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Capital Distribution Services, Ltd. v. Ducor Express Airlines

May 1, 2007


The opinion of the court was delivered by: Gershon, United States District Judge


In this action, plaintiff Capital Distribution Services, Ltd. ("CDS") seeks to recover funds paid to defendant Ducor Express Airlines, Inc. ("Ducor") for the provision of cargo flights that Ducor failed to provide. Ducor has confessed judgment on CDS's claim of breach of contract and, on July 21, 2006, this court granted CDS summary judgment against defendants Mabutu M. Kamara ("Mabutu"), Khady Kamara ("Khady"), and Abou Kamara ("Abou") on its claims of fraudulent conveyance. CDS now seeks summary judgment on its claims against defendant Mabutu (1) for waste and misappropriation of Ducor's funds pursuant to section 720 of the New York Business Corporation Law, and (2) to pierce the corporate veil to hold Mabutu liable for Ducor's obligation to CDS. No opposition to CDS's motion has been filed. For the reasons set forth below, CDS's motion is granted.


Many of the facts underlying CDS's claims against Mabutu are detailed in the partial summary judgment order entered on July 21, 2006. See Capital Distrib. Servs., Ltd. v. Ducor Express Airlines, Inc., 440 F. Supp. 2d 195 (E.D.N.Y. 2006). There, I granted CDS's motion for summary judgment on its fraudulent conveyance claims against (1) Abou in the amount of $242,500; (2) Khady in the amount of $150,000; and (3) Mabutu in the amount of $43,500. CDS now argues that, pursuant to section 720 of the New York Business Corporation Law ("BCL"), Mabutu is personally liable for these unlawful diversions of Ducor's funds. To that end, CDS stresses that all of the fraudulent conveyances identified above were carried out by Mabutu, and that they were made solely for the benefit of Mabutu and his family members, for no legitimate business purpose, and for no consideration. In addition, based on undisputed facts recited in the partial summary judgment order,*fn1 CDS also requests that this court hold Mabutu personally liable, under BCL § 720, for $50,000 which Mabutu transferred to a separate bank account, safely out of CDS's reach but at Mabutu's disposal.

CDS also seeks summary judgment on its claim for piercing the corporate veil and contends that Mabutu should be held personally liable for the full amount of CDS's judgment against Ducor, i.e., $866,934.45. In support of this claim, CDS recites numerous undisputed facts. First, Ducor acted only through Mabutu, who was responsible for all of Ducor's financial transactions. Second, other than Mabutu, Ducor had only three employees, one of whom was Mabutu's wife, Khady, whom, according to Mabutu, merely followed his instructions. Third, Ducor was undercapitalized. As detailed in the partial summary judgment ruling, after a series of transfers out of its bank accounts on December 20, 2004, Ducor's accounts contained less than $1,000. Even before these transfers, the balance therein was insufficient to satisfy Ducor's $900,000 obligation to CDS. And there is no indication that Ducor had any assets other than those in its two Washington Mutual accounts. Fourth, Mabutu acknowledged that he regarded Ducor's funds as his own and that he routinely took out funds on an "as needed" basis for his personal use. At his deposition, for example, Mabutu testified that he took no salary from Ducor and simply took money when he needed it. He further testified that, while he ordinarily transferred funds from Ducor to his personal account and then paid his expenses from his account, he sometimes paid his personal expenses from Ducor's account directly. Finally, there is no evidence to suggest that any corporate records were maintained for Ducor, or that shareholder or director meetings were held. Mabutu testified that Ducor was a "family business" and that there were no outside officers, directors or shareholders. In fact, Mabutu identified only himself and his wife, Khady, as officers of Ducor, and Khady has resided in Africa since July, 2003; according to Mabutu, she has not engaged in any business activity in New York since that time. Notwithstanding CDS's document requests, Ducor failed to produce any documents demonstrating the existence of a corporate structure, such as minutes of meetings, by-laws, or resolutions.


I. Section 720 of the New York Business Law

Section 720(a)(1) of the New York Business Corporation Law ("BCL") imposes personal liability upon officers and directors of a corporation for, inter alia, violation of their duties in the management and disposition of corporate assets, and "[t]he acquisition by himself, transfers to others, loss or waste of corporate assets due to any neglect of, or failure to perform, or other violation of his duties." Section 720(b) of the BCL expressly authorizes a judgment creditor to bring an action under section 720. See JSC Foreign Econ. Ass'n Technostroyexport v. Int'l Dev. and Trade Servs., Inc., 295 F.Supp.2d 366, 383 (S.D.N.Y. 2003).

"BCL 720 embraces common-law and statutory causes of action imposing liability on directors and covers every form of waste of assets and violation of duty whether as a result of intention, negligence, or predatory acquisition." Amfesco Industries, Inc. v. Greenblatt, 172 A.D.2d 261, 265 (1st Dept. 1991). Unquestionably, section 720 imposes liability upon an officer or director who misappropriates corporate funds. See Brown v. Brown, 143 A.D.2d 248 (2d Dept. 1988).

Because I have already determined that Mabutu wrongfully and fraudulently transferred $242,500 to Abou, $150,000 to Khady, and $43,500 to himself out of Ducor funds -- and because Mabutu has submitted no opposition to CDS's motion -- I conclude that Mabutu is personally liable for these transfers under BCL § 720.

In addition, CDS requests that Mabutu be held personally liable for the $50,000 he transferred to the BHS account on December 20, 2004, under BCL § 720. Mabutu effected this transfer shortly after being served with process in this action, moving the funds to an account to which only he had access. CDS contends that Mabutu did so to insulate the funds from a potential judgment in favor of CDS. In light of these facts, and because Mabutu has not opposed CDS's motion or contested the facts therein, I find Mabutu personally liable for the $50,000 under BCL § 720.

II. Piercing the Corporate Veil

In order to pierce the corporate veil under New York law, it must be established "(i) that the owner exercised complete domination over the corporation with respect to the transaction at issue; and (ii) that such domination was used to commit a fraud or wrong that injured the party seeking to pierce the veil." Thrift Drug, Inc. v. Universal Prescription Adm'rs, 131 F.3d 95, 97 (2d Cir. 1997). "[W]hen a corporation is used by an individual to accomplish his own and not the corporation's business, such a controlling shareholder may be held liable for the corporation's commercial dealings as well as for its negligent acts." Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131 (2d Cir. 1991). The determination of whether to pierce the ...

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