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Kermanshah v. Kermanshah

August 11, 2008

HABIBOLLAH KERMANSHAH, PLAINTIFF,
v.
ABBAS KERMANSHAH, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Andrew J. Peck, United States Magistrate Judge

OPINION AND ORDER

Plaintiff Habibollah ("Habib") Kermanshah*fn1 brings this diversity action against his three younger brothers -- all former business partners -- and their corporations and partnership, asserting claims of declaratory judgment (Dkt. No. 34: Am. Compl. ¶¶ 62-66), minority shareholder oppression (id. ¶¶ 67-70), corporate dissolution (id. ¶¶ 71-74), breach of fiduciary duty (id. ¶¶ 75-80), breach of contract (id. ¶¶ 81-83), fraud (id. ¶¶ 84-89), conversion (id. ¶¶ 90-96), accounting (id. ¶¶ 97-102), unjust enrichment (id. ¶¶ 103-04), and breach of the covenant of good faith and fair dealing (id. ¶¶ 105-08).

Presently before the Court is defendants' motion to dismiss the amended complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (Dkt. No. 36: Defs. Notice of Motion), on the grounds that: (1) Habib's claims are time-barred by the applicable statutes of limitations (Dkt. No. 37: Defs. Br. at 15-24); and (2) Habib's sixth cause of action, for fraud, should be dismissed as duplicative of the fifth cause of action for breach of contract (Defs. Br. at 24). The parties have consented to decision of this motion by a Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Dkt. No. 24.)

For the reasons set forth below, defendants' motion to dismiss is GRANTED with respect to Habib's claims for: (1) corporate accounting, (2) minority shareholder oppression, (3) corporate dissolution, and (4) breach of the covenant of good faith and fair dealing. Defendants' motion to dismiss is DENIED with respect to Habib's other claims, for breach of fiduciary duty, breach of contract, fraud, conversion, unjust enrichment, partnership accounting and declaratory judgment.

FACTS

The facts alleged in Habib's amended complaint and the exhibits thereto are assumed to be true for purposes of this motion, and will be set forth herein without use of the preamble "Habib alleges."

The Defendants

Defendants Abbas Kermanshah ("Abbas"), Abdolmajid Kermanshah ("Majid") and Abdolhamid Kermanshah ("Hamid") are plaintiff Habib's three younger brothers, and are Iranian-born, naturalized United States citizens, with their residences (and principal places of business) in Manhattan. (Dkt. No. 34: Am. Compl. ¶¶ 2-4, 20.)

The corporate defendants all are New York corporations with a principal place of business in New York City. (Am. Compl. ¶¶ 5-16.) Defendants Kermanshah Brothers Oriental Rugs, Inc. ("KBOR"), Kermanshah Oriental Rugs, Inc. ("KOR") and Kermanshah Brothers Rugs, Inc. ("KBR") import and sell oriental rugs. (Am. Compl. ¶¶ 8-10.)

Defendants 263 West 30th Inc., Rahman NY, Inc. and Shirewil, Inc. own mixed-use buildings in Manhattan. (Am. Compl. ¶¶ 5, 6, 15, 33-34, 40.) Defendants Ebrahim Realty, Inc., Sherin West 86th Street Corp. and Wilshire Limited own residential buildings in Manhattan. (Am. Compl. ¶¶ 7, 14, 16, 35, 39, 41.)

Defendant Overseas Partnership Co., Inc. ("Overseas Corp.") owns a residential building at 41 Monroe Street in Manhattan. (Am. Comp. ¶¶ 11, 37.) Defendant Overseas Partnership Company ("Overseas Partnership") owned the residential property but transferred it to Overseas Corp. (Am. Compl. ¶¶ 12, 36-37.)

The Parties' Business History

Around 1971, plaintiff Habib and defendant Abbas opened "Kermanshah Rugs," a rug store in Tehran, Iran, agreeing to evenly split the profits. (Dkt. No. 34: Am. Compl. ¶ 21.) Shortly after opening this store, Abbas moved to the United States and used funds from "Kermanshah Rugs" to open a Persian rug store, "Houbas Oriental Rugs." (Am. Compl. ¶ 22.) By agreement, Habib and Abbas were 50-50 owners and equally split all "expenses, costs, losses, revenue, profit, and income generated by Houbas or its [1973] successor, Kermanshah Brothers Oriental Rugs ('KBOR')." (Am. Compl. ¶¶ 22, 43.) During the 1970s, plaintiff Habib supplied rugs from Iran to Abbas for sale through KBOR. (Am. Compl. ¶ 23.) Around 1978, Habib and Abbas relocated to and began importing and selling rugs in Saudi Arabia, continuing to equally share the business' profits and income. (Am. Compl. ¶ 25.)

In the late 1970s and early 1980s, the youngest brothers, Majid and Hamid, moved to the United States to help run Habib's and Abbas' New York business operations. (Am. Compl. ¶ 26.) During the 1980s and 1990s, plaintiff Habib sent substantial revenue and income from KBOR to his brothers in the United States to invest in New York City real estate, agreeing that all investments would be shared equally among the four brothers, and that each brother would have an equal 25% ownership interest in any corporate entity created to acquire real estate properties. (Am. Compl. ¶¶ 29-30, 32; see also Am. Compl. Ex. A: Copies of Checks.) The four brothers agreed to equally share "all expenses, costs, revenue, income, and losses generated by the rug businesses and the real estate investments." (Am. Compl. ¶ 30.) In 1990, plaintiff Habib moved to the United States (he resides in New Jersey and became a citizen in 1997), and continued to run the Saudi Arabian operations with Abbas, while Majid and Hamid had day to day management of the New York City real estate investments. (Am. Compl. ¶¶ 1, 31.)

Abbas, Majid, and Hamid formed various business Entities*fn2 throughout the late 1970s, 1980s and 1990s, through which they acquired New York City real estate properties. (Am. Compl. ¶ 32.) In or about 1987, Habib, Abbas and Hamid formed Overseas Partnership to acquire a residential building at 41 Monroe Street, for which Habib provided all of the capital. (Am. Compl. ¶¶ 36-37 & Ex. C: 5/23/85 Check.) Habib, Abbas and Hamid were equal partners in Overseas Partnership and thus equal owners of 41 Monroe Street. (Am. Compl. ¶ 36.) In or about 2000, Abbas, Hamid and Majid formed Overseas Corp., a corporation in which Habib had no interests or rights, and transferred the 41 Monroe Street property to defendants' new corporation. (Am. Compl. ¶ 37.) Abbas, Hamid and Majid forged Habib's name on the deed and transfer documents.*fn3 (Am. Compl. ¶ 37 & Ex. B: Deed.)

Defendants' Fraudulent Scheme

The amended complaint alleges that defendants Abbas, Majid and Hamid fraudulently schemed, from an undetermined date, to "convert and deprive Plaintiff [Habib] of his ownership interests in the various corporate entities, including the rug companies that he co-founded." (Dkt. No. 34: Am. Compl. ¶ 44.)*fn4 Defendants Abbas, Majid and Hamid controlled the companies' books and records and "manipulate[d] the information available to Plaintiff" Habib. (Am. Compl. ¶ 46.) "[A]s recently as late 2006," defendants Abbas, Majid and Hamid each represented to plaintiff Habib, by telephone and in person in New York and Saudi Arabia, that Habib "was an equal owner of the rug businesses and the Real Estate Properties." (Am. Compl. ¶ 46.) For example, in 2006, Majid and Hamid confirmed plaintiff Habib's ownership interest in the U.S. rug businesses and real estate properties when confirming "that any issues between Abbas and Plaintiff [Habib] in Saudi Arabia had no relationship or impact on the brothers' American businesses." (Am. Compl. ¶ 47.)

In February 2008, defendant Majid confirmed plaintiff Habib's equal ownership interests again, when he suggested "that the businesses had been established with the intention of allowing the four brothers' children to benefit from the proceeds of the joint businesses." (Am. Compl. ¶ 48.) Until late 2006, defendants Abbas, Majid and Hamid paid plaintiff Habib and his family Habib's "'share' of the business," and through 2005 paid Habib's personal taxes and bills as a "return on [Habib's] investment -- his share of the businesses." (Am. Compl. ¶ 49.)

Defendants Abbas, Majid and Hamid concealed their fraudulent activity by not registering Habib's ownership interests in the businesses or by "eras[ing] any evidence of Plaintiff's ownership." (Am. Compl. ¶ 51.) In 1984, at a special KBOR board of directors meeting, defendants Abbas, Majid and Hamid offered plaintiff Habib 160 of 200 shares in KBOR in exchange for eliminating their debt to Habib. (Am. Compl. ¶ 51 & Ex. E: 3/5/84 Minutes; Am. Compl. Ex. F: KBOR Stock Certificate.) Subsequently, defendants Abbas, Majid and Hamid created KOR, and "transferred all of KBOR's assets, business, funds, and operations from KBOR to KOR, thus leaving Plaintiff [Habib] with 160 shares in a worthless company, and no valid debt to recover in exchange for [Habib's] substantial investments in and funding of the rug and real estate businesses in the United States." (Am. Compl. ¶ 52.) Defendants Abbas, Majid and Hamid later issued plaintiff Habib minority ownership in KOR, representing that the KOR interest "was intended to be combined with [Habib's] interests in KBOR to equal his overall 25% interest in the combined rug businesses." (Am. Compl. ¶ 53 & Ex. G: KOR Stock Certificate.) Until "late 2006," defendants Abbas, Majid and Hamid "continued to point to the worthless stock certificate in KBOR as evidence of [Habib's] equal ownership interests, while concealing the fact that they had, in fact, converted such interests."

(Am. Compl. ¶ 53.) Defendants Abbas, Majid and Hamid further diluted plaintiff Habib's ownership interests when they created "yet another entity, Kermanshah Brothers Rug, Inc. ('KBR')." (Am. Compl. ¶ 53.)

Defendants Abbas, Majid and Hamid shared information with plaintiff Habib regarding the rug businesses, although "the practice of sharing occasional information and documentation ebbed in the mid-1990s." (Am. Compl. ¶ 56.) Until late 2006, however, defendants updated Habib about the "rug businesses and other investments," and "regularly showed [Habib] the healthy inventory in the rug businesses and the occupied units in the Real Estate properties," and repeatedly represented to Habib that he maintained equal ownership in the rug businesses and real estate properties. (Am. Compl. ¶¶ 56-57.)

Plaintiff Habib's Discovery of Defendants' Misconduct

"In or about 2006, Plaintiff [Habib] discovered -- for the very first time, that Defendant Abbas had unlawfully diverted corporate assets from a joint account maintained in Saudi Arabia relating to [Habib and Abbas'] Saudi rug business." (Dkt. No. 34: Am. Compl. ¶ 60.) Habib also discovered that Abbas had collected Saudi receivables and deposited them into a personal account. (Am. Compl. ¶ 60.) In addition, Habib "much later" learned that defendants had "falsely advised the Saudi royal family that Plaintiff [Habib] ha[d] no interest in KBOR and did not speak for the company." (Am. Compl. ¶ 45.)*fn5 Habib sued Abbas in Saudi Arabia over the operations and finances of the Saudi-based rug business. (Am. Compl. ¶ 60.)*fn6

"In or about 2007," as a result of the Saudi Arabian lawsuit, Habib "began to audit all of [his] business interests, including those in the United States." (Am. Compl. ¶ 61.) Habib reviewed public documents and discovered the forged 41 Monroe Street deed "transferring one of the Real Estate Properties from an entity in which [Habib] held an ownership interest to an entity in which [Habib] did not own a membership interest." (Am. Compl. ¶ 61; see also pages 4-5 above.) This 2007 discovery constituted the first time that Habib "had any reason to believe that the defendants had taken steps to divert his ownership interests in the American rug businesses and New York Real Estate Properties." (Am. Compl. ¶ 61; see also Am. Compl. ¶ 44.)*fn7

The Amended Complaint's Causes of Action

The Amended Complaint asserts ten causes of action, as follows:

* Count 1: Declaratory Judgment (Dkt. No. 34: Am. Compl. ¶¶ 62-66),

* Count 2: Minority Shareholder Oppression (Am. Compl. ¶¶ 67-70),

* Count 3: Corporate Dissolution (Am. Compl. ¶¶ 71-74),

* Count 4: Breach of Fiduciary Duty (Am. Compl. ¶¶ 75-80),

* Count 5: Breach of Contract (Am. Compl. ¶¶ 81-83),

* Count 6: Fraud (Am. Compl. ¶¶ 84-89),

* Count 7: Conversion (Am. Compl. ¶¶ 90-96),

* Count 8: Accounting (Am. Compl. ...


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