Opinion
12 Civ. 4580 (CM)
09-20-2012
DAVID NETTO and NETTOCOLLECTION, LLC, Plaintiffs, v. FARZAD RASTEGAR, Defendant.
DECISION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS THE COMPLAINT
:
INTRODUCTION
On June 12, 2012, Plaintiffs David Netto ("Netto") and NettoCollection LLC ("NettoCollection") (collectively "Plaintiffs") brought this suit against Defendant Farzad Rastegar ("Rastegar" or "Defendant") for fraudulent inducement, tortious interference with a contract, and breach of a personal guarantee. The complaint alleges that, after entering into an agreement for the sale of NettoCollection to Maclaren USA, Rastegar, the principal of Maclaren USA, fraudulently denied Plaintiffs business opportunities and payments due under the agreements.
Defendant now moves, pursuant to Federal Rules 12(b)(6) and 9(b), to dismiss the complaint in its entirety.
Defendant claims, inter alia, that this is essentially a breach of contract claim against a bankrupt company disguised as a claim of fraud against its principal. Defendant argues that the allegedly fraudulent statements and willful acts were merely promises of future acts that Defendant was unable to keep.
For the reasons discussed below, Defendant's motion to dismiss is GRANTED in its entirety, and Plaintiffs' complaint is DISMISSED.
BACKGROUND
1. Facts
a. The Parties
Plaintiff David Netto is a citizen of the State of New York, currently residing in Los Angeles, California. Plaintiff NettoCollection is a limited liability company organized under the laws of the State of New York, with its principal place of business in the State of New York. The two members of NettoCollection are David Netto and Claude Arpels, a citizen and resident of the State of New York.
Defendant Farzad Rastegar, the principal of Maclaren USA, is a citizen and resident of the State of Connecticut.
This is all that is known about Rastegar's position at Maclaren USA. Plaintiffs do not define what "principal" means. --------
b. The Purchase and Tri-Party Agreements
In 2003, David Netto founded NettoCollection LLC, a high-end children's furniture company. (Compl. ¶ 11.) NettoCollection produced a line of cribs, dressers, and other nursery accessories that were designed and branded by Netto. (Id.)
In 2008, Netto and his NettoCollection partner Claude Arpels decided it was time to sell the furniture brand to an established company in the baby industry, and they sought potential buyers. (Id. ¶ 12.) In June 2009, after several months of negotiations, NettoCollection entered into an acquisition agreement with Maclaren USA, a "world leader in the high-end stroller industry." (Id. ¶ 3.) Under the terms of the Asset Purchase Agreement ("Purchase Agreement"), 2Fab2 Design LLC ("2Fab2"), a subsidiary of Maclaren USA, acquired several of NettoCollection's assets for the purchase price of $1,110,000 ("Purchase Price"), payable on June 12, 2012. (Id. ¶ 14.) Additionally, Netto personally and Netto Collection entered into a Tri-Party Agreement with Maclaren, pursuant to which Netto agreed to act as a design consultant to 2Fab2 for three years (or through June 2012, the due date of the purchase price), for compensation consisting of an annual salary of $50,000 plus a percentage of royalties on the sales of certain Netto and NettoCollection furniture. The royalties were subject to a cap of $3,890,000 and payable on a quarterly basis. (Id. ¶ 15.)
Netto and NettoCollection also agreed not to compete in the children's furniture market until June 2014. (Ryan Decl. Ex. 1, Asset Purchase Agreement at § 5.01.)
Under both the Purchase and Tri-Party Agreements, all waivers, supplements, modifications, and amendments must be in writing and executed by all parties to be binding. (Id. at §6.01; Ryan Decl. Ex. 2, Tri-Party Agreement at 7-8.)
There is no termination provision under the Purchase Agreement. There is a termination clause in the Tri-Party Agreement, which provides for the circumstances under which 2Fab2 may terminate Netto. (Ryan Decl. Ex. 2, Tri-Party Agreement at 6.) However, there is no provision allowing Netto to terminate. Id.
c. The Alleged Personal Guarantee
Netto began designing furniture lines for Maclaren Nursery, a new line of children's furniture under the Maclaren brand. (Compl. ¶ 16.)
The relationship appears to have gone smoothly until early 2010, when Netto identified marketing problems with Maclaren Nursery to Rastegar, Maclaren USA's principal. (Id. ¶ 17.) Netto believed these problems were causing a decline in sales of products in the line. (Id.) Either Rastegar or Bahmen Kia, the president of Maclaren USA, assured Netto that he and Maclaren Nursery had the full support of the Maclaren brand, and that steps would be taken to address the marketing problems. (Id. ¶ 18.) Netto alleges that Rastegar failed to implement the promised measures, however, and that sales continued to decline as a result. (Id. ¶ 19.)
At various times in 2010, Plaintiffs sought to terminate their relationships with Maclaren and 2Fab2 and to obtain early payment of the Purchase Price. (Id. ¶¶ 19, 23). Each time Netto proposed terminating the relationship, however, Rastegar assured Netto that it was in his best interests to continue the relationship and repeated his ongoing commitment to Netto and NettoCollection. (Id. ¶¶ 23, 25-26.) Furthermore, when Netto became concerned about the liquidity of Maclaren USA and rumors of bankruptcy, Netto alleges that Rastegar and Kia assured Netto that Maclaren was simply undergoing a restructuring and there was no basis for the rumors. (Id. ¶ 24.) Nonetheless, Rastegar allegedly made an oral promise to be solely responsible for payment of the Purchase Price. (Id. ¶ 19.)
Because of Rastegar's personal guarantee and his other assurances, Netto alleges that he did not try to terminate the relationship. Netto himself even provided additional services to Maclaren Nursery and to Rastegar (Id. ¶ 20.), including (1) assisting Rastegar with communications after a voluntary recall of a line of strollers, and (2) acting as Rastegar's agent in the purchase of artwork. (Id. ¶¶ 21-22.)
d. Restructuring of Tri-Party Agreement
In 2011, Maclaren USA ceased making its quarterly payments to NettoCollection for royalties owed under the Tri-Party Agreement. (Id. ¶ 26.) NettoCollection forbore from enforcing its right under the Tri-Party Agreement; instead, it allegedly agreed to accept a lump sum payable on June 12, 2012. (Id.) Plaintiffs do not plead that this modification was in writing, although the Tri-Party Agreement required all such modifications to be in writing. Netto alleges that he agreed to this modification of the Tri-Party Agreement in reliance on Rastegar's and Kia's explanation of the financials of Maclaren and continued promises to support the Maclaren Nursery line. (Id.)
e. Maclaren USA Declares Bankruptcy
On December 29, 2011, Maclaren USA filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the District of Connecticut. (Id. ¶ 27.)
Sometime thereafter, Netto allegedly became aware that Rastegar had been diverting funds from Maclaren USA to other entities, allegedly in order to assure that Maclaren USA would never be able to pay the Purchase Price. (Id. ¶ 25.) Netto also learned that 2Fab2 had a value of only $1,887.18, although NettoCollection had transferred assets worth far more than that amount; Netto had never been informed that 2Fab2 transferred any of the assets purchased from NettoCollection. (Id. ¶ 28.)
NettoCollection filed an unsecured creditor claim in Maclaren USA's bankruptcy proceeding. (Id. ¶ 27.) Rastegar and his consulting firm Dory Ventures, LLC also filed creditor claims in the bankruptcy proceeding. (Id.)
In February 2012, Netto contacted Rastegar and demanded that he make good on his guarantee to pay the monies owed pursuant to the two agreements between the parties. (Id. ¶ 31.) Netto alleges that, "Rastegar erupted in a profanity-laced tirade . . . vow[ing] that Plaintiffs would never be paid the money they are owed under the Agreements." (Id.)
On June 12, 2012, Plaintiffs filed a complaint against Rastegar in this Court for fraudulent inducement, tortious interference, and breach of personal guarantee. Defendant moved, pursuant to Federal Rules 12(b)(6) and 9(b), to dismiss Plaintiffs' complaint.
DISCUSSION
1. Standard for a Motion to Dismiss
A defendant may move to dismiss a complaint under Federal Rule of Civil Procedure 12(b)(6) if the complaint "fail[s] to state a claim upon which relief can be granted." Fed. R. Civ. P. 12. When ruling on such a motion, the court must "accept the material facts alleged in the complaint as true" and "draw[] all reasonable inferences from its allegations in favor of the plaintiff." Lee v. Sony BMG Music Entm't, Inc., 557 F. Supp. 2d 418, 423 (S.D.N.Y. 2008). However, this generous standard is inapplicable to legal conclusions masked as factual allegations, and "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)); Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010).
"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.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). However, "Where 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." Id. (quoting Twombly, 550 U.S. at 557). In sum, a "plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient 'to raise a right to relief above the speculative level.'" ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 555). 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." Iqbal, 556 U.S. at 663 (citing Twombly, 550 U.S. at 556).
Additionally, a complaint alleging fraud must also comply with the heightened pleading requirements of Federal Rule 9(b). Rule 9(b) requires that when "alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). "A complaint making such allegations must (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993) (internal quotation marks omitted)).
Netto and NettoCollection have separately asserted claims against Rastegar. I will consider those claims separately.
2. Netto's Claim of Fraudulent Inducement (Count 1) is Dismissed
Plaintiff Netto claims that Rastegar fraudulently induced Netto "to forego business opportunities and offer his design consulting services at reduced costs" by recommitting to the success and development of Maclaren Nursery, and by representing (falsely) that "he [Rastegar] had every intention of enacting plans to develop and further the Maclaren Nursery brand and that Netto would form an integral part of that unit's growth." (Compl. ¶ 33.) Netto claims these representations were false, and that Rastegar knew these statements were false at the time he made them. (Id. ¶ 34.) He also alleges that Rastegar made the representations for his own benefit, "as part of his plan to induce Plaintiff Netto to continue to work for Maclaren Nursery on the cheap and exploit Netto's expertise, and personal and professional contacts." (Id. ¶ 35.) Netto does not identify any particular opportunities that he allegedly forewent in order to enter into the contracts with Maclaren USA or to continue performing thereunder. As the representations Rastegar allegedly made all occurred after the parties entered into their business relationship, it appears that Netto is claiming not that he was fraudulently induced to enter into the contract with Maclaren in the first place, but rather that he was fraudulently induced to continue the relationship when he tried to end it.
Proving fraudulent inducement under New York law "requires a showing that '(1) the defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance.'" Wall v. CSX Transp., Inc., 471 F.3d 410, 415-16 (2d Cir. 2006) (internal citation omitted); see also Wynn v. AC Rochester, 273 F.3d 153, 156 (2d Cir. 2001) (citing Lama Holding Co. v. Smith Barney, Inc., 88 N.Y.2d 413 (N.Y. 1996)).
Count 1 is deficient for several reasons.
First, Netto claims that Rastegar fraudulently induced Netto to remain bound by the Purchase and Tri-Party Agreements and not seek to terminate the relationships. (Compl. ¶ 33.) But a claim in fraudulent inducement does not ordinarily lie where a plaintiff alleges that he was induced to continue performing his obligations under an existing contract - i.e., where the essence of the claim is that the plaintiff was induced not to breach his own contractual obligations. That is even more true here, where the contract (the Tri-Party Agreement) does not give Netto the right to terminate prematurely because of dissatisfaction with Maclaren's financial or business prospects. In fact, Netto had no right to terminate the agreement prior to its expiration date; only 2Fab2 could terminate. (Ryan Decl. Ex. 2 at 6.)
Courts have in the past recognized a narrow exception to this rule, allowing "claims for fraudulent inducement where the injury alleged stems from leaving a former place of employment or agreeing to remain in a compromised position at a current place of employment, rather than from the termination or failure to perform terms of the employment agreement." Hyman v. Int'l Bus. Machines Corp., 98 Civ 1371, 2000 WL 1538161, at *3 (S.D.N.Y. Oct. 17, 2000). However, Netto is not analogous to an at-will employee who left a job to go to work for Maclaren and 2Fab2. Netto sold his business to Maclaren USA, and he does not plead that he chose Maclaren over another suitor because of a representation that was made before they signed that contract of sale. He asserts only that he did not walk away from the deal when it did not work out to his satisfaction. But Netto was contractually obligated to honor his obligations to work for Maclaren under the Tri-Party Agreement. His remedy for any breaches by Maclaren (for example, if he was not paid his salary, although the complaint does not contain any such allegation) was to sue for breach - not to terminate the contract.
One of the claims Netto might be trying to assert is that he was fraudulently induced to forbear from enforcing his right to payment of his salary, and/or to modify the Tri-Party Agreement to postpone his right to receive payment of his salary until June 2012. However, no fair reading of the complaint renders the assertion of such claim - the claim asserted is that NettoCollection agreed to postpone its right to receive periodic royalty payments until June 2012.
In the end, all Netto alleges is that Rastegar induced him to enter into the Tri-Party Agreement (with Maclaren, not with Rastegar) with the undisclosed intention that Maclaren would not perform its obligations under the agreement. But that does not state a claim for fraudulent inducement. Fraudulent inducement is not intended to function as a blanket insurance policy for anything that can go wrong in a contractual relationship, and it "'may not be used as a means of restating what is, in substance, a claim for breach of contract.' 'General allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support [a fraud] claim.'" Wall, 471 F.3d at 416 (quoting New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 318 (N.Y. 1995)).
"A fraud claim based on contractual promises can survive if the plaintiff '(i) demonstrate[s] a legal duty separate from the duty to perform under the contract; or (ii) demonstrate[s] a fraudulent misrepresentation collateral or extraneous to the contract; or (iii) [is] seek[ing] special damages that are caused by the misrepresentation and unrecoverable as contract damages.'" Low v. Robb, 11-CV-2321, 2012 WL 173472, at *5 (S.D.N.Y. Jan. 20, 2012) (citing Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996) (internal citations omitted)).
Netto does none of these things. He does not adequately plead that Rastegar had any legal duty to Netto separate from whatever is memorialized in the Tri-Party Agreement (to which Rastegar personally is not a party). Netto also does not plead any fraudulent misrepresentation that is collateral or extraneous to the contract. Finally, Netto does not identify any special damages that he suffered that cannot be recovered as contract damages; the damages he seeks would be recoverable under a basic breach of contract claim. Obviously, Netto could not bring this claim against Maclaren USA anywhere but the Bankruptcy Court. And he has.
Second, Netto also fails to plead any material false representation that Rastegar made to Netto.
Under New York law, a claim of fraudulent inducement "cannot be based solely upon the failure to perform the promises of future acts which constitute the contractual obligations themselves." Great Earth Intern. Franchising Corp. v. Milks Dev., 311 F. Supp. 2d. 419, 428 (S.D.N.Y. 2004) (internal quotations omitted) (citing Cranston Print Works Co. v. Brockmann Int'l A.G., 521 F. Supp. 609, 614 (S.D.N.Y.1981)).
Here, Netto alleges that Rastegar stated "that he had every intention of enacting plans to develop and further the Maclaren Nursery brand and that Netto would form an integral part of that unit's growth." (Compl. ¶ 33.) All that says is that Rastegar promised that Maclaren would continue to honor its contracts with Netto and NettoCollection. Furthermore, since Netto was himself contractually obligated to maintain his relationship with Maclaren through June 12, 2012, he could not be defrauded into continuing to perform his agreed-upon contractual obligations. Rastegar's alleged misstatements are simply not actionable as fraudulent inducement. See Bank Leumi Trust Co. of N.Y. v. D'Evori Int'l, Inc., 163 A.D.2d 26, 916 (App. Div. 1990) ("A party . . . cannot be defrauded into doing that which it was already legally obligated to do.") (citation omitted).
Because Netto has failed to identify any material misrepresentation, there is no need to reach the particularity requirements of Rule 9(b).
3. NettoCollection's Claim of Fraudulent Inducement (Count 2) is Dismissed
Plaintiff NettoCollection separately sues Rastegar for fraudulent inducement. Like Netto, the corporation alleges that it relied on the same assurances made by Rastegar to continue doing business with Maclaren (which it was contractually obligated to do in any event) and to forego other business opportunities (which are conveniently not identified). (Compl. ¶ 40.) As will readily be seen, Count 2 is, for the most part, identical to Count 1, and so must be dismissed for the reasons discussed above.
However, NettoCollection's claim has a unique aspect. It alleges that it waived its contractual right to quarterly royalty payments under the Tri-Party Agreement in favor of a lump sum to be paid on June 12, 2012, when Maclaren USA was unable to continue making those payments. (Id. ¶¶ 26, 42.) In essence, NettoCollection is asserting that it forbore to exercise its rights and consented to a modification of the Tri-Party Agreement on the basis of Rastegar's representations that (1) Maclaren would promote the business, and (2) he, Rastegar, would personally assume responsibility for making the payments that Maclaren was contractually obligated to pay.
The law is unclear "as to whether an action can be maintained against one who fraudulently induces another to forego the enforcement of a legal remedy." 60A N.Y. Jur. 2d Fraud and Deceit § 156 (2012). However:
Where a party has been put on notice of the existence of material facts which have not been documented and he nevertheless proceeds with a transaction without securing the available documentation or inserting appropriate language in the agreement for his protection, he may truly be said to have willingly assumed the business risk that the facts may not be as represented. Succinctly put, a party will not be heard to complain that he has been defrauded when it is his own evident lack of due care which is responsible for his predicament.Project Gamma Acquisition Corp. v. PPG Indus., Inc., 34 Misc.3d 771, 777-78 (N.Y. Sup. Ct. 2011) (emphasis in original) (citing Rodas v. Manitaras, 159 A.D.2d 341, 342-43 (N.Y. App. Div. 1990)).
On the facts pleaded, NettoCollection cannot be heard to complain about agreeing to forbear from bringing suit for payment when its right to do so ripened. When NettoCollection agreed not to pursue collection of past due payments, it knew that Maclaren USA was in financial difficulty - after all, the company had already stopped making the quarterly royalty payments to NettoCollection that form the basis of this claim. (See Compl. ¶ 26.) Thus, despite any assurances of payment that may have been made by Rastegar or Kia that NettoCollection would be paid, NettoCollection was on notice that Maclaren USA was having financial problems. It could have moved quickly to assert its ripened claim against Maclaren. Instead, it forbore the exercise of its right of enforcement of the quarterly royalty payment provision of the Tri-Party Agreement and agreed to take a chance that payment would be forthcoming in the future.
As for Rastegar's purported promise to guarantee payment of monies owed to NettoCollection by Maclaren: to the extent that NettoCollection relies on this oral promise, it is insufficient to support a fraudulent inducement claim because reliance on any such oral promise was not reasonable for two reasons: (1) the promise was unenforceable as a matter of law, and (2) to the extent the oral promise was intended as a modification of the Tri-Party Agreement, it was not in writing, as the agreement requires. These reasons are discussed at length at Point 4 below.
4. NettoCollection's Claim of Tortious Interference With a Contract (Count 3) is Dismissed
NettoCollection next claims that Rastegar tortiously interfered with the Purchase and Tri-Party Agreements by "diverting money from Maclaren USA to himself and his affiliated companies, rendering, by intent, 2Fab2 and Maclaren USA unable to pay NettoCollection the money it was due under the Agreements." (Id. ¶ 49.) This claim, too, fails as a matter of law.
In order to establish tortious interference with a contract, Plaintiffs must demonstrate "(1) the existence of a contract between plaintiff and a third party; (2) defendant's knowledge of the contract; (3) defendant's intentional inducement of the third party to breach or otherwise render performance impossible; and (4) damages to plaintiff." Krys v. Aaron (In re Refco Inc. Sec. Litig.), 826 F. Supp. 2d 478, 520 (S.D.N.Y. 2011) (citations and emphasis omitted).
NettoCollection alleges that it had an agreement with Maclaren and 2Fab2 for the purchase of NettoCollection's main assets for $1,110,000, that Rastegar was aware of this agreement, and that NettoCollection was damaged as a result of not being paid the Purchase Price.
The claim fails because a tortious interference claim may only be brought against a stranger to the third party contract. Generally, employees or officers of a contracting party, like Rastegar, are not deemed strangers to the contract. TVT Records v. Island Def Jam Music Grp., 412 F.3d 82, 88 (2d Cir. 2005); Friedman v. Wahrsager, 848 F. Supp. 2d 278, 298 (E.D.N.Y. 2012).
Had NettoCollection successfully alleged that Rastegar either (1) took actions to interfere with its contracts that were outside the scope of his employment; or (2) personally profited from the actions that he took to interfere with the contract, it might have gotten around this rule. Key Items, Inc. v. Ultima Diamonds, Inc., 09 Civ. 3729, 2011 WL 4526148, at *5 (S.D.N.Y. Sept. 29, 2011) (citing G.D. Searle & Co. v. Medicore Commc'n, Inc., 843 F. Supp. 895, 911 (S.D.N.Y. 1994)). Unfortunately for Plaintiff, NettoCollection has done no such thing. It pleads, in wholly conclusory fashion, that Rastegar "diverted money from Maclaren USA to himself and to his affiliated companies" and that in doing so he "was motivated by a desire for personal gain." (Compl. ¶ 49). While embezzlement would of course fall outside the scope of one's employment, Plaintiff does not plead a single fact that would tend to support such a claim.
The sole apparent basis for Plaintiff's assertion of diversion of funds is that Rastegar has himself filed a creditor claim in the bankruptcy proceeding; but that filing suggests that Rastegar. far from taking money out of the company for his own benefit, is or may still be owed money by his former employer (for salary and benefits, perhaps, or because he invested in the company - though all of that is pure speculation on the Court's part). Indeed, one would more readily infer that Rastegar had pilfered money from his employer if he had not filed a claim in bankruptcy!
Furthermore, if NettoCollection is arguing that Rastegar rendered Maclaren USA insolvent, and so unable to pay its debt to Plaintiff, that argument can only be made as a fraudulent conveyance claim in the Bankruptcy Court - for such a claim belongs to the estate of the debtor, with any recovery to be shared pro rata by all the creditors of the debtor. In re Ionosphere Clubs, Inc., 156 B. R. 414, 439 (S.D.N.Y. 1993) ("The creditor of any bankrupt may allege that the prior dealings of other parties with the bankrupt rendered it insolvent; however, such a claim is for fraudulent conveyance properly brought by the Trustee, not for tortious interference of contract."), aff'd, 17 F.3d 600 (2d Cir. 1994); see also Kalb, Voorhis & Co. v. Am. Fin. Corp., 8 F.3d 130, 132 (2d Cir. 1993).
5. Plaintiff NettoCollection's Claim of Breach of Personal Guarantee (Count 4) is Dismissed
NettoCollection's final claim is for breach of Rastegar's alleged personal guarantee to pay Maclaren's debt to it. NettoCollection claims that Rastegar personally guaranteed the payment of the Purchase Price. (Compl. ¶ 52.) NettoCollection alleges that "Beginning in mid-2010, Rastegar, in his conversations with Netto, made repeated promises that he would be solely responsible for the $1,110,000 acquisition price payable to NettoCollection on June 12, 2012." (Id. ¶ 19.) NettoCollection did not provide a specific date on which this promise was made.
First, a promise to pay the debt of a corporation "is unenforceable unless the corporation was discharged from its underlying obligation." Courts have held that such debt cannot be deemed to have been discharged if the plaintiff later sues the corporation to enforce the debt. Martin Roofing, Inc. v. Goldstein, 60 N.Y. 2d 262, 267-68 (N.Y. 1983). NettoCollection has asserted a claim for the Purchase Price against Maclaren USA in the bankruptcy proceeding, which negates any possible inference that the parties intended for Rastegar to assume Maclaren's debt for the Purchase Price. (See Compl. ¶¶ 27, 29.) Therefore, Rastegar's alleged promise is unenforceable as a matter of law. Furthermore, discharging Maclaren from its obligation to pay the Purchase Price would have required an amendment to the Purchase Agreement, and any amendment must be in writing to be effective. (Ryan Decl. Ex. 1, Asset Purchase Agreement at § 6.01.)
The promise is also unenforceable because, under the New York Statute of Frauds, "a special promise to answer for the debt, default or miscarriage of another person" may not be enforced unless in writing. N.Y. Gen. Oblig. Law, § 5-701(a)(2) (McKinney 2012). An oral promise to guarantee the debt of another falls within the Statue of Frauds unless "it is supported by a new consideration moving to the promisor and beneficial to him and that the promisor has become in the intention of the parties a principal debtor primarily liable." Martin Roofing, 60 N.Y. 2d at 265 (citations omitted). Thus, NettoCollection must plead facts showing both that the requisite consideration passed from NettoCollection to Rastegar and "that the parties intended, as ascertained from the language used and from all the facts and circumstances surrounding the transaction . . . that an independent contract was created between them which obligated [D]efendant to satisfy the corporation's debt in any event." Id.
NettoCollection alleges that in consideration for Rastegar's promise to pay the Purchase Price, Netto (the individual, not the corporation) rendered additional services to Rastegar and Maclaren "including, among other things, writing corporate statements, advising [Rastegar] on purchasing artworks, and assisting in the negotiations of leases for retail spaces." (Compl. ¶¶ 20, 54.) Even if this were true, it does not qualify as additional consideration. Any additional services that Netto provided for the benefit of the corporation (e.g., writing corporate statements), flowed to the corporation, not to Rastegar personally. Any benefit Rastegar derived from this work came as a result of his position as principal of Maclaren USA; the receipt of benefits from a service rendered to a corporation cannot be inferred solely from a promisor's ownership interest in a corporation. Rosenman & Colin Inc. v. Sandler, 01 Civ. 7123, 2002 WL 83657, at *5 (S.D.N.Y. Jan. 18, 2002) (citing Martin Roofing, 60 N.Y.2d at 266-67). Put otherwise, Rastegar benefitted from the extra services Netto rendered to the corporation in his official capacity, not as an individual, so they do not qualify as new consideration for Rastegar's personal promise to assume liability for a debt owed by Maclaren.
On the other hand, any personal services Netto provided to Rastegar individually - advising and assisting him with the purchase of certain artwork being the only one pleaded - cannot qualify as additional consideration, because Netto did not perform those personal services as an agent or on behalf of NettoCollection. The complaint makes it clear that Rastegar asked Netto to help him with art purchases because of Netto's "knowledge and opinion on artwork." (Compl. ¶ 22.) - not because of his affiliation with NettoCollection. Thus, while a benefit moved directly to Rastegar, individually and as the promisor, this "consideration" did not come from or on behalf of NettoCollection, the party to the purported oral agreement.
CONCLUSION
For the reasons stated herein, Defendant's motion to dismiss Plaintiffs' entire complaint is GRANTED. Dismissal will be with prejudice unless, within 20 days, Plaintiffs file a motion for leave to amend and a proposed amended complaint. I will not grant leave to replead unless Plaintiffs demonstrate that amendment would not be futile. Plaintiffs will have to follow the usual course of filing a motion for leave to amend to which an amended complaint is attached if they wish to have this option considered. If they are unable to bolster significantly their allegations, amendment will be deemed futile, and I will dismiss the complaint with prejudice. Dated: September 20, 2012
/s/_________
U.S.D.J. BY ECF TO ALL PARTIES