Laross Partners, LLC v. Contact 911, Inc. et al
Filing
21
MEMORANDUM OF DECISION AND ORDER - It is hereby ORDERED, that the Defendants motion to dismiss for lack of personal jurisdiction is denied; and it is further ORDERED, that the Defendants motion to dismiss the fraud, conversion, unjust enrichment, and accounting claims is granted with prejudice, and it is further ORDERED, that the Defendants motion to dismiss the claim for attorneys fees is denied. Ordered by Judge Arthur D. Spatt on 7/10/2012. (Coleman, Laurie)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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LAROSS PARTNERS, LLC,
Plaintiff,
MEMORANDUM OF
DECISION AND ORDER
11-CV-1980 (ADS)(ARL)
-againstCONTACT 911 INC., and
FAMILYCONTACT911.COM, LLC,
Defendants.
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APPEARANCES:
Magnozzi & Kye, LLP
Attorneys for the Plaintiff
1 Expressway Plaza, Suite 114
Roslyn Heights, NY 11577
By: Mark F. Magnozzi, Esq.
Cynthia S. Butera, Esq., Of Counsel
Moran Karamouzis LLP
Attorneys for the Defendants
265 Sunrise Highway, Suite 61
Rockville Centre, NY 11570
By: Andrew P. Karamouzis, Esq., Of Counsel
SPATT, District Judge.
The Plaintiff LaRoss Partners, LLC (“LaRoss”) commenced this action against Contact
911 Inc., (“Contact”) and FamilyContact911.com LLC (“Family”) based on claims of breach of
contract, unjust enrichment, fraud, and conversion. The Defendants now move to dismiss the
Plaintiff’s amended complaint pursuant to Federal Rule of Civil Procedure (“Fed. R. Civ. P.”)
12(b)(2) for lack of personal jurisdiction against Family and pursuant to Fed. R. Civ. P. 12(b)(6)
for failure to state a claim. For the reasons stated below, the Defendants’ motion to dismiss for
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lack of personal jurisdiction is denied and the motion to dismiss for failure to state a claim is
granted in part and denied in part.
I. BACKGROUND
The Plaintiff is a New York corporation that provides various services for companies like
the Defendants, which are Florida corporations that provide emergency contact solutions. The
purpose of an emergency contact service is that in the midst of a catastrophic event, such as a
terrorist attack or natural disaster, an individual can convientiently pass along a message in an
automated fashion to those in one’s “Contact List”. This service is charged to customers on their
phone bill.
On August 3, 2007, LaRoss and Contact entered into an agreement (the “Agreement”)
under which LaRoss would provide a number of services for Contact’s internet based emergency
service titled “Family Contact 911”.
One type of service LaRoss agreed to provide was to apply and process for Local
Exchange Carrier (“LEC”) approval, specifically on behalf of the Family entity. LaRoss also
contracted to provide a marketing program to sell the Family Contact 911 product. In addition,
LaRoss agreed to perform Family Contact 911’s billing. LaRoss used a third-party intermediary,
the clearing hosue known as ILD Telecommunications (“ILD”), for this purpose. Under the
Agreement, LaRoss would provide the billing services, retain a portion of the revenue, and remit
the rest to Contact. In particular, LaRoss claims that it was to be paid for its services according
to the terms of the Agreement, which was 40% of the Defendants’ monthly billing settlement
“net revenues”, as that term is defined in the Agreement.
The initial term of the Agreement was set at three years. The Agreement contained a
forum selection clause, which stated “If such disputes cannot be resolved, then both retain the
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right to pursue legal or other remedies; with the venue for all such remedies to be set in Nassau
County, State of New York, exclusively.” (Pl. Mem. in Opposition Ex. 1)
According to the Plaintiff, LaRoss provided the agreed services and by the terms of the
Agreement, the revenues were split, until in or around March 2009. Throughout this time, the
Plaintiff claims to have distributed the shared revenues to both the Contact and Family entities.
The Plaintiff first asserts that, in or around March 2009, the Defendants communicated to the
Plaintiff that they would take over the billing services, but that the remaining provisions of the
Agreement would remain in force, including the revenue sharing provision. LaRoss claims that
the Defendants made only one further payment of the LaRoss’ revenue share, in March of 2009,
despite subsequent assurances from the Defendants that the Plaintiff would be receiving its share
of the net revenues realized from the billing to the Family Contact 911 customers under the
Agreement.
On or about March 2, 2011, LaRoss filed suit in Nassau County Supreme Court, pursuing
causes of action for breach of contract, fraud, conversion, accounting, and attorneys’ fees against
both parties, as well as an unjust enrichment claim against Family. On April 21, 2011, the case
was removed to this Court.
On October 6, 2011, Family moved to dismiss the Plaintiff’s amended complaint for lack
of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2) and, in the alternative, to dismiss the
Plaintiff’s second (unjust enrichment), third (fraud), fourth (conversion), fifth (accounting) and
sixth (attorney’s fees) causes of action, for failure to state a claim pursuant to Fed. R. Civ. P.
12(b)(6). Contact joined in moving to dismiss the Plaintiff’s third, fourth, fifth, and sixth causes
of action for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). The Plaintiff opposes
both motions.
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II. AS TO PERSONAL JURISDICTION
A. Legal Standards
1. Standard on a Motion to Dismiss for Lack of Personal Jurisdiction
A plaintiff has the burden of establishing personal jurisdiction to defeat a Rule 12(b)(2)
motion to dismiss. DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001) (quoting
Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999)). In
deciding a motion to dismiss for lack of personal jurisdiction, the Court may rely on materials
that are outside the pleadings, including any affidavits submitted by the parties. DiStefano, 286
F.3d at 84. However, where, as here, the Court “relies on the pleadings and affidavits, and
chooses not to conduct a ‘full-blown evidentiary hearing,’ plaintiffs need only make a prima
facie showing of personal jurisdiction over the defendant.” Penguin Group (USA) Inc. v.
American Buddha, 609 F.3d 30, 34–35 (2d Cir. 2010); Porina v. Marward Shipping Co., Ltd.,
521 F.3d 122, 126 (2d Cir. 2008). “Such a showing entails making legally sufficient allegations
of jurisdiction, including an averment of facts that, if credited, would suffice to establish
jurisdiction over the defendant.” Penguin, 609 F.3d at 35 (internal quotations marks and
alterations omitted). Furthermore, materials presented by the plaintiff should be construed in the
light most favorable to the plaintiff and all doubts resolved in its favor. See A.I. Trade Fin., Inc.
v. Petra Bank, 989 F.2d 76, 79–80 (2d Cir. 1993).
2. Forum Selection Clause
“Parties can consent to personal jurisdiction through forum-selection clauses in
contractual agreements.” D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006) (citing
Nat’l Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 315–16, 84 S.Ct. 411, 11 L. Ed. 2d 354
(1964)). If the forum selection clause is both valid and applicable, “it is not necessary to analyze
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jurisdiction under New York's long-arm statute or federal constitutional requirements of due
process.” American S.S. Owners Mut. Protection and Indem. Ass'n, Inc. v. Am. Boat Co., No.
11 Civ. 6804, 2012 WL 527209, at *2 (S.D.N.Y. Feb. 17, 2012) (quoting Export–Import Bank of
the U.S. v. Hi–Films S.A. de C. V., No. 09 Civ. 3573, 2010 WL 3743826, at *4 (S.D.N.Y. Sep.
24, 2010)).
There is a strong presumption in favor of upholding the enforceability of forum selection
clauses. Bluefire Wireless, Inc. v. Cloud9 Mobile Commc’ns, Ltd., No. 09 Civ. 7268, 2009 WL
4907060, at *3 (S.D.N.Y. Dec. 21, 2009) (“[t]he Second Circuit has endorsed an expansive
reading of the scope of forum selection clauses, in keeping with the policy favoring their use.”)
(citations omitted); see M/S Bremen v. Zapata Off–Shore Co., 407 U.S. 1, 9–10, 92 S.Ct. 1907,
32 L.Ed.2d 513 (1972); Roby v. Corp. of Lloyd’s, 996 F.2d 1353, 1361 (2d Cir. 1993). Forum
selection clauses play a crucial role in ensuring predictability in contract formation. In re Refco
Inc., Securities Litigation, No. 08 Civ. 3086, 2009 WL 5548666, at *5 (S.D.N.Y. Nov. 16, 2009)
(“Both the Supreme Court and the Second Circuit have recognized that forum selection clauses
have economic value and should be enforced in accordance with the expectations of the
parties.”) (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 594, 111 S. Ct. 1522 , 113
L. Ed. 2d 622 (1991); M/S Bremen, 407 U.S. at 13–15; Aguas Lenders Recovery Group, LLC
v. Suez, S.A., 585 F.3d 696, 699–700 (2d Cir. 2009); Roby, 996 F.2d at 1363).
To enforce a forum selection clause, a party must show that: “(1) the clause was
reasonably communicated to the party resisting enforcement; (2) the clause was mandatory and
not merely permissive; and (3) the claims and parties involved in the suit are subject to the forum
selection clause.” Tropp v. Corporation of Lloyd's, 385 Fed. App'x 36, 37 (2d Cir. 2010). Even
if all three criteria are met, the opposing party may “make a sufficiently strong showing that
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‘enforcement would be unreasonable or unjust, or that the clause was invalid for such reasons as
fraud or overreaching.”’ Phillips v. Audio Active Ltd., 494 F.3d 378, 383–84 (2d Cir. 2007)
(quoting M/S Bremen, 407 U.S. at 15).
B. As to Whether the Forum Selection Clause is Enforceable Against Family
In the instant case, the Defendant Family moves to dismiss for lack of personal
jurisdiction and asserts that, as a non-signatory, they are not bound by the forum selection clause
in the Agreement. The dispute as to the applicability of the forum selection clause in this context
largely concerns whether Family is an entirely separate company from Contact so that it should
be treated as such under the law, or whether there are enough ties between Family and Contact so
that it is fair and just to treat them similarly, at least for jurisdictional purposes at this stage of the
proceedings. As set forth below, although the Plaintiff has the burden to demonstrate a prima
facie case of personal jurisdiction, because the facts presented and because the materials
presented by the Plaintiff are construed in the light most favorable to the Plaintiff, the Court
finds that it is proper to apply the forum selection clause to the Family entity.
1. As to Whether the Clause Was Reasonably Communicated and Mandatory
As an initial matter, the Defendants do not claim that they were unaware of the forum
selection clause or that the clause was permissive rather than mandatory. This alone would
satisfy the first two prongs. Am. Boat, 2012 WL 527209, at *3 (“American Boat does not claim
either that the forum selection clause was not reasonably communicated to it, or that the clause is
permissive rather than mandatory. The first two prongs of the governing standard are, therefore,
satisfied.”); KTV Media Intern., Inc. v. Galaxy Group, LA LLC, 812 F. Supp. 2d 377, 384
(S.D.N.Y. 2011) (“Plaintiff does not contend that it was unaware of either the Galaxy Operating
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Agreement or the forum selection clause contained therein when it allegedly acquired those
interests.”)
Moreover, the Court notes that Nikolas Spiridellis, one of Family’s two managing
members, is also the sole officer of Contact, as well as a signatory to the Agreement between
Contact and LaRoss. (Declaration of Cynthia Butera Ex. 1, Opp. Exhibit 1.) Therefore, it would
be illogical for Family to disclaim knowledge of the relevant forum selection clause. See KTV,
812 F. Supp. 2d at 384 (holding forum selection clause to be reasonably communicated when
“Kimberg — registered agent for KTV Media International — has signed many, if not all, of the
agreements executed between the parties . . . ”)
The Court also notes that the language “with the venue for all such remedies to be set in
Nassau County, State of New York, exclusively” is clearly mandatory. See S.K.I. Beer Corp. v.
Baltika Brewery, 612 F.3d 705, 708 (2d Cir. 2010) (“A forum selection clause is viewed as
mandatory when it confers exclusive jurisdiction on the designated forum or incorporates
obligatory venue language.”) (quoting Phillips, 494 F.3d at 386); Brennen v. Phyto–Riker
Pharms., Ltd., No. 01 Civ. 11815, 2002 WL 1349742, at *3 (S.D.N.Y. June 20, 2002) (“inclusion
of the phrase ‘exclusive jurisdiction’ indicates an intent that any dispute . . . be filed in one of the
fora specified”).
2. As to Whether the Claims and Parties Involved are Subject to the Forum
Selection Clause
a. Non- Signatories
The primary argument of the Defendant Family in support of its motion to dismiss for
lack of personal jurisdiction is that Family was not a signatory to the Agreement between
Contact and LaRoss, and is therefore not bound by the forum selection clause contained in the
Agreement. As an initial matter, the Court notes that Family’s non-signatory status does not, as
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a general matter, prevent it from being bound by the forum selection clause. See Aguas, 585
F.3d at 701 (“We find ample support for the conclusion that the fact a party is a non-signatory to
an agreement is insufficient, standing alone, to preclude enforcement of a forum selection
clause.”) (collecting cases); Novak v. Tucows, Inc., No. 06 Civ. 1909, 2007 WL 922306, at *13
(E.D.N.Y. Mar. 26, 2007) (“Further, at least two courts within this Circuit have held that ‘[i]t is
well established that a ‘range of transaction participants, parties and non-parties, should benefit
from and be subject to forum selection clauses.”’) (quoting Weingard v. Telepathy, Inc., No. 05
Civ. 2024, 2005 WL 2990645, at *5 (S.D.N.Y. Nov. 7, 2005) (internal citations omitted)).
In the context of arbitration agreements, the Second Circuit has noted that non-signatories
may be bound to a contract’s venue provision pursuant to at least five different theories: “(1)
incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5)
estoppel.” Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 352 (2d Cir.
1909) (citing Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995)). In
addition, a number of courts in this Circuit have bound non-signatories that are “closely related”
to one of the signatories to the contract containing the forum selection clause. See, e.g., Refco,
2009 WL 5548666, at *10 (“After Aguas, there can be no dispute that forum selection clauses
will be enforced even against non-signatories where they meet the “closely related” standard”);
KTV Media, 812 F. Supp. 2d at 386 (“A movant seeking dismissal may enforce a forum
selection clause against a non-signatory where the non-signatory is “closely related” to one of the
signatories”) (collecting cases).
Thus, the Court will assess whether the forum selection clause should be applicable to
Family under the theories of estoppel, assumption, and “closely related”.
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b. Estoppel
In a number of cases involving arbitration clauses, the Second Circuit has held that a nonsignatory is estopped from denying its obligation to arbitrate when it received a ‘direct benefit’
from a contract containing an arbitration clause. Tencara, 170 F.3d at 353 (“A party is estopped
from denying its obligation to arbitrate when it receives a “direct benefit” from a contract
containing an arbitration clause.”); Thomson–CSF, 64 F.3d at 779 (“Had Thomson directly
benefitted from the Working Agreement by seeking to purchase equipment from E & S or
enforcing the exclusivity provisions of the Agreement, it would be estopped from avoiding
arbitration.”); Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d
Cir. 1993) (estopping a party from denying its obligation to arbitrate where it knowingly
accepted the benefits of the agreement containing an arbitration clause). Thus, it is clear that this
theory of enforceability is valid in the arbitration context.
However, whether the estoppel theory is valid in the forum selection context is the more
relevant inquiry. Certainly, a number of courts in this Circuit and others have espoused the
general principle that a party is estopped from denying a contract provision when it has directly
benefited from the contract. American Boat, 2012 WL 527209, at *4 (“Under this ‘direct
benefits theory’ of estoppel, a party which is a non-signatory to a contract, but which nonetheless
receives a direct benefit from that contract, is estopped from seeking exclusion from provisions
of the contract.”); In re Refco, Inc. Securities Litig., No. 07 Civ. 11604, 2008 WL 2185676, at
*5 (S.D.N.Y. May 21, 2008) (“The lack of a signature on a contract does not affect its validity
where the non-signing party received the contract and knowingly accepted its benefits.”). Of
importance, courts in this Circuit have specifically applied the theory of direct benefits estoppel
to cases involving forum selection clauses. See American Boat, 2012 WL 527209, at *5 (“Under
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the direct benefits theory of estoppel, American Boat is, therefore, estopped from arguing that it
is a non-Member and hence not subject to the forum selection clause.”); Refco, 2009 WL
5548666, at *9 (“It is well-settled that a party seeking to obtain the benefits of a contract must
also accept its burdens, including contractual forum selection.”) (citing Ana Distribution Inc. v.
CMA–CGM (America) Inc., 329 F. Supp. 2d 565, 567 (S.D.N.Y. 2004)). Furthermore, in
Hellenic Investment Fund, Inc. v. Det Norske Veritas, the Fifth Circuit interpreted the Second
Circuit’s ruling in Tencara as extending to forum selection clauses generally. 464 F.3d 514, 518
(5th Cir. 2006) (“In American Bureau of Shipping v. Tencara Shipyard S.P.A., the Second
Circuit employed direct-benefit estoppel to bind non-signatory vessel owners to a forumselection clause in a contract between a classification society and a shipyard”) (citing Tencara,
170 F.3d at 353).
The Court agrees with the holdings in the cases set forth above that the theory of direct
benefits estoppel is applicable in the forum selection context. As the Supreme Court and the
Second Circuit have noted, an arbitration clause is merely one species of forum selection clauses.
Roby, 996 F.2d at 1352 n.2 (“The analysis is no different for the arbitration clauses. Indeed, an
arbitration clause is merely a specialized type of forum selection clause.”) (citing Scherk v.
Alberto-Culver Co., 417 U.S. 506, 519, 94 S. Ct. 2449, 41 L. Ed. 2d 270 (1974)). Like
arbitration clauses, forum selection clauses enjoy a strong presumption in favor of enforcement.
Bluefire Wireless, Inc. v. Cloud9 Mobile Commc’ns, Ltd., No. 09 Civ. 7268, 2009 WL 4907060,
at *3 (S.D.N.Y. Dec. 21, 2009) (“The Second Circuit has endorsed an expansive reading of the
scope of forum selection clauses, in keeping with the policy favoring their use.”) (internal
citations omitted); Refco, 2009 WL 5548666 , at *5 (“There is a strong federal policy in favor of
the enforcement of forum selection clauses.”) (citing M/S Bremen, 407 U.S. at 9–10); Roby, 996
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F.2d at 1361); see also New Moon Shipping Co. v. MAN B & W Diesel AG, 121 F.3d 24, 29 (2d
Cir. 1997) (noting that courts must “give substantial deference to the parties’ selected forum”
and “absent some compelling and countervailing reason it should be honored by the parties and
enforced by the courts.”) (quoting M/S Bremen, 407 U.S. at 12).
Viewing the facts in the light most favorable to the Plaintiff, the Court finds that the
Defendant Family directly benefited from the Agreement. In the context of estoppel, benefits are
“direct” when they flow directly from the agreement. Life Technologies Corp. v. AB Sciex Pte.
Ltd., 803 F. Supp. 2d 270, 274 (S.D.N.Y. 2011) (“The benefits must be direct—which is to say,
flowing directly from the agreement.”) (quoting Oppenheimer Co. Inc. v. Deutsche Bank AG,
No. 09 Civ. 8154, 2010 WL 743915, at *2 (S.D.N.Y. Mar. 2, 2010)); see also Tencara, 170 F.3d
at 353. By contrast, benefits are indirect when they are incidental to the contract or when the
non-signatory benefits from the contractual relationship between the signatories but not the
contract itself. Life Technologies, 803 F. Supp. 2d at 274 (“In contrast, ‘the benefit derived from
an agreement is indirect,’ and is therefore insufficient to support estoppel, ‘where the
nonsignatory exploits the contractual relation of parties to an agreement, but does not exploit
(and thereby assume) the agreement itself.’”) (quoting Republic of Ecuador v. ChevronTexaco
Corp., 499 F. Supp. 2d 452, 458 (S.D.N.Y. 2007)); Ayco Co., L.P. v. Becker, No. 10 Civ. 0834,
2011 WL 3651027, (N.D.N.Y. Aug. 18, 2011) (“The benefit derived from an agreement is
indirect where the non-signatory exploits the contractual relation of parties to an agreement, but
does not exploit (and thereby assume) the agreement itself.”) (citing Thomson–CSF, 64 F.3d at
778–79).
Here, the Defendant Family directly benefited from the Agreement in several ways.
First, according to the Plaintiff and not explicitly disputed by the Defendant, the
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“familycontact911.com” product that is the subject of the Agreement, appears to be the product
of Family, and not the Defendant Contact. (Spiridellis Reply Aff. ¶ 26 (“During the time period
in question, [Family] operated its business through a website at the domain
www.familycontact911.com”), Lavino Aff. ¶17,18). On the website of familycontact911.com,
the page cites Family as the copyright and trademark owner of the product, rather than Contact.
(Spiridellis Reply Aff. Ex. D). Thus, it is logical to conclude that Family benefited from the
marketing plan and customer support services LaRoss provided for the “familycontact911.com”
product, as well as the LEC licenses LaRoss obtained for “familycontact911.com”, under the
terms of the Agreement. In Life Technologies Corp. v. AB Sciex Pte. Ltd., the court held that a
non-signatory was estopped from denying its obligation to arbitrate when it “knowingly
exploited the direct benefits of the Purchase Agreement by obtaining and using the licenses
provided by the License Agreement.” 803 F. Supp. 2d 270, 272 (S.D.N.Y. 2011).
In addition, the Defendant Family directly benefited from the Agreement because LaRoss
paid Family a percentage of the income LaRoss collected from the “familycontact911.com”
product, pursuant to the revenue sharing provision in the Agreement. (Amended Complaint, at ¶
19) (“[P]laintiff would remit monies received from ILD, less the fees paid to the internet
marketing vendor, to the defendant, Family, in an amount equal to sixty (60%) percent of the
billing settlement net revenues each month.”)
Finally, the rationale that underlies the direct benefits estoppel also applies to forum
selection clauses in general and is particularly applicable in the instant case. As the Court in
American Boat noted, a party “cannot have it both ways” with regard to being bound by a
contract. 2012 WL 527209, at *4. If, as Family insists, it had nothing whatsoever to do with the
Agreement and is entirely uninvolved in the contract that is the subject of the instant case, then it
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has unjustly received many thousands of dollars from the Plaintiff pursuant to a contract it was
not associated with. As the court in HD Brous & Co., Inc. v. Mrzyglocki stated, if a nonsignatory was “an intended beneficiary of the Agreement, knew that it was an intended
beneficiary of the Agreement, and knowingly accepted benefits from the Agreement then it
cannot selectively repudiate the obligation to arbitrate set forth in the Agreement.” No. 03 Civ.
8385, 2004 WL 376555, at *7 (S.D.N.Y. Feb. 26, 2004) (citing Thomson-CSF, 64 F.3d at 778,
779). Although Family makes much of the fact that it was formed six days after Contact entered
into the Agreement, this does not negate a finding that it was created with the intention to benefit
from the Agreeement and knowingly did so.
Therefore, under the estoppel theory of enforceability, the Court finds that Family is
subject to the forum selection clause in the Agreement and on this ground, its motion to dismiss
under Fed. R. Civ. P. 12(b)(2) is denied.
c. Assumption
Even if this Court were to find the theory of estoppel to be inapplicable to the present
case, the Court finds that Family is nevertheless alternatively susceptible to the force of the
forum selection clause under the principle of assumption.
In the context of arbitration clauses, the Second Circuit has held that a non-signatory may
be bound to a venue provision if it has assumed the contract containing the provision. Tencara,
170 F.3d at 352 (citing Thomson-CSF, 64 F.3d at 776 (2d Cir. 1995)). In Aguas, the Second
Circuit held that a non-signatory, even one that did not exist at the time of the formation of the
contract, may be bound by a forum selection clause in a contract entered into by a predecessor in
interest. 585 F.3d at 697 (“The principal issue is whether… a non-signatory to an agreement
may be bound by a forum selection clause and forum non conveniens waiver contained in
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contracts entered into by an entity alleged to be a predecessor in interest. We hold that such a
non-signatory may be so bound.”). A non-signatory need not be the parent corporation of a
signatory to be bound under the assumption theory. MBIA Ins. Corp. v. Royal Bank of Canada,
706 F. Supp. 2d 380, 398 n.9 (S.D.N.Y. 2009). (“As with the alter-ego doctrine, courts applying
the assumption theory have held nonsignatories that were not the parent corporation of the
signatory to be bound by the arbitration agreement.”) (citing Gvozdenovic v. United Air Lines,
Inc., 933 F.2d 1100, 1105–07 (2d Cir. 1991)).
However once again, the relevant context here is not arbitration clauses, but rather forum
selection clauses. In Impulse Marketing Group, Inc. v. National Small Business Alliance, Inc.,
No. 05 Civ. 7776, 2007 WL 1701813, at *6 (S.D.N.Y. June 12, 2007), one district court held that
a non-signatory had assumed a contract and bound the non-signatory to a forum selection clause
where the non-signatory’s actions “hue closer to that of a party that was acting under the
obligation of a contract than one that is merely assisting in its administration.” . The Impulse
Court noted that “[a] written contract need not be signed to be binding against a party, so long as
the party indicates through performance of its terms or other unequivocal acts that it intends to
adopt the contract.” Id. at *5 (quoting Allen v.. Nat'l Video, Inc., 610 F. Supp. 612, 631
(S.D.N.Y. 1985)).
In the instant case, the precise contours of the relationship between the two Defendant
entities is not fully explained by any of the parties or by the evidence submitted. Nonetheless,
based on the Plaintiff’s allegations and viewing the facts in the light most favorable to the
Plaintiff, the Plaintiff has made a sufficient prima facie showing that Family assumed Contact’s
role under the Agreement.
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First, as noted above, the product that is the subject of the Agreement,
“familycontact911.com,” appears in many ways to have been Family’s product. The Defendant
Family’s incorporated name is FAMILYCONTACT911.COM, LLC. (Butera Aff. Ex. 2).
Moreover, the Defendants make statements that indicate that “familycontact911.com” was
Family’s product. (Spiridellis Reply Aff. ¶ 26) (“During the time period in question, [Family]
operated its business through a website at the domain www.familycontact91l .com”). According
to the Plaintiff, for the duration of the agreement, Family’s “only business and only source of
revenue was generated pursuant to the terms of the Agreement carried out by LaRoss in New
York.” (Lavino Aff. ¶17, 18). In fact, the Plaintiff claims that during the execution of the
Agreement, Spiridellis and Lavino, an officer at Laross, actually discussed the formation of the
Family entity. (Lavino Aff., ¶9.) In fact, the Plaintiff alleges that the sole reason for the creation
of the Family entity was to effectuate the Agreement between LaRoss and Contact.
Moreover, the monies that LaRoss sent to Family each month from the Family bank
account in New York, were deposited in the bank account of Contact. (Lavino Afd., ¶20, Ex. 7.)
In addition, the one check received by LaRoss in connection with termination of the Agreement
was issued by Family, which according to the Defendants, was on behalf of Contact. (Lavino
Afd., ¶20, Ex. 9.) This further demonstrates that Family’s business was the emergency contact
service — Family Contact 911 operated through familycontact911.com — that was the subject of
the Agreement.
Second, subsequent to the signing of the Agreement, the Defendants directed LaRoss to
obtain the LEC licenses in the name of Family, rather than Contact, to reduce the likelihood of
complaints damaging Contact’s other products. (See Pl. Mem. in Opp., Ex. 2.) The LEC
licenses provided by the Plaintiff demonstrate that the licenses were, in fact, processed by
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LaRoss in Family’s name, and Spiridellis signed them as CEO of Family. (See Pl. Mem. in
Opp., Ex. 5.) Furthermore, as noted above, Family was paid by LaRoss under the Agreement’s
revenue sharing provision. (Amended Complaint, at ¶ 19). The checks, which were
subsequently cashed, were made out to Family, not to Contact. (Pl. Mem. in Opp., Ex. 7.)
Based on the above, the Court is satisfied that the Plaintiff has demonstrated that
Defendant Family assumed the Agreement in question. The Second Circuit has held that courts
should apply forum selection clauses to prevent “parties to contracts from using evasive,
formalistic means lacking economic substance to escape contractual obligations.” Refco, 2009
WL 5548666, at *8 (citing Aguas, 585 F.3d at 701). The Defendants’ initial explanation to
LaRoss for switching the name of the company for whom the LEC licenses would be obtained
was that “I would like to use a different Company since being cut off by a LEC for lack of
service or too many complaints means you're cut off for good.” (Pl. Mem. in Opp., Ex. 2.)
Moreover, Spiridellis, Contact’s sole officer/director, is one of Family’s two managing members;
the Defendants share registered agents; and, at Family’s inception, the two companies shared a
business address, which was Spiridellis’ home address. (Butera Aff. Ex. 2; Lavino Aff., at ¶ 10..
Under these circumstances, allowing the Defendant Family to subsequently escape its obligations
through a bait and switch of what are alleged to be nearly identical corporations would be
precisely the type of evasive maneuver the theory of assumption was meant to protect against.
Therefore, under the alternative theory of assumption, the Court finds that Family is
subject to the Agreement’s forum selection clause.
d. Closely-Related
Finally, the Court will review one additional potential framework under which the
Plaintiff may enforce the forum selection clause against a non-signatory.
16
As an initial matter, it is well established in this Circuit that a non-signatory may enforce
a forum selection clause against a signatory –– the opposite situation of the one that the Court
faces here — where they are “closely related.” Magi XXI, Inc. v. Stato Della Citta Del Vaticano,
818 F. Supp. 2d 597, 605 (E.D.N.Y. 2011) (“A non-signatory may enforce a forum selection
clause when it is closely related to a signatory.”); Thibodeau v. Pinnacle FX Investments, No. 08
Civ. 1662, 2008 WL 4849957, at *5 n.4 (E.D.N.Y. Nov. 06, 2008) (acknowledging that a nonsignatory may invoke the forum selection clause if the party is “closely related” to the signatory)
(quoting Direct Mail Production Services Ltd. v. MBNA Corp., No. 99 Civ. 10550, 2000 WL
1277597, at *3 (S.D.N.Y. Sep. 7, 2000) (quotations and citations omitted)); In re Optimal U.S.
Litig., 813 F. Supp. 2d 351, 369 (S.D.N.Y. 2011) (allowing a non-signatory to bind a signatory
where they are ‘“sufficiently close so that the non-party's enforcement of the forum selection
clause is foreseeable by virtue of the relationship between the signatory and the party sought to
be bound.”’) (quoting Direct Mail, 2000 WL 1277597, at *3).
As for the opposite situation, in Hugel v. Corp. of Lloyd’s, 999 F.2d 206, 209 (7th Cir.
1993), the Seventh Circuit similarly held that a signatory may enforce a forum selection clause
against a non-signatory where the parties are closely related in way that it is foreseeable that the
non-signatory will be bound. See id. (“In order to bind a non-party to a forum selection clause,
the party must be ‘closely related’ to the dispute such that it becomes ‘foreseeable’ that it will be
bound.”) (citations omitted). Although the Second Circuit, in Smoothline Ltd. v. North
American Foreign Trading Corp., 249 F.3d 147, 155 n.4 (2d Cir. 2011), declined to apply
Hugel’s “closely related” test in the arbitration context, the Second Circuit in Aguas cited Hugel
with approval in the context of a forum selection clause. 585 F.3d at 700.
17
Of importance, a number of district court cases in this Circuit have applied the “closely
related” theory in the analgous situation of allowing a signatory to bind non-signatories to a
contract containing a forum selection clause See, e.g., KTV Media, 812 F. Supp. 2d at 386 (“A
movant seeking dismissal may enforce a forum selection clause against a non-signatory where
the non-signatory is “closely related” to one of the signatories”) (citations omitted); MGM
Studios Inc. v. Canal+ Distrib. S.A.S., No. 07 Civ. 2918, 2010 WL 537583, at *5 (S.D.N.Y. Feb.
9, 2010) (“Under New York law, a signatory to a contract may invoke a forum selection clause
against a non-signatory if the non-signatory is ‘closely related’ to one of the signatories . . . ”);
Kahala Corp. v. Holtzman, No. 10 Civ. 4259, 2010 WL 4942221, at *3 (S.D.N.Y. Dec. 03, 2010)
(“Under New York law, a forum selection clause may be enforced against a non-signatory who is
“closely related” to the dispute such that enforcement of the forum selection clause against him
is foreseeable”); Refco, 2009 WL 5548666 at *10 (“After Aguas, there can be no dispute that
forum selection clauses will be enforced even against non-signatories where they meet the
“closely related” standard”); Great Northern Ins. Co. v. Constab Polymer-Chemie GmbH & Co.,
No. 01 Civ. 0882, 2007 WL 2891981, at *8 (N.D.N.Y. Sep. 28, 2007) (finding that the nonsignatory may be nevertheless bound by the clause if the non-signatory “is closely related to the
dispute such that it becomes foreseeable that it will be bound.”) (citations omitted); Nanopierce
Tech., Inc. v. Southridge Capital Mgmt. LLC, No. 02 Civ. 0767, 2003 WL 22882137, at *5–6
(S.D.N.Y. Dec. 4, 2003) (enforcing a forum selection clause against a non-signatory corporate
officer who was held to be closely related to the corporation). Therefore, the Court will proceed
to apply this framework to the case at hand.
A non-signatory to a contract is held to be sufficiently “closely related” to the dispute
when “enforcement of the forum selection clause is foreseeable by virtue of the relationship
18
between the signatory and the party sought to be bound.” In re Optimal U.S. Litig., 813 F. Supp.
2d at 369 (citing Direct Mail, 2000 WL 1277597, at *3 (internal quotation marks and citation
omitted)).
The Court finds that the Defendant Family is sufficiently closely related to the Defendant
Contact, particularly with regard to the Agreement, so that it should have been foreseeable to
Family that it would be bound by the forum selection clause in the Agreement. The Court notes
that the fact that the forum selection clause refers only to Contact and LaRoss “does not preclude
application of the ‘closely related’ doctrine, which exists precisely because there are some
situations where courts believe that parties who are not signatories to such a clause should
nonetheless be bound by that clause.” Magi XXI, 818 F. Supp. 2d at 609 (enforcing a forum
selection clause that was defined in reference to the parties to the agreement) (citing Firefly
Equities, LLC v. Ultimate Combustion Co., Inc., 736 F. Supp. 2d 797, 800 (S.D.N.Y. 2010)).
The court in Universal Grading Service v. eBay, Inc., No. 08-CV-3557, 2009 WL
2029796, at *16 (E.D.N.Y. June 10, 2009) held that a close business relationship between a
signatory and non-signatory is an important factor in determining if it was foreseeable that the
non-signatory would be bound. See id. (“Other courts have found that a close business
relationship between a non-party and a party to an agreement is an important consideration in
determining whether a forum selection clause in the agreement is enforceable against the nonparty.”) (collecting cases); Refco, 2009 WL 5548666, at *11 (holding non-signatory and
signatory to be closely related when their business operations were “intertwined.”); see also
Kahala, 2010 WL 4942221, at *3 (finding non-signatory bound to forum selection clause where
he was “closely related to the contract dispute” and to the signatory Defendants).
19
As noted above, Defendant Family is intimately connected to both Defendant Contact
and to this lawsuit. Spiridellis, Contact’s sole officer/director, is one of Family’s two managing
members; the Defendants share registered agents; and, at Family’s inception, shared a business
address (Spiridellis’ home address). (Butera Aff. Ex. 2; Lavino Aff. ¶ 10). Family’s sole
product “familycontact911.com” is “powered by Contact 911”, and Family received funds
pursuant to the revenue sharing provision contained in the agreement. (Spiridellis Reply Aff. ¶
26; Reply Aff. Ex. D). These select factors are sufficient to warrant a finding that the two
entities “closely related” for purposes of the relevant inquiry.
Moreover, the Plaintiff alleges that the Defendants acted in concert to deprive it of its
share under the Agreement. Based on the Plaintiff’s allegations, Family seems to function as
essentially a subsidiary of Contact, and was formed in order to prevent complaints from the
“familycontact911.com” product from affecting Contact’s other products and future licensing
opportunities. (Pl. Mem. in Opp., Ex. 2). This is another premise upon which to enforce the
forum selection clause as against Family. See Weingard, 2005 WL 2990645, at *6 (finding nonsignatories and signatories to be closely related where they allegedly acted in concert).
Based on the above, the Court is satisfied that Family is sufficiently “closely related” to
the Agreement between Contact and LaRoss so that it should have been foreseeable to Family
that its role in the Agreement and its relationship to Contact would lead to it being bound by the
forum selection clause contained in the Agreement.
In light of this conclusion, the Court need not analyze the applicability of New York’s
long-arm jurisdiction. See Atl. Mut. Ins. Co. v. M/V HUMACAO, 169 F. Supp. 2d 211, 217–18
(S.D.N.Y. 2001) (“In light of my conclusion that NPR has made a prima facie showing of
Empire’s consent to jurisdiction under the forum selection clause, I need not resolve the parties’
20
contentions regarding the application of New York's long-arm statute.”); Keene Corp. v. Bogan,
683 F. Supp. 977, 978 (S.D.N.Y. 1988) (“Although the plaintiff asserts as an alternative theory
of jurisdiction that Bogan was doing business in New York for purposes of the New York longarm statute, CPLR § 302, I need not and do not go beyond the forum selection clause to decide
this motion.”).
III. FAILURE TO STATE A CLAIM
A. Legal Standard on a Motion to Dismiss
Under the now well-established Twombly standard, a complaint should be dismissed only
if it does not contain enough allegations of fact to state a claim for relief that is “plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L. Ed. 2d 929, 570, 550
U.S. 544, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007). The Second Circuit has explained
that, after Twombly, the Court’s inquiry under Rule 12(b)(6) is guided by two principles. Harris
v. Mills, 572 F.3d 66 (2d Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937,
1949, 173 L. Ed. 2d 868 (2009)).
“First, although ‘a court must accept as true all of the allegations contained in a
complaint,’ that ‘tenet’ ‘is inapplicable to legal conclusions,’ and ‘[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.’” Id. at
72 (quoting Iqbal, 129 S.Ct. at 1949). “‘Second, only a complaint that states a plausible claim
for relief survives a motion to dismiss' and ‘[d]etermining whether a complaint states a plausible
claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.’” Id. (quoting Iqbal, 129 S.Ct. at 1950). Thus, “[w]hen
there are well-pleaded factual allegations, a court should assume their veracity and ... determine
whether they plausibly give rise to an entitlement of relief.” Iqbal, 129 S.Ct. at 1950.
21
In considering a motion to dismiss, this Court accepts as true the factual allegations set
forth in the complaint and draws all reasonable inferences in the Plaintiffs’ favor. Zinermon v.
Burch, 494 U.S. 113, 118, 110 S. Ct. 975, 979, 108 L. Ed. 2d 100 (1990); In re NYSE Specialists
Secs. Litig., 503 F.3d 89, 91 (2d Cir. 2007). Only if this Court is satisfied that “the complaint
cannot state any set of facts that would entitle the plaintiff to relief” will it grant dismissal
pursuant to Rule 12(b)(6). Hertz Corp. v. City of N.Y., 1 F.3d 121, 125 (2d Cir. 1993). The
issue on a motion to dismiss is “not whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claims.” Todd v. Exxon Corp., 275 F.3d 191,
198 (2d Cir. 2001) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d
90 (1974)).
B. As to Whether the Fraud Claim Should be Dismissed
The Defendants first argue that the Plaintiff’s cause of action for fraud as against both
Defendants, Contact and Family, must be dismissed because the alleged misrepresentations
relate entirey to the Plaintiff’s breach of contract claim, namely, that the Plaintiff is entitled to
net revenues under the Agreement from the Family Contact 911 product. In other words, the
Defendants contend that because the misrepresentations do not involve conduct that is
extraneous to the contract, the Plaintiff’s fraud claim must be dismissed as duplicative of the
Plaintiff’s breach of contract claim.
New York law generally requires that a fraud claim raised in the context of a contract
dispute be “sufficiently distinct from the breach of contract claim.” Bridgestone/Firestone, Inc.
v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996) (quoting Papa's–June Music, Inc.
v. McLean, 921 F.Supp. 1154, 1162 (S.D.N.Y. 1996)). A fraud claim generally will not lie if it
arises “out of the same facts as plaintiff’s breach of contract claim.” Telecom Int'l. Am., Ltd. v.
22
AT & T Corp., 280 F.3d 175, 196 (2d Cir. 2001). However, parallel fraud and contract claims
may be maintained if the plaintiff: “(i) demonstrate[s] a legal duty separate from the duty to
perform under the contract; or (ii) demonstrate[s] a fraudulent misrepresentation collateral or
extraneous to the contract; or (iii) seek[s] special damages that are caused by the
misrepresentation and unrecoverable as contract damages.” Bridgestone/Firestone, Inc., 98 F.3d
at 20 (internal citations omitted); see Great Earth Intern. Franchising Corp. v. Milks Dev., 311 F.
Supp. 2d 419, 425 (S.D.N.Y. 2004) (noting that a fraud claim and a breach of contract claim can
coexist where the plaintiff makes one of three showings discussed in Bridgestone/Firestone ).
Here, the Plaintiff does not attempt to argue that the Defendants had any kind of duty to it
independent of the Agreement, nor does it try to assert that it is seeking special damages. Rather,
the Plaintiff endeavors to contend that it has sufficiently alleged a claim for fraud that is
collateral or extraneous from the provisions in the Agreement. First, the Plaintiff asserts that the
Defendants, through their mutual agent Spiridellis, made false and misleading statements to the
Plantiff regarding future performance. In particular, Spiridellis allegedly represented to the
Plaintiff that although the Defendants were assuming functions that were previously handled by
the Plaintiff, it would not affect the Plaintiff’s rights and entitlement to their share of the net
revenues under the Agreement. Second, the Plaintiff claims that the Spiridellis made a
subsequent false and misleading misrepresentation that the Defendants were not earning net
revenues and that based upon this false accounting, that the Plaintiff was not entitled to its share
of the net revenues. (Am. Compl., at ¶¶ 34, 35.) Specifically with regard to whether these
misrepresentations were collateral to and extraneous to the obligations under the Agreement, the
Plaintiff argues that the Defendants’ affirmative misrepresentations of fact “concerned the
accounting of the LEC billing[;] the ILD remittance[;] and the accounting for the net revenues”,
23
and accordingly “were extraneous to the obligations and performance under the Agreement.” On
the other hand, the Defendants claim that the alleged misrepresentations that form the basis for
the Plaintiff’s fraud claim are not collateral or extraneous to the Agreement, but instead relate
directly and specifically to the Plaintiff’s alleged right to receive payments under the Agreement.
The Court agrees with the Defendants that, in this case, the Plaintiff’s breach of contract
claim is duplicative of its fraud claim. Most of the alleged misrepresentations at issue concern
whether the Defendants falsely claimed that there were no net revenues from the Family Contact
911 product and consequently whether the Plaintiff was entitled to any payments pursuant to the
Agreement. It would be absurd to find that such a fraud claim did not derive directly and wholly
related to the Agreement. See Sylhan, LLC v. Schwarzkopf Techs. Corp., No. 01 Civ. 4368,
2002 WL 3250796, at *5 (E.D.N.Y. Aug. 9, 2002) (“Comparing the circumstances presented
here to the large body of Second Circuit case law, this Court is of the opinion that Defendant's
alleged misrepresentation is neither collateral nor extraneous to the contract, but is instead the
very essence of the contract and that no special relationship existed.”); see also Kranz v. Chateau
Stores of Canada, 256 A.D.2d 186, 187, 683 N.Y.S.2d 24 (1st Dep’t 1998) (“Plaintiff’s fraud
cause of action fails here because the breach of duty alleged by him, namely, the false statement
of defendant's net profits, was not collateral or extraneous to the contract”). Cf. Shpak v. Curtis,
No. 10 Civ. 1818, 2011 U.S. Dist. LEXIS 109011, at *34 (E.D.N.Y. Sept. 26, 2011) (“The
breach of contract claim, described below, alleges a very narrow promise concerning the
shipping and safekeeping of the Equipment, while the fraud claim alleges a raft of overarching
misrepresentations, both preceding and succeeding the formation of the contract.”). The
statements at issue here specifically concerned the Defendants’ intention––or lack thereof––to
24
breach the contract. Any statements regarding “accounting” would similarly relate specifically
and directly to the Agreement and the Plaintiff’s claimed right to payment under the Agreement.
With regard to any statements made by Spiridellis regarding future performance, these
also are not distinct from the breach of contract claim. Although a promise made with a
preconceived and undisclosed intention of not performing it can give rise to a fraudulent
inducement claim, the promise must be collateral or extraneous to the terms of the agreement . . .
.” D.S. Am. (E.), Inc. v. Chromagrafx Imaging Sys., Inc., 873 F.Supp. 786, 796 (E.D.N.Y.
1995). Here, the promise that the Agreement would continue to be in full force and effect is
alleged to be merely an insincere promise of future performance under a contract, which is
insufficient to allege fraud. See id. at 798; see also Miller v. Holtzbrinck Publishers, LLC, No.
08 Civ. 3508, 2009 WL 528620, at *5 (S.D.N.Y. March 3, 2009) (“Thus, Hunter’s alleged
representations that Plaintiff would be paid royalties for writing Hunter’s memoirs merely
‘constitutes a ‘promissory statement as to what would be done in the future’ and therefore cannot
serve as the basis of a fraud claim, as ‘a fraud claim premised on a promise of future
performance of a contractual obligation would be duplicative of [a] breach of contract claim.’”
(quoting Kaliner v. Mt. Vernon Monetary Mgmt. Corp., 07 Civ. 4643, 2008 U.S. Dist. LEXIS
67456, at *14–15, 2008 WL 4127767 (S.D.N.Y. Sept. 3, 2008)).
Finally, to the extent that the Plaintiff asserts that it should be able to pursue its fraud
claim in the alternative against Family in the event it is found to not be subject to the contract in
question, such an argument ultimately fails. See Alta-Medine v. Crompton Corp., No. 00 Civ.
5901, 2001 WL 428249, at *1 (S.D.N.Y. April 26, 2001) (“the ‘extraneous to a contract’
exception of Bridgestone/Firestone is not satisfied simply because a jury could find that there
was no contract.” (citing Leonard v. PepsiCo, Inc., 88 F. Supp. 2d 116 (S.D.N.Y. 1999)).
25
Therefore, the Court need not assess whether the Plaintiff’s fraud allegations are not pled
with the requisite particularity under Fed. R. Civ. P. 9(b). The Defendants’ motion to dismiss the
Plaintiff’s fraud claims is granted.
C. As to Whether the Conversion Claims Should be Dismissed
The Defendants also contend that the Plaintiff’s conversion claim should be dismissed as
duplicative.
Under New York law, to plead a claim of conversion, a plaintiff must establish that “(1)
the property subject to conversion is a specific identifiable thing; (2) plaintiff had ownership,
possession or control over the property before its conversion; and (3) defendant exercised an
unauthorized dominion over the thing in question, to the alteration of its condition or to the
exclusion of the plaintiff's rights.” Moses v. Martin, 360 F. Supp. 2d 533, 541 (S.D.N.Y. 2004)
(internal citation and quotation marks omitted). However, similar to a claim of fraud, a
conversion claim may only proceed if there are allegations of violations and damages distinct
from those prediated on a breach of contract. See Command Cinema Corp. v. VCA Labs, Inc.,
464 F. Supp. 2d 191, 199 (S.D.N.Y. 2006); Priolo Commc'ns, Inc. v. MCI Telecomms. Corp.,
248 A.D.2d 453, 669 N.Y.S.2d 376, 377 (1998) (“The plaintiff's claim alleging conversion
merely restates its cause of action to recover damages for breach of contract and does not allege
a separate taking. A claim to recover damages for conversion cannot be predicated on a mere
breach of contract.”). Thus, “[i]n determining whether a conversion claim is duplicative of a
breach of contract claim, courts look both to the material facts upon which each claim is based
and to the alleged injuries for which damages are sought.” Physicians Mut. Ins. Co., No. 07 Civ.
10490, 2009 WL 855648, at *10 (S.D.N.Y. March 25, 2009) (quoting AD Rendon Commc'ns,
26
Inc. v. Lumina Ams., Inc., No. 04 Civ. 8832, 2007 WL 2962591, at *5 (S.D.N.Y. Oct. 10,
2007)).
Here, the same facts are involved in the breach of contract and conversion claims. The
breach of contract claim alleges that the Defendants breached the terms of the Agreement by
failing to properly account for and remit to the Plaintiff its share of the net realized revenues
under the Agreement after March 2009. The conversion claim similarly claims that the “Plaintiff
has a superior right, that the defendant, to/over the monies representing plaintif’s forty percent
(40%) share of the net realized revenues from March 2009 to date” and thus the Defendants have
converted, as their own, the Plaintiff’s share of the net revenues realized from the Family
Contact 911 product by the defendants from March 2009 to date. This is entirely duplicative of
the Plaintiff’s claim that the Defendants breached the terms of the Agreement by not
participating in the profit sharing scheme as set out in the contract. In addition, the Plaintiff is
seeking precisely the same damages for this claim.
Therefore, the Court agrees with the Defendants that the Plaintiff’s conversion claim is
also entirely duplicative of the breach of contract claim and is therefore appropriately dismissed.
D. As to Whether the Claim for Unjust Enrichment Should be Dismissed
The Plaintiff also asserts a claim for unjust enrichment against Family. In particular, the
Plaintiff claims that the Defendant Family “failed to remit to the Plaintiff its share of the net
realized revenues from defendant’ Family Contact 911 customers’ LEC billing for the period of
March 2009 to date, despite due demands by the plaintiff.” (Am. Compl., at ¶ 48.) In other
words, the Plaintiff is making a claim that the Defendants breached the Agreement by not paying
the Plaintiff monies that were owed pursuant to its terms, and thus that Family has been and
27
continues to be unjustly enriched in the amount of the Plaintiff’s share of the net realized
revenues.
To prevail on a claim for unjust enrichment in New York State, a plaintiff must establish
“(1) that the defendant was enriched; (2) that the enrichment was at the plaintiff’s expense; and
(3) that the circumstances are such that in equity and good conscience the defendant should
return the money or property to the plaintiff.” Golden Pac. Bancorp v. FDIC, 273 F.3d 509, 519
(2d Cir. 2001). It is thus a quasi-contractual claim that “ordinarily can be maintained only in the
absence of a valid, enforceable contract.” Ohio Players, Inc. v. Polygram Records, Inc., No. 99
Civ. 33, , at *4 (S.D.N.Y. Oct. 27, 2000); see also Clark–Fitzpatrick, 70 N.Y.2d 382, 389, 521
N.Y.S.2d 653, 516 N.E.2d 190 (1987) (“It is impermissible . . . to seek damages in an action
sounding in quasi contract where the suing party has fully performed on a valid written
agreement, the existence of which is undisputed, and the scope of which clearly covers the
dispute between the parties.”). “That principle applies even where ‘the party seeking to dismiss
the claim is not a party to the contract.’” Teachers Ins. & Annuity Ass'n of Am. v. CRIIMI MAE
Servs. Ltd. P'ship, 681 F. Supp. 2d 501, 511 (S.D.N.Y. 2010) (citing Micro Bio–Medics, Inc. v.
Westchester Med. Ctr., 6 Misc. 3d 1003(A), 800 N.Y.S.2d 350 (Sup. Ct. 2004)).
Of importance in this case, “decisions both in New York State courts and in this district
have consistently held that claims for unjust enrichment may be precluded by the existence of a
contract governing the subject matter of the dispute even if one of the parties to the lawsuit is not
a party to the contract.” Am. Med. Ass’n v. United Healthcare Corp., No. 00 Civ. 2800, 2007
WL 683974, at *10 (S.D.N.Y. Mar. 5, 2007) (collecting cases); SCM Grp., Inc. v. McKinsey &
Co., Inc., No. 10 Civ. 2414, 2011 WL 1197523, at *7–8 (S.D.N.Y. March 28, 2011) (“where an
express and valid contract exists concerning the rights at issue, quasi-contract claims such as
28
unjust enrichment are precluded even when asserted against non-signatories to the contract.”);
Bellino Schwartz Padob Adver. v. Solaris Mktg. Grp., 222 A.D.2d 313, 635 N.Y.S.2d 587, 588
(1995) (“The existence of an express contract between Solaris and plaintiff governing the subject
matter of the plaintiff’s claim also bars any quasi-contractual claims against defendant Titan, as a
third party nonsignatory to the valid and enforceable contract between those parties.”); Feigen v.
Advance Capital Mgmt. Corp., 150 A.D.2d 281, 541 N.Y.S.2d 797, 799 (1989) (“[A] nonsignatory to a contract cannot be held liable where there is an express contract covering the same
subject matter.”).
Here, the subject matter of the dispute is the Plaintiff’s right to monies owed under the
provisions of the Agreement. Although Family was not a party to the Agreement, it was
allegedly enriched as a result of its noncompliance with the profit sharing scheme in the
Agreement. Thus, this claim falls squarely within the subject matter of the Agreement.
The Plaintiff attempts to argue that it may simultaneously allege a breach of contract and
unjust enrichment claim in its complaint as alternative theories when there is a bona fide dispute
as to the existence of the contract. In other words, the Plaintiff asserts that because Family
disputes that it is a party to the contract, then the Plaintiff may proceed with its unjust enrichment
claim against that entity. However, this contention is without merit. “[T]he existence of a valid
and binding contract governing the subject matter at issue in a particular case does act to
preclude a claim for unjust enrichment even against a third party non-signatory to the
agreement.” Network Enters., Inc. v. Reality Racing, Inc., No. 09 Civ. 4664, 2010 WL 3529237,
at *7 (S.D.N.Y. Aug. 24, 2010) (quoting Law Debenture v. Maverick Tube Corp., No. 06 Civ.
14320, 2008 WL 4615896, at *12 (S.D.N.Y. Oct. 15, 2008) (collecting cases)). There is no
dispute whasoever as to whether a valid and enforceable contract in this case exists. Rather, the
29
dispute is whether Family may be liable as a non-signatory. This alone is insufficient to sustain
the unjust enrichment claim. See Air Atlanta Aero Engineering Ltd. v. SP Aircraft Owner I,
LLC, 637 F. Supp. 2d 185, 196 (S.D.N.Y. 2009) (“[Plaintiff’s] failure to allege that the contracts
at issue are invalid or unenforceable precludes it . . . from seeking quasi-contractual recovery for
events arising out of the same subject matter.”).
Accordingly, the unjust enrichment claims should be dismissed. See Vitale v. Steinberg,
307 A.D.2d 107, 764 N.Y.S.2d 236, 239 (2003) (“[T]he existence of . . . an express contract
governing the subject matter of plaintiff's claims, also bars the unjust enrichment cause of action
as against the individual defendants, notwithstanding the fact that they were not signatories to
that agreement.”).
E. As to Whether the Plaintiff’s Claim for an Accounting Should be Dismissed
In the Amended Complaint, the Plaintiff claims that if the Defendants have made material
misstatements concerning the accounting for new revenues from the Family Contact 911 billing
after March 2009, and thereby have improperly accounted for net revenues in breach of the
Agreement, then LaRoss is entitled to an accounting of all monies remitted to the Defendants
directly from ILD for the period of March 2009 to date, relating to all LEC billing for the Family
Contact 911 customers.
The Defendant Family asserts that because it is not a party to the Agreement, and thus
owes no duty, contractual, fiduciary or otherwise to the Plaintiff. Therefore, Family contends
that Laross has no standing to assert such a claim against it and is simply not entitled to this
relief. In response, the Plaintiff claims that the Defendants voluntarily took over the billing
functions from the Plaintiff, imposing a duty to account to the Plaintiff, and thus the Defendants’
motion to dismiss this cause of action should be denied.
30
The Court finds that the Plaintiff has not appropriately asserted an accounting cause of
action against the Defendants. Claims for an accounting are an equitable cause of action. “The
right to an accounting is premised upon the existence of a confidential or fiduciary relationship
and a breach of the duty imposed by that relationship respecting property in which the party
seeking the accounting has an interest”. Palazzo v. Palazzo, 121 A.D.2d 261, 265, 503 N.Y.S.2d
381 (2d Dep’t 1986); see Weinstein v. Natalie Weinstein Design Assoc., Inc., 86 A.D.3d 641,
643, 928 N.Y.S.2d 305 (2d Dep’t 2011); see also Byrd v. Brown, 94 Fed App’x 1 (2d Cir. 2004)
(“even if they have not waived it, their claim for an accounting cannot stand because they have
not established the existence of a fiduciary relationship between themselves and any of the
appellees.”). Notably,“it is well established that the same conduct constituting the breach of a
contractual obligation may also constitute the breach of a duty arising out of the relationship
created by the contract but independent of the contract itself.” La Barte v. Seneca Resources
Corp., 285 A.D.2d 974, 728 N.Y.S.2d 618 (4th Dep’t 2001). Whether a fiduciary relationship
exists between parties “is necessarily fact-specific to the particular case”. Wiener v. Lazard
Freres & Co., 241 A.D.2d 114, 122, 672 N.Y.S.2d 8 (1st Dep’t 1998).
Here, the Plaintiff has failed to allege any facts as to a fiduciary relationship between the
Plaintiff and Family and/or Contact beyond the terms of the contract. See Waldman v.
Englishtown Sportswear, Ltd., 92 A.D.2d 833, 460 N.Y.S.2d 552, 556 (1983) (“The existence of
a fiduciary relationship is essential for a cause of action in equity for an accounting arising out of
the contract between the parties.”). “A conventional business relationship, without more, does
not become a fiduciary relationship by mere allegation.” Argonaut P'ship L.P. v. Bankers
Trustee Co., No. 96 Civ.1970, 2001 WL 585519, at *3 (S.D.N.Y. May 30, 2001) (quoting
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Oursler v. Women's Interart Ctr., Inc., 170 A.D.2d 407, 408, 566 N.Y.S.2d 295, 297 (1st Dep't
1991)). As stated by one district court:
Under New York law, a fiduciary relationship exists from the assumption of
control and responsibility, and is founded upon trust reposed by one party in the
integrity and fidelity of another. A fiduciary relationship cannot arise between
parties to an arms length commercial transaction absent extraordinary
circumstances.
Credit Suisse First Boston Mortgage Capital LLC v. Cohn, No. 03 Civ. 6146, 2004 WL
1871525, at *5 (S.D.N.Y. Aug. 19, 2004) (internal citations omitted) (citing Nat’l Westminster
Bank, U.S.A. v. Ross, 130 B.R. 656, 678-79 (S.D.N.Y. 1991)). Here, the Amended Complaint
describes a contract to perform certain services and share revenues. There are no allegations––
not even conclusory ones––so as to transform this ordinary commercial relationship into a
fiduciary one.
Therefore, the Plaintiff’s cause of action for an accounting is dismissed.
F. As to Whether the Plaintiff’s Claim for Attorneys’ Fees Should be Dismissed
Finally, the Plaintiff claims that paragraph 5 of the Agreement provides for the recovery
of reasonable attorneys’ fees in the event of breach, and thus, the Plaintiff is entitled to such fees
in bringing this action. The Defendants argue that under the terms of the Agreement, in
particular paragraph 5, attorneys’ fees are only awarded to a prevailing party for claims relating
to “non-circumvention and/or solicitation” as defined in the Agreement, but that the claims in
this action have nothing to do with either non-circumvention or solicitation and accordingly
should be dismissed. Paragraph 5 of the Agreement, entitled “Mutual Non-Circumvention”,
states in part that “both parties agree not to circumvent each other by approaching any and all
sources of confidential information.” (Am. Compl. Ex. 1, at ¶ 5.) This paragraph then goes on
to state that “in case of breech [sic] of this section, both will be awarded monetary damages
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(including reasonable attorney fees) as attributable by New York State law”. (Am. Compl. Ex. 1,
at ¶ 5.) The Court agrees that this because there is no circumvention or solicitation at issue in
this case, that there can be no claim for attorneys’ fees pursuant to this section.
However, there is another provision of the Agreement under which the Plaintiff may
recover attornyes’ fees. Paragraph 3 of the Agreement, entitled “Indemnification”, states in part
that
Either party shall defend, indemnify and hold harmless the other party, its
affiliates, their respective officers, directors, shareholders, employees, agents
successors and assigns, and each of them, from and against, any and all
damages[,] losses, claims, liabilities, demands . . . . including but not limited to
attorneys’ fees, . . . arising out of or otherwise based upon any of the following:
a.
Any breach or default by either party of or under any of the provisions of
this Agreement or of any other agreement or instrument to which either party or
an affiliate of either party (for purposes hereof, an “affiliate” of either party shall
include any person controlling, controlled by or under common control with either
party),
(Am. Compl. Ex. 1, at ¶ 3.)
Attorneys’ fees are properly granted only if an independent basis exists for the award.
See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 257–59, 95 S.Ct. 1612,
1621–22, 44 L. Ed. 2d 141 (1975) (noting exceptions to the “American Rule” that the prevailing
party is not entitled to attorneys fees include (1) statutory basis, (2) enforceable contract, (3)
willful violation of court order, (4) bad faith action, and (5) litigation creating common fund for
the benefit of others).
Certainly, when an obligation to reimburse another party for its litigation expenses arises
by contract, the terms of that agreement “must be strictly construed to avoid reading into it a duty
which the parties did not intend to be assumed.” Hooper Assocs., Ltd. v. AGS Computers, Inc.,
74 N.Y.2d 487, 491, 549 N.Y.S.2d 365, 367, 548 N.E.2d 903 (1989). Nevertheless, the Court
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finds the language at issue here—particularly pargraph 3— to be ambiguous and incomplete, and
neither party has provided sufficient information at this stage of the litigation for the Court to
conclusively say that no claim for attorneys’ fees may lie against an affiliate of one of the parties,
namely Family. The Court notes that the Defendants made no effort in their Reply memorandum
to respond to the Plaintiff’s contentions concerning the language in paragraph 3. Therefore, the
Court finds it premature to dismiss the claim for attorneys’ fees as against Family, and thus the
Defendants’ motion to dismiss this claim is denied.
IV. CONCLUSION
As the Plaintiff has already filed an amended complaint and has not demonstrated any
basis whatsoever that it would be entitled to recovery for fraud, conversion, unjust enrichment,
or accounting, the Court will not permit the Plaintiff to amend its complaint for a second time.
Thus, the dismissal of these claims is with prejudice.
For the foregoing reasons, it is hereby
ORDERED, that the Defendants’ motion to dismiss for lack of personal jurisdiction is
denied; and it is further
ORDERED, that the Defendants’ motion to dismiss the fraud, conversion, unjust
enrichment, and accounting claims is granted with prejudice, and it is further
ORDERED, that the Defendants’ motion to dismiss the claim for attorneys’ fees is
denied.
SO ORDERED.
Dated: Central Islip, New York
July 10, 2012
___/s/ Arthur D. Spatt_____
ARTHUR D. SPATT
United States District Judge
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