The following numbered papers read on this order to show cause by the plaintiff, pursuant to CPLR 6301 and CPLR 3001, for an order (1) voiding iFresh’s termination of nonparty Long Deng’s employment with iFresh, (2) enjoining iFresh from terminating nonparty Long Deng’s employment during the pendency of this litigation, and (3) directing that nonparty Long Deng shall continue to manage iFresh’s day-to-day operations during the pendency of this litigation. Papers Numbered Order to Show Cause — Affidavits — Exhibits EF 4-23 EF 38-42 Answering Affidavits — Exhibits EF 24-35, EF 43-63 Upon the foregoing papers it is ordered that the order to show cause is determined as follows:1 The plaintiff, a shareholder of iFresh, Inc. (iFresh), commenced this derivative action on behalf of iFresh in June 2022. The first amended complaint alleges that the individual defendants, some of whom were officers or directors of iFresh, executed a scheme to wrestle control of iFresh from Long Deng, its founder and majority shareholder, through a series of fraudulent stock transactions. To this end, the first amended complaint alleges that iFresh issued a substantial number of new shares of stock to the defendants Kairui Tong and Hao Huang in exchange for 100 percent controlling interest in two companies, the defendants Hubei Rongentang Wine Co., LTD and Hubei Rongentang Herbal Wine Co., LTD (collectively RET Wine Company). In addition, the first amended complaint alleges that iFresh also issued a substantial number of new shares of stock to the defendants Fei Zhang and Meng Liu in exchange for 100 percent controlling interest in another company, the defendant Jiuxiang Blue Sky Technology (Beijing) Co., LTD (Jiuxiang). According to the plaintiff, however, upon the completion of these stock transactions, RET Wine Company and Jiuxiang refused to submit to iFresh’s control. The plaintiff also alleges that the RET Wine Company and Jiuxiang transactions are rife with fraudulent misrepresentations concerning the financial affairs and assets held by these companies. The plaintiff further alleges that Tong, Huang, Zhang, and Liu were actually strawmen for the defendant Dengrong Zhou (the defendant) and had made the purchases of iFresh stock in order to effectively give the defendant, who is also a shareholder of iFresh, majority control of the company. Moreover, the plaintiff alleges that the defendant Ping Zhou, a member of iFresh’s Board of Directors, and the defendant Amy Xue, as Chief Financial Officer of iFresh, were aware of these facts prior to the stock transactions but allowed the transactions to proceed, in violation of their fiduciary duties to iFresh. The first amended complaint asserts a cause of action for aiding and abetting breach of fiduciary duty against the defendant, based on the defendant’s acts of “introducing and recommending Defendant Xue to iFresh as the Chief Financial Officer,” “inserting his daughter Defendant Ping Zhou as a member of iFresh’s Board of Directors,” and “present[ing] RET Wine Company and Jiuxiang as legitimate acquisition targets for iFresh,” all of which were done “for the sole purpose of taking control of iFresh to advance his criminal pyramid scheme.” The first amended complaint also asserts causes of action for breach of contract and breach of fiduciary duty against Xue, a cause of action for breach of fiduciary duty against Ping Zhou, a cause of action for breach of contract against Tong, Huang, and RET Wine Company, and a cause of action for breach of contract against Zhang, Liu, and Jiuxiang. The amended complaint also seeks rescission of the purchase agreements for RET Wine Company and Jiuxiang. Shortly after commencing this action, the plaintiff filed the instant order to show cause seeking a preliminary injunction and declaratory relief. The plaintiff contends that, after Deng effectively relinquished a majority share of iFresh stock through the RET Wine Company and Jiuxiang stock transactions, a majority of shareholders ousted Deng from his position as CEO of iFresh and a member of its board of directors through a written consent on January 12, 2021 (the written consent). In light of the alleged misrepresentations regarding the RET Wine Company and Jiuxiang transactions and the defendant’s purported “Trojan Horse” plan to gain majority control of iFresh, the plaintiff seeks a declaration that the written consent is void, and an order enjoining iFresh from removing Deng from his positions with the company. In support of this order to show cause, the plaintiff relies on, among other things, an April 6, 2022 memorandum opinion from the Court of Chancery of Delaware (see Zhou v. Deng, 2022 WL 1024809, 2022 Del Ch LEXIS 79 [Del Ch Ct, Apr. 6, 2022, C.A. No. 2021-0026-JRS], affd 2022 WL 16832660, 2022 Del LEXIS 340 [Del Sup Ct, Nov. 9, 2022, No. 152, 2022]). In that proceeding (the Delaware proceeding), the defendant sought, among other things, a declaration that Deng was validly removed from iFresh’s board of directors by a written consent executed by a majority of iFresh’s shareholders. A review of the April 6, 2022 memorandum opinion as well as subsequent orders issued during the pendency of the Delaware proceeding (see generally Zhou v. Deng, 2022 WL 4367379 [Del Ch Ct, Sept. 20, 2022, C.A. No. 2021-0026-JRS]; Zhou v. Deng, 2022 WL 2803876, 2022 Del Ch LEXIS 112 [Del Ch Ct, July 15, 2022, C.A. No. 2021-0026-JRS]; Zhou v. Deng, 2022 WL 1617218, 2022 Del Ch LEXIS 112 [Del Ch Ct, May 23, 2022, C.A. No. 2021-0026-JRS]) establish that the plaintiff is not entitled to any of the relief requested in the order to show cause, as this relief is precluded under Delaware law by collateral estoppel. Thus, on its face, the plaintiff’s motion must be denied. “Under the Full Faith and Credit Clause a ‘judgment of a state court should have the same credit, validity, and effect, in every other court of the United States, which it had in the state where it was pronounced’” (Matter of Luna v. Dobson, 97 NY2d 178, 183 [2000], quoting Underwriters Natl. Assur. Co. v. North Carolina Life & Acc. & Health Ins. Guar. Assn., 455 US 691, 704 [1982]; see US Const, art IV, §1). The Full Faith and Credit Clause “requires recognition of the foreign judgment as proof of the prior-out-of-State litigation and gives it res judicata effect, thus avoiding relitigation of issues in one State which have already been decided in another” (Matter of Farmland Dairies v. Barber, 65 NY2d 51, 55 [1985]). Here, because the prior orders were issued by Delaware courts, the analysis of whether those orders have a preclusive effect on the relief sought herein must be made using Delaware law, not New York law, as a guide (see Matter of Luna, 97 NY2d at 183). “In contrast to res judicata (which precludes a subsequent lawsuit involving same parties based on same cause of action), collateral estoppel precludes a party from relitigating a fact issue that has previously been litigated and decided in a prior action involving that party” (Smith v. Guest, 16 A3d 920, 934 [Del Sup Ct 2011]). “A claim will be collaterally estopped only if the same issue was presented in both cases, the issue was litigated and decided in the first suit, and the determination was essential to the prior judgment” (Sanders v. Malik, 711 A2d 32, 33-34 [Del Sup Ct 1998]; see Rogers v. Morgan, 208 A3d 342, 346 [Del Sup Ct 2019]). “A fundamental precept that is common to the doctrines of both res judicata and collateral estoppel is that a ‘right, question or fact distinctly put in issue and directly determined by a court of competent jurisdiction…cannot be disputed in a subsequent suit between the same parties or their privies’” (Hercules Inc. v. AUI Ins. Co., 783 A2d 1275, 1278 [Del Sup Ct 2000], quoting Montana v. United States, 440 US 147, 153 [1979]). The April 6, 2022 memorandum opinion exhaustively details the controversy between Deng and the defendant, as well as the claims asserted by both parties in the Delaware proceeding. As is relevant to this motion, the defendant sought a declaration that the written consent validly removed the defendant the defendant from iFresh’s board of directors, and Deng asserted counterclaims seeking a declaration that the written consent “was invalid because Zhou and his allies obtained their iFresh shares through fraud, aiding and abetting breaches of fiduciary duty and breach of contract” (Zhou, 2022 WL 1024809 at *1). Following a trial, the Court of Chancery of Delaware determined, inter alia, that the written consent was valid and effective and that Deng was validly removed as a director of iFresh. This being the case, the Court of Chancery of Delaware dismissed Deng’s counterclaims with prejudice (see id. at *3, *18). It is noted that, on appeal, the Supreme Court of Delaware determined that “the judgment of the Court of Chancery should be affirmed on the basis of and for the reasons stated in its Memorandum Opinion dated April 6, 2022″ (Deng v. Zhou, 2022 WL 16832660, 2022 Del LEXIS 340 [Del Sup Ct, Nov. 9, 2022, No. 152, 2022]). What is more, the Court of Chancery of Delaware also declared that iFresh’s board of directors had removed Deng as CEO of iFresh in April 2022, and ordered Deng to cease from holding himself out as a director or CEO of iFresh (see Zhou, 2022 WL 2803876 at *1-*2). In the instant action, although the plaintiff styles his prayer for relief as one for an order “[d]eclaring iFresh’s disputed board’s attempted termination of Long Deng’s employment relationship null and void,” the plaintiff’s order to show cause is, in effect, an attempt to invalidate the written consent. However, the validity of the written consent was already presented, litigated, and decided upon in the Delaware proceeding. Insofar as the defendant commenced the Delaware proceeding for the express purpose of validating the written consent (see 8 Del Code Ann §225), the determination that the written consent was valid was essential to the prior judgment. The plaintiff is therefore precluded from relitigating the issue here (see Jackson v. Barla, 210 A3d 687 [Del Sup Ct 2019] [table; text at 2019 WL 1941484, *2, 2019 Del. LEXIS 223, *5-6]; see also Shawe v. Elting, 169 AD3d 601, 601 [1st Dept 2019]; Shawe v. Cushman & Wakefield, 158 AD3d 443, 443 [1st Dept 2018]). Accordingly, it is ORDERED that the plaintiff’s motion is denied. Dated: February 24, 2023
