Opinion
100645/11.
Decided April 25, 2011.
Defendants Peter Yeung a/k/a Ko Fung Yeung (Yeung), Maggie Lee (Lee) and Millenium Building Land, Inc. (Millenium) (collectively, moving defendants) move to vacate the default entered against them and to restore the matter to the calendar.
The underlying action alleges, pursuant to New York Debtor and Creditor Law §§ 273, 275 and/or 276, that all of the defendants engaged in a fraudulent transfer of assets. Motion, Ex. A. On February 1, 2011, plaintiffs were granted a temporary restraining order and preliminary injunction based upon the alleged default of all of the defendants. Motion, Ex. C. That order enjoined the defendants from any further transfer of the property that is the subject of this action. The instant motion by moving defendants seeks to vacate that order.
Prior to the court's order enjoining the defendants from transferring the subject property, the court granted an order to show cause filed by plaintiffs, dated January 19, 2011, pursuant to which plaintiffs were ordered to serve a copy of that order to show cause seeking injunctive relief "together with the papers upon which has been granted including the summons and complaint . . . on or before January 24, 2011 by personal service on Defendants . . .," for a hearing scheduled for January 28, 2011. Motion, Ex. B. Moving defendants contend that plaintiffs failed to serve them personally as required by the court, resulting in their failing to appear for the hearing on the order to show cause.
The affidavit of service for Lee states that she was served by substitute "nail and mail" service. Motion, Ex. F. The affidavit of service for Yeung states that he was served by substitute "nail and mail" service. Motion, Ex. G. In both of these affidavits of service, the process server stated that six attempts had been made to serve Yeung and Lee, on varying dates and times, prior to the service by nail and mail. Further, each affidavit states that the nail and mail service was followed by first class mailings to Yeung and Lee.
The affidavit of service for Millenium states that it was served by "nail and mail" at Lee's residence, not Millenium's principal place of business, and was followed by a first class mailing. Motion, Ex, H.
Moving defendants contend that none of these methods of service complied with this court's order and, consequently, the court lacks jurisdiction over those parties.
In addition, moving defendants argue that the underlying matter is currently being litigated in the federal court in New Jersey, an action that predates the instant action, and that both Yeung and Millenium are defendants in that New Jersey litigation. Moving defendants aver that, based on the New Jersey doctrine of the entire controversy, this matter must be decided in the New Jersey federal suit, and is barred from being tried here in New York. The basis of this argument is that plaintiffs are alleged creditors of the defendants in the New Jersey action, and seek injunctive relief in New York to preserve assets in case it should be determined by the federal court that they are entitled to relief. Plaintiffs' claims are based on allegations of unpaid wages under the federal Fair Labor Standards Act (FLSA), for work performed in New Jersey. Motion, Ex. T. Moreover, Lee is not a defendant in the New Jersey action, and, according to moving defendants, plaintiffs cannot seek injunctive relief against a party against whom the persons seeking the injunction have no claims.
Lastly, moving defendants say that there is a request pending in the New Jersey federal court to enjoin them from selling assets, which preempts this action in New York.
In opposition to the instant motion, plaintiffs contend that the substituted methods of service effectuated on moving defendants is sufficient, pursuant to the provisions of the CPLR. Plaintiff specifically points out that Millenium was served, in addition to the service on Lee referenced above, by serving its registered agent, TriCity, at its offices at 199 Canal Street, New York, New York. Opp., Ex. G. Although the person who received such service, a TriCity employee, stated that TriCity was only Millenium's accountant, plaintiffs argue that TriCity is listed as Millenium's registered agent on Millenium's certificate of incorporation. The certificate of incorporation states:
"Agent: Maggie Lee
Agent Address: 166 Main Avenue
Clifton, NJ 07014
Office Address Status: Deliverable
Main Business Address: C/O TriCity Inc. 199 Canal Street
New York, NY 10013
Principal Business Address: [blank]"
Opp., Ex. H.
The opposition goes on to argue the underlying merits of plaintiff's injunctive relief.
According to plaintiffs, Yeung transferred property to Lee subsequent to the institution of the New Jersey litigation, which rendered him insolvent. Yeung and Lee claim that the transfers were made as part of the couple's divorce; however, plaintiffs contend that the divorce was a sham, that both Yeung and Lee continue to reside at the same residence, and that the divorce was only effectuated in order to defraud creditors of Yeung and Millenium. Further, plaintiffs state that moving defendants do not dispute that the transfers enumerated in this action occurred.
Plaintiffs maintain that, despite moving defendants' assertions, there is only a letter request, and no motion, in the New Jersey action regarding any injunctive relief, and, therefore, any argument that this relief is under consideration in New Jersey is incorrect and irrelevant.
Plaintiffs also argue that this action is brought pursuant to the New York Debtor and Creditor Law, and is not based on New Jersey law. Further, this action is against New York residents and a New Jersey corporation that lists its main business address in New York, and that does not currently have an address in New Jersey. Consequently, plaintiffs aver that New Jersey would not have jurisdiction over transfers that occurred between such parties in New York.
In addition, plaintiffs state that several New Jersey restaurants are the defendants in the federal action, as well as Yeung and his father, as the alleged owners of those entities, whereas in the current New York action only Yeung, Millenium and Lee, as a necessary party to the alleged fraudulent transfers, are named as defendants. Hence, according to plaintiffs, the New Jersey action could not afford them the relief that they seek in this state.
In reply, moving defendants argue that service on Millenium was improper because Lee was not personally served, and that the mailing to her was not to the address appearing on the certificate of incorporation. The court notes that the address where the nail and mail service was effected on Lee is her residence in this state. Further, the affidavit of service states that the process server was informed, at the time service at TriCity was attempted, that TriCity was Millenium's accountant, not its agent. Moreover, according to moving defendants, "nail and mail" service is substituted service, not personal service, and, therefore, Yeung and Lee were not properly served as well.
Moving defendants also argue that, should this court entertain this action, it would entail a determination that plaintiffs were creditors of moving defendants, an issue that is the heart of the New Jersey action. Moreover, moving defendants contend that the alleged debt is a New Jersey debt, arising out of work performed in that state, and based on both New Jersey state law and the interpretation of the FLSA, a federal statute, which would be inappropriate for determination by this court.
DISCUSSION
A court has inherent discretionary powers to vacate or modify a preliminary injunction. Thompson v 76 Corp., 54 AD3d 844 (2d Dept 2008). This is especially true when the preliminary injunction was issued on the default of the enjoined party, provided that the grounds for vacating a default are established.
"CPLR 5015 (a) (1) permits a court to vacate a default where the moving party demonstrates both a reasonable excuse for the default and the existence of a meritorious defense. The determination of what constitutes a reasonable excuse is left to the sound discretion of the court [internal citations omitted]."
Savino v "ABC Corporation" , 44 AD3d 1026 , 1026 (2d Dept 2007); JP Morgan Chase Bank, N.A. v Bruno , 57 AD3d 362 (1st Dept 2008); Stillman v City of New York , 39 AD3d 301 (1st Dept 2007).
In the instant matter, moving defendants assert, as the reasonable excuse for the default, that they were not properly served. Although the court finds that service on moving defendants was proper, as discussed below, no evidence has been presented that moving defendants' acted in an unreasonable or wilful manner, and there is a strong public policy favoring adjudication on the merits. National Union Fire Insurance Company of Pittsburgh, Pa. v Diamond , 39 AD3d 360 (1st Dept 2007). Therefore, the court exercises its discretion and determines that moving defendants' excuse for the default was reasonable.
However, the court also finds that service on moving defendants was properly effectuated pursuant to the provisions of the CPLR.
"Service of process must be made in strict compliance with statutory methods for effectuating personal service upon a natural person pursuant to CPLR 308. CPLR 308 requires that service be attempted by personal delivery of the summons to the person to be served, or by delivery to a person of suitable age and discretion at the actual place of business, dwelling place or usual place of abode. Service pursuant to CPLR 308 (4), commonly known as nail and mail service, may be used only where service under CPLR 308 (1) 308 (2) cannot be made with due diligence. Nail and mail service is effected by affixing the summons to the door of either the actual place of business, dwelling place or usual place of abode within the state of the person to be served and by either mailing the summons to such person at his or her last known residence or by mailing the summons by first class mail to the person . . . at his or her actual place of business [internal quotation marks and citations omitted]."
Estate of Waterman v Jones , 46 AD3d 63 , 65-66 (2d Dept 2007).
CPLR 308 states that "personal service" may be effected by actual in hand service to the person to be served, by serving a person of suitable age and discretion at the home or business of the person to be served, or by nail and mail service upon a showing of due diligence. Contrary to moving defendants' assertions, nail and mail service, if properly made, constitutes personal service under the statute.
In the case at bar, the affidavits of service for Yeung and Lee indicate that six attempts were made to serve them, at varying days and times, which satisfies the requirement of due diligence. Thereafter, the summons was properly affixed and mailed. The court notes that moving defendants do not allege that the nail and mail service was not made according to statutory mandates, only that such service is not "personal service." Hence, the court concludes that Yeung and Lee were properly served, giving the court jurisdiction over them.
CPLR 311 (a) (1) provides for personal service on a corporation by, among other things, personally serving an officer, director or any other agent authorized by appointment to receive service. Millenium's certificate of incorporation states that Lee is its authorized agent, and, therefore, is an appropriate person on whom service may be effected.
Lee was personally served twice: once in her individual capacity, and once as the agent for Millenium. Since Lee was properly served in both capacities, service was effected as against Millenium. In reaching this conclusion, the court need not address the other service on Millenium at TriCity's offices.
Having determined that moving defendants have made a showing of a reasonable excuse for the default, the court must now assess whether moving defendants have also provided prima facie evidence of a meritorious defense.
"The quantum of proof needed to prevail on a CPLR 5015 (a) (1) motion is less stringent than that required when opposing a summary judgment motion. At this stage, [moving defendants are] not required to prove [their] defense in full, but merely to set forth sufficient facts to demonstrate, on a prima facie basis, that a defense exist[s] [internal quotation marks and citation omitted]."
Matter of Toyota Motor Credit Corp. v Impressive Auto Center, Inc. , 80 AD3d 861 , 863 (3d Dept 2011).
Moving defendants' meritorious defense is based on New Jersey's entire controversy doctrine.
"Basically, the entire controversy doctrine seeks to assure that all aspects of a legal dispute occur in a single lawsuit. The goals of the doctrine are to promote judicial efficiency, assure fairness to all parties with a material interest in an action, and encourage the conclusive determination of a legal controversy. One part of the doctrine, described generally as the claims joinder,' requires that parties should present all affirmative claims and defenses arising out of a controversy. Another part, known as the party joinder,' requires the mandatory joinder of all parties with a material interest in a controversy.
***
Thus, the entire controversy doctrine encompasses virtually all causes, claims, and defenses relating to a controversy' between parties engaged in litigation [internal citations omitted]."
Olds v Donnelly, 150 NJ 424, 431-432, 433 (Sup Ct 1997).
Moreover, the entire controversy doctrine has been held to be a preclusionary principle intended to prevent the fractionalization of litigation, requiring all claims between the parties arising out of, or relating to, the same occurrence to be determined in a single action. Brown v Brown, 208 NJ Super 372 (App Div 1986).
At this stage, the court feels that moving defendants have made a sufficient showing of a prima facie meritorious defense that this action should not be maintained in New York, based on the New Jersey entire controversy doctrine, so as to warrant vacatur of the default judgment entered against them. The court does this in the interests of justice, as mandated by CPLR 5015, and to provide the parties with the opportunity to have a full hearing on the merits.
After all of the papers for this motion were submitted, plaintiffs notified the court of a recent appellate decision that, they assert, bolsters their case. That decision, Matter of Sojitz Corp. v Prithvi Information Solutions, Ltd. ( 82 AD3d 89 [1st Dept 2011]), held that a creditor can attach assets in New York, for security purposes, in anticipation of an award to be rendered in a foreign arbitration proceeding, even where there is no connection to New York by way of subject matter or personal jurisdiction. Moving defendants urge that this case is distinguishable from the case at bar because the Sojitz respondent had minimum contacts with New York, which, insist moving defendants, is lacking in the present action. The court disagrees.
Both Lee and Yeung reside in New York, Millenium provided a New York City address as its main business address, and some of the property subject of the injunctive relief is located in New York. Hence, the court finds that moving defendants have sufficient contact with New York so as to be subject to the jurisdiction of the New York courts. In addition, despite moving defendants' contentions, the Sojitz case is supportive of plaintiffs' application, although not necessarily controlling because of the possible application of the New Jersey entire controversy doctrine.
CONCLUSION
Based on the foregoing, it is hereby
ORDERED that defendants Peter Yeung a/k/a Ko Fung Yeung, Maggie Lee and Millenium Building Land, Inc.'s motion to vacate its default is granted and the court's order of February 1, 2011 is hereby vacated; and it is further
ORDERED that this matter is restored to the calendar for said defendants to appear and show cause at IAS Part 58 of the Supreme Court of the State of New York, located at 111 Centre Street, Room 574, New York, New York on the ____ day of ________,
2011, at 10:15 A.M. or soon thereafter as counsel can be heard:
a) enjoining said defendants from any other further transfer of any interest in or the proceeds of any transfer of any interest in, and from any encumbrance of the properties:
1. Lamont Avenue, Elmhurst, New York
2. 508 Perry Street, Newark, New Jersey
3. Millenium Building Land, Inc. and/or
4. Any restaurant operating at 166 Main Street, Clifton, New Jersey, including but not limited to any interest in Century Buffet Grill, Inc.,
pending the determination of the present action seeking to have these transfers declared void and set aside; and it is further
ORDERED that, pending the hearing of this application, said defendants are enjoined from transferring any interest in or encumbering the aforementioned properties; and it is further
ORDERED that said defendants shall serve a copy of this order with notice of entry on the County Clerk (Room 141B) and upon the Trial Support Office (Room 158); and it is further
ORDERED that the New York City Department of Finance, Treasury Division, Client Services, located at 1 Centre Street, Rm. 2200, New York, New York, is directed, upon receipt of a certified copy of this order, a Certificate of Deposit duly issued by the Department of Finance, and any other forms required by the Department, to turn over to plaintiffs the funds deposited with that Department as an undertaking in this action by said plaintiffs in Account No. _____________, totaling $500.00, as reflected in the Certificate, less the fee of the Department.