Marks v. Energy Material Corporation et al
MEMORANDUM OPINION AND ORDER re: 35 MOTION to Dismiss First Amended Complaint filed by Energy Material Corporation, 41 MOTION for Judgment on the Pleadings filed by Rachel Scalabrini. For the foregoing reasons, EMC's motio n to dismiss is granted in its entirety and Ms. Scalabrini's motion for judgment on the pleadings is denied. As to whether Plaintiff's claims against EMC should be dismissed with or without prejudice, because Plaintiff has appeared through counsel and has not requested leave to file a second amended complaint, declining to grant such leave is within the Court's discretion. Moreover, Plaintiff has already amended her complaint once in response to a motion to dismiss that was subst antially similar to instant motion, see Dkt. No. 20, which suggests that granting a further opportunity to amend would be futile, see Williams v. Williams, No. 13-CV-3154 RA, 2015 WL 568842, at *8 (S.D.N.Y. Feb. 11, 2015) (declining to grant leave to amend where the plaintiff had already amended his complaint in response to the defendants' original motion to dismiss); Nasik Breeding & Research Farm Ltd. v. Merck & Co., 165 F. Supp. 2d 514, 544-45 (S.D.N.Y. 2001) (same). Accordingly, the Cou rt dismisses Plaintiff's claims against EMC with prejudice. The Clerk of Court is instructed to terminate the motions pending at Dkt. Nos. 35 and 41, and to amend the official caption to reflect that this case is proceeding against Ms. Scalabrini only. Energy Material Corporation terminated. (Signed by Judge Gregory H. Woods on 6/9/2015) (kko)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
BRIDGET MARKS, as PERSONAL
REPRESENTATIVE OF THE ESTATE OF
ALVIN M. MARKS,
ENERGY MATERIALS CORPORATION and
DOC #: _________________
DATE FILED: 6/9/2015
OPINION AND ORDER
GREGORY H. WOODS, United States District Judge:
Plaintiff Bridget Marks, as the Personal Representative of the Estate of Alvin Marks
(“Plaintiff” or “the Estate”), brought this diversity action raising state law claims of conversion,
misappropriation of trade secrets, and unjust enrichment against defendant Energy Materials
Corporation (“EMC”), as well as a claim of conversion against defendant Rachel Scalabrini. EMC
moves to dismiss Plaintiff’s claims against it for failure to state a cause of action pursuant to Federal
Rule of Civil Procedure 12(b)(6). Ms. Scalabrini separately moves for judgment on the pleadings
pursuant to Federal Rule of Civil Procedure 12(c). For the following reasons, the Court concludes
that Plaintiff has failed to adequately plead a claim of conversion, misappropriation of trade secrets,
or unjust enrichment against EMC. The Court further concludes that Ms. Scalabrini is not entitled
to judgment on the pleadings. Accordingly, EMC’s motion to dismiss is granted and Ms.
Scalabrini’s motion for judgment on the pleadings is denied.
According to the allegations in Plaintiff’s amended complaint, Dr. Alvin Marks was an
inventor who, among other things, developed and patented “Lumeloid” and “Quensor” energy
conversion and storage technologies. See Dkt. No. 24 (First Amended Complaint (“FAC”)), ¶¶ 16-
20. Dr. Marks documented his work on those technologies in laboratory notebooks to which the
public did not have access. Id. ¶ 21.
Dr. Marks passed away in May 2008, at which point his property became part of the Estate.
Id. ¶¶ 22-23. Dr. Marks’s will was filed with the Worcester County Probate and Family Court in
October 2008, but was not probated. See In the Matter of Alvin M. Marks, Worcester County Probate
and Family Court, Case No. WO07P0197WF1, 10/21/2008 Dkt. Entry.1 The will named Gerard J.
Aitken IV, Dr. Marks’s third wife’s son from a subsequent marriage, as the Executor of the Estate.
FAC ¶¶ 2, 9.2
On January 12, 2010, Aitken, in his individual capacity, entered into a Technology Purchase
Agreement (“TPA”) with defendant EMC, a Delaware corporation formed to develop and
commercialize solar conversion and energy storage products based on technologies invented by Dr.
Marks. Id. ¶¶ 10-11, 24. Pursuant to the TPA, Aitken purported to sell to EMC “all rights in
intellectual property relating to Lumeloid,” “an option to purchase all rights in intellectual property
relating to Quensor,” and all “tangible embodiments” of the intellectual property relating to those
technologies, including Dr. Marks’s laboratory notebooks (collectively, the “Estate Property”). Id.
¶¶ 25-27. In exchange, EMC issued Aiken 2,500,000 shares of its common stock. Id. ¶ 30.
Aitken explicitly represented and warranted in the TPA that he “exclusively own[ed] all right,
title and interest in and to the [Estate Property] . . . free and clear of all liens, security interests or any
other encumbrances.” See Dkt. No. 36, Ex. B (“TPA”), ¶ 4.2(b).3 Nonetheless, according to
Plaintiff, “EMC knew or should have known that Aitken had no authority to transact with respect to
The Court may take judicial notice of such public records in related court proceedings in ruling on a motion to dismiss.
See Ferrari v. Cnty. of Suffolk, 790 F. Supp. 2d 34, 38 n.4 (E.D.N.Y. 2011)
Apart from the above fact, which is referenced in the amended complaint, the parties dispute whether the Court may
consider the content of Dr. Marks’s will in deciding the instant motions. The Court need not resolve this dispute, as
considering the content of the will would not change the outcome of this decision.
Because the TPA is both incorporated by reference in and “integral” to the amended complaint, the Court may
consider it in deciding the instant motions. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002).
the Estate Property.” FAC ¶ 39. In support of this assertion, Plaintiff alleges that, “given EMC’s
knowledge that Aitken was not biologically related to the Decedent and that the purported will left
nothing to the Decedent’s kin, EMC was on notice of the need to conduct commercially reasonable
due diligence into Aitken’s purported authority to transact with respect to the Estate Property.” Id.
¶ 41. Plaintiff further alleges that “[t]he exercise of commercially reasonable due diligence would
have revealed that Aitken had not been appointed the Executor of Dr. Marks Estate as of January
12, 2010, and that the Estate’s property had not been distributed to the heirs.” Id. ¶ 40; see also id. ¶ 5
(“Whether a will has been admitted to probate in Massachusetts, or an executor or personal
representative appointed, is easily obtainable public information.”). Plaintiff claims that “EMC’s
failure to conduct commercially reasonable due diligence amounts to willful blindness and reflects its
bad faith interest in obtaining the Estate Property without regard to Aitken’s authority to transact
with respect to that property.” Id. ¶ 42.
After entering into the TPA, EMC took possession of several of Dr. Marks’s laboratory
notebooks. Id. ¶ 28. According to Plaintiff, “[t]he information contained in Dr. Marks’ laboratory
notebooks relating to Dr. Marks’ continuing efforts and research with respect to the technology was
a trade secret in that it was valuable, was not available to the public, and had always been kept secret
by Dr. Marks during his lifetime and through the time of EMC’s purported purchase of the
laboratory notebooks.” Id. ¶ 45. Plaintiff alleges that “EMC derived commercial advantage from
the trade secret information in Dr. Marks’ laboratory notebooks relating to [his] continuing efforts
and research with respect to the technology.” Id. ¶ 47. Relatedly, Plaintiff alleges that “EMC reaped
significant benefits from [its] transaction with Aitken, both in terms of the actual Estate Property [it]
received, and in terms of the enhancement of [its] ability to raise funds on the basis of its purported
relationship with Dr. Marks and purported rights to his technology.” Id. ¶ 50.
In April 2011, Aitken filed a petition to appoint himself Executor of the Estate and to
probate Dr. Marks’s will. See In the Matter of Alvin M. Marks, Worcester County Probate and Family
Court, Case No. WO07P0197EP1, 4/4/2011 Dkt. Entry. Bridget Marks, Dr. Marks’s daughter and
Aitken’s half-sister, subsequently challenged the validity of both the will and Aitken’s petition. Id. at
8/15/2011 Dkt. Entry. In a January 2013 summary judgment decision, the Probate Court
determined that there was a significant question as to whether Aitken exercised improper influence
over Dr. Marks in drafting his will. Id. at 1/15/2013 Dkt. Entry.4 Aitken thereafter abandoned his
request to be appointed Executor of the Estate. Bridget Marks filed a Petition for Formal Probate
and was appointed Personal Representative of the Estate in February 2014. Id. at 12/30/2013 and
3/3/2014 Dkt. Entries.
Meanwhile, in January 2012, defendant Rachel Scalabrini, Aitken’s ex-wife, entered into a
marital separation agreement (“MSA”) with Aitken pursuant to which Aitken agreed to transfer to
Ms. Scalabrini half of his shares of EMC, see Dkt. No. 30 (Scalabrini Answer), attached MSA at 5,5
which included at least some of the shares he had obtained through the TPA, FAC ¶ 35. In March
2013, the New York Supreme Court, Westchester County, issued a judgment of divorce (the
“Divorce Decree”) finalizing Ms. Scalabrini’s divorce from Aitken, which explicitly incorporated but
did not merge the MSA. See Dkt. No. 30, attached Judgment of Divorce at 2. On December 29,
2014, Plaintiff demanded that Ms. Scalabrini return to the Estate the shares of EMC that Aitken had
obtained through the TPA. FAC ¶ 36. Ms. Scalabrini refused to do so on the same date. Id.
In October 2014, Plaintiff filed a complaint in New York state court raising claims of
conversion, misappropriation of trade secrets, and unjust enrichment against EMC only. See Dkt.
The Probate Court’s summary judgment decision has not been provided by the parties and is not available
electronically. Plaintiff, however, has not disputed the above characterization of that decision, which is derived from
EMC’s motion papers, and which is offered solely for the sake of context.
In deciding Ms. Scalabrini’s motion for judgment on the pleadings, the Court may consider the documents attached to
her answer. See L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011). Furthermore, Plaintiff has
consented to the Court’s consideration of the documents attached to Ms. Scalabrini’s answer. See Dkt. No. 49 at 1 n.1.
No. 2, Ex. C. EMC timely removed the action to this Court, invoking the Court’s diversity
jurisdiction. See Dkt. No. 2.
EMC moved to dismiss Plaintiff’s complaint under Rule 12(b)(6) in December 2014, raising
arguments substantially similar to the arguments described below. See Doc. 20. In response to
EMC’s motion, Plaintiff filed an amended complaint that attempted to cure the deficiencies
identified by EMC and that added a conversion claim against Ms. Scalabrini. See FAC. Ms.
Scalabrini subsequently appeared pro se and answered the amended complaint. See Dkt. No. 30.
EMC now moves to dismiss the amended complaint as to Plaintiff’s claims against it under
Rule 12(b)(6), while Ms. Scalabrini moves for judgment on the pleadings under Rule 12(c). EMC
argues, inter alia, that, because Plaintiff did not sufficiently allege that EMC was anything other than
an innocent purchaser of the purportedly converted property, Plaintiff was required to and did not
allege that the Estate demanded the return of that property. See Dkt. No. 37 (“EMC Mot.”) at 2124. EMC further argues that Plaintiff’s misappropriation of trade secrets claim must be dismissed
because she failed to sufficiently allege that EMC acquired a trade secret in bad faith or by improper
means. Id. at 14-19; Dkt. No. 51 (“EMC Reply”) at 9-10. Finally, EMC contends that Plaintiff
failed to allege a sufficient connection between the Estate and EMC to support an unjust
enrichment claim. EMC Mot. at 19-21.6
In her motion, Ms. Scalabrini, proceeding pro se, argues that she cannot be held liable for
converting Aitken’s shares of EMC because she acquired those shares through a valid court order;
namely, the Divorce Decree. See Dkt. No. 42 (“Scalabrini Mot.”).
EMC’s Motion to Dismiss
EMC also argues that (1) Dr. Marks’s Lumeloid and Quensor technologies are not the proper subjects of a conversion
claim; (2) EMC never actually acquired the Quensor technology and thus could not have converted it; (3) Plaintiff did
not plead the existence of a trade secret with the requisite degree of specificity; and (4) Plaintiff did not sufficiently plead
that the alleged trade secret was, in fact, secret. See EMC Mot. at 11-14, 24-25. Because the Court agrees with EMC’s
arguments described in the text above, it declines to address EMC’s other arguments.
When ruling on a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),
the Court must accept all factual allegations in the complaint as true and draw all reasonable
inferences in the plaintiff’s favor. Koch v. Christie’s Int’l PLC, 699 F.3d 141, 145 (2d Cir. 2012). The
Court, however, is not required to credit “mere conclusory statements” or “[t]hreadbare recitals of
the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “To survive a motion
to dismiss, a complaint must contain sufficient factual matter . . . to ‘state a claim to relief that is
plausible on its face.’” Id. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007))). A
claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id.
Under New York law, “[c]onversion is the unauthorized assumption and exercise of the
right of ownership over goods belonging to another to the exclusion of the owner’s rights.” Vigilant
Ins. Co. of Am. v. Hous. Auth. of City of El Paso, Tex., 87 N.Y.2d 36, 44 (1995) (internal quotation
marks omitted). To state a claim for conversion, a plaintiff must allege “(1) legal ownership or an
immediate superior right of possession to a specific identifiable thing and (2) that the defendant
exercised an unauthorized dominion over the thing in question, to the alteration of its condition or
to the exclusion of the plaintiff’s rights.” Command Cinema Corp. v. VCA Labs, Inc., 464 F. Supp. 2d
191, 199 (S.D.N.Y. 2006) (internal quotation marks omitted). Additionally, “since an innocent
purchaser of stolen goods is not a wrongdoer, she is not liable in conversion unless and until she
refuses the true owner’s demand for a return of the property.” Leveraged Leasing Admin. Corp. v.
PacifiCorp Capital, Inc., 87 F.3d 44, 49 (2d Cir. 1996) (citing Lawrence v. Meloni, 558 N.Y.S.2d 360, 361
(4th Dep’t 1990)); see also Grosz v. Museum of Modern Art, 772 F. Supp. 2d 473, 496 (S.D.N.Y. 2010)
(“[I]n a cause of action for conversion against a good faith purchaser of chattels, ‘demand and
refusal are substantive elements’ of the claim.”) (quoting DeWeerth v. Baldinger, 836 F.2d 103, 107 n. 3
(2d Cir. 1987)). “The reason for this rule is simply that one in lawful possession shall not have such
possession changed into an unlawful one until he be informed of the defect of his title and have an
opportunity to deliver the property to the true owner.” Leveraged Leasing, 87 F.3d at 49 (internal
quotation marks omitted).
Here, Plaintiff alleges that EMC converted the Estate Property when it purchased that
Property from Aitken. FAC ¶¶ 38, 43. As Plaintiff concedes, she has not alleged that the Estate
demanded the return that Property. Plaintiff instead contends that no such demand was required
because EMC was willfully blind regarding Aitken’s lack of authority to sell the Estate Property, and
thus was not an innocent purchaser. See Dkt. No. 47 (“Pl. Opp.”) at 6-8.
The Court agrees with EMC, however, that Plaintiff has not sufficiently pled willful
blindness. See EMC Mot. at 15-19. Willful blindness is a mental state that “surpasses recklessness
and negligence.” Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2070 (2011). “[A] willfully
blind defendant is one who takes deliberate actions to avoid confirming a high probability of
wrongdoing and who can almost be said to have actually known the critical facts.” Id. at 2070-71.
Willful blindness involves “two basic requirements: (1) the defendant must subjectively believe that
there is a high probability that a fact exists and (2) the defendant must take deliberate actions to
avoid learning of that fact.” Id. at 2070.
EMC’s purported willful blindness in this case—and purported wrongdoing more
generally—is premised solely on Plaintiff’s allegations that (1) because EMC knew that Aitken was
not biologically related to Dr. Marks and that Dr. Marks’s will left nothing to his kin, EMC was
required to “conduct commercially reasonable due diligence into Aitken’s purported authority to
transact with respect to the Estate Property”; and (2) such an inquiry would have revealed that
Aitken had not been appointed as Executor of the Estate and that Dr. Marks’s will had not been
probated. See FAC ¶¶ 39-42; see also id. ¶ 5 (“Whether a will has been admitted to probate in
Massachusetts, or an executor or personal representative appointed, is easily obtainable public
information.”). These allegations do not indicate that EMC was willfully blind.7 The allegation that
EMC knew that Aitken was not biologically related to Dr. Marks and that Dr. Marks’s will left
nothing to his kin does not support the proposed inference that EMC must, therefore, have believed
that it was highly probable that Aitken lacked the authority to sell the Estate Property. It is not
uncommon for a will to bequeath assets to persons not biologically related to the testator or to
bequeath no assets to biological kin, and thus the mere lack of a biological relationship between
Aitken and Dr. Marks does not establish that EMC acted with willful blindness. The allegation is
particularly inadequate to establish willful blindness given Aitken’s explicit warranty in the TPA that
he “exclusively own[ed] all right, title and interest in and to the [Estate Property] . . . free and clear of
all liens, security interests or any other encumbrances.”8 TPA ¶ 4.2(b).
More generally, Plaintiff’s assertion of wrongdoing against EMC is premised on the dubious
proposition that, in an arms-length transaction involving the sale of a decedent’s property, the
buyer’s knowledge that the seller is not biologically related to the decedent and that the decedent’s
will leaves no property to his kin gives rise to a duty on behalf of the buyer to verify that the will has
been probated. This proposition is especially far-fetched where, as here, the seller is acting in his
individual capacity, rather than as a purported representative of the decedent’s estate, and the seller
has explicitly warranted that he is the outright owner of the decedent’s property. Not surprisingly,
Plaintiff fails to identify any authority to support this proposition in his opposition papers.
Alternatively, Plaintiff asserts that EMC was not an innocent purchaser because she “alleged,
based on the likelihood that EMC conducted basic due diligence and was aware that the will had not
been probated, that EMC in fact knew that Aitken had no right to provide it with the property.” Pl.
Relatedly, Plaintiff does not explain how the concept of “commercially reasonable due diligence” is relevant to either
conversion or willful blindness under New York law.
While the Court has generously declined to consider the content of Dr. Marks’s invalidated will in deciding EMC’s
motion, it is nonetheless worth noting that the will explicitly stated that Dr. Marks had “raised [Aitken] since childhood”
and that Aitken was “acknowledged by [Dr. Marks] as [his] son.” Dkt. No. 36, Ex. A at 1.
Opp. at 7. But Plaintiff’s allegation as to EMC’s actual knowledge has even less factual support than
her allegation of willful blindness. See Anonymous v. Simon, No. 13 CIV. 2927 RWS, 2014 WL
819122, at *4 (S.D.N.Y. Mar. 3, 2014) (indicating that, in ruling on a motion to dismiss, courts are
not required to credit “mere conclusory statements” as to a defendant’s knowledge). Indeed, as
EMC notes in its motion, Plaintiff has pled no facts whatsoever suggesting that EMC actually knew
that Aitken lacked the authority to sell the Estate Property. Rather, Plaintiff alleged only that EMC
was “on notice of the need” to inquire regarding Aitken’s purported authority, and not that EMC
actually conducted such an inquiry. See FAC ¶ 41. Accordingly, Plaintiff has not sufficiently pled
that EMC was anything other than an innocent purchaser of the Estate Property, and the Estate’s
admitted failure to demand the return of that Property is fatal to its conversion claim.9 EMC’s
motion to dismiss Plaintiff’s conversion claim is thus granted.
Misappropriation of Trade Secret Claim
“To succeed on a claim for the misappropriation of trade secrets under New York law, a
party must demonstrate: (1) that it possessed a trade secret, and (2) that the defendants used that
trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery
by improper means.”10 Faiveley Transp. Malmo AB v. Wabtec Corp., 559 F.3d 110, 117 (2d Cir. 2009)
(internal quotation marks omitted). Courts have likened “discovery by improper means” to
“industrial espionage.” Watts v. Jackson Hewitt Tax Serv. Inc., 675 F. Supp. 2d 274, 280 (E.D.N.Y.
2009); see also Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 487 (1974) (using burglary, wire-tapping,
and bribery as examples of methods by which trade secrets may be misappropriated).
EMC’s motion papers suggest that this defect is not curable, as EMC represents that it has “voluntarily returned all
Assets of which it took possession from Aitken.” EMC Mot. at 23 n.18.
The parties dispute whether bad faith is also an element of a misappropriation of trade secrets claim under New York
law. The Court is not required to resolve this dispute, since Plaintiff has not sufficiently pled discovery by improper
means for the reasons stated above.
Here, Plaintiff has not attempted to allege the use of a trade secret in breach of an
agreement, confidential relationship, or duty, and the Court agrees with EMC that Plaintiff has not
sufficiently alleged the discovery of a trade secret by “improper means.” See EMC Reply at 9-10.11
For substantially the same reasons as those set forth above, Plaintiff has not pled sufficient facts to
support a conclusion that EMC’s purchase through the TPA of the alleged trade secret—“[t]he
information contained in Dr. Marks’s laboratory notebooks relating to [his] continuing efforts and
research with respect to [Lumeloid and Quensor] technology,” FAC ¶ 45—occurred under
circumstances amounting to “industrial espionage” or similar misconduct. Accordingly, EMC’s
motion to dismiss Plaintiff’s trade secret misappropriation claim is granted.
Unjust Enrichment Claim
“[T]he theory of unjust enrichment . . . contemplates an obligation imposed by equity to
prevent injustice, in the absence of an actual agreement between the parties.” Georgia Malone & Co.
v. Rieder, 19 N.Y.3d 511, 516 (2012) (internal quotation marks omitted). “An unjust enrichment
claim is rooted in the equitable principle that a person shall not be allowed to enrich himself unjustly
at the expense of another.” Id. (internal quotation marks omitted). “Thus, in order to adequately
plead such a claim, the plaintiff must allege that (1) the other party was enriched, (2) at [the
plaintiff’s] expense, and (3) that it is against equity and good conscience to permit the other party to
retain what is sought to be recovered.” Id. (internal quotation marks omitted). “It is well established
that unjust enrichment does not require proof of any wrongdoing by the enriched party.” United
States v. Nagelberg, 772 F. Supp. 120, 122 (E.D.N.Y. 1991) (citing Ptachewich v. Ptachewich, 465 N.Y.S.2d
277, 278-79 (2d Dep’t 1983)).
The Court exercises its discretion to consider this argument, which EMC raised for the first time in its reply brief. See
Bricklayers Ins. & Welfare Fund Bricklayers Pension Fund v. P.P.L. Constr. Servs. Corp., No. 12-CV-3940 DLI RML, 2015 WL
1443038, at *7 (E.D.N.Y. Mar. 27, 2015) (“A district court enjoys broad discretion . . . to consider arguments made for
the first time in a reply brief.” (internal quotation marks omitted)). In any event, this argument is substantially similar to
the argument raised in EMC’s principal brief that Plaintiff failed to sufficiently allege bad faith. See EMC Mot. at 15-19.
The New York Court of Appeals has recently reiterated that, “while ‘a plaintiff need not be
in privity with the defendant to state a claim for unjust enrichment,’ there must exist a relationship
or connection between the parties that is not ‘too attenuated.’” Georgia Malone, 19 N.Y.3d at 516
(quoting Sperry v. Crompton Corp., 8 N.Y.3d 204, 215-16 (2007)). Although the nature of the
relationship required to establish an unjust enrichment claim has not been clearly defined, the
relationship is “too attenuated” if the parties were not connected in a manner that “could have
caused reliance or inducement,” Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 182 (2011), or if
they “simply had no dealings with each other,” Georgia Malone, 19 N.Y.3d at 517-18; accord In re Motel
6 Sec. Litig., No. 93 CIV. 2183 (JFK), 1997 WL 154011, at *7 (S.D.N.Y. Apr. 2, 1997) (“The
requirements [of unjust enrichment] clearly contemplate that a defendant and plaintiff must have
had some type of direct dealings or an actual, substantive relationship.”); Jet Star Enterprises, Ltd. v.
Soros, No. 05 CIV. 6585 (HB), 2006 WL 2270375, at *5 (S.D.N.Y. Aug. 9, 2006) (“To succeed on a
claim for unjust enrichment, . . . plaintiff must have had direct dealings or some sort of quasicontractual relationship with each defendant.”). This requirement stems from “the context in which
[unjust enrichment claims] must be viewed: as an alternative to contract, where a contractual
relationship has legally failed.” Reading Int’l, Inc. v. Oaktree Capital Mgmt. LLC, 317 F. Supp. 2d 301,
334 (S.D.N.Y. 2003); see also Lightfoot v. Union Carbide Corp., 110 F.3d 898, 905 (2d Cir. 1997)
(“[U]nder the quasi-contractual doctrine of unjust enrichment, courts may infer the existence of an
implied contract to prevent one person who has obtained a benefit from another . . . from unjustly
enriching himself at the other party’s expense.” (internal quotation marks omitted)).
Here, as EMC argues, Plaintiff has not alleged a sufficient connection between the Estate
and EMC to support an unjust enrichment claim. See EMC Mot. at 19-21. As noted, EMC
contracted to purchase the Estate Property with Aitken in his personal capacity, rather than in his
capacity as a purported representative of the Estate, and Aitken explicitly warranted that he was the
sole owner of that Property. See TPA. Although EMC was allegedly formed in order to develop Dr.
Marks’s technologies, see FAC ¶¶ 10-11, Plaintiff has not alleged that EMC and the Estate had any
dealings with each other or any sort of actual relationship relevant to EMC’s acquisition of the
Estate Property through the TPA. Under these circumstances, the authority described above
compels the conclusion that Plaintiff cannot maintain an unjust enrichment claim against EMC.
In response to EMC’s argument, Plaintiff contends that she pled a sufficient connection
between the parties merely by alleging that “EMC knew, or in the exercise of commercially
reasonable due diligence should have known, that the property it was ‘purchasing’ belonged to the
Estate, not Aitken.” Pl. Opp. at 10 (citing FAC ¶¶ 38-40). But even accepting the premise of this
argument—that the requisite relationship between the parties can be established solely by EMC’s
knowledge or constructive knowledge that the Estate owned the purchased property—Plaintiff has
not sufficiently pled such knowledge or constructive knowledge for the reasons already indicated.
The New York Court of Appeals’ decision in Georgia Malone & Co. v. Rieder strongly supports
the above analysis. There, plaintiff Georgia Malone & Company, Inc. (“Malone”), a real estate
brokerage firm, alleged that it provided developer CenterRock Realty, LLC (“CenterRock”) with due
diligence reports in connection with a potential property purchase. Georgia Malone, 19 N.Y.3d at 514.
Thereafter, without providing due compensation to Malone, CenterRock allegedly entered into an
agreement with Rosewood Realty Group, Inc. (“Rosewood”) pursuant to which CenterRock sold
the due diligence reports prepared by Malone to Rosewood for $150,000. Id. at 515. After
Rosewood sold the property addressed those reports, Malone sued both CenterRock and Rosewood
for unjust enrichment. Id. The trial court dismissed Malone’s unjust enrichment claim against
Rosewood, but not CenterRock. Id.
The New York Court of Appeals upheld the trial court’s decision, finding that “the
relationship between Malone and Rosewood [was] too attenuated” to support an unjust enrichment
claim because those two parties “simply had no dealings with each other.” Id. at 517-18. The Court
rejected Malone’s argument that “its unjust enrichment claim should be allowed to proceed because
Rosewood was aware that Malone had created the due diligence reports and Rosewood had used the
materials for its own benefit without compensating Malone.” Id. at 517. According to the Court,
“mere knowledge that another entity created the documents is insufficient to support a claim for
unjust enrichment.” Id. The Court emphasized that “there is no claim that Rosewood had anything
other than arm’s length business interactions with CenterRock” in connection with the sale of the
due diligence reports, and that “[t]he pleadings do not implicate Rosewood in [CenterRock’s] alleged
wrongdoing.” Id. at 518; see also id. at 519 (“[B]ecause the complaint fails to allege that Rosewood
was aware of the wrongfulness of CenterRock’s actions, Rosewood appears to fit the criteria of a
good-faith purchaser for value[,] which . . . would not support an unjust enrichment claim.”). The
Court concluded as follows:
The rule urged by Malone would require parties to probe the underlying relationships
between the businesses with whom they contract and other entities tangentially
involved but with whom they have no direct connection. This would impose a
burdensome obligation in commercial transactions. Although Malone’s alleged loss
of compensation for preparation of the due diligence reports certainly appears unfair,
its unjust enrichment claim against Rosewood falls short of stating facts establishing a
sufficient relationship to impose potential liability against that party. Such claims may
be more properly pursued against CenterRock . . . and, since those claims remain
pending, Malone is not without recourse.
Id. at 519.
The facts at issue in Georgia Malone are analogous to the facts at issue here in several relevant
respects. Just as Malone alleged that CenterRock wrongfully sold Malone’s work product (the due
diligence reports) to Rosewood, the Estate alleges that Aitken wrongfully sold the Estate’s property
to EMC. And just as Malone failed to sufficiently allege that Rosewood was anything other than an
innocent purchaser engaging in an arms-length transaction with CenterRock, the Estate fails to
sufficiently allege that EMC was anything other than an innocent purchaser engaging in an armslength transaction with Aitken. Thus, given that the Estate and EMC “simply had no dealings with
each other,” id. at 517-18, Georgia Malone dictates that the Estate’s unjust enrichment claim against
EMC “falls short of stating facts establishing a sufficient relationship to impose potential liability
against that party,” id. at 519.
As noted, in arguing to the contrary, the Estate relies on EMC’s alleged knowledge or
constructive knowledge that the Estate owned the purchased property. In Georgia Malone, however,
the Court rejected a substantially similar argument premised on Rosewood’s alleged knowledge that
Malone had created the purchased reports. See id. at 517. The rule urged by the Estate “would
require parties to probe the underlying relationships between the businesses [or persons] with whom
they contract and other entities tangentially involved but with whom they have no direct
connection,” thereby imposing “a burdensome obligation in commercial transactions.” Id. at 519.
Accordingly, under the New York Court of Appeals’ decision in Georgia Malone, the Estate fails to
sufficiently allege an unjust enrichment claim against EMC, and EMC’s motion to dismiss that claim
is granted. Although the Estate normally would not be without recourse in light of its potential
claims against Aitken, see id., (referring to Malone’s pending claim against CenterRock), the Estate
has elected not to bring any claims against Aitken in this action for unexplained reasons.
Ms. Scalabrini’s Motion for Judgment on the Pleadings
In deciding a motion for judgment on the pleadings under Federal Rule of Civil Procedure
12(c), the Court employs the same standards as those applicable to a motion to dismiss under Rule
12(b)(6). Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir. 2010). Those standards, as well as the
standards applicable to conversion claims under New York law, are set forth above.
Plaintiff alleges that Ms. Scalabrini has possession of at least some of the shares of EMC that
Aitken obtained through the TPA (hereinafter, the “EMC Shares”), that the Estate has a superior
right to possess those Shares, and that Ms. Scalabrini refused the Estate’s demand that she return
them. See FAC ¶¶ 34-36. As a result, while it is undisputed that Ms. Scalabrini is an innocent
transferee, Plaintiff has sufficiently alleged a conversion claim against Ms. Scalabrini. See Command
Cinema, 464 F. Supp. 2d at 199; Leveraged Leasing, 87 F.3d at 49.
In arguing to the contrary, Ms. Scalabrini relies on the principle that, in general, “[o]ne is
privileged to commit acts which would otherwise be a trespass to a chattel or a conversion when he
acts pursuant to a court order which is valid or fair on its face.” Calamia v. City of New York, 879
F.2d 1025, 1031 (2d Cir. 1989) (quoting Restatement (Second) of Torts § 266 (1965)); accord Weisman,
Celler, Spett & Modlin v. Fein, 639 N.Y.S.2d 805, 805 (1st Dep’t 1996) (dismissing conversion claim
because the defendant acted pursuant to court order directing the sale of property). Ms. Scalabrini
specifically argues that she cannot be held liable for converting the EMC Shares because those
Shares were transferred to her pursuant to a valid court order: the Divorce Decree. See Scalabrini
Mot. In response, Plaintiff contends that Ms. Scalabrini obtained the EMC Shares by agreement
pursuant to the 2012 MSA, and not by court order pursuant to the 2013 Divorce Decree. See Dkt.
Plaintiff’s argument is misplaced. Because it is undisputed that Ms. Scalabrini is an innocent
transferee, the alleged conversion at issue did not occur until she refused the Estate’s demand that
she return the EMC Shares in December 2014. See Leveraged Leasing, 87 F.3d at 49. The relevant
question is thus whether Ms. Scalabrini was acting pursuant to the Divorce Decree when she refused
the Estate’s demand, and not whether she was acting pursuant to the Divorce Decree when she
initially took possession of the Shares. Whether the shares were initially transferred to Ms.
Scalabrini pursuant to the MSA or the Divorce Decree is immaterial.
Nonetheless, while Ms. Scalabrini’s argument is far from frivolous, it ultimately does not
withstand scrutiny for two reasons. First, Plaintiff has essentially alleged in the amended complaint
that Aitken misappropriated the EMC Shares and thus did not have a valid ownership interest in
them, and the Court cannot conclude that the Divorce Decree granted Ms. Scalabrini a greater
ownership interest in the Shares than that of Aitken’s. As a general matter, in the related context of
the distribution of encumbered property incident to divorce, “[t]he court in a divorce action has no
power to disturb the rights which creditors lawfully have against the parties to such action or to
award the parties’ property to the creditors’ prejudice.” 27B C.J.S. Divorce § 878. By inference, the
Estate’s alleged ownership interest in the EMC Shares would have survived the transfer of those
Shares to Ms. Scalabrini effected by the Divorce Decree.
Second, even assuming, arguendo, that Ms. Scalabrini received an ownership interest in the
EMC Shares incident to her divorce, the Divorce Decree contains no explicit directives that would
categorically authorize her to refuse to convey those Shares to other parties. Cf. Okyere v. Palisades
Collection, LLC, 961 F.Supp.2d 522, 534 (S.D.N.Y. 2013) (denying motion to dismiss a conversion
claim and noting that, “even if the initial taking of the money was authorized, the complaint alleges
that the [defendants] deliberately refused for many months to comply with a written demand to
return the money . . . .”); Bray v. Planned Parenthood Columbia Willamette, Inc., No. 2:10-CV-054, 2010
WL 3666978, at *5 (S.D. Ohio Sept. 14, 2010) (“[E]ven assuming that the goods were legally seized,
[the defendants] have cited no authority to suggest that the tort of conversion could not have
occurred after the [seizure] order was issued.”). The Divorce Decree simply does not address what
Ms. Scalabrini may or may not do with the EMC Shares in the future, including whether she may
refuse to convey those Shares to a party asserting a superior ownership interest. Ms. Scalabrini thus
has not established that the Divorce Decree insulates her from liability for conversion in this case,
and her motion for judgment on the pleadings is denied.
For the foregoing reasons, EMC’s motion to dismiss is granted in its entirety and Ms.
Scalabrini’s motion for judgment on the pleadings is denied. As to whether Plaintiff’s claims against
EMC should be dismissed with or without prejudice, because Plaintiff has appeared through counsel
and has not requested leave to file a second amended complaint, declining to grant such leave is
within the Court’s discretion. See Straker v. Metro. Transit Auth., 333 F. Supp. 2d 91, 102 (E.D.N.Y.
2004) (“[A] district court has no duty to instruct plaintiffs that they may move to amend their
complaint and, at least in counseled cases, cannot abuse its discretion by failing to sua sponte grant
leave to amend.” (internal quotation marks omitted)); Anatian v. Coutts Bank (Switzerland) Ltd., 193
F.3d 85, 89 (2d Cir. 1999) (“[T]he district court was not obliged to grant plaintiffs leave to amend
their complaint. While we recognize that leave to amend should be freely granted, . . . we will not
deem it an abuse of the district court’s discretion to order a case closed when leave to amend has not
been sought.” (internal quotation marks omitted)). Moreover, Plaintiff has already amended her
complaint once in response to a motion to dismiss that was substantially similar to instant motion,
see Dkt. No. 20, which suggests that granting a further opportunity to amend would be futile, see
Williams v. Williams, No. 13-CV-3154 RA, 2015 WL 568842, at *8 (S.D.N.Y. Feb. 11, 2015)
(declining to grant leave to amend where the plaintiff had already amended his complaint in
response to the defendants’ original motion to dismiss); Nasik Breeding & Research Farm Ltd. v. Merck
& Co., 165 F. Supp. 2d 514, 544-45 (S.D.N.Y. 2001) (same). Accordingly, the Court dismisses
Plaintiff’s claims against EMC with prejudice. The Clerk of Court is instructed to terminate the
motions pending at Dkt. Nos. 35 and 41, and to amend the official caption to reflect that this case is
proceeding against Ms. Scalabrini only.
Dated: June 9, 2015
New York, New York
GREGORY H. WOODS
United States District Judge
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