Opinion
653775/14
05-08-2015
265 West 34th Street, LLC, Plaintiff, v. Joon Sik Chung a/k/a PAUL CHUNG, MIN S. CHUNG, LULULALALAND CORP. d/b/a ROASTOWN COFFEE, HYUNIL CORP. d/b/a CINDERELLA CLUB, Defendants.
Belkin Burden Wenig & Goldman, LLP Attorneys for Plaintiff 270 Madison Avenue New York, New York 10016 (212)867-4466 Ellenoff Grossman & Schole, LLP Attorneys for Defendants 1345 Avenue of the Americas New York, New York 10105 (212) 370-1300
Belkin Burden Wenig & Goldman, LLP Attorneys for Plaintiff 270 Madison Avenue New York, New York 10016 (212)867-4466 Ellenoff Grossman & Schole, LLP Attorneys for Defendants 1345 Avenue of the Americas New York, New York 10105 (212) 370-1300 Carol Robinson Edmead, J. Defendants Joon Sik Chung a/k/a Paul Chung ("Paul"), Min S. Chung ("Min") (the "Chung defendants"), Lululalaland Corp. d/b/a Roastown Coffee ("Roastown") and Hyunil Corp. d/b/a Cinderella Club ("Hyunil") move pursuant to CPLR 3211(a) (7) and (8) for dismissal of the first through fourth causes of action of plaintiff 265 West 34th Street, LLC's ("plaintiff") amended complaint. Factual Background
The factual background is derived from the allegations of the amended complaint.
The Underlying Money Judgment
Hyunil, a New York corporation in the business of selling costume jewelry, signed a ten- year, triple-net lease as tenant with plaintiff landlord for commercial space at 265 West 34th Street in Manhattan, beginning on January 1, 2005. The Chung defendants are Hyunil's principals and each own 50% of its shares. The Chungs also are shareholders in Roastown, a coffee-shop/café. During Hyunil's tenancy, there were various times that Hyunil failed to pay rent on time, causing late fees to accrue. However, plaintiff accepted late payments of rents without imposing the fee or other remedies in the lease. In mid-2013, Hyunil failed to pay a portion of the 2013-2014 tax bill (to wit: $44,657.98) and related fire alarm charges. Based on statements made by Paul, plaintiff paid this sum on Hyunil's behalf with the expectation of reimbursement within a week. Thereafter, Hyunil failed to pay fixed rent for September 2013 which rendered the new total amount owed on September 1, 2013 to be $80,143.68 (the "September Arrears"). Three weeks later, Hyunil submitted a post-dated check (dated October 24, 2013) in the amount of $34,308.46, which was returned for insufficient funds. As such, and around this time, plaintiff then brought a summary non-payment proceeding in housing court.
Plaintiff alleges that the post-dated check was part of Hyunil's scheme to defraud plaintiff and give the appearance of payment to delay eviction.
During this proceeding, plaintiff learned that Hyunil had, in violation of the lease, sublet a portion of the building to unrelated third-parties to operate electronic and other business (the "subtenants"). Defendants allegedly collected rent from the subtenants, but did not pay plaintiff. Hyunil also became delinquent in November 2013 as to a property tax bill. Like the prior bill, plaintiff paid this bill on Hyunil's behalf with the expectation that it would be reimbursed. The proceeding was dismissed in December 2013 since the predicate notice failed to account for a partial payment made by Hyunil. Notably, Hyunil did not dispute that it owed the September Arrears, or that it failed to pay rent for October, November and December 2013.
In January 2014, plaintiff brought a second summary non-payment proceeding seeking $309,411.46, which represented all rent and additional rent owed for September 2013 through January 2014. Upon Hyunil's failure to appear in this proceeding, a default judgment was issued against it in the amount of $385,202.31 (the "Judgment").
On March 31, 2014, Hyunil vacated the premises.
Plaintiff alleges that the Chungs engaged in gamesmanship by continuing to operate Hyunil and collect rent from the subtenants while not paying the amounts due to plaintiff from September 2013 - March 2014, and "siphon" assets from Hyunil during this time.
The Judgment was filed in this court in April 2014.
The Judgment was reduced to $382,813.05; based on the efforts of the New York City Department of Finance's Execution Unit, plaintiff obtained $2,389.26 from Hyunil's checking account at BBCN Bank f/k/a Nara Bank (the only Hyunil bank account that remained open at that time).
In response to a subpoena duces tecum, plaintiff received from Hyunil the 2012 and 2013 corporate tax returns, and some monthly checking account statements from 2013. However, Hyunil did not provide any corporate books or records kept in the regular course of business, despite the demand for same. Plaintiff also received Hyunil's US Bank credit card statements for the period of March 2009 - April 2014, and limited account documentation regarding Hyunil's BBCN Bank and Woori American Bank corporate bank accounts for the period of January 2005 through April 2014. The bank account and credit card information revealed an alleged use of corporate funds to pay for goods and services that were unrelated to Hyunil's business, and alleged proof of a concerted effort by Hyunil to divert and/or liquidate all corporate assets prior to the issuance of the Judgment. Aside from the aforementioned execution, no other Hyunil bank accounts or assets could be located and the Judgment remains outstanding.
The Alleged Scheme to Defraud
Based on the information from Hyunil's bank account and credit card statements, the Chungs freely used at least $150,000 of corporate funds to finance personal trips, purchase luxury goods, and finance other business ventures. And, as noted above, the Chungs concealed, diverted and liquidated Hyunil's assets months before the Judgment was issued, and after June 2013, when Hyunil began to fail to meet its obligations. As to Hyunil's concealment of income and assets, plaintiff claims that the Chungs closely regulated the amount Hyunil (allegedly a primarily cash business) deposited in its checking account to ensure there was only enough cash to cover its monthly disbursements. It is alleged that all deposits made to Hyunil's checking account were in various, but exact dollar amounts such as $8,000, $9,300, $9,550.00 and $10,000. The Chungs deposited a substantial amount of the cash income generated by Hyunil's retail business into their own personal bank accounts and/or corporate bank accounts in which the Chungs have an interest, including Roastown. As to the diversion of Hyunil's assets, it is alleged that the Chungs frequently used Hyunil monies to purchase goods for Roastown, which operates its coffee shop near the premises. In 2008, the Chungs caused Hyunil to pay at least $57,000 to a specialty grocer in the Bronx, and continued to make large, annual purchases from this grocer until it vacated the premises in 2014. Hyunil also made multiple credit card payments of at least $25,000 to a manufacturer of ice-cream and yogurt supplies. In April 2013, Hyunil purchased goods from an ice-cream vendor for nearly $3,000. In November 2013, Hyunil purchased goods from a restaurant equipment vendor for nearly $6,000. And, for a three-year period, there were multiple Hyunil credit card charges to a separate wholesale food and supply company. None of the aforementioned businesses sells costume jewelry or any other item relevant to Hyunil's business. Moreover, at one point, Hyunil issued a $30,000 check directly to Roastown. As to co-mingling of personal and corporate funds, the Chungs used Hyunil checking account and corporate credit cards as though they were their own personal accounts. In July 2007, Hyunil issued a check for approximately $30,000 to a company that custom-builds swimming pools. The Chungs also used the Hyunil credit card to purchase numerous airplane tickets for personal travel totaling $24,000. The Chungs also used Hyunil funds to pay for personal resort and luxury hotel accommodations from 2009-2014 totaling $15,000, including hotels in Atlantic City, California, the Dominican Republic, and Las Vegas. Notwithstanding Hyunil's failure to pay plaintiff under the lease, Hyunil issued checks for more than $10,000 to cash, and more than $50,000 directly to the Chungs. Further, from April 2013 through March 2014, Hyunil collected more than $100,000 in rent from the subtenants. Plaintiff brings six causes of action, the first of which is against the Chungs under the theory of "piercing the corporate veil" to hold them joint and severally liable for the Judgment (first cause of action), and for fraudulent conveyance under the Debtor & Creditor Law § 276 ("DCL 276") (second through fourth causes of action).
Arguments
In the moving papers, defendants contend that the court lacks personal jurisdiction over the Chungs. Plaintiff does not allege CPLR 301 jurisdiction. Further, plaintiff cannot establish CPLR 302(a) jurisdiction, since it fails to plead adequate facts to pierce the corporate veil. Plaintiff does not allege that the Chungs dominated and controlled the lease — the subject transaction being attacked — so as to render Hyunil an empty shell. The complaint acknowledges that Hyunil operated under the lease as a viable company engaged in costume-jewelry sales. The complaint also indicates that Hyunil had assets, maintained a bank account, issued checks and used a corporate credit card, filed tax returns, and appointed the Chungs as officers. Further, plaintiff's claims made "upon information and belief" are speculative. Plaintiff does not consider the possibility that the Chungs' travel was business-related, or that the $50,000 payment to the Chungs was for salary. Plaintiff's claim that the Chungs under-capitalized Hyunil (and instead pocketed Hyunil's cash income) is flatly contradicted by BBCN bank records, which, were referenced in the complaint and thus, may be used in a CPLR 3211(a)(7) motion. These records show that substantially all deposits into this account were credit card payments sufficient to cover monthly rents until August 2013, when Hyunil fell behind. And, the records show that it was Hyunil, not the Chungs, which paid the rent. Additionally, plaintiff fails to state claims under DCL 276. Plaintiff's claims overreach insofar as they seek a money judgment, and not a declaratory judgment voiding the transfers to the Chungs and Roastown. Similarly, the Chungs cannot be liable for a money judgment for the amount supposedly paid to Roastown's vendors. Even if plaintiff had properly sought declaratory relief, the complaint fails to allege the fraudulent scheme in any detail, or that the Chungs and Roastown acted with actual intent to hinder, delay or defraud plaintiff. The majority of Hyunil's payments to Roastown and the Chungs occurred long before Hyunil encountered difficulties in its rental obligations. And, since there are no allegations of breach of the lease before June 2013, any transfers made before then cannot support plaintiff's claim, as caselaw provides that no fraudulent conveyance can exist while the transferor was viable. Moreover, plaintiff's vague allegation that Hyunil paid personal travel expenses from 2009-2014, without specifying what was spent before June 2013, does not support a claim. And, Hyunil's payments to the Chungs in 2013 cannot be deemed fraudulent without any further facts, particularly since plaintiff knew the Chungs worked for Hyunil. The claim that Hyunil's assets were transferred without consideration fails to specify the assets at issue and is conclusory. In opposition, plaintiff contends that the court has jurisdiction over the Chungs pursuant to the long-arm provision of CPLR 302(a)(1), since the Chungs are non-domiciliaries who transacted business in New York as the alter ego "officers" of Hyunil. And, while plaintiff has the burden to establish personal jurisdiction, plaintiff is not required on a pre-answer motion to dismiss to make a prima facie showing of personal jurisdiction. Plaintiff need only show that facts "may exist" to exercise jurisdiction, and here, the complaint sets forth myriad examples of how the Chungs' domination and control of Hyunil directly resulted in plaintiff's inability to enforce the Judgment. It also alleges how every transaction cited in the complaint (which evinces Hyunil's improper acts regarding corporate formalities, funds and assets) was authorized or carried out by the Chungs. As such, and as expanded upon below regarding the first cause of action, plaintiff has sufficiently alleged facts at this early stage to support the piercing of Hyunil's corporate veil to establish jurisdiction. Under controlling caselaw, the Chungs are not shielded from long-arm jurisdiction merely because they were acting on behalf of Hyunil. As to the first cause of action, plaintiff argues, preliminarily, that the motion is premature, as a veil-piercing claim entails a fact-laden inquiry that is not well-suited for summary resolution at an early stage of the litigation. And, the Chungs do not submit affidavits or evidence to refute plaintiff's allegations. Moreover, some of the allegations were made upon information and belief because Hyunil did not provide many of the documents sought by subpoena. As to domination, the first element of a veil-piercing claim, that Hyunil had corporate checking accounts, a credit card and checks is of no moment since the Chungs, as Hyunil's sole officers and shareholders, controlled every facet of Hyunil's finances, including depositing and regulating the amount of cash income shown in the corporate accounts, and the transfer of money and assets. Examples of the Chungs' misconduct include irregular patterns of cash deposits with large temporal gaps in between deposits, and the personal use of corporate funds, which includes a November 2013 purchase of ten plane tickets for friends and family to fly to Mexico, and payment for accommodations in St. Kitts in February 2014. Notably, such purchases were made when Hyunil allegedly could not pay plaintiff due to a decline in business. Additionally, the total amount of gross receipts from December 2012 through November 2013 exceeded the total deposits for both 2011 and 2012. Thus, when Hyunil began to fail in its obligations in June 2013, it did not simply wind down its business as defendants suggest. Instead, Hyunil remained in possession of the premises, operated its business during the lucrative holiday shopping season, and collected rent from its illegal subtenants until it vacated the premises, right before it was going to be evicted. From August 2013 through March 2014, Hyunil collected and deposited more than $256,000 into its checking account, including more than $60,000 from the illegal subtenants. However, instead of paying rent with such income, Hyunil made payments towards a loan it had with Wilshire State Bank. Moreover, even though Hyunil tendered a post-dated check to plaintiff (which ultimately bounced purportedly due to a lack of funds), Hyunil paid over $60,000 to the Chungs and $6,000 to Roastown from September 2013 through March 2014. Defendants' claim that the $60,000 payment was "salary" is unsupported by any documentary evidence. Domination is further shown by the use of Hyunil's funds to purchase food and restaurant supplies for Roastown and personal items and services for the Chungs. The complaint also alleges money transfers by check from Hyunil to the Chungs and Roastown without observing corporate formalities and without proper consideration. Defendants' argument that the lease itself must be the "transaction being attacked" is misplaced. The complaint does not, and need not, attack Hyunil's execution of the lease or claim that Hyunil was an empty shell when it signed the lease. Rather, the complaint seeks to pierce the corporate veil based on the Chungs' domination over Hyunil resulting in fraudulent conveyances and the diversion of assets, and ultimately, its inability to satisfy the Judgment. Further, defendants' claim that the Chungs did not "pocket" the cash income of Hyunil is unavailing, given that the paper trail created by the cash sales is solely controlled and created by the Chungs. In other words, the cash deposits on the bank statements do not necessarily reflect all cash sales, but rather only the cash sales that the Chungs decided to report. Thus, such bank records cannot be considered as documentary evidence in the motion. As to wrongful or inequitable consequences resulting from the Chungs' domination, the complaint sufficiently pled that the Chungs carried out a scheme to conceal and divert Hyunil's assets so when plaintiff obtained the Judgment against Hyunil, the corporation was judgment-proof. Plaintiff also argues that dismissal of the second through fourth causes of action should also be denied. A creditor may recover money damages against parties who participate in the fraudulent transfer and are either transferees of the assets, or beneficiaries of the conveyance. Importantly, a beneficiary includes one who has dominion or control over the conveyed assets. The intent to defraud is evinced by the consistent pattern of suspect transfers from 2007-2014 and abnormal accounting patterns. At the least, plaintiff is entitled to review Hyunil's corporate records in discovery to gain additional information about such transfers cited in the complaint and uncover additional transfers made with the intent to defraud. Moreover, it is proper for plaintiff to seek money judgments as relief under DCL 276 when plaintiff believes that the subjects of the fraudulent transfers may no longer exist. The complaint alleges how Hyunil, by the Chungs, co-mingled its funds with the Chungs' personal finances and Roastown such that it is likely that the subjects of the transfers are no longer identifiable and/or available. Any cash, goods or assets received by Roastown before or during Hyunil's wind down period are fraudulent since Roastown was solely owned and operated by the Chungs; thus, Roastown had knowledge of Hyunil's debt to plaintiff. As such, a money judgment is an appropriate remedy. In reply, defendants argue that Barbash's affidavit, based on speculation, fails to remedy the complaint's defects regarding particularity and confirms that plaintiff fails to state a claim. And, the complaint fails to disclose the source of the facts pled upon information and belief.
Plaintiff does not oppose this argument.
Plaintiff expands on its contentions regarding Hyunil's cash deposits by the expert affidavit of Richard Barbash, CPA and a Certified Fraud Examiner ("Barbash"). According to Barbash, it is abnormal for a retail business such as Hyunil, which sells merchandise at variable prices, to only have cash deposits in round amounts that are $10,000 or less. The only plausible explanation is that such deposits were not linked to the cash sales or business practices of Hyunil, but rather were left to the Chungs' discretion. Also, such deposits were likely an attempt by the Chungs to evade the Internal Revenue Service's reporting requirements regarding cash payments greater than $10,000. And, the flow of cash deposits was abnormal and coincided only with financial obligations and disbursement activity of Hyunil. Barbash opines that Hyunil was not reporting all of its sales and that the Chungs were either using portions of the cash received by Hyunil, or depositing cash into personal accounts or the accounts of their other businesses.
Barbash further avers that to complete his analysis, he would need several items in discovery, including income tax returns from 2009-2012, financial statements provided to lenders in connection with Hyunil's business loans, and the Chungs' personal bank account records.
Plaintiff's veil-piercing claim is flawed, since domination is relevant only if the corporation is an empty shell. In any event, there was no domination since at the time the lease was entered into, Hyunil had a separate mind and existence of its own. And, plaintiff admits that the lease is not among the transactions being attacked. Also, the complaint does not allege that Hyunil was a dummy or mere instrumentality of anyone. Barbash's affidavit notes that Hyunil made discretionary payments, repaid a bank loan, and prioritized paying the Chungs and other debt over the debt owed to plaintiff. Thus, Barbash supports defendants' claim that Hyunil operated as a viable company with a separate existence. Here, plaintiff alleges "upon information and belief" that Hyunil's income was primarily in cash. Barbash, in opposition, sheds no light on the source of the information, and instead speculates that discovery of the Chungs' personal expenses and bank records will reveal something. Also, Barbash acknowledges that Hyunil paid off an antecedent loan (to Wilshire State Bank). Thus, the claims that the Chungs misappropriated and deposited a substantial amount of Hyunil's cash income into their personal accounts are purely speculative. And, neither plaintiff's counsel, nor Barbash, provides any reasonable inference about any usual ratio of cash and credit card purchases in the costume jewelry (or any other retail) business. Further, there is no claim of any unjust act toward the plaintiff or proximate causation of damages. Plaintiff's contentions as to Hyunil's "discretionary" payments to the Chungs, a travel agency, and a parking entity are inaccurate. The BBCN bank records conclusively show the Chungs' monthly salary payments were lowered during the period Hyunil encountered difficulties. And, payments of salaries, business travel expenses, parking and petty cash are not wrongful, as such payment, as Barbash concedes, are used for the operation of Hyunil's business. Also, where an alleged fraudulent conveyance is committed before the defendant exercises the alleged domination, the domination cannot be a cause of a plaintiff's loss. Here, transactions such as those involving Roastown and travel expenses did not cause plaintiff's loss of rents or the ultimate Judgment. Any wrongful payments may be subject to a remedy under the DCL or Business Corporation Law, but cannot be used to pierce the corporate veil. Here, plaintiff improperly conflates its two claims. As to DCL 276, the majority of the alleged wrongful payments to Roastown, its alleged vendors and the Chungs occurred well before mid-2013, when Hyunil was then current on its obligations. The intent to defraud is not evidenced by transactions from September 2013-March 2014, wherein Hyunil prioritized other creditors (e.g., Wilshire State Bank) over the plaintiff; under caselaw, a transfer made to satisfy an antecedent debt while the debtor is insolvent is neither fraudulent nor otherwise improper even if its effect is to prefer one creditor over another. And, although transfers to a controlling shareholder or officer of an insolvent corporation are presumptively fraudulent, payments for required labor or services, such as the payments of approximately $60,000 to the Chungs to cover their salaries, are not fraudulent. Further, plaintiff, which does not seek a judgment limited to the alleged conveyances themselves, improperly seeks a money judgment for payment of the full Judgment entered against Hyunil. Nor may plaintiff benefit from defendants' failure to submit an affidavit in opposition.
Discussion
In determining a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), the court's role is deciding "whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail" ( African Diaspora Maritime Corp. v Golden Gate Yacht Club, 109 AD3d 204 [1st Dept 2013]; Siegmund Strauss, Inc. v East 149th Realty Corp., 104 AD3d 401 [1st Dept 2013]). On a motion to dismiss, the court must "accept the facts as alleged in the complaint as true, accord plaintiffs "the benefit of every possible favorable inference," and "determine only whether the facts as alleged fit into any cognizable legal theory" ( Siegmund Strauss, Inc. v East 149th Realty Corp., 104 AD3d 401, supra; Nonnon v City of New York, 9 NY3d 825 [2007]; Leon v Martinez, 84 NY2d 83, 87-88 [1994]). Nevertheless, the court may consider evidentiary material in evaluating a motion made under CPLR 3211(a)(7); when such material is considered, "the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one, and, unless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, again dismissal should not eventuate" (Guggenheimer v Ginzburg, 43 NY2d 268 [1977]). In other words, "dismissal results only if the movant demonstrates conclusively that the plaintiff has no cause of action, or that a material fact as claimed by the pleader to be one is not a fact at all'" (Laquila Group, Inc. v Hunt Const. Group, Inc., 44 Misc 3d 1203(A), 2014 WL 2919334 [Sup Ct New York Cty 2014], citing Sokol v Leader, 74 AD3d 1180, 1181-1182 [2d Dept 2010]).
Personal Jurisdiction as to the Chungs
CPLR 3211(a)(8) provides for dismissal when the court lacks personal jurisdiction of the defendant. While plaintiff's complaint need not allege that the court has a basis for personal jurisdiction, (see Fischbarg v Doucet, 9 NY3d 375 [2007]), when the issue is raised by defendant, the plaintiff has the burden of proving a basis of jurisdiction (see e.g. Arroyo v Mountain School, 68 AD3d 603 [1st Dept 2009]). Notwithstanding, on a motion to dismiss, courts do not require the plaintiff to make a prima facie showing of jurisdiction, but only to demonstrate that facts "may exist" to exercise jurisdiction over the defendant (TransAsia Commodities Ltd. v NewLead JMEG, LLC, 45 Misc 3d 1217(A), 2014 WL 6091958 [Sup Ct New York Cty 2014], citing American BankNote Corp. v Daniele , 45 AD3d 338 [1st Dept 2007]). The court finds that plaintiff alleged sufficient facts to support the Court's personal jurisdiction over the Chungs pursuant to CPLR 302(a)(1). This section provides that the court may exercise long-arm jurisdiction over a non-domiciliary, who in person or through an agent, transacts any business within the state or contracts anywhere to supply goods or services in the state. There is "no need to establish a formal agency relationship" between the Chungs and Hyunil, as the record indicates that Hyunil acted purposely in New York for its benefit and with the Chungs' knowledge and consent, and that the Chungs exercised "some control" over Hyunil in the matter (see New Media Holding Co. LLC v Kagalovsky, 97 AD3d 463, 949 N.Y.S.2d 22 [2012]; Kreutter v McFadden Oil Corp., 71 NY2d 460, 527 N.Y.S.2d 195 [1988] (to obtain CPLR 302 jurisdiction plaintiff "Plaintiff need not establish a formal agency relationship between defendants and McFadden [New York] Company"need only convince the court that McFadden [New York] Company engaged in purposeful activities in this State in relation to [plaintiff's] transaction for the benefit of and with the knowledge and consent of the Texas defendants and that they [the Texas defendants] exercised some control over McFadden [New York] Company in the matter")). Thus, the Chungs are not shielded from long-arm jurisdiction simply because they were acting on behalf of a corporation (see Kreutter v McFadden Oil Corp., 71 NY2d 460 [1988]). It is undisputed that the court has jurisdiction over Hyunil. And, as defendants acknowledge in their moving papers, personal jurisdiction over a corporation may provide a basis for long-arm jurisdiction over a non-resident officer who acted in a New York business transaction as an alter ego of the corporation (see New Media Holding Co. v Kagalovsky, 97 AD3d 463, 464 [1st Dep 2012]; TransAsia Commodities, supra). For the reasons set forth below, plaintiff sufficiently states a claim to pierce the corporate veil such that the Chungs may be considered the alter ego of Hyunil; thus, dismissal of the complaint against the Chungs for lack of jurisdiction is unwarranted.
Piercing the Corporate Veil
The plaintiff seeking to pierce the corporate veil must establish that the corporation's owners, through their dominion, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party (see Balestriere PLLC v BanxCorp, 96 AD3d 497 [1st Dept 2012]). The corporate form will be disregarded in the scenario of an "improper avoidance of a corporate obligation" (Deutsche Bank AG v Vik, 2015 WL 458284, *18 [Sup Ct New York Cty 2015], citing Passalacqua, supra and Austin Powder Co. v McCullough, 216 AD2d 825, 827 [3d Dept 1995]).
The plaintiff must allege particularized facts detailing fraud or other corporate misconduct to warrant piercing of the veil (see Andejo Corp. v South St. Seaport Ltd. Partnership, 40 AD3d 407 [1st Dept 2007]; Sheridan Broadcasting Corp. v Small, 19 AD3d 331 [1st Dept 2005]). Indeed, a piercing the corporate veil claim is "fact-laden" and is generally unsuited for summary resolution (see Forum Ins. Co. v Texarkoma Transp. Co., 229 AD2d 341, 342 [1st Dept 1996]; MRC Re Holdings LLC v Schreiber, 2015 WL 682813 [Sup Ct New York Cty 2015]; Weiser & Associates, PC v Anthony C. Donofrio & Associates, PC, 2009 WL 1905144 [Sup Ct New York Cty 2009] ("even if defendants' motion papers were adequate, the dismissal would be premature at this juncture, because the claim seeking the piercing of the corporate veil is fact-ridden, and the parties here have not completed discovery")). As stated by the First Department, factors warranting veil-piercing include: "(1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes, (4) overlap in ownership, officers, directors, and personnel, (5) common office space, address and telephone numbers of corporate entities, (6) the amount of business discretion displayed by the allegedly dominated corporation, (7) whether the related corporations deal with the dominated corporation at arm's length, (8) whether the corporations are treated as independent profit centers, (9) the payment or guarantee of debts of the dominated corporation by other corporations in the group, and (10) whether the corporation in question had property that was used by other of the corporations as if it were its own" (Shisgal v Brown, 21 AD3d 845, 848-49 [1st Dept 2005], quoting Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F2d 131 [2d Cir 1991] (emphasis added)). Courts must consider whether the company engaged in self-dealing, commingled corporate and personal funds, or lacked corporate formalities (see Hartej Corp. v Pepsico World Trading Co., 255 AD2d 233 [1st Dept 1998]), as well as under-capitalization ( see e.g. ABN AMRO Bank, N.V. v MBIA Inc., 17 NY3d 208, 229 [2011]). Here, the transaction plaintiff seeks to attack is not the execution of the lease itself, but rather, the avoidance of obligations created by the lease as evidenced by nonpayment of rent and additional rent and the Judgment resulting therefrom (Complaint, ¶ 12: "in disregard of the debt and future obligation owed to plaintiff") (see Vik, supra). Indeed, the complaint specifically aims to pierce the corporate veil regarding the alleged fraudulent conveyances and diversion of assets by the Chungs which left Hyunil, allegedly, unable to pay the lease obligations and Judgment. Interpreting the complaint in a light most favorable to plaintiff, the complaint alleges that the Chungs were Hyunil's alter egos at all times, including before and while Hyunil became delinquent in its obligations. Additionally, plaintiff alleges that the Chungs operated Hyunil without observance of corporate formalities, including by "maintain[ing] no books of account" (Complaint, ¶ 67) and by "fail[ing] to keep adequate records relating to governance of their corporate affairs and accounting of finances" (Complain, ¶ 70). Plaintiff further alleges that the Chungs "appropriated the assets of Hyunil and used same for their own personal use and/or to create new business interests" (Complaint, ¶ ¶ 46, 59, 60-62, 68). Plaintiff also alleges that the Chungs controlled Hyunil such that Hyunil was inadequately capitalized (Complaint, ¶ 44). And, plaintiff alleges that the Chungs "consistently took money from [the] Hyunil bank account to purchase goods for their other businesses" which have nothing to do with the business of Hyunil (Complaint, ¶ 48). Plaintiff also alleges that based on the amounts and frequency of Hyunil's cash deposits, the deposits were not linked to cash sales or business practice of Hyunil, but rather to the "discretion" of the Chungs (Memorandum of Law, p. viii). Such allegations form the basis for a veil-piercing claim (see 9 East 38th Street Associates, LP v George Feher Associates, Inc., 226 AD2d 167, 168 [1st Dept 1996] (in finding that plaintiff had a cause of action for piercing the corporate veil, "[d]efendant, as sole shareholder, is alleged to have exercised complete dominion and control over the corporation and to have fraudulently conveyed corporate assets to avoid the corporation's obligations under the lease"); Shisgal v Brown, 21 AD3d 845 [1st Dept 2005] (in action for fraudulent inducement and conveyances based on loans given by plaintiff purportedly for business purposes, court denied CPLR 3211 motion based on allegations that individual defendants used corporation's monies as a personal checking account for their own and their friends' use; the defendants ran the corporation without regard for corporate and bookkeeping formalities; the corporation was undercapitalized; entity was used to obtain money for the benefit of other corporate defendants; and the co-mingling of corporate and personal funds was a regular and continuous practice)). Furthermore, plaintiff alleges that the Chungs carried out the scheme to conceal and divert Hyunil's purported assets so that Hyunil could cease paying rent to plaintiff and become judgment-proof on such amounts (i.e., the Judgment). Interpreting the complaint in a light most favorable to plaintiff, plaintiff alleges that the Chungs "used their domination" over Hyunil and its accounts to "conceal, divert and liquidate" same not just after Hyunil began to fall behind on its obligations, but also prior to this period, as part of the same, grand scheme. Thus, contrary to defendants' position, plaintiff's allegations regarding pre-July 2013 conduct are relevant to its veil-piercing claim (see e.g. Tap Holdings, LLC., 109 AD3d at 175 [1st Dept 2013] (although corporation remained solvent during and after alleged misuse of corporate form was undertaken by individual defendants, court found complaint adequately alleged facts to pierce veil, as complaint alleged that individual defendants' misuse was part of their overall scheme; court rejected defendants' argument that alter ego liability only exists under precise and technical circumstances, finding such liability exists when any abuse of the corporate form is exercised to perpetuate an inequity)). Similarly, defendants' contention that Hyunil's alleged purchases of the Chungs' personal items that pre-date Hyunil's breach of the lease did not proximately cause plaintiff's damages is unavailing as to the veil-piercing claim. As seen above, proximate causation of the plaintiff's ultimate damages (i.e., the corporation's underlying obligation) is not an element of a veil-piercing claim, and defendants cite no authority to support this proposition. And, as to defendants' claims that the complaint "should disclose the source of any underlying information pled upon information and belief,'" the case relied upon (Berkowitz v Molod, 261 AD2d 128 [1st Dept 1999]) is inapposite, as therein, the court had issued a prior order requiring disclosure of the source of information underlying such allegations. Here, plaintiff is not under such a similar court mandate. As defendants fail to submit admissible evidence to utterly refute the complaint's allegations, such as those related to travel and or accommodation expenses and Hyunil's expenditures on personal and or other business expenses, dismissal is unwarranted (see e.g. Inter Connection Elec., Inc. v Helix Partners LLC, 2014 WL 2990387 [Sup Ct New York Cty 2014] (unspecific, unsubstantiated, conclusory allegations fail to meet defendants' burden under CPLR 3211)). As to defendants' contentions in reply, defendants mistakenly place the burden on plaintiff (e.g., defendants' arguments related to Hyunil's cash vs. credit sales), as it is their burden under CPLR 3211 to conclusively prove that plaintiff has no cause of action. In sum, the court finds that plaintiff has a cause of action to pierce the corporate veil to collect on the Judgment previously obtained against Hyunil (see ABN AMRO, supra; Moyal v Theemasystems, Ltd., 2012 WL 11818698, *5 [Sup Ct New York Cty 2012], citing ABN AMRO ("Allegations of a defendant abusing its control over a corporation in order to shield assets from creditors are sufficient for stating a claim for piercing of the corporate veil")).
In any event, plaintiff clearly alleges that it the improper payments (as well as other questionable actions) caused Hyunil to become unable to satisfy the Judgment.
DCL 276
DCL 276 provides that "every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors" (see also RTN Networks, LLC v Telco Group, Inc., 126 AD3d 477 [1st Dept 2015]). Moreover, the claim must be pled with particularity (id.); see also Marine Midland Bank v Zurich Ins. Co., 263 AD2d 382, 383 [1st Dept 1999] ("plaintiff alleged the overall fraudulent scheme in detail . . . and fraudulent intent is fairly inferred from such details")). Plaintiff sufficiently states a cause of action under this section. As already noted by the court, the complaint alleges in detail that the Chungs, by Hyunil, acted in various improper ways before and after Hyunil ceased paying plaintiff under the lease in a scheme to become judgment- proof against any amounts owed. Defendants' reliance on Fisher v Zaks (48 AD3d 251 [1st Dept 2008]) for the proposition that the Court should not consider Hyunil's transfers made before June 2013 is misplaced, given the nature of the alleged scheme. Moreover, Fisher concerned a motion for summary judgment, not a pre-answer motion to dismiss. Moreover, although a transfer made to satisfy an antecedent debt while the debtor is insolvent is not fraudulent or improper, even if its effect is to prefer one creditor over another (see Ultramar Energy v Chase Manhattan Bank, 191 AD2d 86 [1st Dept 1993]), the complaint does not merely assert that Hyunil was insolvent at the time of the allegedly fraudulent transfers. Rather, it asserts that Hyunil was rendered insolvent by its activities; thus, this allegation arguably takes this action out of the purview of Ultramar (see Tap Holdings, LLC v Orix Finance Corp., 109 AD3d 167 [1st Dept 2013]). Moreover, plaintiff may pursue its DCL 276 claims against the Chungs and Roastown, since a creditor may recover money damages against parties who participate in the fraudulent transfer and are either transferees of the assets, or beneficiaries of the conveyance (see e.g. Citicorp Trust Bank, FSB v Makkas, — NYS3d &mdash, 2015 WL 1652693 [2d Dept 2015], citing FDIC v Porco, 75 NY2d 840, 842 [1990]). Here, plaintiff alleges that all defendants participated in the fraudulent transfers and either received Hyunil's assets and/or were beneficiaries of same. Contrary to defendants' position, plaintiff may also pursue a money judgment on these claims. Although the creditor's remedy in a fraudulent conveyance action is generally limited to reaching the property which would have been available to satisfy the judgment had there been no conveyance (see Marine Midland Bank v Murkoff, 20 AD2d 122, 132 [2d Dept 1986]), a money judgment may be granted as a substitute for those assets in circumstances where, as here, the debtor's assets have allegedly been sold and co-mingled with those of a transferee (see Hoenlein v Kaplan, 2005 WL 6229792 [Sup Ct New York Cty 2005]; Manufacturers and Traders Trust Co. v Lauer's Furniture Acquistion, Inc., 226 AD2d 1056 [4th Dept 1996], citing Valintine v Richardt, 126 NY272 [1891]). Notwithstanding, plaintiff is limited to pursue the value of the allegedly improperly conveyed assets (see Brown v Kimmel, 68 AD2d 896, 897 [2d Dept 1979]).As such, the motion to dismiss is also denied as to the second through fourth causes of action.
This reasoning applies to all of the allegations regarding all of the Chungs' conduct, especially considering that the court has found that plaintiff sufficiently stated a basis to pierce the corporate veil.
Conclusion
Based on the foregoing, it is hereby ORDERED that defendants' motion to dismiss plaintiff's amended complaint is denied in its entirety; it is further ORDERED that defendants' shall serve their Answer within 20 days of entry of this order; and it is further ORDERED that the parties shall appear for a preliminary conference on July 7, 2015, at 2:15 p.m; and it is further ORDERED that plaintiff shall serve a copy of this order with notice of entry upon all parties within 20 days of entry. This constitutes the decision and order of the Court. Dated: May 8, 2015____________________________________ Hon. Carol Robinson Edmead, J.S.C.