Opinion
01 Civ. 0815 (DC).
July 21, 2005
Richard A. De Palma, Esq., COUDERT BROTHERS LLP, New York, New York, Attorneys for Plaintiff.
Mitchell B. Seidman, Esq., SEIDMAN ASSOCIATES, L.L.C., Hasbrouck Heights, New Jersey, Attorneys for Defendants John Chou, Sherry Liu, Hui Liu, Dao Zhong Liu, Shumin Wang, NBM, L.L.C., Non-Ferrous BM Corp., Yang Mei Corp., National Budget Merchandise, Inc., RCHFINS Inc., GEG International, Inc., BOC Company, CBL Ltd., and Century Ltd.
HAZEL F. CHIN, Esq., Ossining, New York, Attorney for Defendant Patrick Young.
MEMORANDUM DECISION
By order issued May 9, 2005, I granted the application of Marc Fernich, Esq., to be relieved as counsel for defendants John Chou, Sherry Liu, NBM L.L.C., Non-Ferrous BM Corp., Yang Mei Corp., and RCHFINS Inc. I gave the corporate defendants until June 9, 2005 to obtain new counsel. I specifically noted that if the corporate defendants failed to do so, a default judgment would be entered against them. On June 9, 2005, the corporate defendants requested an extension of this deadline. Over the objection of plaintiff Bank of China, New York Branch (the "Bank"), I extended the deadline until June 20, 2005.
By order dated June 7, 2005, I granted the application of Joshua L. Dratel, P.C., for an order relieving the firm as counsel for defendants Shumin Wang, Dao Zhong Liu, Hui Lui, GEG International, Inc., BOC Co., CBL Ltd., and Century Ltd. I gave the corporate defendants until July 6, 2005 to obtain new counsel. I specifically noted that if the corporate defendants failed to do so, a default judgment would be entered against them.
Neither the first set of corporate defendants nor the second set of corporate defendants met the deadline for obtaining replacement counsel. Instead, on July 13, 2005, proposed new counsel for defendants, Seidman Associates, L.L.C. (the "Seidman Firm"), submitted an application on behalf of NBM L.L.C., Non-Ferrous BM Corp., Yang Mei Corp., National Budget Merchandise, Inc., RCHFINS, Inc., GEG International, Inc., BOC Co., CBL Ltd., and Century, Ltd. for an order vacating their default and permitting the Seidman Firm to file a notice of appearance on their behalf out of time. At a conference yesterday, I denied the application. The Seidman Firm asked for a formal order, and I issue this order now.
The underlying facts are set forth in the Second Circuit's decisions in this case on appeal. Bank of China v. NBM L.L.C., 359 F.3d 171 (2d Cir. 2004), cert. granted, 125 S. Ct. 2956 (2005); Bank of China v. NBM L.L.C., 89 Fed. Appx. 751 (2d Cir. 2004). Other facts are set forth in this Court's memorandum decision issued on August 26, 2004, following remand. Bank of China v. NBM L.L.C., No. 01 Civ. 0815 (DC), 2004 WL 1907308 (S.D.N.Y. Aug. 26, 2004).
The application is denied, for the following reasons:
First, this is not the first time the corporate defendants (or at least some of them) have failed to meet a deadline for obtaining replacement counsel. On June 16, 2004, more than a year ago, I set a deadline of July 7, 2004 for the then-unrepresented corporate defendants to obtain new counsel, failing which a default judgment would be entered against them. (6/16/04 Tr. at 4). Defendants NBM L.L.C., Yang Mei Corp., Non-Ferrous BM Corp., and RCHFINS Inc., among others, failed to meet the deadline. Finally, on July 30, 2004, more than three weeks late, Fernich advised that he had been retained to represent these (and other) defendants. I permitted him to appear and denied the Bank's request for the entry of a default judgment. Bank of China, 2004 WL 1907308, at *4-5. Hence, the current failure to meet the deadline continues a pattern of failing to comply with court orders.
Second, the corporate defendants had more than sufficient time to obtain replacement counsel. While my orders were not issued until May 9 and June 7, 2005, the corporate defendants knew long before then that they would probably have to obtain new counsel. As early as March 10, 2005, Fernich advised the Court that the defendants did not have funds to pay either him or Dratel "to handle a retrial." (3/10/05 Tr. at 4). He raised then the possibility of making an application to be relieved. (Id. at 6). Fernich made his application by letter dated April 25, 2005, and Dratel made his application to be relieved by letter dated May 6, 2005. Hence, the corporate defendants had months to find new counsel.
Third, as the applications of Fernich and Dratel to be relieved made clear, the defendants have simply not met their obligations to counsel. In his letter dated April 25, 2005, Fernich advised that he had received no payments of fees from the NBM Defendants for more than seven months. In his letter dated May 6, 2005, Dratel advised that he had not received a payment from his clients in some nine months.
Fourth, based on the extensive record before me, including the entire record from the first trial (which lasted three weeks), it is clear the corporate defendants are shell companies controlled by defendants John Chou and Sherry Liu. The corporate defendants are not independent companies, and Chou and Liu are the real parties in interest. They will have the ability to defend the case, with the assistance of counsel.
Fifth, on September 16, 2004, I issued a judgment on certain claims against various defendants, including the defendants now seeking relief. Judgment in the amount of $106,361,504.40 was entered against, among others, National Budget Merchandise, Inc. Judgment in the amount of $18,617,549.01 was entered against, among others, NBM L.L.C. Judgment in the amount of $14,744,506.42 was entered against, among others, Yang Mei Corp. Judgment in the amount of $7,000,000.00 was entered against defendants GEG International, Inc., BOC Company, CBL Ltd., Century, Ltd., and RCHFINS, Inc. All of these corporate defendants are defendants the Seidman Firm now seeks to represent. These prior judgment amounts are unrelated to, and would be unaffected by any resolution of, the current issue of the corporate defendants' failure to obtain replacement counsel in a timely manner. I have no doubt but that the corporate defendants, shell companies as they are, do not have assets to cover even the earlier judgment amounts, and there is little point, under all the circumstances, in excusing their default now.
Sixth, based on my extensive knowledge of the case, I conclude that the corporate defendants have no meritorious defense to the Bank's claims. There were numerous sham transactions, and defendants "borrowed" tens of millions of dollars under false pretenses, based on transactions and security that never existed. The three lead defendants, John Chou, Sherry Liu, and Patrick Young have now pled guilty to bank bribery; by doing so, they have admitted to conduct that is at the heart of the Bank's claims in this case. Defendants' principal defense seems to be not that they did not commit fraud, but that individuals inside the Bank knew that they were committing fraud. Even assuming that Young and perhaps others inside the Bank were aware of the fraud, that is not a valid defense — the Bank was still defrauded. Even assuming Young and others did not rely on the fraudulent statements because they were aware of the truth, the Bank as a corporate entity relied on the false statements and was defrauded.
Finally, I conclude that the Bank has been prejudiced by defendants' continued failure to comply with court orders. Moreover, the Bank would be prejudiced, at least to some extent, if the application were to be granted. Trial is just a few weeks away. Although the Seidman Firm has assured the Court that it is not seeking to delay the trial, the fact is the trial would be more complicated and would take more time if the numerous corporate defendants were also participating.
Under all the circumstances, I conclude that the corporate defendants wilfully failed to meet their obligations in this case. Their application is denied, and a default judgment will be entered against them. See Eagle Assocs. v. Bank of Montreal, 926 F.2d 1305 (2d Cir. 1991).
SO ORDERED.