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Heather BARLOW; Value Extraction Services LLC; Phillip Lofaso; Jake Hendrickson; Makeeda Perkins; Maura Murphy; Marina Pushkina; Jen Dobies; Roes 1-2; and all others similarly situated and/or interested parties, Plaintiffs v. Christopher SKROUPA; Inspire Summits LLC d/b/a Skytop Strategies; David Katz; John Stephen Wilson; Paula Luff; and Advisory Board Members Does 1-20, Defendants
Plaintiffs originally brought this action alleging breach of a contract with defendants Inspire Summits LLC d/b/a Skytop Strategies and owner Christopher Skroupa, plus related claims. The current operative complaint is the Third Amended Class Action Complaint. NYSCEF Doc. No. 134. Plaintiffs have added parties and causes of action, including fraud, claims under New York General Business Law (GBL) § 350 and unspecified sections of the New York Labor Law, equitable claims, and intentional infliction of emotional distress, based on Skytop Strategies’ alleged failure to pay its employees and contractors, overcharging participants in its conferences, and related conduct.
Defendants David Katz and Paula Luff together move to dismiss all claims pleaded against these defendants in the third amended complaint. C.P.L.R. § 3211(a)(7). Plaintiffs cross-move to amend the complaint again, submitting a Proposed Fourth Amended Class Action Complaint. C.P.L.R. § 3025(b); NYSCEF Doc. No. 165. Only defendants Katz and Luff oppose the cross-motion to amend the complaint.
I. CROSS-MOTION TO AMEND THE COMPLAINT
Leave to amend a complaint is freely granted unless the amendment would surprise or otherwise prejudice the opposing parties, Davis v. South Nassau Communities Hosp., 26 N.Y.3d 563, 580, 26 N.Y.S.3d 231, 46 N.E.3d 614 (2015); Kimso Apts., LLC v. Gandhi, 24 N.Y.3d 403, 411, 998 N.Y.S.2d 740, 23 N.E.3d 1008 (2014); Machado v. Gulf Oil, L.P., 195 A.D.3d 26, 30, 146 N.Y.S.3d 66 (1st Dep't 2021); Mashinsky v. Drescher, 188 A.D.3d 465, 466, 131 N.Y.S.3d 891 (1st Dep't 2020), or the amendment lacks merit. C.P.L.R. § 3025(b); Mashinsky v. Drescher, 188 A.D.3d at 466, 131 N.Y.S.3d 891; Avail 1 LLC v. Acquafredda Enters. LLC, 184 A.D.3d 476, 477, 124 N.Y.S.3d 196 (1st Dep't 2020); Brook v. Peconic Bay Med. Ctr., 172 A.D.3d 468, 469, 102 N.Y.S.3d 1 (1st Dep't 2019); Jean-Baptiste v. 153 Manhattan Ave. Hous. Dev. Fund Corp., 124 A.D.3d 476, 477, 2 N.Y.S.3d 441 (1st Dep't 2015). Defendants Katz and Luff oppose the Proposed Fourth Amended Class Action Complaint on the grounds that it fails to state a cause of action against these defendants. As the remaining defendants have not opposed, and as moving defendants’ opposition essentially seeks to dismiss the proposed amended complaint pursuant to C.P.L.R. § 3211(a)(7), the court grants the cross-motion to amend the complaint, treats the fourth amended complaint as the active complaint, and considers defendants’ opposition as seeking dismissal of the fourth amended complaint against Katz and Luff. 49 W. 12 Tenants Corp. v. Seidenberg, 6 A.D.3d 243, 243, 774 N.Y.S.2d 339 (1st Dep't 2004); Sage Realty Corp. v. Proskauer Rose LLP, 251 A.D.2d 35, 38, 675 N.Y.S.2d 14 (1st Dep't 1998).
In their reply, which opposes the cross-motion, Katz and Luff alternatively seek their costs, including attorneys’ fees, if the court allows the amendment. C.P.L.R. § 3025(b). The court denies this request for attorneys’ fees and other costs as a condition of granting amendment, since defendants show neither surprise nor other prejudice from the amendment, and it is not completely without merit. Id. (“Leave [to amend] shall be freely given upon such terms as may be just”); Peach Parking Corp. v. 346 W. 40th St., LLC, 52 A.D.3d 260, 261, 859 N.Y.S.2d 424 (1st Dep't 2008); 92 E. LLC v. Lee, 65 Misc. 3d 137(A), 2019 WL 5493373 (App. Term 1st Dep't 2019).
II. DISMISSAL OF THE FOURTH AMENDED COMPLAINT'S CLAIMS AGAINST KATZ AND LUFF
A. STANDARD
Upon a motion to dismiss a complaint pursuant to C.P.L.R. § 3211(a)(7), the court considers the facts alleged in the complaint and presumes them to be true. Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v. Matthew Bender & Co., Inc., 37 N.Y.3d 169, 175, 150 N.Y.S.3d 79, 171 N.E.3d 1192 (2021); Connaughton v. Chipotle Mexican Grill, Inc., 29 N.Y.3d 137, 141, 53 N.Y.S.3d 598, 75 N.E.3d 1159 (2017); Seaman v. Schulte Roth & Zabel LLP, 176 A.D.3d 538, 538, 111 N.Y.S.3d 266 (1st Dep't 2019). Moving defendants bear the burden to establish that plaintiffs’ fourth amended complaint “fails to state a viable cause of action.” Connolly v. Long Island Power Auth., 30 N.Y.3d 719, 728, 70 N.Y.S.3d 909, 94 N.E.3d 471 (2018). In evaluating the motion, the court must accept plaintiffs’ allegations as true, liberally construe the fourth amended complaint, and draw all reasonable inferences in plaintiffs’ favor. Doe v. Bloomberg L.P., 36 N.Y.3d 450, 454, 143 N.Y.S.3d 286, 167 N.E.3d 454 (2021); Connolly v. Long Island Power Auth., 30 N.Y.3d at 728, 70 N.Y.S.3d 909, 94 N.E.3d 471; JF Capital Advisors, LLC v. Lightstone Group, LLC, 25 N.Y.3d 759, 764, 16 N.Y.S.3d 222, 37 N.E.3d 725 (2015); M & E 73-75 LLC v. 57 Fusion LLC, 189 A.D.3d 1, 5, 128 N.Y.S.3d 200 (1st Dep't 2020).
The court will not give such consideration, however, to allegations that consist of only bare legal conclusions. Myers v. Schneiderman, 30 N.Y.3d 1, 14, 62 N.Y.S.3d 838, 85 N.E.3d 57 (2017); Simkin v. Blank, 19 N.Y.3d 46, 52, 945 N.Y.S.2d 222, 968 N.E.2d 459 (2012); M & E 73-75 LLC v. 57 Fusion LLC, 189 A.D.3d at 5, 128 N.Y.S.3d 200. Instead, the court accepts as true only plaintiffs’ factual allegations that set forth the elements of a legally cognizable claim and from them draws all reasonable inferences in their favor. Dismissal is warranted if the fourth amended complaint fails to allege facts that fit within any cognizable legal theory against Katz or Luff. Sassi v. Mobile Life Support Servs., Inc., 37 N.Y.3d 236, 239, 154 N.Y.S.3d 290, 175 N.E.3d 1246 (2021); Faison v. Lewis, 25 N.Y.3d 220, 224, 10 N.Y.S.3d 185, 32 N.E.3d 400 (2015).
B. THE CLAIMS AGAINST KATZ AND LUFF
The fourth amended complaint's claims are based largely on Skytop Strategies’ alleged failure to pay plaintiffs, who were its employees and consultants, what Skytop Strategies owed them.
1. First Claim - Fraud
The first claim is for fraud, based on alleged misrepresentations about Skytop Strategies’ revenue, funding, and prospects and defendants’ nondisclosure of its financial irregularities. Katz and Luff maintain that the fourth amended complaint fails to allege that they owed any duties to plaintiffs or made any misrepresentations on which plaintiffs reasonably relied and that the allegations otherwise lack the required particularity for a fraud claim. C.P.L.R. § 3016(b).
The fourth amended complaint does not credit Katz or Luff with any fraudulent statements. Plaintiffs rest on their allegations that “defendants” made material misrepresentations and fraudulent omissions to plaintiffs. “Defendants” misrepresented that they profited only from Skytop Strategies’ conferences and not from inducing employees, consultants, and vendors to provide services without payment and that Skytop Strategies possessed the financial ability to pay employees so as to produce high performance, was growing fast, and offered employees rapid growth. Aff. of Carla Kerr Stearns in Supp. of Cross-Mot. to Am. Ex. C (4th Am. Compl.) ¶¶ 30-31.
The failure to distinguish among the various defendants regarding which misrepresentations and omissions each defendant made to each plaintiff, when, and where is “improper group pleading.” Principia Partners LLC v. Swap Fin. Group, LLC, 194 A.D.3d 584, 584, 144 N.Y.S.3d 338 (1st Dep't 2021). By pleading the fraud claim against all defendants collectively, without any specification of the conduct charged to particular defendants, plaintiffs deprive defendants of the notice regarding “the material elements of each cause of action” to which defendants are entitled under C.P.L.R. § 3013. By referring to all defendants together, plaintiffs also fail to plead their fraud claim with the particularly required by C.P.L.R. § 3016(b); El Toro Group, LLC v. Bareburger Group, LLC, 190 A.D.3d 536, 541, 141 N.Y.S.3d 3 (1st Dep't 2021); Total Asset Recovery Servs. LLC v. Metlife, Inc., 189 A.D.3d 519, 523, 139 N.Y.S.3d 3 (1st Dep't 2020).
Plaintiffs do allege that Katz speaks at Skytop Strategies’ conferences and consults with Skroupa regarding its business, 4th Am. Compl. ¶¶ 4, 24, and that both Katz and Luff “knowingly and recklessly participate[ ] in the Skytop fraud,” id., ¶¶ 4, 6, but these allegations are similarly vague and conclusory and fail to support a fraud claim against either Katz or Luff. Therefore the court dismisses the fraud claim against both of them.
2. Second Claim - Violation of GBL § 350
General Business Law § 350 prohibits “[f]alse advertising in the conduct of any business, trade or commerce or in the furnishing of any service.” Plavin v. Group Health Inc., 35 N.Y.3d 1, 9, 124 N.Y.S.3d 5, 146 N.E.3d 1164 (2020). As plaintiffs do not allege any false advertising by Katz or Luff, personally, plaintiffs rely on respondeat superior to hold Skytop Strategies liable for the conduct of the individual who conveyed the false advertising, combined with piercing the corporate veil to hold Katz and Luff liable for Skytop Strategies’ conduct.
Plaintiffs contend that Katz and Luff are liable by piercing the corporate veil because they are Skytop Strategies’ alter egos. To pierce the corporate veil and hold Katz and Luff liable for Skytop Strategies’ actions, plaintiffs must show that Katz and Luff dominated Skytop Strategies and used that domination to commit a fraud or other wrong against plaintiffs. Walsam 316, LLC v. 316 Bowery Realty Corp., 190 A.D.3d 626, 626, 141 N.Y.S.3d 31 (1st Dep't 2021); Springut L. PC v. Rates Tech. Inc., 157 A.D.3d 645, 646, 70 N.Y.S.3d 14 (1st Dep't 2018). The fourth amended complaint alleges that Skroupa is Skytop Strategies’ founder, owner, and Chief Executive Officer (CEO) and commingles his personal funds with its funds. 4th Am. Compl. ¶ 2. Plaintiffs allege that Katz is an investor and part owner of Skytop Strategies, speaks at its conferences, frequently consults with Skroupa regarding its business, and is its alter ego. Id. ¶¶ 4, 24. The latter allegation is a mere legal conclusion, which the former allegations do not support, to pierce the corporate veil to reach Katz. Gateway Intl., 360, LLC v. Richmond Capital Group, LLC, 201 A.D.3d 406, 408, 160 N.Y.S.3d 231 (1st Dep't 2022); P & HR Solutions, LLC v. Ram Capital Funding, LLC, 195 A.D.3d 473, 474, 144 N.Y.S.3d 859 (1st Dep't 2021); Springut L. PC v. Rates Tech. Inc., 157 A.D.3d at 646, 70 N.Y.S.3d 14.
Plaintiffs allege that Luff holds a current or contingent equity interest in Skytop Strategies and “actively participate[s] in Skytop's finances and payroll,” 4th Am. Compl. ¶¶ 6, 27, “engage[s] in self-dealing in Skytop's finances ․, and knowingly or recklessly participate[s] in the Skytop fraud.” Id. ¶ 6. These allegations likewise fall far short of indicating that she dominates Skytop Strategies, rather than participates in it, as would be expected if she holds an equity interest, see Walsam 316, LLC v. 316 Bowery Realty Corp., 190 A.D.3d at 626, 141 N.Y.S.3d 31; Springut L. PC v. Rates Tech. Inc., 157 A.D.3d at 646, 70 N.Y.S.3d 14, and thus also fail to support a claim for piercing the corporate veil. Springut L. PC v. Rates Tech. Inc., 157 A.D.3d at 646, 70 N.Y.S.3d 14. Plaintiffs offer no clue what they mean by “self-dealing,” but it certainly does not suggest the requisite domination or any direct false advertising by her. 4th Am. Compl. ¶ 6. Therefore the court dismisses the false advertising claim under GBL § 350 against both Katz and Luff.
3. Third Claim - Omitted
The fourth amended complaint omits a third claim.
4. Fourth Claim - Violation of Labor Law
The fourth claim alleges that Skroupa, Skytop Strategies, and Katz failed to pay plaintiffs their full salaries and overtime pay, as required by Labor Law §§ 193 and 652. Plaintiffs do not allege this claim against Luff. While plaintiffs allege that Katz, along with Skroupa and Skytop Strategies, controlled its employees, no factual allegations support the conclusion that he, personally, qualified as an employer pursuant to the Labor Law or any other law.
The fourth amended complaint does allege that Katz “is personally involved in hiring and/or inducing employees to keep working.” 4th Am. Compl. ¶ 10. Inducing employees to keep working does not qualify Katz as the employer of those employees, even if they were plaintiffs, which the fourth amended complaint does not specify. While Katz hiring plaintiffs to work for him might qualify him as an employer, the fourth amended complaint specifies that he merely consults with Skroupa “as to hires, hiring plans,” portraying Skytop Strategies’ CEO as seeking advice about prospective employees as anyone making hiring decisions might seek from various sources, inside and outside the employer's business. Id. ¶ 24.
Plaintiff Hendrickson attests that Katz was familiar with Skytop Strategies employees’ job performance. Although defendants in moving to dismiss the complaint may not rely on evidence outside the pleaded claims, plaintiffs may rely on admissible evidence to supplement and remedy any defects in their complaint. Nonnon v. City of New York, 9 N.Y.3d 825, 827, 842 N.Y.S.2d 756, 874 N.E.2d 720 (2007); Cron v. Hargro Fabrics, Inc., 91 N.Y.2d 362, 366, 670 N.Y.S.2d 973, 694 N.E.2d 56 (1998); US Suite LLC v. Baratta, Baratta & Aidala LLP, 171 A.D.3d 551, 551, 98 N.Y.S.3d 571 (1st Dep't 2019); Ray v. Ray, 108 A.D.3d 449, 452, 970 N.Y.S.2d 9 (1st Dep't 2013). Nevertheless, familiarity with employees’ performance is a far cry from fulfilling the functions of an employer. Defendants concede, at least for purposes of defendants’ motion, that Katz conducted business and consulted with Skytop Strategies and its CEO. Co-workers may be familiar with each other's job performance, but that familiarity does not render them each other's employer.
Plaintiffs’ attorney also presents an unsworn email from Skroupa to plaintiff Murphy and other recipients. Plaintiff's attorney, however, is not among the recipients competent to authenticate the email. Clarke v. American Truck & Trailer. Inc., 171 A.D.3d 405, 406, 97 N.Y.S.3d 105 (1st Dep't 2019); AQ Asset Mgt. LLC v. Levine, 128 A.D.3d 620, 621, 13 N.Y.S.3d 1 (1st Dep't 2015); Taylor v. One Bryant Park, LLC, 94 A.D.3d 415, 415, 941 N.Y.S.2d 142 (1st Dep't 2012); IRB-Brasil Resseguros S.A. v. Portobello Intl. Ltd., 84 A.D.3d 637, 637, 923 N.Y.S.2d 508 (1st Dep't 2011). See People v. Javier, 154 A.D.3d 415, 415 (1st Dep't 2017); People v. Agudelo, 96 A.D.3d 611, 611, 947 N.Y.S.2d 96 (1st Dep't 2012). Nor does she attest that she received the email in response to a request for such a document created by defendants. C.P.L.R. § 4540-a.
The email from Skroupa also is inadmissible for reasons other than its lack of an oath or authentication. Skroupa states: “we will catch up on all late payroll․ This is my priority, David [Katz]’s priority, and everyone else's priority.” Aff. in Further Opp'n to Mot. to Dismiss Ex. A. What Katz's priorities are is not within Skroupa's personal knowledge. E.g., Residential Credit Solutions, Inc. v. Gould, 171 A.D.3d 638, 642, 101 N.Y.S.3d 2 (1st Dep't 2019); Clarke v. American Truck & Trailer. Inc., 171 A.D.3d at 406, 97 N.Y.S.3d 105; 345 E. 69th St. Owners Corp. v. Platinum First Cleaners, Inc., 158 A.D.3d 452, 453, 72 N.Y.S.3d 42 (1st Dep't 2018); Viselli v. Riverbay Corp., 155 A.D.3d 439, 440, 63 N.Y.S.3d 240 (1st Dep't 2017). See Kenneth J. v. Lesley B., 165 A.D.3d 439, 441, 85 N.Y.S.3d 42 (1st Dep't 2018). Finally, were the court to consider the email's contents, Katz's interest in his co-workers being paid does not render him their employer.
The fourth amended complaint does not allege that Katz is personally or directly involved in any other functions of an employer, such as compensating or firing employees. Therefore the Labor Law claim also fails against Katz.
5. Fifth Claim - Conspiracy to Commit Fraud
Plaintiffs allege that Katz and Luff knew of the alleged fraud, but plaintiffs fail to allege these defendants’ agreement to participate in a fraudulent scheme with the required particularity to support a claim of conspiracy to commit fraud. C.P.L.R. § 3016(b); First Nationwide Bank v. 965 Amsterdam, Inc., 212 A.D.2d 469, 472, 623 N.Y.S.2d 200 (1st Dep't 1995); Abrahami v. UPC Constr. Co., 176 A.D.2d 180, 180, 574 N.Y.S.2d 52 (1st Dep't 1991). See FIA Leveraged Fund Ltd. v. Grant Thornton LLP, 150 A.D.3d 492, 495, 56 N.Y.S.3d 12 (1st Dep't 2017). Plaintiffs do not rely on piercing the corporate veil, as it is an alternative theory of liability to conspiracy. Thus this claim also fails against Katz and Luff due to the lack of any specific allegations of an agreement.
6. Sixth Claim - Unjust Enrichment and Restitution
To sustain a claim for unjust enrichment, with restitution being the remedy, plaintiffs must allege that (1) Katz and Luff were enriched, (2) at plaintiffs’ expense, and (3) it is against equity and good conscience to permit these defendants to retain what plaintiffs seek to recover. Tutor Perini Bldg. Corp. v. Port Auth. of N.Y. & N.J., 191 A.D.3d 569, 571, 143 N.Y.S.3d 12 (1st Dep't 2021); Metropolitan Bank & Trust Co. v. Lopez, 189 A.D.3d 443, 444, 137 N.Y.S.3d 319 (1st Dep't 2020). Plaintiffs do not allege that either Katz or Luff was enriched.
Plaintiffs allege that Katz invested in Skytop Strategies in return for marketing as a sponsor and speaker at Skytop Strategies’ conferences, but do not allege that this marketing was worth more than his investment, sponsorship, or services, nor, critically, that any such enrichment was at plaintiffs’ expense. As he received that consideration from Skytop Strategies, the consideration was at Skytop Strategies’ expense.
Again, plaintiffs allege that Luff “engage[s] in self-dealing in Skytop's finances,” 4th Am. Compl. ¶ 6, without any description of what the “self-dealing” entails. Even if it means that Luff sought to increase the value of her equity interest or otherwise enriched herself, nothing indicates the enrichment was at plaintiffs’ expense. If anything, her “self-dealing in Skytop's finances” indicates that it was at Skytop Strategies’ expense.
Finally, plaintiffs again rest on their impermissible “group pleading,” Principia Partners LLC v. Swap Fin. Group, LLC, 194 A.D.3d at 584, 144 N.Y.S.3d 338, that “defendants” prioritized payment of their personal expenses and profits over employees’ compensation. 4th Am. Compl. ¶ 30(g). Therefore the unjust enrichment claim also fails against both Katz and Luff.
7. Seventh Claim - Conversion
A claim for conversion would accrue against Katz and Luff if they took control of plaintiffs’ personal property, interfering with their right of possession. Colavito v. New York Organ Donor Network, Inc., 8 N.Y.3d 43, 49–50, 827 N.Y.S.2d 96, 860 N.E.2d 713 (2006); Reif v. Nagy, 175 A.D.3d 107, 120, 106 N.Y.S.3d 5 (1st Dep't 2019); William Doyle Galleries, Inc. v. Stettner, 167 A.D.3d 501, 505, 91 N.Y.S.3d 13 (1st Dep't 2018). When the property alleged to have been converted is money, that money must be specifically identifiable. Gateway Intl., 360, LLC v. Richmond Capital Group, LLC, 201 A.D.3d at 409, 160 N.Y.S.3d 231; SH575 Holdings LLC v. Reliable Abstract Co., 195 A.D.3d 429, 430-31, 149 N.Y.S.3d 62 (1st Dep't 2021); McBride v. KPMG Int'l, 135 A.D.3d 576, 580, 24 N.Y.S.3d 257 (1st Dep't 2016); Lemle v. Lemle, 92 A.D.3d 494, 487, 939 N.Y.S.2d 15 (1st Dep't 2012). Even assuming plaintiffs otherwise sustain a conversion claim against Skytop Strategies for their salaries and fees, plaintiffs do not allege that defendants separated those funds or that those specific funds are in Katz's or Luff's possession. Thus this claim also fails against Katz and Luff.
8. Eighth Claim - Intentional Infliction of Emotional Distress
Plaintiffs’ eighth claim is alleged only against Skroupa and Skytop Strategies, not against Katz or Luff.
9. Ninth Claim - Breach of Contract
Plaintiffs’ breach of contract claim is against Katz, but not Luff. Plaintiffs allege no written or oral contract to which Katz was a party, but only that he loaned or gave funds to Skytop Strategies or invested in it and that he conducted business with it and served as its consultant. This claim against Katz again depends on plaintiffs’ veil piercing theory, which fails, as discussed above, and therefore fails to support a breach of contract claim against Katz. Gateway Intl., 360, LLC v. Richmond Capital Group, LLC, 201 A.D.3d at 408, 160 N.Y.S.3d 231; P & HR Solutions, LLC v. Ram Capital Funding, LLC, 195 A.D.3d at 473-74, 144 N.Y.S.3d 859.
10. Tenth Claim - Promissory Estoppel
Plaintiffs’ promissory estoppel claim requires allegations of defendants’ unambiguous promise and plaintiffs’ reasonable reliance on that promise, causing injury to plaintiffs. Condor Funding, LLC v. 176 Broadway Owners Corp., 147 A.D.3d 409, 411, 46 N.Y.S.3d 99 (1st Dep't 2017). Plaintiffs do not allege any promise by Katz or Luff, nor is either defendant liable under a veil piercing theory, so this claim also fails against them.
III. CONCLUSION
For the reasons explained above, the court grants the cross-motion to amend the complaint, considers the fourth amended complaint the active complaint, grants the motion by defendants Katz and Luff to dismiss the claims against these defendants, and thus dismisses all claims against Katz and Luff. C.P.L.R. §§ 3025(b), 3211(a)(7). The remaining defendants shall file an answer to the fourth amended complaint within 20 days after the date this decision and order is filed. C.P.L.R. § 3025(d).
Lucy Billings, J.
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Docket No: Index No. 651739 /2020
Decided: March 23, 2022
Court: Supreme Court, New York County, New York.
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