Opinion
Index No. 654575/2022
08-01-2024
Jingyi Ni, Plaintiff, v. Shenlaw, LLC and JIANMING SHEN, Defendants.
Reed & Wise, LLC, New York, NY (Matthew Sava and Zheng Gao of counsel), for plaintiff. Jianming Shen, Esq., Glen Cove, NY, for defendants.
Unpublished Opinion
Reed & Wise, LLC, New York, NY (Matthew Sava and Zheng Gao of counsel), for plaintiff.
Jianming Shen, Esq., Glen Cove, NY, for defendants.
Gerald Lebovits, J.
In December 2022, plaintiff, Jingyi Ni, brought this action for declaratory judgment against defendant Shenlaw, LLC, and its sole member and principal, defendant Jianming Shen, based on an alleged breach of fiduciary duty. Ni now moves to strike defendants' answer, for the entry of declaratory judgment in his favor, and for punitive damages and attorney fees. (See NYSCEF No. 78.) The motion is granted in part and denied in part.
BACKGROUND
In January 2014, Ni retained Shen to assist Ni with filing an EB-5 Immigrant Investor Program petition. (NYSCEF No. 51 at ¶ 24; NYSCEF No. 49 at ¶ 2.) In March 2014, Shen submitted the EB-5 petition on Ni's behalf. (NYSCEF No. 49 at ¶ 4; NYSCEF No. 51 at ¶ 33.) Ni claims that he was not given a copy of the petition at the time. (NYSCEF No. 49 at ¶ 4; NYSCEF No. 51 at ¶¶ 33, 36.)
Several years later, in November 2019, Ni filed an application to register as a permanent resident. (NYSCEF No. 49 at ¶ 14; NYSCEF No. 51 at ¶ 49.) But in October 2022 Ni received a notice of intent to deny (NOID). The NOID indicated that Ni's application to register as a permanent resident would be denied, because the United States Citizenship and Immigration Services (USCIS) determined that Ni had submitted false documents in his EB-5 petition. (NYSCEF No. 49 at ¶ 13; NYSCEF 51 ¶ 50.)
Ni later learned that Shen had submitted false source-of-funds documentation in connection with Ni's EB-5 petition. (NYSCEF No. 51 at ¶¶ 51-53.) This is undisputed. Shen admits that the source-of-funds materials were false and that Ni is "100% innocent." (NYSCEF No. 56; NYSCEF No. 79 at 1-2.) But the parties disagree on the extent of Shen's culpability. Shen claims that he engaged non-party TPC, Inc., to prepare the materials for Ni's EB-5 petition. (NYSCEF No. 56; NYSCEF No. 79 at 1-2.) Shen claims that TPC's owner, Taiping Chen, created the fabricated materials. (NYSCEF No. 79 at 1, 6; NYSCEF No. 52 at ¶ 56; NYSCEF No. 56.) Shen claims that his responsibility is limited to "having believed Taiping Chen's work products to be true and credible." (NYSCEF No. 79 at 6.) Ni disputes this; he alleges that Shen himself created the false documents. (See e.g. NYSCEF No. 51 at ¶¶ 45, 59-61, 66.)
In the current motion, Ni claims that Shen has perpetrated fraud on the court by committing perjury, fabricating evidence, and destroying evidence. Ni urges the court to strike defendants' answer and enter default judgment in Ni's favor. Ni also seeks an award of punitive damages and attorney fees (NYSCEF No. 78 at 27-28.)
DISCUSSION
I. Motion to Strike
A. Fraud on the Court
A court has the power to strike pleadings and enter default judgment in response to "clear and convincing evidence" of fraud on the court. (See CDR Créances S.A.S. v Cohen, 23 N.Y.3d 307, 311 [2014].) This power derives from CPLR 3126 and the court's "inherent power to address actions which are meant to undermine the truth-seeking function of the judicial system." (Id. at 318.) To warrant such an extreme sanction, the fraudulent conduct must be pervasive and concern "issues that are central to the truth-finding process." (Id. at 320, quoting McMunn v Memorial Sloan-Kettering Cancer Ctr., 191 F.Supp.2d 440, 445 [SD NY 2002].) Ni alleges that Shen has perpetrated on the court a fraud that warrants striking defendants' answer. Specifically, Ni alleges that Shen fabricated two documents produced in discovery and committed perjury through his sworn statements related to those documents.
Ni bears the burden of proving the alleged fraudulent conduct by clear and convincing evidence. (Id.) "The clear and convincing evidence standard is satisfied when the party bearing the burden of proof has established that it is highly probable that what he or she has claimed is actually what happened." (Home Ins. Co. of Ind. v Karantonis, 156 A.D.2d 844, 845 [3d Dept 1989].) Ni has satisfied that burden.
In his first request for production, Ni asked Shen to produce any prior communications with TPC or Taiping Chen. In response, Shen produced two documents labeled Defendants' Exhibits 4.4 and 4.5. (See NYSCEF No. 63 at 8-10; NYSCEF No. 61; NYSCEF No. 62.) In Shen's response to plaintiff's second deficiency letter, Shen stated that these documents were "print-to-PDF" copies of emails he had sent via a Yahoo email account to Taiping Chen on February 27, 2014, and March 5, 2015, respectively. (NYSCEF No. 64.) Each document includes a footer with a date and time stamp corresponding to the dates Shen claimed to have sent the emails. (See NYSCEF No. 61; NYSCEF No. 62.) Shen stated that he had converted each email to PDF on the same day displayed in the footer of each document. (NYSCEF No. 64.)
Shen was questioned extensively about the documents during his August 16, 2023, deposition. Consistent with his written responses, Shen testified that he had sent and converted each email on the date shown in its the respective footer. (See e.g. NYSCEF No. 17 at 66:24-67:7, 70:13-71:14.) Ni's counsel then showed Shen the affidavit of Michael Bierut, a designer who worked on the 2019 rebranding of Yahoo's logo. (See id. at 76:5-15; NYSCEF No. 65.) Bierut's affidavit states that the Yahoo logo, which appears in Defendants' Exhibits 4.4 and 4.5, did not exist until 2019. (NYSCEF No. 65 at ¶¶ 4, 9.) After being shown Bierut's affidavit, Shen said at the deposition that he was "withdraw[ing]" his prior testimony related to the documents. He then refused to answer any further questions about them. (See NYSCEF No. 53 at 82:4-86:12.)
Shen has since conceded that Bierut is credible; and he does not challenge Bierut's affidavit. (NYSCEF No. 68 at ¶ 10; NYSCEF No. 79 at 8.) Instead, Shen states that he now believes that the emails must have been converted to PDF sometime after September 2019. (NYSCEF No. 68 at 12-13.) Shen claims that after the deposition he recalled that some computers in his office "automatically backdated" documents. (NYSCEF No. 68 at ¶ 11; NYSCEF No. 79 at 9.) Shen suggests this "automatic backdating" explains the discrepancy between date/time stamps and the logos. Shen further claims that his prior false statements are the result of a chronic memory problem, stemming from a head injury he suffered nearly 40 years ago. (NYSCEF No. 68 at ¶¶ 1-3.)
During oral argument on this motion, Shen offered to speak on these matters under oath. The court swore him in. The court finds Shen's new (sworn) explanations incredible. As Ni notes, Shen testified at his deposition that his only memory problems were those normally caused by age. (NYSCEF No. 53 at 12:9-16.) And Shen has not produced any evidence of his supposedly decades-long serious memory problem. Furthermore, an affidavit submitted by Ni's forensics expert notes that it is "highly improbable" that the computers would have automatically backdated the documents to dates "coincidentally aligning with the specific dates that support [Shen's] position." (NYSCEF No. 66 at ¶ 7.) Shen has not offered any explanation for how the "automatic backdating" coincides with the events at issue in this case.
Shen had previously stated that a "cesspool flood" destroyed many of the physical records stored in his basement, including those relating to TPC and Taiping Chen. (See NYSCEF No. 79 at 7; NYSCEF No. 63 at 6-7.) At oral argument, Shen testified for the first time that the same flood had also destroyed any evidence documenting his head injury and memory problems.
Ni has satisfied the burden of showing by clear and convincing evidence that Defendants' Exhibits 4.4 and 4.5 are fabricated. The inconsistency between the 2019 Yahoo logo and the date stamps on the two documents make it highly probable that Defendants' Exhibits 4.4 and 4.5 are fabricated. The probability that Defendants' Exhibits 4.4 and 4.5 are fabricated is further strengthened by other authenticity concerns. On their face, the documents are drafts, not sent emails, as Shen has represented them to be. (See e.g. NYSCEF No. 53 at 65:19-66:18; NYSCEF No. 66 at ¶ 5.) At Shen's deposition, Ni's counsel also noted that the documents appeared to be screenshots, rather than PDFs. (See NYSCEF No. 55:25-56:7.) These inconsistencies, together with the anachronistic logo, convincingly prove Ni's showing that the documents were fabricated.
The court also finds that Ni has shown by clear and convincing evidence that Shen's sworn statements relating to Defendants' Exhibits 4.4 and 4.5 were perjurious. The only explanation for Defendants' Exhibits 4.4 and 4.5 is that Shen himself fabricated them. Shen has repeatedly attested to their authenticity in both written and oral sworn statements. (See e.g. NYSCEF No. 64 at 1-2; NYSCEF No. 53 at 58:17-59:24.)
Shen's pervasive and fraudulent conduct relates to central issues in this case. Shen does not dispute that he submitted fraudulent source-of-funds documents in connection with Ni's EB-5 application. Shen disputes only Ni's allegation that Shen fabricated the source of funds documents. Shen's defense in the underlying action is that TPC and Taiping Chen were responsible for creating the fraudulent documents submitted in Ni's EB-5 application. Defendants' Exhibits 4.4 and 4.5 are the only support for Shen's claim that TPC, rather than Shen, prepared those fraudulent documents. (See NYSCEF No. 53 at 4-16.) Therefore, the authenticity of Defendants' Exhibits 4.4 and 4.5 is relevant to a central issue in this case. Shen's fraudulent conduct warrants striking defendants' answer.
B. Spoliation of Evidence
Ni also argues that Shen's spoliation of evidence provides an independent basis for striking the answer in this case. The court agrees.
The intentional destruction of "crucial" evidence may warrant striking pleadings and entering default judgment. (See Fata v Heskel's Riverdale, LLC, 223 A.D.3d 520, 521 [1st Dept 2024].) Ni had asked Shen to produce the Toshiba Notebook in which Shen claimed to have previously stored Defendants' Exhibits 4.4 and 4.5. (See NYSCEF No. 53:9-14; NYSCEF No. 69 at 1.) Before and during his deposition, Shen stated that the notebook was in his possession and in working condition. (See e.g. NYSCEF No. 64 at 3; NYSCEF No. 53 at 53:15-18.) However, in Shen's October 18, 2023, response to plaintiff's second deficiency letter, Shen stated that he "trashed" the notebook following his deposition. (NYSCEF No. 69 at 1.) Shen claimed that he realized the notebook was inoperable following the deposition. (NYSCEF No. 69 at 1; NYSCEF No. 79 10-11.) Shen stated that since it no longer worked, he "did not consider the Toshiba Notebook itself a piece of evidence after all," so he "trashed it." (NYSCEF No. 79 at 10-11.)
To prove destruction or spoliation of evidence, the moving party must show (1) that the other party had an obligation to preserve the evidence, (2) the destruction was done with a "culpable state of mind," and (3) the evidence was "relevant to the party's claim or defense." (Pegasus Aviation I, Inc. v Varig Logistica S.A., 26 N.Y.3d 543, 547 [2015], citing Voom HD Holdings LLC v EchoStar Satellite L.L.C., 93 A.D.3d 33 [1st Dept 2012].)
Preservation obligations arise when litigation is reasonably anticipated. (See Voom HD Holdings, 93 A.D.3d at 42.) Ni argues that Shen had an obligation to preserve evidence, at least as of January 6, 2023, when Shen was served with the summons and complaint. (NYSCEF No. 78 at 22.) This court agrees. Moreover, Shen was on notice that the notebook in particular was considered relevant evidence at the very latest in May 2023, when Ni first requested Shen to produce it.
Shen claims that because the notebook was inoperable, throwing it away "was unintentional and well warranted." (NYSCEF No. 79 at 11.) But Shen's claim that it was "unintentional" is without merit. In his response to this motion, Shen stated that he threw the notebook away" because it no longer was operable." (NYSCEF No. 79 at 10-11 [emphasis added].) In his response to plaintiff's second demand for production, Shen stated that after learning about the notebook's condition, "I thought that it would not be worth the money... to repair.... So, I just trashed it." (NYSCEF No. 69 at 1 [emphasis added].) These statements flatly contradict Shen's statement that the destruction of the notebook was "unintentional." To the contrary, Shen's statements reveal that he intentionally threw it away after conscious deliberation. Shen's claim that he "did not consider the Toshiba Notebook... evidence after all" is similarly unavailing. (NYSCEF No. 79.) His unilateral belief that the notebook should not be considered evidence does not make it true. The evidence shows that Shen intentionally and willfully destroyed the notebook. (NYSCEF No. 78 at 23.)
Because the destruction of the notebook was intentional, Ni contends that this allows the court to presume that the evidence lost is relevant. (NYSCEF No. 78 at 23.) The First Department has held that "[t]he intentional or willful destruction of evidence is sufficient to presume relevance." (Voom HD Holdings LLC, 93 A.D.3d at 45.) This presumption is rebuttable by showing there has been no prejudice. (Id.) In this motion, Shen argues that any relevant evidence had been removed from the notebook and that the notebook was inoperable. (See NYSCEF No. 79 at 10.) However, as noted in the affidavit of Ni's forensics expert, a forensic examination of the notebook might have allowed Ni to discover pertinent information, potentially including the dates Defendants' Exhibits 4.4 and 4.5 were created. (See NYSCEF No. 66 at ¶ 9.) This suggests that Ni may have been prejudiced by the notebook's destruction. Shen's arguments are insufficient to rebut the presumption of relevancy.
Even beyond this presumption, the court is persuaded that relevancy is satisfied here. The essence of Shen's defense in the underlying dispute is his claim that he relied on TPC to prepare Ni's EB-5 materials. Defendants' Exhibits 4.4 and 4.5 are the only evidence of Shen's claim that TPC, not Shen, created the fraudulent source-of-funds documents. The purported emails to TPC go to the heart of this dispute. Particularly given the questions about the authenticity of Defendants' Exhibits 4.4 and 4.5, the notebook was highly relevant to the parties' respective claims and defenses.
II. Motion for Default Judgment
A. Declaratory Judgment
Given the striking of defendants' answer, Ni's entitlement to judgment is governed by CPLR 3215. (See Jones v Corley, 35 A.D.3d 381, 381 [2d Dept 2006].) Ni seeks a judgment declaring that (1) "[d]efendants breached their fiduciary duties"; (2) "[d]efendants have falsified documents and submitted fabricated documents in [p]laintiff's EB-5 application without [p]laintiff's knowledge"; and (3) "[p]laintiff was not aware of and did not participate in [d]efendants' fabrication of documents or submitting false documents" to USCIS. (NYSCEF No. 51 at 15.)
A default-judgment motion brought in an action for a declaratory judgment must establish plaintiff's entitlement to the declaration. (See JBBNY, LLC v Dedvukaj, 171 A.D.3d 898, 902 [2d Dept 2019].) A declaratory judgment requires the existence of a justiciable controversy. (CPLR 3001.) Apart from this requirement, whether to grant declaratory judgment is a matter left to the court's discretion. (See Matter of Morgenthau v Erlbaum, 59 N.Y.2d 143, 148 [1983].) The purpose of the declaratory-judgment device is to quiet uncertainty about disputed rights, obligations, or legal relations. (See Stile v C-Air Customhouse Brokers-Forwards, Inc., 204 A.D.3d 429, 432 [1st 2022].) Additionally, declaratory judgment may be appropriate when an adequate remedy at law is unavailable. (See Automated Ticket Sys. v Quinn, 90 A.D.2d 738, 739 [1st Dept 1982].)
As an initial matter, this court may not issue the second and third declarations that Ni seeks in this action. Declaratory judgments are used "to declare the respective legal rights of the parties based on a given set of facts, not to declare findings of fact." (Thome v Alexander & Louisa Calder Found., 70 A.D.3d 88, 99-100 [1st Dept. 2009].) Therefore, this court will consider only whether Ni has established his entitlement to a judgment declaring that defendants breached their fiduciary duties.
Ni asserts that declaratory judgment is appropriate because there is a live justiciable controversy and because he has no adequate remedy at law. (NYSCEF No. 51 at ¶ 78-80.) The record shows a justiciable controversy between the parties: The parties dispute whether Shen has breached his fiduciary duties. The record also suggests that there is merit to Ni's claim that he does not have an adequate remedy at law. Under New York law, a claim for breach of fiduciary duty is considered "co-extensive" with a claim for legal malpractice and is held to the same standard for proof of causation. (See Knox v Aronson, Mayefsky & Sloan, LLP, 168 A.D.3d 70, 75-76 [1st Dept 2018]; Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 A.D.3d 267, 271-272 [1st Dept 2004].) To prevail, plaintiff must show that the attorney's breach of duty was a but-for cause of the plaintiff's actual and ascertainable damages. (See Boone v Bender, 74 A.D.3d 1111, 1113 [2d Dept 2010].) Here, though, the primary harms Ni claims to have suffered are related to the "grave and imminent risk of losing his green card eligibility and being found inadmissible by the U.S. government." (NYSCEF No. 51 at ¶ 77.) The threat to Ni's immigration status is not an actual and ascertainable harm for malpractice-damages purposes. Given that Ni likely lacks an adequate remedy at law, the court finds that declaratory judgment is an appropriate remedy in this case.
The court also finds that Ni has sufficiently established his entitlement to a declaratory judgment that Shen has breached his fiduciary duties. "As a fiduciary, the lawyer is obliged to exercise the highest degree of good faith, honesty, integrity, fairness, and fidelity...." (U.S. Ice Cream Corp. v Bizar, 240 A.D.2d 654, 655 [2d Dept 1997].) Submitting fraudulent documents as part of Ni's EB-5 source-of-funds documents is a plain breach of those duties.
B. Punitive Damages
Ni additionally seeks punitive damages. "Absent a valid claim for compensatory damages, there can be no claim for punitive damages." (Prote Contr. Co. v Board of Educ. of City of NY, 276 A.D.2d 309, 310 [1st Dept 2000].) Since Ni has not asserted any claim for compensatory damages, his request for punitive damages is denied.
C. Attorney Fees
Finally, Ni requests an award of attorney fees and costs. The court may award costs or impose sanctions upon a party engaged in "frivolous conduct." (22 NYCRR 130-1.1 [a].) Frivolous conduct includes asserting false material factual statements. (22 NYCRR 130-1.1 [c] [3].) The court may award costs or impose sanctions upon a "reasonable opportunity to be heard." (22 NYCRR 130-1.1 [d].) The required form of the hearing is context dependent. (22 NYCRR 130-1.1 [d].)
The court finds that Shen has engaged in frivolous conduct through his false statements regarding Defendants' Exhibits 4.4 and 4.5. Ni's request for costs in his motion to strike gave Shen notice that the court may consider imposing sanctions through attorney fees and costs, and afforded Shen a reasonable opportunity to be heard. (See Duncan v Popoli, 105 A.D.3d 803, 804 [2d Dept 2013].) The court grants Ni's request for attorney fees and costs associated with this motion.
Accordingly, it is
ORDERED that the branch of Ni's motion seeking to strike defendants' answer is granted;
ORDERED that the branch of Ni's motion seeking default judgment against defendants is granted in part and denied in part; and it is further
ADJUDGED AND DECLARED that defendants breached their fiduciary duties to Ni in connection with Ni's EB-5 petition; and it is further
ORDERED that the branch of Ni's motion seeking punitive damages is denied;
ORDERED that the branch of Ni's motion seeking attorney fees is granted, and Ni may enter a supplemental judgment against defendants for his reasonable attorney fees, with the amount of those fees to be decided by motion made on notice, supported by appropriate documentation; and it is further
ORDERED that Ni serve a copy of this order with notice of its entry on all parties, and on the office of the County Clerk (by the means set forth in the court's e-filing protocol, available on the e-filing page of the court's website, https://ww2.nycourts.gov/courts/1jd/supctmanh/E-Filing.shtml), which shall enter judgment accordingly.