Palomo v. DeMaio et al
MEMORANDUM-DECISION AND ORDERED, that Counter-Defendants Motion to Dismiss (Dkt. No. 45) is GRANTED in part and DENIED in part; and it is further ORDERED, that the following portions of Counter-Plaintiffs breach of contract counterclaim survive Count er-Defendants Motion: (1) breach of the 2011 Agreement; (2) allegations regarding breach of the 2007, 2009, and 2010 Agreements made by counter-plaintiff Magic Circle Music, Ltd.; (3) allegations regarding breach of the 2007 NDA made by counter-plain tiffs Magic Circle Music, Ltd., God of Thunder Productions, Ltd., and Circle Song Music, LLC; and (4) allegations regarding breach of the 2010 NDA made by counter-plaintiffs Magic Circle Music, Ltd., God of Thunder Productions, Ltd., Circle Song Musi c, LLC, and Magic Circle Films International, Ltd.; and it is further ORDERED, that all other allegations regarding breach of the 2007, 2009, and 2010 Agreements and of the 2007 and 2010 NDAs and Counter-Plaintiffs counterclaim for injunctive relief are DISMISSED; and it is further ORDERED, that (1) the unjust enrichment counterclaim survives Counter-Defendants Motion; and it is further ORDERED, that Counter-Plaintiffs Amendment Motion (Dkt. No. 83) is DENIED. Signed by Senior Judge Lawrence E. Kahn on December 04, 2017. (sas)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
SERGIO FRANCISCO PUEBLA PALOMO,
JOSEPH G. “JOEY” DEMAIO, et al.,
MEMORANDUM-DECISION AND ORDER
Plaintiff Sergio Francisco Puebla Palomo, a musician, originally brought an action against
defendants Joseph G. “Joey” DeMaio, Circle Song Music, LLC, God of Thunder
Productions, Ltd., Magic Circle Films International, LLC, Magic Circle Music Guitars, LLC,
Magic Circle Films International, Ltd., Magic Circle Entertainment, Ltd., Magic Circle Music,
Ltd., Caromark, LLC, and John Does 1–10, alleging that Defendants wrongfully refused to return
Palomo’s musical equipment to him after he terminated his employment with Defendants in
March 2013. Dkt. No. 1 (“Complaint”). On April 17, 2017, Defendants (“Counter-Plaintiffs”)
filed counterclaims against Palomo (“Counter-Defendant”), alleging breach of contract and
unjust enrichment and seeking injunctive relief based on Counter-Defendant’s alleged
misappropriation of their property. Dkt. No. 39 at 1–351 (“Amended Counterclaims”)
¶¶ 144–230. Presently before the Court is Counter-Defendant’s motion to dismiss the Amended
Counterclaims, Dkt. No. 45 (“Motion to Dismiss”), and Counter-Plaintiffs’ motion to amend the
The cited page numbers for this document refer to those generated by the Court’s
electronic filing system (“ECF”).
Amended Counterclaims to add unfair competition and libel per se counterclaims, Dkt. No. 83
(“Amendment Motion”). For the reasons that follow, the Motion to Dismiss is granted in part and
denied in part, and the Amendment Motion is denied.
A. Factual History
The allegations discussed in this section are drawn from the Amended Counterclaims.
Counter-Plaintiffs conduct “business pertaining to the music industry,” including “producing,
promoting, licensing, distributing, recording, [and] touring.” Am. Countercls. ¶ 98. Beginning in
June 2005, Counter-Plaintiffs offered to support Counter-Defendant’s work visa by “employ[ing
him] as a keyboardist at a salary of $1,000.00 per week.” Id. ¶ 101. Counter-Defendant also
allegedly entered into five written and one oral contracts between 2007 and 2011 with various
counter-plaintiffs. Id. ¶¶ 102–16. The terms of those agreements are described below.
1. 2007 Agreements
In 2007, Magic Circle Music entered into a written agreement with Counter-Defendant
governing his creation of a new HolyHell album. Dkt. No. 39 at 36–41 (“2007 Agreement”) at
37.2 The 2007 Agreement provided that Counter-Defendant “shall comply with all of [Magic
Circle Music’s] instructions and requests in connection with [Counter-Defendant’s] services
hereunder,” and that Magic Circle Music would pay Counter-Defendant $20,000 for his work in
the creation of the album. Id. at 37–38. The 2007 Agreement also provided that all of CounterDefendant’s work product created in connection with his performance was Magic Circle Music’s
property. Id. at 37.
The cited page numbers for this document refer to those generated by ECF.
Also in 2007, Magic Circle Music, God of Thunder Productions, and Counter-Defendant
entered into a written “service and nondisclosure agreement” prohibiting Counter-Defendant
from disclosing confidential information belonging to the two counter-plaintiffs “or [their]
affiliates” and requiring that Counter-Defendant, “upon termination of [his]
services . . . surrender to [Magic Circle Music and God of Thunder Productions] all property
belonging to [the two counter-plaintiffs] and [their] affiliates.” Dkt. No. 39 at 42–44 (“2007
NDA”) at 43.3 The 2007 Agreement defines “affiliates” as including numerous entities, including
counter-plaintiff Circle Song Music. Id. After Counter-Defendant resigned in March 2013,
Counter-Plaintiffs requested the return of their property, “including that which pertains to the
2007 Agreement,” and Counter-Defendant “refused to return” this property. Am. Countercls.
¶¶ 141, 153–54. The withheld property included “demos,” “audio recordings” and “sheet music,”
as well as “[c]orrespondence with business and industry contacts,” “compositions,” “notes,”
“[p]roduction plans,” “[l]ogs and records,” and “other work product.” Id. ¶ 122. The withheld
property “[was] intended to produce or aid in the production of revenue for Counter-Plaintiffs,”
and “to reduce expenses or aid in the reduction of expenses of Counter-Plaintiffs.” Id.
2. 2009 Agreement
In 2009, Magic Circle Music entered into a written agreement with Counter-Defendant
that “cover[ed his] services in connection with his live performance(s)” in a number of concerts.
Dkt. No. 39 at 45–49 (“2009 Agreement”) at 46.4 Counter-Defendant refused to return company
The cited page numbers for this document refer to those generated by ECF.
The cited page numbers for this document refer to those generated by ECF.
property acquired in connection with the 2009 Agreement after resigning. Am. Countercls. ¶ 123.
Counter-Plaintiffs list the same categories of withheld property described above, and allege the
same impact on their revenues and expenses. Id. ¶¶ 123, 169–70.
3. 2010 Agreements
In 2010, Magic Circle Music entered into a written agreement with Counter-Defendant
“in connection with his live performance(s) at the Death To Infidels World Tour 2010.” Dkt. No.
39 at 50–54 (“2010 Agreement”) at 51. The 2010 Agreement required Counter-Defendant to
“comply with all of [Magic Circle Music’s] instructions,” and designated all of CounterDefendant’s work product as Magic Circle Music’s property. Id. Also in 2010, God of Thunder
Productions and Magic Circle Films International, Ltd. entered into a written service and
nondisclosure agreement with Counter-Defendant that was largely identical to the 2007 NDA.
Dkt. No. 39 at 55–57 (“2010 NDA”).5 Counter-Defendant refused to return company property
acquired in connection with the 2010 Agreement. Am. Countercls. ¶ 124. Counter-Plaintiffs list
the same categories of withheld property described above, and allege the same impact on their
revenues and expenses. Id. ¶¶ 124, 183–84.
4. 2011 Agreement
In 2011, Counter-Defendant and Counter-Plaintiffs entered into an oral agreement (“2011
Agreement”). Id. ¶ 116. Under the 2011 Agreement, Counter-Defendant agreed to produce a
studio album called “Darkness Visible,” which was to contain ten “newly written, fully recorded
songs.” Id. ¶ 117. Counter-Defendant was also required to “produce cover artwork, booklet,
label, and CD inlays for” Darkness Visible and “a new website for HolyHell.” Id. Counter5
The cited page numbers for this document refer to those generated by ECF.
Plaintiffs state that “[t]he 2011 Agreement was supported by adequate consideration in keeping
with the usual and ordinary consideration exchanged between the parties.” Id. ¶ 190.
Counter-Plaintiffs allege that Counter-Defendant “implicitly conferred upon CounterPlaintiffs exclusive ownership rights” of his work product, as he did under the 2007, 2009, and
2010 agreements. ¶ 119. He also “implicitly agreed to surrender . . . all property of CounterPlaintiffs” at the end of his employment. Id. Counter-Defendant produced only three written
songs, did not produce any cover art for Darkness Visible, and did not produce a new website. Id.
¶¶ 191–93. Counter-Defendant refused to return company property acquired in connection with
the 2011 Agreement. Id. ¶ 125. Counter-Plaintiffs list the same categories of withheld property as
described above, and allege the same impact on their revenues and expenses. Id. ¶¶ 125,
5. Counter-Defendant’s Post-Resignation Activities
Counter-Plaintiffs allege that they “have spent large sums of money on research and
development of certain business practices, business models, marketing, contractual relationships,
and other related research in the music industry,” which they collectively call “[t]rade [s]ecrets.”
Id. ¶¶ 205–06. Some of these trade secrets were contained in computer files and documents that
were in Counter-Defendant’s “sole possession” during his employment. Id. ¶ 207. CounterPlaintiffs state that Counter-Defendant refused to surrender this confidential information after he
resigned, and he used this information “in the development of his own musical career and the
development of other third parties’ musical careers.” Id. ¶ 215.
Counter-Defendant also recorded a song called “Invictus” while working for CounterPlaintiffs, and in an April 2014 internet post, he “and/or his band, HolyHell, represented that
‘Invictus’ was a ‘[b]onus track taken off’” Darkness Visible. Id. ¶ 133. Counter-Defendant has
also allegedly “registered Mexican copyrights for thirteen . . . compositions under the title
‘Darkness Visible,’” and several of those compositions have the same titles as songs first
recorded for Counter-Plaintiffs’ Darkness Visible album. Id. ¶ 134.
B. Procedural History
Counter-Plaintiffs originally filed counterclaims on February 13, 2017. Dkt. No. 22
(“Original Counterclaims”). Counter-Defendant moved to dismiss the Original Counterclaims,
Dkt. No. 29, and Counter-Plaintiffs amended their counterclaims, Am. Countercls. On May 1,
2017, Counter-Defendant moved to dismiss the Amended Counterclaims pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure. Mot. to Dismiss. Counter-Plaintiffs filed a
response, Dkt. No. 55 (“Response”), and Counter-Defendant filed a Reply, Dkt. No. 57
(“Reply”). On October 2, 2017, Counter-Plaintiffs moved to further amend their counterclaims,
Amendment Mot., and Counter-Defendant opposed that motion, as well, Dkt. No. 85
A. Motion to Dismiss
To survive a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure, a “complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court must accept as
true the factual allegations contained in a complaint and draw all inferences in favor of the
nonmoving party. Allaire Corp. v. Okumus, 433 F.3d 248, 249–50 (2d Cir. 2006). Plausibility,
however, requires “enough fact[s] to raise a reasonable expectation that discovery will reveal
evidence of [the alleged misconduct].” Twombly, 550 U.S. at 556.
The plausibility standard “asks for more than a sheer possibility that a defendant has acted
unlawfully.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). “[T]he pleading standard
Rule 8 announces does not require ‘detailed factual allegations,’ but it demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. (quoting Twombly, 550 U.S.
at 555). Where a court is unable to infer more than the mere possibility of the alleged misconduct
based on the pleaded facts, the pleader has not demonstrated that she is entitled to relief and the
action is subject to dismissal. Id. at 678–79.
B. Amendment Motion
Where, as here, a party has amended its pleading once, Rule 15 of the Federal Rules of
Civil Procedure provides that a party may amend its pleading again “with the opposing party’s
written consent or the court’s leave.” Fed. R. Civ. P. 15(a). “[L]eave to amend should be freely
given . . . ‘[i]n the absence of any apparent or declared reason—such as . . . futility of
amendment.’” Rusyniak v. Gensini, 629 F. Supp. 2d 203, 212 (N.D.N.Y. 2009) (quoting Foman
v. Davis, 371 U.S. 178, 182 (1962)). “An amendment to a pleading is futile if the proposed claim
could not withstand a motion to dismiss pursuant to” Rule 12(b)(6). Lucente v. Int’l Bus. Machs.
Corp., 310 F.3d 243, 258 (2d Cir. 2002). “The test then with respect to futility is whether or not
the proposed amendment states a claim upon which relief can be granted.” Henriquez v. Kelco
Landscaping, Inc., 299 F.R.D. 376, 378 (E.D.N.Y. 2014) (citing Lucente, 310 F.3d at 258).
A. Motion to Dismiss
1. Breach of Contract
A breach of contract claim under New York law requires a plaintiff to show “(1) the
existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of
contract by the defendant, and (4) damages.” Ellington Credit Fund, Ltd. v. Select Portfolio
Servicing, Inc., 837 F. Supp. 2d 162, 188–89 (S.D.N.Y. 2011) (quoting Harsco Corp. v. Segui,
91 F.3d 337, 348 (2d Cir. 1996)). Counter-Plaintiffs allege that Counter-Defendant breached the
2007, 2009, 2010, and 2011 Agreements, and the 2007 and 2010 NDAs. Am. Countercls.
a. Parties to the Written Agreements
Counter-Defendant argues that only Magic Circle Music can allege breach of the 2007,
2009, and 2010 Agreements. Dkt. No. 45-1 (“Dismissal Memorandum”) at 5. The Court agrees.
Magic Circle Music is the only counter-plaintiff that is a party to these Agreements. 2007, 2009,
2010 Agreements. A claimant that is not a party to a contract or an intended beneficiary generally
cannot enforce the obligations of that contract. Edwards v. MHS Holdings Corp., No.
90-CV-387, 1994 WL 383221, at *5 (N.D.N.Y. July 15, 1994) (holding that amending complaint
to include breach of contract claim was futile because plaintiff was not a party to the agreement
and no contract language indicated that plaintiff was an intended beneficiary). The 2007, 2009
and 2010 Agreements mention no counter-plaintiff other than Magic Circle Music, and contain
no language indicating that any counter-plaintiff was an intended beneficiary of the Agreements.
Counter-Plaintiffs’ argument that “the Counterclaim-Plaintiffs are all affiliated entities,
and constitute a single employer,” Resp. at 5, is unavailing. The “single employer doctrine” is a
doctrine used in National Labor Relations Board decisions, Arculeo v. On-Site Sales & Mktg.,
LLC, 425 F.3d 193, 198 n.6 (2d Cir. 2005), and provides for the “impos[ition of] liability for
labor infractions where two nominally independent entities do not act under an arm’s length
relationship,” Dias v. Cmty. Action Proj., Inc., No. 07-CV-5163, 2009 WL 595601, at *2
(E.D.N.Y. Mar. 6, 2009). Courts have not used the single employer doctrine to provide an avenue
for non-parties to gain standing to allege breach of contract. Therefore, only Magic Circle Music
is permitted to allege breach of the 2007, 2009, and 2010 Agreements.
Turning to the NDAs, Magic Circle Music and God of Thunder Productions are the only
counter-plaintiff parties to the 2007 NDA, 2007 NDA at 43, and God of Thunder Productions
and Magic Circle Films International, Ltd. are the only counter-plaintiff parties to the 2010 NDA,
2010 NDA at 56. Counter-Plaintiffs assert that these Agreements “specifically identify the other
Counterclaim-Plaintiffs as interested parties,” and, thus, as “intended beneficiaries.” Resp. at 6.
This is only partially correct. A party is an intended beneficiary and can enforce the obligations
of a contract if it can establish “(1) the existence of a valid and binding contract between other
parties, (2) that the contract was intended for its benefit, and (3) that the benefit to it is
sufficiently immediate.” Gerszberg v. Li & Fung (Trading), Ltd., 215 F. Supp. 3d 282, 291
Circle Song Music is designated as an “affiliate” of the 2007 NDA, 2007 NDA at 39, and
Circle Song Music and Magic Circle Music are designated as affiliates of the 2010 NDA, 2010
NDA at 56. Because Counter-Defendant does not dispute the validity of the NDAs and because
each NDA requires Counter-Defendant to “develop [his] best efforts to advance the interests
of . . . [the] affiliates,” 2007 NDA at 43; 2010 NDA at 56, it is plausible that Circle Song Music
is an intended beneficiary of both NDAs, and that Magic Circle Music is an intended beneficiary
of the 2010 NDA. No other counter-plaintiff is mentioned in the NDAs, and the Court rejects
Counter-Plaintiffs’ argument that the NDAs’ vague reference to “any other affiliates” suggests
that all Counter-Plaintiffs are intended beneficiaries. Resp. at 6. Therefore, Magic Circle Music,
God of Thunder Productions, and Circle Song Music may allege breach of the 2007 NDA. These
counter-plaintiffs, along with Magic Circle Films International, Ltd., may also allege breach of
the 2010 NDA. Counter-Defendant’s Motion to Dismiss is granted with respect to all other
allegations regarding breach of the written Agreements. The Court now addresses whether the
remaining counter-plaintiffs sufficiently allege breach of the written Agreements.
b. Breach of the Written Agreements
The 2007 and 2010 NDAs required Counter-Defendant, upon termination of employment,
to “surrender . . . all . . . property belonging to Magic Circle Music [and God of Thunder
Productions and their] affiliates.” 2007 NDA at 43; 2010 NDA at 56. Counter-Plaintiffs allege
that Counter-Defendant breached these provisions by failing to “return all [c]ompany [p]roperty”
when he resigned, and they list the categories of correspondence and work product that they
claim he wrongfully withheld. Am. Countercls. ¶¶ 121–25, 146–85. They further allege that
Counter-Defendant’s withholding of company property after Counter-Plaintiffs demanded its
return breached the provisions in the 2007, 2009, 2010 Agreements requiring Counter-Defendant
to “comply with all of [Magic Circle Music’s] instructions and requests in connection with [his]
services.” Id. ¶¶ 149, 163, 175.
Counter-Defendant asserts that Counter-Plaintiffs fail to “allege any facts showing that
[he] breached” the “non-disclosure provisions of the 2007, 2009, and 2010 Agreements and the
2007 and 2010 NDAs.” Dismissal Mem. at 6–7 (emphasis added). However, Counter-Plaintiffs
state that Counter-Defendant retained company property in violation of his obligation to return
the property, not that he breached the contracts’ non-disclosure provisions. The Court is satisfied
that Counter-Plaintiff’s straightforward allegations that Counter-Defendant withheld company
property and refused to comply with Magic Circle Music’s request to return the property alleges
plausible breaches of the 2007, 2009, and 2010 Agreements and the 2007 and 2010 NDAs. See
Webcraft Tech, Inc. v. McCaw, 674 F. Supp. 1039, 1043 (S.D.N.Y. 1987) (stating that
defendant’s continued possession of company property violated a contract provision requiring
departing employees to return “all memoranda, notes . . ., and other documents . . . concerning
any phase of [plaintiff’s] business”) (second alteration in original).
Counter-Defendant also argues that Counter-Plaintiffs fail to adequately plead damages
resulting from the breach of the written Agreements. Dismissal Mem. at 8. He states that
Counter-Plaintiffs’ allegation that they suffered “damages in excess of $160,000 [for the breach
of each written Agreement] . . . is not an actual allegation showing damages pled with facts,” and
that “Counter-Plaintiffs otherwise do not attempt to allege facts relating to how [CounterDefendant]’s alleged breaches have caused any damages.” Id. at 8–9. On the contrary, CounterPlaintiffs state, with respect to each of the allegedly breached written agreements, that the
company property withheld by Counter-Defendant “is intended to produce or aid in the
production of revenue for Counter-Plaintiffs, including . . . album sales, licensing revenue,
touring revenue, merchandising revenue, [and] other related revenue(s),” and that the property is
“intended to reduce expenses . . . of Counter-Plaintiffs.” Am. Countercls. ¶¶ 157–58, 169–70,
It is true that “[a] claim for breach of contract must rest on more than a conclusory
allegation that the defendant’s breach caused damages, even where the exact amount of damages
is alleged.” Miller v. HSBC Bank USA, N.A, No. 13-CV-7500, 2015 WL 585589, at *4
(S.D.N.Y. Feb. 11, 2015). However, Counter-Plaintiffs “need not, at this stage, specify the
measure of damages nor plead . . . [specific] proof of causation.” Errant Gene Therapeutics, LLC,
v. Sloan-Kettering Inst. for Cancer Research, No. 15-CV-2044, 2016 WL 205445, at *7
(S.D.N.Y. Jan. 15, 2016). Counter-Plaintiffs’ allegations regarding damages lack specifics, but
permit a plausible inference that deprivation of company property could have resulted in
increased expenses and foregone revenue. For instance, Counter-Defendant may have refused to
return song recordings that Counter-Plaintiffs could otherwise have sold and monetized, or
refused to return documents containing proprietary research that Counter-Plaintiffs could have
implemented into a business strategy to reduce expenses. See Comfort Inn Oceanside v. Hertz
Corp., No. 11-CV-1534, 2011 WL 5238658, at *8 (E.D.N.Y. Nov. 1, 2011) (holding that
Comfort Inn’s allegation that Hertz’s failure to provide Comfort Inn with rental cars caused a
“loss of revenue” sufficiently pled damages even though Comfort Inn did “not fill in all the
blanks as to how Hertz’s alleged breach resulted in the damages it asserts”); Smith McDonnell
Stone & Co. v. Delicato Vineyards, No. 94-CV-6474, 1995 WL 375918, at *4 (S.D.N.Y.
June 22, 1995) (holding that allegations that breach reduced company value and increased “the
market position of a direct competitor” were sufficient to survive dismissal).
For these reasons, the Court finds that Counter-Plaintiffs’ breach of contract allegations
with respect to the five written agreements survive dismissal with respect to the counterplaintiffs, listed above, who are parties or plausible intended beneficiaries to these agreements.
c. The 2011 Agreement
Under the oral 2011 Agreement, allegedly entered into by Counter-Defendant and all
Counter-Plaintiffs, Counter-Defendant agreed to (1) write a new studio album for HolyHell,
Darkness Visible, that would contain ten songs; (2) produce cover art for the album; and (3)
create a new website for HolyHell. Am. Countercls. ¶¶ 116–18. Counter-Defendant allegedly
breached the 2011 Agreement by producing only three songs, creating no cover art or website,
and failing to return company property acquired in connection with the Agreement. Id.
¶¶ 125, 191–93.
i. Failure to Plead Parties
Counter-Defendant argues that Counter-Plaintiffs’ allegations regarding breach of the
2011 Agreement should be dismissed because Counter-Plaintiffs state only that “Mr. Palomo and
Counter[claim]-Plaintiffs entered into the 2011 Agreement,” and that “it is entirely unclear which
parties are the alleged ‘Counter-Plaintiffs’ . . . because that term is not defined within the
Amended Counterclaims.” Dismissal Mem. at 9 (first alteration in original) (quoting Am.
Countercls. ¶ 186). The Court is unpersuaded that the reference to “Counter-Plaintiffs” is
insufficiently definite to survive dismissal. Counter-Plaintiffs allege that the 2011 Agreement
was between Counter-Defendant and each of the counter-plaintiffs. Counter-Defendant’s
assertion that this is “implausibl[e],” id. at 9, is irrelevant—at this stage of the inquiry, the Court
accepts the truth of Counter-Plaintiffs’ factual allegations.
ii. Failure to Plead the Existence of Consideration
Counter-Defendant argues that the allegation “that the ‘2011 Agreement was supported
by adequate consideration in keeping with the usual and ordinary consideration exchanged
between the parties’ is patently insufficient to establish adequate consideration in support of this
alleged agreement.” Dismissal Mem. at 10 (quoting Am. Countercls. ¶ 190). Breach of contract
allegations that “fail to provide any detail about the nature of the exchanged promises or
consideration” are insufficient to survive a motion to dismiss. Integra FX3X Fund, L.P. v.
Deutsche Bank, AG, No. 14-CV-8400, 2016 WL 7009057, at *3 (S.D.N.Y. Nov. 29, 2016).
The Court does not find Counter-Plaintiffs’ allegations concerning consideration for the
2011 Agreement to be too vague to state a breach of contract claim. As they explain, the meaning
of “adequate consideration in keeping with the usual and ordinary consideration exchanged
between the parties” is illuminated by reference to the compensation Counter-Defendant received
for his work under previous contracts. Resp. at 11–12. For instance, the 2011 Agreement
concerned Counter-Defendant’s work on a new HolyHell album, the graphic art associated with
the album, and the creation of a new website for HolyHell. Am. Countercls. ¶¶ 186–87. Under
the 2007 Agreement, which also governed Counter-Defendant’s creation of a HolyHell album for
Counter-Plaintiffs, Magic Circle Music promised to pay him $20,000 for his work. 2007
Agreement at 37–38. Therefore, the Court can plausibly infer what “the usual and ordinary
consideration exchanged between the parties” means with respect to a contract governing
Counter-Defendant’s creation of a HolyHell studio album for Counter-Plaintiffs. The allegations
of consideration supporting the 2011 Agreement are not extensive, but are sufficiently detailed to
survive a motion to dismiss. Cf. Integra FX3X Fund v. Deutsche Bank, AG, No. 14-CV-8400,
2016 WL 1169514, at *3 (S.D.N.Y. Mar. 22, 2016) (granting motion to dismiss where “[t]he
[c]omplaint simply fail[ed] to allege an exchange of promises”); Matana v. Merkin, 989 F.
Supp. 2d 313, 319 (S.D.N.Y. 2013) (granting motion to dismiss where “[t]he Amended
Complaint does not anywhere allege an exchange of promised or other consideration”) (emphasis
For these reasons, the Court denies Counter-Defendant’s Motion to Dismiss with respect
to the 2011 Agreement.
2. Unjust Enrichment
Counter-Plaintiffs plead unjust enrichment in the alternative to their breach of contract
counterclaim based on Counter-Defendant’s alleged misappropriation of songs that he recorded
for the Darkness Visible album while working for Counter-Plaintiffs. Am. Countercls.
¶¶ 221–230. “Under New York law, a claim for unjust enrichment consists of the following three
elements: ‘that (1) defendant was enriched, (2) at plaintiff’s expense, and (3) equity and good
conscience militate against permitting defendant to retain what plaintiff is seeking to recover.’”
In re Hydrogen, LLC, 431 B.R. 337, 359 (S.D.N.Y. 2010) (quoting Carroll v. LeBouef, Lamb,
Greene & MacRae, LLP, 623 F. Supp. 2d 504, 514 (S.D.N.Y. 2009)).
As an initial matter, it is possible for both the breach of contract and unjust enrichment
counterclaims to survive dismissal. It is true that both the unjust enrichment counterclaim and the
breach of contract allegations concerning the 2011 Agreement concern Counter-Defendant’s
alleged exploitation of Counter-Plaintiffs’ audio recordings. It is also true that “a claim for unjust
enrichment—a quasi-contract claim—applies only in the absence of a valid contract.” Chen v.
New Trend Apparel, Inc., 8. F. Supp. 3d 406, 422 (S.D.N.Y. 2014) (citing Beth Israel Med. Ctr.
v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 587 (2d Cir. 2006)). However,
“New York permits the alternative pleading of breach of contract and unjust enrichment
claims—and the survival of both claims at the motion to dismiss stage—where there is a bona
fide dispute as to the existence of a contract.” Sikarevich Family, LP, v. Nationwide Mut.
Ins. Co., 30 F. Supp. 3d 166, 172 (E.D.N.Y. 2014). As discussed above, the parties dispute the
existence of the 2011 Agreement. Therefore, although Counter-Plaintiffs “may not ultimately
recover on both the breach of contract and unjust enrichment” counterclaims, both may survive at
the motion to dismiss stage. Transcience Corp. v. Big Time Toys, LLC, 50 F. Supp. 3d 441,
452–53 (S.D.N.Y. 2014).
Turning to the merits of the unjust enrichment counterclaim, Counter-Defendant alleges
that “Counterclaim-Plaintiffs utterly fail to allege that [he] was enriched.” Dismissal Mem. at 12.
He reasons that, although Counter-Plaintiffs allege that they advanced $160,000 “for use on the
“Darkness Visible’ project,” Am. Countercls. ¶ 140, they never provided him with any of that
money, Dismissal Mem. at 12.
However, this is not the basis of the unjust enrichment counterclaim. Rather, CounterPlaintiffs allege that Counter-Defendant continued working on Darkness Visible tracks after he
resigned, and posted on the internet a “revisited” version of a song that he initially recorded for
the album while working for Counter-Plaintiffs. Am. Countercls. ¶¶ 222–26. Moreover, he also
allegedly “registered Mexican copyrights for thirteen . . . compositions under the title ‘Darkness
Visible,’” and several of those compositions have the same titles as songs first recorded for
Darkness Visible. Id. ¶ 227. To the extent that he has earned profits from his alleged exploitation
of Counter-Plaintiffs’ recordings, Counter-Defendant has not returned these profits to Counter16
Plaintiffs. Id. ¶ 228. Counter-Plaintiffs plausibly allege that Counter-Defendant wrongfully kept
copies of their songs, promoted retouched versions of the songs as his own, and turned a profit.
These allegations plausibly allege unjust enrichment and this counterclaim therefore survives
3. Injunctive Relief
Counter-Plaintiffs allege that, in addition to other company property that CounterDefendant has withheld, he refused to return their “trade secrets.” Id. ¶¶ 205–06, 213. CounterPlaintiffs further allege that Counter-Defendant “has wrongfully used the [t]rade [s]ecrets . . . in
the development of his own musical career and the development of other third parties’ musical
careers,” and that injunctive relief is necessary because “a money judgment could not adequately
compensate Counter-Plaintiffs for the unknown amount of money they would have earned had
they, not [Counter-Defendant], released ‘Darkness Visible’ and/or any other songs derived from
[c]ompany [p]roperty and/or [t]rade [s]ecrets stolen by” Counter-Defendant. Id. ¶¶ 215, 219.
A claimant seeking permanent injunctive relief must establish:
(1) that it will suffer an irreparable injury; (2) that remedies available
at law, such as monetary damages, are inadequate to compensate for
that injury; (3) that, considering the balance of hardships between the
plaintiff and defendant, a remedy in equity is warranted; and (4) that
the public interest would not be disserviced by a permanent
Beastie Boys v. Monster Energy Co., 87 F. Supp. 3d 672, 677 (S.D.N.Y. 2015).
Initially, the Court rejects Counter-Defendant’s assertion that Counter-Plaintiffs
misconstrue injunctive relief as an independent cause of action. Dismissal Mem. at 13–14. While
it is true that injunctive relief is a remedy, not an independent ground for relief, O Zon Inc. v.
Charles, 272 F. Supp. 2d 307, 312 (S.D.N.Y. 2003), the request for injunctive relief here rests on
Counter-Defendant’s refusal to turn over trade secrets and company property, Resp. at 15. As
Counter-Plaintiffs observe, this request is premised on their breach of contract and unjust
enrichment counterclaims, not a standalone cause of action. Id.
However, the request for injunctive relief is improper because a monetary remedy is
plainly adequate. The mere need to calculate lost profits from Counter-Plaintiffs’ inability to
release Darkness Visible or other songs that Counter-Defendant allegedly “revisited” after
resigning does not render an award of monetary damages inadequate. While circumstances may
exist where lost profits cannot be reasonably estimated, thus making injunctive relief potentially
available, Counter-Plaintiffs fail to allege any facts indicating that such circumstances exist here.
See Blank v. Pollack, 916 F. Supp. 165, 171 (N.D.N.Y. 1996) (holding that a complaint seeking
injunctive relief “must allege facts sufficient to support a determination of irreparable harm” and
“[t]he mere allegation of lost profits, i.e. economic damage, is insufficient to show irreparable
harm”) (citing Jackson Dairy, Inc. v. H.P. Hood & Sons, 596 F.2d 70, 72 (2d Cir. 1979)).
Counter-Plaintiffs’ assertion that they are entitled to injunctive relief because CounterDefendant has allegedly used trade secrets to advance his musical career is similarly unavailing.
They allege only that Counter-Defendant is using their confidential information, not that he is
publicly sharing the information. Am. Countercls. ¶¶ 215–16. In Faively Transport Malmo AB v.
Wabtec Corporation, the Second Circuit explained that:
A rebuttable presumption of irreparable harm may be warranted in
cases where there is a danger that, unless enjoined, a misappropriator
of trade secrets will disseminate those secrets to a wider
audience . . . . Where a misappropriator seeks only to use those
secrets—without further dissemination or irreparable impairment of
value—in pursuit of profit, no such presumption is warranted because
an award of damages will often provide a complete remedy. Indeed
. . . the misappropriator will often have the same incentive as the
originator to maintain the confidentiality of the secret in order to
profit from the proprietary knowledge.
559 F.3d 110, 118–19 (2d Cir. 2009). Because Counter-Plaintiffs do not allege that CounterDefendant disseminated their trade secrets, and because they provide no facts alleging that he is
likely to disseminate trade secrets, monetary relief is an adequate remedy for the harms alleged.
Finally, the provisions in the 2007 and 2010 NDAs that “provide that counter-Plaintiffs
are ‘entitled to a temporary or permanent injunction’ against [Counter-Defendant] to prevent” his
use or disclosure of proprietary information, Am. Countercls. ¶¶ 214, do not support a request for
injunctive relief. “[I]t is well settled in the Second Circuit that ‘contractual language declaring
money damages inadequate in the event of a breach does not control whether . . . injunctive relief
is appropriate.” A.X.M.S. Corp. v. Friedman, 948 F. Supp. 2d 319, 338 (S.D.N.Y. 2013) (quoting
Baker’s Aid v. Hussmann Foodservice Co., 830 F.2d 13, 16 (2d Cir. 1987)). This boilerplate
contractual provision does not alter the Court’s analysis.
For these reasons, the Court grants Counter-Defendant’s Motion to Dismiss with respect
to Counter-Plaintiff’s request for injunctive relief.
4. Leave to Replead
Counter-Plaintiffs urge the Court to grant them an opportunity to replead any dismissed
counterclaims, and cite Rojas v. Roman Catholic Diocese of Rochester, 557 F. Supp. 2d 387
(W.D.N.Y. 2008), for the proposition that “this circuit strongly favors liberal grant of an
opportunity to replead after dismissal of a complaint under Rule 12(b)(6).” Resp. at 4. Although
this proposition is true, deciding whether to dismiss an action with “leave to replead is within the
discretion of the district court.” Schindler v. French, 232 F. App’x 17, 19 (2d Cir. 2007)
(summary order). Counter-Plaintiffs have had two attempts to properly allege their request for
injunctive relief and the dismissed portions of their breach of contract counterclaim. These
causes of action first appeared in Counter-Plaintiffs’ Original Counterclaims. Original
Countercls. Counter-Plaintiff filed the present, more robust versions of these counterclaims on
April 17, 2017, Am. Countercls, after Counter-Defendant moved to dismiss the counterclaims,
Dkt. No. 29. The Court will not grant Counter-Plaintiffs leave to replead when they
“ha[ve] . . . been given ample prior opportunity to allege a [counter]claim.” In re Refco Capital
Mkts., Ltd. Brokerage Customer Sec. Litig., No. 07-CV-8686, 2008 WL 4962985, at *2
(S.D.N.Y. Nov. 20, 2008); see also Estes v. Toyota Fin. Serv., No. 14-CV-1300, 2015 WL
3830350, at *6 (E.D.N.Y. June 22, 2015) (denying leave to replead where plaintiff had “already
been given an opportunity to replead her claims”); L-7 Designs, Inc. v. Old Navy, LLC, No.
09-CV-1432, 2010 WL 532160, at *2 (S.D.N.Y. Feb. 16, 2010) (denying leave to replead where
plaintiff “already had two bites at the apple, as it has already filed two complaints: the original
complaint . . . and the amended complaint”).
B. Amendment Motion
Counter-Plaintiffs’ Amendment Motion seeks to add two new counterclaims: unfair
competition and libel per se. Amendment Mot. The Court addresses these counterclaims below,
and finds that granting leave to amend would be futile since neither counterclaim could survive a
motion to dismiss.
1. Unfair Competition
To support their proposed unfair competition counterclaim, Counter-Plaintiffs reallege
that Counter-Defendant “misappropriated the music constituting work product belonging to”
Counter-Plaintiffs when he resigned. Dkt. No. 83-2 (“Proposed Second Amended
Counterclaims”) ¶ 141. Counter-Defendant argues that this proposed counterclaim could not
survive a motion to dismiss because it is preempted by § 106 of the Copyright Act of 1976, 17
U.S.C. §§ 101 et seq. Amendment Opp’n. at 11–14. The Court agrees.
“In order for a state cause of action to survive [Copyright Act] preemption, it must have
an ‘extra element’ beyond reproduction, preparation of derivative works, [or] distribution . . . ,
which ‘changes the nature of the action so that it is qualitatively different from a copyright
infringement claim.’” BanxCorp v. Costco Wholesale Corp., 723 F. Supp. 2d 596, 617 (S.D.N.Y.
2010) (quoting Gusler v. Fischer, 580 F. Supp. 2d 309, 316 (S.D.N.Y. 2008)). “[U]nfair
competition and misappropriation claims grounded solely in the copying of a plaintiff’s protected
expression are preempted.” Id. (alterations in original) (quoting Computer Assocs., Int’l, Inc. v.
Altai, Inc., 982 F.2d 693, 717 (2d Cir. 1992)).
Counter-Plaintiffs’ unfair competition counterclaim is premised on Counter-Defendant’s
exploitation of songs owned by Counter-Plaintiffs, Proposed Second Am. Countercls. ¶¶ 139–46,
which is a “claim grounded solely in the copying of [Counter-Plaintiffs’] protected expression,”
BanxCorp., 723 F. Supp. at 617. While it is true that “unfair competition claims based upon
breaches of confidential relationships, breaches of fiduciary duties and trade secrets” contain an
extra element and can survive a Copyright Act preemption challenge, id. at 617, CounterPlaintiffs allege no facts to support these theories. The two NDAs designate as confidential “any
information regarding the income, expenses, procedures or customers of Magic
Circle . . . or . . . gained from any intimacies concerning any individuals associated
with . . . Magic Circle,” but do not designate as confidential information relating to unreleased
music tracks. 2007 NDA at 43; 2010 NDA at 56.
Additionally, Counter-Plaintiffs could not argue that Counter-Defendant’s
“misappropriat[ion of] the tracks,” Proposed Second. Am. Countercls. ¶ 144, constitutes
misappropriation of a trade secret. “[A] trade secret cannot be comprised of matters completely
disclosed by the market good,” Demetriades v. Kaufmann, 698 F. Supp. 521, 526 (S.D.N.Y.
1988). An audio track is, as Counter-Defendant observes, “fully disclosed when the song is
played,” Amendment Opp’n at 12.
Finally, Counter-Plaintiffs maintain that their unfair competition counterclaim is not
preempted because “a copyright infringement claim requires that a party assert in the pleadings
that he has received an actual certificate of registration or its denial from the Copyright Office,”
and Counter-Plaintiffs “do not assert that they have filed or received an actual certificate of
registration of copyright.” Dkt. No. 83-6 (“Amendment Memorandum”) at 5–6. However, the
mere absence of an allegation that Counter-Plaintiffs filed a certificate of registration does not
make their counterclaim “qualitatively different from a copyright infringement claim,”
BanxCorp, 723 F. Supp. at 617. See Quadrille Wallpapers & Fabric, Inc. v. Pucci,
No. 10-CV-1394, 2011 WL 3794238, at *4 (N.D.N.Y. Aug. 24, 2011) (Kahn, J.) (observing that
“‘[e]lements . . . which alter the action’s scope but not its nature,’ do not constitute extra
elements that would” enable an unfair competition claim to survive a preemption challenge
(quoting Computer Assocs., 982 F.2d at 717)). Counter-Plaintiffs’ reliance on Kelley v.
Universal Music Group, No. 14-CV-2968, 2016 WL 5720766 (S.D.N.Y. Sept. 29, 2016),
Amendment Mem. at 5–6, is misplaced. That case never suggests that an unfair competition
claim may survive a preemption challenge simply because the claimant fails to allege that they
filed a certificate of registration with the Copyright Office. See generally Kelley, 2016 WL
In sum, Counter-Plaintiffs’ proposed unfair competition counterclaim is preempted by the
Copyright Act because it is premised only on Counter-Defendant’s exploitation of music tracks
owned by Counter-Plaintiffs, and fails to plead an extra element. Therefore, the Court will not
grant Counter-Plaintiffs leave to add an unfair competition counterclaim because amendment
would be futile.
2. Libel Per Se
Counter-Plaintiffs’ libel per se claim is supported by written communications by CounterDefendant that Counter-Plaintiffs uncovered during discovery in this action that allegedly defame
Counter-Plaintiffs. Amendment Mem. at 6–9. However, “[u]nder New York law, a defamation
claim must be asserted within one year of the date on which the defamatory statement was
published or uttered to a third party, even if it would have been impossible for the plaintiff to
discover the injury at that time.” Walker v. City of Utica, No. 12-CV-1587, 2015 WL 1013865,
at *13 (N.D.N.Y. Mar. 9, 2015) (citing N.Y. C.P.L.R. § 215(3)). The most recent of CounterDefendant’s allegedly defamatory communications was an email sent on October 13, 2015.
Amendment Mem. at 9. Counter-Plaintiffs’ Original Counterclaims were filed on February 13,
2017. Original Countercls. Therefore, even if the Court found that the defamation counterclaim
related back to this date, see Fed. R. Civ. P. 15(c) (outlining circumstances required for “[a]n
amendment to a pleading [to] relate back to the date of the original pleading), this is still over a
year since the most recent allegedly defamatory statement was published. Therefore, the Court
denies Counter-Plaintiffs leave to amend to add a libel per se counterclaim because the
amendment would be time-barred and, thus, futile.
Accordingly, it is hereby:
ORDERED, that Counter-Defendant’s Motion to Dismiss (Dkt. No. 45) is GRANTED
in part and DENIED in part; and it is further
ORDERED, that the following portions of Counter-Plaintiffs’ breach of contract
counterclaim survive Counter-Defendant’s Motion: (1) breach of the 2011 Agreement;
(2) allegations regarding breach of the 2007, 2009, and 2010 Agreements made by counterplaintiff Magic Circle Music, Ltd.; (3) allegations regarding breach of the 2007 NDA made by
counter-plaintiffs Magic Circle Music, Ltd., God of Thunder Productions, Ltd., and Circle Song
Music, LLC; and (4) allegations regarding breach of the 2010 NDA made by counter-plaintiffs
Magic Circle Music, Ltd., God of Thunder Productions, Ltd., Circle Song Music, LLC, and
Magic Circle Films International, Ltd.; and it is further
ORDERED, that all other allegations regarding breach of the 2007, 2009, and 2010
Agreements and of the 2007 and 2010 NDAs and Counter-Plaintiffs’ counterclaim for injunctive
relief are DISMISSED; and it is further
ORDERED, that (1) the unjust enrichment counterclaim survives Counter-Defendant’s
Motion; and it is further
ORDERED, that Counter-Plaintiffs’ Amendment Motion (Dkt. No. 83) is DENIED; and
it is further
ORDERED, that the Clerk of the Court serve a copy of this Memorandum-Decision and
Order on all parties pursuant to the Local Rules.
IT IS SO ORDERED.
December 04, 2017
Albany, New York
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