Tradewinds Airlines Inc. v. Soros et al

Filing 96

OPINION AND ORDER re: 74 MOTION to Dismiss Notice of Defendants' Motion to Dismiss Plaintiff's Second Amended Complaint. filed by Pernendu Chatterjee, George Soros.For the reasons stated above, Defendants Motion to Dismiss TradeWin ds Second Amended Complaint and Coreolis and TW Holdings Complaint is denied. The Clerk of Court is directed to close the open motions in 10 Civ. 8175 (JFK) at ECF No. 21, and in 08 Civ. 5901 (JFK) at ECF No. 74. Plaintiffs letter application to stri ke portions of Defendants Reply Memorandum in Support of the instant motion is denied as moot. Furthermore, in view of the filing of TradeWinds Second Amended Complaint, Defendants motion to dismiss the First Amended Complaint is denied as moot. The Clerk of Court is directed to close the open motion in 08 Civ. 5901 (JFK) at ECF No. 20. The stay of this action is continued, subject to the Court's prior orders. SO ORDERED. (Signed by Judge John F. Keenan on 3/22/2012) (ama)

UNITED STATES 1:09-md-02013-PAC Document 57 Filed 09/30/10 Page 1 of 45
Case DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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USDC SDNY
TRADEWINDS AIRLINES, INC.,
:
DOCUMENT
:
ELECTRONICALLY FILED
Plaintiff,
:
DOC #: _________________
:
DATE FILED: 03/22/2012
-against:
UNITED STATES DISTRICT COURT
:
SOUTHERN DISTRICT OF NEW YORK
GEORGE SOROS and PURNENDU
:
-----------------------------------------------------------x
CHATTERJEE,
:
In re FANNIE MAE 2008 SECURITIES
:
08 Civ. 7831 (PAC)
:
08 Civ. 5901 (JFK)
LITIGATION
:
09 MD 2013 (PAC)
Defendants.
:
10 Civ. 8175 (JFK)
:
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:
OPINION & ORDER
COREOLIS HOLDINGS, INC. and
:
OPINION AND ORDER
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TRADEWINDS HOLDINGS, INC.,
:
:
Plaintiffs,
:
:
HONORABLE PAUL A. CROTTY, United States District Judge:
-against:
:
GEORGE SOROS and PURNENDU
:
BACKGROUND1
CHATTERJEE,
:
:
The early years of this decade saw a boom in home financing which was fueled, among
Defendants.
:
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other things, by low interest rates and lax credit conditions. New lending instruments, such as
APPEARANCES
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
For Plaintiff TradeWinds Airlines, Inc.:
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
Violet Elizabeth Grayson, Esq.
548 West 148th Street
assumption that the market would continue to rise and that refinancing options would always be
New York, NY 10031

available in the future. Lending discipline was lacking in theand TradeWinds
For Plaintiffs Coreolis Holdings, Inc. system. Mortgage originators did
Holdings, Inc.:
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
RESSLER & RESSLER
48 Wall Street
originators sold their loans into the secondary mortgage market, often as securitized packages
New York, NY 10005
known as By: Ellen R. Werther, Esq.MBS markets grew almost exponentially.
mortgage-backed securities (“MBSs”).
Bruce J. Ressler, Esq.
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
For Defendant George Soros:
and homeBUTLER, FITZGERALD, of the changingMcCARTHY
prices began to fall. In light FIVESON & housing market, banks modified their
36 West 44th Street, Suite 816
lending practices and became10036 to refinance home mortgages without refinancing.
New York, NY unwilling

1

Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.

By:

Raymond Fitzgerald, Esq.

WILKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, NY 10019
By: Martin B. Klotz, Esq.
Steven H. Reisberg, Esq.
For Defendant Purnendu Chatterjee:
POSTERNAK BLANKSTEIN & LUND, LLP
800 BOYLSTON STREET
BOSTON, MA 02199
By: Dustin F. Hecker, Esq.
MORRISON COHEN LLP
909 Third Avenue
New York, NY 10022
By: Kristin T. Roy, Esq.
JOHN F. KEENAN, United States District Judge:
In these consolidated actions, plaintiffs TradeWinds
Airlines, Inc. (“TradeWinds”), Coreolis Holdings, Inc.
(“Coreolis”), and TradeWinds Holdings, Inc. (“TW Holdings”)
(collectively, “Plaintiffs”) seek to pierce the corporate veil
of C-S Aviation, Inc. (“C-S Aviation”) and hold defendants
George Soros (“Soros”) and Dr. Purnendu Chatterjee
(“Chatterjee”) (collectively, “Defendants”) liable on a default
judgment entered against C-S Aviation by the Superior Court
Division of the North Carolina General Court of Justice,
Guilford County, on July 26, 2010.
Before the Court are two motions:

(1) Defendants’ motion

pursuant to Rule 12 of the Federal Rules of Civil Procedure to
dismiss both TradeWinds’ Second Amended Complaint (the
“TradeWinds Complaint”) and Coreolis and TW Holdings’ Complaint
– 2 –

(the “Coreolis Complaint”); and (2) Plaintiffs’ motion to strike
portions of Defendants’ reply memorandum submitted in support of
their motion to dismiss.

For the reasons stated below,

Defendants’ motion to dismiss is denied, and Plaintiffs’ motion
to strike is denied as moot.
In addition to these two motions, this Opinion and Order
also administratively closes a motion rendered moot by the
filing of the operative complaints.
I.

Background

The facts set forth below are taken from the Plaintiffs’
pleadings, exhibits to those pleadings, and documents
incorporated into those pleadings by reference.

In considering

Defendants’ motion to dismiss, the Court accepts as true all
factual allegations in the TradeWinds Complaint and the Coreolis
Complaint, and construes all reasonable inferences in favor of
Plaintiffs. See Staehr v. Hartford Fin. Servs. Grp., Inc., 547
F.3d 406, 424 (2d Cir. 2008).

The Court considers the judgment

entered by the North Carolina Superior Court on July 26, 2010
(the “2010 NC Judgment”), which is attached as an exhibit to the
operative complaints.

The documents incorporated into the

operative complaints by reference include the answer and thirdparty complaint Plaintiffs filed in the North Carolina Superior
Court (the “NC Third-Party Complaint”), the Opinion and Order
entered by the Southern District of New York (Baer, U.S.D.J.) in

– 3 –

Jet Star Enterprises Ltd. v. Soros, No. 05 Civ. 6585 (HB), 2006
WL 2270375 (S.D.N.Y. Aug. 9, 2006), and the aircraft leases
TradeWinds negotiated with C-S Aviation. See DiFolco v. MSNBC
Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010).
A.

TradeWinds’ Lease of Planes from C-S Aviation
In the late 1990s, TradeWinds was operating an air-freight

business out of Guilford County, North Carolina.

A Delaware

corporation with its principal place of business in North
Carolina, TradeWinds was a wholly owned subsidiary of TW
Holdings, a Delaware corporation with its principal place of
business in California. (TradeWinds Compl. ¶ 2, Coreolis Compl.
¶¶ 2–3, NC Third-Party Compl. ¶¶ 5–7).

In 1999, TradeWinds

sought to expand its air-freight business and began efforts to
purchase a fleet of Airbus A300 aircraft. (NC Third-Party Compl.
¶¶ 15–17.)
Acting on behalf of Wells Fargo, which held a number of
A300s in trust for various limited liability companies
controlled by Defendants (the “Trust Beneficiaries”), C-S
Aviation negotiated leases of seven A300s between November 1999
and November 2000. (NC Third-Party Compl. ¶ 20.)

TradeWinds

alleges that in negotiating the leases, C-S Aviation made
certain representations about maintenance performed on the
leased aircraft and the number of flights these aircraft would
be able to complete. (Coreolis Compl. Ex. 1, Final Judgment of

– 4 –

the North Carolina Business Court (“2010 NC Judgment”) ¶ 7.)
The Trust Beneficiaries raised the capital to purchase the
aircraft through a loan from a syndicate of lenders organized by
Deutsche Bank (the “Deutsche Bank Loan”). (NC Third-Party Compl.
¶ 12.)
Coreolis later purchased TW Holdings, and in connection
with this purchase, TradeWinds renegotiated the aircraft leases
with C-S Aviation in December 2001.

These renegotiated leases

(the “Modified A300 Leases”) lowered the prior rental price for
the planes and guaranteed TradeWinds further price reductions,
to be based on rates offered to C-S Aviation’s other customers.
Coreolis and TW Holdings guaranteed TradeWinds’ obligations
under the Modified A300 Leases. (NC Third-Party Compl. ¶¶ 27–
32.)
After the December 2001 loan modification, TradeWinds
entered into additional leases with C-S Aviation.

Specifically,

TradeWinds leased three A300s that had previously been leased to
a failing Canadian airline. (NC Third-Party Compl. ¶ 46.)

In

total, as of March 2002, TradeWinds was leasing ten aircraft
from C-S Aviation.

Legal title to these aircraft was vested

neither in C-S Aviation, nor in any of the Trust Beneficiaries.
Rather, legal title was vested in Wells Fargo, which acted as
the United States trustee and acted for the benefit of the Trust

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Beneficiaries.

The Trust Beneficiaries were all organized in

foreign countries and were controlled by Defendants.
As time passed, the aircraft began to break down and a
number of disputes arose between TradeWinds and C-S Aviation.
TradeWinds contended that, of fourteen A300 engines it had
originally leased from C-S Aviation, twelve had failed prior to
the 1700-cycle life promised by C-S Aviation. (NC Third-Party
Compl. ¶ 34.)

TradeWinds alleged that C-S Aviation was in

breach of the Modified A300 Leases because C-S Aviation had
failed properly to manage maintenance reserve funds as required
in the Modified A300 Leases, and because it had misrepresented
the quality of repair work performed on the leased aircraft. (NC
Third-Party Compl. ¶¶ 33–45.)
In August 2003, after the Trust Beneficiaries defaulted on
the Deutsche Bank Loan, Deutsche Bank assumed the Trust
Beneficiaries’ rights under the Modified A300 Leases.

Over the

next few months, Deutsche Bank claimed that TradeWinds had
failed to make adequate rental payments, and warned that it may
seek to foreclose on its interest in the aircraft and take
possession of them. (NC Third-Party Compl. ¶ 103.)
B.

Litigation Before the North Carolina Superior Court and the
United States Bankruptcy Court for the Southern District of
Florida
In the fall of 2003, Deutsche Bank commenced an action for

breach of contract against TradeWinds, TW Holdings, and Coreolis

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in the North Carolina Superior Court.

On February 4, 2004,

TradeWinds and its parent companies, Coreolis and TW Holdings,
filed its Amended Answer, Counterclaim and Third-Party complaint
(“NC Third-Party Complaint”) against C-S Aviation, P-G Newco
LLC, S-C Newco LLC, and Wells Fargo Bank Northwest, N.A. (the
“NC Third-Party Defendants”). (Df.’s Decl. Supp. Mot. to Dismiss
Ex. 3.)

The NC Third-Party Complaint alleged that C-S Aviation

fraudulently induced TradeWinds to enter into the A300 Leases,
and also included claims for breach of contract and deceptive
trade practices in violation of North Carolina General Statutes
§ 75-1.1(a).

Despite being served with the NC Third-Party

Complaint, C-S Aviation failed to appear, and the North Carolina
Superior Court entered a default against C-S Aviation on behalf
of TradeWinds, TW Airlines, and Coreolis on August 19, 2004.
In April 2005, Deutsche Bank, TradeWinds, TW Holdings,
Coreolis, and the NC Third-Party Defendants reached a settlement
of nearly all claims before the North Carolina Superior Court.
However, the claims brought by TradeWinds, TW Holdings, and
Coreolis against C-S Aviation, which had never appeared in the
action, remained unsettled.

The North Carolina Superior Court

re-entered the default of C-S Aviation on February 22, 2007, and
closed its file on the case a few months later.
In April 2008, TradeWinds moved for the entry of a default
judgment against C-S Aviation, and the North Carolina Superior

– 7 –

Court granted TradeWinds’ request on June 27, 2008 (the “2008 NC
Judgment”).

Coreolis and TW Holdings, though third-party

plaintiffs in the case, were not listed as beneficiaries in the
2008 NC Judgment.

As discussed below, TradeWinds commenced the

first of the consolidated veil-piercing actions in this Court
two days later, on June 30, 2008.

TradeWinds then filed a

petition for bankruptcy protection in the United States
Bankruptcy Court for the Southern District of Florida on July
25, 2008.
In August 2008, Chatterjee revived C-S Aviation’s Delaware
certificate of incorporation, which had been void for nonpayment
of fees to the State of Delaware since March 2005.

C-S Aviation

then filed a motion to set aside the entry of default and the
2008 NC Judgment.

In November 2008, Coreolis and TW Holdings

moved for the amendment of the 2008 NC Judgment to be included
as beneficiaries, but withdrew that motion in February 2009,
after the Bankruptcy Court stayed the litigation before the
North Carolina Superior Court.

Later, with leave of the

Bankruptcy Court, Coreolis and TW Holding filed a motion for
entry of a default judgment against C-S Aviation on March 6,
2009.
On September 17, 2009, the North Carolina Superior Court
vacated the 2008 NC Judgment, but refused to set aside the entry
of default and scheduled a hearing to determine damages.

– 8 –

The

North Carolina Superior Court later issued the 2010 NC Judgment
in favor of TradeWinds in the amount of $16,111,403.00, and in
favor of Coreolis and TW Holdings in the amount of
$11,544,000.00.

Under Delaware law, both amounts are subject to

trebling. (2010 NC Judgment ¶ 14.)
C.

The JetStar I and JetStar II Cases
Jet Star Enterprises Ltd. (“Jet Star”), another company that

had leased aircraft from C-S Aviation, commenced two actions in
the Southern District of New York relating to their dealings
with C-S Aviation.

The cases were Jet Star Enterprises Ltd. v.

CS Aviation Services, No. 01 Civ. 6590 (DAB) (“Jet Star I”), and
Jet Star Enterprises Ltd. v. Soros, No. 05 Civ. 6585 (HB) (“Jet
Star II”).

In Jet Star I, Jet Star obtained a default judgment

against C-S Aviation.

In Jet Star II, Jet Star asserted a veil-

piercing claim against Defendants, attempting to pierce the
corporate veil of C-S Aviation and enforce the judgment against
Defendants.
Defendants moved for summary judgment in May 2006, and in
August 2006 the Southern District denied their motion with
respect to the veil-piercing claim against Soros and Chatterjee.
See Jet Star II, No. 05 Civ. 6585, 2006 WL 2270375, at *6
(S.D.N.Y. Aug. 9, 2006).

In denying the motion for summary

judgment, the Southern District noted the existence of a
“Restructuring Agreement” between Soros and Chatterjee

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allocating control of C-S Aviation, the relationship between C-S
Aviation and Soros Fund Management LLC, the alleged failure of
those managing C-S Aviation’s affairs to maintain corporate
formalities, and the commingling of C-S Aviation’s funds with
the funds of the Trust Beneficiaries. Id.
In August 2006, Jet Star settled with Defendants prior to
trial.
D.

Procedural History of the Instant Case
After the North Carolina Superior Court issued the 2008 NC

Judgment, TradeWinds commenced its veil-piercing action on June
30, 2008.

Defendants moved to dismiss TradeWinds’ first

complaint, and moved in the alternative for a stay of the
proceedings due to ongoing litigation before the North Carolina
Superior Court.

TradeWinds amended its complaint in October

2008, and Defendants renewed their motions for dismissal or a
stay.

In November 2008, while Defendants’ motions remained

pending, Coreolis and TW Holdings moved to intervene in
TradeWinds’ veil-piercing action.

In February 2009, Coreolis

and TW Holdings withdrew their motion to intervene at the
direction of the Bankruptcy Court, and this Court granted
Defendants’ motion for a stay. TradeWinds Airlines, Inc. v.
Soros, No. 08 Civ. 5901 (JFK), 2009 WL 435298, at *4 (S.D.N.Y.
Feb. 23, 2009).

– 10 –

After the 2010 NC Judgment was issued, TW Holdings and
Coreolis filed the Coreolis Complaint, asserting a veil-piercing
claim against Defendants.

The instant actions were later

consolidated, and the Court continued the stay of these cases
(with limited exceptions for preservation discovery), pending
resolution of C-S Aviation’s appeal from the 2010 NC Judgment.
TradeWinds Airlines, Inc. v. Soros, Nos. 08 Civ. 5901 (JFK), 10
Civ. 8175 (JFK), 2011 WL 309636, at *4 (S.D.N.Y. Feb. 1, 2011).
The Court permitted TradeWinds to file the TradeWinds Complaint,
its second amended pleading, and Defendants then brought the
instant motions to dismiss the TradeWinds Complaint and the
Coreolis Complaint.
Plaintiffs allege that the “complex, multi-tiered”
structure of C-S Aviation’s aircraft leasing operation was
established “to conceal Soros’s participation in the business,
and ensure that [C-S Aviation] . . . owned no aircraft and was
otherwise judgment proof.” (TradeWinds Compl. ¶ 7, Coreolis
Compl. ¶ 8.)

Plaintiffs also allege that any profits C-S

Aviation made were transferred to Defendants through the Trust
Beneficiaries, that C-S Aviation was at all relevant times
“grossly undercapitalized,” and that those operating C-S
Aviation regularly disregarded its status as an entity separate
from those controlled by Soros and Chatterjee. (See TradeWinds
Compl. ¶ 8, Coreolis Compl. ¶ 9.)

Finally, Plaintiffs allege

– 11 –

that C-S Aviation was not wound up in compliance with Delaware
law, and continued to exist in a void condition until it was
later revived by Chatterjee. (TradeWinds Compl. ¶¶ 13, 17,
Coreolis Compl. ¶¶ 14, 18.)
II.
A.

Discussion

Defendants’ Motion to Dismiss TradeWinds’ Second Amended
Complaint and Coreolis and TW Holdings’ Complaint Pursuant
to Civil Rule 12(b)(6)
1.

Legal Standard for a Motion to Dismiss

Prior to filing an answer, a defendant may assert as a
defense to the complaint that the complaint fails to state a
claim upon which relief can be granted. Fed R. Civ. P. 12(b)(6).
A complaint states a claim for relief when it contains “a short
and plain statement of the grounds for the court's
jurisdiction,” “a short and plain statement of the claim showing
that the pleader is entitled to relief,” and “a demand for the
relief sought.” Fed. R. Civ. P. 8(a)(1)-(3).

In making a

determination as to whether the factual allegations support the
pleader’s claim to relief, the court accepts all well-pleaded
facts alleged in the complaint as true and draws “all inferences
in favor of the plaintiff.” In re DDAVP Direct Purchaser
Antitrust Litig., 585 F.3d 677, 692 (2d Cir. 2009) (quotations
omitted).
The Federal Rules of Civil Procedure impose heightened
pleading requirements when a plaintiff alleges fraud or mistake.

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Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party
must state with particularity the circumstances constituting
fraud or mistake.

Malice, intent, knowledge, and other

conditions of a person’s mind may be alleged generally.”).

Even

when these heightened or particularized pleading standards do
not apply, a court need not accept “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory
statements.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937,
1949 (2009).

Therefore, “only a complaint that states a

plausible claim for relief survives a motion to dismiss.” Id. at
1950 (emphasis added).
When a veil-piercing claim is based on fraud, it is subject
to the requirements of Civil Rule 9(b), which requires the
pleading of “particularized facts that give rise to a strong
inference that defendant acted with fraudulent intent.” EED
Holdings v. Palmer Johnson Acquisition Corp., 228 F.R.D. 508,
512 (S.D.N.Y. 2005) (brackets and internal quotation marks
omitted).
2.

Application

To prevail on an alter ego veil-piercing claim under
Delaware law, a plaintiff must establish (i) that the company
and its controlling shareholder operated as a “single economic
entity,” and (ii) that an overall element of injustice or
unfairness is present. Fletcher v. Atex, Inc., 68 F.3d 1451,

– 13 –

1457 (2d Cir. 1995); see also NetJets Aviation, Inc. v. LHC
Commc’ns, LLC, 537 F.3d 168, 177 (2d Cir. 2008).

Whether a

shareholder has dominated the corporation to such a degree that
the two in fact operated as a “single economic entity” is an
issue of fact.

Factual questions relevant to this issue

include:
whether the corporation was adequately capitalized for
the corporate undertaking; whether the corporation was
solvent; whether dividends were paid, corporate
records kept, officers and directors functioned
properly, and other corporate formalities were
observed; whether the dominant shareholder siphoned
corporate funds; and whether, in general, the
corporation simply functioned as a façade for the
dominant shareholder.
Fletcher, 68 F.3d at 1458; see also NetJets, 537 F.3d at 177.
“No single factor can justify a decision to disregard the
corporate entity, but . . . some combination of them is
required, and . . . an overall element of injustice or
unfairness must always be present, as well.” NetJets, 537 F.3d
at 177 (quoting Harco Nat’l Ins. Co. v. Green Farms, Inc., No.
Civ. A. 1331, 1989 WL 110537, at *5 (Del. Ch. Sept. 19, 1989))
(brackets and emphasis omitted).
In addition to showing that the corporation and the person
whom the plaintiff seeks to hold liable operated as a “single
entity,” a plaintiff seeking to pierce the corporate veil on an
“alter ego” theory must show an element of fraud or injustice.
This “injustice must consist of more than merely the tort or

– 14 –

breach of contract that is the basis of the plaintiff’s lawsuit:
‘The underlying cause of action does not supply the necessary
fraud or injustice. To hold otherwise would render the fraud or
injustice element meaningless . . . .’” NetJets, 537 F.3d at 183
(quoting Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp.
260, 268 (D. Del. 1989)).

“But nothing prevents a court, in

determining whether there is sufficient evidence of fraud or
unfairness, from taking into account relevant evidence that is
also pertinent to the question of whether the two entities in
question functioned as one.” NetJets, 537 F.3d at 183.
Here, Defendants seek dismissal of the TradeWinds Complaint
and the Coreolis Complaint pursuant to Civil Rule 12(b)(6).
Defendants argue that dismissal is warranted because certain
claims in the TradeWinds Complaint and the Coreolis Complaint
are implausible and speculative, or are legally insufficient to
show an element of fraud or injustice.
Plaintiffs’ allegations that Defendants disregarded
corporate formalities, failed to keep proper records, and
comingled C-S Aviation’s funds with those of other companies are
not implausible or speculative allegations, nor are they mere
conclusions of law.

Defendants’ argument that these allegations

do not rise to the level of abuse of the corporate structure for
personal purposes present in Net Jets is immaterial to the
disposition of their motion to dismiss because whether a

– 15 –

corporation and its owners operated as a single economic entity
does not depend on the ultimate purposes for which the corporate
form was abused.

Accepting Plaintiffs’ allegations as true as

the Court must when considering a motion to dismiss, Defendants
used C-S Aviation as a mere instrument for carrying out certain
portions of a larger aircraft rental business, and operated C-S
Aviation in such a way that it had no independent economic
existence.

In view of these allegations and the allegations

concerning C-S Aviation’s lack of adequate capitalization,
Plaintiffs have adequately pleaded that C-S Aviation and
Defendants operated as a single economic entity.
Defendants’ argue that even if Plaintiffs have pleaded that
C-S Aviation and Defendants operated as a single economic
entity, they have failed adequately to plead the second element
of a claim to pierce the corporate veil on an alter-ego theory,
the existence of fraud or injustice.

On the one hand,

Defendants are correct; to the extent that Plaintiffs allege the
corporate structure of the aircraft leasing business in which
Defendants engaged was intended to defraud, Plaintiffs’
allegations are insufficient to support a veil-piercing claim
under Delaware law.

The facts that C-S Aviation was operating

on behalf of the Trust Beneficiaries, and that the aircraft at
issue were held by Wells Fargo in trust on behalf of the Trust
Beneficiaries make any claim for fraud based on the mere

– 16 –

structure of Defendants’ aircraft leasing business legally
insufficient.

Furthermore, even if Plaintiffs could prove that

they were unaware of the structure, nowhere in either the
TradeWinds Complaint or the Coreolis Complaint do Plaintiffs
make allegations that satisfy the heightened pleading standard
of Civil Rule 9(b).
On the other hand, however, Plaintiffs are not required to
show that they were defrauded in order to state a veil-piercing
claim under Delaware law.

Plaintiffs need only show an element

of injustice distinct from the underlying wrong which gave rise
to the cause of action against C-S Aviation.

According to the

2010 NC Judgment, C-S Aviation is liable for the fraudulent
inducement of the aircraft leases. (2010 NC Judgment ¶¶ 8, 12.)
Plaintiffs allege as an independent wrong that Defendants
siphoned funds from C-S Aviation and thus improperly left it
undercapitalized.

In doing so, Defendants deprived Plaintiffs

of the ability to recover damages on its fraudulent inducement
claim.

Defendants argue that this is not an adequate injustice

because Plaintiffs could have recovered against Wells Fargo, but
whether any recovery against Wells Fargo would have satisfied
the judgment against C-S Aviation is not properly before the
Court.

That is an issue of fact to be resolved through trial or

possibly on a summary judgment motion.

The allegations in the

TradeWinds Complaint and Coreolis Complaint, if proven, would

– 17 –

support a claim of unfairness sufficient to make out a veilpiercing claim under Delaware law.
Drawing all necessary inferences in favor of Plaintiffs,
the TradeWinds Complaint and Coreolis Complaint clearly set
forth facts that state a claim for the requested relief.
B.

Plaintiffs’ Motion to Strike Portions of Defendants Reply
Memorandum in Support of Their Motion to Dismiss
Given the Court’s disposition of Defendants’ motion to

dismiss, Plaintiffs’ motion to strike portions of Defendants’
reply memorandum is denied as moot.
III.

Conclusion

For the reasons stated above, Defendants’ Motion to Dismiss
TradeWinds’ Second Amended Complaint and Coreolis and TW
Holdings’ Complaint is denied.

The Clerk of Court is directed

to close the open motions in 10 Civ. 8175 (JFK) at ECF No. 21,
and in 08 Civ. 5901 (JFK) at ECF No. 74.

Plaintiffs’ letter

application to strike portions of Defendants’ Reply Memorandum
in Support of the instant motion is denied as moot.
Furthermore, in view of the filing of TradeWinds’ Second
Amended Complaint, Defendants’ motion to dismiss the First
Amended Complaint is denied as moot.

The Clerk of Court is

directed to close the open motion in 08 Civ. 5901 (JFK) at ECF
No. 20.

– 18 –

The stay of this action is continued, subject to the
Court's prior orde rs.

SO ORDERED.

Dated :

New York, New York
March 22, 2012

Judge

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