Uni-Rty Corp. v New York Guangdon Fin., Inc.

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Uni-Rty Corp. v New York Guangdon Fin., Inc. 2013 NY Slip Op 31608(U) July 19, 2013 Sup Ct, New York County Docket Number: 157621/2012 Judge: Ellen M. Coin Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 07/19/2013 1] INDEX NO. 157621/2012 NYSCEF DOC. NO. 86 RECEIVED NYSCEF: 07/19/2013 · j SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY PRESENT: HON. ELLEN M. COIN il PART 63 ,I A.J.S.C. :1 II Ij Uni-Rty Corporation and Golden Plaza Limited Partnership INDEX NO. MOTION DATE MOTION SEQ. NO. E-FILED 157621/2012 2/28/2013 001, 002 and 003 -vNew York Guangdong Finance. Inc. et a!. I :1 II The following papers. numbered 1 to were read on this motion to/for -'I , Papers Papers Numbered Notice of Motion/Order to Show Cause - Affidavits - Exhibits ----,::---_1 _ __ Answering Affidavits - Exhibits _,,--_2 _ __ Reply Affidavits _ 7 - - _ 3 _ __ Cross-Motion: DYes X No In this Article 52 proceeding (motion seqJence 001) petitioners seek to enforce a judgment issued against respolndent New York I Guangdong Finance, Inc. 'I ("NYGFI")on May 25, 201b 1 ("the Judgment") by the United States District Court for the soJlhern District of New il York in· the action entitled Uni -Rty Corp. et all. v Guandgdong 'I Building, Inc. et al., Case No. 95 Civil 9432 I ~"Uni-Rty I Litigation"). Respondents Guangdong Building, I~c., the Estate of Joseph Chu, Alexander Chu, Centre Plaza, L.L.C. I and Eastbank, N.A. I seek dismissal of the petition pursuant to CPLR §3211 (a) (1), (3), (4), II (5) and (7) (motion sequence 002). RespondentJ China Construction 11 'I lThe Judgment was thereafter amended on January 16, 2013 to reflect accrued. interest in addition to princip~l, for the total amount of $20,547,020.55 1 [* 2] II II It I I Bank and Agricultural Bank of China separately 'move to dismiss the petition (motion sequence 003). The court I con~olidates 'I the three II I ~ II motion sequences for disposition. Petitioners' Order to Show Cause i Petitioners commenced a plenary action in this Court, Index II No. 650361/2012, prior to the entry of the Judgment. are not precluded from enforcing the judgment J~ However, they means of the , ' , h ltS lns t an t t urn-over procee d lng, as a JU d gment crelid' ltor may cart ' II enforcement attempt through either a plenary action or a special I . proceeding pursuant to CPLR Article 52 . Assocs., LLC v DeCola, 50 AD3d 693, 694 Ii (See Matter of WBP Central [2~·DeJt 2008]). At any , f t h lS motlon, petl til, ' , , ~oners Wlt hd rew !I without prejudice the claims remaining in the d~enary action, ' rate, d urlng t h e pen d ency 0 I 'I thereby rendering moot objections under CPLR §3211(a) (4). " , Th e partles b " su mlSSlons d emonstrate t h e IIeXlstence 0 f ! numerous factual disputes as to the identity of relevanJ assets, rights that I I NYGFI might have had in certain assets, release of liens, transfers of property and funds, and waiver of claims to I ~ssets previously :1 transferred, all occurring as part of the Octobbr 24, 2005 II settlement agreement among the shareholders of NYGFI. Given the II complexity of the alleged financial transaction~, any resolution of I the outstanding issues will require post-judgment enforcement I ;i disclosure under CPLR §§5223 and 5224 and ul tim'ately a summary I 'al purls uant to CPLR §410 l'f I determination pursuant to CPLR 409 or trl II 2 [* 3] any issues of fact persist. Motions to Dismiss III On the motions to dismiss, the Court need mot address the ¢ II il issues of petitioners' standing and capaclty to commence an action . . . . or a procee d lng In t h e d lSSO 1 ve d corporatlon , s name, as the :1 identical arguments were previously rejected b~lj the Court in the plenary action. Petitioners cannot maintain this proceediJ g under Sections 273, 2 7 4 an d 2 7 5 0 . II . · f th e De b tor an d Cre d ltor Law, Slnce t h e constructlve II fraud claims under these provisions are il governe~ il by the six-year statute of limitations set forth in CPLR 213 (1)1 and accrue at the I time the alleged fraudulent conveyances are made, here October 24, 2005. 2 :1 (Jaliman v D.H. Blair & Co. Inc., 105 AD3d 646, 2013], citing Wall Street Assocs. v Brodsky, II 647 25f AD2d 526, [1 st Dept 530 [pt 11 Dept 1999]). II :1 "The limitation period for actual fraud [under DCL §276], on II 'I the other hand, is either six years from when the fraud took place (CPLR 213) or two years from the date of diSCovlry (CPLR 203[g]).ff :1 (Avalon LLC , 306 AD2d at 62). Because the part'ies' submissions fail II.. to clearly establish when petitioners' duty of lnqulry arose, t h e Court denies so much of the motion to dismiss al it relates to II il II 2Although at least some of the relevant transfers rr:,ay have been finalized after the date of the execution ~f the s~ttle~ent agreement, the accrual date is when the obligation to transfer vested. (Avalon LLC v Coronet Co., 306 AD2d 62, 62 [pt Dept 2003]). 3 [* 4] I i Section 276. (Cf. Jaliman, 105 AD3d at 647 [cJtation omitted]) .3 :1 Petitioners' claim of constructive fraud under Section 273-a is il timely.4 To prevail on that claim, plaintiff m&st establish three elements: that the transferor was a defendant JL damages at the time of the transfer, that the t~ansferor II an action for money I has not :1 satisfied the resulting judgment and that the transfer was made without fair consideration. The existence of aJ unsatisfied judgment I is an 'essential element' of this claim. AD3d 1054, 1056 [2 nd Dept 2011]). "Thus, (Coy].e v Lefkowitz, 89 il [t]he Iisix-year limitations I! period for such a claim [b]egins to run on the date of entry of the . JU d gmen t" (. d [ Cl t ' . atlons omlt t e d]) . . ~. Petl t loners tlme to b rlng . . II,. . their DCL §273-a claim began to run on May 25, 2012, the date of If entry of the Judgment, well within the statute ~f limitations. !I It is undisputed that NYGFI was a defendant in the underlying II federal action for money damages when NYGFI's shareholders . lnstituted and settled among themselves two II. act~ons regar d' lng t h ' elr II own interests in NYGFI's assets, one in Harris County District Court i d in the State of Texas, entitled China Construction Bank et al. v New II York Guangdong Finance, Inc. et al., Cause No. 2001-43718, and another in this Court, entitled China il. Construct~on B an k - G uangd ong :i 3 Further, the Court need not presently address thJ sufficiency of the allegations of actual fraud under DCL §276 in light of tne discovery proceedings required f~r its determination. ~ 4The petition did not expressly reference Section 2?3-a. However, in the interest of justice and in light of the fact that petiti9ners did cite Section 273-a in their opposition to respondents' motions, the Court deems this omission cured (CPLR §2001). ~ 4 I - - - - - - - - - - - - - - - - - ---- -- --- -- -- [* 5] i Ii il I: B ranc h . et al v New York Guangdong Finance, 602811/2002. It is also undisputed that Inc'l'I et al., " petit~ioners' II Index No. May 25, 2012 II judgment is final and enforceable; the judgmenB was not satisfied; I[ II no stay of the judgment was issued; and no bond was posted pending Ii ~ an appeal to the Second Circuit. Further, although NYGFI's shareholders might have had a genuine ,I II I dispute as to their claims against one another'l the nature of the alleged conveyances remain preferential assignments among insiders, unduly prej udicial to general creditors. Co., 226 AD2d 688, 691 [2 nd Dept 1996]; (pasJ~l v Nova Casual ty II Farm Stores, Inc. v School Feeding Corp., 102 AD2d 249, 255-56 [2 nd Dept], Ilappeal dismissed 623 I I NY2d 741 [1984]). I II "[P]referential transfers to directors, officers and :1 shareholders of insolvent corporations in derogation of the rights . 1 of general creditors do not fulfill the requirekent of good faith." I (Matter of P.A. Bldg. Co. v Silverman, 298 AD2di327, 328 [pt Dept 2002] [citations omitted]; see also American panll Tec v Hyrise, I Inc., 31 AD3d 586, 587 [2 nd Dept 2006]; Freemaniv D'ull, 2008 NY I Slip Op 33311 (U), *7 [Sup Ct, New' York County 2908] [citations omitted]).5 'I Even assuming, arguendo, that the assignments of I 'I Agricultu~ll 5Respondents China Construction Bank and Bank of China II argue that this rule does not apply to them, because they were not contro 11' . lng shareholders. Their argument, however, presents an unduiy narrow reading of the law. The status of a controlling shareholder is more~relevant to claims brought by minority shareholders fearing a freeze out or~dissipation of corporate assets than to claims made by general creditor~ challenging preferential payments to shareholders. Even if the respondent banks did not receive distribution of capital, but were only repaid loans they had 'I 5 ;1 ,I il I II ;1 !i [* 6] ,," ,I II :1 NYGFI's assets to shareholders were made in saJisfaction of valid antecedent debts and for "fair equivalent" valJl, respondents, II nonetheless, may be unable to show that the transfers were made "in , il good faith", a separate and independent requlrement of fair I consideration. (Freeman, .1 supra; DCL §272 (a)) I Respondents' reliance on the approval by courts of the shareholders' settlement is il N~w 'I York and Texas unavJ~ling. The II settlement resolved claims among NYGFI's shareholders. The court ' approva I was a f unc t lon 0 Ii f t he d" erlvatlve nature 0 f t h e SUltS (BCL ' \1 §626(d); Tex. Business Organizations Code §2l.560) and cannot bind petitioners, which were not parties to those actions. Indeed, the settling shareholders made no provision for paylent of petitioners' I claims in the event of a judgment against NYGFlt and respondents il fail to claim that they apprised either court o£ the settlement's Ii utter disregard of the Uni-Rty Litigation. Respondents China Construction Bank and il 'I q Ag~icultural Bank of II China ("the banks") contend that as foreign banks, they are shielded by the "separate entity" rule from application If Article 52 CPLR. II The "separate entity" rule provides that "each branch of a bank is treated as a separate entity, in no way concernld with accounts 'I maintained by depositors in other branches or at a home office." I (Cronan v Schilling, 100 NYS2d 474, 476 [Sup 'i Ct~ New York County II 'I , 1 ' NYGFI's preference ln repaymentli of cre d' ltor calms previously made to NYGFI, given to shareholder creditors over non-insider creditoFs is also suspect, as the subject conveyances rendered NYGFI insolvent. ~ 6 II I I [* 7] il !I 1950; Parbulk I I AS v Heritage Mar .. , 35 SA, Mi~lc3d 235, 238 [Sup Ct, :1 New York County 2011]; Samsun Logix Corp. v Bank of China, 31 Misc3d I 1226[A] at *3 [Sup Ct, New York County 2011]). apply where, as here, the foreign banking I This rule does not instJ~utions merely garnishees of their client's accounts, J~t are not direct recipients 1 II of alleged constructive fraudulent conveyances shareholders. While the banks dispute receipt ~s II ~f NYGFI's any of NYGFI's I[ assets from NYGFI, the fact that the NYGFI shareholders' settlement 'I :i agreement expressly provides fbr certain asset ~ransfers, albeit :1 indirect, provides sufficient basis for petiti~bers' claim of II fraudulent transfer. To the extent that respondents have argued I that the Court in the plenary action dismissed ~ithout prejudice certain claims premised on indirect transfers o~ NYGFI's assets, !I petitioners are not precluded from reasserting ~hem in this . . II . . lce a t . procee d lng, as t h ' e prlor c l ' alms were d lsmlsse d Wl t h ou t preJu d' a preliminary stage, and the action was entirel~ without prejudice. discontinued 11 I Finally, to the extent that instant petiti~n may be viewed to II contain claims to pierce NYGFI's corporate veilll' and for breach of fiduciary duties, those portions of the petitioh are dismissed for I insufficiency of pleading. :1 :j it In accordance with the foregoing, it is hereby ORDERED that petitioners' motion brought b~y order to show cause, motion sequence 001, is denied; and it ik further il II 7 I [* 8] il ORDERED that the motion of respondents Guangdong Building, i " Inc., the Estate of Joseph Chu, Alexander Chu, ~Centre Plaza, L.L.C. il and Eastbank, N.A. to dismiss the petition pur~uant to CPLR § 3 211 ( a ) ( 1 ) , ( 3 ) " ( 4 ) :1 . ( 5 ) an d ( 7 ) , mo t lon sequence 0 0 2 ' , lS grante d to :1 [I the extent of the claims pursuant to DCL §§ 273,274 and 275; a cause Ii of action to pierce corporate veil; and a causJ:1 of action for breach II of fiduciary duties, and is denied to the extent the petition is il based on DCL §§ 273-a and 276; and it is furthJr ORDERED that the motion of respondents chila Construction Bank and Agricultural Bank of China to dismiss the ~etition pursuant to CPLR §§404 (a) and 3211 (a) (3), (4) and (7), motion sequence 003, is granted to the extent of the claims pursuant tJ DCL §§ 273,274 and 275; a cause of action to pierce corporate veiJ; and a cause of ,j ~1 action for breach of fiduciary duties, and is d~nied to the extent :1 the petition is based on DCL §§ 273-a and 276; ~nd it is further ORDERED that respondents shall answer the ~etition within 20 days of the docketing of this order. This constitutes the decision and order of the Court. ,ftq/, 1/_I __*2. _ ",} __ Dated: _ _ Ellen M. Coin, A.J.S.C. I 'I Check One: X NON-FINAU DISPOSITION CASE DISPOSED 8

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