Jsc Foreign Economic Ass'n Techno. v. Intern. Dev.

• Decision Date: 20 December 2003
• Docket Number: No. 03 CIV. 5562(JGK).,03 CIV. 5562(JGK).
• Citation: 295 F.Supp.2d 366
• Parties: JSC FOREIGN ECONOMIC ASSOCIATION TECHNOSTROYEXPORT, Plaintiff, v. INTERNATIONAL DEVELOPMENT AND TRADE SERVICES, INC.; Edith Reich, Brigitte R. Jossem, also known as Brigitte Jossem-Kumpf; M & B Oxford 41, Inc.; P & F Equities, Inc.; and Atrium Square, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

295 F.Supp.2d 366

JSC FOREIGN ECONOMIC ASSOCIATION TECHNOSTROYEXPORT, Plaintiff, v. INTERNATIONAL DEVELOPMENT AND TRADE SERVICES, INC.; Edith Reich, Brigitte R. Jossem, also known as Brigitte Jossem-Kumpf; M & B Oxford 41, Inc.; P & F Equities, Inc.; and Atrium Square, Inc., Defendants.

No. 03 CIV. 5562(JGK).

United States District Court, S.D. New York.

December 20, 2003.

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Ira M. Feinberg, Hogan & Hartson, L.L.P., New York, NY, for Plaintiff.

Ari S. Zymelman, Christopher N. Manning, Jonathan P. Graham, Williams & Connolly, L.L.P., Washington, DC, for Defendants.

OPINION and ORDER

KOELTL, District Judge.

This diversity action is part of a resumed effort by the plaintiff, JSC Foreign Economic Association Technostroyexport ("Techno"), to enforce a judgment by this Court entered on July 29, 1997, confirming two Russian arbitration awards against the defendant International Development and Trade Services, Inc. ("IDTS"). The judgment was affirmed by the Court of Appeals for the Second Circuit. See AAOT Foreign Econ. Ass'n (VO) Technostroyexport v. Int'l Dev. & Trade Servs., Inc., 139 F.3d 980 (2d Cir.1998).¹ The plaintiff's original attempt to enforce the judgment, which now exceeds $200 million with interest, was unsuccessful, and the case was administratively closed by Magistrate Judge Peck on December 6, 1999.

On July 28, 2003, the plaintiff filed a new complaint initiating this action, and it now seeks to collect on the judgment not only from IDTS, but also from defendants Edith Reich ("Reich") and Brigitte Jossem ("Jossem"), who are alleged to be the alter egos of IDTS, and from certain other entities that are alleged to be the alter egos of Reich and Jossem.

The Complaint asserts nine claims for relief. The first claim for relief alleges that Reich and Jossem are liable for the debts of IDTS, including the prior judgment, because they are allegedly IDTS's alter egos. (Compl.¶ 28.) The third and fifth claims for relief are brought under New York's Debtor and Creditor Law § 273-a, and they seek to set aside allegedly fraudulent conveyances made by Jossem while she was allegedly an alter ego of the judgment debtor IDTS. (Compl.¶¶ 58-59, 69-70.) The fourth and sixth claims for relief seek reasonable attorneys' fees pursuant to N.Y. D.C.L. § 276-a that are incurred in proving that Jossem and the entities to which she conveyed property did so with the intent to hinder creditors. (Compl.¶¶ 61-62, 72-73.) The second and seventh claims for relief allege that defendants M & B Oxford and Atrium Square are the alter egos of Reich and Jossem and are liable for their debts. (Compl.¶¶ 48-49, 78-79.) The eighth and ninth claims for relief are brought under New York's Business Corporation Law § 720, and they assert breach of fiduciary duty claims against Reich and Jossem in their roles as officer and director, respectively, of IDTS. (Compl.¶¶ 87-88, 95-96.)

On September 5, 2003, the plaintiff moved by an order to show cause why a preliminary injunction should not be issued pursuant to Federal Rule of Civil Procedure 65 enjoining the defendants from transferring or otherwise disposing of certain assets that could allegedly be used to satisfy the judgment. The parties appeared before the Court on September 8, 2003, and a briefing schedule was set for the plaintiff's motion for a preliminary injunction and for motions made by the defendants. The defendants have moved both to dismiss the Complaint in its entirety and to compel arbitration. The defendants have also moved to vacate or modify the restraining notices issued by the plaintiff's counsel, and to prevent further issuance of such restraining notices. This Opinion and Order disposes of all the pending motions.

I.

The first motion to be addressed is the defendants' motion to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. On a motion to dismiss, the allegations in the complaint are accepted as true. See Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir.1998). In deciding a motion to dismiss, all reasonable inferences are drawn in the plaintiff's favor. See Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir.1995); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985). Therefore, the defendants' motion to dismiss should be granted only if it appears that the plaintiff can prove no set of facts in support of its claim that would entitle it to relief. See Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 514, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Grandon, 147 F.3d at 188; Goldman, 754 F.2d at 1065.

In deciding the motion, the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002); see also Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir.1993); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir.1991); VTech Holdings Ltd. v. Lucent Techs., Inc., 172 F.Supp.2d 435, 437 (S.D.N.Y.2001).

II.

The factual background of the case leading up to the prior judgment is fully set forth in AAOT Foreign Econ. Ass'n (VO) Technostroyexport v. Int'l Dev. & Trade Servs., Inc., 139 F.3d 980 (2d Cir.1998), familiarity with which is assumed.

The following facts, as alleged in the Complaint, are accepted as true for the purposes of this motion. Techno is a Russian corporation with its principal place of business in Moscow, Russian Federation. (Compl.¶ 7.) IDTS is a corporation organized in April 1989 under the laws of the State of New York. (Compl.¶ 8.) Reich is a New York resident, who at all relevant times has been the president of IDTS. (Compl.¶ 2, 9, 30.) Jossem, also a New York resident, is Reich's daughter, and at all relevant times has been the sole shareholder and sole director of IDTS. (Compl.¶ 2, 10, 31.)

The plaintiff alleges that Reich and Jossem kept IDTS inadequately capitalized from the time of its incorporation. (Compl.¶ 29.) Reich and Jossem also allegedly failed to observe required corporate formalities, including their failure to file and pay corporate franchise taxes or to hold any shareholders' or directors' meetings. (Compl.¶ 33.) Reich and Jossem allegedly dominated and controlled the actions of IDTS, made all decisions on its behalf, and used that control to further their own personal interests. (Compl.¶ 32.)

For example, between October 1991 and August 1992, Reich allegedly diverted to an account in her own name approximately $15 million that would ordinarily have been deposited into IDTS's Swiss bank account. (Compl.¶ 34.) Reich and Jossem also allegedly regularly used IDTS funds for personal uses, including attorney's fees incurred in defending Reich in probation revocation proceedings, payments to investment accounts at a securities brokerage firm, payments of medical expenses for Reich and Jossem, and purchases of luxury linens, among other things. (Compl.¶ 35a-f.) The Complaint specifically alleges that Reich and Jossem diverted funds that IDTS owed to Techno, leaving IDTS without assets and unable to pay its debts, including the arbitration awards and subsequent judgment in this Court. (Compl.¶¶ 36-38.) The Complaint further alleges that Jossem arranged for IDTS to pay her in excess of $1 million in consulting fees, in addition to her compensation as a director. (Compl.¶ 93.) These alleged diversions and misappropriations of IDTS funds are alleged to have constituted a waste of corporate assets and a breach of the fiduciary duties that Reich and Jossem owed to IDTS as an officer and director, respectively. (Compl.¶¶ 81-86, 90-94.)

In February 1993, Reich and Jossem incorporated defendant M & B Oxford 41, Inc. ("M & B Oxford"), a New York corporation. (Compl.¶ 3a, 12, 41.) At that time, Jossem was the sole shareholder and president of M & B Oxford, as well as the Chairman of its Board of Directors. (Compl.¶ 10, 12, 41.) Reich and Jossem used M & B Oxford to hold ownership interests in four apartments, three of which were combined into one larger apartment, at 422 East 72nd Street in New York City. (Compl.¶ 3a.) The larger apartment at 422 East 72nd Street, which Reich and Jossem have occupied as their principal residence, is currently listed for sale for approximately $9 million. (Compl.¶ 3a, 12.) The Complaint alleges that Reich and Jossem dominated and controlled the actions of M & B Oxford, made all decisions on its behalf, and used that control over the corporation to further their own personal interests, principally by putting their principal residence beyond the reach of creditors. (Compl.¶ 42, 46, 47-48.)

On or about May 31, 1994, Jossem entered into a transaction with P & F Equities, in which Jossem conveyed to P & F Equities all of her stock in M & B Oxford, in exchange for her release from a personal guarantee that she had provided on behalf of M & B Oxford. (Compl.¶ 55.) P & F Equities was organized under the laws of the State of New York in December 1993, but it was dissolved by the New York Secretary of State on June 23, 1999, for failure to file or pay the corporate franchise taxes required by New York law. (Compl.¶ 56.) Since the transfer of her shares in M & B Oxford to P & F Equities, Jossem has continued to serve as Chairman, President, or Chief Executive Officer of M & B Oxford. (Compl.¶ 12.) The Complaint alleges that the conveyance of the M & B Oxford shares was not supported by fair...