Hong Qin Jiang v. Li Wan Wu

• Decision Date: 29 January 2020
• Docket Number: 2017–00641,Index No. 705838/14
• Citation: Hong Qin Jiang v. Li Wan Wu, 179 A.D.3d 1035, 118 N.Y.S.3d 208 (N.Y. App. Div. 2020)
• Parties: HONG QIN JIANG, etc., et al., Respondents, v. LI WAN WU, et al., Appellants.
• Court: New York Supreme Court — Appellate Division

179 A.D.3d 1035

118 N.Y.S.3d 208

HONG QIN JIANG, etc., et al., Respondents,

v.LI WAN WU, et al., Appellants.

2017–00641

Index No. 705838/14

Supreme Court, Appellate Division, Second Department, New York.

Submitted - October 31, 2019

January 29, 2020

White, Cirrito & Nally, LLP, Hempstead, N.Y. (Christopher M. Lynch of counsel), for appellants.

Hong Qin Jiang, Bayside, NY, respondentpro se, and Jing Huang, Bayside, NY, respondentpro se(one brief filed).

REINALDO E. RIVERA, J.P., LEONARD B. AUSTIN, ROBERT J. MILLER, COLLEEN D. DUFFY, JJ.

DECISION & ORDER

In a shareholder derivative action, the defendants appeal from an order of the Supreme Court, Queens County(Denis J. Butler, J.), entered December 19, 2016.The order, insofar as appealed from, denied those branches of the defendants' motion which were for summary judgment dismissing the first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth, twentieth, and twenty-second causes of action asserted by the plaintiffHong Qin Jiang, the nineteenth and twenty-first causes of action insofar as asserted by that plaintiff, and the eighteenth cause of action asserted by the plaintiffJing Huang.

ORDERED that the order is modified, on the law, by deleting the provisions thereof denying those branches of the defendants' motion which were for summary judgment dismissing the first, second, third, fifth, and sixth causes of action asserted by the plaintiffHong Qin Jiang, the nineteenth cause of action insofar as asserted by that plaintiff, and the eighteenth cause of action asserted by the plaintiffJing Huang, and substituting therefor a provision granting those branches of the motion; as so modified, the order is affirmed insofar as appealed from, without costs or disbursements.

In January 2013, the plaintiffHong Qin Jiang and her daughter, the plaintiffJing Huang, along with the defendantsLi Wan Wu, Qi Tan Lin, and Ji Juan Lin(hereinafter collectively the individual defendants) allegedly entered into an oral joint venture agreement, which contemplated the formation of 37 81 Realty, Inc.(hereinafter Realty).The alleged joint venture agreement provided that in exchange for Realty acquiring title to certain real property owned by Liu's Family, LLC(hereinafter the subject property), of which Hong Qin Jiang was a member, Hon Qin Jiang would receive a 25% ownership interest in Realty and the sum of $1,687,500 upon Realty's acquiring title to the subject property from Liu's Family, LLC.

Realty was formed on January 18, 2013.On January 25, 2013, Hong Qin Jiang, Jing Huang, and the individual defendants entered into a written shareholder agreement, which provided, inter alia, that Realty intended to acquire the subject property from Liu's Family, LLC, and construct a condominium building.Pursuant to the shareholder agreement, in exchange for specified capital contributions, Hong Qin Jiang, Jing Huang, and the individual defendants would each hold specified percentages of Realty's shares.In section two, the shareholder agreement provided, inter alia, that "Upon the completion of the project, [Realty] will sell out all the units.The sale proceeds will be distributed according to the following priority: ... 2. $1,687,500.00 to Hong Qin Jiang only, as return of her construction cost input."The shareholder agreement also provided, inter alia, that Hong Qin Jiang, Li Wan Wu, and Ji Juan Lin would be the directors of Realty, and that Hong Qin Jiang would be the president.In March 2013, Jing Huang allegedly failed to make her full capital contribution.

By amendment dated March 15, 2013(hereinafter the first amendment), the shareholder agreement was modified to provide that the defendant55–59, Inc., which was owned by the individual defendants, would own 50% of Realty's shares, Li Wan Wu individually would own 25% of Realty's shares, and Hong Qin Jiang would own 25% of Realty's shares.By amendment dated February 14, 2014(hereinafter the second amendment), the shareholders purported to amend the shareholder agreement to provide that Realty's board of directors would consist of two members, Li Wan Wu and Ji Juan Lin.

On August 20, 2014, the plaintiffs commenced this action asserting 22 causes of action alleging, inter alia, breach of an alleged joint venture agreement, fraudulent inducement, and unjust enrichment, asserting multiple derivative claims on behalf of Realty, and seeking dissolution of Realty.The defendants moved for summary judgment dismissing the complaint.In opposition, the plaintiffs submitted, inter alia, Hong Qin Jiang's affidavit, which was written in the Chinese language and did not contain a certificate of translation pursuant to CPLR 2101(b), as well as Jing Huang's affidavit.

By order entered December 19, 2016, the Supreme Court, inter alia, determined that Jing Huang failed to make the capital contribution specified in the shareholder agreement and was not a shareholder in Realty.Accordingly, the court granted those branches of the defendants' motion which were for summary judgment dismissing all causes of action insofar as asserted by Jing Huang, except for the eighteenth cause of action, which alleged unjust enrichment.The court also held that Hong Qin Jiang's affidavit submitted in opposition to the defendants' motion was inadmissible because it did not comply with CPLR 2101(b).However, the court determined that the defendants failed to meet their prima facie burden with respect to the causes of action asserted by Hong Qin Jiang.The defendants appeal from so much of the order as denied those branches of their motion which were for summary judgment dismissing the causes of action asserted by Hong Qin Jiang, and the eighteenth cause of action, which alleged unjust enrichment, which was asserted by Jing Huang.

We agree with the Supreme Court's determination to deny those branches of the defendants' motion which were for summary judgment dismissing the fourth, seventh, eighth, ninth, tenth, eleventh, twelfth, twentieth, and twenty-second causes of action asserted by Hong Qin Jiang, and the twenty-first cause of action insofar as asserted by that plaintiff, which were dependent upon her status as a shareholder.In support of their motion for summary judgment, the defendants asserted that after the commencement of this action, Hong Qin Jiang sold her shares to a third party, and thereafter ceased to have standing as a shareholder of Realty.

Business Corporation Law § 626"has been interpreted as requiring a plaintiff in a shareholder derivative action to not only have been a shareholder at the time of the transaction complained of as well as at the time of the commencement of the action, but also that the plaintiff maintain its shareholder status throughout the pendency of the action without interruption"( Bronzaft v. Caporali,162 Misc.2d 281, 283, 616 N.Y.S.2d 863[Sup. Ct., New York County], citingIndependent Inv. Protective League v. Time, Inc.,50 N.Y.2d 259, 428 N.Y.S.2d 671, 406 N.E.2d 486 )."Where the plaintiff voluntarily disposes of the stock, his [or her] rights as a shareholder cease, and his [or her] interest in the litigation is terminated.

Being a stranger to the corporation, the former stockowner lacks standing to institute or continue the suit" ( Independent Inv. Protective League v. Time, Inc.,50 N.Y.2d at 263–264, 406 N.E.2d 486[citation omitted];seeTenney v. Rosenthal,6 N.Y.2d 204, 210, 189 N.Y.S.2d 158, 160 N.E.2d 463;Jacobs v. Cartalemi,156 A.D.3d 605, 607, 67 N.Y.S.3d 63;Ciullo v. Orange & Rockland Utils.,271 A.D.2d 369, 369, 706 N.Y.S.2d 428;Rubinstein v. Catacosinos,91 A.D.2d 445, 446–447, 459 N.Y.S.2d 286, affd60 N.Y.2d 890, 470 N.Y.S.2d 570, 458 N.E.2d 1247 ).

Contrary to the defendants' contentions, they failed to establish, prima facie, that Hong Qin Jiang's attempt to transfer her shares was effective.Under the shareholder agreement, a purported transfer in violation of the agreement is "null and void" and not recognized by Realty or the shareholders.The second amendment provided that "No share of stock shall be transferred or sold to any outside individual or entity without being first offered on similar terms and conditions to the shareholders of the record and upon written consent of such shareholders who hold a majority interest in [Realty], which consent shall not be unreasonably withheld."There is no indication in the record that Hong Qin Jiang offered her shares to the other shareholders or obtained their consent prior to her purported sale to the third party.Further, the record does not demonstrate that the other shareholders affirmed Hong Qin Jiang's purported sale of the shares to the third party after discovering it (see generallyLantau Holdings Ltd. v. Orient Equal Intl. Group Ltd.,174 A.D.3d 409, 107 N.Y.S.3d 274 ).Accordingly, under the terms of the shareholder agreement as modified by the second amendment, Hong Qin Jiang's purported sale of shares to a third party was null and void, and she remained a shareholder of Realty (see generallyGiaimo v. EGA Assoc. Inc.,68 A.D.3d 523, 891 N.Y.S.2d 49 ).The defendants' failure to establish, prima facie, that Hong Qin Jiang was no longer a shareholder in Realty requires denial of those branches of their motion which were for summary judgment dismissing the fourth, seventh, eighth, ninth, tenth, eleventh, twelfth, twentieth, and twenty-second causes of action asserted by her, and the twenty-first cause of action insofar as asserted by her, regardless of the sufficiency of the plaintiffs' opposition papers (seeWinegrad v. New York Univ. Med. Ctr.,64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 ).

However, the Supreme Court should have granted that branch of the defendants' motion which was for summary judgment dismissing the nineteenth cause of action, which sought dissolution pursuant to Business Corporation Law § 1104, insofar as asserted by Hong Qin Jiang.Hong Qin Jiang, who held 25% of...