Style Asia, Inc. v. J Club

Decision Date13 October 2020
Docket NumberIndex No. 160405/2019
Citation2020 NY Slip Op 33386 (U)
PartiesSTYLE ASIA, INC., Plaintiff v. J CLUB INC. d/b/a JCLUB.COM, 9TH LLC, N.D. GEMS INC., HASMUKH SAVALIA, and UPINDER GAREWAL, Defendants
CourtNew York Supreme Court

NYSCEF DOC. NO. 36

DECISION AND ORDER

LUCY BILLINGS, J.S.C.:

I. BACKGROUND

Plaintiff, a wholesale supplier of merchandise, sues defendants to recover damages for a fraudulent conveyance, N.Y. Debt. & Cred. Law (DCL) §§ 273, 274, 275, 276, 276-a, 278, fraud, aiding and abetting fraud, and unjust enrichment. The claims arise from plaintiff's inability to collect a Final Judgment by Default dated January 11, 2018, for breach of a contract between plaintiff and defendant 9th LLC, entered in the Superior Court of Bergen County, New Jersey.

Plaintiff claims that all defendants are alter egos of each other. 9th LLC and defendant N.D. Gems Inc. purchase and resell merchandise. Defendant J Club Inc. operates an e-commerce platform for the sale of merchandise. Defendant Savalia and Garewal are members of 9th LLC. Savalia is also an officer of 9th LLC and N.D. Gems and a shareholder and officer of J Club.

After issuance of the default judgment, plaintiff alleges that Choxi.com, 9th LLC's e-commerce platform, petitioned for bankruptcy in the Southern District of New York and identified 9th LLC and N.D. Gems as secured creditors, along with 645 nonpriority creditors. Plaintiff alleges that the bankruptcy proceeding resulted in an auction of Choxi.com's assets, with an accompanying license agreement for future sales, to J Club. The license agreement provided that 9th LLC and N.D. Gems voluntarily subordinated their secured claims against Choxi.com below the 645 nonpriority creditors, changing their status from secured to unsecured creditors. Plaintiff alleges that the voluntary subordination of 9th LLC's secured claim prevented plaintiff from recovering the funds 9th LLC owed to plaintiff, as ordered by the New Jersey default judgment. 9th LLC and N.D. Gems also were guarantors of the license agreement. Plaintiff further alleges that they received no consideration for the subordination of their claims, which effected a diversion of 9th LLC's assets, or their guaranties. Plaintiff points out that only J Club and neither 9th LLC nor N.D. Gems signed the license agreement, demonstrating the alter ego relationship that authorized J Club to bind 9th LLC and N.D. Gems.

Defendants move to dismiss this action based on documentary evidence, res judicata, failure to state a claim, and lack ofpersonal jurisdiction. C.P.L.R. § 3211(a)(1), (5), (7), and (8). For the reasons explained below, the court grants defendants' motion in part.

II. PERSONAL JURISDICTION

Defendants move to dismiss the complaint against defendant Garewal, C.P.L.R. § 3211(a)(8), maintaining that he lives in New Jersey, holds no ownership interest in any of the corporate defendants, and was uninvolved with Choxi.com's prior bankruptcy proceeding. Plaintiff, as the party seeking to confer jurisdiction, bears the burden of pleading facts to establish personal jurisdiction. Robins v. Procure Treatment Ctrs., Inc., 179 A.D.3d 412, 413 (1st Dep't 2020); ABKCO Music, Inc. v. McMahon, 175 A.D.3d 1201, 1202 (1st Dep't 2019); Coast to Coast Energy, Inc. v. Gasarch, 149 A.D.3d 485, 486 (1st Dep't 2017); Wang v. LSUC, 137 A.D.3d 520, 521 (1st Dep't 2016).

Plaintiff fails to meet its burden to present facts demonstrating jurisdiction over Garewal. U.S. Immigration Fund LLC v. Litowitz, 182 A.D.3d 505, 506 (1st Dep't 2020); Robins v. Procure Treatment Ctrs., Inc., 179 A.D.3d at 413; ABKCO Music, Inc. v. McMahon, 175 A.D.3d at 1202; Ripplewood Advisors, LLC v. Callidus Capital SIA, 151 A.D.3d 611, 612 (1st Dep't 2017). Plaintiff's claims against Garewal arise from the license agreement, which subordinated 9th LLC's status as a secured creditor, preventing plaintiff from collecting the funds 9th LLCowed to plaintiff. Although it alleges that Garewal, as an admitted member of 9th LLC, availed himself of the benefits of conducting business in New York when 9th LLC entered the license agreement and subordinated its claims in the bankruptcy proceeding, Garewal neither was named as a party to the licensing agreement, nor signed it. ABKCO Music, Inc. v. McMahon, 175 A.D.3d at 1201. See U.S. Immigration Fund LLC v. Litowitz, 182 A.D.3d at 506; Robins v. Procure Treatment Ctrs., Inc., 179 A.D.3d at 413; Concotilli v. Brown, 168 A.D.3d 426, 426 (st ep't 2019). Plaintiff thus fails to plead facts (1) to show that Garewal personally transacted the business or committed the tortious conduct in New York, C.P.L.R. § 302(a), with which plaintiff charges 9th LLC, Robins v. Procure Treatment Ctrs., Inc., 179 A.D.3d at 413; Concotilli v. Brown, 168 A.D.3d at 426; IMAX Corp. V. Essel Group, 154 A.D.3d 464, 466 (1st Dep't 2017), or (2) to pierce the corporate veil, East Hampton Union Free School Dist. v. Sandpebble Bldrs., Inc., 16 N.Y.3d 775, 776 (2011); Kahan Jewelry Corp. v. Coin Dealer of 47th St. Inc., 173 A.D.3d 568, 568-69 (1st Dep't 2019); Skanska USA Bldg. Inc. v. Atlantic Yards OB2 Owner, LLC, 146 A.D.3d 1, 12 (1st Dep't 2016), to hold Garewal personally liable for 9th LLC's conduct. See Array BioPharma, Inc. v. AstraZeneca AB, 184 A.D.3d 463, 464 (1st Dep't 2020); Coast to Coast Energy, Inc. v. Gasarch, 149 A.D.3d at 487-88.

Finally, Garewal's residence in New Jersey and lack of other contacts with New York militate against personal jurisdiction. U.S. Immigration Fund LLC v. Litowitz, 182 A.D.3d at 506; Concotilli v. Brown, 168 A.D.3d at 426; IMAX Corp. V. Essel Group, 154 A.D.3d at 466; Ripplewood Advisors, LLC v. Callidus Capital SIA, 151 A.D.3d at 612. Therefore the court grants defendants' motion to dismiss plaintiff's claims against Garewal. C.P.L.R. § 3211(a)(8).

III. C.P.L.R. § 3211(a)(5)

A. Res Judicata

Under the doctrine of res judicata, a final judgment on a claim bars relitigation between the same parties or parties in privity with those same parties of claims arising from the same transactions that either were raised or could have been raised in the prior action. Xiao Yang Chen v. Fischer, 6 N.Y.3d 94, 100 (2005); Rojas v. Romanoff, ___ A.D.3d ___, 2020 WL 4210402, at *3 (1st Dep't July 23, 2020); Platon v. Linden-Marshall Constr. Inc, 176 A.D.3d 409, 410 (1st Dep't 2019); Avilon Auto. Group v. Leontiev, 168 A.D.3d 78, 85 (1st Dep't 2019). Plaintiff commenced a prior action, which included claims for breach of contract, unjust enrichment, and quantum meruit, in New Jersey against 9th LLC and obtained a default judgment. As a result, res judicata bars plaintiff from maintaining its current unjust enrichment claim against 9th LLC. W54-7 LLC v. Perrin, 183A.D.3d 448, 448-49 (1st Dep't 2020); Platon v. Linden-Marshall Constr. Inc, 176 A.D.3d at 410; IDT Corp. v. Tyco Group, S.A.R.L., 156 A.D.3d 538, 539 (1st Dep't 2017); Gropper v. 200 Fifth Owner LLC, 151 A.D.3d 635, 635 (1st Dep't 2017).

Defendants maintain that res judicata requires dismissal of plaintiff's entire action. Res judicata, however, bars only claims that actually were litigated or could have been raised in a prior action. Plaintiff's breach of contract action in New Jersey arose from 9th LLC's nonpayment for merchandise that 9th LLC ordered and received. Plaintiff's current claims are based on defendants' transactions that occurred after the transactions on which its default judgment in the New Jersey action were based and that plaintiff alleges it discovered only when it sought to collect the default judgment. Defendants' tortious conduct alleged in this action occurred during the bankruptcy proceeding, when 9th LLC subordinated its secured claim below 645 nonpriority creditors, which plaintiff claims it did not discover until it sought to collect the New Jersey judgment. Based on these allegations set forth in the complaint, plaintiff could have raised only its unjust enrichment claim in the prior New Jersey action, because its other claims arise from a different transaction. Therefore, assuming plaintiff proves what its complaint alleges, res judicata does not bar its other claims against defendants now. Xiao Yang Chen v. Fischer, 6 N.Y.3d at102; Rojas v. Romanoff, 2020 WL 4210402, at *3; Avilon Auto. Group v. Leontiev, 168 A.D.3d at 85; Chapman v. Faustin, 150 A.D.3d 647, 647 (1st Dep't 2017). See Commissioner of the Dept. of Social Servs. of the City of N.Y. v. New York-Presbyt. Hosp., 164 A.D.3d 93, 97 (1st Dep't 2018); UBS Sec. LLC v. Highland Capital Mat., L.P., 159 A.D.3d 512, 513 (1st Dep't 2018); X-Act Contr. Corp. v. Flanders, 148 A.D.3d 518, 518 (1st Dep't 2017).

B. New Jersey's Entire Controversy Doctrine

Defendants also insist that the New Jersey entire controversy doctrine requires dismissal of plaintiff's claims. The entire controversy doctrine, New Jersey's functional equivalent of res judicata, similarly would bar only plaintiff's claim against 9th LLC for unjust enrichment. See Seung-Min Oh v. Gelco Corp., 257 A.D.2d 385, 386 (1st Dep't 1999); Tammera v. Volger, 198 A.D.2d 34, 35 (1st Dep't 1993).

Should plaintiff eventually recover from 9th LLC based on the New Jersey judgment, then plaintiff of course may not recover the same damages from nonparties to the New Jersey action based on their actions impeding plaintiff's recovery. As long as plaintiff has not recovered the New Jersey judgment, however, then plaintiff may claim against other parties for impeding that recovery.

IV. DEFENDANTS' OTHER GROUNDS FOR DISMISSAL

Upon defendants' motion to dismiss the amended complaint pursuant to C.P.L.R. § 3211(a)(1) and (7), their remaining grounds for dismissal, the court accepts the complaint's allegations as true and draws all reasonable inferences in plaintiff's favor. When evaluating defendants' motion to dismiss the complaint pursuant to C.P.L.R. § 3211(a)(7), the court must give the pleadings a liberal construction,...

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