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JSC FOREIGN ASS. TECH. v. INT. DEVELOPMENT AND TRADE

September 6, 2005.

JSC FOREIGN ECONOMIC ASSOCIATION TECHNOSTROYEXPORT, Plaintiff,
v.
INTERNATIONAL DEVELOPMENT AND TRADE SERVICES, INC., et al., Defendants.



The opinion of the court was delivered by: JOHN KOELTL, District Judge

OPINION & ORDER

The plaintiff, JSC Foreign Economic Association Technostroyexport ("JSC"), moves pursuant to Rule 56 of the Federal Rules of Civil Procedure for partial summary judgment on the first claim for relief of its Second Amended Complaint, seeking a declaration that defendants Edith Reich ("Reich") and Brigitte R. Jossem ("Jossem") are the alter egos of defendant International Development and Trade Services, Inc. ("IDTS"), and are therefore liable for IDTS debts, including this Court's judgment confirming two arbitration awards against IDTS. JSC also seeks a final judgment against defendants IDTS, Reich, and Jossem for liability on this claim pursuant to Rule 54 (b) of the Federal Rules of Civil Procedure.

I.

A.

The standard for granting summary judgment is well established. Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Gallo v. Prudential Residential Servs. Ltd. P'ship, 22 F.3d 1219, 1223 (2d Cir. 1994). "[T]he trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue-resolution." Gallo, 22 F.3d at 1224. The moving party bears the initial burden of informing the district court of the basis for its motion and identifying the matter that it believes demonstrates the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. The substantive law governing the case will identify those facts that are material and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see also Consol. Edison, Inc. v. Northeast Utils., 332 F. Supp. 2d 639, 642 (S.D.N.Y. 2004).

In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. T.R.M. Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). If the moving party meets its initial burden of showing a lack of a material issue of fact, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The nonmoving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); see also Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir. 1998); Consol. Edison, 332 F. Supp. 2d at 643.

While the court is required to draw all reasonable inferences in favor of the non-moving party on a motion for summary judgment, a negative inference may be drawn against the non-moving party if the non-moving party asserts the Fifth Amendment privilege against self-incrimination in response to probative evidence provided by the moving party. See LiButti v. United States, 107 F.3d 110, 121 (2d Cir. 1997); United States v. Certain Real Property and Premises Known as 4003-4005 5th Ave., 55 F.3d 78, 82-83 (2d Cir. 1995); Adelphia Communications Corp. v. Rigas, 317 B.R. 612, 623-24 (S.D.N.Y. 2004). While the Fifth Amendment precludes drawing adverse inferences against defendants in criminal cases, it "`does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them.'" LiButti, 107 F.3d at 121 (quoting Baxter v. Palmigiano, 425 U.S. 308, 318 (1976); see also id. at 124-25; Marine Midland Bank v. John E. Russo Produce Co., Inc., 405 N.E.2d 205, 210-11 (N.Y. 1980). A "`party who asserts the privilege against self-incrimination must bear the consequence of lack of evidence.'" 4003-4005 5th Ave., 55 F.3d at 83 (quoting United States v. Taylor, 975 F.2d 402, 404 (7th Cir. 1992)). Moreover, "the claim of privilege will not prevent an adverse finding or even summary judgment if the litigant does not present sufficient evidence to satisfy the usual evidentiary burdens in the litigation." Id.; see also LiButti, 107 F.3d at 124; Adelphia, 317 B.R. at 624 & n. 40 (listing cases).

B.

In general, New York courts will pierce the corporate veil "whenever necessary to prevent fraud or achieve equity." Walkovsky v. Carlton, 223 N.E.2d 6, 7 (N.Y. 1966) (internal quotation marks and citation omitted).*fn1 There is no definitive rule that governs when courts will pierce the corporate veil because the decision "in a given instance will necessarily depend on the attendant facts and equities." Morris v. N.Y. State Dep't of Taxation and Fin., 623 N.E.2d 1157, 1160 (N.Y. 1993). "Generally, however, piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff's injury." Id. at 1160-61.

In determining whether the first requirement — that that owners exercised complete domination of the corporation with respect to the transaction attacked — courts will consider a lengthy list of factors outlined in Wm. Passalacqua Builders, Inc. v. Resnick: "(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 arms 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." Wm. Passalacqua Builders, Inc. v. Resnick, 933 F.2d 131, 139 (2d Cir. 1991).

Although a showing of complete domination is "the key to piercing the corporate veil," the party seeking to pierce the corporate veil must also fulfill the second requirement by demonstrating: 1) the existence of a wrongful or unjust act toward that party, and 2) that the act caused that party's harm. See Morris, 623 N.E.2d at 1161; Guptill Holding Corp. v. State, 307 N.Y.S.2d 970, 973 (App. Div. 1970), aff'd, 292 N.E.2d 782 (N.Y. 1972); see also Passalacqua, 933 F.2d at 138. The party seeking to pierce the corporate veil must establish that the owners of the corporation, through their domination of the corporation, "abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene." Morris, 623 N.E.2d at 1161; Guptill Holding Corp., 307 N.Y.S.2d at 973.

II.

The following facts are undisputed unless otherwise noted.

From July 1991 through July 1992, defendant IDTS, incorporated under the laws of New York in 1989, entered into a series of contracts for the sale of metals with the predecessor corporation of AOOT Foreign Economic Association (VO) Technostroyexport ("AOOT"), a Russian state-owned corporation with its principal place of business in Moscow, Russia. (Second Amended Complaint, filed Apr. 23, 2004 ("Amd. Compl.") ¶¶ 7-8, 20; Statement of Material Undisputed Facts of Plaintiff JSC Foreign Economic Association Technostroyexport in Support of Its Motion for Partial Summary Judgment, dated Sept. 17, 2004 ("Pl. Stmt.") ¶ 6; Defendant Edith Reich and Brigitte R. Jossem's Response to Plaintiff's Statement of Material Undisputed Facts in Support of Its Motion for Partial Summary Judgment, dated Oct. 22, 2004 ("Def. Stmt.") ¶ 6.)*fn2 Newco AG ("Newco"), a Swiss corporation, acted as sales agent for IDTS in connection with the resale of the metals that IDTS acquired from AOOT. (Pl. Stmt. ¶ 7; Def. Stmt. ¶ 7.) Newco sold the metals IDTS acquired from AOOT to third parties, collected payment from the third parties, deducted its fee, and transferred the remainder, at times, directly to IDTS. (Pl. Stmt. ¶ 7; Def. Stmt. ¶ 7.) Between October 11, 1991, and May 19, 1993, Newco paid IDTS more than $303 million in connection with these metals transactions. (Pl. Stmt. ¶ 8; Def. Stmt. ¶ 8.) At Reich's instruction, nine payments totalling $14,833,843 were made by wire transfer to Reich's personal bank account at United Mizrahi Bank in Zurich, Switzerland, and the remainder of the $303 million was made by wire transfer to the account of IDTS at the same bank. (Pl. Stmt. ¶ 8; Def. Stmt. ¶ 8.)

AOOT brought two arbitrations against IDTS in Russia for breach of contract, alleging that IDTS had failed to pay for metals it purchased from AOOT. (Pl. Stmt. ¶¶ 1, 9; Def. Stmt. ¶¶ 1, 9.) In 1995, AOOT obtained two arbitration awards totalling $192, 715, 245.31, and £8,120,045.31, plus interest on both amounts (the "Arbitration Award"). (Pl. Stmt. ¶ 1; Def. Stmt. ¶ 1.) On July 29, 1997, this Court entered a judgment (the "1997 Judgment") in favor of AAOT confirming the Arbitration Award. (Pl. Stmt. ¶ 2; Def. Stmt. ¶ 2.) On March 27, 1998, the Court of Appeals for the Second Circuit affirmed the 1997 Judgment. (Pl. Stmt. ¶ 3; Def. Stmt. ¶ 3.) See AAOT Foreign Econ. Ass'n (VO) Technostroyexport v. Int'l Dev. & Trade Servs., Inc., 139 F.3d 980 (2d Cir. 1998).

In 1996, AOOT created a new charter in which it changed its name to JSC Foreign Economic Association Technostroyexport. (Declaration of Ira M. Feinberg in Support of Plaintiff's Motion for Partial Summary Judgment, dated Sept. 17, 2004 ("Feinberg 2004 Decl."), Ex. B, ¶ 2.4.) Its previous name, AOOT Foreign Economic Association (VO) Technostroyexport, contained an abbreviation of the Russian words meaning "Open Type Joint-Stock Company." (July 6, 2004 Deposition of Victor Dashchinskiy ("Dashchinskiy Dep.") at 105-06, attached at Ex. A to Feinberg 2004 Decl.) Due to a change in Russian law, the company changed its name to begin with the Russian words meaning "Joint Stock Company," which are abbreviated in Russian as "OAO," and in English as "JSC." (Declaration of Viktor I. Velichko, sworn to June 29, 2005 ("Velichko Decl."), ¶¶ 6-8.) The new charter stated that JSC "shall also be the successor of the Foreign Economic Association `Technostroyexport' in the full amount of its legal rights and obligations.'" (Feinberg 2004 Decl., Ex. B, ¶ 2.4.)

At their depositions, Reich and Jossem each asserted her Fifth Amendment privilege against self-incrimination in response to all questions regarding the activities of IDTS and their domination and control of IDTS. (Pl. Stmt. ¶ 22; Def. Stmt. ¶ 22.) Until its dissolution in 1997, Reich was the president and sole corporate officer of IDTS, and Jossem was its sole director and sole shareholder. (Pl. Stmt. ¶¶ 11, 12; Def. Stmt. ¶¶ 11, 12.) Reich and Jossem conducted all negotiations on behalf of IDTS and made all decisions on behalf of IDTS. (Pl. Stmt. ¶¶ 13, 14; Def. Stmt. ¶¶ 13, 14.) Reich signed all contracts on behalf of IDTS relating to IDTS business dealings with AOOT and Newco, and routinely signed checks issued by IDTS. (Pl. Stmt. ¶ 15, 17, Def. Stmt. ¶ 15, 17.) At his deposition, Abraham Weiss, an accountant for IDTS, testified that Jossem had the ultimate authority to decide what income would be attributable to IDTS on its tax returns and what income would be reported on Jossem's personal returns, and to decide what expenses IDTS would deduct on its tax returns. (Pl. Stmt. ¶ 46; Def. Stmt. ¶ 46; Apr. 1, 2004 Deposition of Abraham Weiss ("Weiss Dep.") at 176, 288-89, attached at Ex. F to Feinberg 2004 Decl.) Weiss testified that together, Reich and Jossem had the authority to decide whether they would receive bonuses from IDTS, and the amounts of those bonuses. (Weiss Dep. at 218-19.)

At their depositions, Reich and Jossem each again asserted her Fifth Amendment privilege against self-incrimination in response to questions regarding their roles as officers of IDTS and whether IDTS observed corporate formalities. (Mar. 16, 2004 Deposition of Brigitte Jossem ("Jossem Dep.") at 17-19, attached at Ex. E to Feinberg 2004 Decl.; Mar. 11, 2004 Deposition of Edith Reich ("Reich Dep.") at 24-26, attached at Ex. D to Feinberg 2004 Decl.) Although Reich was, at all times, the president of IDTS and its sole officer, Jossem represented that she was president of IDTS when signing and filing a Certificate of Change of Address form on behalf of IDTS with the New York Secretary of State. (Pl. Stmt. ¶ 33; Def. Stmt. ¶ 33.) IDTS did not hold annual shareholder meetings or regular directors' meetings, and did not keep corporate minutes.*fn3 (Pl. Stmt. ¶¶ 24-26; Def. Stmt. ¶¶ 24-26.) IDTS never filed any biennial statements identifying basic information about the corporation, such as the identity of its Chief Executive Officer ("CEO"), as it was required under New York Business Corporation Law § 408. N.Y. Bus. Corp. Law § 408 (2003). (Pl. Stmt. ¶ 28; Def. Stmt. ¶ 28.) IDTS operated its business from the New York City apartment where Reich resided at the time. (Pl. Stmt. ¶ 27; Def. Stmt. ¶ 27.) IDTS ceased operations in 1994, but did not follow the procedures required to dissolve a corporation ...


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