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FILED: NEW YORK COUNTY CLERK 02/01/2018 05:16 PM INDEX NO. 653476/2013
NYSCEF DOC. NO. 160 RECEIVED NYSCEF: 02/01/2018
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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PETER STERN and EXPRESS TRADE CAPITAL,
INC., : Index No. 653476/13
(Hagler, J.)
Plaintiffs, :
-against- :
OLEG ARDACHEV, AIR CARGO SERVICES L.L.C., :
DELEX INC., DELEX AIR CARGO, LLC, a Delaware
limited liability company, and DELEX AIR CARGO, :
LLC, a Washington limited liability company,
Defendants.
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REPLY MEMORANDUM OF LAW IN SUPPORT
OF MOTION FOR LEAVE TO
FILE AMENDED COMPLAINT
DIAMOND McCARTHY LLP
21st
489 Fifth Avenue, Floor
New York, New York 10017
(212) 430-5400
Attorneys for Plaintiffs
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Plaintiffs Peter Stern and Express Trade Capital, Inc., by and through their attorneys,
Diamond McCarthy LLP, hereby submits this reply memorandum of law in support of their
"Motion"
Motion for Leave to File an Amended Complaint (the "Motion").
PRELIMINARY STATEMENT
Plaintiffs'
Motion contains undisputed evidence-sworn testimony from the Defendant
Delex ACS's principal and employee--that defendant Delex ACS took over and continued
defendant ACS's business in its entirety, and left ACS as a shell company with no employees
and no business.
Accordingly, the Motion seeks leave to file an amended complaint asserting, as
claims,l
claims,'
alternative that Delex ACS is the successor of ACS.
In opposition, the Defendants have not attempted to dispute the evidence that shows
Delex ACS took over and continued defendant ACS's business in its entirety and left ACS as a
shell company. Nor have the Defendants explained how they would be prejudiced by the
proposed amended claims, since the evidence bearing on what the Defendants did has, at all
times, been in the possession of the Defendants.
Defendants'
Rather, the opposition argues that as a matter of law successor liability has
not been adequately pleaded because (i) ACS was never officially dissolved-but rather
continues to exist as an asset less shell-and (ii) no continuity of ownership exists (so
Defendants claim), because Defendant Ardachev took the entire business of ACS and transferred
itto Delex ACS, which Ardachev manages and owns together with Ardachev's wife.
1
The successor liabilityclaims are asserted as alternativeclaims to the main claim, supported by, among other
things,the company's accountant and thetax return evidence, thatthe Plaintiffsold his50% ownership interestin
ACS toDefendant Ardachev. The Defendant Ardachey has taken the position, contrary to theevidence, thatno
such sale ever occurred, and thatPlaintiffremains a 50'10 ownerof a shellof a company.
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The law of successor liability is not defeated by such technical machinations.
The law of successor liability is intended to remedy what the Defendants orchestrated
here, i.e., a total transfer of ACS to Delex ACS such that Delex ACS is now operating ACS's
business, with all of ACS's employees and assets, thereby leaving ACS with no business
whatsoever.
For these reasons, and as further explained below, the Motion should be granted.
ARGUMENT
I.
THE AMENDED COMPLAINT ADEQUATELY ALLEGES
THAT DELEX ACS IS A MERE CONTINUATION OF ACS
Defendants'
This Motion record contains the sworn testimony that ACS transferred all its
assets to Delex ACS and that Delex ACS continued the business of ACS.
As a result, the proposed Amended Complaint contains the following important
allegations supporting successor liability based on the mere continuation doctrine.
"After Delex took over ACS's business, ACS no longer conducted any
operations."
business (Seidman Aff. Ex. C, ¶77)
revenue."
"ACS no longer has any (Id. at ¶78)
customers."
"ACS no longer has any (Id.at ¶79)
employees."
"ACS no longer has any (Id. at ¶80)
company."
"ACS has been effectively extinguished as a business and as a
(Id. at ¶81)
In their opposition, the Defendants offer only one argument why the above allegations do
not suffice to state a claim based the mere continuation doctrine, i.e., that Delex ACS cannot be
ACS's successor because ACS was never formally dissolved.
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Defendants'
The argument clearly fails. The argument is contradicted by the substance
of the situation and also by First Department precedent.
The substance of the situation is that after Delex ACS took over the entire business and
assets of ACS, ACS was leftwith no business.
In fact, ACS is a mere shell of an entity. ACS conducts no business whatsoever and
Aff.2
currently has no assets, as shown by the company's tax returns. See Seidman Reply Aff. Exs.
A, B and C.
"It can reasonably be inferred from [these] allegations, ...that [ACS] has been effectively
extinguished for purposes of application of the [mere continuity] doctrine. Tap Holdings, LLC v.
Orix Finance Corp., 109 A.D.3d 167, 970 N.Y.S.2d 178, 184 (1st Dep't 2013) (rejecting
argument that "no mere continuation claim can exist because [the first company] still exists,
albeit in some meager form").
Thus, a successor liability claim under the mere continuation doctrine has been
adequately pleaded.
The Motion for leave to amend should therefore be granted.
IL
THE AMENDED COMPLAINT ADEQUATELY ALLEGES
SUCCESSOR LIABILITY UNDER THE DE FACTO MERGER DOCTRINE
Similarly, the Defendants have failed to show why a successor liability claim has not
been adequately pleaded under the de facto merger doctrine.
The First Department has explained that the question whether a de facto merger exists is
"analyzed in a flexible manner that disregards mere questions of form and asks whether, in
substance, 'it was the intent of [the successor] to absorb and continue the operation of [the
2 Aff."
"Seidman Reply refers to theReply Affirmation of Lon J Seidman submitted in furthersupport of the
Motion.
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predecessor]"'
Tap, supra, 970 N.Y.S.2d at 184 (quoting Nettis v. Levitt, 241 F.3d 186, 194 (2d
Cir. 2001), overruled on other grounds by Slayton v. American Express Co., 460 F.3d 215 (2d
Cir. 2005)). See also Fitzgerald v. Fahnestock & Co., 286 A.D.2d 573, 575, 730 N.Y.S.2d 70,
71, (1st Dep't 2001) ("[A] prima face case for a de facto merger exists if it is alleged that the
took all of the predecessor's business so as to render the predecessor asset-
acquiring company
'shell'
less and effectively a mere ["notwithstanding the selling corporation's continued formal
existence"]).
Here, Defendants argue that the de facto merger doctrine cannot apply because the
Defendant Ardachev-the— co-owner and member of Delex ACS -- placed the
managing majority
of ownership of Delex ACS in his wife's name. According to Defendants, this scheme to place
ownership in Ardachev's wife's name defeats a claim of successor liability, because there was no
continuity of ownership between ACS and Delex ACS.
Ardachev's decision to place ownership in his wife's name, so that Ardachev became the
indirect rather than direct owner of Delex ACS, does not defeat liability. Rather, the scheme is
evidence of Ardachev's fraudulent intent.
In any event, the First Department has explained that for purposes of applying the de
doctrine,"
facto merger doctrine, which New York law holds is a "flexible continuity of
indirect"
ownership can be shown by either by "direct or ownership of the company. See In re
(1"
New York City Asbestos Litig., 15 A.D.3d 254, 789 N.Y.S.2d 484, 487 Dep't 2005)
("continuity of ownership exists where the shareholders of the predecessor corporation become
direct or indirect shareholders of the successor ....").
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The only other argument from Defendants concerning the adequacy of the pleading is
that ACS stillexists as a technical matter. But the First Department has rejected this is "form
substance"
over argument, as explained at Point I,above.
extinguished."
The Amended Complaint pleads that ACS has been "effectively This is
sufficient. See Tap Holdings, supra.
Therefore, a successor liability claim has also been adequately pleaded under the de facto
merger doctrine.
CONCLUSION
The undisputed evidence is that Delex ACS took over the business and assets of ACS and
leftACS as a shell.
For all the foregoing reasons and as explained in the original Motion, the Motion for
leave to amend should be granted.
Dated: New York, New York
February 1, 2018
DIAMOND McCARTHY LLP
By: J
Lon J. $éÍdman. Èsq.
2]-"
489 Fifth Avenhe, 21 Floor
New York, New York 10017
Tel.: (212) 430-5400
Fax: (212) 430-5499
lseidman@diamondmccarthy.com
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Preview
FILED: NEW YORK COUNTY CLERK 02/01/2018 05:16 PM INDEX NO. 653476/2013 NYSCEF DOC. NO. 160 RECEIVED NYSCEF: 02/01/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ------ -- ----- - ---------- - ------ ---- - -----x PETER STERN and EXPRESS TRADE CAPITAL, INC., : Index No. 653476/13 (Hagler, J.) Plaintiffs, : -against- : OLEG ARDACHEV, AIR CARGO SERVICES L.L.C., : DELEX INC., DELEX AIR CARGO, LLC, a Delaware limited liability company, and DELEX AIR CARGO, : LLC, a Washington limited liability company, Defendants. ------- - ------ --- -------------- ----------x REPLY MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR LEAVE TO FILE AMENDED COMPLAINT DIAMOND McCARTHY LLP 21st 489 Fifth Avenue, Floor New York, New York 10017 (212) 430-5400 Attorneys for Plaintiffs 1 of 6 FILED: NEW YORK COUNTY CLERK 02/01/2018 05:16 PM INDEX NO. 653476/2013 NYSCEF DOC. NO. 160 RECEIVED NYSCEF: 02/01/2018 Plaintiffs Peter Stern and Express Trade Capital, Inc., by and through their attorneys, Diamond McCarthy LLP, hereby submits this reply memorandum of law in support of their "Motion" Motion for Leave to File an Amended Complaint (the "Motion"). PRELIMINARY STATEMENT Plaintiffs' Motion contains undisputed evidence-sworn testimony from the Defendant Delex ACS's principal and employee--that defendant Delex ACS took over and continued defendant ACS's business in its entirety, and left ACS as a shell company with no employees and no business. Accordingly, the Motion seeks leave to file an amended complaint asserting, as claims,l claims,' alternative that Delex ACS is the successor of ACS. In opposition, the Defendants have not attempted to dispute the evidence that shows Delex ACS took over and continued defendant ACS's business in its entirety and left ACS as a shell company. Nor have the Defendants explained how they would be prejudiced by the proposed amended claims, since the evidence bearing on what the Defendants did has, at all times, been in the possession of the Defendants. Defendants' Rather, the opposition argues that as a matter of law successor liability has not been adequately pleaded because (i) ACS was never officially dissolved-but rather continues to exist as an asset less shell-and (ii) no continuity of ownership exists (so Defendants claim), because Defendant Ardachev took the entire business of ACS and transferred itto Delex ACS, which Ardachev manages and owns together with Ardachev's wife. 1 The successor liabilityclaims are asserted as alternativeclaims to the main claim, supported by, among other things,the company's accountant and thetax return evidence, thatthe Plaintiffsold his50% ownership interestin ACS toDefendant Ardachev. The Defendant Ardachey has taken the position, contrary to theevidence, thatno such sale ever occurred, and thatPlaintiffremains a 50'10 ownerof a shellof a company. 1 2 of 6 FILED: NEW YORK COUNTY CLERK 02/01/2018 05:16 PM INDEX NO. 653476/2013 NYSCEF DOC. NO. 160 RECEIVED NYSCEF: 02/01/2018 The law of successor liability is not defeated by such technical machinations. The law of successor liability is intended to remedy what the Defendants orchestrated here, i.e., a total transfer of ACS to Delex ACS such that Delex ACS is now operating ACS's business, with all of ACS's employees and assets, thereby leaving ACS with no business whatsoever. For these reasons, and as further explained below, the Motion should be granted. ARGUMENT I. THE AMENDED COMPLAINT ADEQUATELY ALLEGES THAT DELEX ACS IS A MERE CONTINUATION OF ACS Defendants' This Motion record contains the sworn testimony that ACS transferred all its assets to Delex ACS and that Delex ACS continued the business of ACS. As a result, the proposed Amended Complaint contains the following important allegations supporting successor liability based on the mere continuation doctrine. "After Delex took over ACS's business, ACS no longer conducted any operations." business (Seidman Aff. Ex. C, ¶77) revenue." "ACS no longer has any (Id. at ¶78) customers." "ACS no longer has any (Id.at ¶79) employees." "ACS no longer has any (Id. at ¶80) company." "ACS has been effectively extinguished as a business and as a (Id. at ¶81) In their opposition, the Defendants offer only one argument why the above allegations do not suffice to state a claim based the mere continuation doctrine, i.e., that Delex ACS cannot be ACS's successor because ACS was never formally dissolved. 2 3 of 6 FILED: NEW YORK COUNTY CLERK 02/01/2018 05:16 PM INDEX NO. 653476/2013 NYSCEF DOC. NO. 160 RECEIVED NYSCEF: 02/01/2018 Defendants' The argument clearly fails. The argument is contradicted by the substance of the situation and also by First Department precedent. The substance of the situation is that after Delex ACS took over the entire business and assets of ACS, ACS was leftwith no business. In fact, ACS is a mere shell of an entity. ACS conducts no business whatsoever and Aff.2 currently has no assets, as shown by the company's tax returns. See Seidman Reply Aff. Exs. A, B and C. "It can reasonably be inferred from [these] allegations, ...that [ACS] has been effectively extinguished for purposes of application of the [mere continuity] doctrine. Tap Holdings, LLC v. Orix Finance Corp., 109 A.D.3d 167, 970 N.Y.S.2d 178, 184 (1st Dep't 2013) (rejecting argument that "no mere continuation claim can exist because [the first company] still exists, albeit in some meager form"). Thus, a successor liability claim under the mere continuation doctrine has been adequately pleaded. The Motion for leave to amend should therefore be granted. IL THE AMENDED COMPLAINT ADEQUATELY ALLEGES SUCCESSOR LIABILITY UNDER THE DE FACTO MERGER DOCTRINE Similarly, the Defendants have failed to show why a successor liability claim has not been adequately pleaded under the de facto merger doctrine. The First Department has explained that the question whether a de facto merger exists is "analyzed in a flexible manner that disregards mere questions of form and asks whether, in substance, 'it was the intent of [the successor] to absorb and continue the operation of [the 2 Aff." "Seidman Reply refers to theReply Affirmation of Lon J Seidman submitted in furthersupport of the Motion. 3 4 of 6 FILED: NEW YORK COUNTY CLERK 02/01/2018 05:16 PM INDEX NO. 653476/2013 NYSCEF DOC. NO. 160 RECEIVED NYSCEF: 02/01/2018 predecessor]"' Tap, supra, 970 N.Y.S.2d at 184 (quoting Nettis v. Levitt, 241 F.3d 186, 194 (2d Cir. 2001), overruled on other grounds by Slayton v. American Express Co., 460 F.3d 215 (2d Cir. 2005)). See also Fitzgerald v. Fahnestock & Co., 286 A.D.2d 573, 575, 730 N.Y.S.2d 70, 71, (1st Dep't 2001) ("[A] prima face case for a de facto merger exists if it is alleged that the took all of the predecessor's business so as to render the predecessor asset- acquiring company 'shell' less and effectively a mere ["notwithstanding the selling corporation's continued formal existence"]). Here, Defendants argue that the de facto merger doctrine cannot apply because the Defendant Ardachev-the— co-owner and member of Delex ACS -- placed the managing majority of ownership of Delex ACS in his wife's name. According to Defendants, this scheme to place ownership in Ardachev's wife's name defeats a claim of successor liability, because there was no continuity of ownership between ACS and Delex ACS. Ardachev's decision to place ownership in his wife's name, so that Ardachev became the indirect rather than direct owner of Delex ACS, does not defeat liability. Rather, the scheme is evidence of Ardachev's fraudulent intent. In any event, the First Department has explained that for purposes of applying the de doctrine," facto merger doctrine, which New York law holds is a "flexible continuity of indirect" ownership can be shown by either by "direct or ownership of the company. See In re (1" New York City Asbestos Litig., 15 A.D.3d 254, 789 N.Y.S.2d 484, 487 Dep't 2005) ("continuity of ownership exists where the shareholders of the predecessor corporation become direct or indirect shareholders of the successor ...."). 4 5 of 6 FILED: NEW YORK COUNTY CLERK 02/01/2018 05:16 PM INDEX NO. 653476/2013 NYSCEF DOC. NO. 160 RECEIVED NYSCEF: 02/01/2018 The only other argument from Defendants concerning the adequacy of the pleading is that ACS stillexists as a technical matter. But the First Department has rejected this is "form substance" over argument, as explained at Point I,above. extinguished." The Amended Complaint pleads that ACS has been "effectively This is sufficient. See Tap Holdings, supra. Therefore, a successor liability claim has also been adequately pleaded under the de facto merger doctrine. CONCLUSION The undisputed evidence is that Delex ACS took over the business and assets of ACS and leftACS as a shell. For all the foregoing reasons and as explained in the original Motion, the Motion for leave to amend should be granted. Dated: New York, New York February 1, 2018 DIAMOND McCARTHY LLP By: J Lon J. $éÍdman. Èsq. 2]-" 489 Fifth Avenhe, 21 Floor New York, New York 10017 Tel.: (212) 430-5400 Fax: (212) 430-5499 lseidman@diamondmccarthy.com 5 6 of 6