SEIBEL, District Judge.
Before the Court are Defendants' Motions to Dismiss Plaintiffs' Second Amended Complaint. (Docs. 53, 56, 59.)
For the purposes of the instant motions, the Court assumes the facts, although not the legal conclusions, in the Second Amended Complaint to be true. Plaintiff Leland Eaves is a Colorado resident and the owner of Plaintiff Cando Consultant Services, Inc. ("Cando"), a Florida-based construction services company. (SAC ¶¶ 89.)
Designs acted as the BETA Plan Sponsor and, in that capacity, created and "primarily advocated" for the plan. (Id. ¶¶ 2, 36a.) Knowing that the IRS considered plans structured similarly to the BETA Plan to be illegal tax shelters, Designs opted not to obtain a private letter ruling from the IRS regarding the plan; instead, it sought legal analysis from Defendant Moritt, a New York-based law firm. (Id. ¶¶ 6, 12.) Despite knowing that, as Plaintiffs allege, "IRS laws were not strong and that it was skating on thin ice by approving the BETA Plan," Moritt endorsed the plan in a 54-page opinion letter to Designs dated September 24, 2000-a letter, Plaintiffs allege, that contained "questionable analysis of IRS code and case law." (Id. ¶¶ 6, 36b.)
In July 2001, Plaintiffs' accountant Jack Winebrenner suggested to Eaves that he look into the BETA Plan for use with his small business, Cando. (Id. ¶ 37.) Winebrenner had received information regarding the plan from John Rau, an agent of CNA, one of the plan's marketers and funders, who himself had received information from Designs. (Id. ¶ 38.) Winebrenner prepared a packet of information for Plaintiffs (the "BETA Plan Sales Packet"), which included a letter from Rau, an overview of the plan, questions and answers regarding the plan, cost information, and Moritt's September 24, 2000 opinion letter to Designs. (Id. ¶¶ 3839, Ex. B.) After reading through the BETA Plan Sales Packet, which Plaintiffs allege was "endorsed" by both Designs and Moritt, Plaintiffs decided to enroll in the BETA Plan in October 2001. (Id. ¶ 40.)
Starting in 2001, and continuing through 2007, Plaintiffs made annual contributions of $40,000 to the BETA Plan and, "as advised by Rau and Defendants Moritt ... and Designs," claimed the same amount as annual tax deductions. (Id. ¶¶ 4041.) In 2003, the IRS issued stricter regulations on multiple-employer benefit plans under Section 419A(f)(6) of the IRC. (Id. ¶ 34.) In response to those regulations, Designs signed a BETA Plan Severance Agreement, effective January 1, 2003, that effectively transformed the BETA Plan from one multiple-employer plan ("MEP") into several single-employer plans ("SEP"). (Id. ¶¶ 34, 43.) This change in plan structure resulted in a split-dollar life insurance arrangement for plan participants, pursuant to which plan benefits would be separated between employers and shareholder-employees. (Id. ¶ 34.)
In February 2004, Rau sent a letter to Winebrenner (who presumably forwarded the letter to Plaintiffs, as they have attached the letter to their Second Amended Complaint) stating that the IRS regulations had made the BETA Plan strategy "stronger than ever." (Id. ¶ 42, Ex. C.) Plaintiffs allege, instead, that the changes made the plan strategy riskier, and that Designs should have been aware of the risks associated with the regulations and alerted Plaintiffs to such risks. (Id. ¶ 42.) In December 2004, the BETA Plan Administrator sent plan participants a letter notifying them of the plan's re-characterization as a SEP, as described above. (Id. ¶ 45.) The letter informed Plaintiffs that the changes did not affect them and were made for compliance purposes only. (Id.) Plaintiffs allege, however, that such changes "solidified the [BETA] Plan as a deferred compensation plan rather than the legitimate welfare benefit plan it was
In December 2007, Designs sent a letter to plan participants alerting them to other, new IRS rulings and "attempt[ing] to reassure" them that the plan was still valid. (Id. ¶¶ 47, 49, Ex. E.) Designs included with that letter a December 7, 2007 memorandum from Defendant Prusky, a Philadelphia-based law firm, to Designs that "further advocated for the legality of the BETA Plan in spite of the IRS revisions." (Id. ¶ 48, Ex. E.) The Prusky memo also recommended that plan participants file a Form 8886 with the IRS disclosing contributions to the BETA Plan and associated tax deductions, and warned participants that even if the IRS found the deductions to be appropriate, it could nonetheless opt to impose penalties for a failure to file a Form 8886. (Id. ¶ 50, Ex. E.)
Eaves received a letter from the IRS dated March 26, 2008, notifying him that he would be audited due to his participation in the BETA Plan for the years 2005, 2006, and 2007. (Id. ¶ 54, Ex. A.) He received another letter from the IRS on February 26, 2010, analyzing his involvement in the BETA Plan as an employee-shareholder and stating that he owed approximately $250,000. (Id. ¶ 54, Ex. D.)
As to the fraud claims, Plaintiffs point to the following instances of fraud: Designs' "marketing strategy and the letters it continued to send to Plaintiffs and Class Members"; Moritt's September 24, 2000 opinion letter to Designs, as well as "letters written by Steven Horowitz in December 2002, and August 12, 2003," in which it "misrepresented the legality of the Plan"; and Prusky's December 7, 2007 memorandum to Designs and "a legal opinion on July 13, 2005 further affirming the legitimacy of the BETA Plan." (Id. ¶ 70.)
Plaintiff Eaves filed the original Complaint in this case on April 21, 2009, (Doc. 1), against Designs, as well as Pointe Benefit Consultants LLC, North Fork Bank, Capital One Bank, CNA, Sun Life Financial, and Valley Forge Insurance Co. — entities Eaves alleged to have been the administrator, trustee, and various marketers and/or funders of the BETA Plan, respectively, (id. ¶ 34).
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "While a complaint attacked by a Rule 12(b)(6) motion
In considering whether a complaint states a claim upon which relief can be granted, the court may "begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth," and then determine whether the remaining well-pleaded factual allegations, accepted as true, "plausibly give rise to an entitlement to relief." Id. Deciding whether a complaint states a plausible claim for relief is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged — but has not `show[n]' — `that the pleader is entitled to relief'" Id. (quoting Fed. R.Civ.P. 8(a)(2)).
When deciding a motion to dismiss, the Court is entitled to consider the following:
Weiss v. Inc. Vill. of Sag Harbor, 762 F.Supp.2d 560, 567 (E.D.N.Y.2011) (citation omitted); accord Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir.2002). A document is considered "integral" to the complaint where the plaintiff has "reli[ed] on the terms and effect of [the] document in drafting the complaint." Chambers, 282 F.3d at 153 (emphasis omitted). Such reliance "is a necessary prerequisite to the court's consideration of the document on a dismissal motion; mere notice or possession is not enough." Id.; see Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir.2006) (integral documents may include documents partially quoted in complaint or on which plaintiff relied in drafting complaint). If a document outside of the complaint is to form the basis for dismissal, however, two requirements must be met in addition to the requirement that the document be "integral" to the complaint: (1) "it must be clear on the record that no dispute exists regarding the authenticity or accuracy of the document"; and (2) "[i]t must also be clear that there exist no material disputed issues of fact regarding the relevance of the document." Faulkner, 463 F.3d at 134.
Both Designs and Plaintiffs have submitted with their briefing various documents outside the Second Amended Complaint. First, Designs has submitted both the original Complaint in this action, as
The Court may not consider, however, the document Designs submits entitled "BETA Individual Employer Welfare Benefit Plan Waiver and Representation Agreement." (Id. Ex. B.) Though Eaves signed the document and presumably either had notice or possession of it, this is not enough for the Court to consider it. While Designs would certainly prefer the Court to consider the document — it contains liability waivers and representations regarding risk and reliance that Designs argues bar some of Plaintiffs' claims — nothing in the document or Second Amended Complaint suggests that Plaintiffs relied on the terms or effect of the document in drafting their Second Amended
Plaintiffs have also submitted documents outside the Second Amended Complaint in connection with their Opposition papers to Moritt's motion to dismiss and Prusky's motion to dismiss. In response to Moritt's motion, Plaintiffs have submitted a December 16, 2002 letter from Moritt to BETA Plan participants, (Balla Decl. ISO Moritt Opp'n Ex. A),
Finally, in connection with their Opposition papers to Prusky's motion, Plaintiffs have submitted a November 13, 2007 Prusky "sponsor memo," (Balla Decl. ISO Prusky Opp'n Ex. A),
Plaintiffs assert a claim for fraudulent inducement against Designs. To state a claim for fraudulent inducement under New York law,
Fraudulent inducement claims are subject to the heightened pleading
In support of their fraudulent misrepresentation claim, Plaintiffs allege that "Designs knowingly made material misrepresentations to Plaintiffs and Class Members regarding the BETA Plan .... in order to induce Plaintiffs and Class Members into participating in the BETA Plan." (SAC ¶¶ 8283.) The Second Amended Complaint, however, contains scant allegations of misrepresentations made by Designs prior to the time when Plaintiffs actually started participating in the plan in October 2001. Plaintiffs attempt to frame the BETA Plan Sales Packet as a representation by Designs, but that packet contains no documents authored by Designs or any agent thereof. As Designs points out, the sales packet explicitly advertises that it was prepared by Jack Winebrenner, (id. Ex. B, at 1), and it contains an introductory letter and other summary materials from John Rau, (id. Ex. B, at 323) — indeed, Rau states in his letter, "Enclosed, you will find a [welfare benefit trust] overview, questions and answers, plan legal opinion and all costs associated with implantation [sic]," (id. Ex. B, at 3) — as well as the September 24, 2000 sponsor memo authored by Moritt, (id. Ex. B, at 24-77), and a March 8, 1999 letter from Steven A. Horowitz and Horowitz, Mencher, Klosowski & Nestler, P.C. (presumably a predecessor firm to Moritt) to a company called Tan Oriented Plans, Inc., noting that the firm will provide assistance to BETA Plan participants, (id. Ex. B, at 78). Plaintiffs allege only that Designs "endorsed" the sales packet. (Id. ¶ 40.) Whether this is a reference to Designs'
Similarly falling short of Rule 9(b) are Plaintiffs' allegations regarding Designs' marketing of the BETA Plan. Indeed, despite titling a section of their Second Amended Complaint as "Specific Allegations of Fraud," Plaintiffs make only general, repetitive allegations as to Designs' marketing of the BETA Plan:
As the foregoing allegations demonstrate, Plaintiffs fail to identify who at Designs made the representations, fail to narrow the time frame within which the representations were made to a period shorter than "during 2001," fail to state where the representations were made, and fail to provide any information regarding what form the representations took, i.e., to identify the media through which Designs allegedly marketed the BETA Plan to Plaintiffs. As such, these allegations fail to allege fraud with specificity under Rule 9(b). See, e.g., Manhattan Motorcars, Inc. v. Automobili Lamborghini, S.p.A., 244 F.R.D. 204, 216-17 (S.D.N.Y.2007) (plaintiff failed to satisfy Rule 9(b) where it asserted that allegedly fraudulent statements were made by defendant's unnamed representatives and failed to provide specific timeframe for statements or identify where statements were made); Inst. of Applied Human Dynamics v. Mut. of Am., No. 02-2331, 2003
Further, although Plaintiffs include allegations that refer only to statements of Moritt and/or Prusky, Plaintiffs attempt to plead fraud through various allegations as to "Defendants" in general, without differentiating among Designs, Moritt, or Prusky. (See, e.g., SAC ¶¶ 68, 72-77.) In cases with multiple defendants, however, Rule 9(b) requires that a complaint allege facts specifying each defendant's contribution to the fraud. See Luce v. Edelstein, 802 F.2d 49, 54 (2d Cir.1986); see also Pac. Elec. Wire & Cable Co. v. Set Top Int'l, Inc., No. 03-9623, 2005 WL 578916, at *15 (S.D.N.Y. Mar. 11, 2005) ("Plaintiffs' lumping together of fraud allegations against the `Defendants' ... does not satisfy Rule 9(b)."). And while such generalities may be excused where, for instance, the facts upon which a plaintiff bases its fraud claim are peculiarly within a defendant's knowledge, see, e.g., Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir.1990), Plaintiffs put forth no such argument. Indeed, Plaintiffs allege that Designs made misrepresentations to Plaintiffs, and, as such, the date, place, and contents of the statements are not facts peculiarly within Designs' knowledge. Plaintiffs' fraud allegations as to Designs therefore fail to satisfy Rule 9(b).
To the extent that Plaintiffs claim that Designs induced them not only to adopt the MEP version of the BETA Plan in October 2001 but also the SEP version of the BETA Plan in 2003, the claim must still fail. First, the Second Amended Complaint does not detail any particular communication from Designs (as opposed to the many intermediaries between Designs and Plaintiffs) that induced Plaintiffs to adopt the SEP version of the Plan. Second, "[a] key element of a fraudulent inducement claim is reasonable reliance." Brady v. Calyon Sec. (USA), 406 F.Supp.2d 307, 316 (S.D.N.Y.2005) (citing Eternity Global Master Fund, Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 186-87 (2d Cir.2004)). But here, Plaintiffs have disclaimed reliance on any statements that may have induced them to enter the SEP version of the BETA Plan. The "Adoption Agreement for the BETA Individual Employer Welfare Benefit Plan," which, as discussed above, was signed by Eaves on December 24, 2004, and which was effective January 1, 2003, contains the following disclaimers:
(Richan Decl. Ex. A, at 4-5.) These disclaimers are fatal. "[W]here a party specifically disclaims reliance upon a particular representation in a contract, that party cannot, in a subsequent action for common law fraud, claim it was fraudulently induced to enter into the contract by the very representation it has disclaimed reliance upon." Harsco Corp. v. Segui, 91 F.3d 337, 345 (2d Cir.1996); accord DynCorp v. GTE Corp., 215 F.Supp.2d 308, 319 (S.D.N.Y.2002) ("[Plaintiff's] particularized disclaimers make it impossible for it to prove one of the elements of a claim of fraud: that it reasonably relied on the representations that it alleges were made to induce it to enter into the Purchase Agreement. A party to a contract cannot allege that it reasonably relied on a parol representation when, in the same contract, it specifically disclaims reliance upon [that] particular representation.") (alteration in original) (citation and internal quotation marks omitted); Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320-21, 184 N.Y.S.2d 599, 157 N.E.2d 597 (1959) ("[P]laintiff has in the plainest language announced and stipulated that it is not relying on any representations as to the very matter as to which it now claims it was defrauded. Such a specific disclaimer destroys the allegations in plaintiff's complaint that the agreement was executed in reliance upon these contrary oral representations.")
Finally, Plaintiffs, in their Second Amended Complaint, admit that they did not rely to their detriment upon the only other specific representations from Designs that they identify: (1) Designs' December 10, 2007 letter to plan participants alerting them to new IRS rulings and enclosing Prusky's December 7, 2007 memorandum, (SAC ¶¶ 4748, Ex. E), and (2) Designs' April 9, 2008 follow-up letter to plan participants further urging them to file Form 8886 disclosures with the IRS, (id. ¶ 52, Ex. F). As Plaintiffs themselves admit, Eaves did not trust Prusky's evaluation of the BETA Plan that was attached to Designs' December 10, 2007 letter, and, because of this, he opted not to claim his BETA Plan contributions as a tax deduction for the 2007 tax year, (id. ¶ 57), and even attempted to discontinue his and Cando's involvement in the Plan altogether, (id. ¶ 36c; Pls.' Opp'n to Prusky at 2 ("Plaintiffs decided to stop making additional contributions once Prusky released its memo....")).
Plaintiffs' fraudulent inducement claim must therefore fail.
Plaintiffs assert fraud claims against Moritt and Prusky. As noted above, the heightened pleading standards of Rule 9(b) apply to fraud claims. To state a claim for fraud, Plaintiffs must allege the following: "(1) a material misrepresentation or omission of fact (2) made by defendant with knowledge of its falsity (3) and intent to defraud; (4) reasonable reliance on the part of the plaintiff; and (5) resulting damage to the plaintiff." Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir.2006). As noted above, the fraud claims are based upon Moritt's September 24, 2000 opinion letter and "letters written by Steven Horowitz in December 2002, and August 12, 2003" in which Moritt "misrepresented the legality of the Plan," as well as Prusky's December 7, 2007 memorandum to Designs and "a legal opinion on July 13, 2005 further affirming the legitimacy of the BETA Plan." (SAC ¶ 70.)
I consider first Moritt's September 24, 2000 opinion letter, which was included in the BETA Plan Sales Packet attached to the Second Amended Complaint, (SAC Ex. B), as well as the letter from Moritt dated August 12, 2003, which Plaintiffs reference only in passing in the Second Amended Complaint, (id. ¶ 70), and attach to their Opposition papers, (Balla Decl. ISO Moritt Opp'n Ex. C). Both of these letters are addressed to Designs, not to Plaintiffs, or even to BETA Plan participants generally. Under New York law, a claim for fraud may lie even when a defendant does not make the statement directly to the plaintiff, but only if (1) the plaintiff received the information from someone who had received it from the defendant, and (2) the defendant intended the misrepresentation to be conveyed to him. See Sec. Investor Prot. Corp. v. BDO Seidman, LLP, 222 F.3d 63, 71 (2d Cir.2000). Plaintiffs do not allege any facts on the latter point; rather, they ignore that these letters were not sent to them by Moritt. Their allegation that Moritt "directed [its] marketing toward all clients, including Eaves and Cando, seeking an IRS-approved tax shelter," (SAC ¶ 71), is totally conclusory, and Moritt's intent with respect to the forwarding of the letter to others is simply unaddressed.
Even assuming that the Second Amended Complaint could be read as alleging Moritt's intent to convey the letters to Plaintiffs, the claim would be undone by the language contained within the letters themselves. Both letters explicitly state,
(SAC Ex. B, at 27; Balla Decl. ISO Moritt Opp'n Ex. C, at 45.) Plaintiffs do not allege — even upon information and belief — that Designs obtained Moritt's express written consent to forward these letters to BETA Plan participants for their reliance thereon.
I next consider the December 16, 2002 letter from Moritt to BETA Plan participants and the December 17, 2002 letter from Moritt to Designs. (Balla Decl. ISO Moritt Opp'n Exs. A, B.) The December 17, 2002 letter contains the same disclaimer language as the December 24, 2000 and August 12, 2003 letters indicating that the opinions contained therein are directed to and intended to be relied upon by Designs only, (id. Ex. B, at 2-3), but the disclaimer in the December 17, 2002 letter is undercut by language contained in the December 16, 2002 letter. As an initial matter, because the December 16, 2002 letter was addressed to BETA Plan participants, it cannot plausibly be argued that Moritt did not intend Plaintiffs to rely upon it. That letter contains opinions regarding then-recent developments concerning IRC § 419A(f)(6) welfare benefit plans. Importantly, that letter also explicitly states to BETA Plan participants that "[i]n this package you are also receiving a copy of our opinion to the sponsor dealing with this issue and the basis for our opinion as to why Tax Return disclosure is not required by Beta Plan participants." (Id. Ex. A, at 1 (emphasis added).) Because the December 17, 2002 letter discusses those very disclosure issues
Moritt argues that, even if it intended that the letters be conveyed to Plaintiffs, the letters cannot support a fraud claim because they contain unactionable legal opinions, not misrepresentations of fact. Moritt seems to suggest — incorrectly — that statements of opinion are per se unactionable. While it is true that "statements that, in retrospect, were inaccurate or were too highly optimistic do not typically constitute material misstatements," In re Nokia Oyj (Nokia Corp.) Sec. Litig., 423 F.Supp.2d 364, 397 (S.D.N.Y.2006) (collecting cases), Plaintiffs allege more than that here. Plaintiffs do not allege merely that Moritt's opinions turned out to be wrong, but instead that Moritt did not actually believe its opinions when it communicated them. (See, e.g., SAC ¶¶ 6 ("Moritt Hock knew that the IRS laws were not strong and that it was skating on thin ice by approving the BETA Plan, but Moritt Hock still represented to Class Members that the Plan was legally permissible."), 63 ("Moritt Hock ... fraudulently supported the BETA Plan and reaffirmed the legality of the Plan to Plaintiffs.... while knowing that it did not fulfill the requirements detailed by IRS Code §§ 419 & 419A ...."); see also id. ¶¶ 2, 31, 99.) Such statements are indeed actionable as fraudulent misrepresentations. See Abu Dhabi Commercial Bank v. Morgan Stanley & Co., 651 F.Supp.2d 155, 176 (S.D.N.Y.2009) (for New York common-law fraud claim, "`[a]n opinion may still be actionable if the speaker does not genuinely and reasonably believe it or if it is without basis in fact'") (quoting In re IBM Corp. Sec. Litig., 163 F.3d 102, 109 (2d Cir.1998)); see also Novak v. Kasaks, 216 F.3d 300, 315 (2d Cir.2000) (defendants' statements that "the inventory situation was `in good shape' or `under control' while they allegedly knew that the contrary was true" was more than mere puffery and therefore actionable); Lapin v. Goldman Sachs Grp., Inc., 506 F.Supp.2d 221, 239 (S.D.N.Y.2006) ("[O]ptimistic statements may be actionable upon a showing that the defendants did not genuinely or reasonably believe the positive opinions they touted (i.e., the opinion was without a basis in fact or the speakers were aware of facts undermining the positive statements), or that the opinions imply certainty."). While it will not be sufficient for Plaintiffs to prove that Moritt's opinion was incorrect, and while Plaintiffs will be expected to provide the Court with evidence during later stages of this litigation demonstrating that Moritt did not genuinely or reasonably believe the opinions it expressed in its December 16, 2002 and December 17, 2002 letters, Plaintiffs' allegations as described above are sufficient at this stage to state a claim for fraud.
I consider, finally, Plaintiffs' fraud claim against Prusky, which is based on Prusky's December 7, 2007 memorandum to Designs and "a legal opinion on July 13, 2005 further affirming the legitimacy of the BETA Plan." (SAC ¶ 70.) The December 7, 2007 memorandum cannot support a fraud claim because, as explained above, Plaintiffs expressly disclaimed detrimental
Plaintiffs assert negligent misrepresentation claims against all three defendants. Under New York law, a negligent misrepresentation claim must satisfy the following elements:
Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 20 (2d Cir.2000).
Defendants argue that Rule 9(b) applies to negligent misrepresentation claims. The Second Circuit has not explicitly ruled on whether such claims must satisfy Rule 9(b). See Eternity Global, 375 F.3d at 188 ("Rule 9(b) may or may not apply to a state law claim of negligent misrepresentation"). As the Court noted in Eternity, however, a number of district courts in this Circuit have required negligent misrepresentation claims to satisfy Rule 9(b). See id.; see also Ebusinessware, 2009 WL 5179535, at *13 (acknowledging that the Second Circuit has left open the question of whether Rule 9(b) applies to negligent misrepresentation claims, but nonetheless applying Rule 9(b) to the negligent misrepresentation claim at issue); DeBlasio v. Merrill Lynch & Co., Inc., No. 07-0318, 2009 WL 2242605, at *12 (S.D.N.Y. July 27, 2009) (same); Welch v. TD Ameritrade Holding Corp., No. 07-6904, 2009 WL 2356131, at *23 (S.D.N.Y. July 27, 2009) (same). Even if Rule 9(b) does not apply to all negligent misrepresentation claims, in cases where, as here, the negligent misrepresentation claim is
I first consider Plaintiffs' negligent misrepresentation claim against Designs. Given that both this claim and Plaintiffs' fraudulent inducement claim are subject to Rule 9(b) and require Plaintiffs to allege a misrepresentation by Designs and reasonable reliance thereon, the negligent misrepresentation claim is subject to the same analysis as laid out above. Namely: (1) Plaintiffs have not adequately alleged that the BETA Sales Packet constituted a representation by Designs; (2) Plaintiffs' allegations regarding marketing of the BETA Plan do not satisfy Rule 9(b); and (3) Plaintiffs have not alleged reasonable reliance on Designs' December 10, 2007 and April 9, 2008 letters. I therefore dismiss this claim as to Designs.
Plaintiffs' negligent misrepresentation claims against Moritt and Prusky, however, require a slightly different analysis. Both Moritt and Prusky argue that they did not have a duty, as a result of a special relationship, to give correct information to Plaintiffs. It is black letter law in New York that a party can assert a negligent misrepresentation claim against a professional only where there is either actual contractual privity or a relationship "`so close as to approach that of privity.'" Ossining Union Free Sch. Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417, 424, 541 N.Y.S.2d 335, 539 N.E.2d 91 (1989) (quoting Ultramares Corp. v. Touche, 255 N.Y. 170, 182-83, 174 N.E. 441 (1931)). This rule has been extended to negligent misrepresentation claims against attorneys. See Prudential Ins. Co. v. Dewey, Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377, 381, 590 N.Y.S.2d 831, 605 N.E.2d 318 (1992). Where, as here, actual contractual privity is lacking with the attorney, a plaintiff must allege the following: "(1) an awareness by the maker of the statement that it is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance." Id. at 384, 590 N.Y.S.2d 831, 605 N.E.2d 318 (citing Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536, 551, 493 N.Y.S.2d 435, 483 N.E.2d 110 (1985)).
As noted above, the September 24, 2000 and August 12, 2003 letters from Moritt were both addressed from Moritt to Designs. Although Plaintiffs allege in conclusory fashion that Moritt "knew or should have known" that Plaintiffs would rely upon its opinion letters, (see, e.g., SAC ¶¶ 2, 99), with respect to these two letters, those allegations are undone by the above-quoted declaimer language, (see id. Ex. B, at 27; Balla Decl. ISO Moritt Opp'n Ex. C, at 45), expressly stating that Moritt's opinions were rendered only to Designs and were not intended to be relied upon BETA Plan participants. Plaintiffs' negligent misrepresentation claims with respect to these letters must therefore be dismissed. See, e.g., Doehla, 1999 WL 566311, at *20 (negligent misrepresentation claim against attorney dismissed where "[m]issing from the complaint is any allegation suggesting that the purpose or the `end and aim' of [the attorney's] engagement by the [client] was reliance by [plaintiff] on his alleged negligently furnished declarations" and the attorney "issued no opinion letter or report upon which [plaintiff] was urged to rely"); Crossland Sav. FSB v. Rockwood Ins. Co., 700 F.Supp. 1274, 1282 (S.D.N.Y.1988) ("[T]he attorney owes a duty to the third party if the opinion letter is either addressed to the third party or expressly authorizes his reliance."); cf. Vereins-Und Westbank, AG v. Carter, 691 F.Supp. 704, 706, 716 (S.D.N.Y.1988) (denying summary judgment and sustaining plaintiff's negligent misrepresentation claim against attorney because client expressly instructed attorney to prepare opinion letter for third party, and letter expressly stated "[t]his opinion may be relied upon by [third party] and its assignee").
Plaintiffs may, however, proceed with their negligent misrepresentation claim based upon Moritt's December 16, 2002 and December 17, 2002 letters. As noted above, the December 16, 2002 letter to BETA Plan participants notes that it encloses the December 17, 2002 letter to Designs. As both letters were directed to BETA Plan participants, the plan participants' reliance thereon was clearly the "end and aim" of such letters, and they are sufficient to support a negligent misrepresentation claim as to Moritt. See, e.g., Meranus v. Gangel, No. 85-9313, 1989 WL 240072, at **3-4 (S.D.N.Y. Aug. 10, 1989) (sustaining third-party negligent misrepresentation claim against partnership's law firm that was alleged to have issued inaccurate tax opinions in connection with numerous deals by partnership); Prudential Ins. Co., 80 N.Y.2d at 385, 590 N.Y.S.2d 831, 605 N.E.2d 318 (law firm owed duty of care to third party in issuing opinion letter where law firm knew "end and aim" of opinion was use by third party in determining whether to permit client's debt restructuring). Moritt also argues that the letters are not actionable as statements of opinion, but, as discussed above, statements of opinion may support a fraud claim when a plaintiff alleges that the defendant did not genuinely or reasonably believe the opinions at the time the defendant made them. This principle applies to negligent misrepresentation claims as well. See, e.g., In re Merrill Lynch Auction Rate Sec. Litig., No. 09-MD-2030, 2011
Plaintiffs' negligent misrepresentation claim against Prusky, however, must be dismissed for the reasons stated in connection with the fraud claim: Plaintiffs expressly disclaim detrimental reliance on the December 7, 2007 memorandum, and their allegations with respect to the July 13, 2005 legal opinion fail to satisfy Rule 9(b).
Plaintiffs assert claims for civil conspiracy against all three defendants. "Under New York law, there is no independent tort for conspiracy. All that an allegation of conspiracy can accomplish is to connect nonactors, who otherwise might escape liability, with the acts of their coconspirators." IMG Fragrance Brands, LLC v. Houbigant, Inc., 759 F.Supp.2d 363, 386 (S.D.N.Y.2010) (citation omitted). Therefore, to establish a claim for civil conspiracy, a plaintiff must first demonstrate an underlying tort upon which the conspiracy may be based. Id. Plaintiffs argue that their civil conspiracy claim is based on the underlying torts of fraud and negligent misrepresentation. (See Pls.' Opp'n to Designs at 18; Pls.' Opp'n to Moritt at 24; Pls.' Opp'n to Prusky at 22.) The law is clear, however, that while a fraud may serve as the underlying tort for a civil conspiracy claim, negligence may not. See, e.g., Drake v. Lab. Corp. of Am. Holdings, No. 02-1924, 2007 WL 776818, at *6 (E.D.N.Y. Mar. 13, 2007) ("`Since a civil conspiracy cause of action requires a showing of intentional conduct, negligence cannot serve as the underlying tort.'") (quoting Rosen v. Brown & Williamson Tobacco Corp., 11 A.D.3d 524, 782 N.Y.S.2d 795, 795 (2d Dep't 2004)). Because Plaintiffs' fraud claim against Moritt is the only surviving tort claim, it functions as the sole basis for Plaintiffs' civil conspiracy claim.
To establish a claim of civil conspiracy, Plaintiffs "must demonstrate the underlying tort, plus the following four elements: (1) an agreement between two or more parties; (2) an overt act in furtherance of the agreement; (3) the parties' intentional participation in the furtherance of a common purpose or plan; and, (4) resulting damage or injury." IMG Fragrance Brands, LLC, 759 F.Supp.2d at 386. Plaintiffs have sufficiently pleaded a conspiracy to defraud between Designs and Moritt. They have properly pleaded an agreement between the parties by alleging, inter alia, that "Designs created the BETA Plan knowing that it would not be approved directly by the IRS in a private letter ruling and sought the opinion of Moritt Hock for a favorable interpretation of the law relevant to the BETA Plan," (SAC ¶ 31), and that "Moritt Hock, as counsel specifically hired by Designs to market and affirm the legitimacy of the BETA Plan, wrote a fifty-four page document to Designs ... falsely endorsing the BETA Plan," (id. ¶ 66). See, e.g., First Fed. Sav. & Loan Ass'n of Pittsburgh v. Oppenheim, Appel,
Plaintiffs assert claims for breach of contract and breach of the implied duty of good faith and fair dealing against Designs. Both claims require Plaintiffs to adequately allege the existence of a contract. See, e.g., Serdarevic v. Centex Homes, LLC, 760 F.Supp.2d 322, 330-31, 333-34 (S.D.N.Y.2010); Davidowitz v. Patridge, No. 08-6962, 2010 WL 1779279, at *5 n. 6 (S.D.N.Y. Apr. 23, 2010).
Plaintiffs offer only vague and conclusory allegations as the an agreement between themselves and Designs:
Plaintiffs fail to provide facts regarding any specific contract between the parties, how or when such contract was formed, or any terms of the contract(s) at issue. It is unclear, for instance, if their breach of contract or breach of the implied duty of good faith and fair dealing claims pertain to their 2001 enrollment in the MEP version of the BETA Plan, their 2003 enrollment in the SEP version of the BETA
The Second Amended Complaint instead focuses on the BETA Plan — a document separate and distinct from any enrollment or adoption agreement, (see Richan Decl. Ex. E) — and the BETA Sales Packet — a document Plaintiffs allege Designs "sponsored" in order to induce them to adopt the BETA Plan. But allegations regarding other documents cannot substitute for allegations regarding the contract that has allegedly been breached. Neither can allegations regarding Designs' representations, whether in marketing materials or otherwise, concerning the nature of the Plan or its legal viability. Moreover, it is unclear from the Second Amended Complaint whether the misrepresentations to which Plaintiffs point — namely, that the BETA Plan was a legitimate welfare benefit plan under which tax deductions were permissible, rather than an illegal tax shelter — were even contained in the alleged contract, or whether they were merely extrinsic statements made to induce Plaintiffs to enter the alleged contract. To the extent Plaintiffs allege that the misrepresentations were merely extrinsic statements, their contract claim is "nothing more than a regurgitation of the[ir] fraud claim." Salzmann v. Prudential Sec., Inc., No. 91-4253, 1994 WL 191855, at *8 (S.D.N.Y. May 16, 1994) ("[T]he Amended Complaint ... only alleges that the defendants made these representations in order to induce the plaintiffs to sign the written contract. There is no specific allegation that these representations were part of a contract or that they form a separate collateral agreement. Thus, the claim is actually one for fraud and not for a contractual breach, and it thereby fails to state a claim upon which relief can be granted.") (citation omitted).
Further, even if there were a contract, Plaintiffs' failure to detail its terms means they cannot establish either that Designs breached an obligation under that contract, as required for a breach of contract claim, see, e.g., Abu Dhabi Commercial Bank, 651 F.Supp.2d at 183 ("For a breach of contract claim, [p]laintiff must provide specific allegations as to ... what provisions of the agreement were breached as a result of the acts at issue.") (alteration in original) (internal quotation marks omitted), or that Designs' conduct prevented
Plaintiffs assert a claim for breach of fiduciary and co-fiduciary duties against all three defendants. To state a claim for breach of fiduciary duty under ERISA, a plaintiff must, at a minimum, allege "1) that the defendant was a fiduciary who, 2) was acting within his capacity as a fiduciary, and 3) breached his fiduciary duty." In re Morgan Stanley ERISA Litig., 696 F.Supp.2d 345, 353 (S.D.N.Y.2009) (citing 29 U.S.C. § 1109; In re AOL Time Warner, Inc. Sec. and "ERISA" Litig., No. 02-8853, 2005 WL 563166, at *3 (S.D.N.Y. Mar. 10, 2005)). "ERISA liability arises only from actions taken or duties breached in the performance of ERISA obligations." In re WorldCom, Inc. ERISA Litig., 263 F.Supp.2d 745, 760 (S.D.N.Y.2003) (citing Pegram v. Herdrich, 530 U.S. 211, 225-26, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000); Varity Corp. v. Howe, 516 U.S. 489, 500, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996)). "In every case charging breach of ERISA fiduciary duty, then, the threshold question is ... whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint." Pegram, 530 U.S. at 226, 120 S.Ct. 2143. A person acts as a fiduciary when he or she "`fulfill[s] certain defined functions, including the exercise of discretionary authority or control over plan management or administration.'" Mahoney v. J.J. Weiser & Co., Inc., 564 F.Supp.2d 248, 255 (S.D.N.Y.2008) (quoting Siskind v. Sperry Ret. Program, Unisys, 47 F.3d 498, 505 (2d Cir.1995)).
Plaintiffs allege that Designs functioned as the BETA Plan sponsor, having "created and primarily advocated for the Plan." (SAC ¶ 2.) "As a matter of law ... Plan sponsors are not ERISA fiduciaries, unless specifically designated in the Plan...." In re AOL Time Warner, 2005
Plaintiffs allege in conclusory fashion that "[u]pon information and belief, Defendants owed a fiduciary duty to Plaintiffs and Class Members providing management services and financial advice with respect to disposition of funds of the Plan." (SAC ¶ 116.) Nothing in the Second Amended Complaint, however, suggests that Designs had discretionary authority over plan management or the investment or disposition of plan funds. Instead, the Second Amended Complaint focuses exclusively upon Designs' creation of the BETA Plan and its modification of the plan's structure. (See id. ¶ 2, 16, 31, 3436, 43, 5455, 63, 66, 69, 75.) The law is clear that these do not constitute fiduciary functions. See Lockheed, 517 U.S. at 890, 116 S.Ct. 1783 (when plan sponsors act to adopt, modify, or terminate an ERISA plan, they act as do settlors of a trust and do not fall into the category of fiduciaries). Plaintiffs' ERISA claim as to Designs is therefore not plausible on its face, and must be dismissed.
Plaintiffs' ERISA claims against Moritt and Prusky stand on even shakier ground. As the Second Circuit has explained,
F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1259-60 (2d Cir. 1987) (alterations in original) (quoting 29 C.F.R. § 2509.75-5). As to Moritt and Prusky, Plaintiffs offer the same conclusory allegation regarding the provision of management services and financial advice as indicated above. (SAC ¶ 116.) Plaintiffs, however, allege no facts supporting the inference that Moritt or Prusky had discretionary authority or control over the management or administration of the plan. See, e.g., Acosta v. Pace Local I-300 Health Fund, No. 04-3885, 2007 WL 496877, at **8-9 (D.N.J. Feb. 9, 2007) (conclusory claims that lawyer acted as fiduciary for ERISA purposes did not state a claim upon which relief could be
In their Opposition papers, Plaintiffs seize upon their conclusory allegations and argue that Moritt and Prusky should be considered fiduciaries because they rendered investment advice. (Pls.' Opp'n to Moritt at 14; Pls.' Opp'n to Prusky at 1112.) The opinion letters and memoranda, however, do not demonstrate that the law firms rendered advice regarding the investment of assets by the BETA Plan — and, in any event, Plaintiffs do not allege facts to support that conclusion. The only investment advice alleged is that concerning plan participants' investment in the BETA Plan, (see, e.g., SAC ¶ 144), which is insufficient to confer fiduciary status — and even those allegations derive from a strained reading of the opinion letters and memoranda. Plaintiffs' Second Amended Complaint therefore falls short of alleging that Moritt and Prusky were fiduciaries, and the claims must be dismissed.
Plaintiffs assert civil RICO claims against all three defendants. Specifically, Plaintiffs allege that "Defendants participated in, directly or indirectly, the conduct of the affairs of the BETA Plan through a pattern of racketeering activity ... and therefore violated 18 U.S.C. § 1962(c)." (Id. ¶ 126.) Section 1962(c) makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity" 18 U.S.C. § 1962(c). Plaintiffs' RICO claims must fail because, at a minimum, they fail to adequately plead a RICO enterprise and a pattern of racketeering.
United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981); accord First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 173 (2d Cir.2004). Plaintiffs merely allege in conclusory fashion that "Defendants, through the BETA Plan, engaged in an `enterprise.'" (SAC ¶ 125.) But they fail to allege any details regarding the hierarchy or organization of the alleged enterprise, or to advance any facts suggesting that the constituent members of the alleged enterprise functioned as a unit. Ultimately, the Second Amended Complaint does not allege that Defendants existed as an association-in-fact separate and apart from the alleged RICO activity, but rather that came together strictly for the purpose of creating these allegedly fraudulent tax shelters. The lack of a separate enterprise is fatal to the RICO claims. See Kottler v. Deutsche Bank AG, 607 F.Supp.2d 447, 459 (S.D.N.Y.2009) (dismissing RICO claim in fraudulent tax shelter case because "allegations in the Amended Complaint fall short of alleging a RICO enterprise that existed separate and apart from any pattern of racketeering activity in which the Defendants and co-conspirators engaged," and finding that "[t]he enterprise and the pattern in this case are one and the same; Defendants and co-conspirators joined forces for the purpose of creating these allegedly fraudulent tax shelters and Plaintiffs seem to concede as much in their opposition to this motion to dismiss: `[Defendants] entered into a formal operating agreement with respect to the sale and promotion of unlawful tax shelters ... Furthermore, [Defendant] used its contacts ... to solicit and discuss their essential participation in the fraudulent scheme.'") (third alteration in original); see also Nasik Breeding & Research Farm Ltd. v. Merck & Co., 165 F.Supp.2d 514, 539 (S.D.N.Y.2001) (dismissing RICO claim where plaintiff merely listed members of alleged enterprise and alleged that they were "combined in an association-in-fact"; plaintiff "failed to present specific details of any hierarchy, organization, or unity among the various alleged conspirators," and "conclusory naming of a string of entities [did] not adequately allege an enterprise") (internal quotation marks omitted); First Nationwide Bank v. Gelt Funding, Corp., 820 F.Supp. 89, 97-98 (S.D.N.Y. 1993) (dismissing RICO claim where plaintiff alleged that "at various times as early as 1985, and possibly earlier ... defendants were associated in fact for the common purpose, among others, of defrauding [plaintiff] through the loan transactions described in this complaint and other means" and that "[t]his association in fact was an `enterprise,'" and stating that "[c]onclusory allegations that disparate parties were associated in fact ... are insufficient to sustain a RICO claim, absent allegations as to how the members were associated together in
An alternate ground for dismissal is Plaintiffs' failure to plead a sufficient pattern of racketeering activity. Under the RICO statute, a "pattern of racketeering activity" requires the commission of at least two predicate offenses within ten years of one another. 18 U.S.C. § 1961(5); see Zito v. Leasecomm Corp., No. 02-8074, 2004 WL 2211650, at *6 (S.D.N.Y. Sept. 30, 2004). Plaintiffs allege that Defendants' pattern of racketeering activity consisted of numerous instances of theft or embezzlement from an employee benefit plan, in violation of 18 U.S.C. § 664,
Plaintiffs assert claims under New York General Business Law Section 349 against all Defendants. The elements of a claim under Section 349 are as follows: "(1) the defendant's challenged acts or practices must have been directed at consumers, (2) the acts or practices must have been misleading in a material way, and (3) the plaintiff must have sustained injury as a result." Cohen v. JP Morgan Chase & Co., 498 F.3d 111, 126 (2d Cir.2007). That a defendant's acts have been "directed at consumers" means not that "the defendant committed the complained-of acts repeatedly — either to the same plaintiff or to other consumers — but instead ... that the acts or practices [had] a broader impact on consumers at large." Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25, 623 N.Y.S.2d 529, 647 N.E.2d 741 (1995). To show that the acts complained of were materially misleading, a plaintiff must show that the acts were "likely to mislead a reasonable consumer acting reasonably under the circumstances." Id. at 26, 623 N.Y.S.2d 529, 647 N.E.2d 741.
"Generally, claims under the statute are available to an individual consumer who falls victim to misrepresentations made by a seller of consumer goods through false or misleading advertising." Small v. Lorillard Tobacco Co., Inc., 94 N.Y.2d 43, 55, 698 N.Y.S.2d 615, 720 N.E.2d 892 (1999). Courts have repeatedly held that "a consumer, for § 349 purposes, is one who purchase[s] goods and services for personal, family or household use." Exxonmobil Inter-Am., Inc. v. Advanced Info. Eng'g Servs., Inc., 328 F.Supp.2d 443, 448 (S.D.N.Y.2004) (alteration in original) (internal quotation marks omitted); see Cruz v. NYNEX Info. Res., 263 A.D.2d 285, 703 N.Y.S.2d 103, 106 (1st Dep't 2000) ("In New York law, the term `consumer' is consistently associated with an individual or natural person who purchases goods, services or property primarily for `personal, family or household purposes.'") (citation omitted). Thus, New York courts have generally found that "when the activity complained of involves the sale of commodities to business entities only, such that it does not directly impact consumers, section 349 is inapplicable." Shema Kolainu-Hear Our Voices v. Providersoft, LLC, No. 09-3140, ___ F.Supp.2d ___, ___, 2010 WL 2075921, at *7 (E.D.N.Y. May 21, 2010); see Exxonmobil, 328 F.Supp.2d at 449 ("Contracts to provide commodities that are available only to businesses do not fall within the parameters of § 349.").
Plaintiffs' claims under Section 349 must fail, as Plaintiffs themselves allege throughout the Second Amended Complain that the BETA Plan was marketed exclusively to small businesses and
(See also id. ¶¶ 13, 18, 24, 32, 37, 67, 7273 (allegations referencing small businesses).) To be sure, a business plaintiff may state a claim under Section 349 where it demonstrates that the "defendant's deceptive conduct is, at least to some extent, directed at non-business consumers." Spirit Locker, Inc. v. EVO Direct, LLC, 696 F.Supp.2d 296, 304 (E.D.N.Y.2010). Indeed, the New York Court of Appeals in Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., found that pension fund plaintiffs alleging that a defendant bank misrepresented its savings account policies were able to satisfy the "consumer-oriented" prong of a Section 349 claim. 85 N.Y.2d at 26-27, 623 N.Y.S.2d 529, 647 N.E.2d 741. Although the plaintiffs there were not typical consumers as defined by Section 349, the defendant bank had dealt with the "plaintiffs' representative as any customer entering the bank to open a savings account, furnishing the Funds with standard documents presented to customers upon the opening of accounts." Id. at 26, 623 N.Y.S.2d 529, 647 N.E.2d 741. The instant case does not present an analogous situation. Plaintiffs' allegations here are premised on Defendants' marketing of a welfare benefit plan specifically designed for the purpose of financing businesses' insurance costs for their employees. By its very nature, the BETA Plan is not a product for "personal, family or household use" and the deceptive conduct alleged by Plaintiffs was not directed at non-business consumers. On this same rationale, courts have dismissed Section 349 claims premised on other such business-only products and services. See, e.g., Dollar Phone Corp. v. Dun & Bradstreet Corp., No. 09-3645, 2010 WL 5313737, at **4-5 (E.D.N.Y. Sept. 2, 2010) (credit reports for small businesses), report and recommendation adopted, 2010 WL 5313757 (E.D.N.Y. Dec. 20, 2010); Shema Kolainu-Hear Our Voices, ___ F.Supp.2d at ___, 2010 WL 2075921, at *8 (software product marketed only to subset of not-for-profit corporations); Spirit Locker, 696 F.Supp.2d at 302-04 (credit card processing services for businesses); Exxonmobil, 328 F.Supp.2d at 449-50 (customized installation and implementation of "Automatic Vehicle Location" system for oil trucks); Citipostal, Inc. v. Unistar Leasing, 283 A.D.2d 916, 724 N.Y.S.2d 555, 558-59 (4th Dep't 2001) ("business rather than consumer leases" of mobile communications equipment); Cruz, 703 N.Y.S.2d at 106-07 (sale of advertisement space in the Yellow Pages).
In the Second Amended Complaint, Plaintiffs asserted conversion claims against all three Defendants. In their Opposition papers, Plaintiffs indicate that they are withdrawing their conversion claims against Designs and Moritt. (See Pls.' Opp'n to Designs at 2; Pls.' Opp'n to Moritt at 2.) Accordingly, those claims are hereby dismissed. Curiously, however, Plaintiffs do not drop their conversion claim against Prusky. To state a claim for conversion under New York law, a plaintiff must allege "(1) legal ownership or an immediate superior right of possession to a specific identifiable thing and (2) that the defendant exercised an unauthorized dominion over the thing in question, to the alteration of its condition or to the exclusion of the plaintiff's rights." Ancile Inv. Co. Ltd. v. Archer Daniels Midland Co., No. 08-9492, 784 F.Supp.2d 296, 312, 2011 WL 813724, at *14 (S.D.N.Y. Mar. 8, 2011) (internal quotation marks omitted); accord Colavito v. N.Y. Organ Donor Network, 8 N.Y.3d 43, 49-50, 827 N.Y.S.2d 96, 860 N.E.2d 713 (2006) ("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."). Plaintiffs, however, point to no specific identifiable thing that Prusky allegedly converted. Instead, they vaguely allege that "Defendants wrongfully converted monies and assets from Plaintiffs." (SAC ¶ 140.)
Plaintiffs argue in their Opposition papers that "Plaintiffs plead that they developed possessory rights and interests in the Plan" and that "the diversion of welfare funds amounts to conversion," (Pls.' Opp'n to Prusky at 19), but they do
Leave to amend a complaint should be freely given when justice so requires. Fed.R.Civ.P. 15(a)(2). It is within the sound discretion of the district court to grant or deny leave to amend. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir.2007). "Leave to amend, though liberally granted, may properly be denied for: `undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.'" Ruotolo v. City of N.Y., 514 F.3d 184, 191 (2d Cir. 2008) (quoting Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)). Amendment is futile when the claim as amended cannot "withstand a motion to dismiss pursuant to Rule 12(b)(6)," and "[i]n deciding whether an amendment is futile, the court uses the same standard as those governing the adequacy of a filed pleading." MacEntee v. IBM, No. 08-7491, 783 F.Supp.2d 434, 446, 2011 WL 812395, at *8 (S.D.N.Y. Mar. 3, 2011) (internal quotation marks omitted). Where the problem with a claim "is substantive... better pleading will not cure it," and "[r]epleading would thus be futile." Cuoco v. Moritsugu, 222 F.3d 99, 112 (2d Cir. 2000).
At the December 18, 2009 pre-motion conference, the parties and the Court discussed numerous deficiencies in Plaintiffs' First Amended Complaint. Further, the unsuccessful mediation provided the parties with another opportunity to discuss the First Amended Complaint. As Plaintiffs noted in their letter to the Court dated April 1, 2010: "[T]he mediation ... allowed Defendants' counsel to state their objections to Plaintiffs' allegations. Thus, Plaintiff wishes to address as many of Defendants' concerns as reasonable ... by filing a Second Amended Complaint and then moving forward with the litigation." (Doc. 49, at 1.) Plaintiffs were permitted to amend by stipulation and order dated April 12, 2010. (Doc. 50.) They thus have had the opportunity to address the weaknesses in the First Amended Complaint.
Moreover, Plaintiffs have not requested leave to amend their Second Amended Complaint, demonstrated how further amendment would cure the deficiencies that remain in their pleadings, as identified in Defendants' papers, or submitted to the Court a Proposed Third Amended Complaint addressing such deficiencies. This alone is sufficient ground to deny leave to amend sua sponte. See, e.g., Walton v. Morgan Stanley & Co., 623 F.2d 796, 799 n. 7 (2d Cir.1980) ("[A]ppellants never sought leave to amend their complaint either in the district court or as an alternative form of relief in this court after [appellee] raised the issue of the sufficiency of appellants' complaint. Accordingly,
In short, because the bases of the dismissals were raised prior to the most recent amendment, (see Docs. 30, 35 (discussing Rule 9(b), reasonable reliance, absence of fiduciary status, failure to allege consumer-oriented conduct, inadequate pleading of contract, and failure to identify converted property)), or are substantive (reliance on Prusky's December 7, 2007 memorandum, conspiracy between Prusky and Moritt, fiduciary status, enterprise, consumer-oriented conduct), or both, leave to amend is denied.
For the reasons set forth above, Defendants' motions to dismiss are GRANTED in part and DENIED in part. The remaining claims are: (1) the fourth cause of action alleging fraud against Moritt based on the December 16, 2002 and December 17, 2002 letters, and against Designs on the theory that it conspired with Moritt; and (2) the ninth cause of action alleging negligent misrepresentation against Moritt based on the December 16, 2002 and December 17, 2002 letters. All other claims are DISMISSED without leave to replead. The Clerk of the Court is respectfully directed to terminate the pending motions. (Docs. 53, 56, 59.) Counsel for Plaintiffs, Designs, and Moritt are directed to appear before this Court for a conference on Tuesday, May 3, 2011, at 4:00 p.m.
Designs also raises a statute of limitations argument with respect to both claims. The limitations period for both claims is six years from the time of the breach. See N.Y. C.P.L.R. § 213(2); Ely-Cruikshank Co., Inc. v. Bank of Montreal, 81 N.Y.2d 399, 403, 599 N.Y.S.2d 501, 615 N.E.2d 985 (1993) (applying six-year limitations period to claim for breach of implied duty of good faith and fair dealing). As Plaintiffs do not adequately allege when the breach occurred, I am unable to conclude when the limitations period started running. Regardless, this question, too, is mooted by Plaintiffs' failure to adequately allege the existence of a contract or the terms thereof.
