Ameriway Corporation v. Chen

Background

The court considered five principal filings: Defendants’ motion to disqualify Ameriway Corporation’s counsel, Xiyan Zhang and Pete Wolfgram; Ameriway’s motion to disqualify Defendants’ counsel, Richard Schrier and William Shayne, and for default judgment, dismissal, and attorneys’ fees for alleged fraud on the court; Ameriway’s second motion for the same relief; and Defendants’ motion for, among other things, disbursement of funds. The court also addressed Ameriway’s letter motion to expedite consideration of the pending motions.

Defendants argued that Zhang and Wolfgram were important fact witnesses because of their involvement with Ameriway and Eagle Trading USA, LLC, and because their testimony allegedly concerned standing, Chen’s claimed lien over five cargo containers, and the dissolution of Ameriway and Eagle. Ameriway responded that Zhang would not serve as trial counsel, would be deposed, and that Wolfgram was not a necessary witness.

Ameriway alleged that Defendants’ counsel had submitted an incorrect or fabricated three-page Terms and Conditions of Service document in support of Chen’s lien defense and had relied on it in court filings. Ameriway also alleged that email exhibits submitted by Defendants were fabricated or digitally manipulated. Defendants characterized the terms-and-conditions issue as a misunderstanding between counsel’s offices, asserted that the error was corrected, and denied fabricating or altering documents. Chen stated that she learned the July 9, 2013 customs-enforcement date through industry meetings in late 2012, although her affidavit did not identify public information about that date predating the June 7, 2013 announcement.

Defendants’ motion for disbursement sought permission to liquidate cargo held by U.S. Eastern Systems, Inc., use sale proceeds to pay storage and related expenses, deposit any remaining proceeds with the court, lift the discovery stay, order depositions of Zhang and Wolfgram, and hold a hearing on whether Ameriway had standing. Defendants did not provide a supporting memorandum of law or case citations for those requests.

Counsel-disqualification motions

The court explained that disqualification is an exceptional remedy that must balance a client’s choice of counsel against the need to protect the integrity of the trial process. Under the New York advocate-witness rule, a lawyer generally may not act as trial advocate in a matter where the lawyer is likely to be a necessary witness on a significant factual issue, subject to stated exceptions. The party seeking disqualification bears a heavy burden.

The court denied Defendants’ motion to disqualify Zhang and Wolfgram. Because Ameriway confirmed that Zhang would not be trial counsel, the advocate-witness rule did not require his disqualification. Zhang also agreed to be deposed. As to Wolfgram, the court found that Defendants had not shown that his testimony was necessary, noncumulative, or prejudicial to Ameriway. The court therefore denied Defendants’ motion to disqualify Plaintiff’s counsel.

The court also denied Ameriway’s motion to disqualify Schrier and Shayne. The court found Defendants’ explanations about the three-page terms-and-conditions document “dubious at best,” particularly given Shayne’s apparent involvement in drafting and signing many filings. But the court concluded that Defendants’ conduct did not warrant disqualification. The court also reached the same conclusion concerning the email exhibits and printouts. It found that Defendants’ work showed “profound carelessness” in producing and checking materials, but concluded that the errors were eventually corrected and that there was no indication of conduct that tainted the trial or pretrial process.

Default judgment, dismissal, and attorneys’ fees

The court denied both of Ameriway’s motions for default judgment, dismissal, and attorneys’ fees for fraud on the court. The court stated that it found no basis to conclude that Chen or her counsel intentionally committed wrongdoing through their representations to the court.

Disbursement and related requests

The court denied Defendants’ motion for disbursement of funds and all accompanying requests. It noted that Defendants had apparently withdrawn their request for emergency relief concerning the cargo while seeking similar relief in another jurisdiction, yet still asked this court for orders concerning the cargo, discovery, and standing. Defendants did not explain how the requested cargo orders would interact with an order sought elsewhere. They also did not explain why depositions should occur while discovery remained stayed, or provide a basis for renewing a standing challenge that Defendants had previously withdrawn more than four years earlier.

Disposition

The court denied Defendants’ motion to disqualify Ameriway’s counsel; denied Ameriway’s motion to disqualify Defendants’ counsel; denied Ameriway’s first motion for default judgment, dismissal, and attorneys’ fees for fraud on the court; denied Ameriway’s second such motion; and denied Defendants’ motion for disbursement of funds and other relief. The court denied Ameriway’s motion to expedite as moot, directed the Clerk of Court to terminate the specified motions, and ordered the parties to submit a joint status letter by October 25, 2024.