Opinion
No. 654418/2022 MOTION SEQ. No. 005
01-19-2025
THE INSTITUTE FOR AMERICAN MUSICAL THEATRE LLC, Plaintiff, v. ANDREW J. DROST, CASEY SIMYAK, JUDY BRAZONG, MY SHERRY & MORE, INC., and CONRAD DROST, Defendants.
Unpublished Opinion
DECISION + ORDER ON MOTION
ANDREA MASLEY, J.S.C.
HON. ANDREA MASLEY:
The following e-filed documents, listed by NYSCEF document number (Motion 005) 92, 93, 94, 95, 96, 97, 98, 103, 113, 114, 115, 149, 171, 174, 175 were read on this motion to/for DISMISSAL
Upon the foregoing documents, it is
In motion sequence number 005, defendants Andrew Drost, Casey Simyak, Judy Brazong, and My Sherry & More, Inc. (My Sherry) move to dismiss the amended complaint pursuant to CPLR 3211 (a) (7).
This action is stayed as to Drost due to his bankruptcy filing. (NYSCEF 196, Notice of Bankruptcy.) Thus, although Drost is a movant here, the court will not make any determinations as to this defendant. For the purposes of this motion, Simyak, Brazong, and My Sherry are collectively referred to as defendants.
The parties stipulated that this motion be applied to the amended complaint. (See NYSCEF 179. Stipulation.)
Background
Unless indicated otherwise, the following facts are taken from the amended complaint and, for the purposes of this motion, are accepted as true.
In 2015, Drost co-founded plaintiff The Institute for American Musical Theatre, LLC (IAMT) to operate a post-secondary school teaching musical theater. (NYSCEF 170, Amended Complaint [AC] ¶¶ 18, 21.) From 2015 until October 15, 2018, Drost was the sole and managing member of IAMT. (Id. ¶ 22.) "From October 15, 2018, until December 5, 2021, Drost was a 50% member and manager of IAMT." (Id.) "From December 5, 2021, until March 3, 2023, Drost was a minority member of IAMT and not a manager." (Id.) As of March 3, 2023, Drost was not a member or affiliate of IAMT. (Id.)
On October 15, 2018, Drost and nonparty Michael Minarik executed an Amended and Restated LLC Operating Agreement (LLC Agreement). (See NYSCEF 97, LLC Agreement.)
From 2018 to 2022, Simyak was employed at IAMT as an administrator in control of invoicing and recording IAMT tuition monies. (Id. ¶¶ 87, 97.) Simyak is now Drost's wife. (Id. ¶ 86.) Brazong, Simyak's mother, was employed at IAMT as a bookkeeper. (Id. ¶ 90.) Brazong owns My Sherry, a liquor store. (Id.)
On November 18, 2022, IAMT commenced this action alleging various misconduct by defendants. The following causes of action are the subject of this motion: conversion (Simyak, Brazong, My Sherry), breach of fiduciary duty - financial misconduct (Simyak, Brazong, My Sherry), unjust enrichment (Simyak, Brazong, My Sherry), faithless servant (Simyak, Brazong, My Sherry), breach of fiduciary duty -tuition payments (Simyak), and equitable accounting (Simyak, Brazong, My Sherry).
Discussion
On a motion to dismiss pursuant to CPLR 3211 (a) (7), the court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory." (Leon v Martinez, 84 N.Y.2d 83, 87-88 [1994].) "[B]are legal conclusions, as well as factual claims which are either inherently incredible or flatly contradicted by documentary evidence" cannot survive a motion to dismiss. (Summit Solomon & Feldesman v Lacher, 212 A.D.2d 487, 487 [1st Dept 1995] [citation omitted].)
Conversion (Fourth Cause of Action)
IAMT alleges that defendants collectively and impermissibly took lAMT's money. (NYSCEF 170, AC ¶¶ 140-145.) Specifically, IAMT alleges that Drost, with Simyak's assistance, (1) withdrew $11,063.86 from lAMT's bank account, (2) transferred $118,704.92 of IAMT money to accounts Drost controlled via Venmo and Zelle, (3) transferred $62,866.34 of IAMT money to Brazong and My Sherry, (4) charged personal expenses of $61,796.92 to IAMT's bank card, (5) charged $125,698.29 of personal expenses to IAMT's American Express credit card, (6) charged $8,351.63 of personal expenses to IAMT's Discover credit card, (7) paid personal medical expenses of $11,140.90 from IAMT's funds, (8) purchased $36,172.40 of IAMT merchandise using IAMT funds and personally kept revenue generated from the sale of this merchandise, and (9) transferred $10,000 of IAMT money to his father, Conrad Drost. (NYSCEF 170, AC ¶¶ 84-96.)
Conrad Drost was a defendant in this action. IAMT and Conrad Drost executed a stipulation of discontinuance with prejudice. (NYSCEF 197, Stipulation of Partial Discontinuance.)
A corporation may maintain a conversion cause of action against any officer and any person who participates in the "misappropriation of corporate funds" and "accepts its fruits." (3P-733, LLC v Davis, 187 A.D.3d 626, 629 [1st Dept 2020] [internal quotation marks and citation omitted].) "A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession." (Colavito v NY Organ Donor Network, Inc., 8 N.Y.3d 43, 49-50 [2006] [citation omitted].) To plead a claim for conversion: (1) plaintiff must allege that they have a "possessory interest or right in a property" and (2) that "defendant's dominion over the property or interference with it" derogates plaintiff's rights. (Id. at 50 [citations omitted].)
IAMT alleges that Simyak, an administrator, "knew about and assisted in the defalcations described herein, and in concealing them from IAMT." (NYSCEF 170, AC ¶ 87.) However, the conversion claim against Simyak fails because IAMT does not allege that Simyak had dominion over the property or interfered with it. (Mut. Benefits Offshore Fund, Ltd. v Zeltser, 172 A.D.3d 648, 651 [1st Dept 2019] [dismissing conversion claim "for the simple reason that this defendant did not exercise control over plaintiff's funds" (citation omitted)]; Lopez v Fenn, 90 A.D.3d 569, 571 [1st Dept 2011] [dismissing a conversion claim because plaintiff did not allege that the defendant "exercised any dominion or control over the funds" (citations omitted)].)
Although labeled a conversion claim, the allegation of assistance frames this more as an aiding and abetting cause of action, wherein a plaintiff "must allege facts giving rise to a strong inference that the defendant actually knew of the underlying harm or was willfully blind to it, and rendered substantial assistance, including concealing, or failing to act when required to do so, enabling the harm to proceed." (Sayles v Ferone, 137 A.D.3d 486, 486 [1st Dept 2016] [citation omitted]; William Doyle Galleries, Inc. v Stettner, 167 A.D.3d 501, 505 [1st Dept 2018] [stating that "[a]iding and abetting conversion requires the existence of a conversion by the primary tortfeasor, actual knowledge, and substantial assistance" (citations omitted)].) The conclusory allegation that Simyak knew and assisted is not enough to give rise to a strong inference that Simyak knew and rendered substantial assistance. Thus, defendants' motion to dismiss the fourth cause of action against Simyak is granted.
As to Brazong, IAMT alleges that Drost transferred $42,274.89 of lAMT's money to her from September 4, 2018 to October 8, 2021. (NYSCEF 170, AC ¶ 90.) As to My Sherry, IAMT alleges that Drost transferred $20,591.45 to it from December 13, 2018 to December 14, 2021. (Id.)
Defendants argue that IAMT fails to allege that the monies converted were specifically identifiable. Money can be the subject of a conversion action if the funds are sufficiently identifiable. (3P-733, LLC, 187 A.D.3d at 628-29; see also Sh575 Holdings LLC v Reliable Abstract Co., 195 A.D.3d 429, 430 [1st Dept 2021] [holding "(w)here a conversion claim is asserted with respect to money, the funds must be specifically identifiable and be subject to an obligation to be returned or to be otherwise treated in a particular manner" (internal quotation marks and citations omitted)].) Here, IAMT's allegation identifying the specific amounts of money allegedly converted are sufficient at this stage. (See Family Health Mgt., LLC v Rohan Devs., LLC, 207 A.D.3d 136, 139 [1st Dept 2022] [holding that a conversion action "must be for recovery of a particular and definite sum of money, [but] the specific bills need not be identified" (internal quotation marks and citations omitted)]; Keith Kantrowitz & Assoc, v Strauss, 2023 NY Slip Op 33495[U], *12 [Sup Ct, Kings County 2023] [holding that "[m]oney can be the subject of conversion when it can be described, identified, or segregated in the manner that a specific chattel can be" (citations omitted)].)
Defendants also assert that no conversion occurred because Drost had the authority to transfer IAMT's money pursuant to § 4.06 and § 8.01 of the LLC Agreement. However, this argument is misplaced. Even if Sections 4.06 and 8.01 of the LLC Agreement granted Drost the authority to unilaterally transfer monies to third parties, "where the original possession is lawful, a conversion does not occur until after a demand and refusal to return the property." (Johnson v Law Off. of Kenneth B. Schwartz, 145 A.D.3d 608, 612 [1st Dept 2016] [citation omitted]; see also MacDonnell v Buffalo Loan, Trust & Safe Deposit Co., 193 NY 92, 101 [1908] [holding that "one who comes lawfully into possession of property cannot be charged with conversion thereof until after a demand and refusal"]; Mut. Benefits Offshore Fund, Ltd. v Zeltser, 172 A.D.3d 648, 652 [1st Dept 2019].) Thus, even if Brazong and My Sherry lawfully came into possession of the monies because Drost had authority to make such transfers, IAMT sufficiently alleges that it demanded the return of the monies, and the demand was refused. (NYSCEF 170, AC ¶ 147.) Further, even if Brazong and My Sherry were not aware that the transfer of the monies constituted conversion, "the receipt of funds converted by another may constitute conversion, whether or not there is a wrongful intent." (Davoli v Dourdas, 2015 NY Slip Op 30635[U], *18 [Sup Ct, NY County 2015], citing Leve v C. Itoh & Co., (America), Inc., 136 A.D.2d 477, 477 [1st Dept 1988].) The court also notes that IAMT alleges that, as of December 5, 2021, Drost was only a minority member and no longer a manager. (NYSCEF 170, AC ¶ 22.)
Section 4.06 states that "the affirmative vote of the Members holding fifty-one percent (51%) or more of the Voting Units then held by members shall be required to approve the matter." (NYSCEF 97, LLC Agreement §4.06.) As per Schedule A to the LLC Agreement, Drost, effective July 24, 2018, held 100 percent of Class A Units, the units designated as voting units. (Id. at 48.)
Section 8.01 states that "[a] board of managers of the Company (the 'Board') is hereby established and shall be comprised of natural Persons (each such Person, a 'Manager'). The business and affairs of the Company shall be managed, operated and controlled by or under the direction of the Board, and the Board shall have, and is hereby granted, the full and complete power, authority and discretion for, on behalf of and in the name of the Company, to take such actions as it may in its sole discretion deem necessary or advisable to carry out any and all of the objectives and purposes of the Company, subject to the terms of this Agreement." (Id.) Pursuant to § 8.02 (a), Drost and Minarik are the Initial Managers. (Id.)
The court makes no determination as to whether Drost is liable for conversion.
Finally, defendants argue that IAMT fails to allege that the monies transferred to Brazong and My Sherry were for a particular purpose and that Brazong and My Sherry were obligated them to return them. "[C]onversion occurs when funds designated for a particular purpose are used for an unauthorized purpose." (Lemle v Lemle, 92 A.D.3d 494, 497 [1st Dept 2012] [citation omitted].) Implicit in the allegations of the amended complaint is that the monies allegedly belonging to IAMT were for the purpose of operating the school, and instead of using the monies for that purpose, Drost allegedly transferred a portion of such to Brazong and My Sherry. Further, implicit in the allegation demanding return of the monies is that Brazong and My Sherry were obligated to return them. At this stage, the court finds IAMT's allegations sufficient to sustain this claim. Thus, defendants' motion to dismiss the fourth cause of action against Brazong and My Sherry is denied.
Breaches of Fiduciary Duty (Fifth and Nineth Causes of Action)
In its fifth cause of action, IAMT alleges that defendants breached the fiduciary duties they owed IAMT when they engaged in self-dealing, commingling of funds, and defalcation. (NYSCEF 170, AC ¶¶ 151-153.) Similarly, in the ninth cause of action, IAMT alleges that Simyak breached the fiduciary duties she owed IAMT when she failed to collect or account for approximately $114,317.97 in missing tuition monies. (Id. ¶¶ 183-184.)
To state a claim for breach of a fiduciary duty, plaintiff must allege that defendants owed plaintiff a duty and breached that duty by engaging in misconduct. (Burry v Madison Park Owner LLC, 84 A.D.3d 699, 699-700 [1st Dept 2011].) This claim must be plead with particularity as required by CPLR 3016 (b). (Parker Waichman LLP v Squier, Knapp & Dunn Communications, Inc., 138 A.D.3d 570, 571 [1st Dept 2016] [citation omitted].)
IAMT argues that Simyak's duty arises from her employment as IAMT's administrator and Brazong's duty arises from her employment as lAMT's bookkeeper. In response, defendants assert that Simyak and Brazong owe no fiduciary duty as at-will employees.
At-will employees may "be found to have breached a fiduciary duty to their employer if they acted directly against the employer's interests." (Beach v Touradji Capital Mgt., LP, 144 A.D.3d 557, 562 [1st Dept 2016] [citation omitted].) Such conduct includes "embezzlement, improperly competing with the current employer, or usurping business opportunities." (Veritas Capital Mgt., L.L.C, v Campbell, 82 A.D.3d 529, 530 [1st Dept 2011] [citation omitted].)
The amended complaint is devoid of allegations that Brazong engaged in misconduct. (Pettie v Bronx Neighborhood Hous. Servs. CDC Inc., 230 A.D.3d 454 [1st Dept 2024] [dismissing the breach of fiduciary duty where "plaintiff failed to allege facts supporting the existence of a fiduciary relationship" (citation omitted)]; Burry v Madison Park Owner LLC, 84 A.D.3d at 700, citing CPLR 3016[b] [dismissing breach of fiduciary duty claim where "allegations of 'misconduct' on the part of defendant are in essence claims of fraud that have not been pleaded with particularity]) A single allegation that Brazong received monies from Drost is not enough. Receipt of monies alone does not necessarily evidence misconduct by the person in receipt. This claim is dismissed against Brazong.
As to Simyak, the conclusory allegation that she assisted Drost in his alleged conversion of funds is not sufficient to plead a fiduciary duty. IAMT provides no detail of the alleged assistance to satisfy the burden of the heightened pleading standard. (Id.) IAMT also alleges that Simyak aided and abetted Drost's breach of fiduciary duty by requesting that students deposit their tuition monies in accounts under Drost's control. (NYSCEF 170, AC ¶ 100.) A claim for aiding and abetting a breach of fiduciary duty requires: (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach. (Kaufman v Cohen, 307 A.D.2d 113, 125 [1st Dept 2003] [citations omitted].) The amended complaint is devoid of allegations that Simyak knowingly participated in Drost's alleged breach. There are no allegations that Simyak "had actual knowledge" of Drost's alleged breach of fiduciary duty regarding the tuition payments. (ALP, Inc. v Moskowitz, 204 A.D.3d 454, 460 [1st Dept 2022] [citation omitted].) Thus, the breach of fiduciary duty claim is dismissed against Simyak.
Although IAMT alleges this claim against all defendants, there is not one single allegation involving My Sherry. Thus, defendants' motion to dismiss the fifth cause of action against My Sherry is granted.
Unjust Enrichment (Sixth Cause of Action)
IAMT alleges that Simyak, Brazong, and My Sherry were unjustly enriched by receiving IAMT's monies and "cannot be allowed to retain the said money without restitution." (NYSCEF 170, AC ¶¶ 159-60.) To plead a claim for unjust enrichment, a plaintiff must allege "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." (Mandarin Trading Ltd. v Wildenstein, 16 N.Y.3d 173, 182 [2011] [citation omitted].)
As to Simyak, IAMT fails to allege that she was enriched. (Lumen at White Plains, LLC v Stern, 135 A.D.3d 600, 601 [1st Dept 2016] [dismissing unjust enrichment claim as conclusory where plaintiffs failed to allege how defendants were enriched].) Although IAMT alleges that defendants cannot be permitted to retain IAMT's monies, there are no allegations that Simyak received any such monies. Defendants' motion to dismiss the sixth cause of action against Simyak is granted.
As to Brazong and My Sherry, this claim is based on the same allegations that the conversion claim is based on, i.e., these defendants cannot retain money belonging to IAMT that they received from Drost.
"The basis of a claim for unjust enrichment is that the defendant has obtained a benefit which in 'equity and good conscience' should be paid to the plaintiff. In a broad sense, this may be true in many cases, but unjust enrichment is not a catchall cause of action to be used when others fail. It is available only in unusual situations when, though the defendant has not breached a contract nor committed a recognized tort, circumstances create an equitable obligation running from the defendant to the plaintiff. Typical cases are those in which the defendant, though guilty of no wrongdoing, has received money to which he or she is not entitled. An unjust enrichment claim is not available where it simply duplicates, or
replaces, a conventional contract or tort claim." (Corsello v Verizon NY, Inc., 18 N.Y.3d 777, 790 [2012] [citations omitted].)
Thus, the question is whether IAMT has a claim for a recognized tort against Brazong and My Sherry, making the unjust enrichment claim duplicative. IAMT sufficiently alleges a conversion claim against Brazong and My Sherry. As previously stated, even if Brazong and My Sherry were not aware that the transfer of fund constituted conversion, "the receipt of funds converted by another may constitute conversion, whether or not there is a wrongful intent." (Davoli, 2015 NY Slip Op 30635[U] at *18.) IAMT's claim for unjust enrichment merely duplicates the conversion claim. To the extent that the conversion claim succeeds, the unjust enrichment claim is duplicative; if the conversion claim is defective, the defects cannot be remedied by unjust enrichment claim. (Corsello, 18 N.Y.3d at 791.)
Faithless Servant (Seventh Cause of Action)
"[T]he faithless servant doctrine states that an employee or agent who is faithless in the performance of his or her duties [to the principal] is not entitled to recover salary or commission." (Two Rivers Entities, LLC v Sandoval, 192 A.D.3d 528, 529 [1st Dept 2021] [citations omitted].)
"One who owes a duty of fidelity to a principal and who is faithless in the performance of his services is generally disentitled to recover his compensation, whether commissions or salary.... Nor does it make any difference that the services were beneficial to the principal, or that the principal suffered no provable damage as a result of the breach of fidelity by the agent." (Feiger v Iral Jewelry, Ltd., 41 N.Y.2d 928, 928-29 [1977] [citations omitted].)
Two alternative standards have been applied by New York courts in determining whether an agent's "conduct warrants forfeiture under the faithless servant doctrine." (Stanley v Skowron, 989 F.Supp.2d 356, 359 [SD NY 2013] [internal quotation marks and citation omitted].)
"The first standard is met when the 'misconduct and unfaithfulness ... substantially violates the contract of service' such that it 'permeate[s] [the employee's] service in its most material and substantial part.' The second standard requires only 'misconduct [] that rises to the level of breach of a duty of loyalty or good faith.' In other words, it is sufficient that the employee 'acts adversely to his employer in any part of the transaction or omits to disclose any interest which would naturally influence his conduct in dealing with the subject of the employment." (Id. at 359-60, citing Phansalkar v Andersen Weinroth & Co., L.P., 344 F.3d 184, 201-203 [2d Cir 2003].)
Thus, a party asserting the faithless servant doctrine must show that the agent's misconduct "substantially violated the contract of service, such that it permeates the employee's service in its most material and substantial part," or that the agent's misconduct "rises to the level of a breach of a duty of loyalty or good faith." (Id. [internal quotation marks and citations omitted].)
"The first standard for the faithless servant doctrine sounds in breach of contract," as it requires a showing that the employee's misconduct violated a contract of service. (FRHUEB, Inc. v Abdala, 2024 U.S. Dist LEXIS 114783, at *32 [SDNY June 28, 2024, No. 21-CV-7395 (MMG) (KHP)] [citation omitted].) Here, there are no allegations that Simyak or Brazong had an employment contract with IAMT.
The second standard requires a showing of misconduct rising to the level of a breach of a duty of loyalty or good faith. As discussed supra, IAMT failed to sufficiently allege a fiduciary duty owed by Simyak and Brazong. (Bluebanana Group v Sargent, 176 A.D.3d 408, 409 [1st Dept 2019] [dismissing faithless servant claim where plaintiff "failed to state a cognizable claim for breach of the duty of loyalty, which requires the employee to have 'acted directly against the employer's interests—as in embezzlement, improperly competing with the current employer, or usurping business opportunities'" (citation omitted)].) Thus, this claim is dismissed as to Simyak and Brazong.
As to My Sherry, the amended complaint is devoid of any allegation that it was an agent or employee of IAMT (Two Rivs. Entities, LLC v Sandoval, 192 A.D.3d 528, 529 [1st Dept 2021] [dismissing faithless servant claim where defendant "was not an employee and is not alleged to have acted on plaintiffs behalf as its agent"]); rather, it is alleged that My Sherry is Brazong's liquor store business. (NYSCEF 170, AC ¶ 90.) Thus, defendants' motion to dismiss the seventh cause of action against My Sherry is granted.
Equitable Accounting (Tenth Cause of Action)
IAMT alleges that a breach of fiduciary duty obligates Simyak, Brazong, and My Sherry to render equitable accountings with respect to their dealings with IAMT. (NYSCEF 170, AC ¶ 192.) As this claim is dependent on the existence of a fiduciary duty, it is dismissed as to Simyak, Brazong, and My Sherry. (IBT Media Inc. v Pragad, 220 A.D.3d 530, 532 [1st Dept 2023] [dismissing claim for equitable accounting as "plaintiff did not plead the necessary element of a fiduciary relationship between the parties' (citation omitted)].)
Stay
In light of the bankruptcy stay, and that the conversion claim against Brazong and My Sherry also involves acts by Drost, the court stays this matter in its entirety to avoid any prejudice to Drost as well as the possibility of inconsistent rulings if the conversion claim against Drost and Brazong and My Sherry was tried separately.
Accordingly, it is
ORDERED that the motion of defendant Casey Simyak to dismiss the amended complaint is granted and the amended complaint is dismissed in its entirety as against this defendant, with costs and disbursements to said defendant as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of said defendant; and it is further
ORDERED that the action is severed and continued against the remaining defendants; and it is further
ORDERED that the caption be amended to reflect the dismissal and that all future papers filed with the court bear the amended caption; and it is further
ORDERED that counsel for Simyak shall serve a copy of this order with notice of entry upon the Clerk of the Court and the Clerk of the General Clerk's Office, who are directed to mark the court's records to reflect the change in the caption herein; and it is further
ORDERED that such service upon the Clerk of the Court and the Clerk of the General Clerk's Office shall be made in accordance with the procedures set forth in the Protocol on Courthouse and County Clerk Procedures for Electronically Filed Cases (accessible at the "E-Filing" page on the court's website)]; and it is further
ORDERED that the portion of the motion seeking to dismiss the amended complaint against Judy Brazong and My Sherry &More, Inc. is granted, in part, and the fifth, sixth, seventh, and tenth causes of action of the amended complaint are dismissed against them; and it is further
ORDERED that this action is stayed.