Opinion
654678/2018
06-26-2020
John DELUCIE, Plaintiff, v. Mark Thomas AMADEI and Sean Largotta, Defendants.
Schneider Law PLLC, New York, NY (Douglas Mark Schneider of counsel), for plaintiff. Wachtel Missry LLP, New York, NY (Stella Lee Sainty and Jeffrey Thomas Strauss of counsel), for defendant Sean Largotta.
Schneider Law PLLC, New York, NY (Douglas Mark Schneider of counsel), for plaintiff.
Wachtel Missry LLP, New York, NY (Stella Lee Sainty and Jeffrey Thomas Strauss of counsel), for defendant Sean Largotta.
Gerald Lebovits, J.
The following e-filed documents, listed by NYSCEF document number (Motion 002) 11, 12, 32, 35 38, 39, 40, 41, 42, 43, 44, 45, 47, 48, 49, 50, 52, 53, 54, 55, 56, 59 were read on this motion to DISMISS.
Defendant Sean Largotta moves to dismiss all causes of action under CPLR 3211 (a) (7) for failure to state a cause of action. His motion is granted, except as to plaintiff's fifth cause of action. Plaintiff seeks leave to replead. Plaintiff's request is denied.
BACKGROUND
In September 2018, plaintiff filed this case against defendants Mark Thomas Amadei and Sean Largotta by filing a summons with notice. Amadei did not appear or demand service of a complaint, and plaintiff moved for default judgment against him. In June 2019 this court granted plaintiff's motion and entered a default judgment against Amadei for $181,753.38. (See NYSCEF No. 32.) Plaintiff then filed a verified complaint alleging 11 causes of action against Largotta. (See NYSCEF No. 35.)
According to the allegations of the complaint, plaintiff and defendants owned three restaurants together: (1) Lion, (2) Crown, and (3) Bill's Food and Drink. Largotta is the sole owner of Silent Partners Hospitality LLC. Plaintiff is the sole owner of Giannicorp LLC. Silent Partners Hospitality, Giannicorp, and Amadei were co-managers of Crown Group LLC, which managed 57 East 54th Street LLC. 57 East 54th Street owned Bill's. Under the 57 East 54th Street operating agreement, the ownership share of the LLC consisted of outside investors (40%), Silent Partners Hospitality (30%), Giannicorp (15%), and Amadei (15%). (see NYSCEF No. 42 at Exh A.) Largotta was not a party to the operating agreement.
Plaintiff alleges that Largotta unethically and illegally managed all three restaurants, leading to their financial ruin and closure. Largotta allegedly failed to pay Bill's employees properly, which led to Bill's being fined $9,832.23 by State Department of Labor. Bill's eventually closed in or around February 2016. Plaintiff further alleges that he, alone, paid $29,500 in attorney fees to a law firm to assist with the winding down of Bill's. During the wind-down, plaintiff allegedly discovered that Largotta repeatedly failed to pay New York State sales tax for all three restaurants. Plaintiff asserts that he has been solely paying off the balance of the taxes owed to New York State. Plaintiff also asserts that he is being pursued for the full payment owed to the accounting firm that prepared the state tax returns for the three restaurants.
Plaintiff therefore asserts 11 causes of actions against Largotta, seeking contribution for (1) unpaid wages and (2) unpaid sales tax; and damages for (3) gross negligence, (4) breach of contract for failure to pay employees and state taxes, (5) breach of statutory fiduciary duty as the manager of Bill's, (6) breach of common-law fiduciary duty as a member of the LLC and manager of Bill's, (7) breach of contract in the winding down of Bill's, (8) violating LLC Law § 704, (9) unjust enrichment, (10) indemnification, and (11) implied indemnification. (See NYSCEF No. 35.)
Largotta moves to dismiss under CPLR 3211 (a) (7). His motion is granted, except that plaintiff's fifth cause of action survives.
DISCUSSION
A court considering a CPLR 3211 (a) (7) motion must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory." ( Leon v. Martinez, 84 NY2d 83, 87-88 [1994].) A defendant seeking dismissal under CPLR 3211 (a) (7) may submit documentary evidence supporting the motion to dismiss. (See Rovello v. Orofino Realty Co. , 40 NY2d 633, 635 [1976].)
I. Contract Claims
Plaintiff's first, second, fourth, seventh, eighth, and tenth causes of action arise out of the operating agreement between Silent Partners Hospitality, Giannicorp, and Amadei. Largotta's motion to dismiss these claims is granted.
A plaintiff may not allege causes of action based on contractual obligations against a non-party to the contract. (See Randall's Island Aquatic Leisure, LLC v. City of New York , 92 AD3d 463 [1st Dept 2012] ; Nuevo El Barrio Rehabilitacion De Vivienda y Economia, Inc. v. Moreight Realty Corp. , 87 AD3d 465, 467 [1st Dept 2011].) Here, Silent Partners Hospitality, not Largotta, is a party to the contract. As a limited-liability company, Silent Partners Hospitality is a legal entity separate from Largotta. (See Limited Liability Company Law § 203 [d].)Therefore, Largotta has no obligations under the operating agreement. Plaintiff's claims against Largotta under that agreement are subject to dismissal.
Plaintiff argues that this court should pierce Silent Partners Hospitality's corporate veil and hold Largotta personally liable. (See NYSCEF No. 50 at 14-15.) This court disagrees.
Determining whether a court should pierce a corporate veil involves a two-pronged, fact-specific inquiry. (See Morris v. New York State Dept. of Taxation & Fin. , 82 NY2d 135, 141 [1993].) A plaintiff must allege facts that, if proved, demonstrate that the defendant "(1) exercised complete domination over the corporation with respect to the transaction at issue, and (2) through such domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against the plaintiff." ( Olivieri Constr. Corp. v. WN Weaver St., LLC , 144 AD3d 765, 766 [2d Dept 2016].)
In assessing the domination-and-control prong, courts take into account factors such as "disregard of corporate formalities; inadequate capitalization; intermingling of funds; overlap in ownership, officers, directors and personnel; common office space or telephone numbers"; and the degree of financial and operational control exercised in practice by the individual over the corporation. ( Tap Holdings, LLC v. Orix Fin. Corp. , 109 AD3d 167, 174 [1st Dept 2013].)
Plaintiff's complaint in this case alleges only that Largotta, Amadei, and he owned Bill's both individually and through entities they owned and controlled. (See NYSCEF No. 35 at 2.) In opposing the motion to dismiss, plaintiff argues that Largotta "was the sole owner of, and exercised complete domination over, Silent Partners," and that Largotta formed Silent Partners "solely as a vehicle to accept payment for work that he personally performed for the restaurants." (NYSCEF No. 50 at 15.) But plaintiff has not alleged that Largotta disregarded corporate formalities or otherwise used Silent Partners for purposes other than the one for which it was formed. In these circumstances, that Largotta was the controlling principal of Silent Partners and might have formed Silent Partners to limit his personal liability for obligations of a business venture is not, without more, sufficient to pierce the corporate veil. (See Morris , 82 NY2d at 140-141 ; Port Chester Elec. Constr. Co. v. Atlas , 40 NY2d 652, 656-657 [1976].)
Largotta's motion to dismiss the first, second, fourth, seventh, eighth, and tenth causes of action is granted.
II. Fiduciary-Duty Claims
Plaintiff's fifth and sixth causes of action both sound in breach of fiduciary duty. The fifth cause of action asserts that under the LLC Law, Largotta owed—and breached—plaintiff a fiduciary duty to perform his duties as manager of Bill's with reasonable care. (See NYSCEF No. 35 at 7.) The sixth cause of action alleges that "[a]s a Member [of 57 East 54th Street LLC] and the manager of Bill's," Largotta owed (and breached) a common-law fiduciary duty of care. (Id. at 8.) Largotta's motion to dismiss is denied as to the fifth cause of action and granted as to the sixth cause of action.
Largotta argues first that he could not have owed any fiduciary duty to plaintiff as a member of 57 East 54th LLC because he was not a member; and that he could not have owed a duty to plaintiff as manager for the LLC because he was not the manager—Crown Group was. (See NYSCEF No. 44 at 6-7.) Defendant is correct that Silent Partners, not Largotta, was a member of the LLC. Largotta thus did not owe any fiduciary duty to plaintiff as one member to another. But his contention that he could not have owed a managerial fiduciary duty to plaintiff merely because the LLC's operating agreement named Crown Group as manager is without merit.
In seeking a default judgment against Amadei, plaintiff submitted an affidavit stating that Largotta was the sole member of Silent Partners. (See NYSCEF No. 11 at 4.) Largotta does not dispute that statement. The LLC operating agreement submitted on the motion to dismiss provides that Silent Partners has a 30% share of the LLC. (See NYSCEF No. 42 at Exh A.) The operating agreement provides that Silent Partners is one of the three managers of Crown Group (manager to the LLC), along with Giannicorp and Amadei. (See id. at 11.) And the complaint alleges that Largotta was responsible for the day-to-day operation of Bill's. (See NYSCEF No. 35 at 2-3.) Thus, Largotta, through Silent Partners, had 30% control of the LLC itself, was one of the LLC's three managers, and exercised management authority over Bill's operations. In these circumstances, plaintiff has established for pleading purposes that Largotta ordinarily would owe a fiduciary duty as manager to the LLC and its members—whether or not he was formally named as manager in the operating agreement. (See Arfa v. Zamir , 75 AD3d 443, 444 [1st Dept 2010].)
Indeed, Largotta cites that very statement in moving to dismiss. (See NYSCEF No. 41 [attaching affidavit as exhibit to motion to dismiss]; NYSCEF No. 44 at 3, 7 [citing affidavit].)
Largotta argues that he nonetheless could have not owed a managerial fiduciary duty to plaintiff because all such duties are waived under the terms of the operating agreement. Therefore, he contends, both the fifth and sixth causes of action must be dismissed. (See NYSCEF No. 44 at 10-11.) This court disagrees.
Section 6.1 (b) of the operating agreement provides that "subject to any limitation contained in the Act, each manager of the Manager and/or the Manager shall not have a legal or equitable duty (including any fiduciary duty) to the Company or any Member." (NYSCEF No. 42 at 12.) This provision forecloses any common-law fiduciary duty. Plaintiff's sixth cause of action, which is based on a common-law duty of care, is therefore subject to dismissal.
"Act" in this provision refers to "the New York Limited Liability Company Act"—i.e. , the LLC Law. (NYSCEF No. 42 at Exh B [glossary of terms].)
Plaintiff's fifth cause of action, on the other hand, is expressly grounded in a statutory duty of care under the LLC Law. (See NYSCEF No. 35 at 7.) In particular, LLC Law § 409 (a) provides that a "manager shall perform his or her duties as a manager, including his or her duties as a member of any class of managers, in good faith and with that degree of care that an ordinarily prudent person in a like position would use under similar circumstances." The allegations of the complaint support a claim that Largotta breached this duty. That claim, in turn, would not be barred by § 6.1 (b) of the operating agreement. (See NYSCEF No. 35 at 3-5.)
One could conceivably understand § 6.1 (b)'s "subject to any limitation contained in the act" language as merely expressing an intent to waive all fiduciary duties except to the extent that the LLC Law affirmatively bars such a waiver. But Largotta has not identified any such affirmative bar in the LLC Law, and this court is not aware of one. A reading of the "subject to any limitation" proviso that would appear to leave that language without effect is at least implausible. Additionally, it is open to question whether the parties here could have waived the duties of LLC Law § 409 by contract. (See Waxman Real Estate LLC v. Sacks , 2011 NY Slip Op 51667 [U], at *3-*4 [Sup Ct, NY County 2011] [holding that an express contractual disclaimer of a fiduciary relationship did not bar a claim for breach of fiduciary duties owed under LLC Law § 409 ].) At a minimum, this more-narrow interpretation of § 6.1 (b)'s proviso is not the only possible reading. And where "the court concludes that a contract is ambiguous, it cannot be construed as a matter of law, and dismissal under CPLR 3211 (a) (7) is not appropriate." (Telerep, LLC v. U.S. Intl. Media, LLC , 74 AD3d 401, 402 [1st Dept 2010].)
That plaintiff's breach-of-fiduciary-duty claim is not foreclosed by § 6.1 (b) of the operating agreement does not end the inquiry, however. Section 6.2 (a) of that agreement provides that "no Manager or manager of the Manager" may be held liable for losses or damages resulting from the manager's "act or omission," including alleged "breach of ... duty of loyalty or other fiduciary duty," unless that act or omission constituted "willful misconduct." (NYSCEF No. 42 at 16; cf. LLC Law § 417 [a] [barring contractual provisions eliminating liability for bad-faith or intentional breaches of duty].) Here, though, the allegations of the complaint—including the allegations that Largotta "routinely failed to pay Bill's' employees" and "devised a scheme to cheat [Bill's' employees out of gratuities paid for private events" at the restaurant (NYSCEF No. 35 at 3)—make out a claim that Largotta intentionally breached his statutory duties to act in good faith and with reasonable care.
The motion to dismiss the fifth cause of action is denied; the motion to dismiss the sixth cause of action is granted.
III. Quasi-Contract and Tort Claims
Plaintiff's third, ninth, and eleventh causes of action all allege legal duties separate from the operating agreement. But plaintiff may not get around Largotta's lack of liability under the operating agreement by recasting his breach-of-contract claims as sounding in quasi-contract or tort instead. These claims are subject to dismissal.
Plaintiff's ninth and eleventh causes of action are for unjust enrichment and implied indemnification, respectively. These are each quasi-contract claims. (See Murray Bresky Consultants, Ltd. v. New York Compensation Manager's Inc. , 106 AD3d 1255, 1258 [3d Dept 2013] [implied indemnification]; Feigen v. Advance Capital Mgt. Corp. , 150 AD2d 281, 283 [1st Dept 1989].) And the "existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter." ( Clark-Fitzpatrick, Inc. v. Long Island R. Co. , 70 NY2d 382, 388 [1987] ); accord Randall's Island Aquatic Leisure, LLC , 92 AD3d 463 ["[T]here can be no quasi-contract claim against a third-party non-signatory to a contract that covers the subject matter of the claim."].) Both the ninth and eleventh causes of action plainly arise out of the same subject matter as the operating agreement. (See NYSCEF No. 35 at 10-11.) Plaintiff may not assert these claims against non-signatory Largotta.
Plaintiff's third cause of action seeks damages for noncontractual gross negligence. But "it is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated." A plaintiff cannot "transform a simple breach of contract into a tort claim" merely by "charging a breach of a ‘duty of due care’ " in carrying out contractual responsibilities. ( Clark-Fitzpatrick , 70 NY2d at 389-390.)
Here, plaintiff's third cause of action and fourth cause of action for breach of contract are substantively identical, albeit framed in slightly different language. Both causes of action are premised on Largotta's alleged failure to pay Bills' employees and New York State sales tax. (See NYSCEF No. 35 at 6-7.) Plaintiff does not identify a legal duty independent of the contract that Largotta (assertedly) breached. Plaintiff's third cause of action is dismissed as well.)
In opposing dismissal, plaintiff asserts that the operating agreement was not signed, raising questions about its validity and enforceability. Therefore, plaintiff contends, he can assert these quasi-contract and tort claims in the alternative. (See NYSCEF No. 50 at 10-12.) To be sure, plaintiff may "advance inconsistent theories in alleging a right to recovery." ( Cohn v. Lionel Corp. , 21 NY2d 559, 563 [1968].) And plaintiff is correct that "where there is a bona fide dispute as to the existence of a contract or the application of a contract in the dispute in issue, a plaintiff may proceed upon a theory of quasi contract as well as breach of contract." ( Kramer v. Greene , 142 AD3d 438, 441-42 [1st Dept 2016].) But these principles do not avail plaintiff here, because he is judicially estopped from contesting the enforceability of the operating agreement.
"The doctrine of judicial estoppel prevents a party who assumed a certain position in a prior proceeding and secured a ruling in his or her favor from advancing a contrary position in another action, simply because his or her interests have changed." ( Becerril v. City of NY Dept. of Health & Mental Hygiene , 110 AD3d 517, 519 [1st Dept 2013].) The doctrine rests upon the principle that a litigant "should not be permitted ... to lead a court to find a fact one way and then contend in another judicial proceeding that the same fact should be found otherwise." ( Envtl. Concern, Inc. v. Larchwood Const. Corp. , 101 AD2d 591, 593 [2d Dept 1984].) This principle includes cases in which the favorable ruling in question is a default judgment. (See Secured Equities Invs. v. McFarland , 300 AD2d 1137, 1138 [4th Dept 2002].)
Plaintiff is judicially estopped from asserting that questions exist about whether the operating agreement is binding because he previously secured a default judgment against Amadei based upon Amadei's liability under the provisions of the operating agreement. (See Affidavit, NYSCEF No. 11 at 1-2, citing Operating Agreement, NYSCEF No. 12; Default Judgment, NYSCEF No. 32.)
IV. Request to Replead
Finally, plaintiff requests leave to amend any causes of action that contain pleading defects. (See NYSCEF No. 50 at 18.) But plaintiff has not specified any fact or argument that he would add or alter to remedy defects in his complaint—much less provided a proposed amended complaint and affidavit of merit. The request to replead is denied. (See Parker Waichman LLP v. Squier, Knapp & Dunn Communications, Inc. , 138 AD3d 570, 571 [1st Dept 2016].)
Plaintiff requests leave to replead under CPLR 3211 (e). The proper basis for this request is instead CPLR 3025 (b). (See Jansen v. Incorporated Vill. of Rockville Centre , 59 AD3d 15, 25-27 [2d Dept 2008].)
Accordingly, it is hereby
ORDERED that defendant's motion to dismiss under CPLR 3211 is denied as to plaintiff's fifth cause of action, and is otherwise granted; and it is further
ORDERED that plaintiff's request for leave to replead is denied.