Opinion
No. CV–001595–16/NY.
10-31-2016
TEAMWIKIT, INC., f/k/a, Teamwikit, LLC, Plaintiff, v. Robert DOUGLAS and Ari Allen, Defendants.
Michael D. Katz, Esq., New York, for plaintiff. James T. Ehrhardt, Esq., Commack, for defendant, Robert Douglas. Michael Stolper, Esq., Stolper Law Group, Kara Gorycki, Esq., New York, for defendant, Allen.
Michael D. Katz, Esq., New York, for plaintiff.
James T. Ehrhardt, Esq., Commack, for defendant, Robert Douglas.
Michael Stolper, Esq., Stolper Law Group, Kara Gorycki, Esq., New York, for defendant, Allen.
PAUL A. GOETZ, J.
Recitation, as required by CPLR § 2219(a), of the papers considered on the motion(s):
| Papers | Numbered |
|---|---|
| Defendant Allen's notice of motion for dismissal and for sanctions and memorandum of law in support | 1 |
| Plaintiff's notice of cross motion for a default judgment against Defendant Allen, attorney affirmation and affidavit and exhibits in support of cross motion and opposition to motion to dismiss, and memorandum of law in opposition | 2 |
| Defendant Allen's attorney affirmation and exhibits in opposition to cross motion | 3 |
| Plaintiff's attorney affirmation and exhibits in further support of cross motion | 4 |
Upon the foregoing cited papers, Defendant, Ari Allen's ("Allen") motion for dismissal and sanctions, and Plaintiff's cross motion for a default judgment are decided as follows:
THE PARTIES' CONTENTIONS
The complaint describes Plaintiff as a technology start-up of an online, politically-oriented social network. Plaintiff asserts three causes of action against Defendants in connection with a service agreement entered into between Plaintiff and Inertia, LLC ("Inertia") wherein Inertia agreed to build a "responsive website" for Plaintiff. Plaintiff's three causes of action against the Defendants are fraud in the inducement, deceptive acts and practices under N.Y. General Business Law ("GBL") § 349, and false advertising under GBL § 350. The complaint identifies Defendant, Robert Douglas as a co-founder and Allen as a former employee of Inertia. The forty-six page complaint with forty-three exhibits seeks compensatory and treble and punitive damages as well as costs and disbursements. Plaintiff alleges that Defendants deceived it into believing that most of the coding work would be done in-house by Inertia, that Inertia had longstanding relationships with the individual developers to whom it out-sourced work, that an individual billed as Inertia's chief software architect and Douglas would do most of the work in Inertia's New York City office and that Inertia's chief software architect would supervise from New York any programmers working overseas.
Allen moves to dismiss pursuant to CPLR § 3211(a)(7) arguing that Plaintiff's fraud in the inducement claim is duplicative of Plaintiff's breach of contract claim which it is required, under the terms of the agreement between Plaintiff and Inertia, to submit to arbitration. Allen further alleges that the complaint does not allege any misrepresentations were made by him, the agreement permitted the actions about which Plaintiff complains and Plaintiff does not allege that Allen owed Plaintiff a duty separate and apart from Inertia's obligations under the agreement. Regarding Plaintiff's deceptive practices and false advertising claims, Allen argues that the complaint does not allege any deceptive conduct attributable to him, Plaintiff does not state that the alleged conduct was oriented to consumers, and Plaintiff does not allege actual harm.
ANALYSIS
Allen's Motion to Dismiss and for Sanctions
A motion to dismiss pursuant to CPLR § 3211(a)(7) must be denied if the facts alleged in the complaint fit within any cognizable legal theory (Tap Holdings, LLC v. Orix Finance Corp., 109 AD3d 167 [1st Dept 2013] ). The court is bound to afford the complaint a liberal construction, accept the facts alleged as true and accord Plaintiff the benefit of every possible inference (Id. ).
Fraudulent Inducement
"In a fraudulent inducement claim, the alleged misrepresentation should be one of then-present fact, which would be extraneous to the contract and involve a duty separate from or in addition to that imposed by the contract and not merely a misrepresented intent to perform" (The Hawthorne Grp., LLC v. RRE Ventures, 7 AD3d 320, 323–24 [1st Dept 2004] [internal citations omitted] ).
"[W]hile an agent for a disclosed principal may be held liable to a third party where the agent has committed fraud, even under such circumstances a cause of action to recover damages for fraud will not arise when the only fraud charged relates to a breach of contract" (Weinstein v. Natalie Weinstein Design Assoc., Inc., 86 AD3d 641, 642–43 [2nd Dept 2011] [internal citations and quotation marks omitted] ). Moreover, "... the agent will not be personally liable for a breach of contract, unless there is clear and explicit evidence of the agent's intention to be bound" (Mastropieri v. Solmar Construction Co., 159 A.D.2d 698, 699 [2nd Dept 1990] ).
Plaintiff's allegations boil down to its understanding that most of the work Inertia committed to performing under the agreement would be done in-house by Inertia's co-founder and chief software architect and that Defendants knew when Inertia entered into the agreement that the work would not be done primarily in-house. Allegations that Inertia entered into the agreement with the intention not to perform, or perform in a manner allegedly not contemplated by the contract, are insufficient to support a claim for fraud. (See Town House Stock LLC v. Coby Housing Corp., 36 AD3d 509 [1st Dept 2007] ). Plaintiff's claim is for breach of contract not fraud and its breach of contract claim is against Inertia not Allen (Id. ). Nothing in the one hundred twenty-five paragraph complaint or the exhibits attached to it suggests that Allen intended to be personally liable for breach of the agreement between Plaintiff and Inertia (Mastropieri, 159 A.D.2d at 699 ). There are also no allegations in the complaint that Allen's actions fell outside the scope of his employment or that he personally profited from the actions he took in connection with the agreement between Plaintiff and Inertia (Courageous Syndicate, Inc. v. People–to–People Sports Comm., Inc., 141 A.D.2d 599 [2nd Dept 1998] ; Herndon–Brown v. Riverdale Country School Inc., 237 NYLJ 79, 2007 N.Y. Misc. LEXIS 3042 [SC Bx Co 2007] ). Consequently, not only does Plaintiff not have a fraud claim against Allen, it also does not have a breach of contract claim against him. If Allen's "representations were grounds for a fraud claim, every employee of every company who makes a statement about the company's performance under a contract might be subject to personal liability for the company's breach of contract. This is not the law, and for good reason, as such a law would have a chilling effect on commerce" (DSM2x, Inc. v. GFK Custom Research, LLC, 38 Misc.3d 1227(A), *4 [SC N.Y. Co 2013] ).
GBL §§ 349 & 350
GBL §§ 349 and 350 are consumer protection statutes prohibiting deceptive practices and false advertising respectively (Karlin v. IVF Am., Inc., 93 N.Y.2d 282 [1999] ). "These statutes on their face apply to virtually all economic activity, and their application has been correspondingly broad" (Id. at 290 ). To state a cause of action under GBL §§ 349 and 350 a "plaintiff must show, inter alia, that defendants' challenged acts and practices are ‘consumer-oriented.’ Consumers are those who purchase goods and services for personal, family or household use" (Medical Society of the State of N.Y. v. Oxford Health Plans, Inc., 15 AD3d 206 [1st Dept 2005] [internal quotation marks and citations omitted] ).
Annexed to the complaint is Inertia's proposal for design and development of Plaintiff's website. The proposal includes a statement of Inertia's "specialties" including: "website and application development, ... branding ..., e-commerce, database management, web-to-mobile conversion ..., API/Payment Gateway integration ..." According to Inertia's "client portfolio" it has developed websites and apps for luxury e-commerce sites to fitness apps featuring NFL superstars." The services that Inertia offers are not consumer-oriented since according to the exhibit attached to the complaint, it designs websites and applications, and websites and applications are not generally for "personal, family or household use" (Id. ). Inertia's activities and practices are not consumer-oriented since it is in the business of designing web sites and applications for business. Nothing in the complaint suggests that Inertia's acts and practices are directed to those who purchase its "services for personal, family or household use."
Even if Plaintiff had shown that Inertia's activities were consumer-oriented in nature, that showing would not grant Plaintiff a cause of action against Allen individually since Allen was merely acting in his capacity as an employee of Inertia. If Allen's representations were grounds for deceptive practices and false advertising claims, every employee of every company who makes a statement about the company's performance might be subject to personal liability under GBL §§ 349 and 350 which would have a chilling effect on commerce (accord DSM2x, Inc., 38 Misc.3d 1227(A) at *4 ).
Sanctions
Allen avers that Plaintiff's case against him is frivolous warranting the imposition of sanctions in the form of costs including legal fees against Plaintiff.
Rules of the Chief Administrator of the Courts (22 NYCRR) § 130–1 .1 provides that the court, may impose financial sanctions upon a party who engages in frivolous conduct. Conduct is frivolous if it is completely without merit in law; it is undertaken primarily to delay or prolong the resolution of litigation, or to harass or maliciously injure another, or it asserts material misstatements of facts (Rules of Chief Admin of Cts [22 NYCRR] § 130–1.1 [c] ).
A party seeking the imposition of sanctions "has the burden of demonstrating that the conduct of the opposing party was frivolous within the meaning of the rule, or that the action or proceeding was commenced or continued in bad faith." (Miller v. Miller, 96 AD3d 943, 944 [2nd Dept 2012] [citations omitted] ). In making a determination of whether conduct is frivolous "the court must consider the circumstances under which the conduct took place, and whether or not the conduct was continued when its lack of legal or factual basis was apparent [or] should have been apparent." (Matter of Ernestine R., 61 AD3d 874, 876 [2nd Dept 2009] [citations and internal quotations omitted] ). The purpose of sanctions is to address a "continuous pattern of [frivolous] conduct and to deter future frivolous conduct" (Grayson v. NYC Dept of Parks, 99 AD3d 418, 419 [1st Dept 2012] ) with the goals of "preventing the waste of judicial resources and deterring vexatious litigation and dilatory or malicious litigation tactics." (Levy v.. Carol Management Corp. 260 A.D.2d 27, 34 [1st Dept 1999] ).
The Court can not conclude that Plaintiff's complaint against Allen is completely without merit in law. (Rules of Chief Admin of Cts [22 NYCRR] § 130–1.1 [c]; Grayson, 99 AD3d at 419 ). Moreover, Plaintiff's initiating this action against Allen does not constitute a pattern of frivolous conduct. (Grayson, 99 AD3d at 419 ). Therefore, the Court declines to impose sanctions on Plaintiff.
Accordingly, Allen's motion to dismiss is granted and his motion for sanctions is denied.
Plaintiff's Cross–Motion for a Default Judgment
Allen showed a reasonable excuse for the delay bringing its motion to dismiss. (Artcorp Inc. v. Citirich Rlty. Corp., 140 AD3d 417 [1st Dept 2016] ). Plaintiff failed to show that it suffered any prejudice as a result of Allen's short delay in making its motion and there is a strong public policy in this state favoring resolving cases on the merits (Id. ).
Accordingly, Plaintiff's motion for a default judgment is denied.
Based on the foregoing, it is hereby
ORDERED that Allen's motion to dismiss as against him is GRANTED and the complaint as against Allen is dismissed with prejudice; and it is further
ORDERED that Allen's motion for sanctions is DENIED; and it is further
ORDERED that Plaintiff's cross motion for a default judgment as against Allen is DENIED.
This constitutes the Decision and Order of the Court.