facts showing that defendants participated in making a false representation of a material fact, with scienter, and that Bowman justifiably relied upon that representation to its detriment. P. Chimento Co., Inc. v Banco Popular de Puerto Rico, 208 AD2d 385, 385 (1st Dept 1994). Here, the fraud claim is not pled with the requisite particularity required by CPLR 3016. See, Bramex Assoc., Inc. v CBI Agencies, Ltd., 149 AD2d 383, 384 (1st Dept 1989); see also Agostini v Sobol, 304 AD2d 395, 395 (1st Dept 2003).
Inasmuch as Bowman never dealt with defendants, it could not have detrimentally relied [*6]on any of their misrepresentations. A showing that TCF and NASL engaged in fraud does not suffice to sustain a cause of action against defendants. Accordingly, the cause of action for conspiracy to commit fraud is dismissed.
Restitution and Unjust Enrichment Second Cause of Action
Bowman seeks restitution on the ground that its Third-Party Payment was induced by TCF and NASL's fraud and unjustly enriched defendants.
To state a claim for unjust enrichment, a plaintiff must demonstrate that the defendant took money or obtained a benefit that in equity and good conscience it should not have taken or obtained because it rightfully belonged to another. Mente v Wenzel, 178 AD2d 705, 706 (3rd Dept 1991); see also Bugarsky v Marcantonio, 254 AD2d 384, 384 (2nd Dept 1998). Here, defendants did not receive any benefit to which they were not entitled under the Elsner-Altmoda Contract, and they had no obligation to discover the potential wrongdoing of TCF or NASL.
Intentional Interference with Contractual
Relationships and Prospective Business Advantage
Bowman argues that defendants (i) knew or should have known about the NASL-Bowman and TCF-Bowman Contracts; and (ii) they purchased the Poleschuk Cargo with the intent of frustrating Bowman's ability to fulfill its obligations under those contracts.
A claim of "interference with contractual relations requires (1) a contract between plaintiff and a third party; (2) defendant's knowledge of the contract; (3) defendant's intentional inducement of the third party to breach or otherwise render performance impossible; and (4) damages to plaintiff. Kronos, Inc. v AVX Corp., 81 NY2d 90, 94 (1993).
Here, Elsner-Vienna entered into the Elsner-Poleschuk Contract on May 6, 1999, while Bowman entered into the NASL-Bowman and TCF-Bowman Contracts on May 7, and May 9, 1999, respectively. Defendants could not interfere with contractual relations that did not yet exist.
The claim for intentional interference with prospective business advantage also fails because it requires allegations that the defendant's conduct was wrongful and motivated solely by malice, and not by self-interest or other economic incentives. Prestige Foods, Inc. v Whale Sec. Co., L.P., 243 AD2d 281, 282 (1st Dept 1997). Bowman contends that defendants purchased the Poleschuk Cargo to prevent Bowman from purchasing it. However, purchasing something that someone else wants is not a tort. Entertainment Partners Group, Inc. v Davis, 198 AD2d 63, 64 (1st Dept 1993).
Declaratory Judgment
Bowman applies for a declaration that defendants must return the Third-Party Payment because (i) they knew, or should have known, that the Third-Party Payment was "unrelated" to the Elsner-Atmoda Contract; (ii) the wire transfer confirmation accompanying the Third-Party Payment referred to the TCF-Bowman contract by Bowman's reference number; and (iii) with due diligence, defendants would have learned that the monies came from Bowman and not NASL.
As previously discussed, defendants were not obliged to determine how NASL had arranged to make payment. [*7]
Accordingly, it is hereby
ORDERED that the motion to dismiss is granted and the complaint is dismissed, and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.
Dated: October 13, 2004
Enter:
Helen E. Freedman, J.S.C.
Appearances:
Attorneys for Plaintiff Bowman
Verner Simon, P.C.
1350 Broadway, 8th Floor
New York, New York 10018
By: Paul W. Verner, Esq.
Alec Sauchik, Esq.
(212) 502-5500
Attorneys for Defendants
Kavanagh Maloney & Osnato LLP
415 Madison Avenue
New York, New York 10017
By: Steven M. Cordero, Esq.
(212) 207-8400
Footnotes
Footnote 1:The documents listed were: (i) three bills of lading for the Poleschuk Cargo naming Bowman as owner; (ii) a certificate of wholesomeness; (iii) a USDA Veterinary Certificate; (iv) a certificate of origin; (v) an insurance policy; and (vi) a sales contract for the Poleschuk Cargo.
Footnote 2: The complaint is silent as to what caused TCF to confirm Bowman's ownership and to whom it made the confirmation.
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