Ebin v. Kangadis Family Management LLC

Citations: 45 F. Supp. 3d 395; 60 Bankr. Ct. Dec. (CRR) 14; 2014 U.S. Dist. LEXIS 132129; 2014 WL 4638700Docket: No. 14-cv-1324 (JSR)

Court: District Court, S.D. New York; September 18, 2014; Federal District Court

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Plaintiffs Joseph Ebin and Yeruehum Jenkins filed a consumer class action against Kangadis Family Management LLC and its members, alleging that Capatriti-brand '100% Pure Olive Oil' sold actually contained 'olive-pomace oil.' The six claims include breach of express warranty, breach of implied warranty of merchantability, deceptive practices under New York law, violation of the New Jersey Consumer Fraud Act, negligent misrepresentation, and fraud. Claims against Aristidis and Themis Kangadis are based on direct liability and veil piercing/alter ego theories. The action was initiated after a prior complaint against Kangadis Food Inc. was stayed due to bankruptcy.

Defendants moved to dismiss the Second Complaint, arguing that the bankruptcy stay and New York law prevent veil piercing claims and that the direct claims against the Kangadis brothers were inadequately pled. Plaintiffs opposed the dismissal and sought certification for a nationwide class of consumers who purchased the olive oil before March 1, 2013, including subclasses for New York and New Jersey purchasers. 

The Court dismissed the direct claims against Themis and Aristidis Kangadis, allowing the case to proceed on veil piercing and alter ego theories. It established that individual liability for the brothers could only arise under these theories, a point conceded by the plaintiffs. The Court rejected the defense’s late argument regarding the sufficiency of the veil piercing claim. It concluded that neither bankruptcy law nor New York law barred proceeding on these theories of liability, referencing prior court rulings that allow such claims even when not all parties to a contract are joined in a lawsuit.

Defendants reference ambiguous New York law suggesting that attempts to pierce the corporate veil do not constitute an independent cause of action against the corporation. However, the cited case focused on whether sufficient control was demonstrated, not on the necessity of joining the corporation in such actions, making it irrelevant. Regarding the bankruptcy stay under Section 362, it is established that the stay typically protects only the debtor and does not extend to non-bankrupt co-defendants, unless exceptional circumstances exist that would deplete the debtor's assets. The automatic stay can apply to non-debtors if a claim against them would adversely impact the debtor’s estate, but this is not applicable here as damages sought are solely against non-debtor defendants. 

Defendants argue that during a bankruptcy hearing, the court indicated that veil piercing claims were stayed; however, the relevant case, In re Pitts, states that veil piercing of a non-debtor could affect the debtor economically, which isn't the case here since the debtor is the corporate defendant. 

On class certification, the defendant primarily challenges the ascertainability requirement of Rule 23, arguing that the difficulty in identifying class members—specifically those who purchased Capatriti 100% Pure Olive Oil before March 1, 2013, through retailers—risks fraudulent claims. Nonetheless, determining whether an individual purchased a specific product during the class period is fundamentally objective. The New York and New Jersey subclasses are defined by geographic purchases, requiring no subjective interpretation. While identifying every class member may be challenging due to record limitations, only reasonable efforts to notify identifiable class members are mandated, not complete identification of all members.

Concerns regarding fraudulent claims affecting recovery do not hinder class certification, as a claims rate below one hundred percent would not cause material dilution, given that aggregate liability is based on total sales, which remains constant regardless of claim numbers. The defendant argues against the predominance and commonality requirements of Rule 23(b) and Rule 23(a) due to the involvement of varying state laws on fraud and negligent misrepresentation for a nationwide class. However, the Court finds that the labeling of the product as "100% Pure Olive Oil" creates a uniform reliance among consumers, making variations in state laws unlikely to impact liability determinations significantly.

The Court has reviewed all class certification elements and the defendant's arguments, ultimately granting the plaintiffs' motion for class certification. The Clerk of the Court is instructed to close docket numbers 25 and 30. The claims for breach of express and implied warranties hinge on KFI as the seller, and the negligent misrepresentation claim requires a special relationship duty attributed to KFI, not the individual defendants. The heightened pleading standard for fraud necessitates imputing corporate actions to individuals, but the defendants did not adequately preserve the argument regarding veil piercing or alter ego liability. The Bankruptcy Court previously ruled that such claims were stayed, and the Court has determined that these claims are derivative of those against KFI.

The defendants referenced New York law regarding veil piercing but did not contest the factual sufficiency of the plaintiffs' pleadings on that matter. Class-wide issues can dominate if resolution of common legal or factual questions can be achieved through generalized proof, outweighing individualized issues. The Court emphasizes the predominance standard, which is more stringent than the commonality standard, as established in precedent cases.