Jiaxing Globallion Import & Export Co.., Ltd v. Argington, Inc. et al

Filing 109

AMENDED JUDGMENT AND ORDER: Plaintiffs' 91 motion for summary judgment piercing the corporate veil is granted. Andrew F. Thornton and Argington, Inc. are jointly and severally liable to plaintiffs for the judgment entered on April 23, 2013 in the amount of $672,905.22. See Default J., April 23, 2013, ECF No. 62 . The action against Jennifer L. Argie is stayed. Ordered by Judge Jack B. Weinstein on 4/14/2014. (Barrett, C)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
AMENDED
JUDGMENT AND ORDER

JIAXING GLOBALLION IMPORT &
EXPORT CO., LTD., itself and as assignee of
SHANGHAI MAOJI IMPORT & EXPORT
CORPORATION LIMITED, and JIAN FENG
LIU, individually and/or derivatively on behalf
of Argington, Inc.,

11-CV-6291

FILED

IN CLERK'S OFFIC~
U.S. DISTRICT COURT E.D.N l'

Plaintiffs,

*

-againstARGINGTON, INC., ANDREW F.
THORNTON, and JENNIFER L. ARGIE alk/a
JENNIFER L. THORNTON,

APR 15 2014

*

BROOKLYN OFilCE

Defendants.

JACK B. WEINSTEIN, Senior United States District Judge:

Table of Contents
I.

Introduction ............................................................................................................................ 2

II.

Facts ..................................................................................................................................... 2

III.

Law ....................................................................................................................................... 4

A.

Summary Judgment Standard ...................................................................................... .4

B.

Piercing the Corporate Veil under Missouri Law ....................................................... 5

IV.

Application of Law to Facts ............................................................................................... 6

A.
B.

Breach of Duty ................................................................................................................. 7

1.

Co mingling of Corporate Funds and Personal Funds .................................................... 7

2.

Undercapitalization ............................................................................................................ 8

C.
V.

Control of the Corporation ............................................................................................ 6

Proximate Causation ...................................................................................................... 9
Conclusion ......................................................................................................................... 10

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I.

Introduction

Plaintiffs sued Argington, Inc. ("Argington") and its shareholders, Andrew F. Thornton
and Jennifer L. Argie (the "Individual Defendants"), for breach of contract. A default judgment
was entered against Argington. See Default J., April23, 2013, ECF No. 62.

Plaintiffs now move for summary judgment against the individual defendants piercing the
corporate veil. The court previously ruled that the law ofthe state of Missouri applies to
corporate veil issues. See Ct. Mem. & Order 5, Apr. 2, 2012, ECF No. 24.

Defendant Argie has filed for bankruptcy; proceedings against her are therefore stayed.
See Ct. Order Staying Case, ECF No. 106. Judgment piercing the corporate veil as to defendant

Thornton is granted.

II.

Facts

Plaintiff Jiaxing Globallion Import & Export Co., Ltd. ("JG") and Shanghai Maoji Import
& Export Corp., Ltd. ("SM") are Chinese corporations. Their principle place of business is in

China. See Pl.'s Compl.

~~

3-4. Liu, a Chinese citizen, is the president, general manager, and

controlling shareholder of JG. !d.

~~5-6.

Argington is a Missouri corporation. It distributes children's furniture and children's
furniture parts. Its registered office address is in Kansas City, Missouri.

!d.~~

7, 13. Plaintiffs

contend that the corporation's principle place of business is in Brooklyn, New York, and that

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they conducted business transactions there. !d.
Brooklyn.

!d.~~

~

40. The individual defendants reside in

9-10.

In 2008, Argington contacted JG seeking a supply of children's furniture and children's
furniture parts. !d.

~

14. The parties agreed that JG was to be paid within thirty days of the

estimated time of arrival of the goods in the United States. !d.

~

15. Between April 2009 and

August 2011, JG manufactured and delivered to Argington twenty-eight shipments for a contract
price of $898,240.85. !d.
$520,847.85. !d.

~~

~

12. Argington paid $377,392.93, but refused to pay the balance of

17-18.

Due to quota restrictions, JG was unable to fulfill all of Argington's purchase orders.
!d.

~

19. Since SM had the proper permits, at Argington's request, JG processed the extra orders

and forwarded them to SM. !d. Between May 2009 and November 2011, JG manufactured and
delivered to Argington, through SM, twenty-three shipments for a contract price of$413,882.43.
!d.

~12.

Argington paid $334,285.08, but refused to pay the balance of$79,597.35. !d. SM

assigned all of its claims against Argington to JG. !d. , 20.

JG suspended its shipments to Argington, and demanded that the corporation pay the
outstanding balance. Argington, through the individual defendants, offered as payment to
transfer thirty percent of its common stock in the corporation and thirty percent of its profits to
Liu in exchange for an extension of time for Argington to pay its balance and the resumption of
shipments. !d.

~

29. The parties agreed that new shipments would be paid for in three months,

and JG resumed shipments. P1's Compl.

~~

31-32. The stock was transferred on September 17,

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2010. Id. ,-r 30; see also Ct. Mem. & Order, Ex. A, ECF No. 24. Liu has never been permitted to
exercise his rights as a shareholder. See Thornton Dep. 55:17-56:15.

The court finds: First, the individual defendants exercised complete control over
Argington. See Pl.'s Mem. Supp. Mot. Summ. J. 8; Thornton Dep. 17:2-20:5; Argie Dep. 13:914:24. Second, defendants failed to adhere to the formalities of corporate existence; they
comingled funds and undercapitalized Argington. See Pl.'s Mem. Supp. Mot. Summ. J. 8-9; See
Decl. of Songlin Yi, CPA 4-9. Third, defendants' conduct proximately caused plaintiffs' injuryan unsatisfied money judgment.

III.

Law
A. Summary Judgment Standard
Summary judgment is warranted if, after construing the evidence in the light most

favorable to the non-moving party and drawing all reasonable inferences in its favor, there is no
genuine issue as to any material fact and the movant is entitled to a judgment as a matter of law.
Fed. R. Civ. P. 56(a); see Anderson, 477 U.S. at 247-50, 255. Evidence offered to demonstrate a
genuine dispute regarding a material fact must consist of more than "conclusory allegations,
speculation or conjecture." Cifarelli v. Vi!!. Of Babylon, 93 F.3d 47, 51 (2d Cir. 1996); see Del.
& Hudson Ry. v. Consol. Rail Corp., 902 F .2d 174, 178 (2d Cir. 1990) ("Conclusory allegations

will not suffice to create a genuine issue"). "If the non-movant fails 'to come forth with
evidence sufficient to permit a reasonable juror to return a verdict in his or her favor on' an
essential element of the claim, summary judgment is granted." Guisto v. Stryker Corp., No. 12-

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CV-2489, 2013 WL 2417685 (E.D.N.Y. June 4, 2013) (quoting Burke v. Jacoby, 981 F.2d 1372,
1379 (2d Cir.1992)); see e.g., Anderson, 477 U.S. at 248-49.
B. Piercing the Corporate Veil under Missouri Law

Piercing the corporate veil is "a separate and distinct cause of action" under Missouri
law. See Irwin v. Bertelsmeyer, 730 S. W.2d 302, 304 (Mo. App. E. D. 1987). The State
recognizes "narrow circumstances in which the 'corporate veil' can be 'pierced' in order to hold
the corporation's owners liable for its debt." 66, Inc. v. Crestwood Commons Redevelopment

Corp., 998 S.W.2d 32,40 (Mo. 1999).
Plaintiff must demonstrate the following:
( 1) Control, not mere majority or complete stock control, but complete
domination, not only of finances, but of policy and business practice in respect to
the transaction attacked so that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own; and
(2) Such control must have been used by the defendant to commit fraud or wrong,
to perpetrate the violation of a statutory or other positive legal duty, or dishonest
and unjust act in contravention of plaintiffs legal rights; and
(3) The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.

See Collet v. Am. Nat. Stores, Inc., 708 S. W.2d 273, 284 (Mo. Ct. App. 1986).
"When a corporation is so dominated by a person as to be a mere instrument of that
person, and indistinct from the person controlling it, the court will disregard the corporate form if
its retention would result in injustice." Osgood v. Midwest Parking Solutions, No.
4:07CV1365SNLJ, 2009 WL 4825192 (E.D. Mo. Dec. 11, 2009) (collecting cases).

In determining whether individual defendants exercised sufficient control over the
corporation to justify piercing, courts look to whether they are the "sole officers, directors and
shareholders"; whether they "made all corporate decisions and controlled all corporate
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activities"; and whether the property from which the corporation operated was owned by the
individual defendants. See Edward D. Gevers Heating & Air Conditioning Co. v. R. Webbe
Corp., 885 S.W.2d 771,774 (Mo. Ct. App. 1994); see also McCormick v. Cupp, 106 S.W.3d
563, 568 (Mo. Ct. App. 2003); Saidawi v. Giovanni's Little Place, Inc., 987 S.W.2d 501, 505
(Mo. Ct. App. 1999).

Plaintiffs must also show a breach of duty- i.e., "that this control was used by the
corporation to commit fraud or wrong, to perpetrate the violation of a statutory or other positive
legal duty, or to commit a dishonest and unjust act in contravention of the plaintiffs legal
rights .... " Mobius Mgmt. Sys., Inc. v. W Physician Search, L.L. C., 175 S.W.3d 186, 188 (Mo.
Ct. App. 2005). Plaintiffs are not required to show actual fraud. Id "In some situations, the
corporate veil may be pierced when a corporation is undercapitalized, or when its assets are
stripped to avoid creditors." Id; see also Sunbelt Envtl. Services, Inc. v. Rieder's JiffY Mkt.,
Inc., 138 S.W.3d 130,135 (Mo. Ct. App. 2004); Osgoodv. Midwest Parking Solutions, No.
4:07CV1365SNLJ, 2009 WL 4825192 (E.D. Mo. Dec. 11, 2009). The Missouri Court of Appeals
has explained that "[i]nadequate capitalization is circumstantial evidence of an improper purpose
or reckless disregard for the rights of others." Mobius Mgmt. Sys., Inc., 175 S.W.3d at 189.

IV.

Application of Law to Facts
A.

Control of the Corporation

The defendants exercised complete control over the corporation. Prior to September 2010
Thornton and Argie, a married couple, were the sole shareholders, officers, directors, and agents

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of Argington. They had complete control and dominion over Argington. See Pl.'s Compl.,
Def. Answer to Compl.

~

~48;

48.

In Thornton's deposition, he testified that he and Argie are the joint decision-makers for
the company. See Thornton Dep. 17:1-25. They make all necessary decisions with regard to
Argington's business operations, including products to be purchased and sold. Thornton Dep.
18:1-8. He also testified that they jointly control hiring and salaries. Thornton Dep. 19:15. There
was no person who had direct influence over their decisions. See Thornton Dep. 55:17-20.

B. Breach of Duty
1. Co mingling of Corporate Funds and Personal Funds

Defendants breached their duty by comingling the corporation's funds with their own.
See Decl. of Songlin Yi, CPA 4. Argington' s QuickBooks data demonstrates that the company

paid Thornton's and Argie's personal expenses and obligations. !d. These payments are
classified as "Personal" in QuickBooks. See Pl.'s Mem. Supp. Mot. Summ. J. Ex. E. They made
personal cash withdrawals and payments for personal effects to Costco, Crate & Barrel, Home
Depot, Hunter Mountain Ski Bowl, IKEA, Key Foods, Prospect Park Tennis, and Target. See id.
QuickBooks also shows that corporate funds were used to pay defendants' personal debts, Pl.'s
Mem. Supp. Mot. Summ. J. Ex. E-1, as well as personal obligations for home mortgage
payments. Pl.'s Mem. Supp. Mot. Summ. J. Ex. E-2, Pl.'s Mem. Supp. Mot. Summ. J. Ex. E-4.

On their personal income tax forms, defendants failed to declare the personal expenses
paid with corporate funds as income. Hr'g Tr. 22:10-20, Mar. 24,2014. Improperly, the

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corporate tax forms did not reflect those payments as expenses. See id. 23:14-25. A certified
public accountant, Songlin Yi, asserted that the corporation's assets were drained because they
were commingled with shareholders' personal assets and utilized to meet personal needs. See
Decl. of Songlin Yi, CPA 6.

2. Undercapitalization
Argington was undercapitalized as a result of the defendants using corporate assets for
personal use. Yi stated in his declaration that since 2009 the corporation has lacked sufficient
owners' capital and has heavily relied on debts to survive. See Decl. of Songlin Yi, CPA 6. The
comparison of the shareholders' equity recorded in Quickbooks with tax returns demonstrates
that the corporation was low on equity in 2009 and had negative capital in 2010-2012. See id. at
6-7. From January 1, 2009 to December 31,2012, based on the change ofbalance reported on
the 2009 to 2012 tax returns, the corporation's indebtedness to vendors and other creditors
increased from zero to $558,515. See Pl.'s Mem. Supp. Mot. Summ. J. Ex. G. Simultaneously,
the shareholders disbursed $554,526 from the corporation to themselves. This movement of
assets demonstrates that defendants' priority was paying their personal expenses and not the
corporation's outstanding liabilities.

The defendants stripping corporate assets was evinced by the discrepancies between the
corporation's Quickbooks and tax returns. Yi noted that he believes the defendants misstated
their Quickbooks entries, by not including loans to the themselves, in order to conceal their
financial obligations to Argington. See Decl. of Songlin Yi, CPA 9; Pl.'s Mem. Supp. Mot.
Summ. J. Ex. D, Balance Sheet printout from Quickbooks.

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In 2012 defendants increased their loan from the corporation from $25,123 to $193,146,
which was equivalent to an additional $168,123 disbursement to themselves. See Decl. of
Songlin Yi, CPA 7. Thus, as of December 31, 2012, the shareholders owed the corporation
$193,146. See id. at 7; Ex. I, 2012 Tax Return, at 4, Schedule L, Line 7, column (d). From
January 1, 2009 through December 31, 2012, the corporation paid the defendants' personal
expenses and obligations by increasing the account payable to vendors and other creditors. See
Decl. of Songlin Yi, CPA 7.

C. Proximate Causation

Plaintiffs have established the third requirement for piercing the corporate veil: the
defendant's control and breach of duty proximately caused the injury or unjust loss. See Mobius
Mgmt. Sys., 175 S.W.3d 186. The plaintiffs' injury is the unsatisfied money judgment against

Argington for $672,905.22, entered in this action on April23, 2013. See Pl.'s Rule 56.1

St.,~~

10 and 20. Plaintiffs have not been paid because Thornton and Argie drained Argington ofthe
capital needed to satisfy the judgment.

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V.

Conclusion

Plaintiffs' motion for summary judgment piercing the corporate veil is granted. Andrew
F. Thornton and Argington, Inc. are jointly and severally liable to plaintiffs for the judgment
entered on April23, 2013 in the amount of $672,905.22. See Default J., April23, 2013, ECF
No. 62. The action against Jennifer L. Argie is stayed.

ack B. Weinstein
Senior United States District Judge
Dated: April 14, 2014
Brooklyn, New York

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