Lifeng Chen v. New Trend Apparel, Inc.
| Decision Date | 27 March 2014 |
| Docket Number | No. 11 Civ. 324GBDMHD.,11 Civ. 324GBDMHD. |
| Citation | 8 F.Supp.3d 406 |
| Court | U.S. District Court — Southern District of New York |
| Parties | Lifeng CHEN, et al., Plaintiffs, v. NEW TREND APPAREL, INC., et al., Defendants. Hana Financial, Inc., Intervenor Plaintiff, v. New Trend Apparel, Inc., et al., Third–Party Defendants. |
Heng Wang, Heng Wang & Associates, P.C., New York, NY, for Plaintiffs.
Samuel Slone Weissman, Samuel Weissman, Esq., New York, NY, for Defendants.
Before this Court is Magistrate Judge Michael H. Dolinger's Report and Recommendation (“Report”) addressing Intervenor Plaintiff Hana Financial, Inc.'s motion for partial summary judgment against: New Trend Apparel Inc., JCM Inc., Kisum Louie, and Byunglim Louie (the “New Trend Defendants”); Third–Party Defendants New York Clothing Group, Inc. (“NYCG”) and Nina Chang (together, the “Chang Parties”); and Lifeng Chen and related entities (the “Chen Plaintiffs”). The Report also addresses the Chen Plaintiffs' motion for summary judgment against the New Trend Defendants and the Chang Parties. Magistrate Judge Dolinger recommended that Hana's motion for summary judgment be granted with respect to its breach of contract claim, and denied as to all of Hana's additional claims. Magistrate Judge Dolinger further recommended that the Chen Plaintiffs' motion for summary judgment be denied. Magistrate Judge Dolinger's Report is adopted in its entirety. Hana's motion for summary judgment is GRANTED in part and DENIED in part. The Chen Plaintiffs' motion for summary judgment is DENIED.
The Court may accept, reject or modify, in whole or in part, the findings and recommendations set forth within the Report. See 28 U.S.C. § 636(b)(1)(C). When there are objections to the Report, the Court must make a de novo determination of those portions of the Report to which objections are made. Id.; see also Rivera v. Barnhart, 423 F.Supp.2d 271, 273 (S.D.N.Y.2006). The district judge may also receive further evidence or recommit the matter to the magistrate judge with instructions. See Fed.R.Civ.P. 72(b) ; 28 U.S.C. § 636(b)(1)(C). The Court need not conduct a de novo hearing on the matter. See United States v. Raddatz, 447 U.S. 667, 675–76, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980). Rather, it is sufficient that the Court “arrive at its own, independent conclusions” regarding those portions to which objections were made. Nelson v. Smith, 618 F.Supp. 1186, 1189–90 (S.D.N.Y.1985) (quoting Hernandez v. Estelle, 711 F.2d 619, 620 (5th Cir.1983) ). When no objections to a Report are made, the Court may adopt the Report if “there is no clear error on the face of the record.” Adee Motor Cars, LLC v. Amato, 388 F.Supp.2d 250, 253 (S.D.N.Y.2005) (citation omitted).
If “the party makes only frivolous, conclusory or general objections, or simply reiterates her original arguments, the Court reviews the report and recommendation only for clear error.” Silva v. Peninsula Hotel, 509 F.Supp.2d 364, 366 (S.D.N.Y.2007). Furthermore, when a party makes no objections to a portion of a report and recommendation, “or where the objections are merely perfunctory responses, argued in an attempt to engage the district court in a rehashing of the same arguments set forth in the original petition, reviewing courts should review a report and recommendation for clear error.”Id. A party's failure to file written objections to the Report and Recommendation precludes appellate review of this Court's decision. See Thomas v. Arn, 474 U.S. 140, 155, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985).
In his Report, Magistrate Judge Dolinger advised the parties that pursuant to 28 U.S.C. § 636(b)(1), failure to file timely objections within fourteen days after being served with a copy of the Report would result in their waiver and preclude appellate review. Report at 466. Hana filed timely objections to the Report. ECF 307.
The Chang Parties, non-moving parties in the motions before this Court, also filed timely objections. ECF No. 305. The Chen Plaintiffs did not file objections to the Report. After considering the parties' objections, this Court adopts the thorough and well reasoned Report in its entirety.
This case began by the Chen Plaintiffs filing a complaint against the New Trend Defendants over a business relationship gone awry.1 The Chen Plaintiffs alleged that they had paid $1 million for a fifty percent share in a prospective new joint venture with the New Trend Defendants, that the venture had not gone forward but that the Chen Plaintiffs never got their money back, and that they had delivered goods to the New Trend Defendants for which the Chen Plaintiffs were never paid. Compl. ¶¶ 14–21, 31, 38–40, 49–51. The Complaint alleges that the New Trend Defendants diverted almost every corporate asset from New Trend into other companies controlled by Louie, and that New Trend is no longer a viable business entity. Id. ¶ 48, 59. Around the same time that the Chen Plaintiffs brought this action, a Chinese entity related to them, Zhejiang Meibang Textile Company, brought a complaint against New Trend and Kisum Louie in a Chinese court. That complaint, although similar, only seeks redress for the claim related to unpaid goods delivered.
In May 2011, Hana Financial, another creditor with a potentially superior claim to New Trend's assets, intervened. Hana claims that New Trend defaulted on an August 2010 loan Hana extended to a New Trend affiliate that New Trend guaranteed and secured with a lien on its inventory. Lee Decl., dated June 14, 2011 ¶¶ 4–6. In late December 2011, while in discovery, Hana was granted leave to amend its intervenor complaint to add the Chang Parties as third-party defendants. Hana alleges that the New Trend Defendants, and in particular Kisum Louie's wife, Byunglim Louie, conspired with Nina Chang, a former employee of New Trend, to fraudulently divert inventory from New Trend to NYCG in order to avoid Hana's lien. Upon completion of discovery Hana and the Chen Plaintiffs filed the instant motions for summary judgment. See ECF Nos. 272, 278.
Magistrate Judge Dolinger correctly found that Hana is entitled to summary judgment as to its breach of contract claim. Hana asserts that New Trend, JCM Logistics, and the Louies defaulted on their contractual obligations under the Promissory Note, the New Trend Guarantee agreement, and the Louies' respective individual guarantee agreements. By stipulation, the New Trend parties have admitted this default. See Lee Decl. dated Apr. 15, 2013, Ex. G–S(b).
The Chen Plaintiffs oppose Hana's motion on the basis that: (1) the Louies did not read or understand the terms of the contract when they entered into it; (2) Byunglim Louie did not have the authority to sign the contract on the company's behalf; and (3) Kisum Louie was prohibited by the terms of his agreement with Chen from unilaterally accepting loans. The Chen Plaintiffs' arguments are unavailing.
Magistrate Judge Dolinger correctly determined that the Chen Plaintiffs' first argument lacks merit. See Report at 436. It is firmly established under New York law that a party remains bound by the terms of an agreement, irrespective of whether he or she failed to read the contract or was unaware of its terms at the time that he or she entered into it. See Pimpinello v. Swift & Co., 253 N.Y. 159, 162–63, 170 N.E. 530 (1930). Accordingly, the Chen Plaintiffs cannot avoid their contractual obligations on this basis.
As for the Chen Plaintiffs' remaining objections to the Hana factoring agreement, both arguments amount to an assertion that the Louies lacked authority to enter into the agreement. However, as Magistrate Judge Dolinger correctly found, whether Byunglim and Kisum Louie lacked actual authority is irrelevant. See Report at 436. At a minimum, the Louies each had the apparent authority to contractually bind New Trend, and New Trend remains bound as a result. See Report at 436–37; see also Odell v. 704 Broadway Condo., 284 A.D.2d 52, 56, 728 N.Y.S.2d 464 (1st Dep't 2001) ; Hallock v. State, 64 N.Y.2d 224, 231, 485 N.Y.S.2d 510, 474 N.E.2d 1178 (1984). Accordingly, summary judgment is granted for Hana's breach of contract claim.
As Magistrate Judge Dolinger correctly concluded, summary judgment is inappropriate as to Hana's claim of fraudulent conveyance. Hana argues that the transfer of inventory from New Trend to NYCG in or about the end of 2010 was fraudulent on the basis of two theories: (1) actual-fraudulent conveyance under Debtor and Creditor law (“DCL”) § 276 ; and (2) constructive-fraudulent conveyance under DCL § 273. See Report at 438, 444. As Magistrate Judge Dolinger correctly found, Hana's claims cannot be sustained under either theory.
With respect to Hana's claim of actual fraud, Hana argues that there are “badges of fraud” that support an inference of fraudulent intent. Specifically, Hana points to Byunglim Louie's testimony that, while acting on behalf of New Trend, she specifically intended to transfer inventory to NYCG for the purpose of defrauding creditors. See Report at 439. However, as Magistrate Judge Dolinger correctly determined, Ms. Chang's sharply contradictory version of events surrounding the inventory transfer raises significant credibility issues with respect to Mrs. Louie's testimony. Since Mrs. Louie and Ms. Chang offer vastly different versions of the nature of the transaction between New Trend and NYCG, it is appropriate for the trier of fact to assess the credibility of their respective stories. See Report at 443–44. The factfinder is not required to credit Mrs. Louie's disputed testimony as to the transaction between New Trend and NYCG. See, e.g., In re Dana Corp., 574 F.3d 129, 147 (2d Cir.2009) ; see also Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150–51, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000) (...
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