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Ningbo Products Import & Export Co., Ltd v. Elan Eliau

October 31, 2011

NINGBO PRODUCTS IMPORT & EXPORT CO., LTD., PLAINTIFF,
v.
ELAN ELIAU, ET AL., DEFENDANTS.



The opinion of the court was delivered by: P. Kevin Castel, District Judge:

MEMORANDUM AND ORDER

Plaintiff Ningbo Products Import & Export Co., Ltd. brings this action against defendants Elan Eliau, Daniel Hedaya, and X.E.S.-NY Ltd. ("XES") for damages arising out of a breach of an agreement settling a dispute over the non-payment for textile and apparel products. Plaintiff alleges claims of breach of contract and fraudulent inducement to contract, and seeks to pierce the corporate veil against individual defendants Eliau and Hedaya, former officers and shareholders of XES. Defendants move to dismiss plaintiff's complaint under Rule 12(b)(6), FED. R. CIV. P., for failure to state a claim upon which relief can be granted. For the reasons set forth below, defendants' motion to dismiss is granted.

BACKGROUND

Plaintiff is a Chinese corporation that exports and sells textile and apparel. (Compl. ¶ 1.) XES is a New York corporation that purchases and resells textiles and apparel products. (Id. ¶ 2.) Between July and October 2007, plaintiff entered into a series of sales agreements with XES. (Id. ¶¶ 8-9.) Despite accepting plaintiff's merchandise, XES failed to make payment; by October 2007, XES owed plaintiff $591,442.30 in outstanding payments. (Id. ¶ 11-12.) Edith Eliau, then-president of XES, claimed that XES would be unable to pay the $591,442.30 it owed to plaintiff due to XES's financial difficulties. (Id. ¶ 11.)

Plaintiff and XES's representatives began discussing a resolution of their dispute. Defendant Eliau, officer and majority owner of XES, initially proposed a settlement of $110,000, which plaintiff rejected. (Id. ¶¶ 3, 12.) Plaintiff then informed XES of its plans to "seek legal remedies" and file an involuntary bankruptcy petition against XES, to which defendant Eliau requested additional time to prepare a second settlement offer. In response to Eliau's request, plaintiff refrained from filing an involuntary bankruptcy petition. (Id. ¶¶ 12, 13.)

On February 8, 2008, plaintiff and XES entered into a settlement agreement that forms the basis of this lawsuit (the "Settlement Agreement"). The Settlement Agreement called for XES to pay plaintiff $300,000 in full satisfaction of XES's outstanding debt of $591,442.30. (Id. ¶ 14.) The Settlement Agreement contained an acceleration clause by which the total "Disputed Amount" of $591,442.30 "shall become immediately due and payable" should XES breach its promise to pay the agreed-upon $300,000. (Id. Ex. B, at 4.) In exchange for XES's promise, plaintiff agreed to waive "any and all claims against XES" as to the remainder of the unpaid amount under the sales agreements. (Id. ¶ 16.) Moreover, plaintiff agreed: that it waives any and all additional claims against XES and releases XES, its officers, directors . . . and assigns from all actions, causes of action, . . . claims and demands whatsoever in law or in equity which it, or its successors and assigns, ever had, now have to hereafter can, shall or may have for or by reason of any matter whatsoever . . . . (Id. Ex. B, at 2.) Lastly, the Settlement Agreement required XES to pay the $300,000 in four separate installments. Although XES transferred its initial payment of $50,000 to plaintiff on February 20, 2008, XES failed to make any of the three subsequent payments. (Id. ¶¶ 16, 26-28.)

In January 2009, plaintiff commenced an action in this Court against XES for breach of the Settlement Agreement. Ningbo Prods. Imp. & Exp. Co., Ltd. v. XES-NY Ltd., No. 1:08 CV 10309 (PKC) (S.D.N.Y. Apr. 21, 2009). Plaintiff obtained a default judgment against XES in the amount of $541,903.30. This award represented XES's initial $541,442.30 debt, less its February 2008 payment and plus plaintiff's costs and attorney fees. See id.

In March 2010, while attempting to enforce its default judgment against XES, plaintiff discovered a series of transactions that occurred just prior to the February 8, 2008 Settlement Agreement. First, plaintiff learned that on January 30, 2008 defendants Eliau and Daniel Hedaya, another officer and minority shareholder of XES, conveyed all of XES's assets to CIT Group/Commercial Services ("CIT"). (Compl. ¶¶ 4, 18-22.) CIT is a corporate finance company that provides commercial loans to small and medium-sized businesses. Since 2006, CIT had owned a security interest in XES's inventory, trade names, customer information, and business "good will," among other assets. (Id. Ex. C.) Although CIT had publicly filed this lien and the corresponding Uniform Commercial Code forms with the New York Department of State, (Supp. Decl. of Evan S. Weintraub ("Weintraub Decl."), Ex. A), plaintiff was unaware that CIT had foreclosed on the lien at the time of the February 2008 Settlement Agreement. (Compl. ¶ 18.)

Plaintiff also learned in 2010 of three other transactions that occurred on January 30, 2008. The first was a conveyance of XES's former assets by CIT. Namely, CIT executed a "General Conveyance and Bill of Sale" ("Bill of Sale") agreement with Joseph A Holdings, LLC ("Holdings, LLC").*fn1 (Id. Ex. D, at 1.) Holdings, LLC is a Delaware limited liable company formed on January 23, 2008. (Id. ¶ 20.) The Bill of Sale between CIT and Holdings, LLC called for the conveyance of "virtually all of XES's assets" from CIT to Holdings, LLC. In exchange, Holdings, LLC assigned to CIT its right to receive all forthcoming payments and amounts due it from a third party, Joseph A Company, LLC ("Company, LLC"). (Id.) Company, LLC was formed under Delaware law on January 30, 2008-the same date as the Bill of Sale. Defendants Eliau and Hedaya each signed the Bill of Sale in his individual capacity. (Id. Ex. D, at 5.)

Also on January 30, 2008, Holdings, LLC and Company, LLC entered into a License Agreement. (Id. Ex. E.) Under this agreement, Holdings, LLC agreed to convey to Company, LLC an exclusive license to use trademarks and trade names previously owned and used by XES in order to sell merchandise and apparel bearing these marks. (Id. ¶ 21 & Ex. E, at 6.) In exchange, Company, LLC assigned to Holdings, LLC the right to receive royalties from Company, LLC's sale of the merchandise. (Id. Ex. E, at 2.) Neither Eliau nor Hedaya signed this agreement. (Id.)

The fourth January 30, 2008 transaction that plaintiff discovered was an agency arrangement between Company, LLC and March 1st, LLC, a company that defendant Eliau formed under New York law on January 28. (Id. ¶ 22 & Ex. F.) Titled "Sales and Design Agreement," the agreement called for March 1st, LLC to act as sales agent for Company, LLC in "engag[ing] in the business of manufacturing and selling the product lines of [Company, LLC]" and "to act as a sales representative for [Company, LLC] to market and sell all Product Lines." (Id. Ex. F, at 1.) In exchange, Company, LLC agreed to pay March 1st, LLC commissions from its sale of Company, LLC's merchandise. (Id. Ex. F, at 3-4.) This agreement took effect immediately upon execution of the Bill of Sale-in which CIT conveyed XES's former assets to Holdings, LLC-and the License Agreement between Holdings, LLC and Company, LLC, both described above. (Id. Ex. F, at 2.)

The apparent result of these four January 30, 2008 transactions is the following: CIT acquired all of XES's assets; CIT then conveyed those assets to Holdings, LLC in exchange for revenues from the sale of merchandise bearing XES's former trademarks; Holdings, LLC licensed these marks to Company, LLC to generate the revenues Holdings, LLC owed to CIT; and Company, LLC hired March 1st, LLC-a company founded and owned by defendant Eliau-as its sales agent to sell and market the actual merchandise. (Id. ¶¶ 18-22.) Plaintiff was unaware of any of these four transactions on February 8, 2008, the date of the Settlement Agreement with XES. (Id. ¶ 18.)

Plaintiff commenced the present action against defendants XES, Eliau, and Hedaya on January 31, 2011. (Docket #1.) As noted, plaintiff's complaint includes three claims for relief: (1) fraudulent inducement to enter into the Settlement Agreement; (2) "pierce of corporate veil;" and (3) breach of contract. (Compl. at 8-11.) Plaintiff alleges that defendants had "actual knowledge of material facts relating to" to the transactions described above and that defendants "failed to disclose" these facts prior to the Settlement Agreement. (Id. ¶ 33.) Plaintiff seeks damages of $541,442.30, representing the remainder of the entire debt XES owed to plaintiff prior to the Settlement Agreement plus interest, costs, and fees. (Id. ¶ 7.)

LEGAL STANDARD

Defendants move to dismiss plaintiff's complaint for failure to state a claim upon which relief can be granted. Rule 8(a)(2), FED. R. CIV. P., requires "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957) (ellipsis in original)). To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must provide the grounds upon which the claims rest through factual allegations sufficient to raise a right to relief above the speculative level. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 555). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). "The plausibility standard . . . asks for more than a sheer possibility that a defendant has acted unlawfully." Id. Legal conclusions and "[t]hreadbare recitals of the elements of a cause of action" do not suffice to state a claim, as "Rule 8 . . . does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 1949-50.

In ruling on a motion to dismiss, the Court draws all reasonable inferences in the plaintiff's favor and accepts as true all well-pleaded factual allegations in the complaint. In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (per curiam). Although the Court is generally limited to facts as stated in the complaint, it may consider exhibits or documents incorporated by reference without converting the motion into one for summary judgment. See Int'l Audiotext Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995). This Court may also consider any document integral to the complaint upon which it "relies heavily." See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d ...


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