Clean Coal Technologies, Inc. v. Leidos, Inc. et al
Filing
71
OPINION AND ORDER re: 52 MOTION to Dismiss First Amended Complaint filed by Dilo Paul, 49 MOTION to Dismiss Notice of Motion filed by Leidos, Inc.: For the reasons set forth above, Leidos's motion to dismiss is GRANTED. Dr. Paul's motion to dismiss is GRANTED IN PART and DENIED IN PART. The surviving claim from the Amended Complaint is CCTI's claim for tortious interference with prospective economic advantage against Dr. Paul with regards to DOE. The Clerk of Court is directed to terminate the motions at docket entries 49 and 52. The parties are hereby ORDERED to file a joint letter on or before April 22, 2019, advising the Court of the status of discovery and proposing next steps in this case. (Signed by Judge Katherine Polk Failla on 3/28/2019) (tn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
CLEAN COAL TECHNOLOGIES, INC.,
Plaintiff,
-v.-
17 Civ. 9678 (KPF)
LEIDOS, INC., formerly known as SCIENCE
APPLICATIONS INTERNATIONAL CORP, and
DILO PAUL,
OPINION AND ORDER
Defendants.
KATHERINE POLK FAILLA, District Judge:
Several lawsuits in several courts have risen from the ashes of the failed
business relationship between Clean Coal Technologies, Inc. (“CCTI” or
“Plaintiff”) and Leidos, Inc. (“Leidos”). In this most recent action, CCTI brings
claims for breach of contract, tortious interference with contract, and tortious
interference with prospective economic advantage against Leidos, and brings
the latter two claims against a Leidos employee, Dr. Anton Dilo Paul (together
with Leidos, “Defendants”), in his personal capacity. Both Defendants have
moved to dismiss the claims against them in CCTI’s Amended Complaint. For
the reasons that follow, Dr. Paul’s motion is granted in part, and Leidos’s
motion is granted in full.
BACKGROUND 1
A.
Factual Background
1.
The Parties
For purposes of the instant motions, the Court accepts as true the wellpleaded allegations of the Amended Complaint. CCTI is a coal technology
company incorporated in Nevada with a principal place of business in New
York. (Am. Compl. ¶¶ 1, 12). Leidos is a Delaware corporation with a principal
place of business in Virginia. (Id. at ¶ 2). Leidos is an engineering advisory
firm. (Paul Br. 1). Dr. Paul is an employee of Leidos and a resident of
Pennsylvania; he also holds restricted shares of CCTI stock. (Am. Compl. ¶ 3).
2.
The Pilot Plant Contracts
The business dealings underlying the instant dispute relate to the
development of a pilot plant for CCTI’s coal dehydration technologies in Shady
Point, Oklahoma (the “Pilot Plant”). (Am. Compl. ¶¶ 12-104). In May 2015,
CCTI entered into an Amended and Restated Engineering, Procurement and
Construction Management Contract (the “Construction Contract”) with
1
This Opinion draws its facts from the Amended Complaint (“Am. Compl.” (Dkt. #43)).
The Court also draws from certain documents that the parties agree are incorporated by
reference in the Amended Complaint and that are attached as exhibits to the
Declaration of Thomas R. Fallati (“Fallati Decl.” (Dkt. #51)).
For ease of reference, the Court refers to the parties’ briefing as follows: the
Memorandum of Law in Support of Leidos, Inc.’s Motion for to Dismiss as “Leidos Br.”
(Dkt. #50); Defendant Dr. Anton Dilo Paul’s Memorandum of Law in Support of His
Motion to Dismiss Plaintiff’s First Amended Complaint as “Paul Br.” (Dkt. #52);
Plaintiff’s Memorandum of Law in Opposition to Leidos’s Motion to Dismiss as “CCTI
Leidos Opp.” (Dkt. #61); Plaintiff’s Memorandum of Law in Opposition to Dr. Anton Dilo
Paul’s Motion to Dismiss as “CCTI Paul Opp.” (Dkt. #62); Leidos’s Reply Memorandum
of Law as “Leidos Reply” (Dkt. #67); and Dr. Paul’s Reply Memorandum of Law as “Paul
Reply (Dkt. #68).
2
Benham Constructors, LLC (“Benham”), which was previously known as Leidos
Constructors, LLC. (Id. at ¶¶ 13-15). Benham was a Leidos subsidiary at that
time. (Id.). On December 14, 2015, Leidos and CCTI entered into a
Professional Services Agreement (the “Services Agreement”) by which Leidos
would assist CCTI with the development of the Pilot Plant. (Id. at ¶¶ 17, 18).
On March 16, 2016, Leidos announced that it had completed the sale of
Benham to The Haskell Company (“Haskell”). (Am. Compl. ¶ 19). Around the
same time, Benham informed CCTI that it had completed testing at the Pilot
Plant. (Id. at ¶ 20). On April 15, 2016, Leidos informed CCTI that it was
closing out the Construction Contract, as Leidos did not wish to have the
contract assigned to Haskell. (Id. at ¶ 22). Leidos stated at the time that the
payment to close out the construction contract was $96,893.64. (Id.). The sale
of Benham to Haskell closed in July 2016. (Id. at ¶ 33). CCTI, however,
consistently disputed the final invoice that Benham provided to it to close out
the Construction Contract. (Id.).
3.
The Paul Email
On April 28, 2016, Dr. Paul sent an email to CCTI regarding progress on
the Pilot Plant (the “Paul Email”). (Am. Compl. ¶ 23). The Paul Email was
described as a “draft response to potential investors [in CCTI] that were
following CCTI’s progress on the pilot plant.” (Id.). Generally speaking, it
provided an optimistic report regarding the CCTI’s technology. (Id. at ¶¶ 2731). CCTI states that the email led it to believe “that it had a ‘fully validated
3
technology’ and available data that could be used to encourage investors and
other business partners to support CCTI’s efforts.” (Id. at ¶ 31).
4.
The Construction Contract Dispute
An orderly dissolution of the Construction Contract proved elusive. CCTI
claims that Leidos or Benham removed a password for the computer system at
the Pilot Plant, along with materials identified as “Carrier CDs” and a Secure
Digital (or “SD”) card containing data for the Plant’s control system (the “SD
Card”) — all despite the Construction Contract’s provision of title in these items
to CCTI. (Am. Compl. ¶¶ 34-37). In June 2017, CCTI requested that Leidos
provide the password and the SD Card to it. (Id. at ¶¶ 37-38). CCTI states
that, instead, between June 7, 2017, and July 14, 2017, Leidos maintained the
SD Card and then improperly provided it to Benham rather than CCTI. (Id. at
¶¶ 39-40).
On July 14, 2017, Benham stated that it would not return the Carrier
CDs or the SD Card until CCTI made a $425,979.51 payment to Benham
under the Construction Contract. (Am. Compl. ¶ 41). CCTI alleges that
Benham’s refusal to return this material left it unable to operate the Pilot
Plant. (Id. at ¶¶ 50-51).
On July 28, 2017, CCTI and Benham reached a settlement agreement by
which Benham would provide CCTI with the password, Carrier CDs, and the
SD Card, and CCTI would release its claims against Benham. (Am. Compl.
¶¶ 53-55). CCTI hired a different firm, Kiewit Engineering Group, Inc.
(“Kiewet”), to re-start the plant and run additional tests, and CCTI claims that
4
these actions led to the discovery of additional breaches by Benham of the
Construction Contract. (Id. at ¶¶ 56-57). CCTI further states that it discovered
that a second Leidos employee, Tom Ezel, had billed time for services he did
not perform under the Construction Contract. (Id. at ¶¶ 61-62). CCTI states
that, ultimately, it was required to pay $2 million to bring the Pilot Plant to the
proper operating condition. (Id. at ¶ 63).
5.
The Services Agreement Dispute
CCTI further alleges that Leidos and Dr. Paul communicated false or
misleading information to investors and potential investors in CCTI regarding
CCTI technology. (Am. Compl. ¶ 84). CCTI states that Dr. Paul reached out to
investors who relied on the Paul Email, and that he also traveled to New York
on May 13, 2016, in order to make a presentation on behalf of CCTI to
potential investors from Shenuan, China. (Id. at ¶¶ 85-86). However, CCTI
was unable to obtain investments from potential investors in October 2016 and
November 2016, due to Leidos’s failure to provide testing data that was
required under the Services Agreement. (Id. at ¶¶ 87-88). CCTI does not allege
that either of these two potential investors was the Shenuan investor group.
(See id.).
CCTI claims that Dr. Paul, on behalf of Leidos, billed CCTI for numerous
services that he did not perform, and that CCTI discovered this malfeasance
when it regained the password to the Pilot Plant in August 2017. (Am. Compl.
¶¶ 64-69). CCTI also alleges that Dr. Paul refused to produce a comprehensive
report on tests of CCTI’s technology for the U.S. Department of Energy (“DOE”),
5
as the Services Agreement required, until CCTI delivered an additional
$70,000. (Id. at ¶¶ 74, 76-78). On August 31, 2017, in response to CCTI’s
assertions that Leidos’s failure to produce Dr. Paul’s report would be a breach
of the Services Agreement, Dr. Paul produced a report. (Id. at ¶¶ 79-80). CCTI
alleges that the report was not compliant with the Services Agreement and
contained numerous inaccuracies, but, due to Dr. Paul’s prior assurances to
DOE that it would receive a report, CCTI was forced to submit the report to
DOE. (Id. at ¶ 80). After DOE itself noticed inaccuracies in the report, CCTI
was required to pay Kiewet to prepare a new report. (Id. at ¶¶ 81-83).
6.
The DOE Dispute
More broadly, CCTI alleges that Leidos and Dr. Paul interfered with
CCTI’s relationship with DOE. CCTI alleges that while it was negotiating with a
potential investor in October 2016, Dr. Paul requested that CCTI issue him
stock before the deal closed. (Am. Compl. ¶¶ 92-94). And when CCTI declined
to issue stock, Dr. Paul told DOE that CCTI was financially unstable, in order
to poison that relationship. (Id. at ¶¶ 95-97). CCTI alleges that the
relationship between it and Dr. Paul became even more strained when Dr. Paul
requested a “reliance” letter to make the CCTI shares he owned unrestricted,
and CCTI refused. (Id. at ¶¶ 98-100). CCTI alleges that this dispute led Dr.
Paul to provide his inaccurate August 31 report, which report contradicted the
earlier Paul Email and damaged the relationship between CCTI and DOE. (Id.
at ¶¶ 101-04).
6
7.
The New York State Action
On March 21, 2017, Leidos sued CCTI in New York State Supreme Court,
in an action styled as Leidos Inc. v. Clean Coal Technologies, Inc., Index
No. 505651/17 (N.Y. Sup. Ct.) (the “New York State Action”). (Am. Compl.
¶ 105). On March 23, 2017, the parties to that action stipulated that the
balance owed to Leidos under the Services Agreement was $131,539.06. (Id. at
¶ 106). Leidos filed the stipulation and obtained a judgment. (Id. at ¶ 109).
CCTI now argues that this judgment was improperly obtained.
B.
Procedural Background
Plaintiff filed a summons with notice in New York State Supreme Court
on October 27, 2017. (Dkt. #1). On December 8, 2017, Leidos, with the
consent of Dr. Paul, removed the action to this court. (Id.). On December 13,
2017, Defendants filed an Answer with Counterclaims (Dkt. #4), and, on
March 15, 2018, Plaintiff filed its Complaint (Dkt. #18).
Following a conference on June 12, 2018, this Court issued a scheduling
order for motion practice and discovery. (Dkt. #42). Pursuant to this Order,
CCTI filed its First Amended Complaint on July 9, 2018. (Dkt. #43). The First
Amended Complaint brings four causes of action: (i) breach of contract against
Leidos for breach of the Services Agreement; (ii) tortious interference with the
Construction Contract against Leidos; (iii) tortious interference with the
Services Agreement against Dr. Paul; and (iv) tortious interference with
prospective economic advantage against Leidos and Dr. Paul. (Am. Compl.
¶¶ 111-41).
7
On August 6, 2018, Leidos and Dr. Paul filed separate motions to
dismiss. (Dkt. #49-54). Leidos and Dr. Paul both moved to dismiss under
Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, and Dr. Paul
also moved to dismiss under Federal Rule of Civil Procedure 12(b)(2) for lack of
personal jurisdiction. (See Leidos Br. 1; Paul Br. 7). On October 8, 2018,
Plaintiff filed memoranda of law in opposition to Defendants’ motions to
dismiss. (Dkt. #61, 62). On October 19, 2018, Leidos and Dr. Paul filed their
respective replies in support of their motions to dismiss. (Dkt. #67, 68). The
Court begins by addressing the antecedent issue of jurisdiction, and then
addresses the four causes of action alleged in the Amended Complaint.
DISCUSSION
A.
The Court Has Personal Jurisdiction over Dr. Paul
1.
Motions to Dismiss Under Federal Rule of Civil
Procedure 12(b)(2)
When a defendant brings a motion to dismiss pursuant to Federal Rule
of Civil Procedure 12(b)(2), “the plaintiff bears the burden of establishing that
the court has jurisdiction over the defendant.” DiStefano v. Carozzi N. Am.,
Inc., 286 F.3d 81, 84 (2d Cir. 2001) (citation omitted); accord In re Terrorist
Attacks on Sept. 11, 2001, 714 F.3d 659, 673 (2d Cir. 2013). “Prior to
discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the
motion by pleading in good faith, legally sufficient allegations of jurisdiction.
At that preliminary stage, the plaintiff’s prima facie showing may be established
solely by allegations.” Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d
81, 84-85 (2d Cir. 2013) (per curiam) (citation omitted). All jurisdictional
8
allegations “are construed in the light most favorable to the plaintiff and doubts
are resolved in the plaintiff’s favor[.]” A.I. Trade Fin., Inc. v. Petra Bank, 989
F.2d 76, 79-80 (2d Cir. 1993). However, the court “will not draw argumentative
inferences in the plaintiff’s favor” and need not “accept as true a legal
conclusion couched as a factual allegation[.]” In re Terrorist Attacks, 714 F.3d
at 673 (citations omitted); see also Licci ex rel. Licci v. Lebanese Canadian
Bank, SAL, 673 F.3d 50, 59 (2d Cir. 2012).
District courts deciding motions to dismiss for lack of personal
jurisdiction typically engage in a two-part analysis. First, the court assesses
whether there is “a statutory basis for exercising personal jurisdiction.” Marvel
Characters, Inc. v. Kirby, 726 F.3d 119, 128 (2d Cir. 2013). In making this
determination, the court “applies the forum state’s personal jurisdiction rules”
unless a federal statute “specifically provide[s] for national service of process.”
PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997) (internal
quotation marks and citations omitted). Second, if there is a statutory basis for
personal jurisdiction, the court must decide whether the exercise of jurisdiction
comports with due process. Sonera Holding B.V. v. Çukurova Holding A.Ş., 750
F.3d 221, 224 (2d Cir. 2014) (per curiam).
2.
New York’s Long-Arm Statute
“A district court’s personal jurisdiction is determined by the law of the
state in which the court is located.” Spiegel v. Schulmann, 604 F.3d 72, 76 (2d
Cir. 2010). Here, the parties agree that the relevant law in assessing the
statutory basis, if any, for jurisdiction over Dr. Paul is New York’s long-arm
9
statute. N.Y. C.P.L.R. § 302(a). That statute authorizes courts to exercise
personal jurisdiction in three circumstances.
First, the Court may exercise jurisdiction “over any non-domiciliary ...
who in person or through an agent ... transacts any business within the state,”
so long as the cause of action “aris[es] from” that transaction. N.Y. C.P.L.R.
§ 302(a)(1). Accordingly, a court may exercise personal jurisdiction over a
non-domiciliary if two conditions are met: “first, the non-domiciliary must
transact business within the state; second, the claims against the nondomiciliary must arise out of that business activity.” Aquiline Capital Partners
LLC v. FinArch LLC, 861 F. Supp. 2d 378, 386 (S.D.N.Y. 2012) (quoting CutCo
Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986)).
Second, the Court may exercise jurisdiction over a non-domiciliary who
“commits a tortious act within the state.” N.Y. C.P.L.R. § 302(a)(2). Notably,
however, this section has been interpreted narrowly by the Second Circuit to
require a defendant to be physically present in New York State when
committing a tortious act. See Bank Brussels Lambert v. Fiddler Gonzalez &
Rodriguez, 171 F.3d 779, 790 (2d Cir. 1999) (reaffirming that a “defendant’s
physical presence in New York is a prerequisite to jurisdiction under
§ 302(a)(2)”).
Third, the Court may exercise jurisdiction over a non-domiciliary who
“commits a tortious act without the state causing injury to person or property
within the state.” N.Y. C.P.L.R. § 302(a)(3). As a sister court in this District
has recognized,
10
The conferral of jurisdiction under this provision rests
on five elements: First, that defendant committed a
tortious act outside the state; second, that the cause of
action arises from that act; third, that the act caused
injury to a person or property within the State; fourth,
that defendant expected or should reasonably have
expected the act to have consequences in the State; and
fifth, that defendant derived substantial revenue from
interstate or international commerce.
In re Sumitomo Copper Litig., 120 F. Supp. 2d 328, 341 (S.D.N.Y. 2000) (quoting
LaMarca v. Pak-Mor Mfg. Co., 95 N.Y.2d 210, 214 (2000)).
3.
Analysis
a.
Dr. Paul Transacted Business in New York, and the Claims
at Issue Are Substantially Related to Those Transactions
Dr. Paul does not dispute for the purposes of his motion that he
transacted business within New York, and therefore, the principal question is
whether CCTI’s claims against him arise from these transactions. (See Paul
Br. 14). 2 CCTI makes two claims against Dr. Paul: that he tortiously procured
the breach of the Services Agreement and that he tortiously interfered with
CCTI’s relationships with prospective investors and DOE. (See Am. Compl.
¶¶ 125-41). On the issue of personal jurisdiction, CCTI alleges that Dr. Paul
transacted business by presenting to CCTI on the Pilot Plant’s technology in
New York, pitching potential investors on CCTI’s technology in New York,
raising money for CCTI in New York and attending its shareholder meetings,
and attending New York-based conference calls. (Id. at ¶ 11). CCTI further
2
Dr. Paul also do not argue any violation of due process, and therefore the Court does
undertake a separate analysis of this point.
11
alleges that these activities were substantially connected to Dr. Paul’s tortious
behavior, including in particular his decision to sabotage the Services
Agreement when CCTI failed to provide him assurances related to his restricted
stock holdings. (Id. at ¶¶ 74-83). The Court agrees that the allegations suffice.
Assuming that these allegations are true, as the Court must at this
stage, Dr. Paul engaged in an ongoing business relationship with CCTI
involving numerous activities in New York, and then sabotaged that
relationship in response to CCTI’s failure to enrich him personally. The
tortious actions alleged are closely related to, and indeed arose from, the
breakdown of an ongoing New York-based contractual relationship. The
“‘arising from’ prong of section 302(a)(1) does not require a causal link, but
rather requires ‘a relatedness between the transaction and the legal claim such
that the latter is not completely unmoored from the former[.]’” See Ingenito v.
Riri USA, Inc., 89 F. Supp. 3d 462, 477 (E.D.N.Y. 2015) (quoting Licci, 732 F.3d
at 168). While the allegations do not demonstrate that Dr. Paul’s allegedly
tortious activities were caused by the New York transaction, they are hardly
“unmoored” from it.
The cases on which Dr. Paul relies to oppose personal jurisdiction involve
far more attenuated relationships between transactions and tortious conduct.
Dr. Paul cites AVRA Surgical Robotics, Inc. v. Gombert (see Paul Br. 14), but in
that case, “all the relevant alleged conduct occurred … in Germany… [and] the
contracts and duties allegedly breached were formed and executed in
Germany.” 41 F. Supp. 3d 350, 359 (S.D.N.Y. 2014). Here, it is alleged, Dr.
12
Paul repeatedly traveled to New York to support CCTI’s business, and only after
CCTI rejected his requests for financial enrichment did he sabotage the
relationship that he had carefully cultivated. (Am. Compl. ¶¶ 74-83). Dr. Paul
also cites Spencer Trask Ventures, Inc. v. Archos S.A. (see Paul Br. 14-15),
which rejected personal jurisdiction predicated on “a single fortuitous meeting”
in New York. No. 01 Civ. 1169 (LAP), 2002 WL 417192, at *5-6 (S.D.N.Y.
Mar. 18, 2002). That case also involved a foreign defendant that avoided New
York-based activity. See id. Here, Dr. Paul is alleged to have aggressively
pursued a relationship with Plaintiff in New York, and then taken retributive
actions in response to the failure of that relationship. While these actions may
have occurred outside New York, they were a response to the breakdown of a
New York-based relationship. The Court concludes that the facts alleged
suffice to show that Dr. Paul’s “activities here were purposeful and there is a
substantial relationship between the transaction and the claim asserted.”
Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 (1988).
b.
The Court Does Not Find That Dr. Paul’s Tortious
Activity Occurred in New York
While the Court finds personal jurisdiction under N.Y. C.P.L.R.
§ 302(a)(1), it briefly examines and rejects the remaining arguments for
jurisdiction. The Court quickly concludes that N.Y. C.P.L.R. § 302(a)(2) does
not apply in this case. As noted, this prong of the statute is read narrowly and
requires physical commission of the tortious act in New York. See
Thackurdeen v. Duke Univ., 130 F. Supp. 3d 792, 804 (S.D.N.Y. 2015) (holding
13
that C.P.L.R. § 302(a)(2) requires that the defendant “physically commit the
tortious act within New York”). In Bank Brussels Lambert, the Second Circuit
found communications sent into New York insufficient to create a physical
presence. 171 F.3d at 790. The allegedly tortious actions in this case, the
inaccurate report and the fictitious invoices, were not generated in New York,
and their transmission to CCTI does not create jurisdiction under C.P.L.R.
§ 302(a)(2).
c.
The Court Finds That the Allegedly Tortious Activity
Did Not Cause Injury in New York
Finally, Dr. Paul argues that the Amended Complaint fails to allege that
“the act[s] caused injury to a person or property” inside New York. See
LaMarca, 95 N.Y.2d at 214. In particular, he claims that the alleged financial
injury to CCTI does not suffice to create personal jurisdiction over him because
“a plaintiff is injured ‘where the event giving rise to the injury occurred,’ the socalled ‘situs of injury.’” (Paul Reply 5 (citing Pramer S.C.A. v. Abaplus Int’l
Corp., 907 N.Y.S.2d 154, 160 (1st Dep’t 2010))). Plaintiff responds by arguing
that the inaccurate report and unperformed tests for which it was billed led to
the loss of potential customers in New York. (Am. Compl. ¶¶ 74-88). The
Court does not find that the events leading to these injuries occurred in New
York. Rather, the events that led to the alleged injuries were Dr. Paul’s failure
to conduct required tests and his failure to produce the desired report, neither
of which is alleged to have occurred in New York.
14
As a fallback position, Plaintiff cites to Augsbury Corp. v. Petrokey Corp.,
470 N.Y.S.2d 787 (3d Dep’t 1983), which held that maliciously injuring a
plaintiff’s relationship with potential customers could satisfy the injury
requirement of C.P.L.R. § 302(a)(3). (CCTI Paul Opp. 12-13). The Court finds
that the brief discussion of the issue in Augsbury is insufficient to demonstrate
that the mere assertion of loss of customers and goodwill by a New York
corporation suffices to establish jurisdiction.
Augsbury expressly limited its holding, concluding only that “[u]nder the
circumstances of the instant case, we infer that defendants could foresee New
York as the place injury would occur[.]” 470 N.Y.S.2d at 791 (citing Sybron
Corp. v. Wetzel, 46 N.Y.2d 197, 205-07 (1978)). The case that Augsbury cites,
Sybron Corp, found injury in New York under circumstances in which “New
York [was] where [the] plaintiff manufacture[d] and reline[d] glass-lined
equipment and the alleged [misappropriated] trade secrets were acquired, and
the economic injury [the] plaintiff [sought] to avert stem[med] from the
threatened loss of important New York customers.” 46 N.Y.2d at 205. Here, by
contrast, the economic activity occurred in Oklahoma (Am. Compl. ¶ 18); the
alleged misconduct occurred outside New York; and the lost customers are not
alleged to be New York residents (id. at ¶¶ 136-41).
In short, the Court does not find that the events leading the alleged
injury occurred in New York. Therefore, the Court does not find jurisdiction
pursuant to C.P.L.R. § 302(a)(3). However, as the Court has found personal
15
jurisdiction under C.P.L.R. § 302(a)(1), it considers the merits of the allegations
against Dr. Paul.
B.
Plaintiff’s Breach of Contract Claims Against Leidos Are Barred by
Res Judicata
1.
Motions to Dismiss Under Rule 12(b)(6)
The Court now examines the four causes of action in the Amended
Complaint. When considering a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), a court must “draw all reasonable inferences in Plaintiffs
favor, assume all well-pleaded factual allegations to be true, and determine
whether they plausibly give rise to an entitlement to relief.” Faber v. Metro. Life
Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks omitted);
see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true,
to state a claim to relief that is plausible on its face.” (internal quotation marks
omitted)). A plaintiff is entitled to relief if he alleges “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007); see also In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir.
2007) (“While Twombly does not require heightened fact pleading of specifics, it
does require enough facts to nudge plaintiff’s claims across the line from
conceivable to plausible.” (internal quotation marks omitted) (citing Twombly,
550 U.S. at 570)).
That said, a court is not bound to accept “conclusory allegations or legal
conclusions masquerading as factual conclusions.” Rolon v. Henneman, 517
F.3d 140, 149 (2d Cir. 2008) (internal quotation marks omitted); see
16
also Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009) (“[A]lthough a court must
accept as true all of the allegations contained in a complaint, that tenet is
inapplicable to legal conclusions, and threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do not suffice.”
(internal quotation marks omitted) (quoting Iqbal, 556 U.S. at 678)). Moreover,
“[w]here a complaint pleads facts that are ‘merely consistent with’ a defendant’s
liability, it ‘stops short of the line between possibility and plausibility of
entitlement to relief.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at
557).
2.
Res Judicata and Failure to Raise a Required Counterclaim
Leidos’s arguments focus on the preclusive effect vel non of the New York
State Action. “To determine whether the doctrine of res judicata bars a
subsequent action, we consider whether [i] the prior decision was a final
judgment on the merits, [ii] the litigants were the same parties, [iii] the prior
court was of competent jurisdiction, and [iv] the causes of action were the
same.” Corbett v. MacDonald Moving Servs., 124 F.3d 82, 87-88 (2d Cir. 1997).
As to the fourth factor, “[r]es judicata does not require the precluded claim to
actually have been litigated; its concern, rather, is that the party against whom
the doctrine is asserted had a full and fair opportunity to litigate the claim.”
EDP Med. Computer Sys., Inc. v. United States, 480 F.3d 621, 626 (2d Cir.
2007). Significantly, however, “[w]hile claim preclusion [or res judicata] bars
relitigation of the events underlying a previous judgment, it does not preclude
17
litigation of events arising after the filing of the complaint that formed the basis
of the first lawsuit.” Curtis v. Citibank, N.A., 226 F.3d 133, 139 (2d Cir. 2000).
The parties accept that the res judicata analysis is governed by New York
law. (See Leidos Br. 8; CCTI Leidos Opp. 3-4). Under New York law, all
counterclaims are permissive. See Batavia Kill Watershed Dist. v. Charles
O’Desch, Inc., 444 N.Y.S.2d 958, 960 (3d Dep’t 1981) (“It is apparent that the
CPLR does not require that a party plead counterclaims, and, with the possible
exception of cases based on waiver ... there is no requirement of compulsory
pleading of counterclaims in this State[.]”), aff’d, 57 N.Y.2d 796 (1982).
However, “a party is not free to remain silent in an action in which he is the
defendant and then bring a second action seeking relief inconsistent with the
judgment in the first action by asserting what is simply a new legal theory[.]”
Henry Modell & Co. v. Minister, Elders & Deacons of the Reformed Protestant
Dutch Church, 68 N.Y.2d 456, 461 (1986); see also Classic Autos., Inc. v. Oxford
Resources Corp., 612 N.Y.S.2d 32, 33 (2d Dep’t 1994) (stating that New York
“allows counterclaims to be raised through separate litigation …, as long as a
party defendant does not remain silent in one action, then bring a second suit
on the basis of a pre-existing claim for relief that would impair the rights or
interests established in the first action”).
3.
Analysis
The parties do not dispute that the New York State Action resulted in a
settlement by which CCTI agreed to pay Leidos $131,539.06. (Am. Compl.
¶¶ 105-06; Fallati Decl., Ex. 11). The parties also do not dispute that the
18
litigants were the same parties; that the court was of competent jurisdiction;
and that the action reached a conclusion with the stipulation of the parties.
(Fallati Decl., Ex. 11). Instead, the parties dispute whether the claims in this
case are claims made “on the basis of a pre-existing claim for relief that would
impair the rights or interests established in the first action.” Classic Autos,
612 N.Y.S.2d at 33. Leidos’s argument on this point is straightforward: CCTI
agreed to a stipulation, by which it acknowledged that it owed Leidos
outstanding payments for work performed under the Services Agreement.
Therefore, CCTI could not keep silent regarding claims related to improper
billing (Am. Compl. ¶ 116), failure to perform (id. at ¶ 115), or failure to deliver
a report (id. at ¶ 113) in that proceeding, and then bring the instant claims for
relief, all of which bear directly on the required payments, in a separate suit.
Leidos points to numerous decisions from state and federal courts in
New York concluding that a party cannot relitigate contractual performance
when it has already agreed to make payments on the disputed performance in
a prior action. (Leidos Br. 9-10). In Graham v. Select Portfolio Servicing, Inc.,
for instance, the court refused to allow a plaintiff’s claims against his mortgage
servicing company for failing to comply with its contractual obligations to go
forward, when the plaintiff failed to bring those claims in a prior foreclosure
action. 156 F. Supp. 3d 491, 509-10 (S.D.N.Y. 2016). In Robert v. Cooper, the
First Department rejected a plaintiff’s attempt to sue an attorney over the
latter’s fraudulent billing practices, when the subject of attorney’s fees was at
19
the “core” of the litigation in a prior action. 979 N.Y.S.2d 585, 586 (1st Dep’t
2014).
Here, CCTI stipulated that Leidos was entitled to unpaid bills in the New
York State Action, but now seeks to claim that Leidos failed to perform under
the Services Agreement and was not entitled to payment. Using the analysis of
the cases just cited, CCTI “remain[ed] silent” in the New York State Action, see
Henry Modell, 68 N.Y.2d at 461, but now seeks to litigate the same issue of
performance here. The Court agrees that CCTI is foreclosed from raising
arguments that Leidos failed to perform under the contract, having previously
stipulated to owing Leidos payments for that same performance in the New
York State Action.
CCTI counters that it did not remain silent, but rather discovered new
facts after the stipulation was entered in the New York State Action. The Court
finds this argument without merit. CCTI maintains that it could not have
known about the failure to perform until it recovered the password that
provided access to the Pilot Plant. (See Am. Compl. ¶¶ 34-60). CCTI argues,
therefore, that it “did not ‘remain silent’ in the prior action because, at the
time, it did not and could not have known there was anything to say.” (CCTI
Leidos Opp. 6). In examining the Amended Complaint, the Court agrees with
Leidos that at numerous points CCTI appears to undercut its own argument
with references to disputes that existed between the parties prior to the New
York State Action. (Compare Am. Compl. ¶¶ 16, 33 (referring to Benham’s
“subpar performance of the Construction Contract” and “various issues that
20
had arisen during the performance of the Construction Contract”), with id. at
¶¶ 113-15 (alleging that an element of the breach was Leidos’s failure to
“supervise Benham in the performance of the Construction Contract”)).
Elements of this dispute clearly existed prior to the stipulation, but were not
raised in the New York State Action. This alone negates Plaintiff’s claims that
it could not have known of Leidos’s deficient performance at the time it filed the
stipulation.
However, even accepting that CCTI was unaware of certain breaches, the
Court does not agree that these gaps in knowledge would defeat the preclusive
effect of the New York State Action. Plaintiff relies heavily on Mason Tenders
Dist. Council Pension Fund v. Messera, No. 95 Civ. 9341 (RWS), 1996 WL
578048, at *3 (S.D.N.Y. Oct. 8, 1996), where a court in this District declined to
find preclusive effect where, “according to Plaintiffs’ allegations, …
Defendants … concealed from Plaintiffs the kickback and embezzlement
scheme from which those claims arose.” Id. Significantly, however, the Mason
Tenders decision does not suggest that lack of knowledge will overcome the
otherwise preclusive effect of failure to bring a claim; rather, it emphasizes that
defendants are not entitled to preclusion where they have concealed material
giving rise to the claims at issue.
Separately, CCTI fails to plead concealment with particularity under any
standard. The parties dispute what standard to apply to pleadings regarding
the potential concealment of breaches in the res judicata context. (See Leidos
Br. 10-11; CCTI Leidos Opp. 8-9; Leidos Reply 5). However, the Court does not
21
find it necessary to resolve this dispute. The pleadings do not provide evidence
of any affirmative misstatements regarding performance of the contract beyond
the conclusory allegation that “[Dr. Paul] and others had not in fact performed
the services indicated on the invoices.” (Am. Compl. ¶ 107). This does not
constitute active concealment. See Ningbo Prod. Imp. & Exp. Co. v. Eliau,
No. 11 Civ. 650 (PKC), 2011 WL 5142756, at *10 (S.D.N.Y. Oct. 31, 2011) (“[A]
party’s mere intent not to perform is not sufficient to establish fraudulent
conduct.” (citation omitted)). CCTI also provides a long description of how it
discovered that it did not have the password and SD Card required to operate
the Pilot Plant in June 2017, and could not discover certain failures to perform
until it regained those items. (CCTI Leidos Opp. 8-9). However, CCTI does not
explain why it did not know about the missing password and cards at the time
it entered into the stipulation, nor does it offer any suggestion that Leidos
concealed these items during the pendency of the New York State Action.
Nothing in these allegations resembles an undisclosed “kickback and
embezzlement scheme.” Mason Tenders, 1996 WL 578048, at *3. The Court
does not find that the Amended Complaint demonstrates that CCTI could not
have known of Leidos’s breach when it entered the stipulation, and accordingly
finds that CCTI is foreclosed from bringing claims for breach of contract when
it entered into a stipulation acknowledging that it owed money under that
contract.
CCTI quotes from another district court decision in arguing that such a
finding would gut New York’s permissive counterclaim rules: “‘To hold
22
otherwise would have the effect of rendering New York a compulsory
counterclaim jurisdiction, because any counterclaims not asserted would be
barred in subsequent actions.’ Dolan v. Select Portfolio Servicing, Inc., [No. 13
Civ. 1552 (PKC), 2014 WL 4662247] at *3 (E.D.N.Y. Sept. 18, 2014).” (CCTI
Leidos Opp. 7). The Court disagrees, and observes that the very next
paragraph in Dolan discusses New York’s exception for cases where a party
remained silent in a prior proceeding. Dolan, 2014 WL 4662247, at *4. In the
New York State Action, “claims regarding the [Services A]greement … address
the ‘core’ of the litigation in the first action for [unpaid balances] and thus
should have been raised in that action.” Robert, 979 N.Y.S.2d at 586. The
Court finds that CCTI’s claim for breach of contract is barred by res judicata. 3
C.
Plaintiff Fails to State a Claim Against Leidos for Tortious
Interference with the Construction Contract
1.
Applicable Law
To demonstrate tortious interference with contract, a plaintiff must prove
[i] “the existence of a valid contract between the plaintiff and a third party’;
[ii] the ‘defendant’s knowledge of the contract’; [iii] the ‘defendant’s intentional
procurement of the third-party’s breach of the contract without justification’;
[iv] ‘actual breach of the contract’; and [v] ‘damages resulting therefrom.’” Kirch
3
Because the Court finds the breach of contract claim to be barred by res judicata, it
does not reach Leidos’s arguments regarding failure to state a claim. Leidos largely
focuses its briefing on res judicata and spends only a paragraph on the failure to state a
claim argument in both its initial motion and its reply. (See Leidos Br. 13; Leidos
Reply. 6). The Court also notes the difficulty of dismissing a breach of contract
allegation for failure to state a claim. To make a claim for a breach of contract a
“complaint need only allege [i] the existence of an agreement, [ii] adequate performance
of the contract by the plaintiff, [iii] breach of contract by the defendant, and
[iv] damages.” Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996).
23
v. Liberty Media Corp., 449 F.3d 388, 401-02 (2d Cir. 2006) (quoting Lama
Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 424 (1996)). Additionally, a
plaintiff must allege “that the defendant’s actions were the ‘but for’ cause of the
alleged breach — in other words, that there would not have been a breach but
for the activities of the defendant.” RSM Prod. Corp. v. Fridman, 643 F. Supp.
2d 382, 405 (S.D.N.Y. 2009), aff’d, 387 F. App’x 72 (2d Cir. 2010) (summary
order). “Although on a motion to dismiss the allegations in a complaint should
be construed liberally, to avoid dismissal of a tortious interference with
contract claim a plaintiff must support his claim with more than mere
speculation.” Burrowes v. Combs, 808 N.Y.S.2d 50 (1st Dep’t 2006).
2.
Analysis
As to this claim as well, the parties agree that certain elements are not in
dispute. Leidos does not argue that CCTI has failed to allege the existence of a
valid contract between it and Benham, Leidos’s knowledge of said contract, the
breach of said contract, or damages resulting from that breach. (See Leidos
Br. 14). Instead, Leidos argues that CCTI fails to allege plausibly that Leidos
either intentionally procured the breach or was the but-for cause of the breach.
(Id. at 15).
CCTI offers two mechanisms by which Leidos procured Benham’s breach
of the Construction Contract: CCTI alleges that Leidos refused to provide it
with the password and SD Card, and instead delivered them to Benham. (Am.
Compl. ¶¶ 37-44). CCTI also alleges that Ezel, a Leidos employee, billed CCTI
for work that he did not perform under the Construction Contract. (Id. at
24
¶ 62). Much of CCTI’s briefing describes these allegations in substantial detail.
(CCTI Leidos Opp. 14-15). Even with such detail, however, the allegations
remain inadequate to state an intentional procurement of a breach.
CCTI’s Amended Complaint makes clear that Benham made an
independent decision to withhold the password and SD card. For starters, the
allegations regarding the password and the SD Card are that Leidos possessed
them and turned them over to Benham rather than CCTI. (Am. Compl. ¶¶ 4041). The Complaint then alleges that Benham refused to provide these items to
CCTI. (Id. at. ¶¶ 41-48). There is no allegation that this refusal to provide the
items was done at Leidos’s instruction; that Leidos conceived of this plan; or
that Leidos even suggested that Benham withhold these items. Instead, the
Amended Complaint alleges that Benham refused to turn over the items until
CCTI made a payment. (Id. at. ¶¶ 48-49). And Ezel’s alleged breach is
similarly untethered to Leidos’s relationship with Benham. (See id. at ¶¶ 6162). The Ezel allegations merely state a manner in which the Construction
Agreement was breached, and not a manner in which Leidos procured that
breach. The Court does not find that CCTI has plausibly alleged anything
other than an independent decision by Benham to breach the Construction
Agreement, which may have been eased by certain actions taken by Leidos.
Tortious interference requires more.
These pleading deficiencies are highlighted when this case is compared to
the cases cited by CCTI. (See CCTI Leidos Opp. 16-19). In Bernberg v. Health
Management Systems, Inc., the defendant stripped a third party of its assets,
25
forcing this third party to default on the promissory notes it owed the plaintiff.
756 N.Y.S.2d 96, 97-98 (2d Dep’t 2003). In 330 Acquisition Co., LLC v. Regency
Savings Bank, F.S.B., the FDIC sought to honor a contractual agreement with
the plaintiff, but the defendant worked to force the FDIC to breach. 741
N.Y.S.2d 24, 26-27 (1st Dep’t 2002). In Due Pesci Inc. v. Threads for Thought,
LLC, the plaintiff alleged that the defendant deliberately reached out to third
parties in order to instruct them on breaching an agreement. 35 Misc. 3d
1202(A), 950 N.Y.S.2d 722 (Table) (N.Y. Sup. Ct. 2012).
The case that Plaintiff describes most extensively is Momentive
Performance Materials USA, Inc. v. AstroCosmos Metallurgical, Inc., No. 07 Civ.
567 (FJS) (DRH), 2009 WL 1514912 (N.D.N.Y. June 1, 2009). (See CCTI Leidos
Opp. 17-19). However, in that case, the breaching party remained a subsidiary
of the defendant, and was allegedly directed to breach: “AstroCosmos refused
to perform under the terms of the Replacement Agreement at the direction and
command of Defendants.” Momentive Performance, 2009 WL 1514912, at *3.
Here, Leidos completed the sale of Benham before the alleged breach (Am.
Compl. ¶¶ 19-22, 34-60), and there is no allegation that Leidos directed or
commanded Benham to breach. None of CCTI’s cases involves a plaintiff
alleging both that a contractual counterparty deliberately and independently
breached an agreement for its own economic benefit and that a third party was
liable for procuring that breach. All of them involve a defendant directing or
setting in motion the alleged breach. For all of these reasons, the Court finds
26
that CCTI has failed to allege adequately that Leidos procured or caused
Benham’s alleged breach.
D.
Plaintiff Fails to State a Claim Against Dr. Paul for Tortious
Interference with the Services Agreement
Plaintiff’s claim for tortious interference with contract against Dr. Paul
suffers a similar fate. The Amended Complaint makes a number of allegations
that Dr. Paul failed to perform actions that were required under the Services
Agreement. (See, e.g., Am. Compl. ¶ 129). But Dr. Paul argues — correctly —
that mere breaches of the Services Agreement are not enough, and that Plaintiff
must allege either actions that Dr. Paul took beyond the scope of his
employment or personal motivations for the alleged misconduct:
“Generally, ‘a corporate officer who is charged with
inducing the breach of a contract between the
corporation and a third party is immune from liability if
it appears that he is acting in good faith as an officer
and did not commit independent torts or predatory acts
against another.’” Nahabedian v. Intercloud Sys., Inc.,
No. 15 Civ. 669, 2016 WL 155084, at *6 (S.D.N.Y.
Jan. 12, 2016) (quoting G.D. Searle & Co. v. Medicore
Commc’ns, Inc., 843 F. Supp. 895, 911 (S.D.N.Y. 1994)).
However, if “the acts of the defendant corporate officer[]
which resulted in the tortious interference with contract
either were beyond the scope of their employment or, if
not, were motivated by [his] personal gain, as
distinguished from gain for the corporation,” [he] may
be liable. Id. at *6 (quoting Petkanas v. Kooyman, 759
N.Y.S.2d 1, 2 (1st Dep’t 2003)).
VR Optics, LLC v. Peloton Interactive, Inc., No. 16 Civ. 6392 (JPO), 2017 WL
3600427, at *6 (S.D.N.Y. Aug. 18, 2017). Dr. Paul argues that the allegations
show nothing other than that he took actions within the scope of his
27
employment at Leidos, actions that CCTI now claims to be in breach of its
agreement with Leidos. (Paul Br. 18-20).
CCTI argues that it has adequately alleged that Dr. Paul took actions for
purely personal gain or, in the alternative, actions beyond the scope of his
employment with Leidos. As support, CCTI points to allegations in the
Amended Complaint that Dr. Paul chose to sabotage the Services Agreement in
the face of CCTI’s refusal to provide releases for his restricted stock or to
provide him a $70,000 payment. (Am. Compl. ¶¶ 92-104, 132). As further
support, CCTI points to a text message from Dr. Paul to CCTI that allegedly
read, “Any progress on the issuing of stock before the deal closes.” (Id. at
¶ 94). Dr. Paul offers alternative explanations for this text (see Paul Br. 19),
but at the pleading stage, drawing all inferences in favor of CCTI, the Court
cannot rule out the possibility that Dr. Paul acted for his own personal gain in
failing to perform until CCTI acceded to his demands. See Island Two LLC v.
Island One, Inc., No. 13 Civ. 2121 (LGS), 2013 WL 5380216, at *3 (S.D.N.Y.
Sept. 26, 2013) (finding at the motion to dismiss stage that similar “allegations
[were] sufficient to support a claim” that a corporate officer acted “outside the
scope of [his] employment” and sought to “personally profit”).
However, the claim fails for a separate reason: The Amended Complaint
fails to allege that Dr. Paul’s actions, whether personally motivated or
otherwise, were the but-for cause of any breach of the Services Agreement. Dr.
Paul argues, similarly to Leidos’s argument in the context of Benham, that the
Amended Complaint cannot state a claim for tortious interference, because it
28
specifically alleges that Leidos elected to breach the Services Agreement
independently of any action by Dr. Paul. (See Am. Compl. ¶¶ 77-78 (“Leidos
took the position that it was not even required to provide a ‘comprehensive
report,’ pursuant to the Services Agreement and manufactured reasons by
which it was supposedly unable to do so. … Leidos took this position
notwithstanding [Dr Paul’s … [contrary] position[.]”)). It is obvious that if
Leidos elected to breach independently, Dr. Paul cannot be the but-for cause of
that breach. The Court finds that the inclusion of these allegations in the
Amended Complaint foreclose CCTI’s tortious interference of contract claim
against Dr. Paul. See RSM Prod. Corp., 643 F. Supp. 2d at 405 (holding that for
tortious interference of contract claims, a plaintiff must show “that there would
not have been a breach but for the activities of the defendant”). Here, CCTI
clearly alleges that Leidos acted in numerous ways to frustrate the Services
Agreement on its own and not at the direction of Dr. Paul.
Try as it might, CCTI cannot have it both ways: The breach of contract
allegations in the Amended Complaint make clear that CCTI believes Leidos
breached through failing to provide the final report when required to do so.
(Am. Compl. ¶ 113). In its opposition, CCTI states for the first time that “but
for [Dr. Paul’s] conduct, the Services Agreement would have been performed.”
(CCTI Paul Opp. 20). The Court cannot credit this assertion, which runs
counter to the allegations in the Amended Complaint that Leidos itself effected
the breach of the Services Agreement against the advice of Dr. Paul. “It is
axiomatic that a complaint cannot be amended by the briefs in opposition to a
29
motion to dismiss.” LLM Bar Exam, LLC v. Barbri, Inc., 271 F. Supp. 3d 547,
580 (S.D.N.Y. 2017) (internal quotation marks and citation omitted). The Court
finds that Plaintiff has failed to state a claim for tortious interference against
Dr. Paul with respect to the Services Agreement.
E.
Plaintiff Fails to State a Claim for Tortious Interference with
Prospective Economic Advantage Against Leidos, But States a Claim
Against Dr. Paul
1.
Applicable Law
To state a claim for intentional interference with prospective economic
advantage” under New York law, “a party must allege that: ‘(i) the plaintiff had
business relations with a third-party; (ii) the defendants interfered with those
business relations; (iii) the defendants acted for a wrongful purpose or used
dishonest, unfair, or improper means; and (iv) the defendants’ acts injured the
relationship.’” Lombard v. Booz-Allen & Hamilton, Inc., 280 F.3d 209, 214 (2d
Cir. 2002)). A plaintiff must also establish causation by demonstrating “that
she ‘would have entered into an economic relationship but for the defendant’s
wrongful conduct.’” Tucker v. Wyckoff Heights Med. Ctr., 52 F. Supp. 3d 583,
598 (S.D.N.Y. 2014) (quoting Memnon v. Clifford Chance US, LLP, 667 F. Supp.
2d 334, 349 (S.D.N.Y. 2009)).
The salient distinction between claims for tortious interference with
contract and claims for tortious interference with prospective economic
advantage concerns the defendant’s mental state: “In the case of tortious
interference with contract, a plaintiff may recover if the plaintiff can
demonstrate that the ‘defendant’s deliberate interference result[ed] in a breach
30
of [the] contract.’” Gym Door Repairs, Inc. v. Young Equip. Sales, Inc., 206 F.
Supp. 3d 869, 908 (S.D.N.Y. 2016), as amended, (Sept. 16, 2016),
reconsideration denied, 2016 WL 6652733 (S.D.N.Y. Nov. 10, 2016)
(quoting Carvel Corp. v. Noonan, 3 N.Y.3d 182, 189 (2004)). But “[i]n the case
of tortious interference with prospective economic advantage, ... the ‘plaintiff
must show more culpable conduct on the part of the defendant.’” Id. (quoting
Carvel, 3 N.Y.3d at 190). To state a prospective-economic-advantage claim, a
plaintiff must show that “the defendant’s conduct ... amount[s] to a crime or an
independent tort,” or that the defendant has “engage[d] in conduct for the sole
purpose of inflicting intentional harm on” the plaintiff.” Carvel, 3 N.Y.3d at
190 (internal quotation marks and citation omitted); see also Sidney Frank
Importing Co. v. Beam Inc., 998 F. Supp. 2d 193, 211-12 (S.D.N.Y. 2014)
(finding that mental state for prospective-economic-advantage claim “is more
exacting” than that for a contract-interference claim “because courts must
balance a plaintiff’s expectation in establishing a contractual relationship
against the competing interest of the interferer ... and the broader interest of
fostering healthy competition” (internal quotation marks and citations
omitted)).
2.
Analysis
The fourth claim in the Amended Complaint for tortious interference with
prospective economic advantage is the sole claim brought against both
Defendants. (See Am. Compl. ¶¶ 136-41). CCTI alleges that it had business
relationships with both potential investors and DOE, which relationships
31
Defendants had knowledge of and interfered with by failing to perform under
the Services Agreement. (Id.). From this, Plaintiff argues that Defendants
intentionally interfered with these third-party business relationships.
The Court can easily dispose of the claim against Leidos. CCTI fails to
point to any allegation in the Amended Complaint that Leidos’s conduct
included any “crime” or “independent tort,” see Carvel, 3 N.Y.3d at 190, and
CCTI candidly acknowledges that it has not made such an allegation (see CCTI
Leidos Opp. 19-20). CCTI instead argues that it has alleged that Leidos’s
breaching activity was done “for the sole purpose of inflicting intentional harm
on the plaintiff.” (Id. at 20-21 (quoting Carvel, 3 N.Y.3d at 190)). However, the
allegedly interfering activities are little more than restatements of the breach of
contract allegations with conclusory add-ons concerning Leidos’s mindset:
CCTI has alleged the requisite element of wrongful
means through the malicious acts of its employees ([Am.
Compl.] ¶ 103), improperly preventing access to the
pilot plant (id. ¶¶ 34-63), and an improper scheme by
providing certain representations, refusing to provide
additional material to support those representations
and then providing contradictory representations in the
Final Report (id. ¶¶ 23-31, 73-82, 84-91.) Further,
CCTI has alleged that Leidos, through its employee,
maliciously interfered with CCTI’s relationship with the
DOE by inaccurately and unnecessarily representing to
the DOE that CCTI was financially unstable, thereby
damaging CCTI’s relationship with the DOE. (Id. at
[¶] 97.)
(CCTI Leidos Opp. 20). 4
4
The sole allegations in this list that is not a restatement of the breach allegations is the
claim regarding Dr. Paul’s communication with DOE. (Am. Compl. ¶ 97). However,
CCTI elsewhere alleges that this action was “wholly outside the scope of [Dr. Paul’s]
32
Several courts in this District have rejected similar pleadings that
attempted to recast contractual breaches as tortious interference claims under
Carvel. See, e.g., Chanicka v. JetBlue Airways Corp., 243 F. Supp. 3d 356, 361
(E.D.N.Y. 2017) (“Although Plaintiff attempts to recast [breaches] … as
“knowing[] ... misrepresentations” and “intentionally false[ ] report[s]” … , the
allegations in the Complaint do not allow this Court to infer that [Defendant]
took any intentional actions to interfere with Plaintiff’s [prospective economic
relations.]”); Campeggi v. Arche Inc., No. 15 Civ. 1097 (PGG), 2016 WL
4939539, at *9 (S.D.N.Y. Sept. 14, 2016) (holding that “alleg[ations] that …
Defendants ‘acted solely out of malice’ … [do not] make … conclusory
assertion[s] plausible …, and a bare assertion that a defendant acted out of
malice will not suffice”). The Court does not find that CCTI has plausibly
alleged that Leidos has engaged in conduct for the sole purpose of inflicting
intentional harm on the Plaintiff. It finds, therefore, that CCTI has failed to
state a claim for prospective interference with economic advantage against
Leidos.
That said, the Court does find that CCTI has adequately stated a claim
for tortious interference with prospective economic advantage against Dr. Paul
with regards to CCTI’s relationship with DOE. It is true that the allegations of
malice are minimal in the Amended Complaint. However, unlike the Leidos
allegations, CCTI has alleged facts concerning Dr. Paul that, taken as true,
authority [from Leidos]” and undertaken “to further his own individual standing with
the DOE” (Am. Compl. ¶¶ 132-33).
33
transcend mere breach of contract. Specifically, CCTI states that Dr. Paul
maliciously misrepresented data that he knew would be transmitted to DOE
(see Am. Compl. ¶¶ 23-26, 28, 92-104); demanded personal payment for a
report DOE required (see id. at ¶¶ 74, 92-104, 132); and planted false
expectations with DOE (see id. at ¶¶ 73-83, 90-104). At this stage of the case,
these allegations of intentionally false communications in the service of
personal gain suffice to state that Dr. Paul “engage[d] in conduct for the sole
purpose of inflicting intentional harm on” CCTI. Carvel, 3 N.Y.3d at 190; see
also Freedman v. Pearlman, 706 N.Y.S.2d 405, 409 (1st Dep’t 2000) (“[W]e find
that plaintiff[] set forth sufficient allegations of an intentionally fallacious
communication with prospective [contractual partners] to survive dismissal at
this juncture.”). The Court finds that the Amended Complaint sufficiently
alleges that (i) CCTI had business relations with DOE; (ii) Dr. Paul interfered
with those business relations through false representations and the cultivation
of false expectations; (iii) Dr. Paul acted for a wrongful purpose to obtain
personal benefits; and (iv) these acts injured the relationship. See Lombard,
280 F.3d at 214.
As to CCTI’s claim that Dr. Paul tortuously interfered with potential
investors, the Court agrees with Dr. Paul that the claim “fails to allege that Dr.
Paul knew of CCTI’s relations with the investors mentioned in ¶¶ 87 and 88 or
that Dr. Paul directed any conduct (much less wrongful conduct) at them.”
(Paul Br. 24). CCTI responds that the Amended Complaint makes clear that
Dr. Paul was involved in soliciting investors from Shenuan, China, as well as
34
unnamed potential investors. (See Am. Compl. ¶¶ 86, 102). The Court does
not find that the Amended Complaint specifies that Dr. Paul interfered with a
potential investment from the Shenuan investors, as the paragraphs at issue
do not refer back to this group. (See id. at ¶¶ 87-88 (referencing two “potential
investors” seeking to buy “70% of CCTI”, but leaving unmentioned the Shenuan
investors)).
The Amended Complaint also does not contain any allegations that Dr.
Paul knew of the potential purchasers of 70% of CCTI or that he directed any
action at them. In opposition, CCTI argues again that it stated a claim for
interference with the Shenuan investors, but the Court again finds that CCTI is
seeking to amend its pleadings through opposition briefing. The Court rejects
this argument, which is contradicted by the text of the Amended Complaint. In
consequence, the Court does not find that the Amended Complaint has
adequately alleged that Dr. Paul was aware of the potential investors or
directed any action at them. Therefore, the Court finds that CCTI has failed to
state a claim against Dr. Paul for tortious interference with potential investors.
In sum, the Court dismisses CCTI’s claims for tortious interference with
the sole exception of the claim against Dr. Paul for tortious interference with
CCTI’s prospective relationship with DOE.
CONCLUSION
For the reasons set forth above, Leidos’s motion to dismiss is GRANTED.
Dr. Paul’s motion to dismiss is GRANTED IN PART and DENIED IN PART. The
surviving claim from the Amended Complaint is CCTI’s claim for tortious
35
interference with prospective economic advantage against Dr. Paul with regards
to DOE.
The Clerk of Court is directed to terminate the motions at docket entries
49 and 52. The parties are hereby ORDERED to file a joint letter on or before
April 22, 2019, advising the Court of the status of discovery and proposing
next steps in this case.
SO ORDERED.
Dated:
March 28, 2019
New York, New York
__________________________________
KATHERINE POLK FAILLA
United States District Judge
36
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