H. Daya International Co., Ltd. v. DO Denim, LLC

Background

H. Daya sought to collect a June 29, 2012 judgment totaling $1,157,012.23 against Do Denim LLC and Reward Jean LLC. The judgment debtors had not paid any part of that judgment. H. Daya brought eight claims against the judgment debtors and related entities and individuals.

Counts One through Four alleged constructive fraudulent transfers under New York Debtor and Creditor Law sections 273, 273-a, 274, and 275. These provisions address transfers made without fair consideration under specified financial conditions. Count Five alleged actual fraudulent transfers under section 276, which requires proof of intent to hinder, delay, or defraud creditors. Count Six alleged that the judgment debtors, R. Siskind & Co., Inc. (RSC), and Vintage Apparel Group LLC were jointly and severally liable under a de facto merger theory. Count Seven asserted similar liability under a joint-venture theory. Count Eight combined successor-liability and fraudulent-transfer theories involving RSC, Vintage, Salomon Murciano, and Richard Siskind.

The parties filed cross-motions for summary judgment. Summary judgment may be granted only when the evidence shows no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment under the law.

Fraudulent-transfer claims

The court held that most of the payments from Do Denim, through Rosenthal, to RSC were reimbursements for advances made under the parties’ March 2011 agreement and therefore involved fair consideration. But the evidence created factual disputes about seventeen payments: eight invoices issued directly to RSC or Vintage and nine transactions listed on RSC’s general ledger that did not match RSC’s reimbursement records. Whether those payments had fair consideration could not be decided on summary judgment.

The court also found that H. Daya had not shown evidence that RSC knew or should have known of the judgment debtors’ alleged intent to defraud H. Daya. Accordingly, the court granted summary judgment on the actual- and constructive-fraudulent-transfer claims involving the other listed payments, while leaving the claims concerning the seventeen disputed payments for further proceedings.

The fraudulent-transfer claims based on the Do Denim trademark were also resolved in defendants’ favor. H. Daya had not been a creditor of SMIC Holdings LLC or RF Collection LLC, which transferred the trademark before it reached Vintage. Therefore, H. Daya could not challenge those transfers. The court also found that no entity transferred the trademark to Only Brands; Only Brands later applied to register the trademark after Vintage’s registration lapsed. The court therefore granted summary judgment on the trademark-based fraudulent-transfer claims.

De facto merger and related claims

Under the de facto merger doctrine, a buyer of a company’s assets may sometimes be liable for the seller’s debts. The court identified four relevant considerations under New York law: continuity of ownership; the seller’s cessation and dissolution; the buyer’s assumption of liabilities needed to continue the business; and continuity of management, personnel, location, assets, and operations. The court explained that continuity of ownership is especially important.

The court found genuine factual disputes about whether Vintage and Do Denim effectively merged. The evidence conflicted about whether Murciano actually owned an interest in Vintage, because he was listed as a member but allegedly did not make the required capital contribution and testified that he was not an owner. The evidence also raised disputes about shared locations, personnel, assets, and business operations. The court therefore denied summary judgment on the alleged de facto merger between Vintage and Do Denim.

The court did not decide whether Vintage and Reward merged because the parties had not squarely briefed that issue. It also reserved judgment on whether RSC could be held liable under an alter-ego theory, which can disregard a company’s separate legal status under certain circumstances. The court reserved these issues for later proceedings.

Because the claims involving payments to Siskind and Murciano depended in part on the unresolved merger and alter-ego issues, the court also reserved judgment on those claims.

Joint-venture claim

The defendants argued that New York law had not held one joint-venture member jointly and severally liable for another member’s pre-existing debts. H. Daya did not respond to that argument in opposition to summary judgment. The court treated that failure as sufficient grounds to grant summary judgment on Count Seven.

Disposition

The Siskind Defendants’ motion for summary judgment was DENIED in part and GRANTED in part. The Murciano Defendants’ motion was likewise DENIED in part and GRANTED in part. For both motions, summary judgment was granted on most payment-based fraudulent-transfer claims, except those involving the seventeen disputed payments, and on the trademark-based fraudulent-transfer claims. The motions were denied as to the alleged de facto merger between Vintage and Do Denim, granted as to the joint-venture claim, and left unresolved the other issues identified by the court.

H. Daya’s motion for summary judgment was DENIED. The court also ordered the parties to submit a joint letter proposing a trial timeline and stating whether the case would be tried to a jury.