Hesham Zaghloul Eldesouky, Abbas Elsayed Abbas, Al-Yasmin Co. v. Hatem Abdel Aziz, Gen. Trade Corp., 11-CV-6986 (JLC)

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtJAMES L. COTT, United States Magistrate Judge.
PartiesHESHAM ZAGHLOUL ELDESOUKY, ABBAS ELSAYED ABBAS, AL-YASMIN COMPANY and TASNEEM COMPANY, Plaintiffs, v. HATEM ABDEL AZIZ, GENERAL TRADE CORPORATION, INC., PYRAMID GRAIN INTERNATIONAL, INC., and PROVISION HALAL DISTRIBUTORS, INC., Defendants.
Decision Date19 December 2014
Docket Number11-CV-6986 (JLC)

HESHAM ZAGHLOUL ELDESOUKY, ABBAS ELSAYED ABBAS,
AL-YASMIN COMPANY and TASNEEM COMPANY, Plaintiffs,
v.
HATEM ABDEL AZIZ, GENERAL TRADE CORPORATION, INC., PYRAMID GRAIN INTERNATIONAL, INC.,
and PROVISION HALAL DISTRIBUTORS, INC., Defendants.

11-CV-6986 (JLC)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

December 19, 2014


OPINION AND ORDER

JAMES L. COTT, United States 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 BACKGROUND1

This case arises out of a contract to purchase flaxseed. Plaintiff Hesham Zaghloul Eldesouky ("Eldesouky") is the president of plaintiff corporation Tasneem Company

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("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 4-6.2

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 Deck."), at ¶ 7 (Dkt. No. 46). Eldesouky was familiar with Aziz as he had been Tasneem's corn 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 Deck., ¶ 10; Declaration of Abbas Elsayed Abbas dated November 26, 2013 ("Abbas Deck."), 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

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flaxseed. Compl., Ex. 1 (Contract dated January 13, 2011); see also Rule 56.1 Stmt, ¶ 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 56.1 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).3

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

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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 Decl., 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).4

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 ¶¶ 95-96.5 Upon learning of this

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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 Deck., ¶ 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 ¶¶ 111-12.6 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.

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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).7 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

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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...

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