Opinion
Index No. 514984/2016 Motion Seq. Nos. 8 9
01-16-2024
JIAN RONG ZHANG and LI GUO QIU, individually as Shareholders cf TRAMWAY EXPRESS, INC., Plaintiffs, v. JIN HUO MAI a/k/a WOODY MAI and WAI K LIU a/k/a KEVIN LIU, individually and as shareholders of TRAMWAY EXPRESS INC., MAPLE EXPRESS INC., ITUCK LEASING LLC, ROOSTER TRUCK ING, JOHN DOE 1- 10, ABC CORPORATION 1-10, Defendants,
Unpublished Opinion
PRESENT: HON. LEON RUCHELSMAN, JUDGE
DECISION AND ORDER
HON. LEON RUCHELSMAN, JUDGE
The defendants Wai K. Liu, a/k/a Kevin Liu, Ituck Leasing LLC, and Rooster Truck Inc., have moved seeking to dismiss the complaint pursuant to CPLR §3404. The defendants Jin Huo Mai and Maple Express Inc., have cross-moved seeking to dismiss any inquest on the grounds no cause of action for damages is stated within the complaint. The motions have been opposed respectively. Papers were submitted by the parties and arguments held. After reviewing all the arguments this court now makes the following determination.
As recorded in a prior decision, the plaintiffs and defendants were partners in a trucking business and the plaintiffs alleged the defendants did not share profits equally. The court struck the defendants answer in an order dated June 6, 2019 (see, NYSCEF Doc. No. 79). An inquest was conducted to determine the amount, if any, defendants owed plaintiffs. On February 4, 2020 an award was rendered in favor of the plaintiffs in the amount of $187,250 plus- interest from July 2016. The defendant Jin Huo Mai who was pro se at the time did not appear at the inquest. A motion to vacate the inquest was granted in an order dated August 19, 2020 (see, NYSCEF Doc. No. 251). The defendant Jin Huo Mai now argues no such inquest can take place because there are no allegations in the complaint which can actually support any damages against the defaulting party. Further, the defendants Wai K. Liu, a/lda Kevin Liu, Ituck Leasing LLC, and Rooster Truck Inc., move seeking to dismiss the complaint.
Conclusions of Law
A careful review of the motions filed reveal that essentially they seek the same relief, namely that an inquest cannot be conducted because the complaint fails to allege any facts which can. lead to any damages, In Rokina Optical Co., Inc., v, Camera King, 63 N.Y.2d 728, 480 N.Y.S.2d 197 [1984] the court explained that "a defendant whose answer is stricken as a result of a default admits all traversable allegations in the complaint, including the basic allegation of liability, but does not admit the plaintiff's conclusion as to damages" (id). However, even though a default has been granted the complaint must "allege enough facts to enable a court to determine that a viable cause of action exists" (Barbetta v. NY Auto Find Inc., 221 A.D.3d 351, 198 N.Y.S.3d 586 [2d Dept., 2023]), If the complaint does not allege any viable cause of action then default cannot be entered and an inquest cannot take place.
In this case the complaint asserts that the two individual plaintiffs Zhang and Qui and the two. individual defendants, Mai and Liu, Created Tramway Express Inc,, [hereinafter 'Tramway']. The complaint further alleges that the defendants basically operated Tramway and failed to split the profits earned with the plaintiffs. The complaint. alleges: causes of action for tortious interference with business relationships, defamation, fraud, fraudulent misrepresentation, unjust enrichment, conversion, an accounting, breach of fiduciary duty and breach of the covenant of good faith and fair dealing and breach of contract. The defendants assert these causes of action are improper because they are really all derivative claims on behalf of the corporation and can only be brought derivatively. Therefore, any direct causes of action filed by some shareholders against others is improper and consequently fails to allege any viable claims whereby an inquest could assess any damages.
It is true that any claims asserted as individuals that must be filed derivatively do hot consist of causes of action that Can be the subject of any inquest. However, the complaint alleges that the corporation earned $50,000 and that such prof its were supposed to be split four ways among the two plaintiffs and the two individuals (see, Verified Complaint, ¶¶ 32,33 [NYSCEF Doc:. No. 1]). Since there has been a default, there can be no challenging those facts, That allegation is specific and surely establishes claims of breach of contract and breach of the covenant of good faith and fair dealing as well as the breach of a fiduciary duty. Moreover, all these claims may be asserted individually since they are all harms that were suffered individually. The defendants argue that "there is no fiduciary relationship between shareholders" (see, Memorandum of Law, page 16 [NYSCEF Doc. No. 281]). However, it is well settled that the elements of a breach of fiduciary duty are the existence of a fiduciary duty, misconduct and damages (Litvinoff v. Wright, 150 A.D.3d 714, 54 N.Y.S.3d 22 [2d Dept., 2017]). "A fiduciary relationship exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation" (EBC I Inc., v, Goldman Sachs & Co., 5 N.Y.3d 11, 799 N.Y.S.2d 173 [2005]). Thus, surely, the defendants maintained a duty, essentially, not to steal from the: plaintiff's. Further, paragraph 35 of the complaint asserts that the plaintiffs, were "forced, out" of Tramway and informed they were: no longer partners (see, Verified Complaint, ¶35 [NYSCEF Doc. No. 11). The next paragraph alleges that "without the consent of Plaintiffs, Defendants continued to operate TRAMWAY and convert funds and divert such funds and income for their own personal gain"' (see. Verified Complaint, ¶36 [NYSCEF Doc. No. 1]). While those allegations assert derivative claims they also assert direct claims for breaching a contract, breaching a fiduciary duty and breaching covenants of good faith and fair dealing. As noted, those allegations cannot be challenged. Moreover, the mere fact they may overlap each other are arguments that cannot be asserted where all the traversable allegations are deemed true. Thus, upon a damages trial or inquest, liability is not an issue (Haberman v.. Weissberg, 131 A.D.2d 331, 516 N.Y.S.2d 925 [1st Dept., 1987]) and no evidence may be introduced tending to defeat the plaintiff's causes of action (Hussein v. Rachter, 272 A.D.2d 446, 708 N.Y.S.2d 337 [2d Dept., 20-00]). Indeed., in Hussein, (supra) the court held the referee improperly dismissed the complaint after admitting evidence the referee believed defeated the- plaintiff's cause of action..
Therefore, there are: insufficient grounds to vacate the inquest. Consequently, the motion and cross-motion seeking, to vacate the complaint or vacate the inquest are denied.
So ordered.