Hong Hop Co., Inc. v Estate of Dickson Hee
Annotate this CaseDecided on October 22, 2004
Supreme Court, New York County
HONG HOP CO., INC. AND HUNG SOO REALTY CORP., Plaintiffs,
against
ESTATE OF DICKSON HEE, TWELVE BOWERY REALTY CORP., DHEL CORP., ETHEL HEE, and PUEY JANE HEE, in their individual and representative and corporate capacities, Defendants.
100829/04
Jane S. Solomon, J.
Defendants Ethel Hee, Puey Jane Hee and Twelve Bowery Realty, Inc. move to dismiss the complaint in this action for breach of fiduciary duty, fraud, conversion, an accounting, and seeking a declaration of a constructive trust and easement by necessity. The motions are decided as follows:
Plaintiff Hong Hop Co., Inc. ("Hong Hop") manufactures noodles in Chinatown. It is located in two buildings on the Bowery. The buildings, 10 Bowery and 12 Bowery, are owned by plaintiff Hung Soo Realty Corp. ("Hung Soo Realty") and Twelve Bowery Realty, Inc. (Twelve Bowery Realty"), respectively.
Hong Hop is owned by twenty-eight shareholders who are members of three families: the Hees, the Leungs and the Wus. They have owned the company since it was created in 1932, and it has operated out of 10 Bowery in Chinatown since that time. Ownership of Hung Soo Realty mirrors that of Hong Hop.
In 1986, Hong Hop and Hung Soo Realty shareholders, together with six other investors, created Twelve Bowery Realty to purchase the adjoining building at 12 Bowery. As a result of the different ownership interests in Twelve Bowery Realty, the Hee family controls a majority of the shares in that corporation, although it does not control Hong Hop or Hung Soo Realty.
Hong Hop leased most of the space in 12 Bowery, and installed a large flour silo spanning the two properties. There is no written lease, but Hong Hop paid monthly rent to Twelve Bowery Realty.
Until he died in May 2003, the late Dickson Hee ("Dickson") was the long-time president of the three companies. His wife, defendant Ethel Hee ("Ethel"), was a bookkeeper for the companies. Dickson's mother, defendant Puey Jane Hee ("Puey Jane"), is said to have also worked for the companies by depositing cash receipts. The companies did not hold regular [*2]meetings of the boards of directors, and there was little or no oversight over management. At all relevant times, Ethel and Puey Jane also were directors of Hong Hop and Twelve Bowery.
Following Dickson's death, the companies' shareholders met and elected boards of directors, and new officers were appointed. Members of the Leong and Wu families discovered what they view as serious financial irregularities allegedly perpetrated by Dickson, which included the transfer of funds from the companies to Dickson, Ethel and DHEL, Inc., a corporation owned by Dickson and Ethel; the misappropriation of an insurance policy and a Small Business Administration grant; and overcharges in rent paid by Hong Hop to Twelve Bowery Realty. Also, Ethel refused a demand by Hong Hop to provide its board of directors with the company's books and records, which she maintained as the bookkeeper. On August 8, 2003, the Hong Hop board removed Ethel from her position as bookkeeper.
Ethel, meanwhile, was appointed president of Twelve Bowery Realty.[FN1] She announced her intention of having Twelve Bowery Realty evict Hong Hop and sell its building. Plaintiffs contend that the eviction and sale is intended to liquidate the company and make it impossible for Hong Hop to collect a judgment in the event it proves that Dickson (or others) used Twelve Bowery Realty as a vehicle for wrongfully transferring money from the plaintiff companies.
This action was commenced in April 2004. The court granted plaintiffs' motion for a preliminary injunction, and enjoined Twelve Bowery Realty from selling 12 Bowery or evicting Hong Hop; required that Twelve Bowery Realty preserve its books and records; and directed Hong Hop to pay Twelve Bowery Realty use and occupancy as measured by the last rent paid (Hong Hop had withheld rent since July 2003).
On this motion, Ethel and Puey Jane claim that the complaint does not state a claim against them for breach of fiduciary duty, conversion or fraud. According to the complaint, $90,000 was transferred from Hong Hop to DHEL, Inc., a company whose sole shareholders were Dickson and Ethel, for no legitimate reason. Hong Hop paid $33,600 to Ethel for rent and other living expenses, again for no legitimate reason. Ethel is accused of writing paychecks from Hong Hop to Dickson after he died, and then forging his signature and depositing the checks to bank accounts held by Dickson or his estate. She is alleged to have received the benefit of $33,600 representing money Hong Hop paid to rent an apartment for her personal use. Finally, Hong Hop paid Ethel a salary of $30,000 per year under a different name, even though she denies having been an employee.
Puey Jane is alleged to have taken Hong Hop's daily cash receipts, but the available books and records do not show the money received on behalf of the company, raising an inference that she misappropriated it. She was observed destroying Hong Hop records following Dickson's death.
A fiduciary relationship exists between an agent and a principal, signifying a relationship of trust and confidence whereby the agent is bound to exercise the utmost good faith and [*3]undivided loyalty toward the principal throughout the relationship. See, Sokoloff v. Harriman Estate Development Corp., 96 NY2d 409 (2001). Officers and directors of a corporation stand in a fiduciary relationship to the corporation and owe it their undivided loyalty. Whether or not there has been a breach of fiduciary duty is generally a question of fact. Zimmerman v. Pokart, 242 AD2d 202 (1st Dept 1997).
Ethel and Puey Jane were Hong Hop directors, and had a fiduciary relationship to it. The facts alleged in the complaint, and in the affidavits opposing the motions, support the claim that they breached this duty by participating in the transfer of funds and by improperly accepting money from Hong Hop. Plaintiffs allege that they continue to conceal the nature of their activities from Hong Hop. The complaint alleges that Ethel and Puey Jane used their positions of trust to act against the company's interest, and it is sufficiently specific to support claims for breach of fiduciary duty.
Hong Hop also state a claim for conversion against Ethel, Puey Jane and Twelve Bowery Realty. "Conversion is the unauthorized assumption and exercise of the right of ownership over goods belonging to another, to the exclusion of the owner's rights." Vigilant Ins. Co. Of America v. Housing Auth. Of the City of El Paso, Texas, 87 NY2d 36, 44 (1995). Ethel, Puey Jane and Twelve Bowery Realty are alleged to have taken specific Hong Hop property without authority. Twelve Bowery Realty is said to have received excess rent payments as the result of Dickson's activities, as part of an effort to enrich himself by depleting Hong Hop. Twelve Bowery Realty cannot rely upon Dickson's apparent authority as president of Hong Hop because, as president of both companies, his knowledge of the nature of the transactions may be imputed to Twelve Bowery Realty.
The fraudulent conveyance claim, which alleges that the proposed sale of 12 Bowery is a scheme by Twelve Bowery Realty, Ethel and Puey Jane to make Twelve Bowery Realty insolvent and thereby unable to satisfy plaintiffs' claims herein, is dismissed. The claim does not set forth facts alleging fraud with the requisite specificity, but merely attributes bad motives to defendants' actions. Plaintiffs fail to show that the proposed conveyance would not be made for fair consideration (Debtor and Creditor Law § 275), or how liquidating its real property would make Twelve Bowery Realty unable to pay a judgment.
Plaintiffs' claim for the imposition of a constructive trust upon Twelve Bowery Realty is dismissed. In order to impose a constructive trust, plaintiffs must allege a confidential relationship, a promise, a transfer in reliance thereon, and unjust enrichment. Atlas-Wittkin v Kaufman, 304 AD2d 586 (2d Dept 2003). Plaintiffs have not alleged a confidential [*4]relationship between them and Twelve Bowery Realty, nor is there a transfer made in reliance upon a promise.
Plaintiffs' cause of action for an accounting of Twelve Bowery Realty also is dismissed because they have not shown that Twelve Bowery Realty owed plaintiffs a duty based on a special relationship. Elghanian v Elghanian, 277 AD2d 162 (1st Dept. 2000).
Finally, Twelve Bowery Realty's motion to dismiss the seventh cause of action, seeking a declaration that plaintiffs have an easement by necessity over 12 Bowery, is granted. To prevail, plaintiffs must establish that 10 Bowery and 12 Bowery once had a unity of title and subsequent separation, and that at the time of the separation, an easement over 12 Bowery was absolutely necessary in order for plaintiffs to obtain access to their property. Strock v Ostrander, 233 AD2d 816 (3rd Dept 1996). Plaintiffs do not allege a unity of title or that an easement is absolutely required for access, so this claim must fail. Accordingly, it hereby is
ORDERED that the motions to dismiss are granted to the extent that the fourth (fraudulent conveyance), fifth (constructive trust), sixth (accounting) and seventh (for judgment declaring an easement by necessity) causes of action are dismissed, and otherwise the motions are denied; and it further is
ORDERED that the moving defendants shall serve answers to the complaint within ten days of service of a copy hereof with notice of entry.
Dated: October , 2004ENTER:
____________________
J.S.C.
Footnotes
Footnote 1: See the decision and order on motions to dismiss in the related case, Leong v Hee, index number 101929/04, which discusses Ethel's activity regarding Twelve Bowery Realty in greater detail.
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