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Susan JONES, Plaintiff, v. CAREANDWEAR II, INC., Chaitenya Razdan, Humble Lukanga, Defendant.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 27, 30 were read on this motion to/for DISMISSAL.
The following e-filed documents, listed by NYSCEF document number (Motion 002) 6, 7, 8, 9, 10, 11, 23, 24, 25, 26, 31 were read on this motion to/for DISMISS.
This decision will address motion sequences No.001 and #002.
Plaintiff Susan Jones brings this action against her former employer, defendant CareandWear II, Inc. (“C & W”), and her former business partners, defendants Chaitenya Razdan and Humble Lukanga. Jones alleges gender harassment, retaliatory discharge, unjust enrichment, and quantum meruit against C & W and Razdan. Jones alleges breach of fiduciary duty against Razdan. Jones, on behalf of C & W's shareholders, alleges a separate breach of fiduciary duty against Razdan. Jones alleges retaliatory discharge and aiding and abetting breach of fiduciary duty against Lukanga. Jones, on behalf of C & W's shareholders, alleges a separate claim of aiding and abetting breach of fiduciary duty against Lukanga.
Defendants C & W and Razdan move to dismiss under CPLR 3211(a). Defendant Lukanga moves separately to dismiss the complaint against him in its entirety under CPLR 3211(a)(7) and CPLR 3211(a)(8).
Plaintiff Jones was an employee and board member of defendant C & W. Defendant Razdan is the CEO of C & W and a member of C & W's board. Defendant Lukanga is a board member. Plaintiff co-founded C & W with Razdan in April 2014.
Plaintiff alleges that in March 2020 Razdan chose to convert the focus of C & W's business from functional clothing for those in being treated for illness to the sale of personal protective equipment (“PPE”). Plaintiff raised concerns over the legality of C & W's expansion into PPE. Allegedly, Razdan did not secure any of the regulatory approvals needed to enter the PPE market. Plaintiff additionally alleges that Razdan, on C & W's behalf, attempted to obtain a loan with an undisclosed partner at a usurious interest rate. Plaintiff further alleges that Razdan attempted to sell the PPE at inflated prices. According to plaintiff, Razdan did not receive board approval for any of these decisions. Plaintiff claims that, after she raised her concerns about Razdan's conduct, Razdan terminated plaintiff's employment, removed her from the board, and terminated her access to communications, contracts, and other documents regarding C & W's PPE sales.
Plaintiff finally alleges that Razdan engaged in inappropriate and discriminatory conduct towards her and other female employees and that Razdan made unwelcome comments about female employees’ appearance and behavior.
Plaintiff brings employment claims, derivative and direct corporate claims, and non-contract equitable claims.
A. Employment Claims
1. Gender Harassment and Hostile Work Environment
Plaintiff's first claim is for gender harassment and hostile work environment in violation of Section 296.1(a) of the New York Human Rights Law (“State Human Rights Law”) and Title 8 of the New York City Administrative Code Section 107 (“City Human Rights Law”) against Razdan and C & W. To state a claim for unlawful harassment or hostile work environment under the State Human Rights Law, a plaintiff must allege a workplace “permeated with discriminatory intimidation, ridicule, and insult that is sufficiently severe or pervasive to alter the conditions of [the plaintiff's] employment and create an abusive working environment” (Forrest v Jewish Guild for the Blind, 3 NY3d 295, 310 ). To state a similar claim under the City Human Rights Law, a plaintiff must plead that “she has been treated less well than other employees because of her gender” (Hernandez v Kaisman, 103 AD3d 106, 113-14 [1st Dept 2012] [internal citation and quotation marks omitted]).
The pleadings, taken as true, describe Razdan bullying employees and making comments about female employees’ appearances. Plaintiff alleges that Razdan and C & W have denied her the benefit of employment and allowed a hostile environment to exist. Defendants claim that the incidents in the pleadings are not sufficient to state a claim for gender discrimination. On a motion to dismiss pursuant to CPLR 3211(a)(7), the pleadings are afforded a liberal construction. Further inquiry into the factual details of Mr. Razdan's alleged behavior is premature at this stage. The first cause of action for gender discrimination and hostile work environment survives this motion to dismiss.
2. Retaliatory Discharge
Plaintiff's second employment claim is for retaliatory discharge under NY Labor Law § 740 against Razdan, C & W, and Lukanga. To state a claim under NY Labor Law § 740, a plaintiff must allege (1) a retaliatory personnel action; (2) caused by the plaintiff's actual or threatened disclosure of an activity, policy, or practice that creates a substantial and specific danger to the public health or safety (Webb-Weber v Community Action for Human Servs., Inc., 23 NY3d 448, 453-54 ). Plaintiff alleges that she raised concerns to the board and to Razdan individually about conduct by Razdan and C & W that posed a substantial danger to public health and safety, including price-gouging with respect to PPE and selling PPE to healthcare facilities without any quality control measures. Shortly after plaintiff raised her concerns about PPE, Razdan removed plaintiff from the email distribution list and barred plaintiff from receiving information regarding the PPE sales. In June 2020, Razdan terminated plaintiff. Razdan and Lukanga allegedly agreed to remove her from the board. Plaintiff adequately alleges a retaliatory personnel action against Razdan and C & W. The retaliatory discharge claims against Razdan and C & W survive the motion to dismiss.
Plaintiff's allegations regarding defendant Lukanga are discussed separately below.
B. Unjust Enrichment and Quantum Meruit
Plaintiff asserts quantum meruit and unjust enrichment claims against Razdan and C & W. Plaintiff alleges she received no compensation for her work from April 2014 through December 2015, at which time she received a lump-sum payment of less than what amounted to the New York minimum wage for her past services. Plaintiff claims the payment was not adequate. Plaintiff argues that the adequacy of the compensation cannot be resolved on a motion to dismiss. To state a cause of action for unjust enrichment, “a plaintiff must show that (1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered” (Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 182 ). To state a claim for quantum meruit, a plaintiff must allege “(1) the performance of the services in good faith, (2) the acceptance of the services by the person to whom they are rendered, (3) an expectation of compensation therefor, and (4) the reasonable value of the services” (Farina v Bastianich, 116 AD3d 546, 548 [1st Dept 2014]).
To the extent plaintiff seeks to recover in quantum meruit or unjust enrichment for the time period between April 2014 and November 19, 2014, her claims are barred by the six-year statute of limitations. Problematically, the remaining allegations of unjust enrichment and quantum meruit claims do not include assertions that plaintiff had a reasonable expectation of being paid for her work in the startup. The third cause of action for quantum meruit and unjust enrichment against Razdan and C & W is dismissed without prejudice.
C. Breach of Fiduciary Duty Claims
Plaintiff's complaint contains four claims for breach of fiduciary duty overall. Plaintiff brings two derivative claims on behalf of C & W shareholders: the first claim is asserted against Razdan specifically for breach of fiduciary duty; the other is a claim against Lukanga for aiding and abetting breach of fiduciary duties. Plaintiff, on her own behalf, brings two claims of breach of fiduciary duty: one against Razdan specifically for breach of fiduciary duty; the other against Lukanga for aiding and abetting Razdan's breach.
1. Derivative Claim Against Razdan
Defendants argue that the derivative claim against Razdan should be dismissed because plaintiff failed to adequately plead futility. To demonstrate demand futility, plaintiff need only allege particularized facts that create a reasonable doubt that C & W's directors at the time of the complaint can be disinterested with respect to a demand to bring the derivative claims on behalf of C & W (see Rales v Blasband, 634 A2d 927, 934 [Del 1993]). Where a board has only two directors at the time of the complaint, demand futility is established where at least one of the directors is interested (see Beneville v York, 769 A2d 80, 84-87 [Del Ch 2000]). Directorial interest exists where a complaint demonstrates that a director defendant faces a substantial likelihood of personal liability in connection with the acts at issue (id.). To demonstrate a substantial likelihood of personal liability, a plaintiff need only make a threshold showing that the claims have some merit (Rales, 634 A2d at 934).
Plaintiff argues that Razdan faces a substantial likelihood of personal liability because it is reasonably conceivable that Razdan breached his fiduciary duty in his capacity as CEO for C & W. Under Delaware law, officers may be held liable for breaching their fiduciary duty of care when they act in a grossly negligent manner (see In re Rural Metro Corp. Stockholders Litig., 88 A3d 54, 86-87 [Del Ch 2014]). The complaint alleges Razdan withheld information from the board, misled the board, and sought to enrich his friends and himself by using C & W money to purchase PPE in bulk and then resell it at an extreme markup. These allegations, taken as true, could reasonably make out a claim for breach of fiduciary duty. The motion to dismiss the fourth cause of action, the derivative claim for breach of fiduciary duty against Razdan, is denied.
2. Direct Claim Against Razdan
Plaintiff, in her individual capacity, brings a breach of fiduciary duty claim against Razdan. Because plaintiff adequately pleads demand futility, the complaint for a breach of fiduciary duty survives a motion to dismiss (see Ryan v Gifford, 918 A2d 341, 357 [Del Ch 2007] [“where plaintiff alleges particularized facts sufficient to prove demand futility ․ that plaintiff a fortiori rebuts the business judgment rule for the purposes of surviving a motion to dismiss”]). The direct breach of fiduciary duty claim against Razdan is not dismissed.
D. Claims Against Lukanga
Plaintiff alleges retaliatory discharge and aiding and abetting breach of a fiduciary duty against Lukanga. Plaintiff, on behalf of shareholders, brings a claim for aiding and abetting breach of fiduciary duty against Lukanga.
Lukanga argues that the court does not have personal jurisdiction over him in this case. Lukanga argues there is no general jurisdiction under CPLR 301 because he is domiciled in California. Second, he argues that the court does not have jurisdiction over him under New York's long-arm statute, CPLR 302(a)(1).
Under CPLR 302(a)(1), courts may exercise personal jurisdiction over a defendant who transacts business within the state or contracts to provide services within the state, if the cause of action arises out of such conduct by the defendant. Personal jurisdiction is not acquired over out-of-state directors of a company solely by virtue of them being directors. There must be “a substantial nexus between the business transacted here and the cause of action sued upon” (Alesco Preferred Funding VIII, Ltd. v ACP Re, Ltd., 2021 NY Slip Op. 30952[U] [Sup Ct, NY County 2021] [quoting SNS Bank, N.V. v Citibank, N.A., 7 AD3d 352, 353 [1st Dept 2004] [affirming dismissal of action against non-resident directors and denial of jurisdictional discovery by trial court]).
Plaintiff's allegations in support of exercising personal jurisdiction over Lukanga are insufficient. Plaintiff mentions a board meeting where Lukanga failed to speak up against Razdan, but no vote was taken at that board meeting. Plaintiff also alleges that Lukanga signed a voting agreement which gave Razdan the sole authority to hire and fire. However, that agreement was signed in 2018 and the alleged aiding and abetting took place two years later in 2020. Because the court lacks personal jurisdiction over defendant Lukanga, the complaint is dismissed against defendant Lukanga.
Accordingly, it is hereby
ORDERED that the motion of defendants Careandwear II, INC. and Chaitenya Razdan to dismiss the complaint (motion seq. 001) is granted to the extent that the third cause of action is dismissed without prejudice; and it is further
ORDERED, that motion seq. 001 is otherwise denied, and it is further
ORDERED that the motion of defendant Humble Lukanga to dismiss the complaint (motion seq. 002) herein is granted and the complaint is dismissed in its entirety as against said defendant, with costs and disbursements to said defendant as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of said defendant; and it is further
ORDERED that the action is severed and continued against the remaining defendants; and it is further
ORDERED that the caption be amended to reflect the dismissal of the action against defendant Lukanga and that all future papers filed with the court bear the amended caption; and it is further
ORDERED that counsel for the moving party shall serve a copy of this order with notice of entry upon the Clerk of the Court (60 Centre Street, Room 141B) and the Clerk of the General Clerk's Office (60 Centre Street, Room 119), who are directed to mark the court's records to reflect the change in the caption herein; and it is further
ORDERED that such service upon the Clerk of the Court and the Clerk of the General Clerk's Office shall be made in accordance with the procedures set forth in the Protocol on Courthouse and County Clerk Procedures for Electronically Filed Cases (accessible at the “E-Filing” page on the court's website at the address www.nycourts.gov/supctmanh)].
Robert R. Reed, J.
Response sent, thank you
Docket No: Index No. 656428/2020
Decided: May 10, 2022
Court: Supreme Court, New York County, New York.
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