Tradewinds Airlines Inc. v. Soros et al

Filing 36

MEMORANDUM OPINION & ORDER:# 97114 Accordingly, with the exception stated below, these proceedings are stayed pending the North Carolina courts decision on the motion to vacate the default judgment. 3 The parties shall provide this Court with a copy of that decision as soon as it is available. If the decision becomes subject to appellate review, defendants may apply to extend the stay. Meanwhile, in spite of the stay, the Court will entertain defendants motion to disqualify Ms. Grayson as plaint iffs counsel. Ms. Grayson has requested a prompt ruling on this motion, and her request is reasonable. Therefore, as discussed at oral argument, the parties are directed to submit a stipulated briefing schedule and a proposed argument date for the di squalification motion. All other activity in this case I including defendants' motion to dismiss the Amended Complaint is stayed. So Ordered (Signed by Judge John F. Keenan on 2/23/09) (js) Modified on 2/23/2009 (js). Modified on 2/25/2009 (jab).

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -----------------------------------X TRADEWINDS AIRLINES, INC., : Plaintiff, -againstGEORGE SOROS and PURNENDU 1 CHATTERJEE, : : : 08 Civ. 5901 (JFK) MEMORANDUM OPINION & ORDER

: Defendants. -----------------------------------X JOHN F. KEENAN, United States District Judge: TradeWinds Airlines, Inc. ("TradeWinds"), the holder of a $54.87 million default judgment in North Carolina state court against C-S Aviation Services ("C-S Aviation"), commenced this action to pierce C-S Aviation's corporate veil and recover the judgment from its alleged alter egos, George Soros and

Purnendu Chatterjee.

Defendants now move to dismiss the amended

complaint for failure to state a claim, or, in the alternative, to stay the case pending a motion by C-S Aviation to vacate the default judgment. For the reasons below, defendants' motion to

stay is granted, and decision on their motion to dismiss is reserved.

The Clerk of the Court is directed to amend the caption to conform to this correct spelling of defendant Chatterjee's first name.

1

Background I. Other Proceedings This case is an offshoot of complex litigation in

North Carolina Superior Court, County of Guilford, concerning agreements for the lease of cargo aircraft (the "North Carolina Litigation"). parent On February 4, 2004, TradeWinds and its former TradeWinds Inc. Holdings, Inc. ("Holdings") a and

companies, Holdings,

Coreolis

("Coreolis"),

filed

third-party

complaint against C-S Aviation, its parent companies, and Wells Fargo Bank Northwest, NA. Aviation, acting as the The complaint mainly alleged that C-S agent of the other third-party

defendants, made false representations to induce TradeWinds to lease the aircraft. In August 2004, after C-S Aviation had failed to

answer the North Carolina third-party complaint, the third-party plaintiffs moved jointly for an entry of default against C-S Aviation, and default was entered. On April 24, 2008,

TradeWinds alone moved for entry of a default judgment against C-S Aviation. The claims against the other third-party

defendants had been settled and dismissed in April 2005. On June 25, 2008, with its motion for a default

judgment pending, TradeWinds filed a petition for Chapter 11 bankruptcy in the United States Bankruptcy Court for the

-2-

Southern District of Florida, Miami Division.

The bankruptcy

case, which has since been converted to one under Chapter 7 of the Bankruptcy Code, currently is underway. On June 27, 2008, the North Carolina court entered a default judgment in favor of TradeWinds and against C-S Aviation in the amount had of $54,867,872.49. in deceptive the The trade court found that by C-S

Aviation false

engaged

practices that

making caused that

representations to was sustain

about

aircraft, of

this and

TradeWinds TradeWinds

damages to

$16,326,528.94, damages and

entitled

treble

pre-judgment

interest under North Carolina law. On August 25, 2008, C-S Aviation revived its Delaware certificate of incorporation, which had been void for nonpayment of fees since March 2005. On August 27, 2008, C-S Aviation

moved the North Carolina court to set aside the entry of default and the default judgment, pursuant to North Carolina Rule of Civil Procedure 60. In its motion, C-S Aviation argues that (1) TradeWinds did not properly serve the third-party complaint on C-S Aviation and failed to present adequate proof of service to support entry of default and the default judgment; (2) the third-party complaint fails to state a claim against C-S

Aviation; and (3) extraordinary circumstances exist such that justice demands the vacatur of the entry of default and the

-3-

default judgment. and is pending.

The motion was argued on January 27, 2009,

On November 12, 2008, Holdings and Coreolis moved the North Carolina as court to amend the default with C-S judgment to add

themselves that the

co-judgment

creditors against

TradeWinds, Aviation They also

arguing been to

third-party by

claims all three

had

jointly

asserted

parties.

moved

intervene as co-plaintiffs in the instant veil-piercing action, based on their asserted interest in the default judgment. February 10, 2009, however, the bankruptcy court in On

Miami

determined that their motion to amend the default judgment was an attempt to share in an asset belonging to the TradeWinds' bankruptcy estate and, consequently, was subject to the

automatic stay, 11 U.S.C. § 362(a).

Accordingly, the bankruptcy

court ordered Holdings and Coreolis to withdraw their motion to amend and their motion to intervene in the instant action. 2 II. The Instant Action On default June 30, 2008, C-S three days in after the obtaining North to the

judgment

against

Aviation this

Carolina the from

Litigation, company's

TradeWinds corporate

commenced veil and

action the

pierce

recover

judgment

On February 10, 2009, Holdings and Coreolis filed in this Court a notice withdrawing the intervention motion, in compliance with the bankruptcy court's order.

2

-4-

defendants Soros and Chatterjee.

On October 3, 2008, plaintiff

filed its first amended complaint (the "Amended Complaint"). The Amended Complaint alleges that long-time business partners business Soros by and Chatterjee a ventured into the aviation corporate

establishing

"complex,

multi-tiered"

structure, with C-S Aviation serving as the aircraft management company. (Amended Compl. ¶¶ 7-8.) According to the complaint,

Soros and Chatterjee operated the company as their alter ego by, inter alia, undercapitalizing siphoning corporate it, funds, ignoring and, corporate ultimately, Such abuse

formalities,

stripping the company of its assets. (Id. ¶¶ 10-11.)

of the corporate form is alleged to have rendered the company unable to satisfy the default judgment that TradeWinds obtained in the North Carolina Litigation. (Id. ¶¶ 17-18.) On November 10, 2008, defendants filed the instant

motion to dismiss the Amended Complaint for failure to state a claim, or, alternatively, motion On in North 8, to stay the to case vacate pending the C-S

Aviation's judgment.

Carolina 2008,

default the

December

after

learning

that

bankruptcy court in Miami had not yet approved the trustee's application to retain Violet Elizabeth Grayson, Esq., as counsel for TradeWinds in this case, the Court adjourned the briefing schedule sine for die. Ms. The Grayson's bankruptcy retention court on approved 7, the 2009.

application

January

-5-

TradeWinds defendants

then

filed

its

opposition memoranda.

to The

the

motion, was

and fully

submitted

reply

motion

briefed on January 27, 2009, and oral argument was heard on February 10, 2009. Defendants also have filed a motion to disqualify Ms. Grayson as plaintiff's TradeWinds counsel. in this that They assert has that, breached to in a a

representing

action, she

she as

confidentiality

agreement

signed

counsel

plaintiff in a prior action brought to pierce C-S Aviation's corporate veil and reach Soros and Chatterjee personally. See Jet Star Enters. v. Soros, Chaterjee et al., No. 1:05-cv-6585 (HB). The disqualification motion is not yet fully briefed. As discussed below, the Court finds that a stay of these proceedings is pending the motion to the vacate Court the will default reserve

judgment

appropriate.

Therefore,

decision on defendants' alternative motion to dismiss. Discussion "The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its own docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. North

American Co., 299 U.S. 248, 254 (1936);

WorldCrisa Corp. v. Accordingly, the

Armstrong, 129 F.3d 71, 76 (2d Cir. 1997).

decision to issue a stay is "firmly within a district court's

-6-

discretion." Am. Shipping Line, Inc. v. Massan Shipping Indus., 885 F. Supp. 499, 502 (S.D.N.Y. 1995). The factors relevant in

determining whether to issue a stay are: (1) the private interests of the plaintiffs in proceeding expeditiously with the civil litigation as balanced against the prejudice to the