Summary
holding that allegations not contained in the complaint may not be considered in Rule 12(b) motions, which are addressed solely to the sufficiency of the complaint
Summary of this case from Pacheco v. New York Presbyterian HospOpinion
03 Civ. 10219 (RWS).
December 8, 2004
FISCHER LAW FIRM, New York, NY, Attorneys for Plaintiffs, MICHAEL ANDREW FISCHER, ESQ., Of Counsel.
DAVIS GILBERT, New York, NY, Attorneys for Defendant Cardinal Capital Management, BRIAN H. RUBENSTEIN, ESQ., Of Counsel.
GUSRAE, KAPLAN BRUNO, New York, NY, Attorneys for Defendant Power2Ship, Inc., DAVID A.A GEHN, ESQ., Of Counsel.
MARSHAL SCHICHTMAN ASSOCIATES, Carle Place, NY, Attorneys for Defendant Madison Stock Transfer, MARSHAL SCHICHTMAN, ESQ., Of Counsel.
OPINION
Defendant Cardinal Capital Management, Inc. ("Cardinal") has moved under Rule 12(b)(6), Fed.R.Civ.P., to dismiss the complaint of plaintiffs Dale Sobek ("Sobek") and Seema Bhagat ("Bhagat") and alternatively under Rule 12(e), Fed.R.Civ.P., for a more definite statement, and to compel arbitration. Defendant Power2Ship, Inc. ("P2S") has moved similarly to dismiss the complaint and for a more definite statement. Plaintiffs have opposed these motions, and they have moved for leave to file an amended complaint. For the reasons set forth below, the motions to dismiss are granted, and the motion to file an amended complaint is granted in part and denied in part.
Prior Proceedings
Sobek and Bhagat filed their complaint on December 24, 2003, alleging: (1) breach of an alleged stock purchase agreement with each of the plaintiffs, (2) a violation of 18 U.S.C. § 1962 et seq. (Civil RICO/Money Laundering), (3) and a claim for punitive damages. On March 15, 2004, Cardinal and P2S moved to dismiss the complaint and, in the alternative, for a more definite statement, and to compel arbitration. Oral arguments on the motion were heard on April 28, 2004.
On June 18, 2004, Sobek and Bhagat submitted an order to show cause to amend the complaint, which was denied by the Honorable Deborah A. Batts, who was sitting in Part One. Judge Batts advised Sobek and Bhagat to proceed by regular motion practice to seek leave to amend the complaint. Plaintiff's motion to file an amended complaint was opposed by Cardinal, P2S, and Madison Stock Transfer, Inc. ("Madison"). The motion for leave to file an amended complaint was marked fully submitted without oral argument on July 28, 2004.
Judge Batts also advised the plaintiffs to submit a motion on notice to stay the submitted motions to dismiss pending the filing of the amended complaint. However, the plaintiffs failed to make any such motion.
Facts
According to the complaint, separate stock purchase agreements were entered into by the plaintiffs with defendant RM Capital Partners ("RM").
On May 16, 2002, Sobek negotiated a stock purchase agreement ("SPA") with RM pursuant to which Sobek purchased 240,000 shares of Jaguar Investments, Inc. ("Jaguar") from RM for $120,000, or $.50 per share. The SPA is alleged to have contained a provision whereby Sobek could immediately "put" the subject shares back to RM at a value of $1.50 per share, or $360,000 (the "Put Option"). In addition, RM is alleged to have pledged to Sobek 500,000 restricted shares of Jaguar stock (the "Collateral Shares") in order to collateralize RM's obligations to Sobek under the SPA.
According to the complaint, in July 2002, approximately two months after entering into the SPA, Sobek sought to exercise his Put Option and demanded payment of $360,000, which was not forthcoming. Thereafter, Sobek unsuccessfully attempted to sell the Collateral Shares.
Bhagat has alleged that at some unspecified time she entered into an unspecified agreement with unspecified parties in order to purchase 50,000 Jaguar shares at a cost of $100,000 ($2.00 per share), which were the subject of an unspecified Put Option. Further, Bhagat alleges that at an unspecified time she unsuccessfully attempted to exercise her unspecified Put Option with unspecified parties. Bhagat, unlike Sobek, does not allege that her unspecified SPA was collateralized by Jaguar shares.
The only allegation contained in the complaint against P2S appears in paragraph 23 where it is alleged upon information and belief that P2S had knowledge that co-defendant Madison Stock Transfer, Inc. ("Madison") facilitated the transfer of the Collateral Shares. Discussion A. Diversity Jurisdiction
Plaintiffs fail to state the basis of such information and belief.
Significantly, no facts are pled in the complaint indicating that Madison or P2S even knew the plaintiffs, much less that Madison or P2S knew of the existence of the alleged SPA, Put Option, or the Collateral Shares.
In a diversity action, a New York district court, "look[s] to the choice-of-law rules of New York" to determine which state's law should be applied to the issues of substantive law. See, e.g., Woodling v. Garrett Corp., 813 F.2d 543, 551 (2d Cir. 1987). Since the parties have applied New York law, it is assumed, at least for the purpose of these motions, that New York law applies.
B. The Motions to Dismiss the Complaint
The motions of Cardinal and P2S to dismiss the complaint are granted in their entirety.
1. The 12(b)(6) Standard
In considering a motion to dismiss pursuant to Rule 12(b)(6), Fed.R.Civ.P., the court should construe the complaint liberally, "accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor," Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (citing Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001)), although "mere conclusions of law or unwarranted deductions" need not be accepted. First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir. 1994). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). In other words, "`the office of a motion to dismiss is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.'"Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of New York, 375 F.3d 168, 176 (2d Cir. 2004) (quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)). Dismissal is only appropriate when "it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief."Sweet v. Sheahan, 235 F.3d 80, 83 (2d Cir. 2000); accord Eternity Global Master Fund, 375 F.3d at 176-77.
The Court may properly consider any documents referred to in the complaint, whether explicitly or by reference, on a motion to dismiss. Gregory, 243 F.3d at 691; Stuto v. Fleishman, 164 F.3d 820, 826 n. 1 (2d Cir. 1999). While the Court must accept the allegations in the complaint as true, to the extent any allegations directly contradict evidence contained in the documents relied upon by a plaintiff, the documents control, and the allegations need not be accepted as true. Rozsa v. May Davis Group, Inc., 187 F. Supp. 2d 123, 128 (S.D.N.Y. 2002). 2. The Breach of Contract Claims Are Dismissed
The plaintiffs have not alleged that Cardinal or P2S are parties to any contract with either of them. Although Sobek alleges that the SPA was signed by defendant Joseph Quattrochi ("Quattrochi") on behalf of Cardinal, such allegation is belied by the language of the complaint and the contracts, which state that Quattrochi signed on behalf of RM and not Cardinal.
The key elements of a breach of contract claim are: (1) the formation of an agreement, (2) performance by one party, (3) breach of the agreement by the other party, and (4) damages.Posner v. Minnesota Mining Mfg. Co., 713 F. Supp. 562, 563 (E.D.N.Y. 1989). A complaint in a breach of contract action must at least set forth the terms of the agreement upon which liability is predicated. Mayes v. Local 106, Int'l Union of Operating Eng'rs, 739 F. Supp. 744, 748 (N.D.N.Y. 1990);Chrysler Capital Corp. v. Hilltop Egg Farms Inc., 129 A.D.2d 927, 928, 517 N.Y.S.2d 1002, 1003 (3d Dep't 1987) (complaint must "set forth the terms of the agreement upon which liability is predicated, either by express reference or by attaching a copy of the contract."). Pursuant to New York law, plaintiffs' claims for breach of contract must allege the terms of the contract, each element of the alleged breach and the resultant damages. Kaplan v. Aspen Knolls Corp., 290 F. Supp. 2d 335, 337 (E.D.N.Y. 2003);see also Griffin Bros. Inc. v. Yatto, 68 A.D.2d 1009, 1009, 415 N.Y.S.2d 114, 114 (3d Dep't 1979). The complaint does not satisfy these pleading requirements with respect to Cardinal or P2S.
The relevant stock purchase agreement for Sobek indicates on its face that neither Cardinal nor P2S was a party, nor were their names mentioned in the agreements. Abraham Zion Corp. v. Lebow, 761 F.2d 93, 103 (2d Cir. 1985) (stating that a non-signatory to a contract cannot be bound by the contract if the signing party is not the non-signatory's agent). The complaint indicates that the Bhagat contract is "similar," but that it involves a different number of Jaguar shares. (Compl. ¶ 15). Although the plaintiffs allege that Quattrochi was an employee of Cardinal, the SPA itself makes clear that Quattrochi signed the contracts on behalf of RM and not on behalf of Cardinal or P2S. Since the terms of the agreements contradict the allegations contained in the complaint, the agreement control.See, e.g., Rozsa, 187 F. Supp. 2d at 128.
Since neither Cardinal nor P2S were parties to any of the contracts at issue, plaintiffs have failed to plead a breach of contract cause of action against them.
3. The RICO Claims Are Dismissed
The Private Securities Litigation Reform Act ("PSLRA") prohibits RICO claims based on allegations of fraud in connection with the purchase or sale of securities. The applicable provision of the PSLRA is codified at 18 U.S.C. § 1964(c), which states:
[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee, except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.
In amending RICO, Congress was clear in stating that the PSLRA "`was meant to eliminate the possibility that litigants might frame their securities claims under a mail or wire fraud claim.'"Jordan (Berm.) Inv. Co., Ltd. v. Hunter Green Invs., Ltd., 205 F. Supp. 2d 243, 248 (S.D.N.Y. 2002) (internal citations omitted); see also ABF Capital Mgmt. v. Askin Capital Mgmt., L.P., 957 F. Supp. 1308, 1319 (S.D.N.Y. 1997) (legislative history was "unequivocal in stating that where allegations of mail and wire fraud derive from conduct otherwise actionable as securities fraud, no RICO claim will lie"); Krear v. Malek, 961 F. Supp. 1065, 1074 (E.D. Mich. 1997) ("It is abundantly clear that Congress intended that conduct constituting wire and mail fraud not form the basis of a predicate act under the amendment if such conduct would also be actionable as securities fraud").
Any conduct plaintiffs allege on behalf of Cardinal and P2S arose out of the alleged contracts entered into by plaintiffs. The alleged contracts themselves involved the purchase of securities, i.e., common stock of Jaguar. The PSLRA therefore precludes plaintiffs from asserting any RICO claims against Cardinal or P2S.
In addition, plaintiffs have failed to plead the requisite elements of a RICO claim with particularity. This Court recently noted in Lesavoy v. Lane, 304 F. Supp. 2d 520, 532 (S.D.N.Y. 2004) that:
"RICO is a specialized statute requiring a particular configuration of elements. These elements cannot be incorporated loosely from a previous narration, but must be tightly particularized and connected in a complaint." Parroting statutory language while generally referring the reader back to the previous 100 paragraphs in a complaint is inadequate.Id. at 532 (citation omitted).
In order to claim that there has been a violation under §§ 1962(b) and 1962(c), a plaintiff must allege at least two predicate acts, and those acts must constitute a "pattern" of racketeering activity. See Moss v. Morgan Stanley, Inc., 719 F.2d 5, 18 (2d Cir. 1983). A pattern must be established by showing that the defendants' acts are "related, and that they amount to or pose a threat of continued criminal activity." H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989). In considering whether the plaintiffs have met the continuity requirement, it must be determined "which predicate acts were pled with the requisite particularity and what timeframe those acts can be said to span."CPF Premium Funding, Inc. v. Ferrarini, No. 95 CIV 4621 (CSH), 1997 WL 158361 at *7 (S.D.N.Y. Apr. 3, 1997).
Here, plaintiffs have not pled any predicate acts, nor have they pled any pattern, let alone one with the requisite degree of specificity. In order to sufficiently plead a RICO claim, a plaintiff must plead "(1) conduct, (2) of an enterprise, (3) through a pattern (4) of racketeering activity." Cyber Media Group, Inc. v. Island Mortgage Network, Inc., 183 F. Supp. 2d 559, 578 (E.D.N.Y. 2002) (quoting Sedima, S.P.L.R. v. Imrex Co., 473 U.S. 479, 496 (1985)). The complaint does not allege that Quattrochi was acting on behalf of Cardinal. The allegation that Quattrochi was an employee of Cardinal fails to satisfy the pleading requirement for a cause of action under RICO.
Sobek by affidavit has stated that the stock at issue in this case was "transferred to a stock brokerage account at Cardinal" and that "Cardinal . . . indicated that these shares had been transferred to another shareholder/investor." See Affidavit of Dale Sobek, sworn to April 16, 2004 (the "Sobek Aff.") at ¶¶ 8,10. As discussed below, the Court should not consider these arguments at all. The plaintiffs also allege for the first time in their memorandum of law that defendant Quattrochi "raised money through the `Put Option' and `Collateral Provision' to benefit, among other parties, Cardinal" and that Cardinal had a monetary interest in the Jaguar investments. (See Plaintiffs' Memorandum of Law in Opposition to Cardinal's Motion to Dismiss at II(B)(1) and II(B)(3).)
Additional facts submitted in a plaintiff's opposition to a motion to dismiss cannot be considered by the Court. See Padilla v. Payco Gen. Am. Credits, Inc., 161 F. Supp. 2d 264, 267 (S.D.N.Y. 2001) ("[I]t is axiomatic that the complaint cannot be amended by the briefs in opposition to a motion to dismiss[.]") (quoting O'Brien v. National Prop. Analysts Partners, 719 F. Supp. 222, 229 (S.D.N.Y. 1989); Citadel Mgmt. Inc. v. Telesis Trust, Inc., 123 F. Supp.2d 133, 147, n. 3 (S.D.N.Y. 2000) (same). Even if these allegations are considered and accepted as true, however, none of these additional allegations involve any active conduct on behalf of Cardinal. The plaintiffs have not pled an act of racketeering (mail fraud, wire fraud, etc.) undertaken by Cardinal or P2S, let alone conduct of an enterprise through a pattern of racketeering.
Sobek and Bhagat seek to save their RICO claim by stating that the PSLRA "is not applicable to the case at bar" because this is not a class action. (See Plaintiffs' Memorandum of Law in Opposition to Cardinal's Motion to Dismiss at II(B)(2)). While it is true that one of the purposes of the PSLRA was to remedy abusive class actions in securities fraud cases, it is well settled in this district that the PSLRA is not limited to class actions. See Simon DeBartolo Group, L.P. v. The Richard E. Jacobs Group, Inc., 985 F. Supp. 427, 430 (S.D.N.Y. 1997), rev'd on other grounds, 186 F.3d 157 (2d Cir. 1999) ("[T]here is nothing in the legislative history which indicates that the phrase `in any private action' . . . was intended to be limited to `class actions'. . . .");Inter-County Res., Inc. v. Medical Res., Inc., 49 F. Supp. 2d 682, 684 (S.D.N.Y. 1999) (stating that the PSLRA extends to all securities fraud cases, and "not merely to class actions"). The PSLRA precludes plaintiffs from asserting a RICO claim.
Accordingly, plaintiffs' RICO violation claim against Cardinal and P2S should be dismissed in their entirety.
4. The Punitive Damage Claim Is Dismissed
Sobek and Bhagat have asserted a cause of action for punitive damages. However, no separate cause of action for such relief exists. Golden First Mortgage Corp. v. Berger, 251 F. Supp. 2d 1132, 1141 (E.D.N.Y. 2003) (stating that no separate cause of action for punitive damages exists).
Moreover, punitive damages are not available under New York law for breaches of contract unless: (1) the defendant's conduct is actionable as an independent tort, (2) the conduct is egregious in nature, (3) the egregious conduct is directed at the plaintiff, and (4) the conduct is part of a pattern directed at the public generally. See New York Marine Gen. Ins. Co. v. Tradeline (L.L.C.), 266 F.3d 112, 130 (2d Cir. 2001) (stating that punitive damages for a breach of contract claim are not available if such claim is not properly plead). No such facts have been alleged in the complaint. Therefore, the punitive damages claim is dismissed as to Cardinal and P2S.
In addition, in an attempt to support their fraud claim, the plaintiffs' opposition papers for the first time state the following, which is not in the complaint: "Jaguar Investments receiv[ed] proceeds from the Plaintiffs in the amount of $170,000." (Plaintiffs' Memorandum of Law in Opposition to P2S' Motion to Dismiss at II(B)(2)). Likewise, the plaintiffs state the following which is not in the complaint: "Jaguar Investments received significant financial remuneration for selling these purported `Put Options' and `Collateral Provision' to the Plaintiffs." (Id. at II(B)(3)). Since such allegation are not stated in the complaint, they cannot be considered in connection with this motion, which is addressed solely to the sufficiency of the complaint.
5. The Conversion Claim Against P2S Is Dismissed
"Under New York law, . . . a `denial or violation of the plaintiff's dominion, rights, or possession, is the basis of an action for conversion.'" In re Chateaugay Corp., 10 F.3d 944, 957 (2d Cir. 1993) (quoting Sporn v. MCA Records, Inc., 58 N.Y.2d 482, 487, 462 N.Y.S.2d 413, 415, 448 N.E.2d 1324, 1326 (1983)). Plaintiffs allege that RM Capital illegally transferred 500,000 shares of Jaguar stock (Compl. ¶ 22), and that Jaguar and P2S participated "maliciously" in this "unauthorized exercise of dominion." (Compl. ¶ 35). P2S seeks dismissal on the grounds that plaintiffs have failed to state the conversion claim with requisite particularity pursuant to Fed.R.Civ.P. 9(b). Plaintiffs have not opposed P2S' motion for dismissal of this conversion claim. However, dismissal is more properly granted on the grounds that the complaint fails to allege that P2S (1) owned the shares in question or (2) acted in concert with RM to improperly transfer the shares. Since such facts have not been properly alleged, the conversion claim is dismissed.
6. Bhagat's Claims Are Independently Deficient and This Court Is Without Jurisdiction
Plaintiffs' opposition papers make clear that Bhagat's claims are independently deficient and without this Court's jurisdiction. The basis of Bhagat's claims is set forth in paragraphs 15 and 20 of the complaint. Paragraph 15 of the complaint globally alleges in relevant part that "Bhagat entered into a similar agreement with the defendants buying 50,000 shares of Jaguar Stock for $100,000 subject to a put option similar to that negotiated by Plaintiff Sobek." Paragraph 30 of the complaint generically states that "Bhagat has also attempted to exercise her Put option rights but has been unsuccessful."
Bhagat impermissibly lumps all of the defendants together without good faith basis. However, the Bhagat stock purchase agreement represents a separate contract entered into between her and RM for separate consideration from the Sobek stock purchase agreement. Notably, P2S is not a party to either agreement.
In their papers, the plaintiffs include a copy of Bhagat's Stock Purchase Agreement with RM (the "Bhagat SPA"). As evidenced by the actual document, the SPA is a contract executed by and between Bhagat and RM. In addition, the Bhagat SPA contains no "put right." Contrary to the statement at paragraph 15 of the complaint that "Bhagat entered into a similar agreement with the defendants buying 50,000 shares of Jaguar Stock for $100,000," the Bhagat SPA concerned a purchase of 100,000 shares of Jaguar Stock for $50,000.
Jurisdiction in this Court is predicated solely on diversity (see Compl. ¶ 1), requiring a matter in controversy exceeding the sum or value of $75,000, exclusive of interest and costs. 28 U.S.C. § 1332(a).
Plaintiffs concede that the controversy here derives from separate agreements entered into by Sobek and Bhagat "each individually." (Plaintiffs' Memorandum of Law in Opposition to Cardinal's Motion to Dismiss at I). Bhagat's claim thus cannot rest on Sobek's claim in order to satisfy the monetary threshold for diversity jurisdiction. See, e.g., Arnold v. Troccoli 344 F.2d 842, 846 (2d Cir. 1965) (stating that in diversity action, each plaintiff must individually claim the requisite jurisdictional amount), Miller v. European Amer. Bank, 921 F. Supp. 1162, 1167 (S.D.N.Y. 1996) (citing Zahn v. International Paper Co., 414 U.S. 291 (1973)).
C. Plaintiffs' Motion to Amend
The proposed amended complaint ("PAC") asserts seven causes of action against the defendants: (1) violation of 18 U.S.C. § 1962, (2) fraudulent inducement, (3) breach of contract, (4) breach of covenants of good faith and fair dealing, (5) breach of fiduciary duty to shareholders (P2S only), (6) unjust enrichment, and (7) conversion.
1. Standard for Granting Leave To Amend
In general, leave to replead is "freely given when justice so requires." Fed.R.Civ.P. 15(a); see also Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991);Branum v. Clark, 927 F.2d 698, 705 (2d Cir. 1991). However, a district court has discretion to deny leave to amend "where the application is made after an inordinate delay, no satisfactory explanation is made for the delay, and the amendment would prejudice the defendant." BBS Norwalk One, Inc. v. Raccolta, Inc., 60 F. Supp. 2d 123, 132 (S.D.N.Y. 1999) (citing MacDraw, Inc. v. CIT Group Equip. Fin., Inc., 157 F.3d 956, 962 (2d Cir. 1998)). The Second Circuit has stated that "[m]ere delay, . . . absent a showing of bad faith or undue prejudice, does not provide a basis for a district court to deny the right to amend." State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981). Here the defendants Cardinal, P2S, and Madison have failed to make the combined showing of undue delay and bad faith and/or undue prejudice necessary to justify denial of plaintiffs' motion for leave to amend.
Cardinal and P2S argue that the claims asserted against them in the PAC should be dismissed on the grounds that such claims are futile. "[I]t is well established that leave to amend a complaint need not be granted when amendment would be futile." Ellis v. Chao, 336 F.3d 114, 126 (2d Cir. 2003) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). A proposed amendment to a pleading is deemed to be futile if "it could not withstand a motion to dismiss pursuant to Rule 12(b)(6)." Oneida Indian Nation of New York v. City of Sherrill, 337 F.3d 139, 168 (2d Cir. 2003) (citing Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991)). For the purposes of evaluating futility, the 12(b)(6) standard is applied: All well pleaded allegations are accepted as true, and all inferences are drawn in favor of the pleader. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993).
2. The RICO Claim Is Futile As To Cardinal and R2S
The PAC's first cause of action asserts RICO claims ( 18 U.S.C. § 1962) against the defendants. For the reasons set forth above (i.e., (1) that 18 U.S.C. § 1964(c) forecloses assertion of RICO claims based on fraud in the purchase or sale of a security and (2) that plaintiffs have failed to plead the elements of a RICO claim), this first cause of action is futile as Cardinal and R2S.
3. The Breach of Contract Claim is Futile as to Cardinal and P2S
The PAC's second cause of action asserts breach of contract claims. However, the PAC does not cure the failure to properly alleged the existence of a contract between the plaintiffs and either Cardinal or P2S. Therefore, the second cause of action is futile as to Cardinal and P2S.
4. The Fraudulent Inducement Claim Is Futile as to Cardinal and P2S
The PAC's third cause of action alleges that the defendants fraudulently induced the plaintiffs to enter into the SPAs. Under New York law, a fraud cause of action generally does not arise where the alleged fraud merely relates to a breach of contract.Salvador v. Uncle Sam's Auctions Realty, Inc. ex rel. Passonno, 307 A.D.2d 609, 611, 763 N.Y.S.2d 360, 362 (3d Dep't 2003); River Glen Assocs., Ltd. v. Merrill Lynch Credit Corp., 295 A.D.2d 274, 275, 743 N.Y.S.2d 870, 871 (1st Dep't 2002);Bazerman v. Edwards, 295 A.D.2d 115, 742 N.Y.S.2d 822 (1st Dep't 2002).
However, this general rule is subject to the corollary that "a party who has breached a contract may be charged with separate tort liability for fraud arising from a breach of duty that is distinct from, or in addition to, the breach of contract." 60AN.Y. Jurisprudence § 7 (citing Freedman v. Pearlman, 271 A.D.2d 301, 304, 706 N.Y.S.2d 405, 408 (1st Dep't 2000); Licette Music Corp. v. A.A. Records, Inc., 196 A.D.2d 467, 601 N.Y.S.2d 297, 297-98 (1st Dep't 1993); Bernstein v. Polo Fashions, Inc., 55 A.D.2d 530, 531, 389 N.Y.S.2d 368, 370 (1st Dep't 1976)). In particular, it is well established that a misrepresentation of present fact which is the inducement for a contract is collateral to said contract, and can support a separate fraud claim. See, e.g., Primavera Familienstifung v. Askin, 130 F. Supp. 2d 450, 491, reconsidered on other grounds, 137 F. Supp. 2d 438 (S.D.N.Y. 2001) (stating that "a false representation that induces one to enter into a contract supports a fraud claim"); First Bank of Americas v. Motor Car Funding, 257 A.D.2d 287, 292, 690 N.Y.S.2d 17, 21 (1st Dep't 1999) ("[A] misrepresentation of present facts is collateral to the contract (though it may have induced the plaintiff to sign the contract) and therefore involves a separate breach of duty.").
In the PAC, the plaintiffs fail to allege any misrepresentations on the part of Cardinal or P2S other than those allegedly contained in the SPAs or the Collateral Provisions. Therefore, the PAC's third cause of action is futile as to Cardinal and P2S.
5. The Breach of the Covenant of Good Faith and Fair Dealing Claim Is Futile as to Cardinal and P2S
The PAC's fourth cause of action alleges breach of an implied covenant of good faith and fair dealing. Such a claim can only arise out of a contractual relationship. See, e.g., Alter v. Bogoricin, No. 97 Civ. 0662 (MBM), 1997 WL 691332 at *7 (S.D.N.Y. Nov. 6, 1997). Since plaintiffs have failed to allege the existence of a contractual relationship with either Cardinal or P2S, this claim is futile as to those defendants.
6. The Unjust Enrichment Claim Is Futile as to Cardinal and P2S
The PAC's fifth cause of action alleges unjust enrichment. In order to state a claim for unjust enrichment, plaintiffs must allege (1) that a benefit was conferred on the defendant, (2) that the defendant received the benefit without adequately compensating the plaintiffs, and (3) that circumstances are such that equity requires that the defendant make restitution. See, e.g., National Westminster Bank plc v. Grant Prideco, Inc., 261 F. Supp. 2d 265, 275 (S.D.N.Y. 2003). The PAC fails to allege that the plaintiffs conferred any benefit on either Cardinal or P2S. Rather, plaintiffs merely make a blanket assertion that the defendants were unjustly enriched. Therefore, the fifth cause of action is futile as to Cardinal and P2S.
7. The Breach of Fiduciary Duty Claim Is Futile as to P2S
The PAC's sixth cause of action asserts a breach of fiduciary duty claim against P2S on the theory that P2S allowed "the Subject Shares and the Collateral Shares . . . to be transferred to other purported purchasers." (PAC ¶ 83). However, the PAC contains no allegations as to the nature of the duty that P2S owed to the plaintiffs and what acts P2S took in violation of that duty. Therefore, the sixth cause of action is futile.
8. The Conversion Claim Is Futile as to Cardinal and P2S
The PAC's seventh cause of action alleges conversion by all of the defendants. As set forth above, for the purpose of stating a conversion claim, plaintiff must allege that the defendant engaged in a denial or violation of the plaintiff's dominion, rights, or possession of property. See In re Chateaugay Corp., 10 F.3d at 957. In the PAC, plaintiffs have done no more than assert conclusory allegations that defendants exercised unauthorized dominion over the 500,000 Jaguar shares. (PAC ¶ 95). Such conclusory allegations are inadequate to state a claim for conversion. Therefore, the conversion claim is futile with respect to Cardinal and P2S.
9. Bhagat's Claims Are Independently Deficient and This Court is Without Jurisdiction
The PAC does not provide any basis for concluding that Bhagat's claim satisfies the requisite amount for the attachment of diversity jurisdiction. Therefore, the claims asserted by Bhagat in the PAC are futile as to all defendants.
Conclusion
The motions to dismiss the complaint are granted. Plaintiffs motion to file an amended complaint is granted in part and denied in part, as set forth above.
It is so ordered.