Teras International Corp. v. Gimbel et al
MEMORANDUM OPINION & ORDER: re: #200 MOTION for Summary Judgment filed by Worldwide Dreams LLC, Roger Gimbel, Allen Feldman. For the foregoing reasons, Gimbel and Feldman's motion for summary judgment is GRANTED in part and DENIED in part as to Plaintiff's breach of fiduciary duty claim; it is DENIED only as to the $284,000 paid by Worldwide Dreams in June 2011 to its landlord. Worldwide Dreams' motion for summary judgment is GRANTED in part and DENIED in partas to Plaintiff's reimbursement claim; it is DENIED as to $298,297.02 in commissions for breach of contract and as to $13.08 million for reimbursement as Worldwide Dreams' agent. The Clerk of the Court is directed to terminate docket entry 200. The parties must appear for a conference on September 15, 2017, at 10:00 a.m. in Courtroom 443 of the Thurgood Marshall United States Courthouse, 40 Foley Square, New York, NY. On or before September 7, 2017, the parties must submit a joint letter proposing a trial schedule and informing the Court whether they would like a referral to Magistrate Judge Pitman for a settlement conference. At the conference, the Court will set a trial schedule. SO ORDERED.( Status Conference set for 9/15/2017 at 10:00 AM in Courtroom 443, 40 Centre Street, New York, NY 10007 before Judge Valerie E. Caproni.) (Signed by Judge Valerie E. Caproni on 9/01/2017) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
TERAS INTERNATIONAL CORP.,
ROGER GIMBEL, ALLAN FELDMAN, and
WORLDWIDE DREAMS LLC,
VALERIE CAPRONI, United States District Judge:
DATE FILED: 9/1/17
OPINION & ORDER
Teras International Corp., as assignee for Yick Bo Trading Limited (“Yick Bo”), is suing
Yick Bo’s former sole shareholder, Worldwide Dreams LLC (“Worldwide Dreams”), for
reimbursement for merchandise purchased on behalf of Worldwide Dreams and for commissions
earned on those purchases, and is suing Roger Gimbel (“Gimbel”) and Allan Feldman
(“Feldman”), former officers and directors of both Yick Bo and Worldwide Dreams, for breach
of their fiduciary duty to Yick Bo. Defendants move for summary judgment as to both claims.
For the following reasons, Defendants’ motion is granted in part and denied in part as to both of
Worldwide Dreams and Its Wholly Owned Subsidiaries, Yick Bo and Worldwide
Worldwide Dreams was a wholesale accessories import business founded by Gimbel and
Feldman, Pl. 56.1 Stmt. ¶¶ 5, 7; it is incorporated in Delaware and had its principal place of
business in New York, id. ¶ 6. In 2005, Yick Bo, a Hong Kong company, became a wholly
owned subsidiary of Worldwide Dreams. Id. ¶¶ 8, 20. Yick Bo was a sourcing and purchasing
agent for Worldwide Dreams and Worldwide Dreams’ other wholly owned Hong Kong
subsidiary, Worldwide Dreams International Limited (“WWDI”). Id. ¶ 9. Yick Bo placed orders
with Hong Kong factories on behalf of Worldwide Dreams and WWDI for accessories, including
handbags, neckwear, cosmetic bags, wallets, and other small leather goods. Id. ¶ 10. Worldwide
Dreams would resell these accessories to customers in the United States, such as Target and
Walmart, whereas WWDI would resell these accessories to customers outside of the United
States. Id. In addition to acting as a sourcing and purchasing agent for Worldwide Dreams and
WWDI, Yick Bo traded on its own behalf with vendors outside the United States. Id. ¶ 11.
Yick Bo was funded in part from the revenue generated by WWDI, and Yick Bo relied
on both Worldwide Dreams and WWDI to pay its operational expenses, such as payroll and rent.
Id. ¶¶ 12, 72. The amount that Yick Bo needed from Worldwide Dreams and WWDI to cover its
The Court cites to the parties’ Rule 56.1 Statements as follows: Defendants’ Rule 56.1 Statement (Dkt.
201) is “Defs. 56.1 Stmt.”; Plaintiff’s Rule 56.1 Statement (Dkt. 211) is “Pl. 56.1 Stmt.”; and Defendants’ Response
to Plaintiff’s Statement of Additional Material Facts (Dkt. 214) is “Defs. Response 56.1 Stmt.”
The Court cites to Plaintiff’s Rule 56.1 Statement when Plaintiff does not dispute Defendants’ asserted
facts and to Defendants’ Response 56.1 Statement when Defendants do not dispute Plaintiff’s additional asserted
facts. At times, Plaintiff and Defendants mark a fact as disputed, but the explanation for the dispute shows that the
fact is not, in reality, disputed. Instead, Plaintiff and Defendants, for example, make legal arguments, dispute only
part of the fact, or argue that the fact does not have certain implications. In such instances, the Court does not
consider the fact to be disputed or to be disputed in its entirety.
operational expenses varied weekly given Yick Bo’s own income from trading activities with
non-U.S. third party customers. Id. ¶¶ 72-73.
Gimbel and Feldman managed the operations of Worldwide Dreams, and they were
Directors of both Yick Bo and WWDI. Id. ¶ 14. Norman Abramson (“Abramson”) was the
Chief Operating Officer of Worldwide Dreams, and he ran its day-to-day operations. Id. ¶ 15.
Reddy Chu (“Chu”) was a Director, Chief Financial Officer, and Corporate Secretary of Yick
Bo, and he ran Yick Bo’s daily operations. Id. ¶¶ 16-17. Yick Bo’s Articles of Association
provide that Directors may hold interests in companies with which Yick Bo contracts so long as
such interests are disclosed.2 Id. ¶¶ 20-21.
Yick Bo and Worldwide Dreams had various agency agreements, but the operative
version for purposes of this litigation was from 2008 (“Agency Agreement”). Id. ¶ 25; Gordon
Decl. Ex. 11 (Dkt. 202-11). Pursuant to the Agency Agreement, Yick Bo agreed to “place orders
(if necessary) with manufacturers on behalf of [Worldwide Dreams],” and Worldwide Dreams
agreed “to pay to [Yick Bo] a commission of 7% on factory price for all FOB Sales and
stock/warehouse orders for the merchandise and services handled by [Yick Bo] on behalf of
[Worldwide Dreams].”3 Pl. 56.1 Stmt. ¶ 25; Gordon Decl. Ex. 11 ¶¶ 2(c), 3.
The purchase orders Yick Bo provided to the Hong Kong factories from which it
purchased accessories on behalf of Worldwide Dreams identified Yick Bo as an agent acting for
Worldwide Dreams as the disclosed principal. Pl. 56.1 Stmt. ¶ 27; see, e.g., Gordon Decl. Ex. 12
(Dkt. 202-12). But, invoices prepared by the Hong Kong factories stated that the invoiced
The parties dispute whether this provision is legally valid under Hong Kong law, see infra.
Why Worldwide Dreams would enter into a formal contract with or agree to pay commissions to its own
wholly owned subsidiary is a mystery. Cf. Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 771 (1984) (“A
parent and its wholly owned subsidiary have a complete unity of interest. Their objectives are common, not
disparate; their general corporate activities are guided or determined not by two separate corporate consciousnesses,
amounts were “to be paid by Yick Bo Trading Ltd,” although many of the invoices also stated
“Sold To: Worldwide Dreams LLC.” See, e.g., Galin Decl. Ex. H (Dkt. 212-2). In affidavits
submitted in the fall and winter of 2011 in lawsuits brought by various Hong Kong factories
against Worldwide Dreams for payment of purchases made by Yick Bo on Worldwide Dreams’
behalf, Worldwide Dreams’ controller averred that Yick Bo had “assumed sole payment
responsibility” for the goods at issue. See Galin Decl. Ex. L ¶ 1 (Dkt. 212-3).
In about 2008, Worldwide Dreams began to experience cash flow problems. Pl. 56.1
Stmt. ¶ 30. In about 2009, Gimbel and Feldman, who were getting on in age and keen to retire,
began to consider selling Worldwide Dreams and its subsidiaries. Id. ¶ 31. After consultation
with Chu, Abramson, and consultants, Gimbel and Feldman decided to sell Worldwide Dreams
and its subsidiaries as an integrated wholesale accessory import business. Id. ¶ 33. Gimbel and
Feldman believed that by selling Worldwide Dreams and its subsidiaries as an integrated going
concern, Yick Bo would be able to pay its Hong Kong suppliers and Worldwide Dreams would
be able to pay its secured creditors. Id. ¶ 34.
The Factoring Agreements
Gimbel and Feldman believed that in order to best position Worldwide Dreams and its
subsidiaries for sale, it was critical that Worldwide Dreams and its subsidiaries continue
operations. Pl. 56.1 Stmt. ¶ 36. To continue operating, the company needed a credit line. See
id. After its previous factor filed for bankruptcy, Gimbel and Feldman searched for a
replacement factor. Id. ¶¶ 37-39. In May 2010, Worldwide Dreams received a proposal from
Capital Business Credit LLC (“CBC”) for a line of credit of up to $9.5 million, solely to
facilitate the sale of Worldwide Dreams and its subsidiaries. Id. ¶¶ 40-41, 44. Gimbel and
Feldman considered the interests of Yick Bo, WWDI, and Worldwide Dreams when deciding
whether to accept CBC’s proposed factoring agreement. Id. ¶ 47. Before the CBC factoring
agreement was executed, Abramson, Gimbel, and Feldman informed Chu of the terms of the
agreement, and Chu participated in the due diligence process on behalf of Yick Bo. Id. ¶¶ 48,
50. On July 30, 2010, Worldwide Dreams executed a factoring agreement with CBC (“Factoring
Agreement”). Id. ¶ 52.
Pursuant to the Factoring Agreement, CBC agreed to advance up to 85% of eligible
account receivables and up to 50% of eligible inventory in exchange for a first and only security
interest in essentially all of Worldwide Dreams’ assets. Id. ¶¶ 42-43. The Factoring Agreement
required payments on accounts receivable in which CBC held a perfected security interest to be
made directly to CBC. Id. ¶ 52. Worldwide Dreams and its subsidiaries agreed not to dispose of
any collateral, which included cash, except for: (1) the sale of inventory in the ordinary course of
business, and (2) obsolete equipment. Id. ¶¶ 53-54; Gordon Decl. Ex. 19 ¶ 6.3(a) (Dkt. 202-19).
Worldwide Dreams was required to give CBC control of its bank accounts, which were to be
maintained in Hong Kong and were to hold all of Worldwide Dreams’ cash; this allowed CBC to
pay the Hong Kong factories directly. Pl. 56.1 Stmt. ¶ 56.
The Factoring Agreement defined an “Event of Default” to include “any attachment,
injunction, execution or judgment in excess of $10,000” issued or filed against Worldwide
Dreams or any “legal action or proceeding . . . which results in damages in excess of $100,000.”
Gordon Decl. Ex. 19 ¶ 13(a)(x),(xv). Upon an Event of Default, CBC could accelerate loan
repayment and exercise its rights to possess its collateral. Id. ¶¶ 13(b), 20.10.
When Worldwide Dreams executed the Factoring Agreement, Gimbel, Feldman, and Chu
agreed that Yick Bo would guarantee Worldwide Dreams’ payment and performance of all
obligations and liabilities under the Factoring Agreement, and Gimbel and Feldman agreed that
WWDI would also provide a guarantee. Pl. 56.1 Stmt. ¶¶ 62-63. Chu prepared a certificate
memorializing the resolution of Yick Bo’s Directors to guarantee Worldwide Dreams’ payment
obligations to CBC, and the certificate provided that the Directors had resolved that Yick Bo
would “obtain benefits” from guaranteeing Worldwide Dreams’ obligations under the Factoring
Agreement and that the guarantee was “necessary and convenient to the conduct, promotion and
attainment of the business of . . . [Yick Bo].” Id. ¶¶ 64-65. Gimbel, Feldman, and Chu believed
that the Factoring Agreement was necessary and in the best interests of Yick Bo and its creditors.
Id. ¶ 66.
Pursuant to the terms of the Factoring Agreement, from August 2010 through March
2011, CBC made payments directly to Yick Bo. Id. ¶ 67. CBC made five payments to Yick Bo
in February and March 2011 that were designated to pay specific Hong Kong factory invoices.
Id. ¶ 92. Chu oversaw Yick Bo’s accounts payable, made requests to CBC for payment,
prepared weekly account statements for amounts due to the Hong Kong factories, and set up the
means by which CBC could make payments to either Yick Bo or to the Hong Kong factories
directly. Id. ¶¶ 68, 70.
The Payoff Projections and the Failed LF USA Deal
From September 2010 through March 2011, Gimbel and Feldman directed Abramson to
collaborate with Worldwide Dreams’ and its subsidiaries’ accountant, WeiserMazars LLP, to
prepare schedules for payments to Yick Bo’s suppliers from the proceeds of a hypothetical sale
of Worldwide Dreams and its subsidiaries. Pl. 56.1 Stmt. ¶ 75. Abramson prepared these payout
schedules, which showed how the proceeds from a sale would be distributed at different price
thresholds. Id. ¶ 76. On September 28, 2010, Abramson sent WeiserMazars a payout schedule
that contemplated a $2.9 million payment to the Hong Kong factory creditors if Worldwide
Dreams and its subsidiaries sold for $9 million. Id. ¶ 77.
In approximately November or early December 2010, Worldwide Dreams and LF USA
Inc. (“LF USA”) began negotiating for LF USA to purchase Worldwide Dreams and its
subsidiaries; the draft term sheets provided that LF USA would pay Worldwide Dreams $6.5
million up front and an additional payment at a later date for inventory. Id. ¶ 78. In light of
these proposed terms, on December 6, 2010, Abramson sent WeiserMazars a payout schedule
showing $2.9 million to be paid to the Hong Kong factories if Worldwide Dreams and its
subsidiaries were sold for $6.5 million plus a future payment of $5 million for inventory. Id.
On December 22, 2010, Worldwide Dreams and LF USA entered in a non-binding term
sheet. Id. ¶¶ 80, 83. Shortly thereafter, based on the execution of the term sheet, Abramson
expressed optimism to Chu about being able to pay the Hong Kong factories. Id. ¶ 84. Counsel
for LF USA and Worldwide Dreams proceeded to exchange draft asset purchase agreements, and
between December 2010 and March 2011, Gimbel, Feldman, Chu, and Abramson oversaw due
diligence and continued to negotiate the asset purchase agreement with LF USA. Id. ¶¶ 85-87.
On March 8, 2011, Abramson sent Worldwide Dreams’ controller a payout schedule that
forecasted that $3,355,000 would be paid to the Hong Kong suppliers given an anticipated $6.5
million payment from LF USA at closing plus $3,888,000 in inventory sales and $5,244,000 in
account receivable proceeds, which would be used to pay CBC. Id. ¶ 88. At that time,
$3,355,000 constituted nearly the entire debt owed to Yick Bo’s third party Hong Kong
creditors, including the Hong Kong factory suppliers. Id. ¶ 89. On March 25, 2011, in an email
to Chu, Abramson expressed his belief, shared by Gimbel and Feldman, that “CBC will transfer
money into your existing accounts to pay the factories.” Id. ¶ 90. Throughout the negotiation of
the acquisition, Gimbel and Feldman believed that the acquisition would yield sufficient
proceeds to pay all debt owed to the Hong Kong factories. Id. ¶ 91.
In April 2011, the LF USA deal collapsed unexpectedly due to the departure of the
person at LF USA who was primarily responsible for orchestrating the deal. Id. ¶ 94. After the
collapse of the LF USA deal, Gimbel, Feldman, and Abramson held out some hope that they
could find another buyer, and Worldwide Dreams was in discussions with proposed purchasers
as of April 2011. Id. ¶¶ 95-96. On April 28, 2011, in response to a request from Yick Bo’s
auditors for a plan to settle the amount Worldwide Dreams owed to Yick Bo, Worldwide
Dreams’ controller informed Chu that “[d]ue to our efforts to reorganize our company, at this
point in time, I am not able to provide you with a payment schedule.”4 Gordon Decl. Ex. 48
Unwinding Worldwide Dreams And Its Subsidiaries
After the LF USA deal collapsed, CBC insisted that Worldwide Dreams’ and its
subsidiaries’ assets be sold to satisfy the debt owed to CBC, and it reduced its cash advances to a
level that was not sustainable. Pl. 56.1 Stmt. ¶¶ 98-99. Gimbel and Feldman decided that they
had no choice but to wind down Worldwide Dreams’ operations and sell its assets piecemeal at
prices substantially lower than originally anticipated. Id. ¶ 100. By May 19, 2011, Worldwide
Plaintiff contends that on May 30, 2011, Gimbel and Feldman signed Yick Bo’s audited financial statement
for calendar year ending December 31, 2010, and the accompanying representation letter to Yick Bo’s Hong Kong
auditors, confirming that Worldwide Dreams could and would pay Yick Bo in full. Pl. 56.1 Stmt. ¶¶ 60, 132 (citing
Galin Decl. Exs. I, M (Dkts. 212-2, 212-3)). Neither the audited financial statement nor the representation letter
support this assertion. See Galin Decl. Exs. I, M. The representation letter—which is undated—states that
“adequate provision has, in the opinion of the directors, been made against all amounts owing which are known or
may be expected to be irrecoverable.” Galin Decl. Ex. M ¶ 18. (An undated representation letter for WWDI’s
audited financial statement for year ending December 31, 2010, includes an identical statement. Galin Decl. Ex. Q
¶ 16 (Dkt. 212-3).) But, Yick Bo’s audited financial statement includes a clear disclaimer, stating:
We have not been provided with sufficient evidence to satisfy ourselves whether the outstanding amount
could be recovered in full. Furthermore, we have not been able to obtain from management an assessment
to verify the viability of the holding company to provide continuous settlements to [Yick Bo] so as to
support the appropriateness of the going concern assumption. . . . Because of the significance of the matter
described . . . we do not express an opinion on the financial statements as to whether they give a true and
fair view of the state of [Yick Bo’s] affairs . . . .
Galin Decl. Ex. I, at 2-3. Moreover, aware that the Hong Kong auditor would issue a qualified opinion if it did not
have a schedule of payments from Worldwide Dreams to Yick Bo, Abramson notified Yick Bo that Worldwide
Dreams could not provide a payment schedule that would satisfy the auditors and approved the release of the
qualified opinion. See Gordon Reply Decl. Ex. 72 (Dkt. 215-1). Accordingly, Plaintiff has not presented sufficient
evidence to dispute the fact that by May 30, 2011, it appeared that Worldwide Dreams could not pay the debt it
owed to Yick Bo.
Dreams was in the process of negotiating an asset purchase agreement with Accessory Exchange
LLC. Galin Decl. Ex. N (Dkt. 212-3).
In June 2011, Worldwide Dreams sold its neckwear division to Accessory Street LLC for
$940,000 and its handbag and small leather good divisions to Accessory Exchange LLC for
$1.65 million, comprising a total of approximately $2.6 million. Pl. 56.1 Stmt. ¶ 103. Pursuant
to the Factoring Agreement, the proceeds from the sales were placed under CBC’s control, which
paid itself first pursuant to its first priority lien. Id. ¶ 104. After CBC paid itself, Worldwide
Dreams used the remaining proceeds to pay its California distribution center $800,000 because it
had a priority lien on inventory that was sold in the asset purchase transaction. Id. ¶ 107 (see
response); Gordon Decl. Ex. 4 Tr. 38:3-39:12 (Dkt. 202-4). Worldwide Dreams also used the
proceeds to pay $284,000 owed in rent to its landlord, the Empire State Building. Pl. 56.1 Stmt.
¶ 107 (see response); Ismail Report ¶ 48(2) (Dkt. 208-1). The remaining proceeds were
insufficient to pay the Hong Kong factories in full. Pl. 56.1 Stmt. ¶ 106. Gimbel and Feldman
did not profit from the asset sales, and they lost the entirety of their capital contributions to
Worldwide Dreams. Id. ¶ 107. In addition, throughout the time they managed Worldwide
Dreams, Gimbel and Feldman had taken nominal annual salaries of $25,000 and took no
distributions of profits or interest payments on their subordinated loans. Id. ¶ 108.
Chu retired from Yick Bo on May 31, 2011. Id. ¶ 109. Through the fall of 2011, Gimbel
and Feldman continued to direct Worldwide Dreams’ controller in the wind-down of Worldwide
Dreams’ operations. Id. ¶ 110.
Yick Bo’s Liquidation
On October 26, 2011, Yick Bo’s members resolved to voluntarily wind down the
company. Pl. 56.1 Stmt. ¶ 112. That same day, a notification was filed with the Hong Kong
Companies Registry to convert the Members’ Voluntary Liquidation into a Creditors’ Voluntary
Liquidation. Id. ¶ 113.
Yick Bo had been solvent until April 2011 when the LF USA deal collapsed. Id. ¶ 101.
After Yick Bo became insolvent, Worldwide Dreams made four payments to Yick Bo totaling
approximately $260,000. Id. ¶ 105. The list of creditor claims and proofs of debt in the
liquidation proceeding show that 98% of the purchase orders reflecting outstanding debt owed by
Yick Bo to third party suppliers ($2,233,485) were placed in or before March 2011, when Yick
Bo was solvent. Id. ¶ 102.
At the time of the voluntary liquidation, the companies’ books and records showed an
intercompany payable from Worldwide Dreams to Yick Bo totaling $14.68 million5 and an
intercompany payable from Yick Bo to WWDI totaling $6.2 million, making WWDI Yick Bo’s
largest creditor. Id. ¶ 114. Yick Bo’s creditors initially claimed a total of $3.8 million. Id.
¶ 115. The parties dispute whether that $3.8 million has been reduced to $2.5 million:
Defendants claim that Worldwide Dreams settled claims on its and Yick Bo’s behalf in February
2012 for approximately $1.3 million;6 Plaintiff contends Worldwide Dreams did not have the
legal authority to settle debts owed by Yick Bo when Yick Bo was in liquidation. See id. ¶¶ 115,
117-121. But Plaintiff admits that, according to the liquidators’ own calculations, as of July 12,
2013, Yick Bo owed its third party creditors (other than WWDI) approximately $2.5 million. Id.
Of this amount, $298,297.02 was owed for unpaid commissions. Defs. Response 56.1 Stmt. ¶ 135.
Specifically, Worldwide Dreams settled with one creditor for $987,161 and with another for $305,628,
which together equals $1,292,789. Pl. 56.1 Stmt. ¶¶ 117, 120. Because Defendants assert that Worldwide Dreams
settled those claims “entirely,” the Court understands that Worldwide Dreams settled those claims for 100 cents on
the dollar. See id.
On May 24, 2013, the liquidators assigned their claims against Defendants to Plaintiff in
consideration for 60% of the net recovery in this action, meaning Plaintiff could retain 40% of
the net recovery. Pl. 56.1 Stmt. ¶ 128; Gordon Decl. Ex. 63 ¶ 2.1 (Dkt. 202-63); see also id. Ex.
64 (Dkt. 202-64) (expanding scope of assignment to include claims against Gimbel and
Feldman). Plaintiff filed its Complaint in this action in September 2013, and the case was
transferred to the Undersigned in March 2014.
In June 2014, while a motion to dismiss was pending, the Court granted Plaintiff’s
motion for leave to amend. Dkt. 64. Plaintiff’s Amended Complaint alleged a civil RICO claim
against all individual defendants (Count One), a breach of fiduciary duty claim against Gimbel
and Feldman (Count Two), and a claim for reimbursement and commissions against Worldwide
Dreams (Count Three). Dkt. 66. Defendants moved to dismiss the Amended Complaint in its
entirety, and Plaintiff moved for summary judgment as to Count Three. Dkts. 67, 74. The Court
granted Defendants’ motion to dismiss Count One and dismissed three individual defendants
from the case; the Court denied Plaintiff’s motion for summary judgment as to Count Three.
Dkt. 96. The Court subsequently held that Hong Kong law would apply to Plaintiff’s remaining
claims, and thus the Court applies Hong Kong law in deciding summary judgment.7 Dkt. 157.
On February 24, 2016, the Court ruled that Plaintiff was estopped from pursuing a duty of care
“The Federal Rules of Civil Procedure provide that ‘[i]n determining foreign law, the court may consider
any relevant material or source, including testimony, whether or not submitted by a party or admissible under the
Federal Rules of Evidence.’” In re Tyson, 433 B.R. 68, 78 (S.D.N.Y. 2010) (quoting Fed. R. Civ. P. 44.1). In
support of their summary judgment motions, both parties have submitted expert reports regarding Hong Kong law,
and both parties submitted Hong Kong case law. Plaintiff’s expert is David Donald, whose report and rebuttal
report are available as Exhibits D and E, respectively, to the Galin Declaration (Dkts. 212-1, 212-2). In addition,
Plaintiff has submitted two declarations by Minju Kim regarding liquidation proceedings pursuant to Hong Kong
law, which are available as Exhibits F and X to the Galin Declaration (Dkts. 212-2, 212-4). Defendants’ expert is
Roxanne Ismail, whose report and rebuttal report are available as Exhibits 1 and 2 to the Ismail Declaration (Dkt.
208-1, 208-30). In addition, Defendants have submitted an expert report regarding Hong Kong accounting
standards; the expert is Mavis W.G. Tan, and his report is available as Exhibit 1 to the Tan Declaration (Dkt. 207-1).
claim in light of Plaintiff’s previous representations to the Court that it was only pursuing a duty
of loyalty claim (known under Hong Kong law as a fiduciary duty claim). Dkt. 175. Defendants
then moved for summary judgment. Dkt. 200.
Summary Judgment Standard
Summary judgment is appropriate when “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “Where the record
taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no
genuine issue for trial.” Scott v. Harris, 550 U.S. 372, 380 (2007) (quoting Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)) (internal quotation marks omitted).
Courts “construe the facts in the light most favorable to the non-moving party and resolve all
ambiguities and draw all reasonable inferences against the movant.” Delaney v. Bank of Am.
Corp., 766 F.3d 163, 167 (2d Cir. 2014) (per curiam) (quoting Aulicino v. N.Y.C. Dep’t of
Homeless Servs., 580 F.3d 73, 79-80 (2d Cir. 2009)) (alteration omitted).
The nonmoving party, however, “must do more than simply show that there is some
metaphysical doubt as to the material facts,” and “may not rely on conclusory allegations or
unsubstantiated speculation.” Jeffreys v. City of New York, 426 F.3d 549, 554 (2d Cir. 2005)
(citations and internal quotation marks omitted). Rather, the nonmoving party must come
forward with “specific facts showing that there is a genuine issue for trial.” Sista v. CDC Ixis
North America, Inc., 445 F.3d 161, 169 (2d Cir. 2006) (citation omitted). “The plain language of
Rule 56(c) mandates the entry of summary judgment . . . against a party who fails to make a
showing sufficient to establish the existence of an element essential to that party’s case, and on
which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322.
Breach of Fiduciary Duty Claim
The parties do not dispute that, as directors of Yick Bo, Gimbel and Feldman owed
fiduciary duties to Yick Bo. Plaintiff claims that Gimbel and Feldman’s failure to pursue the
receivable owed to Yick Bo by Worldwide Dreams was a breach of the fiduciary duties they
owed to Yick Bo. Pl. Opp. 5.8 Gimbel and Feldman argue that they satisfied their fiduciary
duties at all times. Defs. Mem. 3.
A. Duty to Act in the Company’s Best Interests
Under Hong Kong law, the core fiduciary duty of a director is to act in the company’s
bona fide best interests, or in other words, to promote the success of the company. Ismail Report
¶ 74. Defendants argue that this is a subjective test, while Plaintiff argues that it is objective
because Gimbel and Feldman had conflicts of interest. Defs. Mem. 17; Pl. Opp. 14. Regardless
of which test applies, as explained below, there is no question of fact that, with a single limited
exception, Gimbel and Feldman acted in Yick Bo’s bona fide best interests.9
In the case of a solvent company, the interests of the company are considered to be those
of its shareholders as a group.10 Ismail Report ¶ 77. When a company is insolvent or nearly
The Court cites to the parties’ briefs as follows: Defendants’ Memorandum of Law in Support of Their
Motion for Summary Judgment (Dkt. 209) is “Defs. Mem.”; Plaintiff’s Memorandum in Opposition (Dkt. 210) is
“Pl. Opp.”; and Defendants’ Reply Memorandum (Dkt. 213) is “Defs. Reply.”
Although it does not need to decide whether a subjective or objective test applies because both tests are
satisfied, the Court notes that Plaintiff primarily relies on a decision from Hong Kong’s lowest court, David Chien v.
Francis Cheung,  HKEC 896 (C.F.I.) (Galin Decl. Ex. FF, Dkt. 212-4), for the proposition that an objective
test applies when directors have a conflict of interest. Plaintiff’s expert acknowledged during his deposition that he
was not aware of another case that had followed David Chien’s objective test. Galin Decl. Ex. GG, Tr. 63:11-64:15
Plaintiff contends that Defendants’ position is that directors owe a duty directly to the shareholders and not
to the company itself, i.e., Gimbel and Feldman owed a duty only to Worldwide Dreams as shareholder and not to
Yick Bo. Pl. Opp. 6. Plaintiff, however, manufactures this disagreement on the law; the parties in fact agree that
directors owe a duty to act in a company’s best interests and that the company’s interests are those of its
shareholders. See Pl. Opp. 6; Defs. Reply 2. In this case, Yick Bo happened to have a single shareholder—
Worldwide Dreams. To the extent Plaintiff is arguing that a director has a duty to the company that is wholly
independent of his or her duty to act in the best interests of the shareholders as a group, the Court interprets this
argument to be that directors must also act in the best interests of a company’s creditors when the company is
insolvent, directors must not only consider the interests of the company’s shareholders but also
the company’s creditors. Id. The parties do not dispute (at least for the purpose of summary
judgment) that Yick Bo was solvent until April 2011. Defs. Mem. 16; Pl. Opp. 7 n.5.
Accordingly, until April 2011, Yick Bo’s interests were those of its sole shareholder, Worldwide
Dreams, and after April 2011, Yick Bo’s interests were those of its sole shareholder and its
creditors. When a director owes fiduciary duties to multiple companies in a corporate group—as
Gimbel and Feldman do because they are directors of Worldwide Dreams, the parent company,
and Yick Bo and WWDI, wholly owned subsidiaries—he or she satisfies his or her fiduciary
duties by considering the interests of each company separately and acting in the best interest of
each company. Ismail Report ¶ 79; Donald Report ¶ IV(C)(10).
1. Gimbel and Feldman Acted in Yick Bo’s Best Interest Pre-April 2011
Gimbel and Feldman acted in Yick Bo’s and Yick Bo’s creditors’ best interests—both
subjectively and objectively—when they decided not to pursue the receivable owed by
Worldwide Dreams to Yick Bo and decided instead to try to sell Worldwide Dreams and its
subsidiaries as a going concern. Worldwide Dreams, like many other companies, began
experiencing financial difficulties in 2008 when the United States was in a deep recession. Pl.
insolvent. The sources on which Plaintiff relies state that directors can have a duty to a company’s creditors and
make no mention of a duty to other interests of the company that are independent of shareholders’ and creditors’
interests. See Donald Report ¶ IV(C)(9) (“The fiduciary duty runs to the company, not the shareholders. In a recent
case in which a director declared a dividend that prevented the company from fulfilling its obligations to creditors,
the director was found to have breached his fiduciary duty.”) (emphasis added); see Tradepower (Holdings) Ltd. v.
Tradepower (Hong Kong) Ltd.  12 HKCFAR 417, ¶¶ 20, 34, 120 (C.F.A.) (Dkt. 208-27) (the appeal
concerned a company that was insolvent and in liquidation)). (The parties cite to a 2010 Tradepower opinion but
attach as an exhibit this 2009 Tradepower opinion; it is clear from the parties’ discussion that they intended to cite to
the 2009 opinion.)
In addition, Plaintiff argues that under Hong Kong law, directors have a duty to guard corporate assets. Pl.
Opp. 5, 7. As Defendants explain, however, see Defs. Reply 3 n.6, and as is clear from the cases cited by Plaintiff,
see Chintung Futures Ltd.,  1 HKLR 95, 112 (H.C.) (discussing “safeguards duty”) (Galin Decl. Ex. EE),
David Chien v. Francis Cheung,  HKEC 896, ¶ 112 (C.F.I.), the duty to guard corporate assets is part of a
director’s duty of care. The duty of care is outside the scope of Plaintiff’s fiduciary claim, see supra.
56.1 Stmt. ¶ 30. Gimbel and Feldman consulted Chu—Yick Bo’s third director—Abramson and
others about selling Worldwide Dreams as an integrated wholesale accessory import business,
and they believed that doing so would generate enough cash to enable Yick Bo to pay its Hong
Kong suppliers and Worldwide Dreams to pay its secured creditors. Id. ¶¶ 33-34. Gimbel and
Feldman believed that Worldwide Dreams and its subsidiaries would sell at a higher price if they
were sold as an operating, integrated business, but the companies required a credit line in order
to continue to operate while looking for a buyer. Id. ¶ 36. Gimbel and Feldman considered the
individual interests of Worldwide Dreams, Yick Bo, and WWDI before entering into the
Factoring Agreement, and they informed Chu of the Agreement’s terms. Id. ¶¶ 47-48. Between
August 2010 and March 2011, CBC released funds to Yick Bo on behalf of Worldwide Dreams
so that Yick Bo could pay its Hong Kong suppliers. Id. ¶¶ 67, 92. Between December 2010 and
March 2011, Worldwide Dreams and LF USA exchanged draft purchase agreements pursuant to
which LF USA would acquire Worldwide Dreams and its subsidiaries for approximately $15.6
million. Id. ¶¶ 85-86, 93. Chu, along with Gimbel, Feldman, and Abramson, oversaw the due
diligence and deal negotiations. Id. ¶¶ 86-87. In March 2011, before the LF USA deal cratered,
Worldwide Dreams anticipated a payout to Yick Bo of $3.35 million, which would have covered
almost the entire debt owed by Yick Bo to its Hong Kong suppliers. Id. ¶¶ 88-89, 91.
Plaintiff does not dispute any of those facts. Those decisions—to sell Worldwide Dreams
and its subsidiaries as a going concern, to enter into the Factoring Agreement, and to pursue the
sale of the companies to LF USA for approximately $15.6 million—were clearly all made in
Yick Bo’s best interests because, by maintaining Yick Bo’s operations, they would maximize the
funds that would become available to pay Yick Bo. Moreover, Gimbel and Feldman considered
the interests of Yick Bo separately from the other companies, as demonstrated by the fact that
they ensured that Chu, Yick Bo’s third director, was involved in all of these decisions and in
their execution. Plaintiff’s only arguments in support of its claim that Gimbel and Feldman
breached their fiduciary duty to Yick Bo by not pursuing the Worldwide Dreams receivable
before the LF USA deal collapsed in April 2011 are: (1) Defendants have not explained why it
was necessary not to pursue the receivable in order to sell Worldwide Dreams and its
subsidiaries to LF USA, and (2) Plaintiff believes that Gimbel and Feldman never intended to
pay Yick Bo, even when they were negotiating the LF USA deal. See Pl. Opp. 11, 13.
As to the first argument, Plaintiff has presented no evidence to suggest that Gimbel and
Feldman were not acting in Yick Bo’s best interests when they sought to sell Worldwide Dreams
and its subsidiaries to LF USA. To defeat summary judgment, Plaintiff must present evidence
showing that it would have been in Yick Bo’s best interest for its directors to pursue the
receivable owed by Worldwide Dreams during the time the company was negotiating with LF
USA. Plaintiff cannot satisfy its burden merely by complaining that Defendants have not
explained why pursuing the receivable would not have been in Yick Bo’s best interest.
Moreover, Defendants have presented evidence showing that it was likely necessary not
to pursue the receivable in order to sell Worldwide Dreams and its subsidiaries as an integrated
business. Worldwide Dreams’ unaudited balance sheets for December 31, 2010 and March 31,
2011 show $803,448 and $558,697 in cash, respectively.11 See Gordon Decl. Exs. 22, 23 (Dkts.
202-22, 202-23). Thus, Worldwide Dreams did not have the funds to pay down the receivable,
Plaintiff claims that these are consolidated balance sheets for Worldwide Dreams and its subsidiaries, Pl.
Opp. 17 n.12; Defendants do not address this point, and the Court cannot tell from the balance sheets alone whether
they are consolidated. Regardless, if they are consolidated, the financial situation of the companies appears to be
even more dire given that the cash position would then reflect the total cash available for Worldwide Dreams and its
Plaintiff also argues that the unaudited balance sheets are not probative for summary judgment. Pl. Opp. 17
(citing Dauphin v. Crownbrook ACC LLC, No. 12-CV-2100 (ARR) (SMG), 2013 WL 1498363, at *8 (E.D.N.Y.
Apr. 11, 2013)). In Dauphin, however, there was testimony that the financial documents mischaracterized at least
one line item, which further called into question the accuracy of the unaudited financial statements. 2013 WL
1498363, at *8. Here, Plaintiff has presented no evidence to dispute the accuracy of the balance sheets.
even if Yick Bo had pursued it. Furthermore, an attempt to “pursue” the receivable may have
resulted in a default under the Factoring Agreement.12 Any attachment or judgment in excess of
$10,000 or legal proceeding resulting in damages in excess of $100,000 would have been an
Event of Default under the Factoring Agreement, and, upon an Event of Default, CBC could
have accelerated the loan repayment and exercised its right to possess collateral. Gordon Decl.
Ex. 19 ¶¶ 13(b), 20.10. Because Worldwide Dreams did not have the cash to pay Yick Bo’s
receivable, by pursuing the receivable, Yick Bo would have run the risk of triggering an Event of
Default and a seizure of Worldwide Dreams’ assets by CBC, at which point the plan to sell
Worldwide Dreams and its subsidiaries as an ongoing, integrated business would have fallen
apart.13 Running that risk was obviously not in Yick Bo’s best interest given Worldwide Dreams
had found a buyer that was willing to purchase the companies at a price that would have enabled
Worldwide Dreams to pay (at least most of) the receivable owed to Yick Bo.
As to the second argument, namely that Gimbel and Feldman never intended to pay Yick
Bo when negotiating the LF USA deal, Plaintiff fails to present any evidence to support that
assertion. Plaintiff cites to Abramson’s deposition, see Pl. Opp. 11 (citing Gordon Decl. Ex. 4
Tr. 107-108), but Abramson merely testified that there was no agreement to pay Yick Bo from
the proceeds of the LF USA sale and that Worldwide Dreams’ directors and Abramson, aware
that Yick Bo was unhappy about not being paid because it was receiving pressure from its
Plaintiff does not actually explain what it means when it argues Yick Bo should have “pursued” its parent
for payment. Because Worldwide Dreams did not have the cash on hand to satisfy the intercompany receivable,
presumably Plaintiff is arguing that Yick Bo should have sued its parent for payment. That scenario seems silly,
particularly because at the same time that Worldwide Dreams owed funds to Yick Bo, Yick Bo owed funds to
WWDI, Worldwide Dreams’ other subsidiary.
Yick Bo claims that Worldwide Dreams had an affirmative obligation to pay Yick Bo pursuant to sections
8.1(m) and (o) of the CBC factoring agreement. Pl. Opp. 14. Those provisions, however, do not provide as much;
instead, they only require Worldwide Dreams and Yick Bo generally to comply with the law and perform their
“contractual obligations” without any specific reference to the payment of intercompany receivables. Gordon Decl.
Ex. 19 ¶¶ 8.1(m), (o).
suppliers, were trying to maximize the sale price so that Worldwide Dreams could pay Yick Bo.
Gordon Decl. Ex. 4 Tr. 107:8-108:13. This testimony supports Gimbel and Feldman’s argument
that they were acting in Yick Bo’s best interest by seeking to negotiate a deal that would
generate enough cash so that Yick Bo could be paid. This interpretation of the testimony is
consistent with the payout schedules that were prepared by Abramson at Gimbel and Feldman’s
direction and sent to Chu. Those schedules consistently show Yick Bo being paid from the sale
proceeds. Pl. 56.1 Stmt. ¶¶ 75-77, 79, 81, 88.
Accordingly, there is no material dispute that Gimbel and Feldman acted in Yick Bo’s
and Yick Bo’s creditors’ best interests when negotiating the sale of Worldwide Dreams and its
subsidiaries as an ongoing, integrated business.
2. Gimbel and Feldman Acted in Yick Bo’s Best Interest Post April 2011, With One
After the LF USA deal fell apart in April 2011, Gimbel and Feldman, with one exception,
indisputably continued to act in Yick Bo’s and Yick Bo’s creditors’ best interests. The exception
is the $284,000 payment Worldwide Dreams made to its landlord in June 2011. Whether Gimbel
and Feldman objectively or subjectively acted in Yick Bo’s and Yick Bo’s creditors best interests
when they paid Worldwide Dreams’ rent, rather than using those funds to pay down Yick Bo’s
receivable, is a disputed question of material fact.
As to Gimbel and Feldman’s other decisions made post-April 2011 to wind down
Worldwide Dreams and its subsidiaries, there is no question of material fact that those decisions
were objectively and subjectively made in Yick Bo’s and Yick Bo’s creditors best interests.
After the LF USA deal collapsed, Yick Bo essentially ceased incurring trade debt on behalf of
Worldwide Dreams; purchase orders associated with 98% of the debt owed to the Hong Kong
suppliers had been placed in or before March 2011, when Yick Bo was still solvent. Pl. 56.1
Stmt. ¶ 102. CBC insisted that Worldwide Dreams’ and its subsidiaries’ assets be sold to satisfy
CBC’s debt, and, effective June 2, 2011, CBC reduced its cash advances to Worldwide Dreams.
Id. ¶¶ 98-99. As explained above, Worldwide Dreams did not have cash available to pay the
receivable as of March 31, 2011, shortly before the LF USA deal collapsed. Gordon Decl.
Ex. 23. The Factoring Agreement was still operative at that time, so the same concerns about
defaulting under the Agreement remained if Yick Bo had pursued the receivable. It was only in
June 2011, after Worldwide Dreams had sold its business piecemeal, that Worldwide Dreams
satisfied CBC’s first priority lien and the Factoring Agreement terminated. Pl. 56.1 Stmt. ¶¶103104. Worldwide Dreams then paid Yick Bo approximately $260,000 from the remaining
proceeds, but those proceeds were insufficient to pay all of Yick Bo’s debts to its Hong Kong
suppliers. Id. ¶¶ 105-106.
Plaintiff argues that Gimbel and Feldman failed to act in Yick Bo’s best interests after the
LF USA deal collapsed because they should have sought payment for the entire receivable.
Plaintiff contends that Gimbel and Feldman’s reasons for not pursuing the receivable pre-April
2011 vanished after the LF USA deal collapsed—Gimbel and Feldman were no longer trying to
sell the businesses as an ongoing, integrated business, and, by early June, Worldwide Dreams’
obligations to CBC were terminated because CBC had been repaid.14 Pl. Opp. 11. But, as
explained above, it is indisputable that Worldwide Dreams did not have the funds available to
Plaintiff argues that, after the collapse of the LF USA deal, Gimbel and Feldman did not intend for
Worldwide Dreams to pay Yick Bo. Pl. Opp. 12. In support, Plaintiff points to an email dated May 31, 2011, from
Yick Bo’s auditor to Abramson and others stating, “Basically, it is presumed that the receivable from [Worldwide
Dreams] on Yick Bo’s books,[sic] will not be paid and will be written off as a bad debt.” Galin Decl. Ex. DD (Dkt.
212-4). This email does not support Plaintiff’s contention that Gimbel and Feldman breached their fiduciary duty to
Yick Bo because they did not intend to pursue the receivable. On the contrary, it was clear, as explained above, that
Worldwide Dreams did not have the funds to pay Yick Bo in full; the accountant was thus planning for the
inevitable wind-down of the companies. Moreover, this is consistent with Abramson’s email to Yick Bo on May 31,
2011, explaining that Worldwide Dreams could not provide a payment schedule that would satisfy the auditors and
approving the release of the qualified opinion on the financial statement, see supra note 4. Gordon Reply Deck.
pay the entire receivable, and, until the Factoring Agreement was terminated, Gimbel and
Feldman would have run the risk of triggering a default if they had pursued the receivable from
Worldwide Dreams on Yick Bo’s behalf. Plaintiff has presented no evidence indicating that if
Gimbel and Feldman had pursued payment of the receivable in June 2011, after the termination
of the Factoring Agreement, Worldwide Dreams would have been able to pay. Indeed,
Worldwide Dreams closed its New York office that same month, and Gimbel and Feldman
received no proceeds from the sale. Pl. 56.1 Stmt. ¶ 107.
Plaintiff maintains that Gimbel and Feldman nevertheless benefited from the proceeds of
the sale because $800,000 was used to pay the California distribution center and $284,000 was
used to pay rent for Worldwide Dreams’ office; according to Plaintiff, other corporate entities in
which Gimbel had an ownership interest would have otherwise been responsible for those
payments. Id. (see response). The payment to the California distribution center was necessary
and in the best interests of Yick Bo and its creditors because the California distribution center
had a priority lien on the warehouse inventory, which was being sold; if the distribution center
had seized the inventory because it had not been paid, the June 2011 asset purchases could not
have taken place, and Yick Bo and its creditors would have recovered even less. Gimbel Reply
Decl. ¶¶ 9-13 (Dkt. 216).
On the other hand, whether the payment to Worldwide Dreams’ landlord was in Yick
Bo’s and Yick Bo’s creditors’ best interests is a disputed question of fact. Defendants state that
the corporate entity that executed the lease assigned the lease, including all liability and
obligations, to Worldwide Dreams, but it did not obtain a release. Id. ¶¶ 6-7. Defendants argue
that because that entity’s only asset was Worldwide Dreams, if Worldwide Dreams had defaulted
on its rent and the landlord had pursued the corporate entity that signed the lease, it would not
have been able to collect a judgment because the corporate entity’s only asset was the worthless
Worldwide Dreams. Id. ¶¶ 5, 7. While that may all be true, it does not address whether using
those funds to pay Worldwide Dream’s landlord was in Yick Bo’s and Yick Bo’s creditors’ best
interests. Unlike CBC and the California distribution center, which could have enforced their
liens and prevented the asset purchase sales leaving Worldwide Dreams and its subsidiaries with
nothing, the landlord did not have a lien or a priority interest. Thus, it is a question of fact
whether Worldwide Dreams actually paid Yick Bo all that it could have from the asset purchase
sale proceeds and whether Gimbel and Feldman, as Yick Bo’s directors, should have sought to
apply the $284,000 to Yick Bo’s receivable instead of to Worldwide Dreams’ rent. This
$284,000 rent payment is the only portion of Plaintiff’s breach of fiduciary duty claim that
survives summary judgment.15
B. Other Fiduciary Duties
The other fiduciary duties owed by a director include a duty (1) to act for a proper
purpose, (2) to avoid conflicts of interest, and (3) not to make a profit out of one’s trust. Ismail
Decl. ¶ 7(b) (Dkt. 208). Under Hong Kong law, each of those fiduciary duties must be analyzed
separately. Id. ¶ 7(c). Defendants contend that Gimbel and Feldman have satisfied all of these
duties. Defs. Mem. 15. Plaintiff does not argue that Defendants acted for an improper purpose.
Gimbel and Feldman also clearly did not profit as Yick Bo’s directors; they lost their entire
capital contributions and took no distributions of profits or interest payments on their
subordinated loans. Pl. 56.1 Stmt. ¶¶ 107-108. But there is a disputed question of fact whether
Gimbel benefited financially from the $284,000 rent payment because the landlord may have
The parties also dispute whether Gimbel and Feldman’s failure to pursue the total receivable caused the
alleged harm to Yick Bo, namely non-payment of the receivable. Defs. Mem. 19-20; Pl. Opp. 16-19. The Court
sees no need to address the parties’ arguments regarding causation as applied to Gimbel and Feldman’s duty to act in
Yick Bo’s best interest given the Court’s rulings above.
otherwise pursued payment from the original lessee in which Gimbel had a an ownership interest
(even if the entity had no assets other than Worldwide Dreams).16
Plaintiff argues that Gimbel and Feldman had an impermissible conflict of interest
because they were directors of both Worldwide Dreams and Yick Bo. Pl. Opp. 9. Gimbel also
allegedly had conflicts of interests because: (1) he had an ownership interest in the entity that
originally signed Worldwide Dreams’ office lease; (2) he had an ownership interest in the entity
that owned the California distribution center; and (3) personal pride led him to prioritize
Worldwide Dreams over Yick Bo. Id. at 9-10.
The parties dispute the legal standard for the duty to avoid conflicts of interest.
Specifically, the parties dispute whether Hong Kong law relaxes this duty if the fiduciary
discloses the conflict and if the company’s articles of association permit a director to also act as a
director of another company with which the former company contracts, as Yick Bo’s Articles of
Association do. See Defs. Mem. 21; Pl. Opp. 9-10; Defs. Reply 5; Ismail Report ¶ 84; Donald
Rebuttal Report ¶¶ III(D)(1)-(3) (Dkt. 212-2); Ismail Rebuttal Report ¶¶ 15-16 (Dkt. 208-30).
The Court need not resolve this legal dispute, however, because even if Gimbel or Feldman had
impermissible conflicts of interest, no reasonable jury could conclude that the conflicts of
interest—other than Gimbel’s ownership interest in the entity that originally signed the Empire
State Building office lease—were the “but for” cause of the loss of the receivable. Ismail Decl.
¶ 11 (explaining that causation is established on a “but for” basis).
Plaintiff argues that pursuant to Hong Kong law Defendants have the burden to disprove
that the breach of the fiduciary duty caused the loss to the trust estate. Pl. Opp. 16-17. This is
There is no evidence in the record whether the landlord would have had recourse to Gimbel personally. If
the lease was non-recourse as to Gimbel personally, it is hard to see how he personally benefited. Because there is
no evidence on this point and because all inferences must be drawn in Plaintiff’s favor, this is a disputed issue of
not a correct application of Hong Kong law. Under Hong Kong law, there are three categories of
fiduciary duty breaches for the purpose of damages:
First, there are breaches leading directly to damage or loss of the trust property; second,
there are breaches involving an element of infidelity or disloyalty which engage the
conscience of the fiduciary; third, there are breaches involving a lack of appropriate skill
or care. It is implicit in this analysis that breaches of the second kind do not involve loss
or damage to the trust property . . . .
Libertarian Investments Ltd. v. Hall (2013) 16 HKCFAR 681, Ribiero PJ at § 75 (C.F.A.) (Dkt.
208-15). Only the first two categories are at issue here; as explained above, Plaintiff has been
precluded from bringing a duty of care claim, which is the third category. “But for” causation
applies to a breach of fiduciary duty in the first category. Id. § 79. As to the second category,
Hong Kong law provides that
in such a case once the plaintiff has shown a loss arising out of a transaction to which the
breach was material, the plaintiff is entitled to recover unless the defendant fiduciary,
upon whom is the onus, shows that the loss or damage would have occurred in any event,
ie[sic] without any breach on the fiduciary’s part.
Id. § 82. This is the language on which Plaintiff relies to argue that it is Defendants’ burden to
disprove loss causation. But Plaintiff’s fiduciary duty claim falls into the first category of
breach, not the second. Plaintiff alleges that Gimbel and Feldman’s breach of fiduciary duty led
directly to a loss of Yick Bo’s property because “[t]heir breach of fiduciary duty to Yick Bo
caused Yick Bo to lose it assets without any compensation or repayment from [Worldwide
Dreams].” Am. Compl. ¶ 68 (Dkt. 66). Specifically, the loss to Yick Bo was the receivable
owed by Worldwide Dreams. See id. ¶ 67. The second category of breach, which includes
conduct that engages “the conscience of the fiduciary,” explicitly excludes breaches that lead
directly to loss or damage to the trust property. Libertarian Investments Ltd. v. Hall (2013) 16
HKCFAR 681, Ribiero PJ at § 75. Accordingly, the “but for” causation standard applies here;
Defendants do not have the burden to disprove causation, as Plaintiff argues.
Plaintiff has not presented evidence to create a disputed question of fact as to whether
Gimbel and Feldman’s alleged impermissible conflict of interest as directors of both Yick Bo
and Worldwide Dreams was the “but for” cause of the loss of the receivable. The accounting
information and testimony in the record make clear that Worldwide Dreams did not have enough
money to pay Yick Bo fully, even if Gimbel and Feldman had pursued the receivable. The Court
has already rejected Plaintiff’s arguments that the Court should not rely on the unaudited
financial statements submitted by Defendants, and, aside from complaining that the financial
statements are unaudited, Plaintiff has submitted no contradictory evidence of Worldwide
Dreams’ financial situation. Even after the asset purchase transactions in June 2011, Plaintiff has
not shown that Gimbel and Feldman’s alleged impermissible conflict of interest as directors of
Worldwide Dreams and Yick Bo was the “but for” cause of Yick Bo’s loss of the receivable. On
the contrary, the evidence shows that CBC and the California distribution center had a first
priority lien on the assets sold and that Worldwide Dreams was thus required to pay CBC and the
California distribution center before making other payments. For this same reason, Plaintiff has
presented no evidence to create a disputed question of fact as to whether Gimbel’s alleged
impermissible conflict of interest as a part-owner of the California distribution center was the
“but for” cause of the loss to Yick Bo.
Plaintiff has also presented insufficient evidence to create a disputed question of fact as to
whether Gimbel’s personal pride was an impermissible conflict of interest that was the “but for”
cause of Yick Bo’s loss of the receivable. In support, Plaintiff points only to Gimbel’s
Q: Why didn’t you put [Worldwide Dreams] into bankruptcy?
A: Because after 55 years of working my ass off and having a wonderful reputation in
this industry, I have never owed anybody. . . . And I, certainly at 85 years old, do not
intend to have my name connected with any bankruptcy.
Gordon Decl. Ex. 1 Tr. 123:2-10 (Dkt. 202-1).17 This testimony alone does not suffice to create
a disputed question of fact as to whether Gimbel’s personal pride was the “but for” cause of Yick
Bo’s loss of the Worldwide Dreams receivable. As explained numerous times, Worldwide
Dreams’ inability to pay and CBC’s and the California distribution center’s priority liens were
intervening causes of Yick Bo’s loss of the receivable.18
There is, however, a disputed question of fact as to whether Gimbel’s ownership interest
in the entity that originally signed Worldwide Dreams’ office lease was an impermissible
conflict of interest that was the “but for” cause of the loss of $284,000 owed to Yick Bo. As
already discussed, it is unclear why Worldwide Dreams paid its office rent before paying Yick
Bo as there is no evidence that the landlord had any kind of lien on Worldwide Dreams’ assets.
Defendants have presented no evidence showing why it was necessary for Worldwide Dreams to
pay the rent instead of using those funds to pay down Yick Bo’s receivable. A reasonable jury
could find that Gimbel used the $284,000 to pay rent rather than using it to pay down Yick Bo’s
receivable because he had an ownership interest in the original lessee that had not procured a
release, leaving his company—or possibly even him—potentially liable for the rent.19
Plaintiff implicitly suggests by pointing to this testimony that Yick Bo would have fared better had
Worldwide Dreams filed for bankruptcy. Inasmuch as Yick Bo was an unsecured creditor of its parent corporation,
it is not obvious why a bankruptcy would have been beneficial to Yick Bo.
Gimbel also testified in response to the follow up question, “So you were looking out for yourself?” that he
and his partners were looking out for their employees, that they lost their entire investment in the company, and that
he “never took anybody else’s money.” Gordon Decl. Ex. 1 Tr. 123:14-25.
Defendants argue that under Hong Kong law, the alleged conflicts of interest are not impermissible because
they were disclosed and because Yick Bo’s Articles of Association permitted Yick Bo’s directors to act as a director
of another company with which Yick Bo transacts, such as Worldwide Dreams. Defs. Mem. 21; Defs. Reply 5.
Plaintiff disputes that this is true under Hong Kong law, but the Court finds no need to resolve this legal dispute, as
explained above, given its causation analysis. But, the Court notes that, even if Defendants are correct regarding
Hong Kong law, Defendants have presented insufficient evidence that this conflict regarding the office lease was
disclosed to Yick Bo. Defendants have presented evidence that Gimbel’s ownership interest in the original lessee
entity was disclosed in Worldwide Dreams’ amended LLC agreement, see Defs Reply 5-6 n.9 (citing Gordon Decl.
Ex. 3 (Dkt. 202-3)), but Defendants have presented no evidence that Chu, Yick Bo’s independent director, was
aware that entity was the original lessee or that it had not obtained a release, which is the reason that there is a
Summary judgment is therefore denied as to Plaintiff’s breach of fiduciary duty claim as
it relates to the $284,000 paid in rent. As to the balance of Plaintiff’s breach of fiduciary duty
claim, Defendants’ motion for summary judgment is granted.20
C. Reimbursement Claim
In its reimbursement claim, Plaintiff alleges that Worldwide Dreams owes Yick Bo
reimbursement for (1) the purchases it made from Hong Kong suppliers as Worldwide Dreams’
agent and (2) commissions Yick Bo earned when making those purchases. Am. Compl. ¶¶ 73,
74. The amount claimed in reimbursement is the same amount claimed for breach of fiduciary
duty—$14.68 million, which is the amount allegedly due pursuant to the receivable. Of that
$14.68 million, $298,297.02 represents unpaid commissions. Pl. 56.1 Stmt. ¶ 135.
The parties do not dispute that the Agency Agreement provided that Worldwide Dreams
would pay Yick Bo commission for the purchases it made on behalf of Worldwide Dreams. Id.
¶ 25; Gordon Decl. Ex. 11 ¶ 3. Worldwide Dreams makes no arguments and presents no
evidence to support its motion for summary judgment as to Plaintiff’s claim for commissions.
Accordingly, summary judgment is denied as to Plaintiff’s claim for commissions worth
$298,297.02.21 That leaves $14.38 million at issue pursuant to Plaintiff’s reimbursement claim.
The parties also do not dispute that the Agency Agreement did not explicitly require
Worldwide Dreams to reimburse Yick Bo for the purchases it made on behalf of Yick Bo. Pl.
conflict. If the original lessee had obtained a release, there would be no conflict because the landlord could not have
pursued the original lessee for the rent.
Plaintiff is not entitled to punitive damages even if it ultimately prevails on its breach of fiduciary duty
claim regarding the $284,000 paid in rent. Under Hong Kong law, the defendant’s breach must be “outrageous” for
punitive damages to be awarded. Ismail Report ¶¶ 110-115. No reasonable jury would find that Gimbel and
Feldman’s failure to pursue on behalf of Yick Bo the $284,000 paid in rent was outrageous conduct.
Plaintiff styles this as a claim for “reimbursement,” but Plaintiff’s claim for unpaid commissions is really a
breach of contract claim.
56.1 Stmt. ¶ 26; see generally Gordon Decl. Ex. 11. Instead, Plaintiff claims Worldwide Dreams
must reimburse Yick Bo because Yick Bo was acting as Worldwide Dreams’ agent. Pl. Opp. 20.
Worldwide Dreams argues that, pursuant to Hong Kong law, an agent is not liable for debts
incurred on behalf of a disclosed principal when the agent expressly disclaims any intent to
assume liability on behalf of the principal. Defs. Mem. 24 (citing Wing Fu Trading Co. v.
Sweigle Co. Ltd. (unreported, 16 March 1994; A 2511/1990) (H.C.) (Gordon Decl. Ex. 70 (Dkt.
202-70)); Toymax (HK) Ltd. v. Redsmith Int’l (1994) 1 HKC 714 (H.C.) (Gordon Decl. Ex. 71
(Dkt. 202-71))). Because Yick Bo did just that, Worldwide Dreams argues, Yick Bo was not
required to pay the sums for which it is now seeking reimbursement. See id.
Whether Yick Bo expressly disclaimed any intent to assume liability on behalf of
Worldwide Dreams when making purchases is a disputed question of fact. Although the
purchase orders Yick Bo provided to the Hong Kong suppliers identified Yick Bo as an agent of
Worldwide Dreams, see Pl. 56.1 Stmt. ¶ 27; see, e.g., Gordon Decl. Ex. 12, the invoices prepared
by the suppliers stated that the invoiced amounts were “to be paid by Yick Bo Trading Ltd,”22
see, e.g., Galin Decl. Ex. H. Moreover, in affidavits submitted in the fall and winter of 2011 in
lawsuits brought by suppliers against Worldwide Dreams, Worldwide Dreams’ controller
averred that Yick Bo had “assumed sole payment responsibility” for the goods at issue. See
Galin Decl. Ex. L ¶ 1. This evidence suffices to create a disputed question of fact.
Nevertheless, there is no question of fact as to a portion of the $14.38 million sought by
Plaintiff in its reimbursement claim. In February 2012, Worldwide Dreams settled debts owed
by Yick Bo to some suppliers for approximately $1.3 million. Pl. 56.1 Stmt. ¶ 115. Although
Many of the invoices also provided the following: “Sold To: Worldwide Dreams LLC.” See Galin Decl.
the parties dispute whether Worldwide Dreams had the legal authority to settle Yick Bo’s debts
once Yick Bo was in liquidation, Plaintiff admits that, as of July 12, 2013, Yick Bo owed only
approximately $2.5 million to third party creditors (other than WWDI). Pl. 56.1 Stmt. ¶ 122.
That amount is net of the debts that were settled by Worldwide Dreams. Accordingly, the
$14.38 million reimbursement claim must be reduced by the $1.3 million paid in settlement.23
Yick Bo is not entitled to a windfall by receiving more in reimbursement from Worldwide
Dreams than the amount it owes to third party creditors for purchases it made as agent for
The parties dispute whether the Court can exclude $6.2 million from the reimbursement
claim because it reflects an intercompany debt owed by Yick Bo to WWDI. Plaintiff argues that
this setoff is impermissible under Hong Kong law, whereas Worldwide Dreams argues it is
permissible. Defs. Mem. 23; Pl. Opp. 21. Plaintiff agrees with Worldwide Dreams that before
Yick Bo went into liquidation, Worldwide Dreams could have used “intra-group book entries” to
extinguish Yick Bo’s $6.2 million debt to WWDI and that the remaining balance in Worldwide
Dreams’ receivable owed to Yick Bo could have been paid through book entries and then
immediately returned to Worldwide Dreams via dividend. Pl. 56.1 Stmt. ¶ 60; Tan Report
¶ 31(a) (Dkt. 207-1). Although book entries could have erased aspects of the intercompany
debts, those book entries never occurred. Unfortunately for Worldwide Dreams, setoff is no
longer an available option because Yick Bo is in liquidation. Worldwide Dreams’ own expert
acknowledges explicitly that setoff was only valid prior to liquidation. Tan Report ¶ 31(a) (“In
practice, on assignment (prior to liquidation), this intercompany payable (US$6.2 million from
Yick Bo to WWDI) would be set-off against the inter-company receivable (US$14.68 million
The exact amount paid in settlement was $1,292,789. Pl. 56.1 Stmt. ¶¶ 117, 120.
from WWD to Yick Bo) . . . .”) (emphasis added); see also Minju Kim Decl. ¶ 18 (Dkt. 212-2)
(“In the case of insolvency set-off, the requirement that the demands be held in the same capacity
(or right, or interest) means that each of the parties, who is liable to the other, must be the
beneficial owner of the cross-claim against the other.” (citation omitted)). WWDI and Yick Bo’s
Hong Kong suppliers are competing creditors; because there is no evidence that WWDI is a
secured creditor of Yick Bo, there is no basis to satisfy Yick Bo’s debt to WWDI via setoff
before satisfying Yick Bo’s debt to its Hong Kong suppliers. Accordingly, the Court does not
setoff the $6.2 million to reduce Plaintiff’s reimbursement claim.
Subtracting from the $14.38 million reimbursement claim the $2.5 million indisputably
owed to third party creditors in liquidation and the $1.3 million that was previously paid to settle
claims from third party creditors still leaves approximately $10.58 million of the reimbursement
claim unaccounted for. The parties have presented no evidence from which the Court can
determine whether there is a question of fact whether Yick Bo is entitled to reimbursement for
that $10.58 million as Worldwide Dreams’ agent. Because at summary judgment this Court
must construe the facts in the light most favorable to Plaintiff and resolve all ambiguities against
Defendant, the Court cannot determine, as a matter of law, that Worldwide Dreams is not liable
for the $10.58 million. If Yick Bo did not incur that portion of the receivable through actions it
took as Worldwide Dreams’ agent (e.g., that amount represents claimed reimbursement for
maintenance or personnel costs), then that portion of the receivable would be excluded as a
matter of law from Plaintiff’s reimbursement claim, which only entitles Plaintiff to
reimbursement for costs incurred by Yick Bo as Worldwide Dreams’ agent.24
Maintenance and personnel costs are not costs incurred due to an agency relationship. For example, if Yick
Bo had been Worldwide Dreams’ buying agent but not its wholly owned subsidiary, it would not have been entitled
to recover from Worldwide Dreams its maintenance and personnel costs because those costs would not have been
incurred on account of the agency relationship.
In summary, Worldwide Dreams’ motion for summary judgment as to Plaintiff’s
reimbursement claim is denied as to the claim for $298,297.02 in unpaid commissions and as to
$13.08 million25 in potentially reimbursable costs and is granted as to the balance of the claim
For the foregoing reasons, Gimbel and Feldman’s motion for summary judgment is
GRANTED in part and DENIED in part as to Plaintiff’s breach of fiduciary duty claim; it is
DENIED only as to the $284,000 paid by Worldwide Dreams in June 2011 to its landlord.
Worldwide Dreams’ motion for summary judgment is GRANTED in part and DENIED in part
as to Plaintiff’s reimbursement claim; it is DENIED as to $298,297.02 in commissions for breach
of contract and as to $13.08 million for reimbursement as Worldwide Dreams’ agent. The Clerk
of the Court is directed to terminate docket entry 200.
The parties must appear for a conference on September 15, 2017, at 10:00 a.m. in
Courtroom 443 of the Thurgood Marshall United States Courthouse, 40 Foley Square, New
York, NY. On or before September 7, 2017, the parties must submit a joint letter proposing a
trial schedule and informing the Court whether they would like a referral to Magistrate Judge
Pitman for a settlement conference. At the conference, the Court will set a trial schedule.
United States District Judge
Date: September 1, 2017
New York, NY
Moreover, the time for claimants to come forward in the Hong Kong liquidation has not closed. See
Gordon Decl. Ex. 62 Tr. 43-44 (Dkt. 202-62). There may, therefore, be debts owed to other third party creditors
from whom Yick Bo made purchases as Worldwide Dreams’ agent that would account for at least a portion of the
unaccounted for $10.58 of the receivable.
$2.5 million owed to Hong Kong suppliers + $10.58 million unaccounted for = $13.08 million.
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