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TradeWinds Airlines, Inc. v. Soros

February 23, 2009

TRADEWINDS AIRLINES, INC., PLAINTIFF,
v.
GEORGE SOROS AND PURNENDU CHATTERJEE,*FN1 DEFENDANTS.



The opinion of the court was delivered by: John F. Keenan, United States District Judge

MEMORANDUM OPINION & ORDER

TradeWinds Airlines, Inc. ("TradeWinds"), the holder of a $54.87 million default judgment in North Carolina state court against C-S Aviation Services ("C-S Aviation"), commenced this action to pierce C-S Aviation's corporate veil and recover the judgment from its alleged alter egos, George Soros and Purnendu Chatterjee. Defendants now move to dismiss the amended complaint for failure to state a claim, or, in the alternative, to stay the case pending a motion by C-S Aviation to vacate the default judgment. For the reasons below, defendants' motion to stay is granted, and decision on their motion to dismiss is reserved.

Background

I. Other Proceedings

This case is an offshoot of complex litigation in North Carolina Superior Court, County of Guilford, concerning agreements for the lease of cargo aircraft (the "North Carolina Litigation"). On February 4, 2004, TradeWinds and its former parent companies, TradeWinds Holdings, Inc. ("Holdings") and Coreolis Holdings, Inc. ("Coreolis"), filed a third-party complaint against C-S Aviation, its parent companies, and Wells Fargo Bank Northwest, NA. The complaint mainly alleged that C-S Aviation, acting as the agent of the other third-party defendants, made false representations to induce TradeWinds to lease the aircraft.

In August 2004, after C-S Aviation had failed to answer the North Carolina third-party complaint, the third-party plaintiffs moved jointly for an entry of default against C-S Aviation, and default was entered. On April 24, 2008, TradeWinds alone moved for entry of a default judgment against C-S Aviation. The claims against the other third-party defendants had been settled and dismissed in April 2005.

On June 25, 2008, with its motion for a default judgment pending, TradeWinds filed a petition for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of Florida, Miami Division. The bankruptcy case, which has since been converted to one under Chapter 7 of the Bankruptcy Code, currently is underway.

On June 27, 2008, the North Carolina court entered a default judgment in favor of TradeWinds and against C-S Aviation in the amount of $54,867,872.49. The court found that C-S Aviation had engaged in deceptive trade practices by making false representations about the aircraft, that this caused TradeWinds to sustain damages of $16,326,528.94, and that TradeWinds was entitled to treble damages and pre-judgment interest under North Carolina law.

On August 25, 2008, C-S Aviation revived its Delaware certificate of incorporation, which had been void for nonpayment of fees since March 2005. On August 27, 2008, C-S Aviation moved the North Carolina court to set aside the entry of default and the default judgment, pursuant to North Carolina Rule of Civil Procedure 60. In its motion, C-S Aviation argues that (1) TradeWinds did not properly serve the third-party complaint on C-S Aviation and failed to present adequate proof of service to support entry of default and the default judgment; (2) the third-party complaint fails to state a claim against C-S Aviation; and (3) extraordinary circumstances exist such that justice demands the vacatur of the entry of default and the default judgment. The motion was argued on January 27, 2009, and is pending.

On November 12, 2008, Holdings and Coreolis moved the North Carolina court to amend the default judgment to add themselves as co-judgment creditors with TradeWinds, arguing that the third-party claims against C-S Aviation had been jointly asserted by all three parties. They also moved to intervene as co-plaintiffs in the instant veil-piercing action, based on their asserted interest in the default judgment. On February 10, 2009, however, the bankruptcy court in Miami determined that their motion to amend the default judgment was an attempt to share in an asset belonging to the TradeWinds' bankruptcy estate and, consequently, was subject to the automatic stay, 11 U.S.C. § 362(a). Accordingly, the bankruptcy court ordered Holdings and Coreolis to withdraw their motion to amend and their motion to intervene in the instant action.*fn2

II. The Instant Action

On June 30, 2008, three days after obtaining the default judgment against C-S Aviation in the North Carolina Litigation, TradeWinds commenced this action to pierce the company's corporate veil and recover the judgment from defendants Soros and Chatterjee. On October 3, 2008, plaintiff filed its first amended complaint (the "Amended Complaint").

The Amended Complaint alleges that long-time business partners Soros and Chatterjee ventured into the aviation business by establishing a "complex, multi-tiered" corporate structure, with C-S Aviation serving as the aircraft management company. (Amended Compl. ¶¶ 7-8.) According to the complaint, Soros and Chatterjee operated the company as their alter ego by, inter alia, undercapitalizing it, ignoring corporate formalities, siphoning corporate funds, and, ultimately, stripping the company of its assets. (Id. ¶¶ 10-11.) Such abuse of the corporate form is alleged to have rendered the company unable to satisfy the default judgment that TradeWinds obtained in the North Carolina Litigation. (Id. ¶¶ 17-18.)

On November 10, 2008, defendants filed the instant motion to dismiss the Amended Complaint for failure to state a claim, or, alternatively, to stay the case pending C-S Aviation's motion in North Carolina to vacate the default judgment. On December 8, 2008, after learning that the bankruptcy court in Miami had not yet approved the trustee's application to retain Violet Elizabeth Grayson, Esq., as counsel for TradeWinds in this case, the Court adjourned the ...


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