Nantong Sanhai Garment Co., Ltd. v. Fab Mill Inc.

Background

Nantong Sanhai Garment Co. alleged that Fab Mill Inc., Juntai Li, and Does 2 through 50 failed to pay for numerous orders of women’s clothing. The opinion describes Nantong Sanhai as a Chinese export company and Fab Mill as a clothing manufacturer and distributor based in New York. Li was identified as Fab Mill’s sole owner and chief executive officer.

Fab Mill began purchasing clothing from Nantong Sanhai in 2009. According to the amended complaint, Fab Mill began missing payments in 2017, while Li promised that the balance would be paid and assured Nantong Sanhai that he always paid his debts. Nantong Sanhai continued fulfilling orders after receiving those assurances and some minimal payments. By March 2020, the alleged unpaid balance had reached $1,209,678.53. The defendants did not seek dismissal of Nantong Sanhai’s state-law claims for breach of contract, goods sold and delivered, and account stated.

Veil Piercing and Alter Ego

Nantong Sanhai asserted claims seeking to disregard Fab Mill’s separate corporate identity and hold Li personally responsible for Fab Mill’s alleged debts. The court explained that, under New York law, veil piercing and alter-ego theories are not ordinarily standalone claims, but whether to disregard the corporate form depends on the facts and equities.

The court concluded that the parties needed a more developed factual record concerning Li’s control of Fab Mill. It therefore denied without prejudice the motion to dismiss the veil-piercing and alter-ego claims, allowing defendants to raise those arguments again at a later stage. The court also denied defendants’ request to dismiss Li from the entire action.

United Nations Convention on Contracts for the International Sale of Goods

Nantong Sanhai also asserted a breach-of-contract claim under the United Nations Convention on Contracts for the International Sale of Goods, an international treaty governing certain sales contracts between parties from different countries that have adopted it.

The defendants argued only that the amended complaint did not expressly allege that the purchase orders were governed by the treaty. The court held that the complaint alleged enough at this stage because it identified the parties as being in countries that had adopted the treaty and described the agreements as contracts for the sale of goods. The defendants did not claim that the parties had opted out of the treaty or chosen another governing law. The court therefore denied without prejudice the motion to dismiss the treaty-based claim, while allowing defendants to contest the treaty’s applicability later.

Fraudulent Conveyance

Nantong Sanhai asserted claims for actual and constructive fraudulent conveyance under New York’s Debtor and Creditor Law. Actual fraudulent conveyance involves a transfer allegedly made with intent to hinder, delay, or defraud creditors. Constructive fraudulent conveyance involves a transfer without fair consideration under circumstances such as insolvency or inadequate capital.

The court found that the amended complaint offered only general allegations that defendants had transferred money and other assets to Li’s personal accounts, that the transfers left Fab Mill insolvent or undercapitalized, and that the transfers were made without fair consideration and with intent to defraud. The court held that these allegations were too conclusory to satisfy the applicable pleading requirements. It dismissed the actual and constructive fraudulent-conveyance claims without prejudice. The court also dismissed a related fraudulent-conveyance turnover claim; the opinion does not attach a separate prejudice qualifier to that dismissal.

Unjust Enrichment, Conversion, Fraud, and Promissory Estoppel

The court dismissed the unjust-enrichment claim with prejudice because it was based on the same alleged failure to pay that supported the contract claims, and the parties did not appear to dispute the existence of a contractual relationship. Under the court’s analysis, an unjust-enrichment claim generally cannot proceed when an enforceable contract covers the same subject matter.

The court dismissed the conversion claim with prejudice because it duplicated the alleged breach of contract. It also dismissed the fraud and promissory-estoppel claims with prejudice. Nantong Sanhai had not alleged a separate legal duty, a qualifying statement separate from the contractual obligations, or damages unavailable under the contract claims. The court further found that Li’s promises that payment was imminent and that he always paid his debts were allegations about an intent to perform the contracts, not enough to support separate fraud claims under New York law.

Disposition

Judge Naomi Reice Buchwald granted in part and denied in part defendants’ motion to dismiss. The court denied without prejudice the motion as to the veil-piercing, alter-ego, and United Nations Convention on Contracts for the International Sale of Goods claims. The court granted the motion as to the other challenged claims, including the actual and constructive fraudulent-conveyance claims, which were dismissed without prejudice, and the unjust-enrichment, conversion, fraud, and promissory-estoppel claims, which were dismissed with prejudice. The court also denied defendants’ request to dismiss Juntai Li from the entire action.