Lisa Marie Fernandez LLC v. Sanders

Full title: LISA MARIE FERNANDEZ LLC Plaintiff, v. DAMAN SANDERS, Defendant.

Court: SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PART IAS MOTION 42EFM

Date published: Jan 10, 2020

2020 N.Y. Slip Op. 30253 (N.Y. Sup. Ct. 2020)

Opinion

INDEX NO. 651168/2019

01-10-2020

LISA MARIE FERNANDEZ LLC Plaintiff, v. DAMAN SANDERS, Defendant.

HON. NANCY M. BANNON Justice

NYSCEF DOC. NO. 35 PRESENT: HON. NANCY M. BANNON Justice MOTION DATE 10/2/2019 MOTION SEQ. NO. 002

DECISION + ORDER ON MOTION

The following e-filed documents, listed by NYSCEF document number (Motion 002) 14, 15, 16, 17, 18, 19, 20, 21, 22, 25, 26, 28 were read on this motion to/for DISMISS.

In this action seeking monetary and declaratory relief upon theories of breach of fiduciary duty, fraudulent inducement and unjust enrichment, the defendant moves, pre-answer, to dismiss the amended complaint on the ground that he has a defense founded in documentary evidence (CPLR 3211[a][1]) and the complaint fails to state a cause of action (CPLR 3211[a][7]). The plaintiff opposes the motion. The motion is denied.

The plaintiff LLC operates a fashion company that designs and manufactures luxury swimwear designed by Lisa Marie Fernandez. The LLC was formed and an Operating Agreement signed in 2009. That agreement gave Lisa Fernandez a 60% ownership interest and named her as the managing member, and gave the defendant, who provided the majority of the seed capital, a 40% ownership interest in the company, with certain management rights through the right to approve or disapprove "major decisions.". The business was not profitable until 2016. The parties allege that in September or October of 2017, they entered a Repurchase Agreement and Promissory Note whereby the plaintiff repurchased 39.9% of the defendant's ownership interest, and terminated the defendant's rights as a member, with exceptions. The parties agree that the defendant never turned over his share and the plaintiff has not paid $550,000 to the defendant as agreed.

The gravamen of the complaint is that the defendant, a resident of the United Kingdom, failed to reimburse the company for 2017 federal taxes which the company withheld and paid on his behalf, as required when a member is a non-resident foreign citizen pursuant to Internal Revenue Code §1446 (26 USC §1446). Prior to 2016, there were not enough net profits to require the plaintiff to withhold taxes for the defendant's share. It did so in 2016, and paid the defendant's share of the LLCs federal and New York State taxes. The plaintiff alleges that the defendant wanted the plaintiff to pay his share of the 2017 taxes, but the company did not agree to do so. The plaintiff alleges that the parties discussed the tax issue prior to entering the repurchase agreement, and that they ultimately agreed that the plaintiff would not seek to recover from the 2016 taxes it had paid on his behalf, but that he would directly pay his share of the 2017 taxes. He thereafter, on or about October 6, 2017, informed the plaintiff that he would not be paying his share of the 2017 taxes. The plaintiff advanced payments to the IRS on the defendant's behalf in the sum of $105,962.000 plus $34,908.70 in penalties and interest, for a total of $140,870.70. The defendant refused to reimburse the plaintiff. The plaintiff further alleges that the sum it paid turned out to be in excess of what was owed and that, as a result, the defendant actually received a cash refund from the IRS for 2017. The plaintiff also alleges, "upon information and belief", that the defendant owes New York State taxes in the sum of $26,000.00, and refused to use his tax refund to pay that obligation. The plaintiff maintains that it is entitled to set-off the amount the defendant owes it for taxes against the sum the plaintiff owes the defendant per the repurchase agreement, and seeks a judgment declaring the same.

The defendant maintains that he was not obligated to reimburse the company for any of the taxes paid on his behalf since he and the plaintiff entered into a repurchase agreement in 2017 that left him with only .01% interest and was silent as to the payment of taxes. He also asserts that he informed the plaintiffs' counsel, before it paid his taxes, that he did not intend to reimburse the company.

When assessing the adequacy of a pleading in the context of a motion to dismiss under CPLR 3211(a)(7), the court's role is "to determine whether [the] pleadings state a cause of action." 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144 (2002). To determine whether a claim adequately states a cause of action, the court must "liberally construe" it, accept the facts alleged in it as true, accord it "the benefit of every possible favorable inference" (id. at 152; see Romanello v Intesa Sanpaolo, S.p.A., 22 NY3d 881 [2013]; Simkin v Blank, 19 NY3d 46 [2012]), and determine only whether the facts, as alleged, fit within any cognizable legal theory. See Hurrell-Harring v State of New York, 15 NY3d 8 (2010); Leon v Martinez, 84 NY2d 83 (1994); Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267 (1^st Dept. 2004); CPLR 3026. Dismissal under CPLR 3211(a)(1) is warranted only when the documentary evidence submitted "resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim." Fortis Financial Services, LLC v Fimat Futures USA, 290 AD2d 383, 383 (1^st Dept. 2002); see Amsterdam Hospitality Group, LLC v Marshall-Alan Assoc., Inc., 120 AD3d 431 (1^st Dept. 2014).

Applying these rules, and reviewing the parties' submission, the motion must be denied. While the plaintiff may not ultimately success on all claims, for the purposes of this motion, the complaint sufficiently states causes of action for breach of fiduciary duty, fraudulent inducement and unjust enrichment. Nor does the defendant submit any documentary evidence that conclusively disposes of those claims. Notably, the copies of the operating agreement and repurchase agreement submitted are unsigned and undated.

In particular, the complaint sufficiently alleges a prima facie case of unjust enrichment as against the defendant. To establish this claim, a plaintiff must show that (1) the other party was enriched, (2) at that party's expense, and (3) that 'it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered." (Citibank, N.A. v Walker, 12 AD3d 480, 481 [2^nd Dept. 2004]; Baron v Pfizer, Inc., 42 AD3d 627, 629-630 [3^rd Dept. 2007])." Mandarin Trading Ltd. v. Wildenstein, 16 NY3d 173, 182 (2011); see Paramount Film Distrib. Corp. v. State of New York, 30 NY2d 415 (1972). The plaintiff has met that burden in that it alleges that, by not paying his proportionate share of the LLC's taxes, the defendant was enriched at the expense of the LLC and that it would be against equity and good conscience to allow the defendant to retain that benefit. Indeed, he provides no cogent reason why he would not pay his proportionate share of the taxes in 2017. That the parties' agreements were silent on the issue is attributable to the defendant as much as it is to the plaintiff.

Nor is there any merit to the defendant's contention that he is not a fiduciary and thus cannot be liable under the breach of fiduciary duty claim. As one of the two members of the plaintiff LLC for several years, who had some management authority, the defendant owed a fiduciary duty to the plaintiff. See Limited Liability Company Law 401(b); Pokoik v Pokoik, 115 AD3d 428 (1^st Dept. 2014); DeBenedictis v Malta, 140 AD3d 438 (1^st Dept. 2016); Salm v Feldstein, 20 AD3d 469 (2^nd Dept. 2005).

To sustain a claim for fraudulent inducement, the plaintiff must show "misrepresentation or a material omission of fact which was false and know to be false by the defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury." Lama Holding Co. v Smith Barney, Inc., 88 NY2d 413, 421 (1996). The plaintiff's allegations that it paid the defendant's share of the 2016 taxes in reliance upon his promise to pay his 2017 taxes are sufficient to sustain this cause of action against dismissal.

Finally, the court does not reach the issue of setoff on this motion, and notes that the plaintiff's demand for punitive damages is without merit since the action is grounded upon private transactions between the parties and "does not seek to vindicate a public right or morally culpable conduct." Halpin v Prudential Ins. Co. of America, 48 NY2d 906, 907 (1979); see Ahsanuddin v Addo, 175 AD3d 1213 (1^st Dept. 2019).

Accordingly, and upon the foregoing papers, it is

ORDERED that the defendant's pre-answer motion to dismiss the amended complaint is denied, and it is further

ORDERED that the defendant shall serve and file an answer to the amended complaint within 30 days, and it is further

ORDERED that the parties shall appear for a preliminary/settlement conference on April 23, 2020 at 2:30 p.m.

This constitutes the Decision and Order of the court. 1/10/2020

DATE

/s/ _________

NANCY M. BANNON, J.S.C.