Shneydershteyn-Kuvykin v. IPAYMENT HOLDINGS, INC. et al
ORDER granting 35 Motion to Dismiss for Failure to State a Claim. SO ORDERED that defts dismissal motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure is granted. Plaintiffs cross-motion to amend her complaint is denied. Ordered by Judge Sandra J. Feuerstein on 10/27/2015. (Florio, Lisa)
10/27/2015 12:17 pm
U.S. DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
LONG ISLAND OFFICE
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-againstiPAYMENT HOLDINGS, INC., CARL GRIMSTAD,
and MARK C. MONACO,
On August 13, 2014, plaintiff Svetlana Shneydershteyn-Kuvykin (plaintiff) filed this
action, pro se, against defendants pursuant to the Racketeer Influenced and Corrupt
Organizations (RICO) Act, 18 U.S.C. §§ 1961–1968 against iPayment, Inc. (iPayment), a credit
card-processor, and two of its officers (collectively, “defendants). [Docket Entry No. 1]. On
July 29, 2015, defendants moved to dismiss for failure to state a claim under Rule 12(b)(6) of the
Federal Rules of Civil Procedure. [Docket Entry No. 35]. Plaintiff retained counsel, and moved
to amend her complaint. Id. For the reasons that follow, defendants’ motion to dismiss is
granted, and plaintiff’s motion to amend its complaint is denied.
For purposes of this motion, the Court accepts as true the following allegations found in
the complaint. Plaintiff was a member of Allstate Merchant Services, LLC (Allstate).
Complaint (Compl.) 3, ¶ 9.1 Allstate marketed credit card processing services to small and
She alleges that she was its sole member. However, the record discloses that her husband, Igor Eric
Kuvykin, was also a member and executed contracts on Allstate’s behalf.
midsized businesses nationwide, and initially operated as an Independent Sales Organization
(ISO) for First Data Merchant Services, Inc. (First Data). Compl. 3, ¶ 10. ISOs provide credit
card payment processing services between banks and merchants, and derive a continuing income
stream from fees charged to the merchant, for as long as that merchant does business with the
ISO (“residual”). iPayment v. Allstate Merchant Servs., LLC, No. 650470/2014, slip op. at 1
(N.Y. Sup. Ct. March 5, 2014). ISOs frequently subcontract independent sales agents called
“sub-ISOs,” who solicit merchants, in exchange for a portion of the residual. Id. at 1– 2;
Compl. 4, ¶ 13. First Data processes the credit card transaction and charges credit card
processing fees at a wholesale rate to ISOs, who charge merchants higher retail fees. Compl. 4,
Defendant iPayment is an ISO, although larger in size than Allstate, which also markets
credit card processing services for First Data. Compl. 3, ¶ 11. Defendant Carl Grimstad
(Grimstad) is iPayment’s chief executive officer and president. Compl. 2–3, ¶ 7. Defendant
Mark C. Monaco (Monaco) is its chief executive vice-president and treasurer of iPayment.
Compl. 3, ¶ 8.
By the end of the first quarter of 2011, Allstate had a significant book of business, and
received more than one million dollars ($1,000,000) in annual residuals. Compl. 4, ¶ 15. In
April 2011, iPayment offered to purchase a portion of Allstate’s book of business, and for
Allstate to operate as its sub-ISO. Compl. 5, ¶¶ 17–18. During negotiations, iPayment
represented that it was a solvent business, claimed to have more than one hundred eighty
thousand (180,000) merchants under contract, and produced its disclosures filed with the
Securities and Exchange Commission (SEC) as evidence of its financial health. Compl. 3, 5,
¶¶ 11, 19. Allstate performed due diligence, and on June and August, 2011, entered into two
substantially identical purchase agreements with iPayment (Purchase Agreements). Compl. 5,
The June 2011 Purchase Agreement provided that Allstate would transfer to iPayment
merchant accounts which represented a residual income stream of one hundred thousand dollars
($100,000) per month, for which iPayment paid Allstate three million six hundred thousand
dollars ($3,600,000). Def.’s Ex. E, at 1. The contract obligated Allstate to guarantee this income
stream until June 1, 2013, and to make up for any shortfall through transfer payments. Id. at 2.
Allstate could ensure that it satisfied its monthly one hundred thousand dollar ($100,000)
obligation by adding or substituting new merchants, provided that these merchants met the
criteria in Exhibit C to the Purchase Agreement. Id.
The June 2011 Purchase Agreement also obligated Allstate to submit a specified
minimum monthly number of new merchant applications to iPayment for a three (3)-year period.
Id. at 9. If Allstate did not meet the minimum monthly number, it was required to pay liquidated
damages in the amount of one hundred dollars ($100) for every application below the specified
minimum number of applications. Id. at 10. However, Section 4.12 provided that the minimum
monthly requirements would not apply if iPayment “materially changes its internal underwriting
rules (provided that such change is unilateral and not the result of the requirements of its sponsor
The August 2011 Purchase Agreement contained identical provisions, except that it
obligated Allstate to transfer different merchant accounts, which represented a seventy thousand
dollar ($70,000) monthly income stream to iPayment, and required Allstate to guarantee that
income stream until August 2013, in exchange for two million five hundred thousand dollars
($2,500,000). Def.’s Ex. F, at 1–2. The parties also executed an “ISO/MSP Merchant
Solicitation Agreement” dated June 1, 2011, which outlined Allstate’s obligations as a sub-ISO
to iPayment. Def.’s Ex. L.
Initially, Allstate not only performed pursuant to the agreements, but exceeded its
minimum requirements for submitting merchant applications to iPayment. Compl. 7, ¶ 28.
Initially, iPayment approved ninety percent (90%) of those applications. However, in late 2011,
when iPayment unilaterally changed its underwriting rules, and the approval rate dropped to
below fifty percent (50%). Compl. 7–8, ¶¶30–32. Plaintiff alleges that defendants implemented
the underwriting changes to injure Allstate. Compl. 7–8, ¶¶ 31–36.
iPayment also injured Allstate’s business by failing to provide technical support to
merchants and altering its protocols. Compl. 9, 10, ¶¶ 37–38, 41–43. Several key iPayment
officers and employees, including defendants Grimstad and Monaco, whose employment
constituted a “material part of the bargain,” also left iPayment, which exacerbated the problem of
its worsening service to the merchants. Compl. 9, 10, ¶¶ 39–41; see Def.’s Exs. E, F, at 10.
iPayment sent statements to Allstate’s merchants requiring them to pay additional fees,
which were not set forth in the parties’ contractual arrangement. Compl. 11, ¶¶ 44–49. Plaintiff
alleges that defendants engaged in this behavior to put Allstate out of business. Compl. 12,
On March 5, 2014, iPayment obtained an injunction against Allstate which prohibited
Allstate from violating the non-solicitation provisions of the parties contractual arrangements by
“poaching” iPayment’s merchants. iPayment v. Allstate Merchant Servs., LLC,
No. 650470/2014, slip op. at 4–7 (N.Y. Sup. Ct. March 5, 2014). Allstate filed for Chapter 7
bankruptcy on August 4, 2014. Chapter 7 Voluntary Petition, In re Apco Merchant Servs., Inc.,
Ch. 7 Case No. 8-14-73607 (Bankr. E.D.N.Y. Aug. 4, 2014).
Plaintiff initiated this matter, pro se, on August 13, 2014, alleging a pattern of
racketeering activity under RICO, 18 U.S.C. § 1962(c), and a RICO conspiracy,
18 U.S.C. § 1962(a), (b), and (d).2 Compl. 12–15,15–6, ¶¶ 55–63, 64–67. On September 5,
2014, iPayment obtained a money judgment against Allstate, plaintiff, and her husband in
Tennessee state court in the amount of two million one hundred and seven dollars ($2,107,200).
iPayment v. Allstate Merchant Servs., LLC, No. 14-271-I, slip op. at 10 (Tenn. Ch. Ct. Aug. 1,
To survive a 12(b)(6) motion, “a complaint must contain sufficient factual matter . . . to
state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129
S. Ct. 1937, 173 L. Ed.2d 868 (2009) (internal quotation marks omitted). The court must accept
all well-pleaded factual allegations in the complaint as true and draw all reasonable inferences in
favor of the non-moving party. Id. at 679. The court is limited “to facts stated on the face of the
complaint, in documents appended to the complaint or incorporated in the complaint by
reference, and to matters of which judicial notice may be taken.” Allen v. WestPoint–Pepperell,
Inc., 945 F.2d 40, 44 (2d Cir. 1991). “Dismissal is appropriate when ‘it is clear from the face of
Defendants allege that plaintiff’s complaint was drafted by Michael Rosoff, an attorney who has been
disbarred for federal securities fraud. See In re Rosoff, 710 N.Y.S.2d 359, 361 (2000).
the complaint . . . that the plaintiff's claims are barred as a matter of law.’” Parkcentral Global
Hub Ltd. v. Porsche Auto. Holdings SB, 763 F.3d 198, 208–09 (2d Cir. 2014) (quoting Conopco,
Inc. v. Roll Int'l, 231 F.3d 82, 86 (2d Cir. 2000)).
Plaintiff’s RICO Claims
Defendants move for dismissal of plaintiff’s RICO claims, arguing (1) that plaintiff lacks
standing to bring RICO claims on behalf of Allstate, (2) that plaintiff’s complaint fails to satisfy
Rule 9(b)’s heightened pleading standard, (3) that plaintiff has not sustained a cognizable RICO
injury, and (4) that plaintiff has not sufficiently pleaded any RICO predicate acts. Def.’s Br. 13–
21. Defendants also argue that plaintiff failed to plead a RICO conspiracy.
RICO provides that it is “unlawful for any person employed by or associated with any
enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to
conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a
pattern of racketeering activity or collection of unlawful debt.” 18 U.S.C. § 1962(c). Section
1962(d) makes it “unlawful for any person to conspire to violate ... the provisions of [subsection
(c)].” 18 U.S.C. § 1962(d). “When § 1962 is violated, in addition to criminal penalties, the
RICO statutes also authorize civil lawsuits, which, if successful, can entitle a plaintiff to treble
damages, costs, and attorney's fees.” DLJ Mortg. Capital, Inc. v. Kontogiannis, 726 F.Supp.2d
225, 236 (E.D.N.Y. 2010) (citing 18 U.S.C. § 1964(c)).
Initially, defendants argue that plaintiff lacks standing under the RICO statute by virtue
of the fact that she is a member of the allegedly injured LLC, Allstate. Def.’s Br. 13. Separate
from Article III’s standing requirement, to satisfy RICO requires a plaintiff to allege: “‘(1) a
violation of section 1962; (2) injury to business or property; and (3) causation of the injury by
the violation.’” First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 767 (2d Cir. 1994)
(quoting Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23 (2d Cir. 1990)). A sole
shareholder in an injured business entity lacks standing to prosecute RICO claims on behalf of
the business entity. Manson v. Stacescu, 11 F.3d 1127, 1131 (2d Cir. 1993) (citing Sound Video
Unlimited, Inc. v. Video Shack, Inc., 700 F. Supp. 127, 136 (S.D.N.Y. 1988)); Pappas v. Passias,
887 F. Supp. 465, 472 (E.D.N.Y. 1995). Here, even assuming, arguendo, that iPayment’s
conduct constituted RICO activity, plaintiff alleges that she suffered an injury because it
“destroyed” her business, Allstate. Compl. 15, ¶¶ 62, 63, 67. This is insufficient to confer RICO
standing on plaintiff.
Plaintiff also failed to plead fraud with particularity as required by Rule 9(b). “Rule 9(b)
is intended ‘to provide a defendant with fair notice of a plaintiff's claim, to safeguard a
defendant's reputation from improvident charges of wrongdoing, and to protect a defendant
against the institution of a strike suit[.]’” Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128
(2d Cir. 1994) (quoting O'Brien v. National Property Analysts Partners, 936 F.2d 674, 676 (2d
Cir. 1991)). A plaintiff alleging fraud as a RICO predicate act must satisfy Rule 9(b)’s
heightened pleading requirements. Angermeir v. Cohen, 14 F. Supp. 3d 134, 145 (S.D.N.Y.
2014) (“[A]ll allegations of fraudulent predicate acts[ ] are subject to the heightened pleading
requirement of [Rule 9(b) ].”) (citing First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d
159, 178 (2d Cir. 2004)); O'Brien v. Nat'l Prop. Analysts Partners, 719 F. Supp. 222, 230
(S.D.N.Y. 1989) (“[A]ll of the concerns that dictate that fraud be pleaded with particularity exist
with even greater urgency in civil RICO actions . . . .”) (quoting Plount v. American Home
Assurance Co., 668 F. Supp. 204, 206 (S.D.N.Y. 1987)). To do so, a plaintiff may not rely on
conclusory allegations, but must specify “’in what respects the statements at issue were false.’”
Pollio v. MF Global, Ltd., 608 F. Supp. 2d 564, 570 (S.D.N.Y. 2009) (quoting San Leandro
Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 812 (2d
Cir.1996)). If a plaintiff has not satisfied these pleading requirements, dismissal is appropriate.
Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993) (citing Ryder Energy
Distribution Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 779 (2d Cir. 1984)).
Here, plaintiff alleges several fraudulent acts by iPayment in changing its underwriting
rules, but the complaint does not specify the changes made to its underwriting rules, and it
appears that the Purchase Agreements, Section 4.12, actually contemplate unilateral changes by
iPayment. See Def.’s Exs. E, F, at 10. By itself, therefore, the fact that defendant iPayment,
Grimstad, and Monaco implemented these changes, which were allowed under the Purchase
Agreement does not suggest fraud.
Similarly and insofar as plaintiff alleges a failure to provide technical support, plaintiff
fails to explain with any particularity how iPayment’s failure to provide technical support to
merchants constitutes fraud, only alleging that iPayment’s deficient technical support was
connected to the departure of several key employees under what she describes as “murky”
circumstances, and alluding to a SEC filing in which iPayment alleged embezzlement by
employees. Compl. 9, ¶ 39; See, e.g., 4 K & D Corp. v. Concierge Auctions, LLC, 2 F. Supp. 3d
525, 540 (S.D.N.Y. 2014).
Plaintiff also claims that iPayment perpetrated a fraud by charging fees to merchants in
Allstate’s name, but it is undisputed that iPayment and Allstate’s relationship vis-à-vis the
merchants was fee-based, and Allstate had a subordinate relationship to it as its sub-ISO. Under
these circumstances, the Court cannot infer fraud on the part if iPayment from the face of the
complaint. Accordingly, plaintiff’s RICO claims against iPayment are dismissed.
MOTION TO AMEND PLEADINGS
Plaintiff has cross-moved to amend her complaint to add state law claims for breach of
contract, conversion, breach of implied covenant of good faith and fair dealing, and unjust
enrichment. Pl.’s Br. 21; Pl.’s Ex. F, at 15. Rule 15(a) allows a plaintiff to amend her complaint
once as a matter of course within twenty-one (21) days after service , and thereafter, only with
leave of court or with the adversary’s written consent. It further provides that “[t]he court should
freely give leave when justice so requires.” FED. R. CIV. P. 15(a)(2). “[T]his mandate is to be
heeded” especially “[i]n the absence of any apparent or declared reason—such as undue delay,
bad faith or dilatory motive on the part of the movant.” Foman v. Davis, 371 U.S. 178, 182, 83
S. Ct. 227, 230 (1962) (explaining that court abuses its discretion by refusing to allow
amendment to a complaint without justification). However, a court may deny leave to amend
where the proposed amendments are futile. E.g., Ganthier v. N. Shore-Long Island Jewish
Health Sys., 298 F. Supp. 2d 342, 350 (E.D.N.Y. 2004) (citations omitted). The court may treat
the proposed amendments as futile if they would not survive a dismissal motion. A.V. By
Versace, Inc. v. Gianni Versace, S.p.A., 160 F. Supp. 2d 657, 666 (S.D.N.Y. 2001) (citing Nettis
v. Levitt, 241 F.3d 186, 193 (2d Cir.2001)). Allstate is not a plaintiff in her proposed amended
complaint, and therefore the amendments do not give rise to RICO standing. She proposes to
amend her complaint to include state law claims against parties who are all citizens of New
York, and over which the Court would decline to exercise supplemental jurisdiction.
Accordingly, plaintiff’s cross-motion to amend her complaint to add these claims is denied.
For the foregoing reasons, defendants’ dismissal motion under Rule 12(b)(6) of the
Federal Rules of Civil Procedure is granted. Plaintiff’s cross-motion to amend her complaint is
s/ Sandra J. Feuerstein_____
Sandra J. Feuerstein
United States District Judge
Dated: October 27, 2015
Central Islip, New York
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