JOSEPH F. BIANCO, District Judge:
Plaintiff Tianbo Huang ("plaintiff") brings this action for breach of contract, fraud, and related claims based upon promises allegedly made to him before he was hired by iTV Media. In short, plaintiff alleges that defendants—various iTV entities and their President and Chief Executive Officer, Song Lin—promised him certain responsibilities and compensation in his new position, but did not keep those promises once plaintiff began working for iTV.
The Court previously granted in part and denied in part defendants' motion to dismiss. See Huang v. iTV Media, 13 F.Supp.3d 246 (E.D.N.Y.2014). As part of that order, the Court dismissed plaintiff's claim for punitive damages, but granted him leave to amend the complaint with respect to that claim. Defendants now move under Federal Rules of Civil Procedure 12(b)(6) and 12(f) to dismiss plaintiff's claim for punitive damages.
The factual background of this case is set forth in the Court's prior order. Of particular relevance to this motion, plaintiff alleges that defendant Lin promised him three things in order to induce plaintiff to leave his position with one of the largest Chinese internet television companies, where he enjoyed significant responsibilities. (Second Am. Compl. ¶¶ 18-20.) Lin allegedly promised that iTV Media would hold an initial public offering within one year of plaintiff's hiring, which would increase the value of the stock options they planned to give him. (Id. ¶ 26.) Lin also promised that plaintiff would direct iTV's global operations, including responsibility for all of North America and the management of an entity to be created for that purpose. (Id. ¶ 27.) Finally, Lin allegedly promised plaintiff annual compensation of at least $300,000, apart from the stock options. (Id. ¶ 28.) According to the Second Amended Complaint, Lin never intended to keep any of these promises, and made them solely to induce plaintiff to leave his position with another company, so that defendants could exploit his expertise in internet television. (Id. ¶¶ 29-32.)
Plaintiff alleges that iTV never granted him the promised stock options (nor held an initial public offering), and that his salary was underpaid as well. (Id. ¶¶ 41-45.) Furthermore, once plaintiff began working for iTV, Lin allegedly prevented him from managing international operations. (Id. ¶ 39.) Plaintiff alleges that he complained, and that he was terminated in retaliation for those complaints. (Id. ¶ 54.)
In its previous order, the Court dismissed the punitive damages claim because it lacked any allegation that the fraud was "aimed at the public generally" and, thus, "necessary to vindicate a public right."
Plaintiff filed the original Complaint in this case on June 14, 2013, and an Amended Complaint on September 12, 2013. On April 8, 2014, the Court granted (in part) defendants' motion to dismiss. Plaintiff filed the Second Amended Complaint on May 8, 2014, and defendants moved to dismiss the punitive damages claim on July 3, 2014. Plaintiff responded in opposition on August 15, 2014, and defendants replied on August 29, 2014. The Court heard oral argument on October 29, 2014.
In reviewing a motion to dismiss pursuant to Rule 12(b)(6),
The Supreme Court clarified the appropriate pleading standard in Ashcroft v. Iqbal, reaffirming two important considerations for courts deciding a motion to dismiss. 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Court instructed district courts to first "identify[] pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Id. at 679, 129 S.Ct. 1937 (explaining that though "legal conclusions can provide the framework of a complaint, they must be supported by
On a motion to dismiss, a court may examine "documents attached to [the complaint] or incorporated in it by reference." Nasso v. Bio Reference Labs., Inc., 892 F.Supp.2d 439, 446 (E.D.N.Y.2012) (quoting In re Merrill Lynch & Co., 273 F.Supp.2d 351, 356-57 (S.D.N.Y.2003)) (internal citations omitted). Here, plaintiff attached his employment contract as an exhibit to the Second Amended Complaint, and the Court has considered its terms without objection by either party.
In Rocanova v. Equitable Life Assur. Socy. of U.S., the New York Court of Appeals set forth the following standard applicable in cases where a contracting party seeks punitive damages:
83 N.Y.2d 603, 613, 612 N.Y.S.2d 339, 634 N.E.2d 940 (1994). Courts have since interpreted Rocanova to impose the following requirements: "a plaintiff must establish that the defendant's conduct: (1) is actionable as an independent tort; (2) was sufficiently egregious; and (3) was directed not only against the plaintiff, but was part of a pattern of behavior aimed at the public generally." Leviton Mfg. Co., Inc. v. Reeve, 942 F.Supp.2d 244, 270 (E.D.N.Y. 2013); New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 316, 639 N.Y.S.2d 283, 662 N.E.2d 763 (1995) (describing these requirements as "pleading elements").
As a threshold matter, the New York Court of Appeals has clarified that the Rocanova requirements apply if the tortious conduct at issue "`has its genesis in the contractual relationship.'" Leviton, 942 F.Supp.2d at 270 (quoting New York Univ., 87 N.Y.2d at 316, 639 N.Y.S.2d 283, 662 N.E.2d 763); see also Rocanova, 83 N.Y.2d at 613-14, 612 N.Y.S.2d 339, 634 N.E.2d 940 (considering whether the tortious conduct "constitute[ed], accompan[ied], or [was] associated with the breach of contract," or was "arising out of the contractual relationship).
Plaintiff argues that Rocanova does not apply to his fraudulent inducement claim because his allegations concern his negotiations with defendants, which preceded his employment contract. Therefore, plaintiff contends, defendants' pre-contract conduct cannot arise out of or have its genesis in the later contract. The primary case on which plaintiff relies does suggest that the chronology of the fraudulent inducement allegations and the subsequent contract can determine whether Rocanova applies. See Topps Co., Inc. v. Cadbury Stani S.A.I.C., 380 F.Supp.2d 250, 266 (S.D.N.Y.2005). However, Topps did not hold that fraudulent inducement claims—which by their nature generally contain allegations of conduct occurring before the execution of a contract—never arise out of, or have their genesis in, a contractual relationship. In fact, Topps held the opposite, and found that the parties' contractual relationship gave rise to the allegedly tortious conduct, thus barring punitive damages for the plaintiff's fraudulent inducement claim. 380 F.Supp.2d at 266. Topps based its conclusion on the parties' long-term contractual relationship. To the extent plaintiff suggests that Rocanova can never apply to first-time contracting parties (like plaintiff and defendants here), this Court disagrees. Such a rule would vastly expand the availability of punitive damages in contracts cases under New York law. In fact, the Court is aware of no New York state court decision that has exempted all fraudulent inducement claims in cases involving first-time contracting parties from the Rocanova test.
Other courts have similarly concluded that Rocanova can still apply to fraudulent inducement claims, including where, as here and as is often the case, the fraud is alleged to have preceded the execution of the contract. See, e.g., Mayline Enters., Inc. v. Milea Truck Sales Corp., 641 F.Supp.2d 304, 311-12 (S.D.N.Y.2009); Ventus Networks, LLC v. Answerthink, Inc., No. 05 Civ. 10316(DAB), 2007 WL 582736, at *23 (S.D.N.Y. Feb. 22, 2007); Sofi Classic S.A. de C.V. v. Hurowitz, 444 F.Supp.2d 231, 248 (S.D.N.Y.2006); Merrill Lynch Co., Inc. v. Allegheny Energy, Inc., 382 F.Supp.2d 411, 423 (S.D.N.Y. 2003).
In the instant case, the allegations of fraudulent inducement here are directly related to and rooted in the parties' contractual relationship, even if it was not long-term. The claim alleges three misrepresentations: that iTV Media would hold an initial public offering within one year of plaintiff's employment, that plaintiff would oversee all international operations, and that plaintiff would be paid a certain salary. (Second Am. Compl. ¶¶ 101-02.) All of these misrepresentations
Accordingly, the Court concludes that Rocanova governs the availability of punitive damages in this case. As set forth below, applying the three-part Rocanova test to the allegations in the instant case, plaintiff cannot state a plausible claim for punitive damages, and such claim cannot prevail here as a matter of law.
Because, as noted, punitive damages are not ordinarily available for breach-of-contract claims, the first task under Rocanova is to identify independently tortious conduct. New York Univ., 87 N.Y.2d at 316, 639 N.Y.S.2d 283, 662 N.E.2d 763. Plaintiff's fraudulent inducement claim satisfies this requirement. Although the claim's allegations arise out of the contract, they nonetheless describe conduct that courts have found to be sufficiently independent under Rocanova's first requirement. See id.; Merrill Lynch, 382 F.Supp.2d at 423.
The second requirement for punitive damages is that the alleged conduct be sufficiently egregious. "To establish that a defendant's fraudulent conduct was sufficiently egregious and morally culpable to satisfy the second element, a plaintiff must allege facts that evince a `high degree of moral turpitude' or `such wanton dishonesty as to imply a criminal indifference to civil obligations.'" Ventus, 2007 WL 582736, at *3 (quoting Rocanova, 83 N.Y.2d at 613, 612 N.Y.S.2d 339, 634 N.E.2d 940).
Here, as in Ventus, even if the allegations (viewed in a light most favorable to plaintiff) demonstrate a "clear intent to defraud," id., the conduct they describe is not egregious enough to warrant punitive damages. Punitive damages "have been refused in the `ordinary' fraud and deceit case," Walker v. Sheldon, 10 N.Y.2d 401, 405, 223 N.Y.S.2d 488, 179 N.E.2d 497 (1961), and the allegations in the Second Amended Complaint do not set plaintiff's claim apart. For example, plaintiff has identified no authority suggesting that any conduct analogous to the alleged failure to hold a promised initial public offering, or to grant an employee the expected level of authority, involves any degree of "moral turpitude," much less a high one, or is so wanton as to "imply a criminal indifference." Rocanova, 83 N.Y.2d at 613, 612 N.Y.S.2d 339, 634 N.E.2d 940. In fact, plaintiff did not address this element in his papers at all. To the extent that defendants' allegedly false reporting caused the imposition of a higher tax burden on plaintiff, that allegation
Having independently examined the Second Amended Complaint, accepted its allegations as true, and viewed those allegations in a light most favorable to plaintiff, the Court concludes, as a matter of law, that the allegations describe ordinary commercial fraud, and lack the egregiousness required to support a plausible claim for punitive damages under New York law.
In an abundance of caution, the Court will also consider whether the Second Amended Complaint satisfies the third Rocanova requirement, that the fraud "was directed not only against the plaintiff, but was part of a pattern of behavior aimed at the public generally." Leviton, 942 F.Supp.2d at 270. "When the Court of Appeals articulated the public aim requirement in Rocanova and . . . in New York University, it invoked an earlier distinction between `a gross and wanton fraud upon the public' and `an isolated transaction incident to an otherwise legitimate business.' . . . The latter, it implied, would not constitute conduct aimed at the public generally." TVT Records, 412 F.3d at 95.
The allegations in this case clearly describe "an isolated transaction" that fits within the latter category. First, the Second Amended Complaint describes fraud with respect to a single contract,
Second, punitive damages in this case would not "vindicate public rights," Rocanova, 83 N.Y.2d at 613, 612 N.Y.S.2d 339, 634 N.E.2d 940, because the allegations do not describe conduct that was "directed" or "aimed at" the general public. Leviton, 942 F.Supp.2d at 270. Instead, plaintiff alleges that defendants aimed at him, and that there was some incidental effect on the general public, in the form of funds that should have been paid under the Federal Insurance Contribution Act. (See Compl. ¶ 111.) However, a fraudulent scheme that allegedly affects the general public in some way is not the equivalent of a fraud that targets the public. See TVT Records, 412 F.3d at 95 (distinguishing between "incidental effects" and "conduct directed at the public generally"). For example, in United States v. Merritt Meridian Constr. Corp., the Second Circuit concluded that the fraud at issue was not aimed at the general public even though the defendant contractor, who committed fraud against a subcontractor, did so while being paid by the government to build facilities at West Point, and thus effectively overcharged the public for its services. See 95 F.3d 153, 161 (2d Cir.1996).
Likewise, an alleged effect on public funds, whether related to a tax dispute or FICA payments, does not change the orientation of defendants' conduct: plaintiff claims that defendants singled him out. (See Second Am. Compl. ¶¶ 21-28.)
In sum, the allegations in the Second Amended Complaint do not describe conduct that, under New York law, could plausibly warrant the award of punitive damages, because the alleged fraud is not sufficiently egregious, nor was it aimed at the general public. Accordingly, defendants' motion to dismiss the claim for punitive damages is granted.
SO ORDERED.
