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finding that claim for money had and received does not lie where defendant withheld payments due plaintiff under an express contract
Summary of this case from Panix Promotions, Ltd. v. LewisOpinion
No. 00 Civ. 2959 (SHS)
October 31, 2000
Opinion and Order
This diversity action arises out of a contract dispute between a business offering adult pay-per-call services and its telephone company. Plaintiff Global Entertainment, Inc. is suing New York Telephone Company ("NYT"), NYNEX Corporation, and Telesector Resources Group, Inc. ("TRG") for breach of contract, conversion, breach of agency, breach of fiduciary duty, and violation of section 349(a) of New York General Business Law. Defendants have moved, pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss the entire complaint for failure to state a claim upon which relief can be granted. They make four main arguments: (1) plaintiff failed to file its suit within the relevant statute of limitations period, (2) plaintiff cannot maintain a breach of contract claim because it failed to allege both its own performance and a breach by defendants, (3) as a matter of law, the facts alleged by plaintiff do not support claims for conversion, breach of agency, breach of fiduciary duty, and violation of section 349(a) N.Y. Gen. Bus. L., (4) defendants Nynex and TRG must be dismissed from the suit because they were not parties to the contract and engaged in no activity relevant to the claims. Global opposes the motion and seeks leave to amend the complaint to add a cause of action for money had and received.
For the reasons set forth below, defendants' motion to dismiss all claims except for breach of contract is granted with prejudice and the motion to dismiss the breach of contract claim is granted without prejudice; however, plaintiff must amend its breach of contract claim within 30 days of this order. In addition, the motion to dismiss Nynex and TRG as defendants is granted, and plaintiffs' motion to amend the complaint to add a claim for money had and received is denied.
I. BACKGROUND
According to the complaint, Global contracted with NYT to receive six New York telephone lines for the purpose of running an adult telephone pay-per-call service in June of 1996. NYT paid Global the revenue generated by the six lines for the months of July, August and September of 1996. (Compl. ¶ 26.) However, on or about November 13, Barry Spiegel, the manager of Global, learned that NYT did not wire the revenues for October, which totaled aprroximately $10,244.50. (Compl. ¶ 27.) Spiegel claims this failure to pay caused Global to go out of business. (Compl. ¶ 33.)
Global claims that the reason NYT did not wire the October revenues was that Spiegel, as an individual, owed money to NYT on a separate telephone account. (Compl. ¶ 14-16.) The written contract allows NYT to charge Global for these calls. (Compl. Ex. A, § 12.) However, Global alleges that Spiegel and NYT worked out a pay-back agreement which specifically stated that NYT would not charge Global's lines for the debts owed by Spiegel. (Compl. ¶ 14-16, Ex. B.)
Global filed this action in Los Angeles Superior Court on November 12, 1999. Defendants then removed the case to the U.S. District Court for the Central District of California on the basis of diversity. The action was subsequently transferred to the Southern District of New York pursuant to stipulation.
II. DISCUSSION
A. Standard of review and evidence considered
In reviewing a motion to dismiss pursuant to Fed.R.Civ.P. 12 (b)(6), a court merely assesses the legal feasibility of the complaint, and does not weigh the evidence that may be offered at trial. Festa v. Local 3. Int'l Bhd. of Elec. Workers, 905 F.2d 35, 37 (2d Cir. 1990);Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980). All factual allegations in the complaint must be accepted as true, and the complaint must be viewed in the light most favorable to the plaintiff. LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir. 1991); Bayer Corp. v. Smithkline Beecham PLC, 1996 WL 34164 (S.D.N.Y. Jan. 29, 1996). A motion to dismiss should not be granted unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Walker v. City of N.Y., 974 F.2d 293, 298 (2d Cir. 1992) (quoting Ricciuti v. N.Y. City Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991)).
Defendants urge this Court to consider on this motion a letter dated November 26, 1996 sent by Spiegel to defendants' attorneys. Because the letter is neither attached to the complaint nor incorporated by reference, nor integral to plaintiff's claim, it will not be considered.See Paulemon v. Tobin, 30 F.3d 307, 308-09 (2d Cir. 1994); Rent Stabilization Ass'n v. Dinkins, 5 F.3d 591, 593-94 (2d Cir. 1993);Samuels v. Air Transport Local 504, 992 F.2d 12, 15 (2d Cir. 1993); Cf. International Audiotext Network, Inc. v. ATT, 62 F.3d 69, 72 (2d Cir. 1995); Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2nd Cir. 1991); R.H. Damon Co., Inc. v. Softkey Software Prod., Inc., 811 F. Supp. 986, 989 (S.D.N.Y. 1993).
B. Choice of law for all claims
A federal court sitting in diversity — as here — applies state substantive law. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). California's choice-of-laws rules govern what substantive law to apply, because this action was originally filed in a California court. Ferens v. John Deere Co., 494 U.S. 516 (1990); Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941). According to those rules, New York law should apply to both the contract and tort claims.
As noted above, this action was transferred to the Southern District of New York from the Central District of California. If it were transferred pursuant to 28 U.S.C. § 1404 (a) "for the convenience of parties and witnesses, in the interest of justice," the transferee court must apply the choice of law rules of the state in which the transferor court sits — in this case, California. Ferens, 494 U.S. at 521-32;Van Dusen v. Barrack, 376 U.S. 612, 626-40 (1964). If, however, this action were transferred pursuant to 28 U.S.C. § 1406 (a) for improper venue, then the transferee court must apply the choice of law rules of the state in which it sits — in this case, New York. See Chaiken v. Publishing Corp., 119 F.3d 1018, 1030 (2d Cir. 1997); Levy v. Pyramid Co., 871 F.2d 9, 10 (2d Cir. 1989); Martin v. Stokes, 623 F.2d 469, 472 (6th Cir. 1980). See generally 17 Moore's Federal Practice, § 124.30[2][a]-[c] (Matthew Bender 3d ed. 2000).
Here the Stipulation to Transfer does not specify whether this case was transferred to New York pursuant to section 1404 or section 1406. The Court assumes, arguendo, that it was transferred pursuant to section 1404. However, even if this were a transfer pursuant to section 1406, New York's choice of law rules would achieve the same result — application of New York substantive law and New York statute of limitations periods — because: (1) the choice of law clause provides that New York law applies to the contract, (2) the alleged torts arising from the withholding of payment occurred in New York, and (3) both parties cited New York law to apply to the tort claims. See N.Y. U.C.C. § 1-105(1) (McKinney 2000); PC COM, Inc. v. Proteon, Inc, 946 F. Supp. 1125, 1129 (S.D.N.Y. 1996) (pursuant to New York choice of law principles, contractual selection of governing law is generally determinative so long as chosen state has sufficient contacts with transaction, absent fraud or violation of public policy); see also Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996) (the law of the jurisdiction having the greatest interest in the litigation should be applied to tort claims); Wm. Passalaqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 137 (2d Cir. 1991) (parties may consent by their conduct to the law to be applied); Stafford v. International Harvester Co., 668 F.2d 142, 147 (2d Cir. 1981) (statute of limitations).
The agreement between Global and NYT contains a choice of law provision which states, "[t]his Agreement shall be governed by and interpreted according to the laws of the State of New York." (Compl. Ex. A § 16.I.) California courts greatly favor enforcement of choice of law provisions as long as the chosen law is "substantially relat[ed] to the parties or their transaction" and is not contrary to a fundamental public policy of California. Nedlloyd Lines v. Superior Court of San Mateo County, 3 Cal.4th 459, 464-66 (Cal. 1992) citing Consul Ltd. v. Solide Enterprises, Inc., 802 F.2d 1143, 1146-47 (9th Cir. 1986). In this case, New York is "substantially related" to the transaction because Global contracted with a New York company to use New York telephone numbers to run its business. (Compl. ¶ 1-9.) Moreover, there is no claim that New York contract law is contrary to a fundamental public policy of California. Thus, New York contract law applies to the breach of contract claim.
In regard to the tort claims, California courts favor applying the choice of law clause in the governing contract to tort claims "arising from or related to" the contract. Nedlloyd Lines, 3 Cal. 4 th at 468. In this case, the withholding of funds due to Global, which forms the basis of Global's tort claims, is directly related to the contract. Thus, New York law applies to all claims in this litigation.
C. Statute of limitations
Defendants contend that Global failed to meet the relevant statute of limitations period for all claims because the California court where the action was originally filed lacked personal jurisdiction over defendants. The Court finds that the complaint cannot be dismissed as time-barred at this stage of the proceedings because defendants failed to prove that California lacked personal jurisdiction.
California courts generally apply California's statute of limitations period to claims filed there because California considers the statute of limitations to be procedural. Zellmenr v. Acme Brewing Co., 184 F.2d 940 (C.A. 1950). However, California has a borrowing statute. Pursuant to this statute, if the claim would be time-barred in the forum where the cause of action arose, California would bar the claim as well. West's Ann.Cal.C.C.P. § 361. Therefore, if Global's claims were time-barred pursuant to New York law at the time Global filed this action in California, this Court must dismiss the claims as well.
Defendants do not argue that the claims were time-barred pursuant to California's statute of limitations period.
According to the complaint, NYT failed to wire the revenues due to Global "on or about November 13, 1996." (Compl. ¶ 27.) Global filed this complaint in Los Angeles Superior Court on Nov. 12, 1999, almost three years later. In New York, claims for conversion and breach of fiduciary duty have a three-year statute of limitations period. Davidson v. Fasanella, 269 A.D.2d 351, 351, 702 N.Y.S.2d 384, 385 (2d Dep't 2000) citing N.Y. CPLR § 214[3] (conversion); Yatter v. William Morris Agency, Inc., 256 A.D.2d 260, 261, 682 N.Y.S.2d 198, 199 (1st Dep't 1998) (a three-year period for breach of fiduciary duty applies when money damages are sought). The parties dispute the statute of limitations period applicable to the breach of contract and agency claims; however, both concede that it is at least three years. Therefore, as long as the case was properly filed in Los Angeles, plaintiff met the New York statute of limitations requirements for all claims.
According to the stipulation to transfer this case from California to New York, defendants preserved the right to argue that the statute of limitations expired based on lack of personal jurisdiction in California. (Stip. to Trans. ¶ 2.) However, the stipulation does not provide that personal jurisdiction was in fact improper in California. Therefore, in order for defendants to prevail on their statute of limitations defense, they must also prove that jurisdiction was improper in California. See Ocean Accident Guaranty Corp. v. Rubin, 73 F.2d 157, 166 (9th Cir. 1934) (holding that the burden of proving an affirmative defense rests on the defendant); Katz v. Goodyear Tire and Rubber Co., 737 F.2d 238, 243 (2d Cir. 1984) ("Where the statute of limitations is an affirmative defense, the party asserting the defense must prove the elements of that defense."). Defendants fail to do this in their moving papers; thus their motion to dismiss all claims based on expiration of the statute of limitations is denied.
Defendants also contend that Spiegel's November 26 letter proves that the failure to wire the revenue occurred before November 13, 1996. However, in the letter, Spiegel says he became aware of the failure on or about November 13. Therefore, even if the letter were to be considered in the Court's review of the motion, it is not dispositive on this point.
D. Breach of contract
In order to plead a claim for breach of contract, the plaintiff must allege simply (1) the terms of an existing contract, including valid consideration, (2) performance on the part of the plaintiff, (3) breach by the defendant, and (4) the damages sustained due to the breach.Rexnord Holdings. Inc. v. Bidermann, 21 F.3d 522, 525, (2d Cir. 1994);Tagare v. Nynex Network Systems Co., 921 F. Supp. 1146, 1149 (S.D.N Y 1996). See generally 22A N.Y. Jur.2d Contract § 432 (1996). Defendants contend that Global has failed to fulfill the second and third elements.
When pleading a claim for the breach of an express contract, the complaint must contain an allegation that the plaintiff actually performed its obligations under the contract. R.H. Damon Co., 811 F. Supp. at 991. Global did not specifically plead that it performed the required services pursuant to the contract to generate the revenue due to its phone lines, although it implicitly did so by alleging that NYT owed Global $10,244.50 for calls made to Global's phone lines. (Compl. ¶ 27.) Despite this pleading infirmity, in the interest of doing substantial justice, the Court will allow plaintiff 30 days from the date of this order to amend its complaint to add an allegation that it has performed all of its obligations under the contract. See S.O. Textiles Co. v. A E Products Group, 18 F. Supp.2d 232 (E.D.N.Y. 1998). Therefore, the breach of contract claim is dismissed without prejudice.
Defendants also urge that Spiegel's failure to pay debts incurred on his individual phone line should be construed as Global's failure to perform. However, even if Spiegel can be viewed as the "alter ego" of Global, his failure to perform on a different contract is not relevant to Global's performance on the contract at issue. Therefore, defendants' motion to dismiss on these grounds is denied as well.
Global adequately pleaded breach by NYT. The contract provides that NYT was obligated to pay Global for calls placed to Global's lines. (Compl. Ex A § 12.) Global alleges that it did not receive this payment for the month of October 1996. (Compl. ¶ 27.) Accordingly, Global has adequately alleged that NYT breached the contract by failing to pay.
Defendants contend that, nonetheless, Global has not adequately pled that NYT breached the contract because Global admits that NYT could withhold the October revenues pursuant to section twelve of the contract. (Def. Reply. Mem. at 2-4.) Although Global does admit that NYT was entitled to withhold revenue, it alleges that: (1) agents of NYT and Nynex promised that NYT would not exercise this option, and (2) the amount withheld by NYT was too large.
Despite defendants' contentions, Global's claims are consistent with the facts pled in the complaint. The complaint states that NYT claims Spiegel owes an individual debt to NYT and that Spiegel disputes the debt. (Compl. ¶ 14, 15.) The complaint does not specify whether he disputes the entire debt or just a portion of the debt. In Global's memorandum, Global clarifies that Spiegel merely disputes a portion of the debt and that NYT overcharged Global for that debt. (Pl. Mem. at 3.) Therefore, the claim will not be dismissed on these grounds.
Defendants' argument that Spiegel recognized his debt of $38,400 for test calls in the November 26 letter is misleading. (Def. Mem. at 5.) The letter also provides, "[a]s these test calls were done with the full knowledge and consent of NYNEX Collection and Infofone Departments the balance needed to be reduced." (Wagner Aff. Ex. A.) Thus, even if the court considered the letter in its motion to dismiss, it would support Global's version of the facts.
Defendants fail to address Global's assertion that NYT agents promised not to charge Global for Spiegel's debts. Therefore, plaintiff has at a minimum pleaded a valid modification to the right-of-set-off clause of the contract.
In sum, the breach of contract claim is dismissed without prejudice. Plaintiff has 30 days to amend its complaint to plead its own performance pursuant to the contract.
E. Conversion
Global fails to state a valid claim for conversion. To state a conversion claim, the plaintiff must allege that (1) it had legal ownership or an immediate superior right of possession to specific identifiable personal property, and (2) defendants exercised unauthorized dominion over the property to the exclusion of the plaintiffs' rights.Shams v. Fisher, 107 F. Supp. 2 d 266, 282 (S.D.N.Y. 2000); Vigilant Ins. Co. of America v. Housing Auth. of the City of El Paso. Texas, 87 N.Y.2d 36, 44, 637 N.Y.S.2d 342, 347 (N.Y. 1995); Aetna Casualty Surety Co. v. Glass, 75 A.D.2d 786, 786, 428 N.Y.S.2d 246, 246 (1st Dep't 1980). New York does recognize a claim for conversion of money; however, the money must come from a "specific, identifiable fund and an obligation to return or otherwise treat in a particular manner the specific fund in question." High View Fund, L.P. v. Hall, 27 F. Supp.2d 420, 429 (S.D.N.Y. 1998). Essentially the money must be capable of being described or identified in the same way as a chattel. Id. Furthermore, a plaintiff cannot make out a conversion claim when it is merely alleging that defendants owed plaintiff money pursuant to a contract between the parties. Interstate Adjusters v. First Fidelity Bank, 251 A.D.2d 232, 234, 675 N.Y.S.2d 42, 44 (1st Dep't 1998).
Here, Global merely alleges that NYT owed it money for telephone calls made to Global's lines. This obligation arose out of the written contract between the parties. Global does not identify any specific fund from which NYT was to pay Global. Therefore, Global's conversion claim must be dismissed with prejudice.
F. Money had and received
Plaintiffs' request to amend the pleadings to include a claim for money had and received is denied. Leave to amend a complaint pursuant to Fed.R.Civ.P. 15 should not be granted if the proposed amendment is futile.Jones v. New York State Div. of Military and Naval Affairs, 166 F.3d 45, 50 (2d Cir. 1999); Smith v. Kessner, 183 F.R.D. 373, 374 (S.D.N.Y. 1998)citing Foman v. Davis, 371 U.S. 178, 182 (1962). An amendment is considered futile if the proposed amended pleading fails to state a claim. Smith, 183 F.R.D. at 374 citing McNally v. Yarnall, 764 F. Supp. 853, 855 (S.D.N.Y. 1991). In this case, Global cannot make out a claim for money had and received.
An action for money had and received is a contract implied in law. "It is an obligation which the law creates in the absence of agreement when one party possesses money that in equity and good conscience he ought not to retain and that belongs to another." Parsa v. State, 64 N.Y.2d 143, 149, 485 N.Y.S.2d 27, 29 (1984). However, if the parties have an express agreement regarding the money, then a claim for money had and received cannot exist. Matarese v. Moore-McCormack Lines, Inc., 158 F.2d 631, 634 (2d Cir. 1946); Batac Dev't Corp. v. B R Consultants, Inc., 1999 WL 76873, at *5-6 (S.D.N.Y. Feb. 16, 1999); Teachers Ins. and Annuity Ass'n v. Wometco Enters., Inc., 833 F. Supp. 344, 349 n. 9 (S.D.N.Y. 1993);Lancaster Towers Assocs., L.P. v. Assessor of Town of Lancaster, 259 A.D.2d 1001, 1001, 688 N.Y.S.2d 300, 300 (4th Dep't 1999).
Here, the express contract between Global and NYT creates the obligation for NYT to pay Global. Therefore, Global cannot use the implied contract theory of money had and received to recover upon a contractual obligation.
G. Breach of agency
Plaintiffs' breach of agency claim must be dismissed as well because the relationship between Global and NYT was not that of principal and agent. In order to create an agency relationship, the agent must consent to act subject to the principal's direction and control, and the principal must consent to exercising control over the agent. In re Shulman Transport Enters, Inc., 744 F.2d 293, 295 (2d Cir. 1984); Old Republic Ins. Co. v. Hansa World Cargo Service, Inc., 51 F. Supp.2d 457, 471 (S.D.N.Y. 1999). This contract expressly negates any control by one party over the other. (Compl. Ex. A § 16.E at 17. ("Each party has and hereby retains the right to exercise full control of and supervision over its own performance of the obligations under this Agreement and retains full control over the employment, direction, compensation and discharge of all employee assisting in the performance of such obligation.")) Furthermore, Global pleads no facts which support its position that NYT consented to act subject to Global's control, or actually acted subject to Global's control. Therefore, NYT cannot be an express agent of Global.
Nor does an implied or apparent agency exist. Those types of agency relationships arise in completely different factual scenarios than the relationship presented in this case. In an implied or apparent agency case, the issue is whether a principal is liable to a third party for a contract or representation made by the alleged "agent" See e.g., Old Republic Ins., 51 F. Supp.2d at 471-75; Cubby, Inc. v. Compuserve, Inc., 776 F. Supp. 135, 142-43 (S.D.N.Y. 1991); Ahn v. Rooney, Pace, Inc., 624 F. Supp. 368, 370-71 (S.D.N.Y. 1985). In this case, no third party is involved. The alleged breach took place between two parties who expressly knew, by contract, that there was no agency relationship. Therefore, Global cannot maintain a breach of agency claim on theories of implied or apparent agency. The claim is dismissed with prejudice.
H. Breach of fiduciary duty
Plaintiff's breach of fiduciary duty claim must be dismissed as well because Global cannot show anything more than an arm's length business relationship between it and NYT. A fiduciary relationship does not exist when the parties have an ordinary business relationship. Grumman Allied industries, Inc. v. Rohr Industries, Inc., 748 F.2d 729, 738-39 (2d Cir. 1984); Aaron Ferer Sons Ltd. v. Chase Manhattan Bank. N.A., 731 F.2d 112, 122 (2d Cir. 1984); Teachers Ins., 833 F. Supp. at 350; Par Plumbing Co., Inc. v. Engelhard Corp., 256 A.D.2d 124, 124, 681 N.Y.S.2d 280 (1st Dep't 1998). It is true that NYT counted calls, billed callers and collected revenue on Global's behalf, but these are duties owed pursuant to the contract, not because of any special relationship. A fiduciary duty must be separate and beyond any contractual duties. Savage Records Group, N.V. v. Jones, 247 A.D.2d 274, 274, 667 N.Y.S.2d 906, 906 (1st Dept. 1998). The duties alleged here are no more expansive than the duties owed to ratepayers by public utilities, which does not give rise to a fiduciary relationship. See County of Suffolk v. Long Island Lighting Co., 728 F.2d 52, 53 (2d Cir. 1984).
Global also alleges that it relied on the representation by a Nynex manager that NYT would not withhold revenue from Global. However, arm's length commercial transactions do not create a fiduciary duty even when the plaintiff alleges that he relied on the defendant. See Compania Sud-America de Vapores, S.A. v. IBJ Schroder Bank and Trust Co., 785 F. Supp. 411, 425-27 (S.D.N Y 1992) (finding no fiduciary duty even though plaintiff claimed that it relied on defendant due to business relationship of fifty years). For these reasons, Global's claim for breach of fiduciary duty is dismissed with prejudice.
I. General Business Law Section 349
A claim for violation of New York's General Business Law § 349 does not apply in the context of a commercial dispute between two businesses.S.Q.K.F.C., Inc. v. Bell Atlantic Tricon Leasing Corp., 84 F.3d 629, 636 (2d Cir. 1996); New York Univ. v. Contimental Ins. Co., 87 N.Y.2d 308, 320, 639 N.Y.S.2d 283, 290 (1995). Therefore, this claim is dismissed with prejudice.
J. Defendants Nynex and TRG
The only claim left against Nynex and TRG is the breach of contract claim. This claim is dismissed with prejudice against these two defendants because neither was a signatory to the contract. A contract cannot bind a non-party unless the contract was signed by the party's agent, the contract was assigned to the party, or the signatory is in fact the "alter ego" of the party. International Customs Assocs., Inc. v. Ford Motor Co., 893 F. Supp. 1251, 1255-56 (S.D.N.Y. 1995) citing Abraham Zion Corp. v. Lebow, 761 F.2d 93, 103 (2d Cir. 1985) (agency);Crabtree v. Tristar Automotive Groun., Inc., 776 F. Supp. 155, 156 (S.D.N.Y. 1991) (assignment); Campo v. 1st Nationwide Bank, 857 F. Supp. 264, 271-72 (E.D.N.Y. 1994) (alter ego). There are no such allegations here. Indeed the only relevant allegations are that Nynex is the parent corporation of NYT, and TRG is a "service affiliate" or "subsidiary" of NYT or Nynex. (Compl. ¶ 8) Accordingly, both Nynex and TRG are dismissed as parties.
III. CONCLUSION
For the reasons set forth above, defendants' motion to dismiss all claims except for breach of contract is granted with prejudice and the motion to dismiss the breach of contract claim is granted without prejudice; however, plaintiff must amend its breach of contract claim within 30 days of this order. In addition, the motion to dismiss Nynex and TRG as defendants is granted, and plaintiffs' motion to amend the complaint to add a claim for money had and received is denied.
SO ORDERED: