Keawsri v. Ramen-ya Inc.

Background

The plaintiffs were former servers at two Japanese noodle restaurants, Ramen-Ya Inc. (RYI) and Y&S International Corp. They had obtained a judgment against several defendants for violations of the Fair Labor Standards Act and New York labor laws, including unpaid wages, overtime, spread-of-hours pay, improperly withheld tips, and wage-statement and pay-rate-notice violations. The judgment creditors had not received the entire judgment.

The plaintiffs, joined by the trustee for the Chapter 7 bankruptcy estates of RYI and Miho Maki, moved under Federal Rule of Civil Procedure 69 and New York enforcement law to have Ku-Raku New York, Inc. (Kuraku) declared an alter ego or mere continuation of RYI. They also sought additional relief, including turnover of Kuraku’s restaurant asset, recovery of allegedly fraudulent transfers, payment of the remaining judgment balance, and appointment of a receiver. This opinion addressed only the request to declare Kuraku an alter ego.

Legal standard

An alter-ego finding allows a court to treat one corporation as responsible for another corporation’s obligations. Under New York law, the court considered whether the owner or related entity exercised such control that the corporation became a mere instrumentality, whether that control was used to commit fraud or another wrong, and whether the wrong caused an unjust loss or injury. Relevant control factors included disregard of corporate formalities, inadequate capitalization, commingling of funds, overlapping ownership and management, shared property, and whether the entities operated as independent businesses.

Court’s analysis

The court found extensive financial overlap. RYI provided at least $30,895 to Kuraku from February 2019 through June 2020, and other evidence showed that RYI funds—including funds from a federal Paycheck Protection Program loan—were used to establish Kuraku. Kuraku’s liquor-license application stated that its $24,600 in cash was funded by RYI. The court found no supporting loan documents, investment records, or evidence that Kuraku received capital from another source.

The court also found substantial overlap in management and ownership. Maki, Yasuko Negita, and Masahiko Negita had managed RYI, and the same individuals managed or owned Kuraku. Kuraku operated the same type of restaurant, used RYI’s menu and some identical website text, and used RYI’s furniture and china after RYI ceased operating.

The court found that accounts nominally held in Haruna Maki’s name were used as nominee accounts to shield money from creditors. It found that RYI and Y&S funds were deposited into those accounts and then used for payments to Kuraku, Yasuko Negita, Kil S. Jung, and other entities that had no stated connection to Haruna Maki. The court also considered adverse inferences from Miho Maki’s refusal to answer questions by invoking the Fifth Amendment, but stated that the evidence was overwhelming even without those inferences.

Ruling

Judge Liman concluded that RYI exercised substantial control over Kuraku, used that control to commit fraud or another wrong, and caused an unjust loss or injury to the judgment creditors. The court therefore granted the motion to deem Kuraku an alter ego of RYI. The opinion states that the remaining requested relief would be addressed in a subsequent order. The conclusion refers to the judgment debtor as “RYT,” while the body of the opinion generally identifies it as “RYI.”