Mecca et al v. Lennon et al

Filing 15

MEMORANDUM AND ORDER granting 8 Motion to Dismiss. For the reasons stated herein, Defendant's motion to dismiss is granted. Plaintiff is given leave to amend hercomplaint, consistent with, and limited by, the above rulings, no later than May 5, 2017. Failure to timely amend will result in a dismissal of the action with prejudice. (Ordered by Judge Leonard D. Wexler on 4/18/2017.) (Fagan, Linda)

Fl LED
IN CLERK'S OFFICE
U.S. DISTRICT COURT E.D.N.Y.

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

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LONG ISLAND OFFICE

DAWN MECCA, Individually and as a
Shareholder of Payback Repo, Inc., d/b/a PRI and
Payback Repo, Inc., and as a Shareholder of Risk
Management and Loss Mitigation Services Inc.,
and Risk Management and Loss Mitigation
Services, Inc.,

APR 18 2017

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MEMORANDUM AND ORDER
16-CV-1414
(Wexler, J.)

Plaintiff,
-againstSCOTT LENNON, Individually as President of
Payback Repo, Inc., d/b/a PRI and, Payback Repo,
Inc. and as President of Risk Management and Loss
Mitigation Services, Inc., and Risk Management
and Loss Mitigation Services, Inc.,
Defendants.

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APPEARANCES:
LAW OFFICES OF CHARLES J. CASOLARO
BY: Charles J. Casolaro, Esq. and Gregory J. Gallo, Esq.
Attorneys for Plaintiff
1050 Franklin Avenue, Suite 402
Garden City, New York 11530
BALESTRIERE FARIELLO
BY: Christine Alexandria Rodriguez, Esq.
Attorney for Defendants
225 Broadway, Suite 2900
New York, New York 10007
WEJ<LER, District Judge:
Plaintiff Dawn Mecca ("Mecca" or "Plaintiff') commenced this action in New York
Supreme Court, Nassau County. Defendants have removed the case pursuant to 28 U.S.C.
§ 1332. Currently before the Court is Defendants' motion to dismiss the complaint pursuant to
Rule 12 (b)(5) and (6) ofthe Federal Rules of Civil Procedure. Motion, Docket Entry ("DE")

[8]. For the reasons set forth herein, Defendants' motion is granted and the complaint is
dismissed, with leave to replead to a limited extent.

I. BACKGROUND
A. Factual Allegations

The facts are taken from the complaint ("Compl"). DE [1-2]. The following recitation is
necessarily brief as the complaint is only five and one-half pages long. In addition, despite the
leading language in every one of the 17 factual allegations regarding "at all times hereinafter
mentioned," there is not a single date included in the body of the complaint.
Mecca claims that she is a 49% owner of Payback Repo, Inc. ("Payback") and that
Lennon holds 51% and is the president of Payback.

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She is the Chief Executive Officer of

PRI Risk Management and Loss Mitigation Services, Inc. ("PRI"), while Lennon is the president
and a shareholder. Mecca is a shareholder of both corporations, but she does not allege what
percentage she holds at PRI. Payback and PRI are both repossession and asset recovery
corporations and have the same place ofbusiness, 343 Merrick Road, Lynbrook, New York.
The remainder of the factual allegations are declarative statements that, inter alia, the
Defendants have excluded Plaintiff from the daily operations of the corporations, violated
corporate by-laws, re-directed corporate profits to conceal the income from Plaintiff, and refused
payment of dividends. The most specific allegation is that "Defendant Lennon and the abovenamed Corporate Defendants have generated millions of dollars in revenue and have
purposefully excluded the Plaintiff[] from the Corporations for the sole purpose of converting,
hide [sic], secreting and embezzling said funds for the purposes for which said funds are not
intended." Compl.

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17.

The complaint sets forth three causes of action. She claims breach of contract for
defendants' failure to "properly remunerate the Plaintiffs of their lawfully earned corporate
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profits, as agreed." Compl. ~19. The second cause of action is styled as one for larceny by trick
and conversion of corporate funds relating to the failure to distribute income and dividends and
Lennon's alleged misappropriation of funds. Under the third cause of action, Plaintiff seeks
"corporate dissolution."
B. Procedural History
Plaintiff commenced the action in Supreme Court, Nassau County by filing a Summons
with Notice and serving it on Defendants on September 2, 2015. Declaration of Christine A.
Rodriguez ("Rodriguez Decl."), Summons with Notice, Ex. A. On September 22, 2015,
Defendants served Plaintiffs counsel with a Demand for a Complaint. Plaintiff did not serve the
complaint until March 4, 2016. On March 21, 2016, the parties stipulated to extend defendants'
time to respond to the complaint to April 6, 2016. Reply Declaration of Christine A. Rodriguez
("Rodriguez Reply Decl. "), Stipulation, Ex. H.
On March 22, 2016, the day after the stipulation was executed, defendants removed the
action to this court based on the diversity of the parties. On April 6, 2016, defendants requested
a premotion conference in anticipation of their motion to dismiss. Ltr., DE [4]. A briefing
schedule was established, and the instant motion was filed.

II. LEGALSTANDARDS
Defendant seeks dismissal of the action pursuant to Rule 12 (b)(5) for insufficiency of
process and to Rule 12(b)( 6) for failure to state a claim upon which relief can be granted.
"Rule 12(b)( 5) authorizes dismissal of a complaint for insufficient service of process
upon motion by a defendant made prior to the defendant's filing an answer." Butler v. NY City

Dep't ofEduc., No. 10-CV-5748, 2014 WL 5023507, at *2 (E.D.N.Y. Oct. 7, 2014). "[W]hen a

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defendant moves to dismiss under Rule 12(b)(5), the plaintiffbears the burden ofproving
adequate service." Dickerson v. Napolitano, 604 F.3d 732, 752 (2d Cir. 2010) (quoting
Burda Media, Inc. v. Viertel, 417 F.3d 292, 298 (2d Cir. 2005)). "In deciding a Rule 12(b)(5)

motion, a court looks to materials outside of the pleadings in determining whether service of
process has been insufficient." Jordan v. Forfeiture Support Assoc., 928 F. Supp. 2d 588, 594
(E.D.N.Y. 2013) (internal quotation and citations omitted).
In considering a motion to dismiss made pursuant to Rule 12(b)( 6), the court must accept
the factual allegations in the complaints as true and draw all reasonable inferences in favor of the
plaintiff. Lundy v. Catholic Health Sys. of Long Island Inc., 711 F.3d 106, 113 (2d Cir. 2013)
(citations omitted). The court determines "whether the 'well-pleaded factual allegations,'
assumed to be true, 'plausibly give rise to an entitlement to relief."' Hayden v. Paterson, 594
F.3d 150, 161 (2d Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). "The
plausibility standard is not akin to a probability requirement, but it asks for more than a sheer
possibility that a defendant has acted unlawfully." Iqbal, 556 U.S at 678 (citing Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

The determination of "whether a complaint states a plausible claim for relief' is a
"context-specific task that requires the reviewing court to draw on its judicial experience and
common sense." Iqbal, 556 U.S at 679. A determination of plausibility "depends on a host of
considerations: the full factual picture presented by the complaint, the particular cause of action
and its elements, and the existence of alternative explanations so obvious that they render
plaintiffs inferences unreasonable." L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419,430 (2d
Cir. 2011). A pleading that does nothing more than recite bare legal conclusions, however, is
insufficient to "unlock the doors of discovery." Iqbal, 556 U.S. at 678-679; see also Twombly,
550 U.S. at 555 (holding that a "formulaic recitation "formulaic recitation of cause of action's
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elements will not do. Factual allegations must be enough to raise a right to relief above the
speculative level.").

III. DISCUSSION
A. Insufficiency of Process 1
1. Application of state law
Although the Federal Rules of Civil Procedure apply to actions after removal, "state law
governs the sufficiency of service of process before removal." G. G. G. Pizza, Inc. v. Domino's

Pizza, Inc., 67 F. Supp. 2d 99, 102 (E.D.N.Y. 1999) (emphasis supplied); see also Fed Ins. Co.
v. Tyco Int'l Ltd, 422 F. Supp. 2d 357, 383 (S.D.N.Y. 2006) (noting that "federal courts routinely
look to state law when evaluating the propriety of service of process in deciding motions to
dismiss a complaint in diversity cases removed to federal court."). "Because Plaintiff served
process on Defendant prior to removal, 'the propriety of service must be determined by reference
to state law."' PH Int'l Trading Corp. v. Nordstrom, Inc., No. 07-CV-10680, 2009 WL 859084,
at *3 (S.D.N.Y. Mar. 31, 2009) (quoting Zeballos v. Tan, No. 06-CV-1268, 2006 WL 1975995,
at *6 (S.D.N.Y. July 10, 2006)).
Under New York law, a plaintiff in receipt of a demand for complaint must complete
service within twenty days. Here, service was not effected until March 4, 2015, almost 5 months
late. "To avoid dismissal of the action for failure to serve a complaint after a demand for the
complaint has been made pursuant to CPLR 3012(b), a plaintiff must demonstrate both a
reasonable excuse for the delay in serving the complaint and a potentially meritorious cause of
action." Carducci v. Russell, 120 A.D.3d 1375, 1375-76,993 N.Y.S.2d 119, 121 (2d Dep't
2014) (citations omitted). "The determination of what constitutes a reasonable excuse for a
1

Plaintiff argues that Defendants' motion is untimely since it was not made within thirty days of receipt
of the complaint. This argument is rejected in light of the parties' stipulation extending defendants' time
to respond to the complaint, and defendants' timely actions in conformance with that document.

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default lies within the sound discretion ofthe court." Khamis v. Corp. Transp. Grp., Ltd., 135
A.D.3d 825, 826, 23 N.Y.S.3d 375 (2d Dep't 2016) (internal quotation and citation omitted).
Plaintiff's excuse is that her counsel needed the time to properly investigate her claims
and that much of the necessary information is in Defendants' control. The thinness ofthis
excuse, however, is evidenced by the complaint which was ultimately served. It is completely
lacking in factual content, including facts that were in Plaintiff's control. For example, there is
not a single fact regarding the "contract" between the parties, and there are no dates but for the
date of the pleading. 2 As such, Plaintiff has failed to put forth a reasonable excuse for to avoid
dismissal under CPLR 3012(b).
2. Request for an extension of time to serve
Plaintiff seeks permission serve out of time pursuant to CPLR 2004. While state law may
apply to service prior to removal, Rule 4(m) "applies to removed cases after the date of
removal." G. G. G. Pizza, 67 F. Supp. 2d at 102; see also FED. R. CIV. P. 81(c) (the Federal Rules
apply after removal). Accordingly, the Court will treat Plaintiff's request as one made under
Rule 4(m) of the Civil Rules of Procedure.
Pursuant to Rule 4(m), if a defendant is not timely served, 3 the court "must dismiss the
action without prejudice against that defendant or order that service be made within a specified
time." FED. R. Civ. P. 4(m). It further provides that the court must extend the time for service
"if the plaintiff shows good cause for the failure." !d. The determination of whether good cause
exists is within the "sound discretion of the district court." Zapata v. City ofNY, 502 F.3d 192,
197 (2d Cir. 2007). In addition, it is clear that the court has the discretion to grant an extension
2
In addition, there is no evidence that Plaintiff took advantage of CPLR § 31 02(c) that allows a litigant to obtain a
court order for pre-commencement disclosure "to aid in bringing an action."
3

Rule 4(m) formerly allowed 120 days for service, but was reduced to 90 days by amendment in 2015. Service of
the complaint in this case was untimely in either event.

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even in the absence of good cause. !d. at 196. In determining whether there was good cause, the
court considers (1) whether plaintiff reasonably and diligently attempted to effect service, and (2)
whether defendants are prejudiced by the delay. See Visco v. Brentwood Union Free Sch. Dist.,
991 F. Supp. 2d 426, 432 (E.D.N.Y. 2014).
There is no evidence to support a finding that plaintiff exercised any diligence
whatsoever in serving the complaint. Her only proffered excuses concern delays occasioned by
her own financial circumstances and the supposed lack of information in her possession or in the
possession of her attorney. On the other hand, defendants have not made any showing that they
would be prejudiced by allowing service to stand. Although they were not served with the
complaint until March 4, 2016, the Summons with Notice filed on September 2, 2015 identified
the nature of the action as seeking to recover damages for "oppressive corporate conduct,
misappropriation of corporate funds, breach of contract, conversion, fraud, larceny by trick or
false promise, embezzlement, corporate dissolution, derivative stockholder's action, and for the
appointment of a receiver." Rodriguez Decl., Ex. A. The complaint that was ultimately served
asserted three causes of action, all of which were included on the Summons with Notice. Thus
Defendants were generally on notice of the claims to be brought against them. See generally

Planetarium Travel, Inc. v. Whitehouse Travel Co., No. 97 CIV. 2186, 1998 WL 85796, at* 2
(S.D.N.Y. Feb. 27, 1998) (declining to dismiss complaint noting that defendants concede they
received a copy of the complaint "and thus were on notice of the complaint.").
Balancing Plaintiffs lack of diligence with the absence of any showing of prejudice by
Defendants, the Court, in its discretion, grants Plaintiffs motion to extend the time to serve, and
deems service upon Defendants to be timely, nunc pro tunc.

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B. Failure to State a Claim
1. First Cause of Action: Breach of Contract
Under New York law, 4 plaintiff must establish four elements for a breach of contract
claim: "(1) a contract; (2) performance of the contract by one party; (3) breach by the other
party; and (4) damages." Terwilliger v. Terwilliger, 206 F.3d 240, 246 (2d Cir. 2000) (internal
quotation and citation omitted). Plaintiff does not allege any facts constituting a breach of
contract claim. Notably, she fails to identify the "contract," any of its terms, and precisely what
terms were breached. These omissions are fatal to her breach of contract claim. See, e.g., CSX
Transp., Inc. v. Emjay Envtl. Recycling, Ltd., No. 12-CV-1865, 2013 WL 1209116, at *3
(E.D.N.Y. Mar. 25, 2013) ("there must be some allegation of the contract upon which the claim
is based and an allegation as to the terms of the contract or how there was a breach"); Wolffv.
Rare Medium, Inc., 171 F. Supp. 2d 354, 358 (S.D.N.Y. 2001) (dismissing breach of contract
claim because "a plaintiff must identify what provisions of the contract were breached as a result
of the acts at issue"). Accordingly, the breach of contract claim is dismissed, with leave to
replead.
2. Second Cause of Action: Larceny by Trick and Conversion of Corporate Funds
a. Larceny by Trick
To the extent Plaintiff alleges larceny by trick, the claim must be dismissed. Larceny,
including larceny by trick, is a crime as defined by New York Penal Law§ 155.05, and New
York law does not provide a civil cause of action for this offense. See Bryant v. Comm 'r ofSoc.

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As the parties apparently agree that New York law controls, the Court will apply it. See, e.g., Fed Ins.
Co. v. Am. Home Assurance Co., 639 F.3d 557, 566 (2d Cir. 2011) ("[W]here the parties agree that New
York law controls, this is sufficient to establish choice of law.").
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Sec., No. 14CV5764, 2015 WL 6758094, at *6 (S.D.N.Y. Nov. 5, 2015). The larceny by trick

claim is dismissed with prejudice.
b. Conversion of Corporate Funds

Plaintiffs second cause of action also purports to state a claim for "conversion of
corporate funds." It is not at all clear, however, whether this claim is asserted individually or
derivatively.
To the extent that she seeks relief as a shareholder, a "derivative suit seeks to vindicate a
wrong done to the corporation through enforcement of a corporate cause of action," and
therefore "any recovery obtained is for the benefit of the injured corporation." Glenn v.
Hoteltron Sys., Inc., 74 N.Y.2d 386, 392, 547 N.E.2d 71, 74 (1989). It is "well-settled that

shareholders lack standing to assert individual claims based on injury to the corporation."
Baltus-Michaelson v. Credit Suisse First Boston, LLC, 116 F. App'x 308, 309 (2d Cir. 2004). A

plaintiff may sue in an individual capacity "to recover damages resulting in harm, not to the
corporation, but to individual shareholders," in which case "the suit is personal, not derivative,
and it is appropriate for damages to be awarded directly to those shareholders." Glenn, 74
N.Y.2d at 392. The injury to the shareholder, however, must be "separate and distinct from
injury sustained by the corporation." Baltus-Michaelson, 116 F. App'x at 309-10; see also
Solutia Inc. v. FMC Corp., 385 F. Supp. 2d 324,331 (S.D.N.Y. 2005) (direct injury must arise

from the breach of a duty owed to the shareholder independent of a duty to the corporation, and
that "duty must derive from circumstances independent of and extrinsic to the corporate entity."
(internal quotation and citation omitted)).
It is impossible to discern from the complaint whether plaintiff is stating an individual or

derivative claim. Although the caption indicates she is proceeding both individually and as a

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shareholder, the allegations within the pleading claim only injury to the corporation, but
contrarily seek only individual relief to Plaintiff. See, e.g., Compl. 'if15 (Defendants have
"illegally converted the corporate profits"); 'if17 (Defendants have converted, hidden, secreted
and embezzled funds "for the purposes for which said funds are not intended"); Compl. 'if24
(Lennon has refused "to pay and distribute any regular income and dividend income to the
Plaintiff. Rather, Defendant Lennon has purposefully misappropriated said funds for his own
illegal benefit"). In the Wherefore Clause of her complaint, Plaintiff explicitly seeks
compensatory damages of not less than $1,000,000.00 on the corporate conversion cause of
action. Moreover, in her opposition to the motion, she argues that Defendant Lennon "diverted
money that was owed to the corporation, more specifically, to the plaintiff for himself. It is clear
that the plaintiff is claiming that the money was rightfully hers." Mem. of Law in Opp. at 11-12,
DE [9]. Thus she is apparently seeking individual damages.
Plaintiff asserts no independent duty owed to her, nor does she allege an injury separate
and distinct from that suffered by the corporation, and therefore Plaintiff has not made
allegations that provide her with standing to maintain a direct action. In addition, given the
confusion in the complaint between derivative and individual claim language, it is appropriate to
dismiss this claim. See Barry v. Curtin, 993 F. Supp. 2d 347, 353 (E.D.N.Y. 2014) ("A
complaint the allegations of which confuse a shareholder's derivative and individual rights will,
therefore, be dismissed ... though leave to replead may be granted in an appropriate case."
(quoting Abrams v. Donati, 66 N.Y.2d 951,953,498 N.Y.S.2d 782 (1985)). The motion to
dismiss the "corporate conversion" cause of action is granted, with leave to replead.

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3. Third Cause of Action: Corporate Dissolution
In her final claim, Plaintiff seeks corporate dissolution. Pursuant to New York law, "the
holders of shares representing twenty percent or more" of a corporation may present a petition of
dissolution on the grounds that "[t]he directors or those in control of the corporation have been
guilty of illegal fraudulent or oppressive actions toward the complaining shareholders" or the
assets of the corporation "are being looted, wasted, or diverted for non-corporate purposes by its
directors, officers or those in control of the corporation." N.Y. Bus. CORP. LAw § 11 04-a.
It has been suggested, however, that federal courts may not have subject matter

jurisdiction over corporate dissolution claims. This issue has not been directly addressed as
courts have found that a claim for judicial dissolution of a state-created corporation "implicates
the Burford abstention doctrine, in which '[a] federal court may abstain from hearing a case or
claim over which it has jurisdiction to avoid needless disruption of state efforts to establish
coherent policy in an area of comprehensive state regulation."' Kermanshah v. Kermanshah, 5 80
F. Supp. 2d 247,271 (S.D.N.Y. 2008) (quoting Friedman v. Revenue Mgmt. of New York, Inc.,
38 F.3d 668, 671 (2d Cir. 1994). Given New York's "strong interest in the creation and
dissolution of its corporations and in the uniform development and interpretation of the statutory
scheme regarding its corporations," Friedman, 38 F. 3d at 671, courts in "the Second Circuit
'have almost uniformly ruled that even if federal courts have subject matter jurisdiction over
claims for corporate dissolution, they should abstain from exercising it."' Kermanshah, 580 F.
Supp. 2d at 271 (quoting Feiwus v. Genpar, Inc., 43 F. Supp. 2d 289, 296 n.6 (E.D.N.Y. 1999)).
This Court agrees that abstention is appropriate, without ruling on the issue of subject matter
jurisdiction.

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IV. CONCLUSION
Defendant's motion to dismiss is granted. Plaintiff is given leave to amend her
complaint, consistent with, and limited by, the above rulings, no later than May 5, 2017. Failure
to timely amend will result in a dismissal of the action with prejudice.

SO ORDERED.
/

{L---- v t / ~<
LEONARD D. WEXLER
UNITED STATES DISTRICT JUDGE
Dated: Central Islip, New York
Apri118, 2017

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