Huang v. ITV Media, Inc. et al
Filing
51
ORDER granting 42 Motion to Dismiss for Lack of Jurisdiction. For the reasons set forth herein, defendants' motion to dismiss the claim for punitive damages is granted. SO ORDERED. Ordered by Judge Joseph F. Bianco on 1/16/2015. (Moe, Alison)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 13-CV-3439 (JFB)(WDW)
_____________________
TIANBO HUANG,
Plaintiff,
VERSUS
ITV MEDIA, INC., ITV MEDIA (HONG KONG), LTD., ITV.CN, INC., AND SONG LIN,
Defendants.
___________________
MEMORANDUM AND ORDER
January 16, 2015
___________________
JOSEPH F. BIANCO, District Judge:
Plaintiff Tianbo Huang (“plaintiff”)
brings this action for breach of contract,
fraud, and related claims based upon
promises allegedly made to him before he
was hired by iTV Media. In short, plaintiff
alleges that defendants—various iTV
entities and their President and Chief
Executive Officer, Song Lin—promised him
certain responsibilities and compensation in
his new position, but did not keep those
promises once plaintiff began working for
iTV.
The Court previously granted in part and
denied in part defendants’ motion to
dismiss. See Huang v. iTV Media, No. 13cv-3439 (JFB)(WDW), 2014 WL 1377500
(E.D.N.Y. Apr. 8, 2014). As part of that
order, the Court dismissed plaintiff’s claim
for punitive damages, but granted him leave
to amend the complaint with respect to that
claim. Defendants now move under Federal
Rules of Civil Procedure 12(b)(6) and 12(f)
to dismiss plaintiff’s claim for punitive
damages.1 As set forth below, the motion to
dismiss is granted because the allegations
contained in the Second Amended
Complaint cannot support a punitive
damages award under New York law.
I. BACKGROUND
A. Factual Background
The factual background of this case is
set forth in the Court’s prior order. Of
particular relevance to this motion, plaintiff
alleges that defendant Lin promised him
three things in order to induce plaintiff to
leave his position with one of the largest
Chinese internet television companies,
where
he
enjoyed
significant
responsibilities. (Second Am. Compl. ¶¶
18-20.) Lin allegedly promised that iTV
1
Defendants have withdrawn their motion to dismiss
plaintiff’s claim for liquidated damages.
plaintiff adds more detail to the allegations
surrounding the W-2, and also adds that
defendants failed to withhold and contribute
funds on plaintiff’s behalf as required by the
Federal Insurance Contributions Act,
thereby depriving the state and federal
government of payments needed for social
welfare programs. (Second Am. Compl. ¶¶
106-11.)
Media would hold an initial public offering
within one year of plaintiff’s hiring, which
would increase the value of the stock
options they planned to give him. (Id. ¶ 26.)
Lin also promised that plaintiff would direct
iTV’s
global
operations,
including
responsibility for all of North America and
the management of an entity to be created
for that purpose. (Id. ¶ 27.) Finally, Lin
allegedly
promised
plaintiff
annual
compensation of at least $300,000, apart
from the stock options.
(Id. ¶ 28.)
According to the Second Amended
Complaint, Lin never intended to keep any
of these promises, and made them solely to
induce plaintiff to leave his position with
another company, so that defendants could
exploit his expertise in internet television.
(Id. ¶¶ 29-32.)
B. Procedural History
Plaintiff filed the original Complaint in
this case on June 14, 2013, and an Amended
Complaint on September 12, 2013. On
April 8, 2014, the Court granted (in part)
defendants’ motion to dismiss. Plaintiff
filed the Second Amended Complaint on
May 8, 2014, and defendants moved to
dismiss the punitive damages claim on July
3, 2014. Plaintiff responded in opposition
on August 15, 2014, and defendants replied
on August 29, 2014. The Court heard oral
argument on October 29, 2014.
Plaintiff alleges that iTV never granted
him the promised stock options (nor held an
initial public offering), and that his salary
was underpaid as well. (Id. ¶¶ 41-45.)
Furthermore, once plaintiff began working
for iTV, Lin allegedly prevented him from
managing international operations. (Id. ¶
39.) Plaintiff alleges that he complained,
and that he was terminated in retaliation for
those complaints. (Id. ¶ 54.)
II. STANDARD OF REVIEW
In reviewing a motion to dismiss
pursuant to Rule 12(b)(6),2 the Court must
2
Defendants cited both Rule 12(b)(6) and Rule 12(f)
as ground for their motion, and acknowledge the lack
of clarity about whether one of these sub-sections
more properly applies. The Second Circuit has
affirmed the dismissal of a punitive damages claim
under Rule 12(b)(6), see N.Y. Marine & Gen. Ins. Co.
v. Tradeline (L.L.C.), 266 F.3d 112, 130 (2d Cir.
2001), though it did so without discussing Rule 12(f).
Conversely, another court in this district applied Rule
12(f) to a similar claim, without addressing Rule
12(b)(6). See Wyeth v. King Pharmaceuticals, Inc.,
396 F. Supp. 2d 280, 293 (E.D.N.Y. 2005).
However, the standard applied in Wyeth is
functionally the same as the standard applied under
Rule 12(b)(6): the court there stated that Rule 12(f)
required the defendant “to show three things: (1) that
no question of fact which might allow Plaintiff’s
claim to proceed exists; (2) that no substantial
question of law, a resolution of which would help the
Plaintiff’s claim succeed, exists; and (3) that it is
In its previous order, the Court
dismissed the punitive damages claim
because it lacked any allegation that the
fraud was “aimed at the public generally”
and, thus, “necessary to vindicate a public
right.” TVT Records v. Island Def Jam
Music Grp., 412 F.3d 82, 93-94 (2d Cir.
2005) (internal quotation marks and
citations omitted). The earlier complaint
included the allegation that, with the aim of
masking their fraud, defendants issued
plaintiff a W-2 which overstated his salary
and forced him to pay more in taxes than his
actual salary warranted. (Am. Compl. ¶¶
54-55.) In the Second Amended Complaint,
2
sheer possibility that a defendant has acted
unlawfully.” Id. at 678 (quoting and citing
Twombly, 550 U.S. at 556–57 (internal
citation omitted)).
accept the factual allegations set forth in the
complaint as true and draw all reasonable
inferences in favor of the plaintiff. See
Cleveland v. Caplaw Enters., 448 F.3d 518,
521 (2d Cir. 2006); Nechis v. Oxford Health
Plans, Inc., 421 F.3d 96, 100 (2d Cir. 2005).
“In order to survive a motion to dismiss
under Rule 12(b)(6), a complaint must
allege a plausible set of facts sufficient ‘to
raise a right to relief above the speculative
level.’” Operating Local 649 Annuity Trust
Fund v. Smith Barney Fund Mgmt. LLC, 595
F.3d 86, 91 (2d Cir. 2010) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555
(2007)).
On a motion to dismiss, a court may
examine “documents attached to [the
complaint] or incorporated in it by
reference.” Nasso v. Bio Reference Labs.,
Inc., 892 F. Supp. 2d 439, 446 (E.D.N.Y.
2012) (quoting In re Merrill Lynch & Co.,
273 F. Supp. 2d 351, 356-57 (S.D.N.Y.
2003)) (internal citations omitted). Here,
plaintiff attached his employment contract
as an exhibit to the Second Amended
Complaint, and the Court has considered its
terms without objection by either party.
The Supreme Court clarified the
appropriate pleading standard in Ashcroft v.
Iqbal,
reaffirming
two
important
considerations for courts deciding a motion
to dismiss. 556 U.S. 662 (2009). The Court
instructed district courts to first “identify[ ]
pleadings that, because they are no more
than conclusions, are not entitled to the
assumption of truth.” Id. at 679 (explaining
that though “legal conclusions can provide
the framework of a complaint, they must be
supported by factual allegations”). Second,
if a complaint contains “well-pleaded factual
allegations, a court should assume their
veracity and then determine whether they
plausibly give rise to an entitlement to
relief.” Id. A claim has “facial plausibility
when the plaintiff pleads factual content that
allows the court to draw the reasonable
inference that the defendant is liable for the
misconduct alleged. The plausibility
standard is not akin to a ‘probability
requirement,’ but it asks for more than a
III. DISCUSSION
In Rocanova v. Equitable Life Assur.
Socy. of U.S., the New York Court of
Appeals set forth the following standard
applicable in cases where a contracting party
seeks punitive damages:
Punitive
damages
are
not
recoverable for an ordinary breach
of contract as their purpose is not to
remedy private wrongs but to
vindicate public rights. . . .
However, where the breach of
contract also involves a fraud
evincing a “high degree of moral
turpitude” and demonstrating “such
wanton dishonesty as to imply a
criminal indifference to civil
obligations,” punitive damages are
recoverable if the conduct was
“aimed at the public generally.”
prejudiced by the inclusion of this claim.” Id. At
least under the circumstances of this case, that
standard produces the same result as analysis under
Rule 12(b)(6). Accordingly, although the Court sets
forth the Rule 12(b)(6) standard below, it has
considered both standards and concludes that
defendants’ motion should be granted under either.
83 N.Y.2d 603, 613 (1994). Courts have
since interpreted Rocanova to impose the
following requirements: “a plaintiff must
establish that the defendant’s conduct: (1) is
actionable as an independent tort; (2) was
3
sufficiently egregious; and (3) was directed
not only against the plaintiff, but was part of
a pattern of behavior aimed at the public
generally.” Leviton Mfg. Co., Inc. v. Reeve,
942 F. Supp. 2d 244, 270 (E.D.N.Y. 2013);
New York Univ. v. Cont’l Ins. Co., 87
N.Y.2d 308, 316 (1995) (describing these
requirements as “pleading elements”).
Therefore, plaintiff contends, defendants’
pre-contract conduct cannot arise out of or
have its genesis in the later contract. The
primary case on which plaintiff relies does
suggest that the chronology of the fraudulent
inducement allegations and the subsequent
contract can determine whether Rocanova
applies. See Topps Co., Inc. v. Cadbury
Stani S.A.I.C., 380 F. Supp. 2d 250, 266
(S.D.N.Y. 2005). However, Topps did not
hold that fraudulent inducement claims—
which by their nature generally contain
allegations of conduct occurring before the
execution of a contract—never arise out of,
or have their genesis in, a contractual
relationship.
In fact, Topps held the
opposite, and found that the parties’
contractual relationship gave rise to the
allegedly tortious conduct, thus barring
punitive damages for the plaintiff’s
fraudulent inducement claim. 380 F. Supp.
2d at 266. Topps based its conclusion on the
parties’ long-term contractual relationship.
To the extent plaintiff suggests that
Rocanova can never apply to first-time
contracting parties (like plaintiff and
defendants here), this Court disagrees. Such
a rule would vastly expand the availability
of punitive damages in contracts cases under
New York law. In fact, the Court is aware
of no New York state court decision that has
exempted all fraudulent inducement claims
in cases involving first-time contracting
parties
from
the
Rocanova
test.4
Accordingly, to the extent plaintiff interprets
Topps to hold that actions for fraudulent
inducement to contract are automatically
excluded from the public-aim requirement
of Rocanova, this Court respectfully
As a threshold matter, the New York
Court of Appeals has clarified that the
Rocanova requirements apply if the tortious
conduct at issue “‘has its genesis in the
contractual relationship.’” Leviton, 942 F.
Supp. 2d at 270 (quoting New York Univ.,
87 N.Y.2d at 316); see also Rocanova, 83
N.Y.2d at 613-14 (considering whether the
tortious
conduct
“constitute[ed],
accompan[ied], or [was] associated with the
breach of contract,” or was “arising out of”
the contractual relationship).3 If the tortious
conduct is so independent that it has no
genesis in the contractual relationship,
Rocanova would not apply, and the
availability of punitive damages would be
governed by the ordinary standard, without
the public-aim requirement discussed below.
See Langenberg v. Sofair, No. 03 Civ.
8339(KMK)(FM), 2006 WL 3518197, at *4
(S.D.N.Y. Dec. 7, 2006).
Plaintiff argues that Rocanova does not
apply to his fraudulent inducement claim
because his allegations concern his
negotiations with defendants, which
preceded
his
employment
contract.
3
The Second Circuit and district courts within this
circuit have employed the same or similar language.
See, e.g., Carvel Corp. v. Noonan, 350 F.3d 6, 25 (2d
Cir. 2003) (considering whether alleged tort was
“directly related” to the contract); Carling v. Peters,
No. 10 Civ. 4573(PAE)(HBP), 2013 WL 865842, at
*7 (S.D.N.Y. Mar. 8, 2013) (“As the Second Circuit
has explained, there is a critical difference between
fraud claims that arise out of a contract and those that
do not.”).
4
Although one federal case suggests that this
distinction may be dispositive, it does not cite any
New York state cases on that issue, nor does it
address Rocanova or the greater implications of such
a rule. See Lagenberg v. Sofair, No. 03 Civ. 8339
(KMK) (FM), 2006 U.S. Dist. LEXIS 88157, at *13
(S.D.N.Y.
Dec.
7,
2006)
(report
and
recommendation).
4
responsibility for the “global market,” and
sets forth a specific salary along with stock
options, the value of which is directly
connected to the promised initial public
offering. (Ex. A to Second Am. Compl. at
2-3.) As a result, all three of the allegedly
fraudulent misrepresentations are also
highlighted within plaintiff’s breach of
contract claim. (Second Am. Compl. ¶¶ 81,
85, 86, 90.)
Thus, the alleged
misrepresentations have their genesis in the
parties’ contractual relationship, and
Rocanova applies to plaintiff’s fraudulent
inducement claim.
disagrees. Instead, fraudulent inducement
claims that have their genesis in the
contractual relationship, including an
attempt to form the contractual relationship,
are analyzed under Rocanova.
Other courts have similarly concluded
that Rocanova can still apply to fraudulent
inducement claims, including where, as here
and as is often the case, the fraud is alleged
to have preceded the execution of the
contract. See, e.g., Mayline Enters., Inc. v.
Milea Truck Sales Corp., 641 F. Supp. 2d
304, 311-12 (S.D.N.Y. 2009); Ventus
Networks, LLC v. Answerthink, Inc., No. 05
Civ. 10316 (DAB), 2007 WL 582736, at *23 (S.D.N.Y. Feb 22, 2007); Sofi Classic S.A.
de C.V. v. Hurowitz, 444 F. Supp. 2d 231,
248 (S.D.N.Y. 2006); Merrill Lynch Co.,
Inc. v. Allegheny Energy, Inc., 382 F. Supp.
2d 411, 423 (S.D.N.Y. 2003).
Accordingly, the Court concludes that
Rocanova governs the availability of
punitive damages in this case. As set forth
below, applying the three-part Rocanova test
to the allegations in the instant case, plaintiff
cannot state a plausible claim for punitive
damages, and such claim cannot prevail here
as a matter of law.
In the instant case, the allegations of
fraudulent inducement here are directly
related to and rooted in the parties’
contractual relationship, even if it was not
long-term. The claim alleges three
misrepresentations: that iTV Media would
hold an initial public offering within one
year of plaintiff’s employment, that plaintiff
would oversee all international operations,
and that plaintiff would be paid a certain
salary. (Second Am. Compl. ¶¶ 101-02.)
All of these misrepresentations are alleged
to have occurred before the execution of the
contract (Compl. ¶¶ 26-27), but each has its
“genesis in the contractual relationship,”
New York Univ, 87 N.Y.2d at 316. The
parties began that relationship in order to
negotiate plaintiff’s employment terms, and
the alleged misrepresentations were made in
the course of that relationship. Furthermore,
each
alleged
misrepresentation
was
eventually memorialized in the contract
itself, which describes plaintiff as
“President, iTV Media International” with
1. Independent Tort
Because, as noted, punitive damages are
not ordinarily available for breach-ofcontract claims, the first task under
Rocanova is to identify independently
tortious conduct. New York Univ., 87
N.Y.2d at 316.
Plaintiff’s fraudulent
inducement claim satisfies this requirement.
Although the claim’s allegations arise out of
the contract, they nonetheless describe
conduct that courts have found to be
sufficiently independent under Rocanova’s
first requirement. See id.; Merrill Lynch,
382 F. Supp. 2d at 423.
2.
Egregiousness
The second requirement for punitive
damages is that the alleged conduct be
sufficiently egregious. “To establish that a
defendant’s
fraudulent
conduct
was
5
commercial
fraud,
and
lack
the
egregiousness required to support a
plausible claim for punitive damages under
New York law.
sufficiently egregious and morally culpable
to satisfy the second element, a plaintiff
must allege facts that evince a ‘high degree
of moral turpitude’ or ‘such wanton
dishonesty as to imply a criminal
indifference to civil obligations.’” Ventus,
2007 WL 582736, at *3 (quoting Rocanova,
83 N.Y.2d at 613).
3. Public Aim Requirement
In an abundance of caution, the Court
will also consider whether the Second
Amended Complaint satisfies the third
Rocanova requirement, that the fraud “was
directed not only against the plaintiff, but
was part of a pattern of behavior aimed at
the public generally.” Leviton, 942 F. Supp.
2d at 270. “When the Court of Appeals
articulated the public aim requirement in
Rocanova and . . . in New York University, it
invoked an earlier distinction between ‘a
gross and wanton fraud upon the public’ and
‘an isolated transaction incident to an
otherwise legitimate business.’ . . . The
latter, it implied, would not constitute
conduct aimed at the public generally.” TVT
Records, 412 F.3d at 95.
Here, as in Ventus, even if the
allegations (viewed in a light most favorable
to plaintiff) demonstrate a “clear intent to
defraud,” id., the conduct they describe is
not egregious enough to warrant punitive
damages. Punitive damages “have been
refused in the ‘ordinary’ fraud and deceit
case,” Walker v. Sheldon, 10 N.Y.2d 401,
405 (1961), and the allegations in the
Second Amended Complaint do not set
plaintiff’s claim apart.
For example,
plaintiff has identified no authority
suggesting that any conduct analogous to the
alleged failure to hold a promised initial
public offering, or to grant an employee the
expected level of authority, involves any
degree of “moral turpitude,” much less a
high one, or is so wanton as to “imply a
criminal indifference.”
Rocanova, 83
N.Y.2d at 613. In fact, plaintiff did not
address this element in his papers at all. To
the extent that defendants’ allegedly false
reporting caused the imposition of a higher
tax burden on plaintiff, that allegation alone
is not egregious enough to warrant punitive
damages. Cf. Schonfeld v. Hilliard, 218
F.3d 164, 184 (2d Cir. 2000) (holding that
alleged failure to provide $20 million in
promised funding was not sufficiently
egregious).
The allegations in this case clearly
describe “an isolated transaction” that fits
within the latter category. First, the Second
Amended Complaint describes fraud with
respect to a single contract,5 not a “pattern”
or broader scheme of behavior. Id. at 93
(citation omitted); cf. Mayline Enters., 641
F. Supp. 2d at 312 (dismissing claim for
punitive damages based on allegation of a
“single incident” as opposed to “evidence
that [the defendant] customarily alters
odometers”).
Second, punitive damages in this case
would not “vindicate public rights,”
Having independently examined the
Second Amended Complaint, accepted its
allegations as true, and viewed those
allegations in a light most favorable to
plaintiff, the Court concludes, as a matter of
law, that the allegations describe ordinary
5
Although the Second Amended Complaint alleges
that other employees were underpaid (Second Am.
Compl. at ¶¶ 40, 46-47), alleging a pattern of
underpayment is not equivalent to alleging fraud,
much less alleging a broader scheme aimed at the
general public.
6
Rocanova, 83 N.Y.2d at 613, because the
allegations do not describe conduct that was
“directed” or “aimed at” the general public.
Leviton, 942 F. Supp. 2d. at 270. Instead,
plaintiff alleges that defendants aimed at
him, and that there was some incidental
effect on the general public, in the form of
funds that should have been paid under the
Federal Insurance Contribution Act. (See
Compl. ¶ 111.) However, a fraudulent
scheme that allegedly affects the general
public in some way is not the equivalent of a
fraud that targets the public. See TVT
Records, 412 F.3d at 95 (distinguishing
between “incidental effects” and “conduct
directed at the public generally”). For
example, in United States v. Merritt
Meridian Constr. Corp., the Second Circuit
concluded that the fraud at issue was not
aimed at the general public even though the
defendant contractor, who committed fraud
against a subcontractor, did so while being
paid by the government to build facilities at
West Point, and thus effectively overcharged the public for its services. See 95
F.3d 153, 161 (2d Cir. 1996).
apparent on the face of the Second Amended
Complaint that plaintiff is the only alleged
victim
of
defendants’
fraudulent
inducement, and that the alleged conduct
was not a “general business practice” of
theirs aimed “‘to trap generally the
unwary.’” Mayline, 641 F. Supp. 2d at 311
(quoting Walker, 10 N.Y.2d at 490); cf.
Ventus, 2007 WL 582736, at *4 (“The
Second Amended Complaint contains no
allegations that any individual or entity other
than plaintiff was the victim of Defendant’s
allegedly fraudulent scheme. Accordingly,
Plaintiff’s allegations do not contain a
‘sufficiently public component to support
punitive damages.’” (quoting TVT Records,
412 F.3d at 95)). For these reasons, the
Second Amended Complaint does not
satisfy Rocanova’s public-aim requirement.
Likewise, an alleged effect on public
funds, whether related to a tax dispute or
FICA payments, does not change the
orientation of defendants’ conduct: plaintiff
claims that defendants singled him out. (See
Second Am. Compl. ¶¶ 21-28.)6 Thus, it is
6
The sole case on which plaintiff relies is readily
distinguishable. In Ball v. Cook, the defendant
assisted the plaintiff in filing public documents
concerning the ownership status and title to
expensive pieces of artwork, which misrepresented
that information to the entire market because the
defendant had in fact stolen the artwork from the
plaintiff. See No. 11 Civ. 5926 (RJS), 2012 WL
4841735, at *12 (S.D.N.Y. Oct. 9, 2012). Although
the present case likewise involves allegations related
to public documents (plaintiff’s W-2 and presumably
any other documents related to plaintiff’s salary and
withholding by defendants), there are no similar
allegations here that the alleged fraud occurred in
“numerous” transactions “over a period of years,” or
that the misrepresentations were ever aimed at an
audience analogous to an entire market of art buyers.
At most, any misrepresentations here were directed
toward plaintiff and the IRS, which actually appears
to have benefited from the alleged fraud, because
plaintiff alleges that he was over-charged in taxes
because defendants paid him less than what they
reported to the IRS. (Second Am. Compl. ¶ 108.)
Even if some other government agency or fund was
underpaid or overpaid due to insufficient withholding
(see id. ¶ 111), such “incidental effects” are
insufficient to convert this isolated instance of
alleged fraud into one aimed at the public generally.
TVT Records, 412 F.3d at 95.
7
IV. CONCLUSION
In sum, the allegations in the Second
Amended Complaint do not describe
conduct that, under New York law, could
plausibly warrant the award of punitive
damages, because the alleged fraud is not
sufficiently egregious, nor was it aimed at
the general public. Accordingly, defendants’
motion to dismiss the claim for punitive
damages is granted.
SO ORDERED.
______________________
JOSEPH F. BIANCO
United States District Judge
Dated: January 16, 2015
Central Islip, NY
***
Plaintiff is represented by Eugene Meyers,
Dacheng Law Offices, 2 Wall Street, 21st
Floor, New York, NY 10005. Defendants
Lin and the iTV Group are represented by
Donald F. Schneider, Silverman Sclar Shin
& Byrne PLLC, 381 Park Avenue South,
New York, NY 10016. Defendant UTS is
represented by Charles A Michael, Brune &
Richard LLP, One Battery Park Plaza, 34th
Floor, New York, NY 10004.
8
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