Preview
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NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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PETER STERN and EXPRESS TRADE CAPITAL, INC.
Plaintiffs, Index No. 653476i2013
-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.
Defendant.
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MEMORANDUM OF LAW IN OPPOSITION TO
PLAINTIFFS'
MOTION FOR LEAVE TO FILE AMENDED COMPLAINT
LAW OFFICE OF ROBERT BONDAR
Attorney for Defendants
3rd
28 Dooley Street, flOOr
Brooklyn, New York 11235
Telephone (347) 462-3262
January 28, 2018
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Plaintiffs'
Defendants respectfully submit this memorandum of law in opposition to
motion for leave to amend the complaint.
PRELIMINARY STATEMENT
Plaintiffs'
motion for leave to file the amended complaint should be denied because the
motion lacks any affidavits or evidentiary support for the proposed amendment, the proposed
amendment is "palpably insufficient and patently devoid of merit", see MBIA Ins. Corp. . v
Greystone & Co., Inc., 74 A.D.3d 499 (1st Dept. 2010), and itis also unduly prejudicial to the
Defendant Delex Air Cargo, LLC.
Plaintiffs fail to make a prima facie showing of the basis for the proposed amendment,
ACS'
i.e.that Delex Air Cargo "took over and continued defendant business in its entirety, and
assets." Plaintiffs'
left ACS as a shell company with no business and Memorandum of Law, p.1.
Conversely, Defendants submit uncontroverted evidence that ACS and Delex Air Cargo are
separate business entities, which continue their existence even today, independent of each other.
Moreover, ACS and Delex Air Cargo have a completely different ownership structure, and their
Plaintiffs'
respective businesses, while similar, are not at allthe same. Therefore, requested
amended relief, to become a 50% owner of Delex Air Cargo and have the right to an accounting,
simply because they own 50% of ACS, is unavailable under the doctrine of successor liability.
Plaintiffs'
In addition to being "devoid of merit", proposed amendment is highly
prejudicial to the Defendants. Plaintiffs now attempt to introduce new theories of liability based
upon a new set of facts (continuity of ownership, substantially the same business name, same
business, location, and customers). These new theories had not been tested in discovery, and this
case is well past the depositions and fact discovery stage.
Notably, Plaintiffs now demand inspection of Delex Air Cargo's confidential financial
books and records, and other commercially sensitive secret information, which this Court had
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Plaintiffs'
already ruled was not discoverable on the previous motion to compel discovery.
Plaintiffs'
attempt to bypass this ruling by adding previously unalleged new set of facts and
dubious new theories of liability this late in the proceedings should not be allowed.
LEGAL ARGUMENT
Plaintiffs'
L motion should be denied as utterly lacking any supporting affidavits or
evidentiary proof.
Plaintiffs' Plaintiffs'
motion ought to be denied in itsentirety because counsel utterly
clients"
clients'
failed to submit any evidentiary support, not even his affidavits, in accordance with
CPLR 3025(b), for the Court's consideration whether the leave to amend the Complaint should
be granted. Audaciously, Plaintiffs submit nothing, except several pages of the deposition
transcripts of a third party, Ilona Lisichkina, and Defendant Ardashev, for the proposition that
the Court should ignore New York Law, and itsown prior orders, and permit Plaintiffs to
expedition"
conduct a blatant "fishing into the commercially sensitive books and records of a
direct competitor, Defendant Delex Air Cargo, LLC.
Even under the liberal standards in New York for granting motions such as Plaintiffs', the
requisite leave of court to amend pleadings is farfrom automatic. CPLR 3025(b) also requires
that while leave may be "freely given", the terms must be just. Defendants submit that under
these particular circumstances, itwould be completely inequitable and unfair to grant Plaintiffs
the relief they seek.
In Walden v. Nowinski, 63 A.D.2d 586 (1 Dept. 1978), the Appellate Division, First
"freely"
Department, concluded that, "Although leave to amend a pleading should be granted
(CPLR 3025[b]), the motion must be supported by an affidavit of merits and evidentiary proof
that could properly be considered upon a motion for summary judgment. Cushman & Wakefield
v David, 25 A.D.2d 133 (1 Dept. 1966). The affidavit of counsel submitted in support of the
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cross motion is without probative value and is insufficient for that purpose. De Carlo v Economy
1977)."
Baler Div. of Amer. Hoist 4 Derrick Co., 57 A.D.2d 1002 (3 Dept.
The court in Cushman & Wakefield v David, which was an appeal from an order denying
plaintiff s motion for leave to serve an amended complaint noted that: "On an application,
pursuant to CPLR 3211 (e),for leave to serve an amended pleading, itis incumbent on a party
applying for such relief not only to submit a proposed pleading supplying deficiencies in
pleading but also evidence, by affidavit that could properly be considered upon a motion for
summary judgment, which satisfies the court that the moving party has good ground to support
action."
the cause of
"In East Asiatic Co. v. Corash, 34 A.D.2d 432 (1 Dept. 1970), the First Department
noted: "Special Term granted the motion to amend without passing upon the validity of the
causes of action as amended. While this practice has several precedents respectable because of
their age, itrepresents a procedure which is no longer tolerable. The day when motion practice
would be allowed to proliferate through avoiding coming to grips with the substantial question is
past. We can no longer afford the time or judicial manpower for the repeated applications for the
decision."
same relief which necessarily result from postponing The courts in the Second
Department concur with their First Department counterpart, "The motion must be accompanied
by an affidavit showing the merit of the proposed amendment ..".Alexander v. Seligman, 131
Dept.1986)."
A.D.2d 528 (2d Dept. 1987); Schroeder v. Brooklyn Hospital, 119 A.D.2d 564 (2d
Here, Plaintiffs fail to submit such affidavit of merits, instead improperly relying on
counsel's affirmation and the accompanying memorandum of law to show merits of the proposed
amendment. There, counsel alleges that Defendants "have arranged itso that ACS is no longer in
business"
and thus has no value, and that Defendants had continued ACS's business through
another defendant company with substantially the same name, i.e. Delex Air Cargo Service LLC
{"Delex ACS"). Affirmation Seidman $5, 6. To support his allegations, counsel submits only two
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small portions of third-party Lisichkina and Defendant Ardashev's deposition testimonies. See
Plaintiffs'
Exhibit A, B. Counsel then spins their testimony and claims that Ardashev and
Lisichkina admitted, that Defendant Delex Air Cargo "operates the business that was previously
ACS" ACS'
operated by and "in fact,took over business". Affirmation Seidman 19,11. That is
simply not the case, and not what these witnesses had testified at their depositions.
Aside from the fact that attorney's affirmation has no probative value due to counsel's
lack of personal knowledge of the alleged facts, this counsel's affirmation is also disingenuous
over" ACS'
and misleading in several material aspects. Delex Air Cargo never "took business.
As evidenced by itstax returns for the relevant years 2009-12, EXH. C, Stern continued to be a
50% owner of ACS, well after the alleged sale of his interest to Ardashev in 2009.
Lisichkina stated that ACS was simply a service company, which by agreement between
Stern and Ardashev or Delex and Express, as the case may be, provided financial services to
Express Service and Delex Inc., and to their respective customers. EXHIBIT I 13-
(p.18), (p.59,
17). ACS has never had any actual value, other than the use that its owners had for it.EXHIBIT
"excerpt"
M (p.63). Although Lisichkina appeared to misspeak in the produced by Plaintiff,
when she stated that Delex Air Cargo services same customers as ACS, she then corrected
herself in the later stages of the same deposition. EXHIBIT I (p.80, 17-21). Lisichkina
disclaimed the earlier statement by signing the errata sheet to clarify the record and conform her
testimony to the facts. EXHIBIT J.
Conversely, Delex Air Cargo provides similar services as ACS, but provides them
exclusively to Delex Inc.'s customers. Plaintiff fails to show to any degree of certainty, let alone
Plaintiffs'
show merit in its contention, that Delex Air Cargo had ever serviced customers, like
ACS had. Neither Delex Air Cargo nor ACS had their own customers. The customers conducted
tjeirbusiness through either Express Service or Delex. As set forth in the previously produced
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Express' Delex'
Ardashev's Affidavitl, EXHIBIT L, ACS handled and business until Stern had
withdrawn from the business. Subsequently, Delex Inc.'s business, but not Express Service's,
was conducted through Delex's financial services company, Delex Air Cargo.
Plaintiffs'
Second, counsel affirmation is misleading, in that counsel claims the
Defendants continued ACS's business through a company with "substantially the same name,
i.e.,defendant Delex Air Cargo Services LLC ("Delex ACS"). ". Affirmation Seidman $6. But
the name of the Defendant is not "Delex Air Cargo Services LLC", nor does itlend itselfto the
acronym "Delex ACS". As evidenced by the caption and various exhibits submitted with this
opposition, the Defendant's name is DELEX AIR CARGO, LLC, which materially differs from
"Delex Air Cargo Services LLC". See EXHIBITS F, H.
Although both names contain the words "air cargo", which indicate the industry in which
both companies operate, that is where the similarities end. To compare and conclude that
DELEX AIR CARGO, LLC is "substantially the same name", Id., as Air Cargo Services LLC, is
Trucking" Services"
as ridiculous as comparing the names "Jimmy's and "Trucking and
concluding that they are substantially the same.
Plaintiffs'
As set forth in greater detail below, proposed new claims are futile and have no
merit. Therefore, the Court should not permit Plaintiffs to add these unsupported new theories of
liability based upon newly alleged facts at this late stage of the proceedings, based on nothing
more than innuendo and supposition.
IL The Court should deny Plaintiffs leave to file the amended complaint because the
proposed new claims are patently devoid of merit.
Pursuant to the Court's order, dated March 6,2016
2
"These exceptions arise where a successor corporation "expressly or impliedly assume[s] [its]
purchaser"
predecessor's tort liability";or "there [is]a consolidation or merger of seller and ; or
"the purchasing corporation [is] a mere continuation of the selling corporation"; or "the transaction
obligations"
is entered into fraudulently to escape such (Schumacher, 59 NY2d at 245). The court
determined that Sawmills did not fitwithin any of the four Schumacher exceptions". Semenetz v
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Unlike New York federal courts, which deny motions such as Plaintiffs', ifthey find that
proposed are "futile", Arbitron Co. v Tropicana Prod. Sales, Inc., 1993 US Dist
LEXIS 5587 (S.D.N.Y. Apr. 28, 1993) Richardson Greenshields Sec., Inc. v. Lau, 825 F.2d 647,
653 n.6 (2d Cir. 1987), under state law New York, the proposed amendment may be denied if it
is "palpably insufficient or patently devoid of merit". See MBIA Ins. Corp. . v Greystone & Co.,
Inc., 74 A.D.3d 499 (1st Dept. 2010).
Although Plaintiffs here need not establish the merit of their proposed new
allegations, they must establish a prima facie basis for the amendment, i.e.the that the proffered
amendment is not palpably insufficient or clearly devoid of merit, Pier 59 Studios, L.P. v
Chelsea Piers, L.P., 40 A.D.3d 363 (1st Dept. 2007]). Plaintiffs utterly fail to overcome this
threshold and establish a prima facie basis for the amendment. Accordingly, the Court should
deny Plaintiffs leave to file amended complaint.
Here, Plaintiffs wish to amend their complaint to add new and alternative theories of
liability. Recognizing that their original claim, that in 2009 Plaintiffs sold their 50% share of
ACS to Defendants for $400,000, is dubious at best and belied by the evidentiary record of this
alleged transaction, see Exh. C, Plaintiffs concede the possibility that "no sale of 50% of ACS
Plaintiffs'
occurred". Memorandum of Law, p.1. However, creative as ever, Plaintiffs now, five
years after they had commenced this lawsuit, change course and misguidedly elect to pursue
alternative claims against Defendant Delex Air Cargo under the doctrines of successor liability.
Plaintiffs' continuation" merger"
proposed new causes of action under "mere or "de facto
have no merit for two reasons. First, they appear to be based on nothing more than a small select
Plaintiffs'
portion of Lisichkina's testimony, see Exhibit A (p.26, 3-11). However, counsel
judiciously chose not to include other relevant portions of Lisichkina deposition, where she
proffers her ignorance related to the corporate governance and business issues, unrelated to her
bookkeeper responsibilities, and expressly states in her sworn testimony that ACS had no
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customers of itsown, instead ACS serviced the respective customers of itsowners, Delex and
Express Service. Exhibit I (p.80, 3-11), In addition, after having had a chance to review the
transcript of the deposition, Lisichkina, timely under CPLR 3116, disclaimed her statements in a
sworn errata sheet and corrected the record. Exh. J.
continuation'"
continuation" merger"
Second, "mere and "de facto are not independent causes of action,
but rather exceptions to the general rule that a corporation which acquires the assets of
another is not liable for the torts of its predecessor, enunciated in the nominal case
Schumacher v Richards Shear Co., 59 N.Y.2d 239 (1983). In Schumacher, the Court of Appeals
reiterated that there are four recognized exceptions, (sometimes referred to as the "Schumacher
2.
exceptions")2:
"A corporation may be held liable for the torts of itspredecessor if (1) itexpressly or impliedly
assumed the predecessor's tort liability, (2) there was a consolidation or merger of seller
and purchaser, (3) the purchasing corporation was a mere continuation of the selling
obligations."
corporation, or (4) the transaction is entered into fraudulently to escape such (Id. at
245.)
However, at no time did Plaintiffs ever allege that Delex Air Cargo was a "purchasing
corporation", nor that ACS was Delex Air Cargo's predecessor within the meaning of the law.
As such, successor liability doctrine is completely inapplicable to the issues at hand, whether or
not Plaintiffs sold their share of ACS to Defendant Ardashev or Defendant Delex, for which
Plaintiffs were not paid.
Defendants'
The record fully supports contentions. Delex Air Cargo never purchased or
ACS' over"
acquired assets and, ithad not been alleged as such until now, "took ACS. Delex Air
2
"These exceptions arise where a successor corporation "expressly or impliedly assume[s] [its]
predecessor's tort liability";or "there [is] a consolidation or merger of seller and purchaser"; or
"the purchasing corporation [is]a mere continuation of the selling corporation"; or "the transaction
obligations"
is entered into fraudulently to escape such (Schumacher, 59 NY2d at 245). The court
determined that Sawmills did not fitwithin any of the four Schumacher exceptions". Semenetz v
Sherling 8 Walden, Inc., 7 N.Y.3d 194 (2006)
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Cargo is a completely distinct and separate business entity from ACS. Moreover, Delex Air
Cargo had continually existed concurrently with ACS until the present day. Accordingly, the
Plaintiffs'
Court should deny request to amend the complaint to add alternative theories of
liability premised on the successor liability theory of recovery, because, in fact, Delex Air Cargo
"succeeded"
never ACS, and ACS was never a predecessor of Delex Air Cargo.
Therefore, Plaintiffs fail to overcome even the initialthreshold for any successor liability
claims to lie at all.Even if they did however, Plaintiffs would stillfail to make out a prima facie
continuation" -
showing of the "Schumacher exceptions": the "de facto merger", and "mere to be
entitled to the relief they are seeking in this motion.
Plaintiffs'
a. proposed new claim of de facto merger is palpably insufficient for
failure to show the requisite factors to support such a finding.
As to the merger exception, a transaction may be deemed to fallwithin merger exception
as a de facto merger ifthe following factors are present: "continuity of ownership; cessation of
ordinary business and dissolution of the acquired corporation as soon as possible; assumption by
the successor of the liabilitiesordinarily necessary for the uninterrupted continuation of the
business of the acquired corporation; and, continuity of management, personnel, physical
location, assets and general business operation". Fitzgerald v Fahnestock & Co., 286 AD2d 573,
574, 730 N.Y.S.2d 70 [1st Dept 2001]). Not allof these elements are necessary to find a de facto
merger. Courts will look to whether the acquiring corporation was seeking to obtain for itself
intangible assets such as good will, trademarks, patents, customer lists and the right to use the
name"
acquired corporation's (id. at 574-575).
However, continuity of ownership has been deemed essential to a de facto merger
finding, as ownership continuity is the essence of a merger. Van Nocker v A.W. Chesterton, Co.
(In re NY City Asbestos ..d
Litig.), 15 A.D.3d 254 (1 Dept. . 2005); Cargo Partner AG v Albatrans,
Inc. 352 F3d 41, 47 [2d Cir 2003][citing New York law]). The court in In re New York City
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merger,"
Asbestos held that continuity of ownership is "the essence of a and that itis a necessary
element of any de facto merger finding, although not sufficient to warrant such a finding by
itself.Of the four factors to be considered in determining whether a purchase-of-assets
transaction can be deemed a de facto merger, the firstis "continuity of ownership".
New York City Asbestos, 15 A.D.3d at 256, defined continuity of ownership as existing
"where the shareholders of the predecessor corporation become direct or indirect shareholders of
corporation,"
the successor and said that itwas "a necessary element of any de facto merger
finding"
Id. The first criterion, continuity of ownership, exists where the shareholders of the
predecessor corporation become direct or indirect shareholders of the successor corporation as
the result of the successor's purchase of the predecessor's assets, as occurs in a stock-for-assets
transaction. Stated otherwise, continuity of ownership describes a situation where the parties to
each"
the transaction "become owners together of what formerly belonged to (Cargo Partner AG
v Albatrans, Inc., 352 F3d 41, 47 [2d Cir 2003] [applying New York law]).
Here, there was no such sufficient continuity of ownership between ACS and Delex Air
Cargo. It isundisputed that ACS was owned 50/50 by either Delex and Express Service Inc., or
by Ardashev and Stern individually, depending on which document is examined, and whose
testimony is to be believed. However, Ardashev is only a 1% member of Delex Air Cargo. His
wife owns the remaining 99%. EXHIBIT F. Plaintiffs had never owned any part of Delex Air
Cargo and Delex Air Cargo is not alleged to have ever purchased ACS's assets - this
therefore,
merger"
factor is simply not present here to proceed on the "de facto cause of action.
The second de facto merger criterion also is not satisfied here. Specifically lacking in the
instant case is the immediate dissolution or cessation of the business of the target corporation as
well as an assumption of all debts and obligations. ACS has never been dissolved, see EXHIBIT
D, and has remained in existence in a meaningful way long after Plaintiffs allege that Delex Air
Cargo "took over".
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One thing is clear, however, is that these two factors are necessary: (1) The
actual merger must take place soon after the initial transaction, and (2) the seller corporation
must quickly cease to exist. In Lirosi v Elkins (89 AD2d 903 [2d Dept 1982]), the court held that
a transfer of assets from one corporation to another, and the subsequent dissolution of the
former corporation, constituted a de facto merger. In Gilbert v Burnside (197 NYS2d
623, revd 13 AD2d 982 (2d Dept 1961), affd 11 NY2d 960), the court held a "reorganization
agreement"
to be a de facto merger where the agreement provided for the sale of all of the assets
of a corporation and its subsequent dissolution. In both cases, the court found that the
dissolution of the acquired corporation was an imminently expected occurrence.
ACS'
Plaintiffs do not allege or show that Delex Air Cargo somehow assumed liabilities
necessary for uninterrupted business operations (third factor), which itdid not, expressly or
impliedly, nor is a potential presence of the fourth factor (continuity of management, personnel,
physical location, assets and general business operation) sufficient to establish a
de facto merger by itself. A holding that the forth factor alone could establish a de facto merger
would essentially adopt the continuity-of-enterprise theory of successor liability, something the
Court of Appeals specifically declined to do in Schumacher (see 59 N.Y.2d at 245-246).
continuation"
b. The "mere exception is inapplicable because ACS has
continued its existence.
Under the mere continuation exception, compared to the de facto merger, itis even more
essential that the predecessor corporation ceases to exist. Accordingly, since ACS still continues
itsexistence, Plaintiff's contention that Delex Air Cargo is but a mere continuation of ACS is
patently devoid of merit.
continuation"
The "mere exception to Schumacher is inapplicable here, as it refers only
to a corporate reorganization, in which the predecessor corporation is extinguished and only one
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corporation survives the transaction. See Schumacher (HN2): "The exception refers to corporate
reorganization, however, where only one corporation survives the transaction; the predecessor
corporation must be extinguished". Thus, the purchaser in Schumacher could not be considered
continuation"
a "mere of Richards Shear Co., Inc., because the latter survived the purchase
entity."
agreement in what the Court of Appeals described as a "distinct, albeit meager,
Schumacher at 245.
Similarly, the exception would be inapplicable to a situation where a corporation, which
sold a business, survived the transaction for several years while in bankruptcy. (Sweatland v
Park Corporation, 181 A.D.2d 243, 587 N.Y.S.2d 54 [4th Dept 1992]). In summary, if a
"predecessor corporation continues to exist after the transaction, in however gossamer a
form, the mere continuation exception is not applicable". See Diaz v South Bend Lathe, Inc.,
707 F. Supp. 97 (EDNY 1989).
Here, itis undisputed that ACS continued its existence. Although Stern alleges that he
sold his share of ACS in 2009, ACS continued itsbusiness operations well into 2013, and Stern
continued to be listed on Schedule K-1 in 2010 and 2011. See EXHIBIT C, E. As recently as in
2015 and 2016, ACS had filed its corporate income tax returns. EXHIBIT D. Peter Stern
"partner"
continues to be listed as in ACS on Schedule K. Additionally, New York Dept. of State
"active"
currently listsACS as an entity to this day. EXHIBIT H.
"takeover"
Accordingly, because ACS did not cease to exist following the alleged many
Plaintiffs'
years ago, then according to Schumacher and plethora of the related court decisions,
continuation"
proposed "mere cause of action must fail as a matter of law.
As such, the proposed amendment is patently devoid of merit, see MBIA Ins. Corp. . v
Greystone & Co., Inc., 74 A.D.3d 499 (1st Dept. 2010), and should be denied by the Court.
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HI. Defendants are significantly prejudiced by the proposed amendment.
It iswell settled that a motion to amend a complaint should be freely granted "in the
absence of prejudice or surprise, except in situations where the proposed amendment is wholly
merit."
devoid of Stroock & Stroock & Lavan v. Beltramini, 157 A.D.2d 590 (1 Dept. 1992).
Here, Defendants would be prejudiced ifthe proposed amendments were permitted, since
they allege a brand new theory of liability against the Defendants, based upon previously
unalleged facts.See, DiMauro v Metropolitan Suburban Bus Auth., 105 A.D.2d 236 (2 Dept.
Plaintiffs'
1984). claims had always centered around a purported Sale Agreement dated January
16, 2009, see Exhibit B, whereby Plaintiffs claim that Stern sold his 5010 of ACS to Ardashev,
see Exhibit A, 22-26. Plaintiffs now attempt to introduce a new set of facts (continuity of
ownership, substantially the same business name, same business, location, and customers)
practically on the eve of trial, which had never been subject to prior discovery proceedings. The
procedural posture of this case has moved itwell past the stage of depositions and fact discovery.
The proposed amendment also unfairly prejudices Delex Air Cargo, in that Plaintiffs
would get essentially a second opportunity to conduct discovery into Delex Air Cargo's
confidential financial records and commercially sensitive secret information, which information
Plaintiffs'
this Court had already ruled was not discoverable, in response to the motion to
compel. See ECF ## 85, 90, 104, 107. Precipitating this motion, Defendants objected to
Plaintiffs'
document requests on the grounds that these requests demanded sensitive commercial
information and highly confidential financial records, such as the tax returns, corporate
formation and organizational documents, operational and financial
Preview
FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X ------------------------------------------------------------------------X PETER STERN and EXPRESS TRADE CAPITAL, INC. Plaintiffs, Index No. 653476i2013 -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. Defendant. X ------------------------------------------------------------------------X MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFFS' MOTION FOR LEAVE TO FILE AMENDED COMPLAINT LAW OFFICE OF ROBERT BONDAR Attorney for Defendants 3rd 28 Dooley Street, flOOr Brooklyn, New York 11235 Telephone (347) 462-3262 January 28, 2018 1 1 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 Plaintiffs' Defendants respectfully submit this memorandum of law in opposition to motion for leave to amend the complaint. PRELIMINARY STATEMENT Plaintiffs' motion for leave to file the amended complaint should be denied because the motion lacks any affidavits or evidentiary support for the proposed amendment, the proposed amendment is "palpably insufficient and patently devoid of merit", see MBIA Ins. Corp. . v Greystone & Co., Inc., 74 A.D.3d 499 (1st Dept. 2010), and itis also unduly prejudicial to the Defendant Delex Air Cargo, LLC. Plaintiffs fail to make a prima facie showing of the basis for the proposed amendment, ACS' i.e.that Delex Air Cargo "took over and continued defendant business in its entirety, and assets." Plaintiffs' left ACS as a shell company with no business and Memorandum of Law, p.1. Conversely, Defendants submit uncontroverted evidence that ACS and Delex Air Cargo are separate business entities, which continue their existence even today, independent of each other. Moreover, ACS and Delex Air Cargo have a completely different ownership structure, and their Plaintiffs' respective businesses, while similar, are not at allthe same. Therefore, requested amended relief, to become a 50% owner of Delex Air Cargo and have the right to an accounting, simply because they own 50% of ACS, is unavailable under the doctrine of successor liability. Plaintiffs' In addition to being "devoid of merit", proposed amendment is highly prejudicial to the Defendants. Plaintiffs now attempt to introduce new theories of liability based upon a new set of facts (continuity of ownership, substantially the same business name, same business, location, and customers). These new theories had not been tested in discovery, and this case is well past the depositions and fact discovery stage. Notably, Plaintiffs now demand inspection of Delex Air Cargo's confidential financial books and records, and other commercially sensitive secret information, which this Court had 2 2 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 Plaintiffs' already ruled was not discoverable on the previous motion to compel discovery. Plaintiffs' attempt to bypass this ruling by adding previously unalleged new set of facts and dubious new theories of liability this late in the proceedings should not be allowed. LEGAL ARGUMENT Plaintiffs' L motion should be denied as utterly lacking any supporting affidavits or evidentiary proof. Plaintiffs' Plaintiffs' motion ought to be denied in itsentirety because counsel utterly clients" clients' failed to submit any evidentiary support, not even his affidavits, in accordance with CPLR 3025(b), for the Court's consideration whether the leave to amend the Complaint should be granted. Audaciously, Plaintiffs submit nothing, except several pages of the deposition transcripts of a third party, Ilona Lisichkina, and Defendant Ardashev, for the proposition that the Court should ignore New York Law, and itsown prior orders, and permit Plaintiffs to expedition" conduct a blatant "fishing into the commercially sensitive books and records of a direct competitor, Defendant Delex Air Cargo, LLC. Even under the liberal standards in New York for granting motions such as Plaintiffs', the requisite leave of court to amend pleadings is farfrom automatic. CPLR 3025(b) also requires that while leave may be "freely given", the terms must be just. Defendants submit that under these particular circumstances, itwould be completely inequitable and unfair to grant Plaintiffs the relief they seek. In Walden v. Nowinski, 63 A.D.2d 586 (1 Dept. 1978), the Appellate Division, First "freely" Department, concluded that, "Although leave to amend a pleading should be granted (CPLR 3025[b]), the motion must be supported by an affidavit of merits and evidentiary proof that could properly be considered upon a motion for summary judgment. Cushman & Wakefield v David, 25 A.D.2d 133 (1 Dept. 1966). The affidavit of counsel submitted in support of the 3 3 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 cross motion is without probative value and is insufficient for that purpose. De Carlo v Economy 1977)." Baler Div. of Amer. Hoist 4 Derrick Co., 57 A.D.2d 1002 (3 Dept. The court in Cushman & Wakefield v David, which was an appeal from an order denying plaintiff s motion for leave to serve an amended complaint noted that: "On an application, pursuant to CPLR 3211 (e),for leave to serve an amended pleading, itis incumbent on a party applying for such relief not only to submit a proposed pleading supplying deficiencies in pleading but also evidence, by affidavit that could properly be considered upon a motion for summary judgment, which satisfies the court that the moving party has good ground to support action." the cause of "In East Asiatic Co. v. Corash, 34 A.D.2d 432 (1 Dept. 1970), the First Department noted: "Special Term granted the motion to amend without passing upon the validity of the causes of action as amended. While this practice has several precedents respectable because of their age, itrepresents a procedure which is no longer tolerable. The day when motion practice would be allowed to proliferate through avoiding coming to grips with the substantial question is past. We can no longer afford the time or judicial manpower for the repeated applications for the decision." same relief which necessarily result from postponing The courts in the Second Department concur with their First Department counterpart, "The motion must be accompanied by an affidavit showing the merit of the proposed amendment ..".Alexander v. Seligman, 131 Dept.1986)." A.D.2d 528 (2d Dept. 1987); Schroeder v. Brooklyn Hospital, 119 A.D.2d 564 (2d Here, Plaintiffs fail to submit such affidavit of merits, instead improperly relying on counsel's affirmation and the accompanying memorandum of law to show merits of the proposed amendment. There, counsel alleges that Defendants "have arranged itso that ACS is no longer in business" and thus has no value, and that Defendants had continued ACS's business through another defendant company with substantially the same name, i.e. Delex Air Cargo Service LLC {"Delex ACS"). Affirmation Seidman $5, 6. To support his allegations, counsel submits only two 4 4 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 small portions of third-party Lisichkina and Defendant Ardashev's deposition testimonies. See Plaintiffs' Exhibit A, B. Counsel then spins their testimony and claims that Ardashev and Lisichkina admitted, that Defendant Delex Air Cargo "operates the business that was previously ACS" ACS' operated by and "in fact,took over business". Affirmation Seidman 19,11. That is simply not the case, and not what these witnesses had testified at their depositions. Aside from the fact that attorney's affirmation has no probative value due to counsel's lack of personal knowledge of the alleged facts, this counsel's affirmation is also disingenuous over" ACS' and misleading in several material aspects. Delex Air Cargo never "took business. As evidenced by itstax returns for the relevant years 2009-12, EXH. C, Stern continued to be a 50% owner of ACS, well after the alleged sale of his interest to Ardashev in 2009. Lisichkina stated that ACS was simply a service company, which by agreement between Stern and Ardashev or Delex and Express, as the case may be, provided financial services to Express Service and Delex Inc., and to their respective customers. EXHIBIT I 13- (p.18), (p.59, 17). ACS has never had any actual value, other than the use that its owners had for it.EXHIBIT "excerpt" M (p.63). Although Lisichkina appeared to misspeak in the produced by Plaintiff, when she stated that Delex Air Cargo services same customers as ACS, she then corrected herself in the later stages of the same deposition. EXHIBIT I (p.80, 17-21). Lisichkina disclaimed the earlier statement by signing the errata sheet to clarify the record and conform her testimony to the facts. EXHIBIT J. Conversely, Delex Air Cargo provides similar services as ACS, but provides them exclusively to Delex Inc.'s customers. Plaintiff fails to show to any degree of certainty, let alone Plaintiffs' show merit in its contention, that Delex Air Cargo had ever serviced customers, like ACS had. Neither Delex Air Cargo nor ACS had their own customers. The customers conducted tjeirbusiness through either Express Service or Delex. As set forth in the previously produced 5 5 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 Express' Delex' Ardashev's Affidavitl, EXHIBIT L, ACS handled and business until Stern had withdrawn from the business. Subsequently, Delex Inc.'s business, but not Express Service's, was conducted through Delex's financial services company, Delex Air Cargo. Plaintiffs' Second, counsel affirmation is misleading, in that counsel claims the Defendants continued ACS's business through a company with "substantially the same name, i.e.,defendant Delex Air Cargo Services LLC ("Delex ACS"). ". Affirmation Seidman $6. But the name of the Defendant is not "Delex Air Cargo Services LLC", nor does itlend itselfto the acronym "Delex ACS". As evidenced by the caption and various exhibits submitted with this opposition, the Defendant's name is DELEX AIR CARGO, LLC, which materially differs from "Delex Air Cargo Services LLC". See EXHIBITS F, H. Although both names contain the words "air cargo", which indicate the industry in which both companies operate, that is where the similarities end. To compare and conclude that DELEX AIR CARGO, LLC is "substantially the same name", Id., as Air Cargo Services LLC, is Trucking" Services" as ridiculous as comparing the names "Jimmy's and "Trucking and concluding that they are substantially the same. Plaintiffs' As set forth in greater detail below, proposed new claims are futile and have no merit. Therefore, the Court should not permit Plaintiffs to add these unsupported new theories of liability based upon newly alleged facts at this late stage of the proceedings, based on nothing more than innuendo and supposition. IL The Court should deny Plaintiffs leave to file the amended complaint because the proposed new claims are patently devoid of merit. Pursuant to the Court's order, dated March 6,2016 2 "These exceptions arise where a successor corporation "expressly or impliedly assume[s] [its] purchaser" predecessor's tort liability";or "there [is]a consolidation or merger of seller and ; or "the purchasing corporation [is] a mere continuation of the selling corporation"; or "the transaction obligations" is entered into fraudulently to escape such (Schumacher, 59 NY2d at 245). The court determined that Sawmills did not fitwithin any of the four Schumacher exceptions". Semenetz v 6 6 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 Unlike New York federal courts, which deny motions such as Plaintiffs', ifthey find that proposed are "futile", Arbitron Co. v Tropicana Prod. Sales, Inc., 1993 US Dist LEXIS 5587 (S.D.N.Y. Apr. 28, 1993) Richardson Greenshields Sec., Inc. v. Lau, 825 F.2d 647, 653 n.6 (2d Cir. 1987), under state law New York, the proposed amendment may be denied if it is "palpably insufficient or patently devoid of merit". See MBIA Ins. Corp. . v Greystone & Co., Inc., 74 A.D.3d 499 (1st Dept. 2010). Although Plaintiffs here need not establish the merit of their proposed new allegations, they must establish a prima facie basis for the amendment, i.e.the that the proffered amendment is not palpably insufficient or clearly devoid of merit, Pier 59 Studios, L.P. v Chelsea Piers, L.P., 40 A.D.3d 363 (1st Dept. 2007]). Plaintiffs utterly fail to overcome this threshold and establish a prima facie basis for the amendment. Accordingly, the Court should deny Plaintiffs leave to file amended complaint. Here, Plaintiffs wish to amend their complaint to add new and alternative theories of liability. Recognizing that their original claim, that in 2009 Plaintiffs sold their 50% share of ACS to Defendants for $400,000, is dubious at best and belied by the evidentiary record of this alleged transaction, see Exh. C, Plaintiffs concede the possibility that "no sale of 50% of ACS Plaintiffs' occurred". Memorandum of Law, p.1. However, creative as ever, Plaintiffs now, five years after they had commenced this lawsuit, change course and misguidedly elect to pursue alternative claims against Defendant Delex Air Cargo under the doctrines of successor liability. Plaintiffs' continuation" merger" proposed new causes of action under "mere or "de facto have no merit for two reasons. First, they appear to be based on nothing more than a small select Plaintiffs' portion of Lisichkina's testimony, see Exhibit A (p.26, 3-11). However, counsel judiciously chose not to include other relevant portions of Lisichkina deposition, where she proffers her ignorance related to the corporate governance and business issues, unrelated to her bookkeeper responsibilities, and expressly states in her sworn testimony that ACS had no 7 7 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 customers of itsown, instead ACS serviced the respective customers of itsowners, Delex and Express Service. Exhibit I (p.80, 3-11), In addition, after having had a chance to review the transcript of the deposition, Lisichkina, timely under CPLR 3116, disclaimed her statements in a sworn errata sheet and corrected the record. Exh. J. continuation'" continuation" merger" Second, "mere and "de facto are not independent causes of action, but rather exceptions to the general rule that a corporation which acquires the assets of another is not liable for the torts of its predecessor, enunciated in the nominal case Schumacher v Richards Shear Co., 59 N.Y.2d 239 (1983). In Schumacher, the Court of Appeals reiterated that there are four recognized exceptions, (sometimes referred to as the "Schumacher 2. exceptions")2: "A corporation may be held liable for the torts of itspredecessor if (1) itexpressly or impliedly assumed the predecessor's tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling obligations." corporation, or (4) the transaction is entered into fraudulently to escape such (Id. at 245.) However, at no time did Plaintiffs ever allege that Delex Air Cargo was a "purchasing corporation", nor that ACS was Delex Air Cargo's predecessor within the meaning of the law. As such, successor liability doctrine is completely inapplicable to the issues at hand, whether or not Plaintiffs sold their share of ACS to Defendant Ardashev or Defendant Delex, for which Plaintiffs were not paid. Defendants' The record fully supports contentions. Delex Air Cargo never purchased or ACS' over" acquired assets and, ithad not been alleged as such until now, "took ACS. Delex Air 2 "These exceptions arise where a successor corporation "expressly or impliedly assume[s] [its] predecessor's tort liability";or "there [is] a consolidation or merger of seller and purchaser"; or "the purchasing corporation [is]a mere continuation of the selling corporation"; or "the transaction obligations" is entered into fraudulently to escape such (Schumacher, 59 NY2d at 245). The court determined that Sawmills did not fitwithin any of the four Schumacher exceptions". Semenetz v Sherling 8 Walden, Inc., 7 N.Y.3d 194 (2006) 8 8 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 Cargo is a completely distinct and separate business entity from ACS. Moreover, Delex Air Cargo had continually existed concurrently with ACS until the present day. Accordingly, the Plaintiffs' Court should deny request to amend the complaint to add alternative theories of liability premised on the successor liability theory of recovery, because, in fact, Delex Air Cargo "succeeded" never ACS, and ACS was never a predecessor of Delex Air Cargo. Therefore, Plaintiffs fail to overcome even the initialthreshold for any successor liability claims to lie at all.Even if they did however, Plaintiffs would stillfail to make out a prima facie continuation" - showing of the "Schumacher exceptions": the "de facto merger", and "mere to be entitled to the relief they are seeking in this motion. Plaintiffs' a. proposed new claim of de facto merger is palpably insufficient for failure to show the requisite factors to support such a finding. As to the merger exception, a transaction may be deemed to fallwithin merger exception as a de facto merger ifthe following factors are present: "continuity of ownership; cessation of ordinary business and dissolution of the acquired corporation as soon as possible; assumption by the successor of the liabilitiesordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and, continuity of management, personnel, physical location, assets and general business operation". Fitzgerald v Fahnestock & Co., 286 AD2d 573, 574, 730 N.Y.S.2d 70 [1st Dept 2001]). Not allof these elements are necessary to find a de facto merger. Courts will look to whether the acquiring corporation was seeking to obtain for itself intangible assets such as good will, trademarks, patents, customer lists and the right to use the name" acquired corporation's (id. at 574-575). However, continuity of ownership has been deemed essential to a de facto merger finding, as ownership continuity is the essence of a merger. Van Nocker v A.W. Chesterton, Co. (In re NY City Asbestos ..d Litig.), 15 A.D.3d 254 (1 Dept. . 2005); Cargo Partner AG v Albatrans, Inc. 352 F3d 41, 47 [2d Cir 2003][citing New York law]). The court in In re New York City 9 9 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 merger," Asbestos held that continuity of ownership is "the essence of a and that itis a necessary element of any de facto merger finding, although not sufficient to warrant such a finding by itself.Of the four factors to be considered in determining whether a purchase-of-assets transaction can be deemed a de facto merger, the firstis "continuity of ownership". New York City Asbestos, 15 A.D.3d at 256, defined continuity of ownership as existing "where the shareholders of the predecessor corporation become direct or indirect shareholders of corporation," the successor and said that itwas "a necessary element of any de facto merger finding" Id. The first criterion, continuity of ownership, exists where the shareholders of the predecessor corporation become direct or indirect shareholders of the successor corporation as the result of the successor's purchase of the predecessor's assets, as occurs in a stock-for-assets transaction. Stated otherwise, continuity of ownership describes a situation where the parties to each" the transaction "become owners together of what formerly belonged to (Cargo Partner AG v Albatrans, Inc., 352 F3d 41, 47 [2d Cir 2003] [applying New York law]). Here, there was no such sufficient continuity of ownership between ACS and Delex Air Cargo. It isundisputed that ACS was owned 50/50 by either Delex and Express Service Inc., or by Ardashev and Stern individually, depending on which document is examined, and whose testimony is to be believed. However, Ardashev is only a 1% member of Delex Air Cargo. His wife owns the remaining 99%. EXHIBIT F. Plaintiffs had never owned any part of Delex Air Cargo and Delex Air Cargo is not alleged to have ever purchased ACS's assets - this therefore, merger" factor is simply not present here to proceed on the "de facto cause of action. The second de facto merger criterion also is not satisfied here. Specifically lacking in the instant case is the immediate dissolution or cessation of the business of the target corporation as well as an assumption of all debts and obligations. ACS has never been dissolved, see EXHIBIT D, and has remained in existence in a meaningful way long after Plaintiffs allege that Delex Air Cargo "took over". 10 10 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 One thing is clear, however, is that these two factors are necessary: (1) The actual merger must take place soon after the initial transaction, and (2) the seller corporation must quickly cease to exist. In Lirosi v Elkins (89 AD2d 903 [2d Dept 1982]), the court held that a transfer of assets from one corporation to another, and the subsequent dissolution of the former corporation, constituted a de facto merger. In Gilbert v Burnside (197 NYS2d 623, revd 13 AD2d 982 (2d Dept 1961), affd 11 NY2d 960), the court held a "reorganization agreement" to be a de facto merger where the agreement provided for the sale of all of the assets of a corporation and its subsequent dissolution. In both cases, the court found that the dissolution of the acquired corporation was an imminently expected occurrence. ACS' Plaintiffs do not allege or show that Delex Air Cargo somehow assumed liabilities necessary for uninterrupted business operations (third factor), which itdid not, expressly or impliedly, nor is a potential presence of the fourth factor (continuity of management, personnel, physical location, assets and general business operation) sufficient to establish a de facto merger by itself. A holding that the forth factor alone could establish a de facto merger would essentially adopt the continuity-of-enterprise theory of successor liability, something the Court of Appeals specifically declined to do in Schumacher (see 59 N.Y.2d at 245-246). continuation" b. The "mere exception is inapplicable because ACS has continued its existence. Under the mere continuation exception, compared to the de facto merger, itis even more essential that the predecessor corporation ceases to exist. Accordingly, since ACS still continues itsexistence, Plaintiff's contention that Delex Air Cargo is but a mere continuation of ACS is patently devoid of merit. continuation" The "mere exception to Schumacher is inapplicable here, as it refers only to a corporate reorganization, in which the predecessor corporation is extinguished and only one 11 11 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 corporation survives the transaction. See Schumacher (HN2): "The exception refers to corporate reorganization, however, where only one corporation survives the transaction; the predecessor corporation must be extinguished". Thus, the purchaser in Schumacher could not be considered continuation" a "mere of Richards Shear Co., Inc., because the latter survived the purchase entity." agreement in what the Court of Appeals described as a "distinct, albeit meager, Schumacher at 245. Similarly, the exception would be inapplicable to a situation where a corporation, which sold a business, survived the transaction for several years while in bankruptcy. (Sweatland v Park Corporation, 181 A.D.2d 243, 587 N.Y.S.2d 54 [4th Dept 1992]). In summary, if a "predecessor corporation continues to exist after the transaction, in however gossamer a form, the mere continuation exception is not applicable". See Diaz v South Bend Lathe, Inc., 707 F. Supp. 97 (EDNY 1989). Here, itis undisputed that ACS continued its existence. Although Stern alleges that he sold his share of ACS in 2009, ACS continued itsbusiness operations well into 2013, and Stern continued to be listed on Schedule K-1 in 2010 and 2011. See EXHIBIT C, E. As recently as in 2015 and 2016, ACS had filed its corporate income tax returns. EXHIBIT D. Peter Stern "partner" continues to be listed as in ACS on Schedule K. Additionally, New York Dept. of State "active" currently listsACS as an entity to this day. EXHIBIT H. "takeover" Accordingly, because ACS did not cease to exist following the alleged many Plaintiffs' years ago, then according to Schumacher and plethora of the related court decisions, continuation" proposed "mere cause of action must fail as a matter of law. As such, the proposed amendment is patently devoid of merit, see MBIA Ins. Corp. . v Greystone & Co., Inc., 74 A.D.3d 499 (1st Dept. 2010), and should be denied by the Court. 12 12 of 14 FILED: NEW YORK COUNTY CLERK 01/31/2018 10:15 AM INDEX NO. 653476/2013 NYSCEF DOC. NO. 141 RECEIVED NYSCEF: 01/31/2018 HI. Defendants are significantly prejudiced by the proposed amendment. It iswell settled that a motion to amend a complaint should be freely granted "in the absence of prejudice or surprise, except in situations where the proposed amendment is wholly merit." devoid of Stroock & Stroock & Lavan v. Beltramini, 157 A.D.2d 590 (1 Dept. 1992). Here, Defendants would be prejudiced ifthe proposed amendments were permitted, since they allege a brand new theory of liability against the Defendants, based upon previously unalleged facts.See, DiMauro v Metropolitan Suburban Bus Auth., 105 A.D.2d 236 (2 Dept. Plaintiffs' 1984). claims had always centered around a purported Sale Agreement dated January 16, 2009, see Exhibit B, whereby Plaintiffs claim that Stern sold his 5010 of ACS to Ardashev, see Exhibit A, 22-26. Plaintiffs now attempt to introduce a new set of facts (continuity of ownership, substantially the same business name, same business, location, and customers) practically on the eve of trial, which had never been subject to prior discovery proceedings. The procedural posture of this case has moved itwell past the stage of depositions and fact discovery. The proposed amendment also unfairly prejudices Delex Air Cargo, in that Plaintiffs would get essentially a second opportunity to conduct discovery into Delex Air Cargo's confidential financial records and commercially sensitive secret information, which information Plaintiffs' this Court had already ruled was not discoverable, in response to the motion to compel. See ECF ## 85, 90, 104, 107. Precipitating this motion, Defendants objected to Plaintiffs' document requests on the grounds that these requests demanded sensitive commercial information and highly confidential financial records, such as the tax returns, corporate formation and organizational documents, operational and financial