Dalamagas v. Leonidas et al

Filing 43

ORDER: For the reasons set forth in the attached order, the defendants' Motion to Dismiss (Doc. Nos. 9 , 15 and 36 ) is hereby GRANTED in part and DENIED in part. The remaining causes of action are: the First Cause of Action; the Second Cause of Action as to claims with respect to the final paycheck based on Connecticut General Statutes § 31-72 and breach of contract; and the Third Cause of Action. Signed by Judge Alvin W. Thompson on 3/22/17.(Mata, E.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
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Plaintiff,
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v.
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PETER LEONIDAS, JOHN DOE I-II,
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Defendants.
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_______________________________________ :
PHOTIOS DALAMAGAS,

Civil No. 3:16–cv–00638(AWT)

ORDER RE MOTION TO DISMISS
Plaintiff Photios Dalamagas (“Dalamagas”) brings this
action against defendants Peter Leonidas (“Leonidas”) and John
Does I and II.

Dalamagas brings claims for fraudulent

misrepresentation and wage theft; or, in the alternative, unjust
enrichment; or, in the alternative, conversion.

Dalamagas has

filed a third amended complaint (Doc. No. 31) (“Third Amended
Complaint”).

Leonidas moves to dismiss all claims.

For the

reasons set forth below, his motion is being granted in part and
denied in part.
I.

FACTUAL ALLEGATIONS
“The complaint, which [the court] must accept as true for

purposes of testing its sufficiency, alleges the following
circumstances.”
1997).

Monsky v. Moraghan, 127 F. 3d 243, 244 (2d Cir.

Dalamagas and Leonidas owned equal shares in Soma
Technology, Inc., a Connecticut corporation, Soma Technology,
International, Inc., Soma Investments, LLC, a Connecticut
limited liability company, Soma Tech Pvt. Ltd., an Indian
private limited company, Soma Medical Solutions Pvt. Ltd., an
Indian private limited company (collectively “SOMA”). (See 3d
Am. Compl., ¶ 1).

Dalamagas and Leonidas entered into an Equity

Purchase Agreement pursuant to which Leonidas purchased all of
Dalamagas’ interest in SOMA on November 16, 2012.
Dalamagas alleges that, prior to execution of the Equity
Purchase Agreement, Leonidas defrauded him by several means.
First, Leonidas hid SOMA’s money in other entities, including
Axia and Bristol Med Wholesale LLC, and omitted from SOMA’s
financial records $967,000 owed to SOMA by Bristol Med Wholesale
LLC.

Second, Leonidas and John Does I and II underreported

SOMA’s earnings in its 2012 tax returns and earning reports.
Reported lower earnings affected Soma’s Earnings Before
Interest, Taxes, Depreciation and Amortization (“EBITDA”), which
was used by the appraisers upon whom Dalamagas relied to
estimate the value of Dalamagas’ shares before he sold them to
Leonidas.

Dalamagas alleges that these actions by Leonidas and

John Does I and II fraudulently caused the earnings per share,
and thus the value of SOMA, to appear to be less than it was,
which depressed the purchase price.

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Dalamagas and “[d]efendants Leonidas and John Doe[s] I
[and] II agreed that [p]laintiff would be employed by [SOMA] for
one (1) year as an employee/consultant after the sale of his
equity in SOMA.”

(3d Am. Compl., ¶ 58).

Dalamagas alleges

that, in addition, Leonidas and John Does I and II “moved monies
from SOMA to the personal accounts of [] Leonidas for payment of
[Dalamagas’] equity in SOMA,” (id. ¶ 51), which allowed Leonidas
to pay only “$1,020,000 . . . for Plaintiff’s shares in SOMA”
(id. ¶ 47).

Dalamagas alleges that Leonidas and John Does I and

II withheld his last paycheck, in the amount of $8,333.33, and
also deducted his annual expenses from an earlier paycheck.
II.

LEGAL STANDARD

When deciding a motion to dismiss under Rule 12(b)(6), the
court must accept as true all factual allegations in the
complaint and must draw inferences in a light most favorable to
the plaintiff.

Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct.

1683, 40 L. Ed. 2d 90 (1974).

A complaint “should not be

dismissed for failure to state a claim unless it appears beyond
doubt that the plaintiff can prove no set of facts in support of
his claim which would entitle him to relief.” Conley v.
Gibson, 355 U.S. 41, 45–46, 78 S. Ct. 99, 2 L. Ed. 2d 80
(1957). See also Hishon v. King & Spalding, 467 U.S. 69, 73, 104
S. Ct. 2229, 81 L. Ed. 2d 59 (1984). “The function of a motion
to dismiss is ‘merely to assess the legal feasibility of the

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complaint, not to assay the weight of the evidence which might
be offered in support thereof.’” Mytych v. May Dept. Store
Co., 34 F. Supp. 2d 130, 131 (D. Conn. 1999), quoting Ryder
Energy Distribution v. Merrill Lynch Commodities, Inc., 748 F.2d
774, 779 (2d Cir. 1984). “The issue on a motion to dismiss is
not whether the plaintiff will prevail, but whether the
plaintiff is entitled to offer evidence to support his
claims.” United States v. Yale New Haven Hosp., 727 F. Supp.
784, 786 (D. Conn. 1990) (citing Scheuer, 416 U.S. at 232, 94 S.
Ct. 1683).
III. DISCUSSION
A. First Cause of Action: Fraud
Leonidas argues that the Third Amended Complaint does not
allege scienter “beyond conclusions as to all [d]efendants”
because Dalamagas “lumped Leonidas in with John Does 1 [and]
II”.
4).

(Def.’s Mem. in Supp. of Mot. to Dismiss, Doc. No. 38, at
Ordinarily this is a serious deficiency.

“Where multiple

defendants are asked to respond to allegations of fraud, the
complaint should inform each defendant of the nature of his
alleged participation in the fraud.”

DiVittorio v. Equidyne

Extractive Indus., 822 F.2d 1242 (2d Cir. N.Y. 1987).

However,

here Dalamagas alleges that John Does I and II are alter egos of
Leonidas, that they acted as one and that they should be liable
as one.

He also alleges that “[t]he true names and capacities

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of John Doe[s] I [and] II are unknown to [p]laintiff, who
therefore . . . sues defendants under these fictitious names”,
and he undertakes to amend the complaint when the true names and
capacities of John Does I and II have been ascertained.

(3d Am.

Compl., ¶ 19).
Leonidas also argues that even if the allegations are taken
as being directed at him alone, Dalamages has failed to plead
adequate facts to show intent, i.e. that Leonidas had motive and
opportunity to commit fraud.

However, the factual allegations

summarized above demonstrate a motive on the part of Leonidas,
namely to pay Dalamagas less money than he would have had to pay
him absent the fraud.

These allegations also establish that

Leonidas had an opportunity to commit fraud in that he was able
to influence the financial reporting of SOMA Technology, Inc. in
2012 because it was exclusively under the control of Leonidas
and John Does I and II and EDITDA was being used by the
appraisers who were valuing SOMA Technology, Inc..
Leonidas argues that there are no allegations explaining
how Leonidas “‘knew’ the records undervalued the company, what
company was undervalued, what records were involved, or how the
conduct that was fraudulent”.
Dismiss, at 6).

(Def.’s Mem. in Supp. of Mot. to

However, a reasonable inference from the

factual allegations summarized above is that Leonidas knew the
company was undervalued, knew what records were involved because

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the financial reporting of SOMA Technology, Inc. was exclusively
under his control, and thus knew how the conduct was fraudulent.
Leonidas also argues that the Third Amended Complaint is
deficient because it “is all over the place and failed to
specify the ‘who, what, where, when and how’ of fraud against
Leonidas.”

(Def.’s Mem. in Supp. of Mot. to Dismiss, at 8).

The court agrees that the Third Amended Complaint is less than a
model of clarity, and that there are many details yet to be
provided.

However, many of these details are ones that will

only become available to Dalamagas during the course of
discovery, and the court has no difficulty discerning, based on
the factual allegations that are made, the “who, what, where,
when and how.”
Therefore the motion to dismiss is being denied as to this
cause of action.
B. Second Cause of Action: Wage Theft
The plaintiff purports to bring a claim for violation of
“the Federal ‘Wage Theft Prevention and Wage Recovery Act.’”
(3d Am. Compl., ¶ 67).
statute.

The plaintiff refers to no specific

Leonidas notes that although a bill by this name has

been introduced in Congress it has not been passed.

Therefore,

the motion to dismiss is being granted with respect to this part
of the Second Cause of Action.

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The Second Cause of Action also includes a claim for wage
theft in breach of a contract and in violation of Connecticut
General Statutes § 31-72.

Leonidas argues that Dalamagas fails

to establish “the coverage of the written agreement, how the
compensation structure falls within the definition of § 31–72,
or how Leonidas falls within the definition of an employer
responsible for nonpayment.”

(Id. at 12.)

A plaintiff must establish three elements to allege a prima
facie case under Connecticut General Statutes § 31–72.
First, the defendant must be an "employer" as defined by
section 31-71a(1) and the person allegedly owed wages
must be an "employee" as defined by section 31-71a(2).
Second, the amount sought to be recovered must qualify
as a "wage" under section 31-71a(3) or a fringe benefit
payable under section 31-76k. Finally, the employee must
be entitled to monies that were withheld wrongfully by
the defendant employer.
Butler v. Cadbury Bevs., Inc., No. 3:97-CV-2241(EBB), 1999 U.S.
Dist. LEXIS 16098, *1, 5 (D. Conn. June 29, 1999).
The statute provides that an “‘[e]mployer’ includes any
individual, partnership, association, joint stock company,
trust, corporation…employing any person;” an “‘[e]mployee’
includes any person suffered or permitted to work by an
employer;” and “‘[w]ages’ means compensation for labor or
services rendered by an employee, whether the amount is
determined on a time, task, piece, commission or other basis of
calculation.”

Conn. Gen. Stat. 31–71(a).

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Dalamagas’ factual

allegations fall within these categories.

Both an employee and

consultant would fall under the definition of “any
person…permitted to work,” and Dalamagas’ final paycheck falls
under “compensation for labor or services rendered.”
Likewise, both SOMA and Leonidas fall under the statute’s
definition of “employer.”

While Leonidas argues that this claim

“also must fail because there is no allegation that Leonidas was
‘the specific cause of the plaintiff not receiving [his
wages],’” (Def.’s Mem. in Supp. of Mot. to Dismiss, at 13),
Dalamagas specifically alleges that Leonidas and John Does I and
II “withheld Plaintiff’s wages in violation of Connecticut
General Statutes 31–72.”

(3d Am. Compl., ¶ 68.)

See Butler v.

Hartford Technical Institute, Inc., 243 Conn. 454 (1997)
(affirming trial court’s reasoning that the president of a
company was personally liable for the non-payment of overtime
wages because of evidence that he specifically caused the
withholding).

Further, Dalamagas alleges that, during the year

that Dalamagas worked for SOMA, Leonidas had complete dominion
and control over SOMA.
With respect to the requirement that the employee must be
entitled to money that was withheld wrongfully, Dalamagas
alleges that he earned his last paycheck by working through
November 16, 2013 at the rate of $8,333.33 bimonthly.
While the claim with respect to the final paycheck falls

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under the statute, Dalamagas has failed to allege facts
sufficient to state a claim that “his annual expenses which were
deducted in full from an earlier paycheck” are covered under the
definitions of either “wage” or “fringe benefits” in Connecticut
General Statutes §§ 31–71a or 31-76k.

(3d Am. Compl., ¶ 71.)

Therefore the motion to dismiss is being granted with respect to
this part of the Second Cause of Action to the extent it is
based on Connecticut General Statutes § 31–72.
Dalamagas breach of contract claim also states a cause of
action with respect to his last paycheck.

“The elements of a

breach of contract claim are the formation of an agreement,
performance by one party, breach of the agreement by the other
party, and damages.”

Meyers v. Livingston, Adler, Pulda,

Meiklejohn & Kelly, P.C., 311 Conn. 282, 291 (2014).

Dalamagas

alleges that he agreed to work for one year in consideration for
being paid $8,333.33 twice a month.

Dalamagas further alleges

that he worked until November 16, 2013 and sent a letter on
November 18, 2013 notifying Leonidas that his last paycheck was
outstanding, and that Dalamagas has not received this money to
date.
However, Dalamagas has failed to allege a cause of action
for breach of contract with respect to his claim for annual
expenses that were deducted.

There is no allegation in the

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Third Amended Complaint that there was an agreement between the
parties that Dalamagas’ annual expenses would be paid.
Therefore, the motion to dismiss is being denied with
respect to the claim under Connecticut General Statutes § 31–72
and the breach of contract claims to the extent those claims are
based on the final paycheck and being granted to the extent
those claims are based on annual expenses that were deducted.
C. Third Cause of Action: Unjust Enrichment
There are two aspects to the unjust enrichment claim: the
failure to pay wages, and the extent to which the defendants
were unjustly enriched by hiding and concealing the value of
SOMA prior to the Equity Purchase Agreement being executed.
With respect to the wage theft claim, Leonidas points out
that “[g]enerally, litigants are precluded from asserting an
‘unjust enrichment’ claim based on subject matter governed by an
express contract.”

Richard Parks Corrosion Tech., Inc. v. Plas-

Pak Indus., 2015 U.S. Dist. LEXIS 130694, at *14 (D. Conn. Sept.
29, 2015).

However, here the plaintiff has pled this claim in

the alternative.

Leonidas contends that the plaintiff has not

pled in the alternative in this case.

While Leonidas correctly

identifies technical deficiencies in pleading, the first
paragraph of the Third Amended Complaint makes it sufficiently
clear that the claim for unjust enrichment is being brought in
the alternative.

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With respect to hiding and concealing the value of SOMA
prior to the execution of the Equity Purchase Agreement, the
defendants argue that this claim should be dismissed for
substantially the reasons for which the fraud claim should be
dismissed.

However, the court found Leonidas’ arguments with

respect to the fraud claim unpersuasive.
Therefore the motion to dismiss is being denied with
respect to this cause of action.
D. Fourth Cause of Action: Conversion
There are two parts to the Fourth Cause of Action: a claim
with respect to a last paycheck, and a claim with respect to
$967,000 “owed to SOMA from Bristol Med Wholesale LLC from the
financial records, in advance of the Equity Purchase Agreement
dated November 16, 2012.”

(3d Am. Compl., ¶ 97.)

Dalamagas alleges that “Defendants Leonidas and John Does I
[and] II willfully and contumaciously withheld the last paycheck
from Plaintiff in the amount of [] $8333.33.”
103).

(3d Am. Compl., ¶

Leonidas argues that Dalamagas has failed to state a

claim for conversion with respect to his last paycheck because a
“claim of conversion cannot be predicated on a mere breach of
contract.” (Def.’s Mem. in Supp. of Mot. to Dismiss, at 17.)
“The tort of [c]onversion occurs when one, without
authorization, assumes and exercises ownership over property
belonging to another, to the exclusion of the owner's rights.”

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Sullivan v. Thorndike, 104 Conn. App. 297, 307 (2007).

Under

Connecticut law, “[a]n action for conversion of funds may not be
maintained to satisfy a mere obligation to pay money.... It must
be shown that the money claimed, or its equivalent, at all times
belonged to the plaintiff and that the defendant converted it to
his own use.”

Macomber v. Travelers Property & Casualty Corp.,

261 Conn. 260, 650–51 (2002).

With respect to the last

paycheck, Dalamagas “at best describe[s] an obligation of
[Leonidas] to pay money, which fails to state a claim of
conversion.”

Lawrence v. The Richman Grp. of Connecticut, LLC,

No. 3:03CV850 (JBA), 2004 WL 2377140, *7 (D. Conn. Sept. 30,
2004), aff'd sub nom. Lawrence v. Richman Grp. of Connecticut,
LLC, 199 F. App'x 55 (2d Cir. 2006).
Dalamagas also alleges that Bristol Med Wholesale LLC owed
$967,000 to SOMA and this obligation was omitted from the
financial records prior to the execution of the Equity Purchase
Agreement.

As discussed above, in order to plead a cause of

action for conversion, one must allege facts that show that the
defendant “assumes and exercises ownership over property
belonging to another”.

Sullivan, 104 Conn. App at 307.

Dalamagas alleges in paragraph 98 that “plaintiff was a 50%
owner of that money”. (3d Am. Compl., ¶ 98.)

However, the

factual allegations in the Third Amended Complaint make it clear
that the money at issue was owed to SOMA and that the

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plaintiff’s only tie to the money at the time it was allegedly
converted was that he and Leonidas “each owned equal shares of
SOMA”.

(3d Am. Compl., ¶ 2.)

Thus the plaintiff has not

alleged facts that show that Leonidas “assumed control and
exercised ownership rights over money belonging to [him].”
Macomber, 261 Conn. at 649.
Therefore the motion to dismiss is being granted with
respect to the Fourth Cause of Action in its entirety.
IV.

CONCLUSION

For the reasons set forth above, the defendants’ Motion to
Dismiss (Doc. Nos. 9, 15 and 36) is hereby GRANTED in part and
DENIED in part.

The motion to dismiss is being granted with

respect to the Second Cause of Action as to the claim under the
“Federal Wage Theft Act”, and as to the claims for annual
expenses based on Connecticut General Statutes § 31–72 and
breach of contract; and with respect to the Fourth Cause of
Action.

The motion to dismiss is otherwise being denied, so

Dalamagas’ remaining causes of action are: the First Cause of
Action; the Second Cause of Action as to claims with respect to
the final paycheck based on Connecticut General Statutes § 31–72
and breach of contract; and the Third Cause of Action.
It is so ordered.

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Dated this 22nd day of March, 2017, at Hartford,
Connecticut.
/s/AWT
Alvin W. Thompson
United States District Judge

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