Fly Shoes S.R.L. v. Bettye Muller Designs Inc. et al
Filing
36
OPINION & ORDER re: 22 MOTION to Dismiss First Amended Complaint, filed by Bettye Muller, New York Transit Inc. New York Transit Inc. and Bettye Muller's motion to dismiss the first amended complaint (Dkt. No. 22) is denied. (Signed by Judge Louis L. Stanton on 7/6/2015) (spo)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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DATF. FILED:
FLY SHOES S.R.L.,
7/ftJJJS
•
Plaintiff,
14 Civ. 10078 (LLS)
- against -
OPINION & ORDER
BETTYE MULLER DESIGNS INC., NEW YORK
TRANSIT INC., and BETTYE MULLER,
Defendants.
Defendants New York Transit Inc.
("NY Transit") and Bettye
Muller move to dismiss the first amended complaint
("complaint"). For the reasons that follow, the motion is
denied.
BACKGROUND
For purpose of deciding this motion, I accept all factual
allegations in the complaint as true.
According to it, plaintiff Fly Shoes s.r.l.
("Fly Shoes")
is an Italian company that manufactures shoes. Defendant Bettye
Muller Designs Inc.
("BMDI"), a New York corporation, sold shoes
under the trademark BETTYE MULLER. Ms. Muller is the principal
shareholder and Chief Executive Officer of BMDI.
From 2008 to 2013, Fly Shoes sold wholesale shoes to BMDI
via purchase order. In early 2012, BMDI began to fall behind in
its payments, and there remains due a balance of €139,467 on
purchase orders made between September 13, 2011 and March 7,
2013.
On September 23, 2013, BMDI assigned the BETTYE MULLER
trademark to NY Transit. The agreement stated that "Assignor and
Assignee are parties to a certain Employment and Intellectual
Property Agreement, dated as of September 23, 2013." First Am.
Compl. Ex. 3 at Assignment of Intellectual Property 1, Dkt. No.
15. The agreement was signed by Ms. Muller as CEO of BMDI.
That same day, NY Transit and Ms. Muller, individually,
executed an Employment and Intellectual Property Agreement.
According to the agreement, NY Transit would employ Ms. Muller
as the line builder for the shoe brands Betty Muller, Bettye by
Bettye Muller, Ann Marino by Bettye Muller, and Ann Mario. NY
Transit agreed to pay Ms. Muller an annual salary of $180,000
plus incentive compensation based on the sales of those brands.
Also on September 23, Ms. Muller wrote to Fly Shoes:
"Despite my best efforts to make 'Bettye Muller Designs Inc.' a
success, I have found it necessary to cease business operations
as of August 31, 2013. The Company has sustained substantial
losses. Unfortunately, there is no cash or other assets
available to pay any outstanding liabilities." First Am. Compl.
~
35.
There was no formal shareholder action taken to authorize
BMDI selling off its assets and ceasing business operations.
Fly Shoes claims BMDI breached its contract by failing to
pay the balance due on the purchase orders and that the transfer
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of the BETTYE MULLER trademark to NY Transit was a fraudulent
conveyance under New York law. It further claims that it should
be able to pierce the corporate veil and collect personally
against Ms. Muller because she abused the corporate form by
directing the sale of BMDI's trademark in exchange for a
personal offer of employment, and that NY Transit is liable as
the successor to BMDI because the trademark transfer was
undertaken to defraud Fly Shoes.
DISCUSSION
NY Transit moves to dismiss the complaint for lack of
personal jurisdiction and failure to state a claim, and Ms.
Muller moves to dismiss the complaint for failure to state a
claim. See Fed. R. Civ. P. 12 (b) (2),
(6).
I. PERSONAL JURISDICTION
NY Transit is incorporated and has its principal place of
business in California and is registered to do business in New
York. Fly Shoes argues that this court has personal jurisdiction
over NY Transit as the successor to BMDI.
"An allegation of successor liability against an entity
whose predecessor is subject to personal jurisdiction can
provide personal jurisdiction over the successor entity." Time
Warner Cable, Inc. v. Networks Grp., LLC, No. 09 Civ. 10059
(DLC), 2010 WL 3563111, at *5
(S.D.N.Y. Sept. 9, 2010)
(citing
Libutti v. United States, 178 F.3d 114, 124-25 (2d Cir. 1999));
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accord Patin v. Thoroughbred Power Boats, 294 F.3d 640, 653 (5th
Cir. 2002)
("[F]ederal courts have consistently acknowledged
that it is compatible with due process for a court to exercise
personal jurisdiction over an individual or a corporation that
would not ordinarily be subject to personal jurisdiction in that
court when the individual or corporation is an alter ego or
successor of a corporation that would be subject to personal
jurisdiction in that court."); see also Transfield ER Cape Ltd.
v. Indus. Carriers, Inc., 571 F.3d 221, 224
(2d Cir. 2009)
("Although we have never addressed the significance vel non of
'alter ego' liability in the context of maritime attachments, we
have previously observed that, in general,
'alter egos are
treated as one entity' for jurisdictional purposes.")
(quoting
Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc.,
933 F.2d 131, 142-43 (2d Cir. 1991)).
There is personal jurisdiction over BMDI because it is a
New York corporation. As discussed below, Fly Shoes has stated a
claim that NY Transit is the successor to BMDI. Accordingly,
this court has personal jurisdiction over NY Transit.
NY Transit's motion to dismiss for lack of personal
jurisdiction is denied.
II. FAILURE TO STATE A CLAIM
"To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to 'state a claim
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to relief that is plausible on its face.'" Ashcroft v. Iqbal,
556
u.s.
662, 678, 129 S. Ct. 1937, 1949 (2009)
(quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974
(2007)) .
A. Piercing the Corporate Veil
In New York, a party seeking to pierce the corporate veil
must generally establish "(1) the owners exercised complete
domination of the corporation in respect to the transaction
attacked; and (2) that such domination was used to commit a
fraud or wrong against the plaintiff which resulted in
plaintiff's injury." Trust v. Kummerfeld, 153 Fed. App'x 761,
763 (2d Cir. 2005)
(quoting Morris v. N.Y. State Dep't of
Taxation & Fin., 82 N.Y.2d 135, 141, 603 N.Y.S.2d 807, 810-11
(1993)).
Fly Shoes alleges that Ms. Muller exercised complete
domination over BMDI and abused the corporate form by
unilaterally selling off the BETTYE MULLER trademark, BMDI's
most valuable asset, and arranging for the only consideration to
flow to her personally. Fly Shoes was injured as a result
because BMDI was left without assets from which to satisfy its
debts to Fly Shoes.
Accordingly, Fly Shoes has stated a claim that it is
entitled to pierce the corporate veil and recover against Ms.
Muller individually.
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B. Successor Liability of NY Transit
Most of the claims against NY Transit are based on the
premise that it acquired BMDI's liabilities along with the
BETTYE MULLER trademark. Ordinarily, the purchaser of a
cooperation's assets does not also acquire its liabilities.
Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 45 (2d Cir.
2003).
New York recognizes four common-law exceptions to the
rule that an asset purchaser is not liable for the
seller's debts, applying to: (1) a buyer who formally
assumes a seller's debts; (2) transactions undertaken
to defraud creditors; (3) a buyer who de facto merged
with a seller; and (4) a buyer that is a mere
continuation of a seller.
Id. 1
Fly Shoes contends that the trademark transfer was
undertaken to defraud it. To determine whether a transaction is
fraudulent, courts look for certain badges of fraud,
such as:
1) a close relationship among the parties to the
transaction; 2) a secret and hasty transfer not in the
usual course of business; 3) inadequacy of
1
Under New York choice-of-law rules, it is the law of the successor's state
of incorporation that typically determines successor liability. See Tommy Lee
Handbags Mfg. Ltd. v. 1948 Corp., 971 F. Supp. 2d 368, 378 (S.D.N.Y. 2013).
"Choice of law does not matter, however, unless the laws of the competing
jurisdictions are actually in conflict." Int'l Bus. Machines Corp. v. Liberty
Mut. Ins. Co., 363 F.3d 137, 143 (2d Cir. 2004). Defendants acknowledge that
New York and California use the same test for successor liability. See Reply
Br. at 4, Dkt. No. 33. Accordingly, I will apply New York law. See Wall v.
CSX Transp., Inc., 471 F.3d 410, 422 (2d Cir. 2006) ("As there is no
conflict, for practical reasons, that is, for ease of administrating the
case, New York, as the forum state, would apply its law.").
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consideration; 4) the transferor's knowledge of the
creditor's claim and the transferor's inability to pay
it; 5) the use of dummies or fictitious parties; and
6) retention of control of the property by the
transferor after the conveyance.
Vorcom Internet Servs., Inc. v .. L & H Eng'g & Design LLC, No. 12
Civ. 2049 (VB), 2013 WL 335717, at *5 (S.D.N.Y. Jan. 9, 2013)
(quoting Kaur v. Royal Arcadia Palace, Inc., 643 F. Supp. 2d
276, 290 (E.D.N.Y. 2007)).
Here, Fly Shoes alleges that BMDI transferred the BETTYE
MULLER trademark, its most valuable asset, rendering it
insolvent and unable to continue its business without any formal
shareholder action; concurrently with the trademark transfer Ms.
Muller, the alter ego of BMDI, became an employee of NY Transit
and continued to be creative director of the Bettye Muller
brand; BMDI received no consideration for the transfer, the only
benefit of which flowed to Ms. Muller personally through her
employment with NY Transit; BMDI and Ms. Muller knew of Fly
Shoes' claim and BMDI's inability to pay it, for on the day of
the transfer Ms. Muller wrote to Fly Shoes, "Unfortunately,
there is no cash or other assets available to pay any
outstanding liabilities," First Am. Compl.
~
35; and Ms. Muller
retained control of the trademark after the transfer by virtue
of her employment with NY Transit.
That is sufficient to state a claim for successor liability
against NY Transit.
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C. Constructively Fraudulent Conveyances
Under New York Debtor and Creditor Law ("DCL"), certain
conveyances are fraudulent as to a party's creditors without
regard to the party's actual intent. N.Y. Debt. & Cred. Law
§§
273, 274.
Under the DCL, a conveyance by a debtor is deemed
constructively fraudulent if it is made without "fair
consideration," and (inter alia) if one of the
following conditions is met: (i) the transferor is
insolvent or will be rendered insolvent by the
transfer in question, DCL § 273; (ii) the transferor
is engaged in or is about to engage in a business
transaction for which its remaining property
constitutes unreasonably small capital, DCL
§ 274 .
In re Sharp Int'l Corp., 403 F.3d 43, 53
(2d Cir. 2005).
NY Transit and Ms. Muller argue that Fly Shoes has failed
to state a claim under sections 273 and 274 because "there is no
evidence of value as to the trademark 'Bettye Muller,' therefore
there has been no demonstration that there was inadequacy of
consideration." Br. Supp. Mot. Dismiss at 12, Dkt. No. 23.
The complaint states that BMDI received no consideration
for the BETTYE MULLER trademark and that NY Transit and Ms.
Muller continue to exploit its value. That is sufficient to
allege that BMDI did not receive fair consideration for the
trademark.
Accordingly, the motion to dismiss the claims under DCL
sections 273 and 274 is denied.
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D. Conveyance Made with the Intent to Defraud
In contrast to DCL sections 273 and 274, which operate
without regard to the transferor's intent, DCL section 276
prohibits "conveyance made with intent to defraud."
There are three elements to a section 276 claim: "(1) the
thing transferred has value out of which the creditor could have
realized a portion of its claim;
(2) that this thing was
transferred or disposed of by debtor; and (3) that the transfer
was done with actual intent to defraud." In re Flutie N.Y.
Corp., 310 B.R. 31, 56 (Bankr. S.D.N.Y. 2004).
Here, Fly Shoes alleges that the trademark has value that
NY Transit and Ms. Muller continue to exploit, and it is not
disputed that the transfer took place.
As for the intent to defraud:
The relevant intent may be inferred from the facts and
circumstances surrounding the transfer. Such facts and
circumstances, which may be considered "badges of
fraud," include: (1) lack or inadequacy of
consideration; (2) family, friendship or close
associate relationship between the parties;
(3) retention of possession, benefit, or use of the
property in question; (4) financial condition of the
party sought to be charged both before and after the
transaction in question; (5) existence or cumulative
effect of a pattern or series of transactions or
course of conduct after the incurring of debt, onset
of financial difficulties or pendency or threat of
suits by creditors; and (6) general chronology of the
events and transactions under inquiry.
Id.
(first citing Cadle Co. v. Newhouse, No. 01 Civ. 1777 (DC),
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2002 WL 1888716, at *6 (S.D.N.Y. Aug. 16, 2002), aff'd, 74 F.
App'x 152 (2d Cir. 2003) and then citing Salomon v. Kaiser, 722
F.2d1574, 1582-83 (2dCir. 1983)).
For the purpose of this motion, I accept Fly Shoes' summary
of its claim:
In the present action, it is alleged that BMDI
transferred its most valuable asset to NY Transit for
no consideration. Further, NY Transit's hiring of
Bettye Muller to be its Creative Director shows the
close association between the parties and also shows
how Ms. Muller continued to benefit from the trademark
by parlaying it into a lucrative job with NY Transit
from which she could promote her line of shoes. The
"general chronology" of events set forth in the
Amended Complaint, namely how Ms. Muller (1) effected
BMDI's uncompensated transfer of the "Bettye Muller"
trademark to NY Transit, ( 2) accepted a lucrative job
with NY Transit as Creative Director of the Bettye
Muller line, and (3) wrote to Fly Shoes saying BMDI
could not pay its debt, all on the same day, adds to
the overall inference that the transaction was
fraudulent.
Mem. Law Opp. Mot. Dismiss at 23-24, Dkt. No. 30.
Accordingly, the motion to dismiss the fraudulent
conveyance claim is denied.
E. Tortious Interference with Contract
Under New York law, the elements of a claim for tortious
interference with contract are:
(1) "the existence of a valid contract between the
plaintiff and a third party"; (2) the "defendant's
knowledge of the contract"; (3) the "defendant's
intentional procurement of the third-party's breach of
the contract without justification"; (4) "actual
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breach of the contract"; and (5) "damages resulting
therefrom."
Kirch v. Liberty Media Corp., 449 F.3d 388, 401 (2d Cir. 2006)
(quoting Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413,
424, 646 N.Y.S.2d 76, 82
(1996)).
NY Transit and Ms. Muller argue the complaint fails to
properly allege their knowledge of Fly Shoes' contract with BMDI
and that they intended to procure a breach of that contract.
There can be no question that Ms. Muller knew of that contract.
"Malice, intent, knowledge, and other conditions of a
person's mind may be alleged generally." Fed. R. Civ. P. 9(b).
However, "plaintiffs must still plead the events which they
claim give rise to an inference of knowledge" or other state of
mind. Krys v. Pigott, 749 F.3d 117, 129 (2d Cir. 2014)
Devaney v. Chester, 813 F.2d 566, 568
(quoting
(2d Cir. 1987)).
As discussed above, the facts alleged in the complaint
suffice to give rise to the inference that the trademark
transfer was a fraudulent conveyance, which together with the
employment agreement was designed to strip BMDI of assets
necessary to pay Fly Shoes while allowing Ms. Muller to continue
to operate the Bettye Muller brand as an employee of NY Transit.
That is also sufficient, at this stage, to support the inference
that:
Defendants NY TRANSIT and MS. MULLER, by agreeing and
conspiring among themselves that BMDI'S valuable
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"Bettye Muller" trademark be assigned to NY TRANSIT
and by entering into an Employment Agreement between
MS. MULLER personally and NY TRANSIT, with
consideration flowing from NY TRANSIT to MS. MULLER
personally and not to BMDI, such that BMDI could pay
its debt to FLY, intentionally procured BMDI'S breach
of its contracts with FLY.
First Am. Compl.
~
86.
Accordingly, Fly Shoes has stated a claim for tortious
interference with contract.
F. Unjust Enrichment
NY Transit and Ms. Muller argue that the unjust enrichment
claim must fail because unjust enrichment is a quasi-contract
claim that applies only in the absence of a contract and Fly
Shoes alleges that the purchase orders are valid contracts. See
Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield of
N.J., Inc., 448 F.3d 573, 586 (2d Cir. 2006)
("The theory of
unjust enrichment lies as a quasi-contract claim. It is an
obligation the law creates in the absence of any agreement.")
(emphasis in Beth Israel)
(quoting Goldman v. Metro. Life Ins.
Co., 5 N.Y.3d 561, 572, 807 N.Y.S.2d 583, 587
(N.Y. 2005)).
In reply, Fly Shoes states that the unjust enrichment claim
"is made in the alternative to the claim for breach of contract,
to the extent that the Court might find that BMDI did not have
contracts with Fly Shoes." Mem. Law Opp. Mot. Dismiss at 25.
"A party may state as many separate claims or defenses as
it has, regardless of consistency." Fed. R. Civ. Pro. 8 (d) (3).
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Accordingly, the motion to dismiss the unjust enrichment claim
is denied.
G. Fly Shoes' Failure to Register to Do Business in New York
NY Transit and Ms. Muller contend that the complaint must
be dismissed because Fly Shoes is not registered to do business
in New York.
"A foreign corporation doing business in this state without
authority shall not maintain any action or special proceeding in
this state
." N.Y. Bus. Corp. Law
§
1312. A corporation is
considered to be doing business in New York when its New York
activities are "permanent, continuous, and regular." MWH Int'l,
Inc. v. Inversora Murten S.A., No. 11 Civ. 2444
3155063, at *7
(S.D.N.Y. Aug. 3, 2012)
(HB), 2012 WL
(quoting Neth.
Shipmortgage Corp. v. Madias, 717 F.2d 731, 736 (2d Cir. 1983)).
Failure to register is an affirmative defense. Fashion
Fragrance & Cosmetics v. Croddick, No. 02 Civ. 6294
WL 342273, at *7
(WK), 2003
(S.D.N.Y. Feb. 13, 2003). "An affirmative
defense may be raised by a pre-answer motion to dismiss under
Rule 12 (b) (6) if the defense appears on the face of the
complaint." Iowa Pub. Emps.' Ret. Sys. v. MF Global, Ltd., 620
F.3d 137, 145 (2d Cir. 2010)
(alteration omitted)
v. Empire Blue Cross Blue Shield, 152 F.3d 67, 74
(quoting Pani
(2d Cir.
1998)).
The complaint does not demonstrate that Fly Shoes' New York
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activities were permanent, continuous, and regular. Accordingly,
the motion to dismiss due to Fly Shoes' failure to register is
denied.
CONCLUSION
New York Transit Inc. and Bettye Muller's motion to dismiss
the first amended complaint (Dkt. No. 22) is denied.
So ordered.
Dated:
New York, New York
July 6, 2015
t-.5 L·-"~
LOUIS L. STANTON
U.S.D.J.
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