United States District Court, S.D. New York
HESHAM ZAGHLOUL ELDESOUKY, ABBAS ELSAYED ABBAS, AL-YASMIN COMPANY and TASNEEM COMPANY, Plaintiffs,
HATEM ABDEL AZIZ, GENERAL TRADE CORPORATION, INC., PYRAMID GRAIN INTERNATIONAL, INC., and PROVISION HALAL DISTRIBUTORS, INC., Defendants.
OPINION AND ORDER
JAMES L. COTT, Magistrate Judge.
Plaintiffs Hesham Zaghloul Eldesouky, Abbas Elsayed Abbas, Al-Yasmin Company, and Tasneem Company sued Defendants Hatem Abdel Aziz, General Trade Corporation, Inc., Pyramid Grain International, Inc., and Provision Halal Distributors, Inc. to recover money that had been paid to Defendants in 2011 for 2, 000 metric tons of flaxseed. Plaintiffs allege causes of action for fraud, breach of contract, and conversion. On November 26, 2013, Plaintiffs moved for summary judgment against Aziz and for default judgment against the corporate defendants. Defendants failed to respond to the motions, and as such, the Court considers them to be unopposed. For the reasons set forth herein, Plaintiffs' motions are granted in part and denied in part.
I. FACTUAL BACKGROUND
This case arises out of a contract to purchase flaxseed. Plaintiff Hesham Zaghloul Eldesouky ("Eldesouky") is the president of plaintiff corporation Tasneem Company ("Tasneem"), a company based in Alexandria, Egypt engaged in the grain import and export business. Plaintiffs' Statement of Undisputed Facts ("Rule 56.1 Stmt."), at ¶¶ 1-3 (Dkt. No. 50). Plaintiff Abbas Elsayed Abbas ("Abbas") is the principal of plaintiff corporation Al-Yasmin Company ("Al-Yasmin"), a grain import/export company in Port Said, Egypt. Id. at ¶¶ 4-6.
In December 2010 or January 2011, Eldesouky contacted defendant Hatem Abdel Aziz ("Aziz") to discuss the potential purchase of 194 metric tons of flaxseed. Declaration of Hesham Zaghloul Eldesouky dated November 26, 2013 ("Eldesouky Deel."), at ¶ 7 (Dkt. No. 46). Eldesouky was familiar with Aziz as he had been Tasneem's com supplier in a previous transaction. Id at ¶ 6. During their discussion, Aziz mentioned that he had a large quantity of high quality flaxseed at a facility in Manitoba, Canada, and that he could sell 2, 000 metric tons to Tasneem at $420 per metric ton. Rule 56. 1 Stmt., ¶¶ 17-20. Given the large quantity of flaxseed Aziz contemplated selling, Eldesouky contacted Abbas to determine whether Abbas and his company, Al-Yasmin, would partner with Tasneem in the purchase. Eldesouky Deel., ¶ 10; Declaration of Abbas Elsayed Abbas dated November 26, 2013 ("Abbas Deel."), at ¶ 4 (Dkt. No. 47).
On January 13, 2011, Tasneem and Al-Yasmin entered into a contract with defendant General Trade Corporation, Inc. ("General Trade") for the purchase of 2, 000 metric tons of flaxseed. Compl., Ex. 1 (Contract dated January 13, 2011); see also Rule 56.1Stmt., ¶31. Aziz executed the contract on behalf of General Trade in his capacity as "Company Chairman." Compl., Ex. 1 (Contract). The contract provided that the parties would purchase 2, 000 metric tons of flaxseed at $420 per metric ton, exclusive of shipping costs. Id. (Contract, Second Article); see also Rule 56.1 Stmt., ¶ 31. The flaxseed was to be supplied by General Trade. Compl., Ex. 1 (Contract, Third Article); Rule 56.l Stmt., ¶ 33. Eldesouky agreed to pay 10% of the total cost, Abbas 75%, and Aziz 15%. Compl., Ex. 1 (Contract, Second Article); Rule 56.1 Stmt., ¶ 32. Pursuant to the contract, Abbas made a $70, 000 down payment to Aziz by check dated January 13, 2011. Rule 56.1 Stmt., ¶ 35; Compl., Ex. 1 (Contract, Forth [sic] Article).
The contract was conditioned on Plaintiffs' ability to inspect and test the flaxseed being purchased. Id. at ¶¶ 25, 29; Compl., Ex. 1 (Contract, Fifth Article). To that end, Plaintiffs sent Abbas' brother, Abdelrahman Abdo Abbass ("Abdo"), to inspect the flaxseed facility in Manitoba and to take a sample of the flaxseed for testing. Rule 56.1 Stmt., ¶ 36. In March 2011, Abdo travelled with Aziz to Manitoba. Id. at ¶ 39. In Manitoba, Aziz took Abdo to a warehouse containing a large quantity of flaxseed. Id. at ¶ 40. Aziz and a manager of the warehouse identified the flaxseed that had allegedly been reserved for Tasneem and Al-Yasmin. Id. at ¶ 42. Abdo took a sample of this flaxseed and sent it to a laboratory for testing. Id. at ¶ 43. The test results reflected that the flaxseed met the quality requirements in the contract. Id. at ¶ 44.
In light of the laboratory report, Eldesouky and Abbas began wiring payments to Aziz at a Manhattan JPMorgan Chase bank account in his name he had designated. Id. at ¶ 49. Tasneem made a single $181, 440 payment to Aziz on March 30, 2011. Id. at ¶ 53. Abbas made separate payments of $60, 000 and $90, 000 on March 29, 2011; a $95, 000 payment on March 30; and a $99, 650 payment on April 12. Abbas Deel., Ex. R (bank transfer confirmations). Al-Yasmin transferred $90, 000 to Aziz on April 26, 2011. Rule 56.1 Stmt. at ¶ 55. Then, on May 12, Tasneem made a $35, 500 payment to a different JPMorgan Chase bank account held by Aziz's company, Pyramid Grain International, Inc. ("Pyramid"), based on Aziz's representation that he had made arrangements to ship the flaxseed and needed to make a payment towards the shipping cost. Id. at ¶¶ 87-89. Together with the $70, 000 down payment by check made out to Aziz, from January through May 2011, Plaintiffs paid to Aziz and/or one of his businesses $721, 590 ($216, 940 from Eldesouky/Tasneem and $504, 650 from Abbas/Al-Yasmin).
After these payments had been made, the flaxseed shipment was delayed, allegedly due to the weather in Canada, id. at ¶ 60, and, upon Plaintiffs' inquiries, Aziz began forwarding to Eldesouky and Abbas various email communications with shipping agents regarding Plaintiffs' flaxseed, id. at ¶¶ 64-73, 76. When Aziz forwarded the itinerary of a ship called the W-Star, Eldesouky discovered that the ship was also carrying grain ordered by a company of which he knew the manager. Id. at ¶¶ 78-82. This manager subsequently informed Eldesouky that Aziz, through Pyramid, had contracted with a Canadian company called Richardson International Limited ("Richardson") in April 2011 to purchase 4, 000 metric tons of flaxseed at $660 per ton, inclusive of freight. Id. at ¶¶ 83, 92-94. In connection with the Richardson contract, Pyramid paid $443, 000 of Plaintiffs' money to Richardson. Id. at ¶¶ 95-96. Upon learning of this contract, and realizing that Aziz had used their money for this purchase, Eldesouky and Abbas contacted Richardson "in order to try to avoid [the] loss of the majority of the funds [they] paid to Aziz." Eldesouky Deel., ¶ 26; see also Rule 56.1 Stmt. at ¶¶ 107-08. Richardson agreed to credit to Eldesouky and Abbas the money it had received from Pyramid towards their own purchase, but only if they agreed to purchase the same amount of flaxseed as Pyramid had contracted to purchase and at the same price. Id. at ¶¶ 109-10.
Plaintiffs then agreed to purchase 4, 000 metric tons of flaxseed from Richardson and Aziz agreed to transfer $278, 360 to Richardson as the remainder of the money Plaintiffs had paid him and Pyramid. Id at ¶¶ 111-12. Richardson prepared an agreement between it, Pyramid, Al-Yasmin, and Tasneem reflecting this additional payment from Pyramid. Id. at ¶ 114. However, Aziz never executed the agreement on Pyramid's behalf nor did he send the payment to Richardson. Id. at ¶¶ 115-18. Therefore, Plaintiffs (through Abbas) borrowed money to pay the additional amount owed to Richardson under the new contract. Id. at ¶¶ 124-25. Plaintiffs never received any money back or any flaxseed from Aziz, Pyramid, or General Trade as a result of the original transaction. Id. at ¶¶ 129, 135.
II. PROCEDURAL HISTORY
Plaintiffs brought this action on October 5, 2011 alleging four claims: breach of contract, conversion, common law fraud, and wire fraud. Aziz, proceeding pro se, answered the Complaint on October 26, 2011. (Dkt. No. 6). None of the corporate defendants answered or otherwise appeared. On February 14, 2012, Plaintiffs sent a letter to Judge Koeltl, to whom this case was originally assigned, seeking discontinuance of the action as against Pyramid in order to avoid dismissal for lack of subject matter jurisdiction, which Judge Koeltl granted. (Dkt. No. 12). The parties then engaged in settlement negotiations overseen by the Court in May 2012 that concluded unsuccessfully.
On March 15, 2013, after a lengthy period of inactivity, the parties consented to proceed before me for all purposes pursuant to 28 U.S.C. § 636(c). (Dkt. Nos. 19-20). At this point, although the case was already well more than a year old, Plaintiffs had not filed proof of service of the Complaint on the corporate defendants. Accordingly, by order dated May 16, 2013, the Court dismissed the remaining corporate defendants, General Trade and Provision Halal Distributors, Inc. ("Provision Halal"), pursuant to Federal Rule of Civil Procedure 41 (b). (Dkt. Nos. 25, 27).
On September 12, 2013, Plaintiffs moved pursuant to Rules 6(b) and 20 to reinstate General Trade and Pyramid as defendants. (Dkt. Nos. 36-38). Plaintiffs also moved for sanctions against Defendants based on Aziz's failure to produce certain documents Plaintiffs had requested in discovery and statements at his deposition that responsive documents may be lost and/or destroyed. Id. On October 10, in an oral decision read into the record, the Court granted Plaintiffs' motion to reinstate General Trade and Pyramid as defendants while leaving the case dismissed as to Provision Halal. (Dkt. Nos. 40, 53). The Court also agreed to a sanction in the form of an adverse inference instruction at trial as a result of Aziz's failure to produce relevant documents and precluded Aziz from using documents that had not been provided to Plaintiffs in discovery at trial or in response to any motion. Id. The Court further advised the parties that it would consider making an adverse inference regarding the documents alleged to be lost or destroyed on any motion for summary judgment or default judgment. Id.
Plaintiffs served General Trade and Pyramid with copies of the summons and complaint on October 16, 2013. (Dkt. Nos. 41-42). Aziz failed to retain counsel for the corporate defendants by November 12 as directed by the Court's October 10 Order. (Dkt. No. 40). As such, the Court permitted Plaintiffs to move for summary judgment against Aziz and default judgment against General Trade and Pyramid. (Dkt. No. 43). Plaintiffs so moved on November 26. See Notice of Motion (Dkt. No. 44); Declaration of Mark Bierman dated November 26, 2013 ("Bierman Deel.") (Dkt. No. 45); Abbas Deel.; Eldesouky Deel.; Declaration of Abdelrahman "Abdo" Abbass dated November 26, 2013 ("Abdo Deel.") (Dkt. No. 48); Plaintiffs' Memorandum of Law in Support of the Motion for Judgment Pursuant to Fed.R.Civ.P. 55 and 56 (Dkt. No. 49) ("PL Mem."). Neither Aziz nor the corporate defendants have submitted any responsive papers. Following additional submissions from Plaintiffs regarding subject matter and personal jurisdiction requested by the Court, as discussed below, the Court considers the motions ready for decision.
A. The Court Has Jurisdiction Over This Case
1. Subject Matter Jurisdiction
As a preliminary matter, the Court concludes that it has subject matter jurisdiction to adjudicate this case as a result of the diversity of the parties. See 28 U.S.C. § 1332(a)(2); accord Universal Licensing Corp. v. Paola del Lungo, Sp.A., 293 F.3d 579, 581-82 (2d Cir. 2002). Federal courts have "an independent obligation to consider the presence or absence of subject-matter jurisdiction" over the actions proceeding before them. Joseph v. Leavitt, 465 F.3d 87, 89 (2d Cir. 2006); accord Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583 (1999) ("[S]ubjectmatter delineations must be policed by the courts on their own initiative."). For purposes of evaluating diversity, a corporation is considered a citizen of the state in which it was incorporated and the state of its principal place of business. 28 U.S.C. § 1332(c)(1); IGY Ocean Bay Properties, Ltd. v. Ocean Bay Properties I Ltd., 534 F.Supp.2d 446, 448-49 (S.D.N.Y. 2008) ("The question of diversity jurisdiction for corporations with dual citizenship is not an either/or proposition."). A corporation's principal place of business is "the place where a corporation's officers direct, control, and coordinate the corporation's activities, " usually "the place where the corporation maintains its headquarters." Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010).
While reviewing Plaintiffs' pending motions, the Court became concerned that there was a potential issue with its subject matter jurisdiction because all Plaintiffs were alleged to be aliens, Compl. ¶¶ 2-3, and defendant Pyramid was identified as a foreign-incorporated entity (Dkt. No. 5), making diversity jurisdiction impossible. See 28 U.S.C. § 1332(a)(2); Universal Licensing Corp., 293 F.3d at 581-82. Accordingly, on June 6, 2014, the Court ordered Plaintiffs to show cause why this case should not be dismissed for lack of subject matter jurisdiction. (Dkt. No. 56). In their response to the Court's Order to Show Cause, Plaintiffs have satisfactorily explained that, although they initially alleged that defendant Pyramid was a foreign-incorporated entity, which would have destroyed diversity between the parties (and had led to its earlier voluntary dismissal), Pyramid is actually a New Jersey corporation, and has been so at all relevant times. See Declaration ofYasser Helal dated June 19, 2014 ("Helal Deel.") (Dkt. No. 57); Plaintiffs' Memorandum of Law dated June 20, 2014 ("Subject Matter Juris. Mem."), at 4 (Dkt. No. 59). They further clarified that the declaration previously submitted by Plaintiffs' counsel identifying Pyramid as a Canadian corporation was inaccurate, having been made prior to the parties engaging in any discovery. See Helal Deel., ¶ 3; Subject Matter Juris. Mem. at 4. Through discovery, Plaintiffs learned that Pyramid is a New Jersey entity, incorporated there by Aziz on April 14, 2011. Subject Matter Juris. Mem. at 4-5; Aziz Dep. at 40-41. The company's certificate of incorporation lists Pyramid's registered office and "main business address" as 187 East Front Street, Plainfield, New Jersey, 07081. Helal Deel., Ex. A (Certificate of Incorporation).
Plaintiffs have also established that Pyramid's principal place of business is in New Jersey. Subject Matter Juris. Mem. at 5-6. They note that, in its April 26, 2011 contract with Richardson, Pyramid used the 187 East Front Street address that appears on its certificate of incorporation. Supplemental Declaration of Yasser Helal dated June 25, 2014, Ex. B (Dkt. No. 62). Moreover, during his deposition, Aziz testified that he is Pyramid's sole shareholder and director, the company has no employees, and it maintains its principal office at his home in New Jersey, where he stores the company's books and records. Aziz Dep. at 41-42, 44.
Given this more developed record, the Court is now satisfied that it has subject matter jurisdiction over this action.
2. Personal Jurisdiction
The Court also directed Plaintiffs to address whether the Court has personal jurisdiction over the corporate defendants. (Dkt. No. 56). Although Plaintiffs initially failed to respond to this inquiry, after the Court's second request, (Dkt. No. 64), they eventually provided a response. See Plaintiffs' Memorandum of Law dated September 8, 2014 ("Personal Juris. Mem.") (Dkt. No. 66). In their submission, they argued as a threshold matter that a court may not raise the issue of personal jurisdiction sua sponte, and that, in any event, the Court has personal jurisdiction over both Pyramid and General Trade.
Because the Court is adjudicating Plaintiffs' motion for default judgment in addition to the motion for summary judgment, it will consider whether it has personal jurisdiction over the corporate defendants. See City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 133 (2d Cir. 2011) ("[B]efore a court grants a motion for default judgment, it may first assure itself that it has personal jurisdiction over the defendant."). Although whether a court must evaluate personal jurisdiction is an "open question, " Johnson & Johnson v. Azam Int'l, Trading, No. 07-CV-4302 (SLT) (SMG), 2013 WL 4048295, at *4 (E.D.N.Y. Aug. 9, 2013), in analyzing personal jurisdiction, "courts in this circuit draw an important distinction... between appearing and nonappearing parties.'" Hua Chen v. Honghui Shi, No. 09-CV-8920 (RJS), 2013 WL 3963735, at *4 (S.D.N.Y. Aug. 1, 2013) (quoting Sinoying Logistics Pte Ltd. v. Yi DaXin Trading Grp., 619 F.3d 207, 213 (2d Cir. 2010)). Here, because defendant Aziz "has appeared and consented... to the jurisdiction of the court, " the Court will "not raise personal jurisdiction sua sponte" as to him. Sinoying Logistics Pte Ltd., 619 F.3d at 213 (emphasis removed). However, the corporate defendants, General Trade and Pyramid, have not answered the Complaint or otherwise appeared in this action. Accordingly, the Court will consider whether it has personal jurisdiction over the corporate defendants before evaluating Plaintiffs' motion for default judgment against them.
In a diversity case, a court must evaluate personal jurisdiction according to the law of the forum state. See Sletten v. LiquidHub, Inc., No. 13-CV-1146 (NRB), 2014 WL 3388866, at *11 (S.D.N.Y. July 11, 2014) (citing D.H Blair & Co. v. Gottdiener, 462 F.3d 95, 104 (2d Cir. 2006)). In New York, the state's long-arm statute, Section 302 of the Civil Practice Law and Rules ("C.P.L.R."), governs "so long as the district court's exercise of jurisdiction comports with the requirements of due process." D.H Blair & Co., 462 F.3d at 104. Stated differently, "[i]f jurisdiction lies [under the C.P.L.R.], we consider whether the... exercise of personal jurisdiction over a foreign defendant comports with due process protections established under the United States Constitution." Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 168 (2d Cir. 2013) ("Licci If').
It appears that the only connection this case has to the Southern District of New York is the Manhattan bank accounts held by Pyramid and Aziz. Compl. ¶ 5; Eldesouky Deel., ¶¶ 12, 14, Ex. H (Piraeus Bank Payment Confirmation), Ex. J (Piraeus Bank Payment Confirmation); Abbas Deel., ¶¶ 26-28, Ex. R (bank transfer confirmations). Plaintiffs have not alleged that they wired money to any New York-based accounts held by General Trade. Instead, they contend that Aziz's use of the New York banking system was in his capacity as an agent of General Trade. Personal Juris. Mem. at 12-15. For the reasons that follow, the Court finds that it has personal jurisdiction over Pyramid, but not General Trade.
a) New York State Long-Arm Jurisdiction
In relevant part, New York's long-arm statute provides that "a court may exercise personal jurisdiction over any non-domiciliary... who in person or through an agent transacts any business within the state." C.P.L.R. § 302(a)(1). To determine "whether personal jurisdiction may be exercised under section 302(a)(1), a court must decide (1) whether the defendant transacts any business in New York and, if so, (2) whether [the] cause[s] of action [alleged in the complaint] arise from such a business transaction." Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50, 60 (2d Cir. 2012) (internal citations omitted) ("Licci I"). Under the first prong, the record must reflect that a defendant "purposefully avail[ed] itself of the privilege of conducting activities within New York." Ge Dandong v. Pinnacle Performance Ltd., 966 F.Supp.2d 374, 381 (S.D.N.Y. 2013) (quoting Licci I, 673 F.3d at 61) (internal quotation marks omitted). Under the second prong, "there must be a substantial nexus' between the transaction of business and the claim." D.H Blair & Co., 462 F.3d at 105 (quoting Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 31 (2d Cir. 1996)). Section 302 is described as "a single act statute' and proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant's activities here were purposeful and there is a substantial relationship between the ...