Qingdao Tangbo Garments Co., Ltd. v. PRG Nouveau, LLC

Background

Qingdao Tangbo Garments Co., Ltd. manufactured and delivered children’s clothing ordered by Parigi Group Ltd. and Parigi MMS Holdings LLC from 2011 through 2015. The Parigi entities stopped paying Qingdao’s invoices, leaving approximately $1.1 million outstanding by October 2015. The entities later agreed to repay the debt and resumed placing orders, but Qingdao alleged that they did not make the required payments.

PRG Nouveau, LLC was formed around January 2016. According to the complaint, PRG purchased inventory and brand licenses from the Parigi entities and shared office space with them. The complaint alleged that PRG agreed in writing to assume specified liabilities, including $1,973,000 owed to Qingdao. It also alleged that PRG agreed to pay Qingdao $1 million in twelve installments, made three payments of $83,333, and then stopped paying. That later agreement was signed by Qingdao but not by PRG.

Claims and motion

Qingdao asserted five counts: breach of contract against the Parigi entities; breach of contract against PRG; breach of contract against four individual defendants based on a theory that they were legally responsible for the companies’ obligations; constructive fraudulent transfer under New York Debtor and Creditor Law section 273; and actual fraudulent transfer under section 276. The individual defendants were Marco Srour, Morris Srour, Harry Saul Tawil, and Stella Jemal.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, and Rule 9(b), which requires fraud to be pleaded with particular detail.

Rulings

The court denied the motion as to Count One. It held that the complaint adequately described a course of dealing involving purchase orders and invoices, Qingdao’s delivery of the clothing, the Parigi entities’ failure to pay, and the claimed damages. The court concluded that the complaint gave the defendants enough notice of the contracts and alleged breaches without identifying every purchase order, invoice, or letter of credit.

The court denied the motion as to Count Two. The written asset-sale agreement referred to specified assumed liabilities and listed Qingdao’s debt among them. The court also held that the complaint plausibly alleged a separate agreement based on PRG’s three payments under the unsigned draft agreement. Whether those payments showed an intent to be bound was left for a later stage, such as summary judgment or trial.

The court denied the motion as to Count Three for Marco Srour, Morris Srour, and Stella Jemal, but granted it as to Tawil. The court held that the complaint plausibly alleged that the Srour defendants and Jemal controlled the Parigi entities and used that control to transfer assets to PRG, leaving the entities unable to pay Qingdao. The complaint did not plausibly allege that Tawil had a role or ownership interest in the Parigi entities sufficient to support holding him personally responsible under a corporate veil-piercing theory.

The court granted the motion as to Tawil and otherwise denied it on Count Four. The complaint plausibly alleged that the Parigi entities transferred assets and licenses to PRG without adequate consideration and were rendered unable to pay Qingdao. The court said the adequacy of the consideration could not be resolved on a motion to dismiss. It also found sufficient allegations against the Srour defendants and Jemal based on their alleged control of the entities and participation in the asset transfers, but found no allegations describing Tawil’s participation in that transaction.

The court granted the motion as to Tawil and otherwise denied it on Count Five. The complaint adequately pleaded facts supporting an inference of actual fraudulent intent, including common ownership and management, a transfer of the Parigi entities’ inventory and licenses to PRG, allegedly inadequate consideration, knowledge of Qingdao’s claim, and continued control by the Srour defendants and Jemal. The court found that the complaint did not specifically attribute comparable conduct or intent to Tawil.

Disposition

Judge Castel’s final order stated that the defendants’ motion to dismiss was granted as to all claims asserted against Harry Saul Tawil and otherwise denied. The clerk was directed to terminate the motion. The opinion addressed only whether the complaint could proceed; it did not decide the ultimate merits of Qingdao’s claims.