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Auburn Chevrolet-Oldsmobile-Cadillac, Inc. v. Branch

March 10, 2009


The opinion of the court was delivered by: Hon. Glenn T. Suddaby, United States District Judge


Plaintiff Auburn Chevrolet-Oldsmobile-Cadillac, Inc. ("Plaintiff") commenced this action against its former president and director, Defendant Theldon R. Branch, III ("Defendant"), seeking judgment for (1) breach of fiduciary duty (including misappropriation, diversion and waste of corporate assets), (2) fraud, (3) conversion, (4) money paid by mistake, (5) breach of contract, and (6) unjust enrichment. (Dkt. No. 1, ¶ 1 [Plf.'s Compl.].) Plaintiff is a Delaware Corporation doing business in New York. (Id. at¶ 2.) Defendant is a citizen of Texas. (Dkt. No. 36, Part 4, at 6 [Branch Dep. Tr.].) The amount in controversy in this action exceeds $75,000. (Dkt. No. 1, ¶ 2 [Plf.'s Compl.].) Therefore, jurisdiction in this action is based upon diversity of citizenship.

Currently before the Court is Plaintiff's motion for partial summary judgment in the amount of $189,555.70 on its claim for breach of fiduciary duty. (Dkt. No. 36, Part 8, at 2.)Specifically, Plaintiff seeks judgment regarding (1) a $58,372.10 check that Defendant allegedly misappropriated on July 6, 2004, (2)a $100,000 wire transfer allegedly made to a "Branch Companies Inc." account at Wells Fargo Bank on August 3, 2004, and (3) a $31,183.60 check that Defendant allegedly misappropriated to a Branch Companies account on October 22, 2004. (Dkt. No. 36, Part 8, at 2-8.)*fn1 For the reasons set out below, the Court grants Plaintiff's motion.


Under Fed. R. Civ. P. 56, summary judgment is warranted if "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). In determining whether a genuine issue of material fact exists, the Court must resolve all ambiguities and draw all reasonable inferences against the moving party. In addition, "[the moving party] bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the... [record] which it believes demonstrate[s] the absence of any genuine issue of material fact." Celotex v. Catrett, 477 U.S. 317, 323-24 (1986). However, when the moving party has met this initial responsibility, the nonmoving party must come forward with "specific facts showing a genuine issue [of material fact] for trial." Fed. R. Civ. P. 56(e)(2).

As for the materiality requirement, a dispute of fact is "material" if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248 [citation omitted].

As for the genuineness requirement, a dispute of fact is "genuine" if "the [record] evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. As a result, "[c]onclusory allegations, conjecture and speculation... are insufficient to create a genuine issue of fact." Kerzer v. Kingly Mfg., 156 F.3d 396, 400 (2d Cir. 1998) [citation omitted; emphasis added]; see also Fed. R. Civ. P. 56(e)(2).*fn2 Similarly, inadmissible hearsay is insufficient to create a genuine issue of fact, "absent a showing that admissible evidence will be available at trial." Burlington Coat Factory Warehouse Corp. v. Esprit De Corp., 769 F.2d 919, 924 (2d Cir. 1985) [citations omitted]. Moreover, "an affidavit... that, by omission or addition, contradicts the affiant's previous deposition testimony" is insufficient to create a genuine issue of fact. Hayes v. New York City Dept. of Corr., 84 F.3d 614, 619 (2d Cir. 1996) [citations omitted].

Finally, as this Court has previously observed, "It is well established that issues of credibility are almost never to be resolved by a court on a motion for summary judgment." Cruz v. Church, 05-CV-1067, 2008 WL 4891165, at *4 & n.6 (N.D.N.Y. Nov. 10, 2008) (Suddaby, J.) [emphasis in original; collecting cases]. However, "there is a narrow exception to this well-established rule." Cruz, 2008 WL 4891165, at *4 [citation omitted]. In Jeffreys v. City of New York, 426 F.3d 549 (2d Cir. 2005), the Second Circuit explained that this narrow exception is for testimony by a non-movant that possesses the following two characteristics: (1) it constitutes almost the exclusive basis for a disputed issue of fact in the case (or, expressed differently, it is largely unsubstantiated by any other direct evidence); and (2) it is so lacking in credibility (because the testimony is incomplete and/or replete with inconsistencies and improbabilities) that, even after drawing all inferences in the light most favorable to the non-movant, no reasonable jury could find for the non-movant. Cruz, 2008 WL 4891165, at *4 & n.7 [collecting cases]. "Again, it must be remembered that the circumstances giving rise to this exception are rare.'" Id. & n.7 [collecting cases].


A. Statement of Undisputed Material Facts

Defendant was the president of Plaintiff, and a member of Plaintiff's Board of Directors, from December 11, 2002, until December 14, 2004. (Dkt. No. 41, Part 2, ¶¶ 1-2 [Def.'s Rule 7.1 Response].) Defendant was also a minority shareholder of Plaintiff because he owned "fifteen something percent" of Plaintiff upon his investment of $410,000 in Plaintiff. (Dkt. No. 36, Part 4, at 17-18 [Branch Dep. Tr.].) General Motors Corporation ("GM") owned the remaining balance of the shares in Plaintiff, affording GM a majority of Plaintiff's voting power. (Id.; Dkt. No. 41, Part 2, ¶ 4 [Def.'s Rule 7.1 Response].)

During Defendant's time as president of Plaintiff, Plaintiff's business consisted of operating an automobile dealership in Auburn, New York. (Dkt. No. 41, Part 2, ¶3 [Def.'s Rule 7.1 Response].) As president, Defendant was responsible for running the day-to-day operations of the dealership. (Id. at ¶ 5.) Throughout Defendant's tenure as president of Plaintiff, Plaintiff maintained its bank accounts at Fleet Bank, which later became Bank of America. (Id. at ¶ 6.)

1. The $58,372.10 Check

On or about July 6, 2004, Defendant endorsed a check that was drawn on Plaintiff's bank account and made payable to himself in the amount of $58,372.10, and gave it to his wife. (Id. at ¶ 7; see also Dkt. No. 41, Part 1, ¶ 7[Def.'s Rule 7.1 Response, providing accurate records citations].)Defendant never advised Plaintiff's Board of Directors of his receipt of the $58,372.10 dealership check, either before or after receiving it. (Dkt. No. 41, Part 2, ¶ 8 [Def.'s Rule 7.1 Response].)*fn3 Defendant never advised Plaintiff's Board of Directors that he was lending money to Plaintiff to cover payroll, as Section 12.4 of Plaintiff's bylaws requires. (Dkt. No. 41, Part 2, ¶¶ 9-10 [Def.'s Rule 7.1 Response].)*fn4

2. The $100,000 Wire Transfer

On July 7, 2004, Defendant made a loan to Plaintiff that was authorized by the Board. (Dkt. No. 36, Part 2, ¶ 7 [Mozingo Decl.].)The loan was evidenced by an Interest-Bearing Promissory Note ("Note"), which indicated that Plaintiff promised to pay Defendant $438,000 plus 10% interest per annum, accruing from the date of execution, in full, by the earlier of March 31, 2005 or the time either GM or Defendant ceases to be a stockholder of Plaintiff.(Dkt. No. 36, Part 5 [Exh. B, at 17].) On December 23, 2004, Plaintiff paid Defendant $457,101.57, in full satisfaction of the Note. (See Dkt. No. 36, Part 2, ¶ 7 [Mozingo Decl.].)

On August 3, 2004, $200,000 was transferred by wire from Plaintiff's account to a "Branch Companies Inc." account at Wells Fargo bank in Houston, Texas. (Dkt. No. 41, Part 2, ¶ 14 [Def.'s Rule 7.1 Response].)*fn5 Plaintiff did not owe the Branch Companies $200,000 when the wire transfer occurred. (Dkt. No. 41, Part 1, ¶ 15[Def.'s Rule 7.1 Response].)Defendant knew about the wire transfer "within a day of the transaction." (Dkt. No. 41, Part 2, ¶ 16 [Def.'s Rule 7.1 Response].) Defendant decided to treat the wired $200,000 as his own money. (Id. at ¶ 17.) Defendant never informed any member of the Board that $200,000 had been wired to the Branch Companies account on August 3, 2004. (Id. at ¶ 18.)*fn6 In November 2004, Defendant returned $100,000 to Plaintiff via two $50,000 wire transfers from the same Branch Companies account to which the $200,000 had been wired on August 3, 2004. (Id. at ¶ 19.)

3. The $31,183.60 Check

On October 22, 2004, a GM check made payable to Plaintiff in the amount of $31,183.60 was deposited into the Branch Companies account at Wells Fargo bank in Houston, Texas. (Id. at ¶ 20.)*fn7 Plaintiff's company policy required that all checks made payable to Plaintiff be deposited in Plaintiff's bank account. (Compare Dkt. No. 36, Part 7, ¶ 22 [Plf.'s Rule 7.1 Statement, asserting referenced fact, and supporting that assertion with accurate record citations] with Dkt. No. 41, Part 2, ¶ 22 [Def.'s Rule 7.1 Response, supporting his denial of referenced fact with record citation to a statement that is not material, nor is it evidence pursuant to 28 U.S.C. § 1746].)

B. Relevant Bylaws and Stockholder Ratifications

The Minutes of the Organizational Meeting of the Board of Directors with Stockholders Ratification dated December 11, 2002 (the date that Defendant became president, shareholder and Board member), provide "that in order to fully carry out the intent and effectuate the purposes of the foregoing resolutions, the proper officers of [Plaintiff] are hereby authorized to take all such further actions, and to execute and deliver all such further instruments and documents in the name and on behalf of [Plaintiff] and under its corporate seal or otherwise, and to pay all such fees and expenses, which shall in their judgment be necessary, proper or advisable."(Dkt. No. 41, Part 2, ¶ 2[Def.'s Rule 7.1 Counter Stmt.].)

The "foregoing resolutions" that the Minutes refer to include Section 12.4, Section 7.1 and Section 5.8 of Plaintiff's bylaws. Section 12.4 of Plaintiff's bylaws, in effect throughout Defendant's tenure with Plaintiff, provides that "[t]he board must authorize all loans made or contracted on the corporation's behalf and all evidences of indebtedness issued in the corporation's name." (Dkt. No. 41, Part 2, ¶ 10 [Def.'s Rule 7.1 Response].) Section 7.1 of Plaintiff's bylaws, in effect throughout Defendant's tenure with Plaintiff, provides that "[w]ithoutthe vote or written consent of the holders of shares with a majority of the corporation's voting power, neither the officers nor the Board may... increase or decrease the corporation's capital or... pledge, hypothecate, or otherwise encumber the corporation's assets...."(Id. at ¶ 11.) Section 5.8 of Plaintiff's bylaws, in effect throughout Defendant's tenure with Plaintiff, provides, in pertinent part, that "[t]he treasurer will (a) have the custody of the corporation's funds and securities, and (b) maintain good accounting records and maintain the corporation's books in accordance with procedures approved by the board, and render to the president and board (at its regular meetings and at other times when the board requests) financial and operational information of the corporation."(Dkt. No. 36, Part 5, at 9 [Exh. B to Orbach Decl.].)


Plaintiff argues that, because this action is based on diversity of citizenship, the Court must apply the choice-of-law rules of the forum state, which here is New York. (Dkt. No. 36, Part 7, at 8 [Plf.'s Mem. of Law].) Plaintiff further argues that courts applying New York's choice-of-law rules generally hold that a breach-of-fiduciary-duty claim is governed by the law of the defendant's state of incorporation, which here is Delaware. (Id. at 8-9.) Finally, Plaintiff argues that, because there is no conflict between the law of Delaware and the law of New York with regard to the legal principles governing Plaintiff's claims, the Court may rely on both Delaware law and New York law. (Id. at 9.) In his opposition memorandum of law, Defendant does not address this argument. (See generally Dkt. No. 42.) As a result, Defendant has effectively "consented" to this argument under Local Rule 7.1(b)(3) of the Local Rules of Practice for this Court.*fn8

In any event, even if the Court were to subject Plaintiff's argument to the more rigorous scrutiny appropriate for a contested argument, the Court would agree with Plaintiff. When jurisdiction is based on diversity, "[a] federal court... must apply the choice of law rules of the forum state." Buckley v. Deloitte & Touche USA LLP, 06-CV-3291, 2007 WL 1491403, at *13 (S.D.N.Y. May 22, 2007) [citation omitted]). "Pursuant to New York's choice of law rules--and specifically the 'internal affairs doctrine'--a claim of breach of fiduciary duty owed to a corporation is governed by the law of the state of incorporation." Buckley, 2007 WL 1491403, at *13 [citation omitted]. Finally, the Court can discern no material difference between Delaware law and New York law with regard to the legal principles governing Plaintiff's claims.

For these reasons, the Court concludes that it may rely on either Delaware law or New York law in deciding Plaintiff's motion.


Under Delaware law, "both officers and directors of a corporation owe fiduciary duties to the company and its shareholders." Cargill, Inc. v. JWH Special Circumstance LLC, 959 A.2d 1096, 1116 n.75 (Del.Ch. 2008). Moreover, mismanagement, misappropriation, and or diversion of corporate assets constitutes a breach of fiduciary duty. Bergman v. Brainin, 512 F. Supp. 972, 973 (D.Del. 1981); Technicorp Intern. II, Inc. v. Johnston, CV-15084, 2000 WL 713750, at *45 (Del.Ch. May 31, 2000) (adopting the view that "[i]f corporate ...

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