Pivotal Payments, Inc. v. Phillips, et al

Filing 65

MEMORANDUM AND ORDER granting in part and denying in part 62 Motion to Dismiss for Failure to State a Claim. See attached Memorandum and Order for details. Ordered by Magistrate Judge Gary R. Brown on 8/28/2015. c/ecf (Johnston, Linda)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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PIVOTAL PAYMENTS, INC.
Plaintiff,

MEMORANDUM &
ORDER

-against-

CV 14-4910 (GRB)

ANDREW PHILLIPS, CARDFLEX, INC,
and U.S. ALLIANCE GROUP, INC.,
Defendants.
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GARY R. BROWN, United States Magistrate Judge:
The matter previously came before the undersigned on a motion for a preliminary
injunction, which was denied in an Order that describes the allegations of the complaint,
familiarity with which is assumed. See Pivotal Payments, Inc. v. Phillips, No. CV 14-4910
(GRB), 2014 WL 6674621 (E.D.N.Y. Nov. 25, 2014) (the “Order”). Presently pending before
the Court is a motion by defendants to dismiss counts 8 through 13 of the amended complaint,
which purport to set forth claims for relief for fraud/fraudulent inducement, conversion, mutual
mistake and unilateral mistake, pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b). This motion is
evaluated under the familiar and oft-repeated standard for reviewing such motions,which need
not be reiterated here. See, e.g., Ivchencko v. Global MRV, Inc., No. CV 11-4247, 2013 WL
685379, at *7-9 (E.D.N.Y. Feb. 4, 2013), report and recommendation adopted, 2013 WL 685906
(E.D.N.Y. Feb. 22, 2013).
A.

Fraud/Fraudulent Inducement

Defendants seek dismissal of the fraud/fraudulent inducement claims as duplicative of the
breach of contract claims contained in the amended complaint. While courts in New York

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generally do not permit parallel fraud and breach of contract claims,“New York distinguishes
between a promissory statement of what will be done in the future that gives rise only to a breach
of contract cause of action and a misrepresentation of a present fact that gives rise to a separate
cause of action for fraudulent inducement.” Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc.,
500 F.3d 171, 184 (2d Cir. 2007).

As noted in the Order, plaintiffs have plainly alleged

misstatements of present fact -- which allegations must be accepted as true for the purposes of
this motion -- that would support a separate cause of action. See, e.g., Order, 2014 WL 6674621
at *2 (“the “Complaint further alleges that Cardflex failed to disclose in due diligence ‘certain
fees that USAG charged.’”); cf. Order at *3 (“Pivotal claims that CardFlex failed to disclose
and/or understated certain fees, leading Pivotal to overvalue the assets by approximately
$600,000”). The specificity of these allegations clearly satisfy the requisites of Rules 9(b) and
12(b)(6). Thus, the motion to dismiss the claims for fraud and fraudulent inducement claim is
denied.
B.

Conversion

Defendants’ argument is similar, though much more sound, concerning the viability of
plaintiffs’ purported cause of action for conversion in the face of the breach of contract claims.
“A conversion claim must be dismissed when it does not stem from a wrong independent of the
alleged breach of contract.” Kalimantano GmbH v. Motion in Time, Inc., 939 F. Supp. 2d 392,
416 (S.D.N.Y. 2013) (citing Wolf v. Nat'l Council of Young Israel, 264 A.D.2d 416, 694
N.Y.S.2d 424, 425 (2d Dep't.1999) (“[A] claim to recover damages for conversion cannot be
predicated on a mere breach of contract”)). While counsel for plaintiffs struggle to distinguish
the purported “conversion” of certain purportedly past-due and future-interest funds from the
alleged breaches of contract, the inescapable conclusion is that but-for the breaches of contract,

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there would be no “conversion” of funds. In other words, the alleged wrong is not independent
of the claimed breach of contract, but is in all pertinent respects identical. As such, the motion to
dismiss the conversion count is granted.
C.

Mutual/Unilateral Mistake of Fact

On this motion, defendants seek dismissal of plaintiff’s claims predicated upon theories
of mutual and unilateral mistake of fact. Defendants’ application, however, conflates issues of
proof with issues of pleading, largely challenging the evidentiary support for plaintiffs’ mistake
claims. Such arguments are premature at this juncture. Moreover, in the Order, the undersigned
found:
On the central claim of gross versus net residuals, the evidence
submitted by the parties is, at best, ambiguous. Plaintiff maintains
there is proof of mutual or unilateral mistake, while defendants'
vehemently deny the same in sworn statements. The record, at this
juncture, is sufficiently equivocal on many on these key issues
such that the issue of likelihood remains unclear. At the same time,
plaintiff has, unquestionably, demonstrated “sufficiently serious
questions going to the merits to make them a fair ground for
litigation.” Citigroup Global Markets, Inc. v. VCG Special
Opportunities Master Fund Ltd., 598 F.3d 30, 35 (2d Cir.2010).

Order at *4. In light of this finding, defendants’ motion can be dispatched without further
consideration. Of course, defendants retain the right to raise these issues again following
discovery in the form of a summary judgment motion if appropriate.

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Therefore, based upon the foregoing, defendants’ motion to dismiss is GRANTED as to
plaintiff’s claim for conversion and DENIED in all other respects.
SO ORDERED.
Dated: Central Islip, New York
August 28, 2015
/s/ Gary R. Brown
GARY R. BROWN
United States Magistrate Judge

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