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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ZU GUO YANG, XIAO HONG WANG, BAO
LAN DENG, CINDY CHAN, MOOI YANG, LING MEI
SHANGHAI CAFE INC., SHANGHAI CAFE
DELUXE INC., GRACE LAU, YUNG MEI KU,
PING LIN, JOSEPH TANG,
Case No. 1:10-cv-8372-LLS
MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT
SHANGHAI CAFÉ DELUXE’S MOTION FOR SUMMARY JUDGMENT
Law Offices of Joe Zhenghong Zhou and
Attorney for Defendant
SHANGHAI CAFÉ DELUXE INC.
136-20 38th Ave. Suite 10H
Flushing, NY 11354
Case 1:10-cv-08372-LLS Document 117 Filed 01/15/13 Page 2 of 37
Plaintiffs herein have brought this action as against Defendant Shanghai Café
Deluxe Inc. (hereinafter “Deluxe”) claiming successor liability for alleged violations under
the Federal Labor Standards Act (FLSA) and New York Labor Law committed by
Defendant Shanghai Café. (See Plaintiffs’ Amended Complaint dated December 30,
2010 annexed hereto as Exhibit “A”). Defendant Deluxe respectfully submits this
Memorandum of Law in support of its Motion for Summary Judgment pursuant to Rule
56(a) of the Federal Rules of Civil Procedure
As a preliminary point, this Court must note that there is nothing in the record to
demonstrate any transactions between Shanghai Café and Defendant Deluxe such that
successor liability can be imputed to Defendant Deluxe for any alleged wrongful actions
committed by Shanghai Café. Defendant Deluxe simply leased a space from the owner
of the property that was previously occupied by Shanghai Café.
Furthermore, Defendant Deluxe did not and could not have notice of any alleged
violations committed by Shanghai Café since there were no transactions between the
parties. Thus, holding Defendant Deluxe liable for the alleged labor law violations
committed by Shanghai Café’s management would result in holding the wrong party
responsible for such violations and would not advance the deterrence effect intended by
federal and state labor laws.
Moreover, the Plaintiffs cannot present any genuine issues of fact on the issue of
whether Defendant Deluxe and Shanghai Café engaged in a de facto merger such that
Defendant Deluxe can be held as a successor corporation to Shanghai Café. There is no
question that the two entities have completely different ownership. While Grace Lau was
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an owner of Shanghai Café, her brief and minimal involvement as a consultant to
Defendant Deluxe is insignificant to hold Defendant Deluxe as a successor corporation to
As further proof that Defendant Deluxe is not a successor corporation to Shanghai
Café, Plaintiffs have been unable to demonstrate that Defendant Deluxe assumed any
liabilities necessary for the continuation of Shanghai Café’s business. Although
Defendant Deluxe has made minimal payments to continue receiving generic services
from service providers that previously served Shanghai Café, these services were merely
incidental to Deluxe’s business and could not be deemed necessary to continue
Shanghai Café’s business.
Moreover, Plaintiff Zu Guo Yang is barred from bringing this claim because the
record indicates that he had substantial authority over other employees such that he
cannot seek recovery under federal and state employment and labor laws. Defendant
Deluxe must be able to amend its Answer to assert affirmative defenses and
counterclaims as against Plaintiff Yang.
Finally, Plaintiffs’ claims under the Fair Labor Standards Act are barred because
Plaintiffs have not proffered any evidence to suggest that Shanghai Café’s gross annual
sales satisfy the statutory threshold under the FLSA.
Because Plaintiffs have failed to demonstrate any triable issues of fact concerning
its claims against Defendant Deluxe and cannot show that Defendant Deluxe is a
successor corporation to Shanghai Café, this Court must grant summary judgment in
favor of Defendant Deluxe.
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STATEMENT OF FACTS
Defendant Deluxe and Its Lease to Occupy 100 Mott Street
Defendant Shanghai Café Deluxe Inc. (hereinafter “Deluxe” or “Defendant
Deluxe”) was incorporated on June 15, 2010 for the purpose of operating a Chinese
restaurant in the Chinatown area of Manhattan. The owners of Deluxe in charge of the
daily operations of the restaurant include Yi Li Weng, Wei Bo Li and Man Peng Ma.
Additional owners include Raymond Lau, Su Hung Tseng and Xin Sheng Gu. The
owners of Deluxe are not native English speakers, have only limited English proficiency,
and are not experienced business owners.
By lease agreement dated June 15, 2010, and with the assistance of Philip Lam, a
property manager and real estate broker, Defendant Deluxe entered into a lease
agreement with Lucky Horse Realty, Inc. to occupy and operate a restaurant at 100 Mott
Street (hereinafter the “premises”). (annexed hereto as Exhibit “B”).
Shanghai Café and Its Relationship with Luck Horse Realty
Prior to Deluxe’s lease of the premises, an entity known as Shanghai Café
operated a Chinese restaurant business located at the premises. However, Shanghai
Café completely ceased its business activity at the premises, and on or about June 2010,
wholly abandoned all of its equipment, supplies and materials. As such, Lucky Horse
Realty, the owner of the premises, took possession of the equipment that was abandoned
by Shanghai Café. Lucky Horse Realty took this opportunity to lease the premises along
with all the equipment, supplies and material that were abandoned by Shanghai Café. In
fact, the broker involved in the signing of the lease agreement noted that because of high
value of the equipment left behind by Shanghai Café, the property owner did not require
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any individual to personally guaranty Deluxe’s obligations under the lease agreement.
As such, Defendant Deluxe’s lease of the premises from Lucky Horse Realty
included not just the physical space to operate its restaurant business, but also the
property abandoned by Shanghai Café. This could only be possible because Lucky
Horse Realty took possession of the equipment abandoned by Shanghai Café.
Defendant Deluxe and Shanghai Café are Separate and
Distinct Entities That Did Not Engage in Any Transactions
As noted above, there were two distinct occurrences involving the premises known
as 100 Mott Street relevant to this action – (1) Shanghai Café’s surrender of the premises
and all of its equipment to Lucky Horse Realty; and (2) Defendant Deluxe’s lease of the
premises from Lucky Horse Realty.
Defendant Deluxe and Shanghai Café did not enter into any agreements reflecting
a purchase and sale of Shanghai Café’s business or assets. Additionally, Shanghai Café
did not assign a lease or any other rights or liabilities to Defendant Deluxe, and Defendant
Deluxe did not assume a lease or any other rights or liabilities from Shanghai Café. There
was no lease assignment or lease assumption between Shanghai Café and Defendant
Deluxe. There were absolutely no written or verbal agreements, contracts, memoranda
or understanding between Defendant Deluxe and Shanghai Café concerning a lease or
any matter whatsoever.
Thus, there were no transactions between Defendant Deluxe and Shanghai Café,
and the only significant commonality that they share is the premises by which they
operated their respective businesses at different periods of time.
Furthermore, because there were no transactions between Deluxe and Shanghai
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Café, Defendant Deluxe did not and could not have conducted any due diligence that
would reveal any of Shanghai Café’s liabilities, including any claim under federal and
state labor laws. Defendant Deluxe simply entered into an agreement with the owner of
100 Mott Street for use of the premises and equipment left behind by the prior occupants.
Grace Lau’s Limited Involvement in Deluxe’s Business
Defendant Grace Lau (hereinafter “Grace Lau” or “Defendant Lau”) was an owner
and manager of Shanghai Café until it abandoned its business.1 However, as a person
experienced in the Chinese restaurant industry, Grace Lau was retained in an advisory
capacity to assist the significantly less experienced owners of Deluxe. Grace Lau’s duties
included accomplishing clerical tasks and advising on operating the restaurant.
Defendant Lau did not have any ownership interest in Deluxe and the record is
void of any indication that she had any authority to make substantial business decisions
on behalf of Deluxe. More importantly, the record reflects that Grace Lau was only acting
as a consultant for Deluxe for a period of three months.
Grace Lau Had No Authority from Deluxe to Sign Bank Documents
Grace Lau indicated on documents issued by the Bank of East Asia that she was
the Secretary of Deluxe, and signed bank documents on behalf of Deluxe. However,
Defendant Deluxe never appointed or elected her to be its secretary nor allowed her to
claim that she was its secretary on any documents. (See Weng Affidavit at Paragraph 4,
The incident was nothing more than a simple mistake and misunderstanding by
Grace Lau, who has very limited English proficiency. Grace Lau was not aware of the
1 Defendant Grace Lau has not interposed an answer or otherwise appeared in this action. However, she was deposed
in this matter on November 3, 2011, and was present at an earlier Court conference on January 21, 2011.
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documents she was signing and could not read that the documents indicated that she
was signing as
for Deluxe. She did not sign
contemporaneously with members of Deluxe and could not have known the meaning and
consequences of signing as Deluxe’s secretary. In fact, when members of Deluxe
discovered that Grace Lau had signed as secretary, they immediately corrected the
document and removed Grace Lau’s name as secretary of Deluxe.
Grace Lau Did Not Execute a Personal Guaranty for Deluxe’s
Obligations Under Its Lease Agreement with Lucky Horse Realty, Inc.
Although Grace Lau was present at the signing of the lease agreement between
Deluxe and Lucky Horse Realty, she was not involved in the transaction and her
presence was unnecessary and unimportant. The lease agreement was executed by Wei
Bo Li, and not Grace Lau. Additionally Grace Lau did not execute a personal guaranty or
any other documents on behalf of or in support of Defendant Deluxe. She was simply
present at the signing in no significant capacity.
As such, Grace Lau’s involvement in Deluxe was minimal and insignificant for the
purposes of Plaintiffs’ claims.
Plaintiff Zu Guo Yang and the Other Plaintiffs
Each of the Plaintiffs herein claims to be employed by Shanghai Café prior to its
owners’ abandonment of the business on or about June 2010. The record is void of any
indication that any of the Plaintiffs, or any other party, made any labor law related
complaints, allegations or claims against Shanghai Café.
The Court must note that Plaintiff Zu Guo Yang, who was employed as a chef at
Shanghai Café, also played an important management role for Shanghai Café, and that
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his labor law related claims against Defendants must be barred. Plaintiff Yang was
responsible for setting schedules which employees had to follow, and had the authority to
report non-compliance by employees to the owners of Shanghai Café. Acting in a
management role for Shanghai Cafe, Plaintiff Yang’s labor law related claims against
Defendants are wholly without merit.
The Instant Action
Plaintiffs’ Amended Complaint dated December 30, 2010, (annexed hereto as
Exhibit “A”) alleges that Defendants committed several violations under the Fair Labor
Standards Act and New York Labor Laws. By Answer dated April 7, 2011 (annexed
hereto as Exhibit “C”) Defendant Deluxe responded to Plaintiffs’ Amended Complaint,
denying any liability for alleged wrongful acts committed by Shanghai Café.
Defendant Deluxe previously moved this Court to dismiss Plaintiffs’ Amended
Complaint for failure to state a cause of action. By Opinion and Order dated March 23,
2011, this Court held that Plaintiffs’ have sufficiently alleged that a successor relationship
between Shanghai Café and Defendant Deluxe. (Opinion and Order annexed hereto as
After extensive discovery, including numerous depositions, Plaintiffs have failed to
meet their burden to show that Defendant Deluxe is a successor corporation to Shanghai
Café, and have failed to raise any genuine triable issues of fact. Defendant Deluxe now
moves this Court to grant summary judgment in its favor.
THE STANDARD FOR SUMMARY JUDGMENT PURSUANT TO FRCP 56
It is well settled that summary judgment is appropriate only "if the movant shows
that there is no genuine dispute as to any material fact and the movant is entitled to
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judgment as a matter of law." Fed. R. Civ. P. 56(a). A dispute of fact is "genuine" if the
evidence is such that a reasonable jury could return a verdict for the non-moving
party. SCR Joint Venture L.P. v. Warshawsky, 559 F.3d 133, 137 (2d Cir. 2009). A
"material" fact is one that might "affect the outcome of the suit under the governing
law." Id. The moving party bears "the burden of demonstrating that no material fact
exists." Miner v. Clinton Cnty., New York, 541 F.3d 464, 471
2008) (citing McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir. 2007)).
In resolving this inquiry, the Court must construe "the evidence in the light most
favorable to the non-moving party and draw all reasonable inferences in that party's
favor." Sledge v. Kooi, 564 F.3d 105, 108 (2d Cir. 2009) (citing Anderson v. Liberty
Lobby, 477 U.S. 242, 247-50, 255 (1986)); see also Treglia v. Town of Manlius, 313 F.3d
713, 718-22 (2d Cir. 2002) (noting that on summary judgment, a court must "resolve all
ambiguities and draw all factual inferences in favor of the non-movant" (citing Brown v.
Henderson, 257 F.3d 246, 251 (2d Cir. 2001)). In opposing a motion for summary
the non-moving party may not rely on "conclusory allegations or
unsubstantiated speculation," Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998), or on
mere denials or unsupported alternative explanations of its conduct. See SEC v.
Grotto, No. 05 Civ. 5880, 2006 WL 3025878, at *7 (S.D.N.Y. Oct. 24, 2006).
Rather, the non-moving party must set forth significant, probative evidence on
which a reasonable fact-finder could decide in its favor. Anderson, 477 U.S. at 256-57. To
avoid summary judgment, the non-moving party must present a showing of sufficient
evidence supporting the claimed factual dispute as to require a judge or jury's resolution
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of the parties' differing versions of the truth. See Kessler v. Westchester Cnty. Dep't of
Soc. Servs., 461 F.3d 199, 206 (2d Cir. 2006) (citing Anderson, 477 U.S. at 248-49).
As more fully set forth below, Plaintiffs’ have not and cannot present any significant
evidence on which a reasonable fact-finder can determine that Defendant Deluxe is a
successor corporation to Shanghai Café or otherwise responsible for Shanghai Café’s
conduct. As such, Defendant Deluxe cannot be held liable for any alleged violations of
labor laws committed by Shanghai Café, and thus the Court must grant summary
judgment in favor of Defendant Deluxe.
DEFENDANT DELUXE IS NOT A SUCCESSOR CORPORATION TO
SHANGHAI CAFÉ AS A MATTER OF LAW UNDER THE NEW YORK
COMMON LAW STANDARD AS EXPRESSED BY THE COURT IN MILLER
Its is well settled that under New York law that “as a general rule, when one
corporation sells or otherwise transfers all its assets to another company, the acquiring
corporation does not become responsible for the debts and liabilities of the transferor.”
Miller v. Forge Mench Partnership Inc., 2005 U.S. Dist. LEXIS 1524, 55 U.C.C. Rep. Serv.
2d (Callaghan) 1022 at *20; see also Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 45
(2d Cir. 2003); Lumbard v. Maglia, Inc., 621 F. Supp. 1529, 1534 (S.D.N.Y. 1985);
Fitzgerald v. Fahnestock & Co., 286 A.D.2d 573, 574, 730 N.Y.S.2d 70, 71 (1st Dep't
However, it is further well settled that a successor firm may be held liable for the
obligations of its predecessor if any of the following conditions is present: (i) the purchaser
expressly or impliedly agrees to assume such debts or liabilities; (ii) the transaction
amounts to a de facto merger or consolidation of the seller and purchaser; (iii) the
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purchasing corporation is a mere continuation of the selling corporation; or (iv) the
transaction is entered into fraudulently to escape liability for such obligations. Miller at
*21; see also Cargo Partner, 352 F.3d at 45; Lumbard, 621 F. Supp. at 1534-35;
Schumacher v. Richards Shear Co., 59 N.Y.2d 239, 245, 464 N.Y.S.2d 437, 440 (1983).
In this case, there have been no allegation and no evidence by Plaintiffs of any
express or implied agreement to assume any debts or liabilities of Shanghai Café by
Deluxe. There are no allegation and no proof that there was any fraudulent transaction
that may have been entered into for the purposes of escaping liability for any obligations.
Accordingly, the Plaintiffs’ case against Deluxe alleges a de facto merger or consolidation
of the seller and purchaser, or alternatively alleges that the purchasing corporation
Deluxe is a mere continuation of the selling corporation Shanghai Café.
To demonstrate whether a transaction amounts to a de facto merger or a mere
continuation of the selling corporation under the second and third elements of the above
test, “courts consider (1) continuity of ownership; (2) cessation of ordinary business by the
predecessor; (3) assumption by the successor of liabilities ordinarily necessary for
continuation of the predecessor's business; and (4) continuity of management, personnel,
physical location, assets, and general business operation." Miller at *23; see also Nettis v.
Levitt, 241 F.3d 186, 193-94 (2d Cir. 2001).
The Court should note that each of the above elements concerning successor
liability requires some sort of transaction between a corporation and a subsequent entity
for which claimants are attempting to impute liability. Before making a determination as to
whether an entity is liable for conduct of a prior corporation, the facts must show that there
was an assignment of lease and an assumption of the same lease, an assignment of any
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other legal rights and obligations and an assumption of such rights and obligations, a sale
and purchase, or some legal interaction between the entities that constitutes a
transaction. Plaintiffs here have failed to produce any evidence that Shanghai Café
assigned its lease to Defendant Deluxe or Defendant Deluxe assumed Shanghai Café’s
original lease with the landlord so that a transaction between Shanghai Café and
Defendant Deluxe did actually occur. Unlike the facts in Miller, Plaintiffs here have not and
cannot show any such transaction between Shanghai Café and Defendant Deluxe such
that the Court can entertain any argument concerning the imposition of successor liability
upon Defendant Deluxe.
Alternatively even if the Court were inclined to find that a transaction occurred
between Shanghai Café and Deluxe just for the purpose of determining the success of
the motion for summary judgment, the Plaintiffs still fail to meet other elements in the
standard for a de facto merger set in Miller. In order to provide evidence that would "…
determine whether such a `de facto merger' or `mere continuation' of the predecessor's
business has occurred, courts consider (1) continuity of ownership; (2) cessation of
ordinary business by the predecessor; (3) assumption by the successor of liabilities
ordinarily necessary for continuation of the predecessor's business; and (4) continuity of
management, personnel, physical location, assets, and general business operation."
Miller at *23; see also Nettis v. Levitt, 241 F.3d 186, 193-94 (2d Cir. 2001).
As set forth below, the record is clear that Defendant Deluxe is not a successor
corporation to Shanghai Café under the test used in New York, and Plaintiffs have not
and cannot raise any genuine triable issues of fact on such issue.
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1. Defendant Deluxe Did Not and Could Not Expressly or
Impliedly Assume any of Shanghai Café’s Liabilities
Plaintiffs have failed to show evidence that proves a de facto merger or
consolidation or mere continuation from one entity to the next. Indeed it is clear from the
deposition testimony of the real estate agent Phillip Lam of Lucky Horse Realty that there
was no underlying transaction between the old Shanghai Café restaurant and the current
Shanghai Café Deluxe restaurant.
As is clear from the deposition testimony of Deluxe’s secretary Yi Li Weng, there
never was a transaction between Shanghai Café and Shanghai Café Deluxe. Rather,
there was an abandonment of the prior lease by Shanghai Café, and after such
abandonment, Deluxe signed a new lease with the owner of the building. Because there
was no transaction between Shanghai Café and Deluxe, the Miller standard for a de facto
merger or consolidation of the seller and purchaser does not apply to this case. Ms.
Q. Now, when Mr. Ma told you that he wanted to open a restaurant did he
tell you that he wanted to open it at 100 Mott Street?
A. In the beginning, no, he didn't say it but later on he did.
Q. At the beginning what did Mr. Ma tell you about the restaurant that he
wanted to open?
A. He said that he got some information, he heard someone saying that
there was a store or restaurant and wanted to lease -- there was a Shanghai
restaurant -- not a Shanghai restaurant, just a restaurant, a restaurant and
didn't and to do business anymore and wanted to do the business over
(See Weng’s Deposition Transcript at 91:18 – 92:10 annexed hereto as Exhibit
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Q. Is it your belief that the old restaurant abandoned that space?
A. Yes. A lot of thing were broken.
Q. Besides table and chairs, what other things were left over from the old
A. What else?
Q. Was there kitchen equipment?
(See Weng’s Deposition Transcript at 239:3-11 annexed hereto as Exhibit “E”).
Plaintiffs have not and cannot offer any evidence of an agreement, assignment,
purchase and sale or any other type of transaction between Shanghai Café and
2. There was No De Facto Merger Between Defendant Deluxe and Shanghai
Café, and Defendant Deluxe is Not a Mere Continuation of Shanghai Café
As noted above, a transaction amounts to a de facto merger or mere continuation
of a predecessor entity if there is (1) continuity of ownership; (2) cessation of ordinary
business by the predecessor; (3) assumption by the successor of liabilities ordinarily
necessary for continuation of the predecessor's business; and (4) continuity of
management, personnel, physical location, assets, and general business operation.
Each of these factors will be discussed to demonstrate that there is no possibility that the
facts can be construed to show a de facto merger between Defendant Deluxe and
Shanghai Café or that Defendant Deluxe is a mere continuation of the Shanghai Café.
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a. There is No Continuity of Ownership Between
Defendant Deluxe and Shanghai Café
Plaintiffs have failed to show any continuity of ownership between any of the
owners of Shanghai Café and the owners of Deluxe. They have tried to imply that the
former ownership of Shanghai Café has an ownership stake in Deluxe, but they have not
shown any actual ties between them.
Plaintiffs mischaracterize the documentation that was retrieved from the Bank of
East Asia. Plaintiffs make much of the fact that one of the former owners of Shanghai
Café, Grace Lau, was listed on some of the initial documents submitted to the Bank of
East Asia; but Plaintiffs do not mention that Grace Lau was explicitly not included in the
revised final versions of these documents that were submitted to the bank on September
13, 2010. Grace Lau even mentions in her deposition that she did not have a complete
understanding of the documents that she had initially signed for the Bank of East Asia.
(See generally, Lau’s Deposition Transcript at pg. 123 annexed hereto as Exhibit “F”)
Plaintiffs also cannot ignore the note that was sent to Bank of East Asia on which
explicitly states that Wei Bo Li and not Grace Lau will be the secretary of Shanghai Café
Deluxe. This document shows unambiguously that Grace Lau is not a shareholder or a
manager of Deluxe. See Note to Bank of East Asia annexed hereto as Exhibit “G”.
Plaintiffs claim that Shanghai Café’s former owner Grace Lau was involved in
negotiating the lease of the property for Deluxe. This is shown to be false by the
deposition of Phillip Lam, the real estate agent from Lucky Horse Realty whose testimony
was demanded by the Plaintiffs to support their allegations of malfeasance by Deluxe in
producing documents for discovery. Instead the deposition testimony of Phillip Lam
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showed that Grace Lau was present at the signing of a new lease because the owner of
the property wanted to have the ownership of the former tenant Shanghai Café serve as a
guarantor for Deluxe’s lease.
Phillip Lam testified in his deposition that Lucky Horse Realty normally seeks a
guarantor for a lease that is granted to a new startup business. He stated in his
deposition that for most of the leases that Lucky Horse Realty grants, if someone has no
record or is not familiar to them, then they ask for either six months security deposit or for
someone to guarantee the lease. (See Lam’s Deposition Transcript at pg. 97 annexed
hereto as Exhibit “H”). His deposition testimony makes clear that he was able to convince
the owner of 100 Mott Street to grant a lease to Shanghai Café Deluxe without having any
act as a guarantor for the lease because the value of the Shanghai Café Deluxe
restaurant is worth more money than the value of security deposit. Id.
b. Shanghai Café Ceased Doing Business in June 2010
There is no question that Shanghai Café ceased its ordinary business operations
and abandoned its business in early June 2010 and officially dissolved on September 17,
2010. The parties have not contested this fact, and thus, there is no issue of fact
concerning Shanghai Café’s cessation of business of operations. The cessation of
ordinary business by Shanghai Café is not in dispute; Shanghai Café closed their doors
and ended business for good on June 8, 2010.
c. Defendant Deluxe Did Not Assume any of Shanghai
Café’s Liabilities Ordinarily Necessary for the
Continuation of Shanghai Café’s Business
Under the standard set forth by the Court in Miller, Plaintiffs must demonstrate that
Deluxe assumed liabilities “ordinarily necessary for the continuation of predecessor’s
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business” (emphasis added). The Court in Miller, citing Glynwed, Inc. v. Plastimatic, Inc.,
869 F. Supp. 265, 276-77 (D.N.J. 1994), noted that assuming liabilities under
manufacturing contracts would constitute an assumption of liabilities ordinarily necessary
for the continuation of the predecessor’s business. As such, the liabilities in question
must be specific to the particular business of the predecessor and not merely generic
liabilities that are incurred by every business.
In fact, the Miller Court found a successor corporation had assumed the liabilities
of a predecessor entity ordinarily necessary for the continuation of predecessor’s clothing
business by assuming a debt under the same terms with the predecessor’s creditor
secured by accounts receivables and inventory of the predecessor entity. The liabilities
assumed by the successor corporation, namely loans secured by receipts and clothing
inventory, was specific to the predecessor’s business operations.
Additionally, in the Miller case, the successor corporation had assumed $5.8
million of the predecessor’s debt, demonstrating that an assumption of debt cannot be de
minimis for the successor to be held liable for the debts of a predecessor.
Here, Plaintiffs have not shown any facts, and cannot show any facts, suggesting
an assumption of liability because Shanghai Café did not assign any of its rights or
liabilities to Deluxe, and Defendant Deluxe did not accept any such rights and liabilities.
Additionally, Defendant Deluxe did not purchase Shanghai Café’s business and did not
have any interactions with Shanghai Café to suggest a transaction between the two
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i. Defendant Deluxe Did Not Satisfy any Sums Owed
By Shanghai Café to the Owner of the Premises
Here, Plaintiffs cannot show that Deluxe assumed any of Shanghai Café’s
liabilities ordinarily necessary for the continuation of Shanghai Café’s restaurant
business. The most significant liability for the continuation of a restaurant business where
customers dine is the lease for the space to operate such an establishment.
Yet Plaintiffs cannot cite to anything in the record to show that Deluxe paid off any
debts incurred by Shanghai Café under its lease with the landlord so that Deluxe can
continue leasing the same space from the landlord. In fact, Yi Li Weng, a principal of
Deluxe, clearly states in her affidavit that Defendant Deluxe made no payments in
satisfaction of any debt owed to the landlord under a lease agreement between Shanghai
Café and Lucky Horse Realty, Inc. (See Weng Affidavit at Paragraph 5, annexed hereto).
This statement is in accordance with the point we have made throughout this brief – that
there were no transactions between the Defendant Deluxe, and as such, no assumption
of any liabilities.
ii. Any Debts That Were Satisfied by Defendant Deluxe were
For Generic Services and Such Amounts were De Minimis
Plaintiffs have placed an emphasis during discovery to the fact that Deluxe paid
telephone and electricity bills that were sent to Shanghai Café. Such liabilities are
generic and incurred by every business to operate any type of business, not just a
restaurant business. In fact, such services operate mostly as a monopoly in New York
City, leaving Deluxe little or no option to obtain these services from any other provider.
Plaintiffs even mischaracterize the facts surrounding Deluxe paying such bills. Ms.
Yi Li Weng, a principal of Deluxe, testified that she attempted to change the name on the
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telephone bill and eventually changed service providers, demonstrating that the most
important concern for Deluxe would was to have uninterrupted services from utility
providers, and not to continue Shanghai Café’s business. On the issue of the change of
name on the telephone bill, Ms Weng testified:
Q. So is it your testimony that you filled out some kind of change form with
the service carrier for the telephone line and that after a few months that
service provider made those changes?
A. No. When they sent us the bill, attached to the bill and there is
something at the bottom that if you need to change the name or something
you can write down the information and then send the check over. And then
later on we changed the service carrier because we think that -- we thought
that the carrier was not good.
Q. Okay. So for at least a couple months you, Shanghai Cafe Deluxe was
paying a telephone bill that was directed to Shanghai Cafe before the
telephone service provider made the changes that you requested?
A. Maybe not. I don't remember. I have to look. We tried to change it
immediately but I am not sure. I have to go look.
Q. Okay. I believe you testified earlier that you had requested a change
with the telephone company but it took a couple months for them to make
A. No. Every time that I received a bill and checked the box that said I
wanted to change the name.
(See Weng’s Deposition Transcript at 57:3-58:8 annexed hereto as Exhibit “E”).
As unsophisticated business owners, the principals of Deluxe could not have been
aware of the importance of changing the names on the accounts for services common to
every business and would have found it unusual and disruptive to cease such services
just to start these services again under a different name. In any case, the sums paid by
Deluxe to continue to receive utilities were de minis and does not show any attempt to
assume Shanghai Café’s liabilities to continue Shanghai Café’s business.
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Additionally, Plaintiffs are unable to use the fact that Deluxe paid off sums owed to
sanitation services and food safety services to show that Deluxe assumed any of
Shanghai Café’s liabilities. Again, Deluxe’s only concern was to have uninterrupted
service so that it can operate a restaurant business as any disruption would have had a
negative impact on its business. Moreover, sanitation and food safety services are
merely incidental to Deluxe’s business and are not as necessary to Deluxe’s business as
the space it needs to operate a dine-in restaurant, for which Deluxe clearly did not
assume any of Shanghai Café’s liabilities.
Sanitation and food safety services are common in the restaurant business, and
thus should not be seen as an assumption of a prior business’ vending relationship.
Unlike the Miller case, where Defendant had no choice but to pay off the creditor of the
prior business to continue its own operations, here, Deluxe had the choice of selecting
several sanitation and food safety services but may have chosen the same providers as
Shanghai Café simply for convenience.
Moreover, any sums paid to such providers are de minis and would not constitute
an assumption of liabilities ordinarily necessary to continue Shanghai Café’s restaurant
business. Plaintiffs are unable to make any comparison to the facts in Miller where a
successor corporation satisfied a $5.8 million debt of its predecessor to continue the
predecessor’s business. As such, Plaintiffs cannot show that Deluxe assumed Shanghai
Café’s liabilities such that a de facto merger between the two entities could be assumed.
Case 1:10-cv-08372-LLS Document 117 Filed 01/15/13 Page 21 of 37
d. Plaintiffs are Unable to Show Any Continuity of Management
or Personnel to Satisfy the Test for a De Facto Merger or
Continuation of Shanghai Café’s Business
Finally, Plaintiffs’ assertion that Defendant Deluxe enjoyed a continuity of
management, personnel, physical location and general business operations is not based
on any facts in the record. The Court in Miller held that a continuity of management and
personnel existed when the upper management of a successor corporation was largely
the same as the predecessor entity. The Court concluded that the management was
largely the same when the record showed that the predecessor and successor entities
had the same president, comptroller, chief financial officer and three other officers.
Here, Plaintiffs have mischaracterized the facts and have wrongfully alleged that
Deluxe and Shanghai Café share largely the same management and personnel.
Plaintiffs have not alleged that Deluxe and Shanghai Café share the same
president, comptroller, chief financial officer or any other upper management. Although
Grace Lau assisted Deluxe for a very brief period of time, her role in Defendant Deluxe’s
business was limited and insufficient to conclude a continuity of management and
personnel. Man Peng Ma, another principal of Deluxe, even testified that he did not know
Ms. Lau and that he did not know that Ms. Lau was a previous owner of the old Shanghai
Café restaurant. (See Ma’s Deposition Transcript at pages 20-21 annexed hereto as
Shanghai Café and Shanghai Café Deluxe did not have any managers or officers
in common, and only a small number of workers in common. Plaintiffs are thus unable to
show that Shanghai Café and Shanghai Café Deluxe shared “largely the same personnel.”
Moreover, the facts surrounding Deluxe’s acquisition of the restaurant simply do
Case 1:10-cv-08372-LLS Document 117 Filed 01/15/13 Page 22 of 37
not indicate a continuity of assets or operations such that a de facto merger of the two
entities could be inferred. Shanghai Café had ceased operating as a restaurant and
completely abandoned its business operations along with assets such as its machinery
and kitchen equipment. Thus, the restaurant and equipment was abandoned to the
landlord, who then leased the premises to Deluxe. Shanghai Café had no interaction with
Deluxe and did not assign its lease, nor did Defendant Deluxe accept any such
assignment. As such, there is no indication that Deluxe assumed any of Shanghai Café’s
liabilities under Shanghai Café’s lease agreement with the landlord.
Applying the Miller standard to the instant case, there was no de facto merger
between Defendant Deluxe and the abandoned Shanghai Café restaurant, and
Defendant Deluxe cannot be seen as a mere continuation of the abandoned Shanghai
Café restaurant. There is no continuity of ownership between Defendant Deluxe and
shanghai café. It is undisputed that Shanghai Café ceased doing business in june 2010.
It cannot be shown that Defendant Deluxe assumed any of Shanghai Café’s liabilities
ordinarily necessary for the continuation of Shanghai Café’s business, and plaintiffs are
unable to show any continuity of management or personnel to satisfy the test for a de
facto merger or continuation of Shanghai Café’s business.
3. Plaintiffs Have Not Shown that Any Alleged
Transaction Was Entered Into Fraudulently
Even assuming that the Deluxe and Shanghai Café had entered into transactions
for the purpose of transferring Shanghai Café’s business, Plaintiffs have not and cannot
claim that any such transaction was entered into for the purpose of avoiding any liability
under any federal or state labor law. In fact, Plaintiffs have not shown that the principals
Case 1:10-cv-08372-LLS Document 117 Filed 01/15/13 Page 23 of 37
of Shanghai Café or Deluxe had sufficient notice of any potential claim by Plaintiffs and
that they engaged in an alleged transaction to avoid such liability. Plaintiffs did not bring
this claim until November 2010, nearly five months after Defendant Deluxe began its
operations on the premises.
As such, under the standard set forth in Miller, there are no facts in the record for a
reasonable jury to find that Defendant Deluxe was a successor corporation to Shanghai
Café, and Plaintiffs cannot demonstrate Defendant Deluxe was a successor corporation
to Shanghai Café. Thus, this Court must grant summary judgment in favor of Defendant
Deluxe as a matter of law.
Defendant Deluxe is Not a Successor Entity to Shanghai
Café Even Under the Broader Substantial Continuity Test
The Southern District recently held in Battino v. Cornelia Fifth Ave, et. al. 861
F.Supp.2d 392 (SDNY 2012), that in the context of employment and labor issues,
including claims made under the FLSA, the Court should apply the broader ”substantial
continuity” test to determine whether an entity assumes the liabilities its predecessor
incurred under employment and labor laws.
Although there are numerous factors the Court can use to make this
determination, the two most important factors include (1) whether the successor had
notice of the claim before the acquisition and (2) whether there was substantial continuity
in the operations of the business before and after such acquisition. Battino 861
F.Supp.2d at 401 citing Rowe Entm't, Inc. v. William Morris Agency, Inc., 98 Civ. 8272,
2005 WL 22833, at *79 (S.D.N.Y. Jan. 5, 2005). Additionally, the Court will look to
whether the predecessor has the ability to provide relief directly to the claimants. Id.
Case 1:10-cv-08372-LLS Document 117 Filed 01/15/13 Page 24 of 37
The remaining factors that the Court can use to determine successor liability in a
labor law claim include whether the new employer uses the same plant; whether he uses
the same or substantially the same work force; whether he uses the same or substantially
the same supervisory personnel; whether the same jobs exist under substantially the
same working conditions; whether he uses the same machinery, equipment, and
methods of production; and whether he produces the same product. Battino 861
F.Supp.2d at 404 citing EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086,
1094 (6th Cir. 1974). These additional factors simply inform whether there was a
continuity of business operations between the entities. Battino 861 F.Supp.2d at 404
citing Musikiwamba v. ESSI, Inc., 760 F.2d 740 (7th Cir.1985).
The Court in Battino held that an entity was a successor corporation for the
purposes of employment and labor law claims, partially due to the fact that it had notice of
a potential claim by its predecessor’s employees. Specifically, the purchaser in that case
admitted to knowing that the prior entity failed to pay its employees for at least two
months, and more importantly, that this information was used in negotiating various
representations and indemnification provisions of the asset purchase agreement. The
Court held that in light of the new entity’s knowledge of such employment and labor law
related liabilities, the notice requirement of the substantial continuity test had been
satisfied. The Court noted that “this is not a case of an "innocent purchaser" who
"exercised due diligence and
to uncover evidence" of any potential
liability. Musikiwamba, 760 F.2d at 750, 752. Rather, SCFAL was fully aware of the
potential liabilities to the unpaid employees and attempted to negotiate the APA
accordingly.” Battino 861 F.Supp.2d at 407.
Case 1:10-cv-08372-LLS Document 117 Filed 01/15/13 Page 25 of 37
The Court further noted that an important policy consideration for the notice
requirement of the substantial continuity test is to “ensure fairness by guaranteeing that a
successor had an opportunity to protect against liability by negotiating a lower price or
indemnity clause. Battino 861 F.Supp.2d at 406, citing Steinbach v. Hubbard, 51 F.3d
843, 845,846 (9th Cir. 1995) and Musikiwamba v. ESSI, Inc., 760 F.2d 740, 752 (7th Cir.
Similar to the facts in Miller, the Battino case involved circumstances where one
entity purchased another entity. Again, in the instant action, unlike both the Miller and
Battino cases, there was no purchase, assignment or any agreement between Shanghai
Café and Defendant Deluxe that can be construed as a transaction.
Additionally, as more fully demonstrated below, Defendant Deluxe could not have
been on notice of this lawsuit, or any potential claim brought by the Plaintiffs herein.
Furthermore, there is no continuity of operations between the two entities. Finally,
Plaintiffs can obtain relief from the principals and management of Shanghai Café. Thus,
there can be no successor liability for Defendant Deluxe under the substantial continuity
Defendant Deluxe Had No Notice of Plaintiffs
Claims Prior to the Commencement of this Lawsuit
Simply put, Defendant Deluxe could not have had any notice of any prior claims or
lawsuit concerning any employment or labor disputes that took place at Shanghai Cafe
because Defendant Deluxe did not purchase or otherwise engage in any transaction with
Shanghai Deluxe. Because there was no transactions between the entities, there was no
opportunity for Deluxe to conduct any due diligence or make any inquires as to any of
Shanghai Café’s liabilities, including any potential lawsuit concerning employment and
Case 1:10-cv-08372-LLS Document 117 Filed 01/15/13 Page 26 of 37
labor law related matters. (See Weng Affidavit at Paragraphs 6 through 12, annexed
Moreover, regardless of whether there was a transaction between the entities,
Defendant Deluxe would have been in a position similar to the “innocent purchaser”
described in Battino where the purchaser or acquirer innocently fails to uncover evidence
of potential liability. Unlike the Defendant in Battino who had personal knowledge of
violations of labor laws by its predecessor entity, here, Defendant Deluxe was not told
about any potential violations or claims by any member of Shanghai Café or anyone else.
(See Weng Affidavit at Paragraphs 8 and 9, annexed hereto). Additionally, Defendant
Deluxe could not have been aware of such alleged practices at Shanghai Café because
Deluxe never observed such practices. (See Weng Affidavit at Paragraphs 6 and 7,
annexed). In fact, the first time Defendant Deluxe was put on notice of any claims brought
by Plaintiffs was when they received Plaintiffs complaint on or about November 2010,
several months after Shanghai Café had dissolved and Deluxe began its business. (See
Weng Affidavit at Paragraph 12, annexed hereto).
Plaintiffs have not and cannot offer any evidence to the contrary. Any argument
made by Plaintiff that Grace Lau had any notice of Plaintiffs’ claims and that such notice
can be imputed to Defendant Deluxe is without merit. Grace Lau testified as following on
Q. Okay. So you were aware that there was a lawsuit possibly being filed
because the employees of your old restaurant threatened to file a lawsuit?
Is that what you're saying?
A. In January the sanitation department came and inspect the restaurant. At
that time the main chef, the cook, he tried to do something that would violate
the laws so that then -- then we would -- the restaurant would be -- would be
Case 1:10-cv-08372-LLS Document 117 Filed 01/15/13 Page 27 of 37
-- would be under pressure and then they would be forced to be closed. And
then we would have -- then there would be a lawsuit following.
(See Lau’s Deposition Transcript at 16:11-23 annexed hereto as Exhibit “F”).
Thus, Grace Lau’s only knowledge of a lawsuit was concerning a possible health
or environmental action commenced by city authorities and nothing even remotely related
to the employment and labor law related claims brought by Plaintiffs. Additionally,
because Grace Lau’s position in Deluxe was only that of an advisor on establishing and
running a restaurant, and was at Deluxe for a brief period of time, any knowledge that she
may have had about any of Shanghai Café’s liabilities cannot be imputed to Defendant
Moreover, Plaintiffs have not offered any evidence that any principal of Defendant
Deluxe was on notice that some employees of Shanghai Café could potentially bring a
claim based on labor and employment laws. As such, there are no genuine material
issues of fact on whether Defendant Deluxe had notice of any claims asserted by
There is No Substantial Continuity in the Operations
of Defendant Deluxe and Shanghai Café
There could be no continuity between Shanghai Café and Defendant Deluxe
because they did not enter into any transactions or agreements by which Defendant
Deluxe bought or acquired Shanghai Café’s business. As noted above, Shanghai Café
abandoned its business and Defendant Deluxe entered into a lease agreement with the
property owner to rent this abandoned space. There were two unconnected transactions
relevant here - (1) Shanghai Café’s surrender of the premises and all of its equipment to
Lucky Horse Realty; and (2) Defendant Deluxe’s lease of the premises from Lucky Horse
Case 1:10-cv-08372-LLS Document 117 Filed 01/15/13 Page 28 of 37
Realty. As such, there was no existing business for Defendant Deluxe to continue. The
only commonality between Defendant Deluxe and Shanghai Café is that they both
operated a Chinese restaurant and were located at the same location.
Additionally, Defendant Deluxe is owned and operated by a completely different
group of people than Shanghai Café and do n