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FAVOUR MIND LIMITED v. PACIFIC SHORES

January 16, 2004.

FAVOUR MIND LIMITED, Plaintiff, -against- PACIFIC SHORES, INC., ALPINE APPAREL GROUP D/B/A CAMERON ROBERTS, LTD., and ROBERT CZWARTACKY, Defendants


The opinion of the court was delivered by: GEORGE DANIELS, District Judge

MEMORANDUM OPINION AND ORDER

This is an action by Plaintiff, Favour Mind Limited ("FML"), a Hong Kong corporation which manufactures, exports, and distributes garments, against Pacific Shores, Inc. ("Pacific Shores"), Alpine Apparel Group d/b/a Cameron Roberts, Ltd. ("Alpine Apparel"), and Defendant Robert Czwartacky ("Czwartacky").*fn1 Plaintiff seeks $216,408.06 in unpaid invoices for garments that it manufactured, asserting breach of contract, fraud, and unjust enrichment. Plaintiff also seeks a declaratory judgment allowing it to pierce the corporate veil of Pacific Shores and Alpine Apparel to hold Defendant Czwartacky personally liable for the outstanding debt. On May 7, 1999 Plaintiff was granted default judgments against Pacific Shores and Alpine Apparel with respect to the breach of contract claim for $216,408.06, on the basis that neither answered Plaintiffs complaint.

On May 26, 2000 Plaintiff voluntarily discontinued with prejudice its claims against Defendant Czwartacky for breach of contract, fraud, and unjust enrichment. Presently before this Page 2 Court is Defendant Czwartacky's Rule 56 motion for summary judgment of Plaintiff's remaining cause of action seeking a declaratory judgment allowing Plaintiff to pierce the corporate veil to hold Defendant Czwartacky liable for the debts of Pacific Shores and Alpine Apparel. Fed.R.Civ.P. 56. For the following reasons, Defendant Czwartacky's motion for summary judgment is hereby GRANTED.

  BACKGROUND

  Pacific Shores was incorporated in New York in May 1988. The company consisted of Defendant Czwartacky, the President, and Steve Kent ("Kent"), the Vice-President and Secretary. Kent's son may also have been listed as an officer, though he was never actively involved in the operation of the business. Defendant Czwartacky and Kent were the company's sole directors and 50% shareholders, and Pat Roberts ("Roberts") participated in designs. Pacific Shores also employed temporary help which it compensated via a temporary service. Defendant Czwartacky managed Pacific Shores' day-to-day operations. Defendant's Memorandum, 3. Defendant Czwartacky invested $50,000 to start up Pacific Shores and Kent invested S100,000. Both later invested $15,000 and Defendant Czwartacky subsequently invested S5,000 or $10,000 on several occasions.

  In or about mid-1991, Pacific Shores ordered sample garments from Plaintiff. The samples were billed to Pacific Shores on open credit terms. After Pacific Shores approved the sample order, it ordered production goods. Plaintiff required Pacific Shores to obtain a letter of credit to pay for the production goods, or else wire transfer funds before shipment. The production goods were paid for by letters of credit issued by Pacific Shores' factor, Finova Page 3 Capital Corporation ("Finova"). Plaintiff subsequently invoiced and expected payment from Pacific Shores. As Plaintiff became Pacific Shores' sole overseas supplier, Pacific Shores gradually became slow in paying for samples. In December 1993, Pacific Shores asked Plaintiff to allow it to pay two-thirds of the invoices of production goods by letter of credit and one-third by wire transfers some time after shipment. Plaintiff agreed to this request to help Pacific Shores expand its business and enable it to pay the outstanding sample charges faster, so that Plaintiff might receive more business from Pacific Shores. Deposition of Daisy Chan, 40.

  One of Plaintiff's affiliates was a Hong Kong company named Wai Tai Piece Goods ("Wai Tai"), wholly-owned by Wai Tai Enterprises Limited ("Wai Tai Enterprises"). Wai Tai and Wai Tai Enterprises shared the same office space as Plaintiff Wai Tai Enterprises and Plaintiff also had the same officers and shareholders. Deposition of Tommy Ho, 12-13. Wai Tai Enterprises obtained Dun & Bradstreet's March 6, 1991 credit report ("Report") on Pacific Shores. The Report showed, among other things, that Pacific Shores had three employees, that it lost $30,365 in 1989 on gross sales of $866,294, that it lost $31,325 in retained earnings, that its initial capital investment was S10,000, and that Dun & Bradstreet ascribed it a Financial Appraisal Ranking of "3." Wai Tai Enterprises shared the Report's information with Plaintiff. Id., at 26.

  Throughout 1994, Plaintiff continued to sell goods to Pacific Shores, while constantly pursuing Pacific Shores for payment. By December 6, 1994, Plaintiff threatened to cut off Pacific Shores' credit because of slow payment. By April 1995, due to Pacific Shores' slow payments, Plaintiff rescinded its agreement to allow Pacific Shores to wire transfer one-third of the invoiced value after shipment. It instead reverted to the original requirement that Pacific Page 4 Shores provide a letter of credit for the full amount of the invoice before shipment. Plaintiff also insisted upon payment of the past due amount before it would ship any further goods. Deposition of Daisy Chan, 106. Plaintiff continued to ship samples to Pacific Shores on credit to help keep it in business. Id., 93.

  By April 25, 1995, Pacific Shores had become Plaintiff's largest account debtor, owing Plaintiff over $200,000. On May 24, 1995, Pacific Shores notified Plaintiff that because of quality defects in goods that Plaintiff supplied, it was operating at a loss. On June 1, 1995 Defendant Czwartacky wrote to Plaintiff on Cameron & Roberts stationery that "I [have] become cash poor." Defendant's Exhibit N.

  In May 1995, Defendant Czwartacky incorporated Cameron & Roberts under New York law. He was the President, sole shareholder, and managing director. There is no evidence that Defendant invested any money other than the payment of the incorporation fee. Cameron & Roberts licensed its name to Alpine Apparel, an unrelated New York corporation of which Defendant Czwartacky was never a shareholder, officer, or employee. Under the terms of the License Agreement, Alpine Apparel would pay a 6% royalty to Cameron & Roberts.

  On September 5, 1995 Pacific Shores advised Plaintiff that Finova would no longer amend its letter of credit for payments to Plaintiff. As Pacific Shores would therefore be unable to purchase goods, it advised Plaintiff the next day that it was going out of business. On September 25, Pacific Shores informed Plaintiff that it lost $6,118 over the eight-month period ending August 31, 1995. Defendant's Memorandum, 8.

  Pacific Shores advised Plaintiff that Alpine Apparel would open a letter of credit for the purchase of additional goods. In fact. Defendant Czwartacky named Cameron & Roberts as the Page 5 corporation that would assume Pacific Shores' debt to Plaintiff. Plaintiff's Exhibit 1, 59. On January 25, 1996, Alpine Apparel opened a letter of credit to Plaintiff. Plaintiff thereafter made two shipments of goods to Alpine Apparel amounting to $122,261.25, which were paid for by letter of credit. Czwartacky Aff., ¶ 12.

  In March 1996, Pacific Shores and Cameron & Roberts went out of business, though Pacific Shores was never formally dissolved. At that time, Alpine Apparel owed Plaintiff $3,486.50 for samples and Pacific Shores owed Plaintiff $100,000 to $200,000. all or most of which were for samples. Defendant Czwartacky took $700 from Cameron & Roberts' bank account because "it was my money that I put in there in the first place." Plaintiffs Exhibit 1. 54. Defendant also withdrew $200 to $300 from Pacific Shores' bank account.

  Defendant Czwartacky has not produced any stock certificates, record books, minutes of shareholders, officers, and/or directors meetings, or financial records except tax returns for Pacific Shores and Cameron & Roberts. He claims that minutes of Pacific Shores' directors meetings were not kept after the initial meetings. He also explains that Pacific Shores' final tax return for 1996 showed its address as his own home address in ...


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