Sea Metropolitan S.A. v. DGM Commodities Corp.
ORDER granting in part and denying in part 16 Motion for Writ; granting in part and denying in part 16 Motion for Preliminary Injunction. For the reasons set forth in the attached memorandum, petitioner's request for relief is granted as to DGM Commodities and Mr. Elua, but otherwise denied. Ordered by Judge Denis R. Hurley on 8/2/2013. (Kaley, Regina)
UNITED STATES DISTRICT COURT
SEA METROPOLITAN S.A.,
MEMORANDUM AND ORDER
DGM COMMODITIES CORP., f/k/a
D&N COMMODITIES INC., f/k/a
D&N COM., INC., DAVID ELUA
a/k/a DAVID ELUASHVILI, DGM
HOLDING CORP., DAVINI REALITY
CORP., and ABC CORP. 1-5,
A P P E A R A N C E S:
Freehill Hogan & Mahar LLP
80 Pine Street - 24th Floor
New York, New York 10005
By: Michael E. Unger, Esq.
Susan Lee, Esq.
Margolis & Tisman LLP
280 Madison Avenue - 5th Floor
New York, New York 10016
By: James F. Parver, Esq.
Stephen E. Tisman, Esq.
HURLEY, Senior District Judge
Presently before the Court is the application of
petitioner, Sea Metropolitan, S.A. ("SMSA" or "petitioner"), for
an order (a) granting a preliminary injunction, pursuant to Rule
65 of the Federal Rules of Civil Procedure, prohibiting DGM
Commodities Corporation ("DGM Commodities"), David Elua ("Elua"),
DGM Holding Corporation ("DGM Holding") and Davini Reality LLC
("Davini") (collectively respondents) "from selling,
transferring, or otherwise disposing of property" until such time
as the multi-million dollar judgment SMSA has against DGM
Commodities has been satisfied, and (b) "granting pre-judgment
attachment, pursuant to Rule 64 and N.Y.C.P.L.R. Article 62, over
all property in which each Respondent herein has an interest up
to [the amount of the judgment]."
(Pet'r's July 19, 2013 Reply
Mem. at 1.)
"On or about October 17, 2007, [SMSA], as owner of the
. . . vessel ANDRA, entered into a maritime contract . . . with
DGM Commodities, as charterer, for the carriage of a full cargo
of frozen chicken parts from the U.S. Gulf Coast to St.
(See Michael E. Unger ("Unger") Affirm. in
Supp., inter alia, of Sealing Order ¶ 13.)
Due to "DGM
Commodities's breach of the Charter Party, . . . arbitration
proceedings [were commenced] in London in or around August of
Id. ¶ 17. "In November 2011, the matter proceeded to a
seven day hearing conducted before a three-member panel in
London, at which David Elua, in his capacity as President and
100% beneficial owner of DGM Commodities, appeared and testified
on behalf of DGM Commodities."
Id. ¶ 18.
Upon the conclusion of
the arbitration proceeding, "the panel issued a principal
arbitration award, holding in favor of [SMSA] on its demurrage
claims against DGM Commodities and award[ed] the amount of
$3,605,630.00 plus interest thereon from September 1, 2008 until
the date of payment."
Id. ¶ 19.
That award was appealed to the
English High Court which, by decision dated July 18, 2012, found
in favor of SMSA and directed DGM Commodities to pay “attorneys'
fees and costs incurred in connection with the appeal.”
After various efforts by SMSA to obtain payment of the
sums awarded proved unsuccessful, SMSA commenced an action in the
United States District Court for the Eastern District of New York
"to obtain recognition and enforcement of the London arbitral
award and the English High Court cost order as a judgment of the
U. S. District Court."
Id. ¶ 23.
As a result, the Honorable
Sandra J. Feuerstein entered judgment in favor of SMSA against
DGM Commodities in the amount of $4,358,850.59 on January 24,
Id. ¶ 24.
When that judgment failed to prod or otherwise
produce payment, SMSA started a second federal action, this one
before me, seeking the relief mentioned above.1
A temporary restraining order was issued on June 4,
In addition to the judgment entered by Judge Feurstein,
“the [arbitral] panel issued a separate arbitration award as to
costs dated February 20, 2013 . . . directing DGM Commodities to
pay [SMSA an] additional sum,” which DGM Commodities has failed
or otherwise refused to pay. Unger Affirm. ¶ 36-37. This award
has not yet been entered by a U.S. court, but petitioner
contends, and respondents do not contest may be enforced here
pursuant to the Convention for the Recognition and Enforcement of
Foreign Arbitral Awards codified at 9 U.S.C. § 201 et seq. See
Supp. Affirm. of Unger ¶ 8. Since neither party has
distinguished between the judgment entered by Judge Feurstein and
the cost award, this opinion’s discussion of “the judgment”
includes both items.
2013, which enjoined, not only the judgment debtor DGM
Commodities, but also the other named respondents from, "except
in the ordinary course of business, disposing of, paying over,
selling, transferring, conveying, encumbering, secreting or
removing any real or personal tangible or intangible property" in
which any of them have an interest pending the return date.
4, 2013 O/T/S/C at 7.
The return date was extended, along with
the temporary restraining order by agreement of the parties until
July 22, 2013 when the preliminary injunction hearing was
The hearing consumed that day, as well as the better
part of July 23, 2013.
Most of the evidence consisted of various
Declarations; in addition, respondent Elua testified as did
Nikolai Pirtskhalaichvili ("Nikolai").2
As alleged in the Amended Verified Petition, and as
developed during the course of the hearing, petitioner claims
that Elua controls each of the respondent entities and that he
utilized that domination to essentially render DGM Commodities
This was done, petitioner proffers, by Elua,
inter alia, winding down the debtor-corporation's activities in
2009 and diverting what would have been its business to several
Nikolai made personal loans to DGM Commodities towards
"the end of 2006 [and] the very beginning of 2007," (July 2013
Hearing Transcript ("Tr.") at 227), and apparently also was
provided with some decision making discretion by Elua. For
obvious reasons, the parties agreed during the hearing to refer
to this witness solely by his first name.
other Elua controlled companies, including "Commodities
See Am. Verified Compl. ¶ 96.
For a preliminary injunction to properly issue, a
movant must establish "(1) irreparable harm in the absence of the
injunction and (2) either (a) a likelihood of success on the
merits or (b) sufficiently serious questions going to the merits
to make them a fair ground for litigation and a balance of
hardships tipping decidedly in the movant's favor."
Grocer, LLC v. Hometown Info Inc., 375 F.3d 190, 192 (2d Cir.
2004)(internal quotation marks omitted).
Notwithstanding the general rule that there is no
irreparable harm where an aggrieved party seeks solely a monetary
award, "a preliminary injunction is appropriate to prevent a
defendant from taking actions to frustrate a judgment."
Bank v. Reimer, 2010 WL 446025, at *5 (E.D.N.Y. Jan. 29,
2010)(internal quotation marks omitted).
Here, DGM Commodities
has repeatedly repelled SMSA's efforts to recover under the
subject judgment and, in the process, has, through Elua, diverted
assets from the debtor-corporation.
motivation for that recalcitrance may be traceable to Elua's
seeming belief, as intimated during his hearing testimony, that
the arbitration award was unjustly entered.
See Tr. at 141-143.
In any event, if the present dispute was limited to just the
judgment debtor and the judgment creditor, the Court's job would
be straightforward for SMSA has clearly satisfied the irreparable
injury element of its cause of action for injunctive relief
against that respondent.
between SMSA and DGM Commodities, the proof comfortably satisfies
the likelihood of success element;
SMSA merely wants the
judgment in its favor to be paid.3
However, the main thrust of
the present application is to recover the amount of the judgment
from one or more of the non-DGM Commodities respondents, and that
is not a simple task.
Towards that end, petitioner asks the
Court to pierce the corporate veil under an alter ego theory.4
Order of Attachment
Under Federal Rule of Civil Procedure 64 "every remedy
is available that, under the law of the state where the court is
located, [there exists a provision] for seizing . . . property to
secure satisfaction of the potential judgment."
Fed. R. Civ. P.
"The remedies available under this rule include . . . .
Satisfaction of the likelihood of success element
obviates the need to address the presence or absence of a
sufficiently serious question going to the merits and the balance
of hardship elements which are stated in the disjunctive to the
likelihood of success standard.
As explained in Bravado International Group Merchandising
Services, Inc. v. Ninna, Inc., 655 F. Supp. 2d 177, 194 (E.D.N.Y.
2009), "alter ego liability . . . is also referred to as
'piercing the corporate veil.’"
Fed. R. Civ. P. 64(b).
New York CPLR § 6201 provides in pertinent part that
"[a]n order of attachment may be granted in any action . . . when
. . . 5. the cause of action is based on a judgment, decree or
order of a court of the United States or any other court which is
entitled to full faith and credit in this state . . . ."
juxtapositioning of the language of § 6201(5) with the facts at
hand, indicates that attachment is appropriate against property
of the judgment debtor, DGM Commodities.5
But here again, the primary focus of petitioner's
current attempt to collect on the judgment targets the non-DGM
For petitioner to prevail with respect to its request
for a preliminary injunction and for an order of attachment
against DGM Holding, Davini, and/or Elua, it must demonstrate
that such entity or entities, or Elua individually, is an alter
ego of DGM Commodities.
By way of reviewing some basic principles, a
"corporation is an entity that is created by law and endowed with
a separate and distinct existence from that of its owner.
Because a principal purpose for organizing a corporation is to
DGM Commodities has not appeared in this action and
petitioner is in the process of seeking a default judgment
against that respondent.
permit its owners to limit their liability, there is a
presumption of separateness between a corporation and its owners,
which is entitled to substantial weight."
and Shipping Co. v. Rosseel, 702 F. Supp. 1005, 1018 (S.D.N.Y.
However, "when a corporation is used by
an individual to accomplish his own and not the corporation's
business, such a controlling shareholder may be held liable for
the corporation's commercial dealings . . . ."
International, 655 F. Supp. 2d at 194.6
"The critical question is whether the corporation is a
‘shell’ being used by the individual shareholders to advance
their own ‘purely personal rather than corporate ends.’
question of ‘whether the corporate veil should be pierced
requires a fact specific inquiry; there are no bright line
Bravado International, 655 F. Supp. 2d at 194
"The doctrine . . . is typically employed
by a third-party seeking to go behind the corporate existence in
order to circumvent the limited liability of the owners and to
hold them liable for some underlying corporate obligation.
In Bravado International, the court discussed scenarios
under which a controlling shareholder may be held responsible for
a corporate obligation. However, veil piercing may be employed
not only to reach the assets of a controlling individual [such as
arguably, Elua], but also other owner-controlled entities [such
as, arguably, DGM Holding and Davini]. D. Klein & Son, Inc. v.
Good Decisions, Inc., 147 Fed. App’x 195, 2005 WL 361674 at *2
(2d Cir. 2005).
concept is equitable in nature and assumes that the corporation
itself is liable for the obligations sought to be imposed."
Morris v. New York State Department of Taxation and Finance, 82
N.Y.2d 135, 141 (1993) (citation omitted).
Under federal law with respect to petitioner's
preliminary injunction application7 and under State law vis-a-vis
its effort to obtain an order of attachment against Elua, DGM
Holding and/or Davini,8 the following two questions must be
answered in the affirmative: (1) has the person or entity sought
to be saddled with the corporate obligation "'exercised complete
Under federal law, the issue is not free from doubt. See
Oriental Commercial and Shipping, 702 F. Supp. at 1018-19; see
generally, STEPHEN B. PRESSER, PIERCING THE CORPORATE VEIL § 3:4 (2013).
Indeed, petitioner’s counsel opined during his opening statement
that, unlike the undisputed two part conjunctive rule in New
York, either domination or fraud would suffice for federal
purposes (Tr. at 11); the cite for that proposition is set forth
in an earlier submission of his as Kirno Hill Corp. v. Holt, 618
F.2d 982 (2d Cir. 1980). (Pet'r's Mem. in Supp. of a TRO, at 34.) However, reference to Kirno Hill indicates that simply being
the "sole owner" of a corporation is insufficient to "justify
piercing the corporate veil" absent evidence that the owner used
the "corporate form . . . primarily [to transact his own]
personal business [and/or to promote] a fraudulent end." Id. at
Here, Elua, as explained infra in the text, is the sole
owner and, as such, necessarily exercises ultimate control over
each of the respondent companies. That fact alone, however,
cannot be deemed adequate to ignore those companies' legal
independence. Something more, as explained in Kirno Hill, is
needed. That "something more" calls for evidence linking Elua's
domination to harm sustained by SMSA.
Morris v. New York State Department of Taxation and
Finance, 82 N.Y.2d 135, 141 (1993).
domination over the corporation with respect to the transaction
at issue' and (2) that 'such domination was used to commit a
fraud or wrong that injured . . . the party seeking to pierce the
D. Klein & Son, Inc. v. Good Decision, Inc., 147 Fed.
App’x 195, 197 (2d Cir. Feb. 15, 2005)(Summary Order)(quoting Mag
Portfolio Consult. Gmbh v. Merlin Biomed Group LLC, 268 F.3d 58,
63 (2d Cir. 2001).
With respect to the first question, i.e. the domination
factor, the Second Circuit instructs in Wm. Passalacqua Builders,
Inc. v. Resnick Developers South, Inc., that attention should be
given to such considerations as:
(1) the absence of the formalities and
paraphernalia that are part and parcel of the
corporate existence, i.e., issuance of stock,
election of directors, keeping of corporate
records and the like, (2) inadequate
capitalization, (3) whether funds are put in
and taken out of the corporation for personal
rather than corporate purposes, (4) overlap
in ownership, officers, directors, and
personnel, (5) common office space, address
and telephone numbers of corporate entities,
(6) the amount of business discretion
displayed by the allegedly dominated
corporation, (7) whether the related
corporations deal with the dominated
corporation at arms length, (8) whether the
corporations are treated as independent
profit centers, (9) the payment or guarantee
of debts of the dominated corporation by
other corporations in the group, and (10)
whether the corporation in question had
property that was used by other of the
corporations as if it were its own.
933 F.2d 131, 139 (2d Cir. 1991).
As to the second question or factor, "it may be
satisfied either upon a showing of fraud or upon complete control
. . . that leads to a wrong against third parties."
From Queens, Inc. v. J & S Kidswear, Inc., 2010 WL 475319 at *3
(E.D.N.Y. Feb. 8, 2010), quoting D. Klein & Son, 147 Fed. App’x
In sum, petitioner's efforts to hold Elua, DGM Holding
and/or Davini answerable for its judgment against DGM Commodities
depends on the outcome of its alter ego claims.
Petitioner has Established That Elua Dominated
and Controlled the Other Respondents, Thus
Satisfying the First Alter Ego Prong
Elua is the sole owner of DGM Holding Corporation
which, in turn owns DGM Commodities.
Tr. at 67-68.
Davini is a
limited liability company owned by Elua, the business of which is
ownership of the property at 49 Watermill Lane, Great Neck, New
Id. at 69. Each of the respondents (other than Davini9),
maintains an office at that address, as do several other Elua
owned corporations, where all share the same cadre of employees,
office equipment, a single listed telephone number and one fax
Id. at 76, 77, 78, 80, 123 and 128.
The rent on the
shared quarters at 49 Watermill Lane is not divided among the
occupants as one might expect; instead DGM Commodities paid it in
Davini's registered office is at Elua's home. Tr. at 77.
full up to some unspecified period of time, after which the
rental payments were switched to two other DGM Holding owned
companies, namely Commodities International and Momaco
Id. at 79.
Moreover, DGM Commodities paid the
payroll for the shared employees until 2009, and apparently still
pays the telephone bill for 49 Watermill Lane.
Id. at 80.
Respondents' proof demonstrated, absent countervailing
evidence, that each company complies with corporate formalities,
has their own general ledgers, bylaws, bank accounts and
faithfully files required tax returns.
Though such conduct
suggests that the respondent companies, as well as other Elua
controlled corporations, function at arms length consistent with
their individual legal statuses, such clearly is not the case.
For example, Elua testified that if one of his companies needs
either products or money to consummate a deal, a sister company
will fill the void.
Id. at 91-92, 135.
extended to a competitor would have been undertaken for a profit.
Id. at 135-36.
But for inter Elua-owned companies, the transfers
are made gratuitously, with the sole documentation of the
transactions consisting of simple general ledger entries.
Such items as, e.g., repayment schedules are
By way of concluding this point, petitioner has
established for purposes of the present motions that Elua
exercises dominant control over each of the respondent companies
and treats those companies as fungible entities intended to
advance his personal interests.
A prime, of many examples of
this is found in the Global debacle to be discussed momentarily.
Which is to say, petitioner has satisfied the first prong of the
two part alter ego standard.
Petitioner Has Established the Fraud Component of
its Alter Ego Claim Against Elua
Petitioner's proof falls short of establishing that
Davini or DGM Holding, either individually or in conjunction with
Elua took any meaningful steps which caused injury to SMSA.
Accordingly, petitioner's alter ego claims against these two
respondents are found to be unavailing, thereby precluding the
relief sought from being imposed against them.
The same may not be said as to Elua.
contends that Elua used his dominant control over DGM Commodities
and non-respondent Commodities International10 to divert in the
neighborhood of $4,000,000 that was owed to the judgment debtor
by Global Trading Resources Corporation ("Global") to Commodities
Commodities International was originally owned by DGM
Commodities and thereafter by DGM Holding (Tr. at 105-06), with
the transfer of ownership being accomplished via an assignment –
as reported by Elua — "effective January 1st of 2008." Tr. at
106. When petitioner's counsel suggested during cross
examination that the assignment was back dated based on a
document that Elua signed after that date listing continued
ownership in DGM Commodities, Elua explained that was a
That was done, petitioner argues, in an effort to
make DGM Commodities judgment proof.
Based on the evidence
presented, petitioner's rendition as to what occurred is more
likely so than not so.
That evidence includes: (1) a complaint
filed in the Southern District of New York in December 2008
verified by Elua, as president of DGM Commodities, listing that
corporation as the plaintiff in an action against Global claiming
$4,020,219.50, (2) in paragraph 6 of that complaint, DGM
Commodities identified "Global [as] the purchaser of shipments of
frozen chicken parts from [DGM Commodities] that were loaded
onboard the M/V SNOW DRIFT and M/V HAWK BAY,"11 (3) a letter
dated May 28, 2009 to Molly Henry – another attorney hired by
SMSA with respect to its efforts to collect from DGM Commodities
– in which DGM Commodities reported that Global's "debt to our
company [was paid] on March 27, 2009"12 (Henry Decl., ¶ 8 and Ex.
D to that Decl.), and (4) information that, even though Elua
averred in the S.D.N.Y. complaint that Global was indebted to DGM
Commodities,13 the monies due as a result of that clearly
The S.D.N.Y. Complaint is attached as Exhibit A to the
Declaration of Molly Henry (“Henry Decl.”) submitted in support
of the relief sought by petitioner.
The payment of Global's indebtness was significant to
Henry because she was trying to attach that indebtness on behalf
Elua testified at the hearing that Commodities
International, not DGM Commodities, was the seller to Global.
Tr. at 102. Why he claimed otherwise in the S.D.N.Y. action was
identified transaction ended up in the coffers of Commodities
International, not in the judgment debtor's hands.
¶¶ 11, 12, 13, 14, 15, 16, 17 and 18.
The timing of the above events is telling.
no later than early in 2009, that SMSA was endeavoring to obtain
security to protect its interest under the London arbitration.
Tr. at 142.
And in 2009, Elua started to wind down DGM
Commodities' business, id. at 170, even though (1) its "volume of
business . . . in 2008" was "218.6 million dollars," id. at 95,
and (2) it enjoyed "a great reputation in the market and was
known as a . . . large volume buyer of . . . frozen poultry."
Id. at 130.
The reasons advanced by Elua for the winding down
operation were less than compelling.
Id. at 81.
post-2009 shift of major DGM Commodities customers to Commodities
International lends further credence to petitioner's position.
In sum, petitioner has established the second prong of
his alter ego claim against Elua.
Given That Petitioner has Established Both
Prongs of its Alter Ego Claim Against Elua,
Elua, Along With DGM Commodities is
Responsible for Indebtness Owed to SMSA
Having successfully invoked the alter ego doctrine
against Elua, Elua now "stands in the shoes" of DGM Commodities.
not pursued during the hearing before me, although he did concoct
a dubious tale in that regard during the London arbitration. See
Decl. of Kevin Sach Submitted in Supp. at ¶ 12.
JSC Foreign Economic Ass’n Technostryexport v. Int’l Dev. And
Trade Servs., 295 F. Supp. 2d 366, 384 (S.D.N.Y. 2003).
or additional judgment is required to be entered against him as a
precondition to the issuance of a preliminary injunction or order
Astrea United Investments, L.P. v. Onitiri, 1992
WL 346353, at * 3 (S.D.N.Y. Nov. 18, 1992) (finding that
plaintiff could attach property interest of ship charterer’s
alter ego where judgment had been obtained only against
For that reason, respondents' reliance on Grupo
Mexicano v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999) is
unavailing; petitioner is not seeking to enjoin a respondent from
disposing of assets to protect a possible future judgment in
contravention of the Grupo Mexicano holding because SMSA already
has a judgment.
Petitioner is Entitled to Both a Preliminary
Injunction and Order of Attachment Against Elua,
as Well as DGM Commodities.
The lynchpin of petitioner's effort to render the nonDGM Commodities respondents also answerable under the January 24,
2013 judgment fell short of the mark as to Davini and DGM
Holding14 but successfully targeted Elua.
Considering the previously discussed standards for the
issuance of a preliminary injunction under Fed. R. Civ. P. 65 and
However, the attachment of Elua's assets includes his
ownership interest in each of those two entities.
for an order of attachment under CPLR § 6201(5), in conjunction
with the evidence produced at the hearing held on July 22nd and
July 23rd, 2013, I find that petitioner is entitled to the relief
requested as to both DGM Commodities and Elua.
For the reasons provided, the relief sought by SMSA is
granted as to DGM Commodities and Elua but otherwise denied.
Petitioner is directed to submit a proposed order
consistent with this decision, on notice, on or before August 9,
In the interim, the injunctive relief set forth in the now
superceded TRO will be in effect – but only as to Elua and DGM
Commodities – as part of this Order.
Petitioner's undertaking, as required by CPLR § 6212(b)
and Fed. R. Civ. P. 65(c), is hereby fixed in the sum of
Dated: August 2, 2013
Central Islip, New York
DENIS R. HURLEY, U.S.D.J.
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