NELSON S. ROMÁN, District Judge.
Robert Giuliano ("Giuliano" or "Plaintiff") is suing several corporate directors and officers of Pharmagen, Inc.
Giuliano pleads causes of action that sound in contract (breach and anticipatory breach of contract), tort (tortious interferences, conversion), equity (pierce the corporate veil, unjust enrichment, promissory estoppel), and state employment law (non-payment of wages). All the defendants, except for Clarke, move to dismiss the Amended Complaint (the "Complaint") in its entirety pursuant to Rules 12(b)(2) and 12(b)(6) for lack of personal jurisdiction and failure to state a claim upon which relief can be granted. (see Defs.' Wolpow, Rowley, Relac, and Skibsted's Mem. Law Supp. Mot. to Dismiss Am. Compl. ("Wolpow Defs.' Mem.") 17-19, ECF No. 47); (Def. M. Barch's Mem. Law. Supp. Mot. to Dismiss. Am. Compl. ("Def. M. Barch's Mem."), ECF No. 59); (Def. J. Barch's Mem. Law. Supp. Mot. to Dismiss. Am. Compl. ("Def. J. Barch's Mem."), ECF No. 63.) Defendant Clarke moves to dismiss pursuant to Rule 8, Rule 9(b), and Rule 12(b)(6) of the Federal Rules of Civil Procedures. For the reasons explained below, the collective motion by Defendants Wolpow, Rowley, Relac, and Skibsted is GRANTED, Defendant M. Barch's motion is GRANTED, Defendant J. Barch's motion is GRANTED, and Defendant Eric Clarke's motion is GRANTED.
The following facts — taken from the Amended Complaint, exhibits attached thereto, statements or documents incorporated by reference, and documents that Plaintiff either possesses or knew about, and relied upon, in bringing suit — are assumed to be true for purposes of this motion. See, e.g., Kleinman v. Elan Corp., 706 F.3d 145, 152 (2d Cir. 2013); LaFaro v. N.Y. Cardiothoracic Grp., PLLC, 570 F.3d 471, 475 (2d Cir. 2009); Kerman v. Kurz-Hastings, Inc., 175 F.3d 236, 240 (2d Cir. 1999).
Giuliano founded and individually operated Bryce Labs until December 13, 2012, when he sold it to Pharmagen for a "total purchase price" of $1,875,000. (Am. Compl. ¶¶ 1, 40.) On March 4, 2013, approximately three months after acquiring Bryce Labs, Pharmagen registered a name change from Bryce Labs to "Pharmagen Laboratories, Inc." ("Bryce Labs").
Pharmagen agreed to pay a total purchase price of $1,875,000, plus benefits. (Am. Compl. ¶ 77.) The parties apportioned the total purchase price for Bryce Labs between the Agreements. First, Pharmagen agreed to pay Giuliano a "sale price" of $1.1 million to acquire all of Bryce's outstanding securities. (SPA § 1.2.1.) Pursuant to the SPA, the "sale price" would be paid in four installments, with $100,000 due at closing, and the remaining $1 million in payments of $250,000. Under this scheme, Pharmagen would pay Giuliano a yearly sum of $250,000 over four years, starting on December 31, 2013 and continuing through December 31, 2016. (Am. Compl. ¶ 44; SPA §§1.2.1.1, 1.2.1.2.) The parties further agreed that the SPA "shall be governed by and construed in accordance with, the laws of the State of Maryland." (Am. Compl. ¶ 54; SPA § 7.11.)
Second, Pharmagen agreed to employ Giuliano for a period of four years, with the option to extend Giuliano's term for one additional year.
Plaintiff's factual allegations as to the individual defendants relate exclusively to their roles as directors or officers of Pharmagen, Inc. The majority of the Complaint asserts that Defendants committed fraud when they lured" Plaintiff into selling his company "knowing full well they had neither the means nor the intention of fulfilling their obligations under the terms of the Agreements." (¶¶ 79, 83, 100.) Additionally, Defendants allegedly undercapitalized Pharmagen, ignored corporate formalities, and dominated its affairs. Lastly, on April 22, 2013, Defendants fired Giuliano from Bryce Labs. (Am. Compl. ¶ 52.) Giuliano asserts that he "was wrongfully terminated, without cause," (id.) after "Defendant Officers blamed [Plaintiff] for errors made by another employee (pharmacist) when the other employee sent the wrong medications to a client." (Id. ¶ 92.) According to Plaintiff, this was a pretext to avoid paying him the monies due for acquiring Bryce Labs. (Id. ¶¶ 84, 96.)
On December 11, 2015, Giuliano commenced this action in the Supreme Court of the State of New York, specifically Westchester County, but former defendants
Plaintiff's Amended Complaint, filed on April 9, 2016, alleges that up to, during, and after this sale, the named defendants perpetrated various frauds on Plaintiff. (see generally Am. Compl. ¶¶ 56-77.) Notably, neither Pharmagen nor Bryce Labs (a wholly owned subsidiary of Pharmagen) is a named party in the instant action. In filing suit against individual corporate defendants rather than Pharmagen itself, Giuliano is essentially asking the Court to pierce the corporate veil on an alter ego theory so that he may assert claims against (and potentially recover from) the individual directors and officers for (1) piercing the corporate veil due to fraud, (2) breach of contract, (3) tortious interference, (4) indemnification, (5) declaratory judgment and specific performance, (6) unjust enrichment, (7) promissory estoppel, (8) conversion, (9) attorneys' fees, (10) non-payment of wages, and (11) twice the amount of unpaid wages and attorneys' fees under Connecticut state law.
"The lawful exercise of personal jurisdiction by a federal court requires satisfaction of three primary requirements." Jonas v. Estate of Leven, 116 F.Supp.3d 314, 323-24 (S.D.N.Y. 2015) (citing Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50, 59 (2d Cir. 2012)). First, "the plaintiffs service of process upon the defendant must have been procedurally proper"; second, "there must be a statutory basis for personal jurisdiction that renders such service of process effective"; and third, "the exercise of personal jurisdiction must comport with constitutional due process principles." Licci ex re. Licci, 673 F.3d at 59-60.
The plaintiff bears the burden of establishing jurisdiction and must make a prima facie showing that jurisdiction exists. See Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34-35 (2d Cir. 2010). "Such a showing entails making legally sufficient allegations of jurisdiction, including an averment of facts that, if credited[,] would suffice to establish jurisdiction over the defendant." Id. at 35 (internal quotation marks omitted). The plaintiff must also "establish the court's jurisdiction with respect to each claim asserted." Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 24 (2d Cir. 2004).
"Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith, see Fed. R. Civ. P. 11, legally sufficient allegations of jurisdiction." Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990); accord Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996). In deciding a 12(b)(2) motion, the district court may consider materials outside the pleadings, including affidavits and other written materials.
In diversity cases such as this, a district court looks to the law of the state in which it sits to determine whether it has personal jurisdiction over foreign defendants. See Int'l Shoe Co. v. State of Wash., Office of Unemp't Comp. & Placement, 326 U.S. 310 (1945); Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). This Court will therefore look to New York law to determine whether it may exercise personal jurisdiction over the Defendants.
Pursuant to N.Y. C.P.L.R. § 301, a defendant is subject to personal jurisdiction if he is domiciled in New York, served with process in New York, or continuously and systematically does business in New York. See Landoil Res. Corp. v. Alexander & Alexander Servs., Inc., 77 N.Y.2d 28, 33, 563 N.Y.S.2d 739, 565 N.E.2d 488 (1990); Pichardo v. Zayas, 122 A.D.3d 699, 702, 996 N.Y.S.2d 176, 180 (2d Dept. 2014); see also Wells Fargo Bank Minnesota, N.A. v. ComputerTraining.Com, Inc., No. 04-CV-0982, 2004 WL 1555110, at *2-3 (S.D.N.Y. July 9, 2004). In addition, a defendant may be subject to New York's long-arm statute, N.Y. C.P.L.R. § 302, if he engages in the following acts either in person or through an agent and such acts relate to an asserted claim: (1) transacts any business within the state or contracts anywhere to supply goods or services in the state; (2) commits a tortious act within the state; (3) commits a tortious act outside the state but injures a person or property in the state; or (4) owns, uses, or possesses any real property in the state. N.Y. C.P.L.R. § 302(a).
By contrast, a Rule 12(b)(6) motion challenges the sufficiency of the allegations in the complaint. See ATSI Commnc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). To service such a motion, a complaint must "state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). More specifically, the plaintiff must allege facts sufficient to show "more than a sheer possibility that a defendant acted unlawfully," id., and cannot rely on mere "labels or conclusions" to support a claim. Twombly, 550 U.S. at 555. If the plaintiff's pleadings "have not nudged [his or her] claims across the line from conceivable to plausible, [the] complaint must be dismissed." Id. at 570.
Plaintiff alleges that Defendants, in their individual capacities, "committed fraud when they lured" Plaintiff into selling his company "knowing full well they had neither the means nor the intention of fulfilling their obligations under the terms of the Agreements." (Am. Compl. ¶ 79.) Specifically, Defendants misrepresented the company's intent to pay Plaintiff the total purchase price of $1.875 million and wrongfully terminated Plaintiff's employment at Bryce Labs to further avoid paying the total purchase price. Defendants also failed to assume operational debt or observe corporate formalities. As a result, Plaintiff alleges he "suffered compensable injury . . . in the amount of at approximately at least . . . $2.5 [million]." (Am. Compl. ¶ 64.)
Defendants seek to dismiss on several grounds pursuant to Rule 12(b). The Court considers the jurisdictional questions first, see Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574 (1999), finds that they dispose of each of the pending motions, and therefore does not reach the issue of whether the complaint sets forth valid claims for relief pursuant to Rule 12(b)(6).
In moving to dismiss, Defendants dedicate one paragraph to this jurisdictional issue. They argue that "Plaintiff has not pled facts sufficient to establish this Court's jurisdiction over the Defendants." (Wolpow Defs.' Mem. at 17, ECF No. 47.) Because Defendants do not substantiate their claim, presumably they argue that (1) they are foreign individuals who have not conducted any business in New York, and (2) Plaintiff's commencement of a lawsuit in New York, effectively availing himself of the protections of New York state and its laws, does not confer personal jurisdiction because the Complaint fails to allege that Pharmagen was the agent or alter ego of Defendants. In opposition, Plaintiff puts forth a theory of jurisdiction by proxy, namely, that personal jurisdiction exists pursuant to N.Y. C.P.L.R. § 302 because Plaintiff negotiated the contracts from New York and Defendants caused economic injury to Plaintiff in New York. Although it is unclear based on Plaintiff's generalized allegations, it appears Plaintiff contends personal jurisdiction exists pursuant to N.Y. C.P.L.R. §§ 302(a)(1) and 302(a)(3).
New York's long-arm statute, N.Y. C.P.L.R. 302(a), sets out four paths to personal jurisdiction. Because there is no factual assertions or allegations that Defendants either own real property in New York, see id. 302(a)(4), or committed any tortious act within New York state, see id. 302(a)(2), Plaintiff must establish either (1) that defendants transacted "business within" New York or have contracted "anywhere to supply goods or services in" New York, see id. 302(a)(1); or (2) that Defendants have committed a "tortious act . . . causing injury to person or property within the state" and that a defendant either:
id. 302(a)(3)(i)-(ii).
Defendants Wolpow, Rowley, Relac, and Skibsted are not subject to general personal jurisdiction pursuant to N.Y. C.P.L.R. § 301. They are all foreign individuals that do not systematically and continuously do business in New York, and Plaintiff does not argue otherwise. Further, individuals acting on a corporation's behalf are not subject to general personal jurisdiction under Section 301.
A federal court sitting in diversity has general personal jurisdiction over a party pursuant to CPLR § 301 where the defendant "engaged in such a continuous and systematic course of `doing business' in New York as to warrant a finding of its `presence' in the state." Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181, 184 (2d Cir. 1998) (internal quotation marks and citation omitted). In evaluating whether a defendant is "doing business" in New York, courts look to a nonexclusive number of factors, none of which is conclusive, including: (1) "the existence of an office in New York"; (2) "the solicitation of business in the state"; (3) "the presence of bank accounts and other property in the state"; and (4) "the presence of employees of the foreign defendant in the state." Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 58 (2d Cir. 1985). Section 301 has been construed to confer jurisdiction over non-corporate entities, such as charities or nonprofit organizations and individuals, under the "doing business" test. See Thorsen v. Sons of Norway, 996 F.Supp.2d 143, 153 (E.D.N.Y. 2014) (internal citations omitted).
Here, Plaintiff alleges that Defendants Wolpow, Rowley, Relac, and Skibsted — in their capacities as directors and officers of Pharmagen — breached their obligations pursuant to the Agreements. Plaintiff specifically states:
(Pl.'s Opp'n to Wolpow at 23, ECF No. 49.) (internal citations omitted). Under Plaintiff's theory of jurisdiction by proxy, the Court has personal jurisdiction over the Defendants by virtue of its long-arm jurisdiction over Pharmagen and Pharmagen Labs. (Id.)
As an initial matter, Plaintiff incorrectly refers to Pharmagen Labs as "the New York Defendant," because he has not named the subsidiary (nor its parent) as a party to this action. Moreover, jurisdiction over the representatives of a corporation "may not be predicated on jurisdiction over the corporation itself, and jurisdiction over the individual officers and directors must be based on their individual contacts with the forum state."
Turning to specific personal jurisdiction pursuant to N.Y. C.P.L.R. § 302(a)(1), Plaintiff's allegations fail to establish that any of the defendants transacted business in New York within the meaning of the statute.
Plaintiff alleges he "has fully performed his duties and obligations under the Agreements" (¶ 80), which Defendants have breached when they (1) failed to assume credit line; (2) failed to make scheduled payments for the sale price ($750,000 still outstanding); (3) anticipatorily repudiated making final scheduled payment of $250,000; (4) failed to make payments for the `total purchase price'; (5) wrongfully terminated Plaintiff; and (6) failed to reimburse Plaintiff for expenses paid during his employment. (Am. Compl. ¶ 70.)
"Whether a non-domiciliary is transacting business within the meaning of CPLR 302(a)(1) is a fact based determination, and requires a finding that the non-domiciliary's activities were purposeful and established `a substantial relationship between the transaction and the claim asserted.'" Paterno v. Laser Spine Inst., 24 N.Y.3d 370, 376, 998 N.Y.S.2d 720, 23 N.E.3d 988 (2014). "Purposeful activities are volitional acts by which the non-domiciliary `avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'" Id. (quoting Fischbarg v. Doucet, 9 N.Y.3d 375, 380, 849 N.Y.S.2d 501, 880 N.E.2d 22 (2007)). "More than limited contacts are required for purposeful activities sufficient to establish that the non-domiciliary transacted business in New York." Paterno, 24 N.Y.3d at 376, 998 N.Y.S.2d 720. New York case law makes clear that "it is the quality of the defendants' New York contacts that is the primary consideration" in a 302(a)(1) analysis. Fischbarg, 9 N.Y.3d at 380, 849 N.Y.S.2d 501, 880 N.E.2d 22; see also Royalty Network Inc. v. Dishant.com, LLC, 638 F.Supp.2d 410, 417-18 (S.D.N.Y. 2009).
The U.S. Court of Appeals for the Second Circuit has also delineated four factors that guide the section 302(a)(1) inquiry:
Sunward Elecs., Inc., 362 F.3d at 22.
As a starting place, it is helpful to review some of the key facts in support of Plaintiff's claims against Defendants Wolpow, Relac, Rowley, and Skibsted. In 2012, these four defendants (along with M. Barch, J. Barch, and Clarke) "exercised complete domination and control of [Pharmagen] with respect to [] Pharmagen Companies' negotiation and performance under the Agreements . . . from on or about October 2012 through the present time." (Am. Compl. ¶ 58.)
According to the Complaint, Defendants "made deliberate false representations to [Plaintiff] when they negotiated and entered into the Agreements. . . ." (Am. Compl. ¶ 59.) Moreover, Defendants "lured" Plaintiff into selling his company "knowing full well they had neither the means nor the intention of fulfilling their obligations under the terms of the Agreements" (Am. Compl. ¶ 79). To corroborate this claim, Plaintiff cites to a $2 million cash infusion Defendants obtained for Bryce Labs at or about the same time it executed the Agreements.
This factual recitation reveals the substantial lack of allegations linking Defendants to New York. Addressing the Seward factors in turn, Plaintiff first fails to allege even a single fact in support of any defendant's involvement in the transaction, save for a bare allegation that they held board positions. There are no specific allegations that these individual defendants transacted business in the state aside from the naked, conclusory, and formulaic allegations that they undercapitalized Pharmagen, ignored corporate formalities, and dominated its affairs. (See generally Am. Compl. ¶¶ 61-77.) In fact, Plaintiff asserts all these allegations against the "defendants" generally, without specifying the role of Wolpow, Rowley, Relac or Skibsted in abusing the corporate form to perpetuate a fraud.
Second, the record contains no factual allegations showing that any of the Defendants visited New York for the purpose of negotiating and executing the contract. The only allegations tying the causes of actions to New York is that the agreements were negotiated and executed by Defendants in New York. (Pl's Opp'n to Wolpow at 22.)
Third, the Agreements are governed by Maryland law, (Am. Compl. ¶¶ 54-55), a fact Plaintiff never addresses for purpose of personal jurisdiction. See Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 23 (2d Cir. 2004) (explaining choice of law clause is a significant factor in a personal jurisdiction analysis because the parties, by so choosing, invoke the benefits and protections of that state's law). Fourth, there are no allegations that money ever flowed to New York nor allegations to substantiate Plaintiff's contention that the Agreements were to be effectuated in New York. Thus, the allegations fail to satisfy any of the Seward factors.
Plaintiff's contention that the Court has personal jurisdiction because Plaintiff performed his obligations under the Agreements in New York is also unavailing. Jonas v. Estate of Leven, 116 F.Supp.3d 314, 327 (S.D.N.Y. 2015) (finding no personal jurisdiction where "[Plaintiff] built out an office in New York, hired personnel, and performed trades and analyses [in New York] is also unavailing."). Notwithstanding the fact that there are no specific, but merely general, allegations about Plaintiff's work in New York in the Complaint, his unilateral activity in the proposed forum state would be insufficient to establish jurisdiction.
Similarly, New York law is clear that, for purposes of C.P.L.R. 302(a)(1), "the residence or domicile of the injured party within a State is not a sufficient predicate for jurisdiction." Fantis Foods, Inc. v. Standard Importing Co., 49 N.Y.2d 317, 326 (1980). As a result, personal jurisdiction lies "only where a defendant's direct and personal involvement on [its] own initiative projected [itself] into New York to engage in a sustained and substantial transaction of business." Aquiline Capital Partners LLC v. FinArch LLC, 861 F.Supp.2d 378, 386 (S.D.N.Y. 2012) (internal quotation marks and alterations omitted). Because Plaintiff's allegations, when considered separately from the fact that Plaintiff resides in New York, fails to establish that any of the defendants' transacted business in New York in a "sustained" or "substantial" manner, this Court finds that the first prong of C.P.L.R. 302(a) is not satisfied. See, e.g., See DirectTV Latin Am., LLC v. Park 610, LLC, 691 F.Supp.2d 405, 423 (S.D.N.Y. 2010) (noting that cases in which the transaction of business in New York is supported by a single transfer of funds to a New York bank account "almost always" involve "far more" additional contacts with the state).
The contacts alleged between Defendants and New York — if they can be said to exist at all — are too tenuous. Accordingly, the Court finds that Plaintiff has not made a prima facie showing of personal jurisdiction over the individual Defendants pursuant to N.Y. C.P.L.R. § 302(a)(1), see CutCo Industries, 806 F.2d at 364, and grants Defendants' motion to dismiss for lack of personal jurisdiction.
In order to establish personal jurisdiction over a non-domiciliary such as Defendants under C.P.L.R. 302(a)(3), Plaintiff must show that defendants committed a tortious act causing injury to him in New York. This limitation is "more stringent than any constitutional requirement," Ingraham v. Carroll, 90 N.Y.2d 592, 597, 665 N.Y.S.2d 10, 687 N.E.2d 1293 (1997) and requires a showing of contacts somewhere between the large quantity required for general jurisdiction under N.Y. C.P.L.R. 301 and the "one shot" single business transaction that can satisfy Section 302(a)(1). Id.
Defendants argue Plaintiff has failed to allege facts sufficient for jurisdiction because "the only allegation related to New York's jurisdiction is that the contracts at issue were negotiated in New York." (Wolpow Defs.' Mem. at 17.) In Defendants' view, Plaintiff has only alleged claims that sound in contract, rather than tort. This argument is unavailing: so long as the allegations, taken as a whole, constitute the elements of a tort, the "tortious act" element of C.P.L.R. 302(a)(3) is satisfied. See Hargrave v. Oki Nursery, Inc., 636 F.2d 897, 898-99 (2d Cir. 1980).
Nevertheless, Plaintiff fails to plainly or directly state that New York is the situs of the tort. While Plaintiff, for example, states that Defendants fraudulently induced the sale, (see Am. Compl. ¶¶ 59-63), the Complaint does not name New York as the site of the fraudulent inducement. Plaintiff did not attest to this fact in a sworn affidavit either. Therefore, Plaintiff has also failed to establish a prima facie case for personal jurisdiction under Section 302(a)(3). New York courts apply a situs-of-injury test, rather than an economic-effect test, to determine the location of injury under § 302(a)(3).
Even assuming the tortious conduct was related to conduct within New York — an inference in Plaintiff's favor — courts in this district routinely hold that a breach of contract claim does not constitute a tortious act and may not form the basis of long-arm jurisdiction pursuant to section 302(a)(3). See, e.g., Amigo Foods Corp. v. Marine Midland Bank-New York, 39 N.Y.2d 391, 396, 384 N.Y.S.2d 124, 348 N.E.2d 581 (1976); Pramer S.C.A v. Abaplus Int'l Corp., 76 A.D.3d 89, 97, 907 N.Y.S.2d 154, 159 (1st Dept. 2010); see also PI, Inc. v. Quality Prods., Inc., 907 F.Supp. 752, 760 (S.D.N.Y. 1995) ("To satisfy New York's long arm statute, the complaint must `adequately frame a cause of action in tort arising from [the alleged tortious acts].'") Plaintiff's causes of action are all premised on Defendants' breach of the Agreements. Generally, a cause of action sounding in fraud is not viable when the only fraud charged relates to a breach of contract. Trusthouse Forte (Garden City) Management, Inc. v. Garden City Hotel Inc., 483 N.Y.S.2d 216, 218 (N.Y. App. Div. 1984.) When a party is in essence seeking the enforcement of a contractual bargain, the claim is to be premised upon a breach of contract theory rather than a tort claim. Sommer v. Federal Signal, 583 N.Y.S.2d 957, 961 (N.Y. 1992); see also, Chateuagay Corp. v. Frito-Lay, Inc., 10 F.3d 944, 958 (2d Cir. 1993) (citations omitted).
Nonetheless, Plaintiff contends that he has alleged a tort because he included the word "fraud" in a handful of allegations and alleges that defendants intended to "commit fraud" by depriving Plaintiff of the money owed to him pursuant to the Agreements. (Am. Compl. ¶ 79.) But "[b]y merely alleging a tortious act, a plaintiff may not convert a simple breach of contract case into a tort for jurisdictional purposes." Kulas v. Adachi, No. 96-CV-6674, 1997 WL 256957, at *8 (S.D.N.Y. May 16, 1997); see, e.g., Amigo Foods Corp., 39 N.Y.2d at 396, 384 N.Y.S.2d 124, 348 N.E.2d 581. Rather, Plaintiff must "aver facts that if credited, would suffice to establish all the requirements under one of § 302(a)'s subsections, including the commission of a tort," here, fraud. Bank Brussels Lambert, 171 F.3d at 785. Plaintiff's allegations of fraud — including his allegations that defendants made fraudulent statements to deprive Plaintiff of the subsidized sale price (Am. Compl. ¶44) and a salary (id. ¶ 45) — are wholly conclusory
Moreover, in cases involving corporate officers, personal jurisdiction over the corporation for a tortious act does not necessarily grant jurisdiction over its employees; in order to show jurisdiction over an out-of-state officer for a corporation's actions, a plaintiff must show that the officer is a "primary actor[] in the transaction in New York" and not merely "some corporate employee . . . who played no part" in the allegedly tortious act. Retail Software Servs., Inc. v. Lashlee, 854 F.2d 18, 22 (2d Cir. 1988); see also Vista Food Exch., Inc. v. Champion Foodservice, LLC, 124 F.Supp.3d 301, 307-08 (S.D.N.Y. 2015), appeal dismissed sub nom. VISTA FOOD EXCHANGE INC. v. CHAMPION FOODSERVICE LLC (Sept. 21, 2015).
Plaintiff states that Defendants "exercised complete domination and control of [Pharmagen] with respect to [the company's] performance under the Agreements." (Am. Compl. ¶ 68.) These allegations are conclusory or made on information and belief (Am. Compl. ¶¶ 57-68), and do not establish that Wolpow, Rowley, Relac or Skibsted exercised sufficient control over the breaches at issue to be considered a primary actor. See Vista Food, 2014 WL 3857053, at *6-7; see also Sterling Interiors Group, Inc. v. Haworth, No. 94-CV-9216, 1996 WL 426379, at *15 (S.D.N.Y. July 30, 1996).
Under these facts, the exercise of personal jurisdiction over Defendants Wolpow, Rowley, Relac, and Skibsted under CPLR § 302 is not supported. The Court therefore grants the motion to dismiss collectively submitted by Defendants Wolpow, Rowley, Relac, and Skibsted.
Since this Court finds that it lacks personal jurisdiction over the moving defendants pursuant to New York's long-arm statute, it will not address the issue of whether the exercise of personal jurisdiction would offend due process. See, e.g., Jonas v. Estate of Leven, 116 F.Supp.3d 314, 334 (S.D.N.Y. 2015); Bensusan Rest. Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997); Mangia Media Inc., 846 F. Supp. 2d at 323-24.
In moving to dismiss, Defendant M. Barch (proceeding pro se) asserts that because he "has no contact with New York for purposes of this lawsuit," (Def. M. Barch's Mem. at 3, ECF No. 60), and was "not a party to the contract with [P]laintiff," (id. at 7), Plaintiff cannot "support the exercise of jurisdiction over him in this forum" (id.).
Plaintiff asserts the same naked, conclusory, and formulaic allegations against M. Barch: he undercapitalized Pharmagen, ignored corporate formalities, and dominated its affairs. (Am. Compl. ¶¶ 57-63, 65-68). Contrary to Plaintiff's contentions (Pl.'s Opp'n to M. Barch at 1, 22, ECF No. 68), the fact that Defendant M. Barch was the Chief Executive Officer "at all relevant times" does not affect the analysis or the result.
As noted above, there is no basis for Section 301 jurisdiction where a foreign defendant who does not systematically and continuously do business in New York, and Plaintiff does not argue otherwise. (See supra at 13, finding that an individual defendant may be subject to specific personal jurisdiction, but not general jurisdiction, based on his actions in his corporate capacity.) Similarly, there are no allegations to substantiate Plaintiff's contention that the investments were to be effectuated in New York nor are there allegations to satisfy any of the Sunward factors.
First, Plaintiff fails to allege even a single fact in support of M. Barch's involvement in the transaction, save for a bare allegation that he was CEO of Pharmagen. (Am. Compl. ¶¶ 24-25, 57-58.) Second, while it seems likely that M. Barch was the authorized signatory to the Agreements — the initials "MB" appears at the bottom of all the page of the SPA — this alone is also an insufficient basis for exercising Section 302(a)(1) jurisdiction over a corporate officer. (Id.) See, e.g., Nelson A. Taylor Co., Inc. v. Technology Dynamics Group Inc., 1997 WL 176325, *5 (N.D.N.Y. Apr.7, 1997) (personal jurisdiction imputed when defendants were alleged to have negotiations and signed the agreements in dispute, personally controlled all transactions, and authored virtually all correspondence). Assuming that Defendant M. Barch did sign the Agreements, Plaintiff has not alleged if and where the two met, where the Agreements were signed, or even how frequently they spoke. It is reasonable to assume that Plaintiff would have personal knowledge of these facts not requiring discovery as one of the two authorized signatories to the Agreements. Moreover, Plaintiff fails to allege facts sufficient to establish that Defendant M. Barch derived substantial revenue from interstate or international commerce. See SunLight Gen. Capital, 114 A.D.3d at 522, 981 N.Y.S.2d 390 (no personal jurisdiction pursuant to section 302(a)(3)(ii) "in the absence of evidence that these defendants `derive substantial revenue from interstate or international commerce'"); Mangia Media Inc. v. Univ. Pipeline, Inc., 846 F.Supp.2d 319, 323 (E.D.N.Y. 2012).
The only allegations specific to M. Barch include: (1) taking personal trips using Pharmagen's funds and (2) using Pharmagen's monies for personal use.
Under these fact, the exercise of personal jurisdiction over Defendant M. Barch under CPLR § 302 is not supported. The Court therefore grants Defendant M. Barch's motion to dismiss.
In moving to dismiss pursuant to 12(b)(2) and 12(b)(6), Defendant J. Barch argues (1) he was never a director or officer or Pharmagen; rather only an employee, and (2) lacks any contact with New York. (Def. J. Barch's Mem. at 2, Ex. 1 Aff. of Justin Barch, ECF Nos. 35 & 63.) In opposition, Plaintiff argues that Defendant J. Barch's submitted an affidavit that "is noticeably devoid of any allegation that Defendant J. Barch does not have minimum contacts with New York and/or derive income from business in New York." (Pl.'s Opp'n to J. Barch at 21.) But Plaintiff mistakenly shifts the burden of proving minimum contacts or transacting business. It is the plaintiff, and not the defendant, who must make a prima facie showing of personal jurisdiction over the defendant. See Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990) ("Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith, see Fed.R.Civ.P. 11, legally sufficient allegations of jurisdiction.").
Instead of pleading legally sufficient allegations, Plaintiff asserts the same jurisdiction by proxy theory against J. Barch.
Lumping all the "defendants" together for purposes of alleging connections to New York is, however, patently insufficient. See, e.g., Cenage Learning, Inc. v. Buckeye Books, 531 F.Supp.2d 596, 599 (S.D.N.Y. 2008) (finding that when defendants are "separate entities and are presumptively entitled to have independent existence," plaintiff must establish a basis for subjecting each of them, individually to the jurisdiction of the court). Therefore, the Court finds exercise of personal jurisdiction over Defendant J. Barch under CPLR § 302 is not supported, and grants Defendant J. Barch's motion to dismiss.
Defendant Clarke's motion differs from that of the other defendant in that it does not seek to dismiss the suit on 12(b)(2).
Plaintiff asserts that "[t]his Court can afford complete relief among the existing parties, without the joinder of . . . Pharmagen." (Am. Compl. ¶ 35.) Not so. Defendant Clarke correctly notes that "each and every claim is premised on the theory that the Plaintiff is entitled to pierce the corporate veil of [Pharmagen] and hold [individual defendants] liable for the acts of `Non-Party Pharmagen Companies.'" (Def. Clarke's Mem. at 6.) All the alleged misconduct in this case arises from misrepresentations made concerning the Agreements executed, and subsequently breached, by Pharmagen or Bryce Labs. It follows then that there can be no individual liability for defendants except on an alter ego or veil piercing theory. On that theory, the fact that Defendant Clarke moved to dismiss on Rules 8, 9, and 12(b)(6), as opposed to Rule 12(b)(2), does not alter the analysis because the critical question remains: does anything in federal or New York state law preclude this case from proceeding, on veil piercing and alter ego theories of liability, given that the company is not a named party? In other words, the Court must address whether the company is a necessary party to the instant action.
Defendant Clarke also appears to have abandoned his contention that dismissal is required under Federal Rule of Civil Procedure 12(b)(7) for nonjoinder of necessary parties. (See generally ECF No. 6.)
As a threshold issue, Plaintiff alleges that the Pharmagen, and not the individual directors, is the signatory to the Agreements at issue. (Am. Compl. ¶ 43.) Notwithstanding Plaintiff's contention to the contrary, "[he] fail[s] to recognize that under New York law, shell companies are necessary parties in an action to pierce the corporate veil." Miramax Film Corp. v. Abraham, No. 01-CV-5202 (GBD), 2003 WL 22832384, at *9 (S.D.N.Y. Nov. 25, 2003) (citing Stewart Tenant Corp. v. Square Industries, Inc., 703 N.Y.S.2d 453, 454 (N.Y. App. Div. 2000). Even if Plaintiff is correct that Pharmagen is now defunct, the concept of piercing the corporate veil is a limitation on the accepted principles that a corporation exists independently of its owners, as a separate legal entity, that the owners are normally not liable for the debts of the corporation, and that it is perfectly legal to incorporate for the express purpose of limiting the liability of the corporate owners [citations omitted]. State v. Easton, 169 Misc.2d 282, 287-88, 647 N.Y.S.2d 904, 908 (Sup. Ct. 1995). Because the concept of piercing the corporate veil assumes that the corporation itself is liable for the obligation sought to be imposed, an attempt of a third party to pierce the corporate veil does not constitute a cause of action independent of that against the corporation; rather it is an assertion of facts and circumstances which will persuade the court to impose the corporate obligation on its owners. See United States v. Evseroff, No. 00-CV-06029 (KAM), 2012 WL 1514860, at *13 (E.D.N.Y. Apr. 30, 2012), aff'd, 528 F. App'x 75 (2d Cir. 2013) ("The alter ego doctrine arose from the law of corporations and allows a creditor to disregard the corporate form (also known as `piercing the corporate veil') either by using an owner's assets to satisfy a corporation's debt or by using the corporation's assets to satisfy the individual's debt. Therefore, to the extent that Plaintiff is asking the Court to impose corporate obligation on individual officers and directors, it must also join the corporation.
Under Rule 12(b) (7), courts are required to dismiss an action for failure to join a necessary party under Rule 19. See Fed. R. Civ. P. 12(b)(7); see also Federal Ins. Co. v. SafeNet, Inc., 758 F.Supp.2d 251, 257 (S.D.N.Y. 2010). Courts considering a Rule 12(b)(7) motion look to Rule 19(a) to determine whether an absent party qualifies as a "necessary" party under Rule 19(a). See Federal Ins. Co., 758 F.Supp.2d at 257 (citing Viacom Int'l, Inc. v. Kearney, 212 F.3d 721, 724 (2d Cir. 2000); LBA Intern. Ltd. v. C.E. Consulting LLC, 2010 WL 305355 *3 (S.D.N.Y. 2010).
There are three components of Rule 19(a) that courts assess to determine whether an absent party is required. See Fed. R. Civ. P. 19(a)(1); C.D.S., Inc. v. Zetler, No. 16 CIV. 3199 (VM), 2016 WL 4257745, at *7 (S.D.N.Y. Aug. 3, 2016), reconsideration denied sub nom. C.D.S., Inc. v. Bradley Zetler, CDS, LLC, No. 16 CIV. 3199 (VM), 2016 WL 5867450 (S.D.N.Y. Sept. 30, 2016) (quoting Fed. R. Civ. P. 19(a) (1)); see also Federal Ins. Co., 758 F.Supp.2d at 257. The first component asks whether the court can afford complete relief in the absence of the non-party. See Fed. R. Civ. P. 19(a)(1)(A); Federal Ins. Co., 758 F.Supp.2d at 257 (citing MasterCard Int'l, Inc. v. Visa Int'l Serv. Ass'n, Inc., 471 F.3d 377, 385 (2d Cir. 2006)). The second component focuses on whether the non-party's absence will impair or impede its ability to protect its interests. See Fed. R. Civ. P. 19(a)(1)(B)(i); Federal Ins. Co., 758 F.Supp.2d at 257-58 (citing MasterCard, 471 F.3d 377, 386-87). The third component asks whether the existing parties would be subject to "double, multiple, or otherwise inconsistent obligations." See Fed. R. Civ. P. 19 (a)(1)(B)(ii). If any of the three components are satisfied, the absentee party constitutes a required party. See Federal Ins. Co., 758 F.Supp.2d at 257.
If a party held to be necessary has not been joined, the court "must" order that the person be made a party. See Fed. R. Civ. P. 19(a)(2); see also Viacom, 212 F.3d at 725. In the event that joinder is not feasible, the court proceeds to consider "whether "in equity and good conscience," the action should proceed with the existing parties, or be dismissed. See Fed. R. Civ. P. 19(b).
First, it is unclear what measures could be taken to lessen or avoid the potential prejudice to Pharmagen. The Court may pursue several approaches in an effort to minimize prejudice to this absent party, including awarding monetary damages in lieu of injunctive or declaratory relief, entering a judgment conditioned on plaintiff taking certain actions, or requiring that sufficient funds be set aside to pay other claimants. None of these approaches, however, is satisfactory in the present matter because the effect of a judgment herein on the absent corporation is completely unforeseeable and therefore impossible to mitigate. Because the Court cannot anticipate the impact any judgment in this case might have on Pharmagen, it cannot fashion appropriate precautions to mitigate the potential prejudice to Pharmagen.
Second, the Court finds the individual defendants cannot adequately protect the corporation's interest, as they may ignore questions of liability and instead focus their defense on showing that they are not the corporation's alter ego.
Finally, the failure to join the corporation would subject it to a significant risk of incurring double, multiple, or otherwise inconsistent obligations because the corporation might be found liable in the instant action, as an alter ego, but not liable in a separate action solely against the corporation. As noted above, Pharmagen faces a significant risk of prejudice if this action proceeds without joining it as a party. A finding of liability in this action could result in multiple or inconsistent obligation for Pharmagen and defendants cannot adequately protect Pharmagen's interest in this action.
Accordingly, Pharmagen appears to be a "necessary party" for purposes of Rule 19. In light of the fact that this Court finds that Rule 19 requires dismissal, the Court need not reach issue preclusion raised by Defendant Clarke, and expresses no opinion as to the merits thereof. Town of Huntington v. Am. Mfrs. Mut. Ins. Co., 267 F.R.D. 449, 453 (E.D.N.Y. 2010). Plaintiff is not precluded from recommencing the action in the proper manner naming all necessary parties. Hitchcock v. Boyack, 256 A.D.2d 842, 844, 681 N.Y.S.2d 659, 661 (1998).
In accordance with the foregoing, Defendants Wolpow, Rowley, Relac, and Skibsted's motion to dismiss is GRANTED, Defendant M. Barch's motion to dismiss is GRANTED, and Defendant J. Barch's motion to dismiss is GRANTED. Furthermore, the Court concludes that Plaintiff has failed to name a necessary party as a matter of law. As such, Defendant Clarke's motion to dismiss is GRANTED. Plaintiff's Amended Complaint is dismissed without prejudice.
The Clerk of Court is respectfully requested to terminate the motions at ECF Nos. 43, 51, 59, and 63, and to terminate the case.
