CitiMortgage, Inc. v. Just Mortg., Inc.

Decision Date13 December 2013
Docket NumberNo. 4:09 CV 1909 DDN,4:09 CV 1909 DDN
PartiesCITIMORTGAGE, INC., Plaintiff, v. JUST MORTGAGE, INC., CHANG HWAN CHOI, EUN H. CHOI, and RMK FINANCIAL, INC., Defendants.
CourtU.S. District Court — Eastern District of Missouri
MEMORANDUM

REGARDING PROVISIONAL REMEDIES,

DISCOVERY, AND AFFIRMATIVE DEFENSES

This action is before the court on the motions of plaintiff CitiMortgage, Inc., for provisional remedies under Mo. Rev. Stat. § 428.039 against defendants Chang Hwan Choi and Eun. H. Choi, to strike defendants' affirmative defenses, and for discovery. (Docs. 263, 267, 278, 279.) The parties have consented to the exercise of plenary authority by the undersigned United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Docs. 10, 269.) The court heard oral argument on October 31, 2013.

I. BACKGROUND

On November 20, 2009, plaintiff CitiMortgage commenced this action against defendant Just Mortgage, Inc., alleging breach of contract. (Doc. 1.) On March 29, 2012, and August 3, 2012, the court granted summary judgment in favor of plaintiff. (Docs. 187, 211.) On March 21, 2013, the court entered a final judgment, ordering Just Mortgage to pay $8,806,276.82 in contract damages. (Doc. 243.)

Following the entry of final judgment, plaintiff filed a supplemental complaint. (Doc. 252.) The supplemental complaint adds defendants Chang Hwan Choi, Eun. H. Choi, and RMK Financial, Inc. as parties to the case. (Id.) According to the supplemental complaint, the following occurred. Defendant Chang Hwan Choi has been president of Just Mortgage since2009 and is its sole owner. (Id. at ¶ 10.) Defendant Eun. H. Choi, Chang Hwan Choi's spouse, was president of Just Mortgage before Chang Hwan Choi's presidency and was a stockholder of Just Mortgage until the company ceased operations and distributed its assets. (Id. at ¶ 11.)

Defendants RMK Financial and Just Mortgage share several characteristics. (Id. at ¶ 6.) Sang H. Jeung, CEO and owner of RMK Financial, served as the CEO of both RMK Financial and Just Mortgage in 2009 and 2010. (Id.) Sang. H. Jeung and his wife owned stock of both companies during this time. (Id.) The companies also shared employees and conducted business in adjacent offices within a single building. (Id.) Following the close of Just Mortgage's business operations, RMK Financial assumed Just Mortgage's lease and moved into Just Mortgage's former offices. (Id.) Further, RMK Financial employs Chang Hwan Choi as a consultant. (Id.) The corporations also employed the same accountant. (Id. at ¶ 39.)

Just Mortgage's business operations ceased in early 2011. (Id. at ¶ 3.) When plaintiff attempted to collect judgment, Just Mortgage responded that it had no assets. (Id.) Just Mortgage explained that losses in the operation of its mortgage lending business caused the change in the financial condition of the formerly profitable company. (Id.) Defendant Chang Hwan Choi destroyed Just Mortgage's financial records subsequent to its closing of business operations, ordering employees to shred paper documents, to delete electronic records, and to dispose of the computers. (Id. at ¶ 24.)

Plaintiff has obtained some financial records by subpoenas to other parties, including Just Mortgage's accountant and financial lenders. (Id. at ¶ 4.) The records reveal that the company continued to earn profits immediately prior to its closing. (Id. at ¶ 3.) Specifically, the records include the following. In 2006, Just Mortgage earned $18,528,194 in profits, paid $14,133,733 to shareholders, and ended the year with a net worth $11,968,517. (Id. at ¶ 25.) In 2009, Just Mortgage earned $24,120 in profits and had a net worth of $12,118,827, including $5,970,126 in cash. (Id. at ¶ 27.) In 2010, Just Mortgage earned $4,001,087 in profits. (Id. at ¶ 30.) Despite distributing $4 million to its shareholders, Just Mortgage ended 2010 with over $14 million in cash and a net worth of over $12 million. (Id.) The 2010 financial report indicates several large expenses that either did not appear in the 2009 report or were substantially smaller in the 2009 report. (Id) In January 2011, Just Mortgage earned $1,326,542 in profits and had $16,342,971 in cash and a net worth of $13,446,456. (Id. at ¶ 31.)

Plaintiff has attempted to track the assets of Just Mortgage. (Id. at ¶ 21.) Just Mortgage has provided audited financial reports for the years 2006 through 2009. (Id. at ¶ 22.) Just Mortgage, its accountant, and Chang Hwan Choi could not provide financial documents for 2010 and 2011. (Id. at ¶¶ 22-24.) During a post-judgment deposition, Chang Hwan Choi testified that he did not remember whether Just Mortgage distributed assets to stockholders in 2010 or 2011 and that he could remember few details regarding the company's finances or closure. (Id. at ¶ 29.) Plaintiff also served interrogatories requesting information regarding Just Mortgage's stockholders, transfers, and current assets, and Just Mortgage has not responded. (Id. at ¶ 32.) Chang Hwan Choi also testified that he did not know the recordkeeping methods of Just Mortgage for shareholder distributions and could not remember the identity of Just Mortgage's shareholders at the time business operations closed or its tax document preparer. (Id. at ¶¶ 33, 40-41.)

Plaintiff alleges that that defendant Just Mortgage violated the Uniform Fraudulent Transfer Act by transferring substantially all of its assets as stockholder distributions or by disguising the transfers as expenses to avoid execution of plaintiff's judgment. (Id. at ¶¶ 42-50.)

Plaintiff also alleges that defendants Chang Hwan Choi, Eun. H. Choi, and RMK Financial, Inc. are liable for Just Mortgage's breach of contract as Just Mortgage's alter ego. (Id. at ¶¶ 51-56.)

Plaintiff further alleges that RMK Financial is liable for Just Mortgage's breach of contract as Just Mortgage's successor. (Id. at ¶¶ 57-62.) In addition to extending Just Mortgage's breach of contract liability to the other defendants, plaintiff seeks to recover the costs, post-judgment interest, punitive damages, and provisional remedies under Mo. Rev. Stat. § 428.039. (Id. at 13.)

II. MOTION FOR PROVISIONAL RELIEF

Plaintiff moves for an order awarding provisional relief under Mo. Rev. Stat. § 428.039, including: (1) an order directing defendants Chang Hwan Choi and Eun. H. Choi to not transfer or encumber with liens any cash, securities, or other assets that defendant Just Mortgage transferred to them during the pendency of the breach of contract action against Just Mortgage; (2) an order directing defendants Chang Hwan Choi and Eun. H. Choi to provide an accounting of the over $16 million in cash and nearly $13.5 million in net worth reported on Just Mortgage'sJanuary 2011 balance sheet; and (3) an order directing defendants Chang Hwan Choi and Eun. H. Choi to provide documentation of the transfer of Just Mortgage's assets and to cooperate in the collection of such documents from other sources, including the Internal Revenue Service and the Department of Housing and Urban Development. (Doc. 263.)

The Uniform Fraudulent Transfer Act (UFTA) defines a fraudulent transfer as a transfer made with the "actual intent to hinder[,] delay, or defraud any creditor of the debtor." Mo. Rev. Stat. § 428.024.1(1). The UFTA also enumerates an illustrative list of factors for the determination of actual intent, including whether:

(1) The transfer or obligation was to an insider;
(2) The debtor retained possession or control of the property transferred after the transfer;
(3) The transfer or obligation was disclosed or concealed;
(4) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(5) The transfer was of substantially all the debtor's assets;
(6) The debtor absconded;
(7) The debtor removed or concealed assets;
(8) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
(9) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
(10) The transfer occurred shortly before or shortly after a substantial debt was incurred; and
(11) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Mo. Rev. Stat. § 428.024.2

The UFTA also provides:

1. A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving areasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
2. A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.

Mo. Rev. Stat. § 428.029. The UFTA further allows creditors seeking relief under this provision to obtain "An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by applicable laws of this state." Mo. Rev. Stat. § 428.039.1(2). Under Missouri law, "When considering a motion for a preliminary injunction, a court should weigh 'the movant's probability of success on the merits, the threat of irreparable harm to the movant absent the injunction, the balance between this harm and the injury that the injunction's issuance would inflict on other interested parties, and the public interest.'" State ex rel. Dir. of Revenue, State of Mo. v. Gabbert, 925 S.W.2d 838, 839 (Mo. 1996). "A petitioner must make some showing of probability of success on the merits before a preliminary injunction...

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