Ji Jiang Zheng v. Daotong LLC

Full text

Ji Jiang Zheng v Daotong LLC 2024 NY Slip Op 30512(U) February 15, 2024 Supreme Court, Kings County Docket Number: Index No. 531388/2023 Judge: Leon Ruchelsman Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.

FILED: KINGS COUNTY CLERK 02/16/2024 10:37 AM INDEX NO. 531388/2023 NYSCEF DOC. NO. 22 RECEIVED NYSCEF: 02/16/2024

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS : CIVIL TERM: COMMERCIAL 8 -· . . . -·-· ----· ·-·--.-------·-· ----------------x· JI JIANG ZHENG, individually and as a member of Daotong LLC, Plaintiff, Decision and order

- against - Index . . . .. . No. 531388/2023 . . . . .

DAOTONG LLC, 201 LIBERTY LLC, SHUNHE MANAGEMENT LLC, XIANG YU CAO, ABC COMPANY #¹-20, JOHN DOE #1-20, Defendants, February 15, 2024 -·- - - - -- - - -- . -- . -- --·- - -·-·- -·- -- - -·- -·-- - - - - - -- -x PRESENT: HON. LEON RUCHELSMAN Motion Seq. #1

The defendants have moved pursuant tb CPLR §3211 seeking to

dismiss various portions of the complaint for the failure to

allege any causes of action.. The plaintiff opposes the motion.

Papers were submitted by the parties and arguments were held.

After reviewing all the cl.rguments this court now makes the

following determination.

According to the verified complaint the plaintiff is a 34%

owner of defendant Daotong LLC and is managed by defendant Xiang

Yu Cao. Daotorig LLC is a fifty percent owner bf defendant 201

Lihert:.y LLC. The verified complaint alleges that on October 20,

2016, 201 Liberty LLC purchased property located at 201 46 t.h

Street in Kings County. On October 14, 2021, 201 Liberty LLC

sold the property to defendant Shunhe Maha.gement LLC for tw.enty-

three million dollars. The verified compla,int .alleges that none

of the. proceeds of .the sale or of ar1y income earned by 201 Liberty LLC was. ever transferred to Daotong LLC or to the.

plaintiff. The complaint asserts a derivative arid direct ca.use

FILED: KINGS COUNTY CLERK 02/16/2024 10:37 AM INDEX NO. 531388/2023 NYSCEF DOC. NO. 22 RECEIVED NYSCEF: 02/16/2024

Construction Corp . , 2 9 Mis c3d 1202 (A) , 958 NY S2d 30 7 [ Supreme

Court Kings County, 2010]) .

In this case the first cause of action alleging a breach of

a fiduciary duty sta:tes that ''Cao breached his fiduciary duty to

the Plaintiff and the other members of Daotong when Cao failed to

distribute income deriveci by Liberty pre-sale from the operations

of the Subject Prbpertyll (see, Verified Complaint, 9I42 [NYSCEF

Doc. No. 2]). The Verified Complaint impermissibly ±nixes

derivative claims and individual claims in the same cau.se of

action. Therefore, the motion seeking to dismiss the first caJJ.se

of action is granted without prejudice and the plaintiff shall

have an opportunity to properly re-plead the claims of a breach

of a fiduciary duty,

Further,. without a valid underlying. breach of fiduciary

claim there can be no claim of aiding and abetting such breach of

any fiduciary duty (see, Eccles v. Shamrock capital Advisors LLC,

209 ADJd 486, 176 NYS3d 35 [1 st Dept,, 2022]). Therefore, the

motion seeking. to dismiss. the third cause 0£ action is granted

without prejudice.

Concerning the motion seeking- to dismiss the accounting

claim filed against 201 Liberty LLC, i t is well settled that ''the

right to an accounting is premis·ed ll.pbn the existence of a

confidential or fi.dµciary relation;5hip and a brea.ch of the duty

imposed by that relationship respecting property in which the

— 4 —

4 of 5 [* 4]

FILED: KINGS COUNTY CLERK 02/16/2024 10:37 AM INDEX NO. 531388/2023 NYSCEF DOC. NO. 22 RECEIVED NYSCEF: 02/16/2024

party seeking the accounting has an interest'' (see, Palazzo v.

Palazzo, 121 AD2d 261, 503 NYSZd 381 [2d Dept., 1986]), The

plaintiff, in his individual capacity does not maintain any

fiduciary relationship with 201 Liberty LLC. "The fiduciary

relationship necessapy to obtain an accounting is created by the

plaintiff entrusting to the defenda.nt some money or property with

respect to which defendant is bound t.o reveal his dealings"

(Stevens v. St. Joseph's Hospital, 52 AD2d 722, 381 NYS2d 927

[4th Dept., 197Ei]). The plaintiff;s mere minority ownership

interest in Daotong LLC which in turn has an owne.rship interest

in 201 Liberty LLC does not establish any fiduciary relationship

between the individual plaintiff and 201 Liberty LLC. This is

particularly true where the individual plaintiff is not a

shareholder of 201 Liberty LLC (see, Castellotti v. Free, 138

AD3d 198, 27 NYS3d 507 [Pt Dept., 2016], Royal Warwick S. A. v.

Hotel Representati v:e Inc., 106 AD3d 451, 965 NYS2d 409 [ pt

Dept .. , 2013]). Thus, the plaintiff's mere owners.hip in a company

owned by 201 Liberty LLG doe.5 not e5tablish any fiduciary

relationship. Therefore, the motion seeking to dismiss that

portion of the accounting cause of action is grahted.

So ordered.

ENTER~~ DATED: February 15, 202.4 ~ Brooklyn N. Y; Hem. Leon Ruchelsman J.st

— 5 —

5 of 5 [* 5]

Footnotes

[1] of 5 [* 1] of action for the breach of fiduciary duty by Cao, a derivative cause of action for breach of co11tract by Cao, aiding and a9etting a breach of a fiduciary duty by Shunhe LLC and an individual cai1se of action for an accounting of both Daotohg LLC and 201 Liberty LLC. The defendants have moved seeking to dismiss portions of the complaint on the grounds the complaint impermissibly mixes direct and eierivative claims and in any event fails to allege causes of action. As noted the plaintiff opposes the motion. Conclusions of Law It is well settled that upon a motion to dismiss the court must determine, accepting the allegations of tlle complaint as true, whether the party can succeed upon any reasonable view of those facts (Perez v. Y & M Transportation Corporation, 219, AD3d

[14] 4 9, 196 NYS3d 145 [2d Dept., 2023] ) . Further, all the allegations in the complaint are deemed true and all reasonable inferences may be drawn in favor o:E the plaintiff {Archival Inc., V. 177 Realty Corp., 220 AD3d 909 1 198 NYS2d 567 [ 2d Dept., 2023]). Whether the complaint will later survive a, motion for summary judgment, or whether the plaintiff will ultimately be. able to prove its claims, of course, plays no part in the detetmiriation of~ ~te-disco~ery CPLR §3211 motion to dismiss (see, Lam v. Weiss; 2.19 AD3d 713.,. 195 NYS3d 488 [ 2d Dept., 20,23] j • 2 2 of 5 [* 2] In order to assert any derivative claims the person must be a sha:r.:ehblder of the co:tporatioh (Marx v. Akers, 88 NY2d 189; 644 NYS2d 121 [19.96]). Of course, a shareholder cannot assert derivative claim.s when the indiviciual merely maintains individual claims not shared by all the shareholders. Further, the same lawsuit may contain both derivative and direct claims. In Serino v. Lipper; 123. AD3d 34, 994 NYS2d 64 [Pt Dept., 2014] the court explained that to distinguish a derivative claim .from an individual claim the court must engage in two inquiries. First, whether any harm was suffered by the corporation or an individual stockholder and whether the corporation or the individual stockholder would receive the benefit of any re.covery. As the court stated "if there is any harm caused to the individual, as: opposed to the qorporation; then the individual rtiay proceed with a direct action ...On the other hand, even where an individual harm is claimed, if i t is .confused with or embedded in the harm to the corporationr it cannot separately stahd" (id). Thus, where the alleged injury affects all shareholders not just the plaintiff then the action is derivative and hot direct (Vaughan v. Standard Gen~ral L.P., 154 AD3d 581, 63 ~YS3d 44 [1~ Dept., 2017]}. Consequently; wh.ile a complaint may contain both derivative claims and individual claims such claims cannot be intermingled within the same cause of action ( ~ , Hettinga v. Nahouni.., 193 AD.3d 449, 14i NYS3d 693 [Pt Dept., 2021L Greenberg v .. Falco ---------------------------------------------·----··--·-·-····-· [* 3] 3 of 5