Zhongshan Tandem Plastic Products Co., Ltd. v. Straightline Capital, LLC

Background

Zhongshan Tandem Plastic Products Co., Ltd. sued Straightline Capital, LLC; David Ault; CKR Law, LLP; and Jeffrey A. Rinde. The claims included claims under the Racketeer Influenced and Corrupt Organizations Act, a federal law commonly called RICO, as well as New York claims for breach of contract and conversion. The complaint alleged that the defendants required Zhongshan Tandem to place $552,000 in escrow to secure a $13.8 million loan, but the loan was never disbursed and the deposit was not returned. Instead, the complaint alleged, the escrow funds were released to Straightline Capital and Ault.

Straightline Capital and Ault were served but did not file a response. The Clerk certified their defaults. Zhongshan Tandem then moved for a default judgment against them.

Liability

A default judgment is a judgment entered when a defendant fails to defend. Before entering one, the court must determine whether the complaint’s well-pleaded allegations establish liability under the law. Because of the defaults, the court treated the well-pleaded liability allegations as admitted, but it still examined whether those allegations were legally sufficient.

The court held that Zhongshan Tandem had at least stated a conversion claim under New York law. Conversion generally involves unauthorized control over specifically identifiable property that belonged to, or was controlled by, the plaintiff. The court found that the complaint identified the specific $552,000 deposit, alleged that the escrow agents were required not to release it unless Straightline obtained a commitment to fund the loan, and alleged that Straightline and Ault took possession of the money. The court did not separately decide the merits of every claim listed in the complaint; it found that the conversion claim was sufficient to support the default judgment.

Damages and Disposition

The court found that Zhongshan Tandem substantiated the $552,000 principal amount with its transfer records. It also held that New York law allows prejudgment interest in conversion cases at 9% per year. Because the original possession of the deposit was lawful, the court determined that conversion occurred after Zhongshan Tandem demanded return of the money and the funds were instead released. It therefore began interest on March 30, 2020, rather than the May 21, 2019 date requested by Zhongshan Tandem.

Judge J. PAUL OETKEN granted the motion for default judgment against Straightline Capital, LLC and David Ault. He awarded $552,000, jointly and severally, against those defendants, with prejudgment interest at 9% per year from March 30, 2020, through the date of judgment. The case remained open and stayed as to the remaining parties because they were in arbitration.