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FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023
NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
Index No.: 652864/2023
PLYMOUTH STREET LLC, derivatively on behalf of
GOLD CAPITAL FUND LLC,
Plaintiff(s),
-against-
ABRAHAM SITT, DUMBO CAPITAL HOLDINGS LLC,
and SIMMONS CAPITAL LLC
Defendant(s).
-and-
GOLD CAPITAL FUND LLC
Nominal Defendant.
DEFENDANTS ABRAHAM SITT AND DUMBO CAPITAL HOLDINGS LLC’S
MEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION TO DISMISS
PLAINTIFF’S COMPLAINT
July 25, 2023
Law Offices of Jason J. Rebhun, P.C.
Jason J. Rebhun
40 Wall Street, 45th Floor
New York, New York 10005
(646) 201-9392
Attorneys for Defendants
ABRAHAM SITT and DUMBO CAPITAL
HOLDINGS LLC
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Preliminary Statement
This firm is counsel to Defendants Abraham Sitt (“Sitt”) and Dumbo Capital Holding LLC
(“Dumbo”) (hereinafter together the “Defendants”) in the above-captioned action. As such, we are
fully familiar with the facts and circumstances herein. This firm does not represent Defendant
Simmons Capital LLC.
This Memorandum of Law submitted in Support of the Defendants’ motion seeking an
Order: (1) pursuant to CPLR §3211(a)(3) dismissing this shareholder’s derivative action for
Plaintiff’s failure to establish demand futility; and (2) pursuant to CPLR §3211(a)(7) dismissing
the second through seventh causes of action in their entirety based upon Plaintiff’s failure to state
a cause of action against these Defendants.
This action appears to be nothing more than a gross over exaggeration and misguided
attempt by the Plaintiff Plymouth Street LLC (“Plymouth”) and its principal, non-party Abraham
Mishaan (“Mishaan”) to foist blame for the failures of Gold Capital Fund LLC (“GCF”) onto
Defendants and to misdirect the Court from Mishaan and Plymouth’s own breaches, malfeasance,
incompetence, and misappropriation of GCF assets.
Plaintiff’s un-verified Complaint was e-filed as NYSCEF doc. 1. That the Complaint was
not verified by Mishaan personally (or by counsel for Plaintiff) is likely to avoid, at the outset, the
perjurious claims set forth in the Complaint which will be addressed if the instant motion is not
granted.
The Complaint asserts a total of seven causes of action as follows: the first cause of action
seeks an accounting against Defendants Sitt and Dumbo; the second cause of action asserts a
breach of fiduciary duty claim against Sitt; the third cause of action asserts a conversion claim
against all Defendants; the fourth cause of action asserts a constructive trust claim against all
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Defendants; the fifth claim asserts an unjust enrichment claim against all Defendants; the sixth
claim asserts a faithless servant claim against Sitt, and the seventh claim asserts an unfair
competition - misappropriation against all Defendants.
Notwithstanding the true underlying motive for Plaintiff’s Complaint, the shareholder
derivative Complaint must nonetheless be dismissed as Plaintiff has not established demand
futility. Additionally, the second, third, fourth, fifth, sixth, and seventh causes of action not only
fail to state a cause of action for which relief can be granted, but are based upon the same
transactions and occurrences, are duplicative and seek the same damages which are not specified
or quantified in the Complaint rendering each cause of action ripe for dismissal.
The Complaint is also contradictory on its face. Plaintiff claims Sitt improperly transferred
over $1 million in assets and business opportunities (¶45) to himself, Dumbo and Simmons, though
Plaintiff also claims that he does not have any financial records and “is unable to reconcile the
salary Sitt paid himself …” (¶34). How can Plaintiff speak out of both sides of its mouth?
Finally, that Plaintiff concedes that the Company was in the “cash advances” business (¶21
of the Complaint) and also claimed that it provided “loans to qualified borrowers” (¶22; ¶23 “the
Company … its own cash advance loan portfolios for qualified borrowers”) is also contradictory.
It is well established that to qualify as a cash advance and not a loan, the underlying transaction
cannot be subject to usury. "The rudimentary element of usury is the existence of a loan or
forbearance of money, and where there is no loan, there can be no usury, however unconscionable
the contract may be." Principis Capital LLC v I Do, Inc., 201 A.D.3d 752, 754 (2d Dep’t 2022);
LG Funding, LLC v United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (2d Dep’t 2020).
"To determine whether a transaction constitutes a usurious loan, it must be considered in its totality
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and judged by its real character, rather than by the name, color, or form which the parties have
seen fit to give it" (LG Funding, 181 A.D.3d 664 [internal quotation marks omitted]).
As the Kings County Supreme Court in Vernon Capital Grp. v. Walnut Spring Farms LLC,
2022 N.Y. Slip Op. 32731 (N.Y. Sup. Ct. 2022) held in its Order dated August 12, 2022:
“One recent lower court decision noted that there have been at least 38 recent New
York State Court cases considering merchant agreements substantially similar to
the one in the instant matter, and all have been determined to be merchant
agreements and not loans, and were not usurious (see Yellowstone Capital LLC v
Central USA Wireless LLC, 60 Misc.3d 1220 (A)(Sup Ct, Erie County 2018)).”
Thus, Plaintiff’s Complaint establishes that Plaintiff Plymouth and its principal Mishaan,
even though he claims to have created the subject company, had no idea what he was doing. Not
only did Mishaan have no idea what he was doing when he started the business, the Complaint
suggests that Mishaan still does not understand the “cash advance” business or its legal
implications by referring to cash advance transactions as loans. If the “cash advance” transactions
are found to be loans (which the Complaint suggests that they were), Plaintiff would be exposed
to a plethora of claims, including but not limited to RICO. See Fleetwood Servs. v. Richmond
Capital Grp., 22-1885-cv (2d Cir. June 8, 2023).
THIS SHAREHOLDER’S DERIVATIVE COMPLAINT MUST BE DISMISSED
PURSUANT TO CPLR §3211(a)(3) AS PLAINTIFF FAILED TO ESTABLISH
DEMAND FUTILITY
The Complaint concedes that no demand was made (Complaint, ¶16) and falls far short of
establishing that there is demand futility. Accordingly, these claims must be dismissed because
Plaintiff did not make a demand on the board prior to commencing this action. Nor does Plaintiff
adequately allege that such demand would be futile.
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Plaintiff’s Complaint essentially argues that because Defendant Sitt is responsible for the
alleged/purported “breaches, malfeasance, and theft complained of herein” (Complaint, ¶16) the
demand would be futile. However, such sweeping claims fail to satisfy Plaintiff’s burden to
establish demand futility per the well-established law.
BCL §626(c) requires that a shareholder bringing a derivative action seeking to vindicate
the rights of the corporation must allege, with particularity, either that an attempt was first made
to get the board of directors to initiate such an action or that any such effort would be futile.
The Court of Appeals has held that: “the demand requirement rests on basic principles of
corporate control – that the management of the corporation is entrusted to its board of directors,
who have primary responsibility for acting in the name of the corporation and who are often in a
position to correct alleged abuses without resort to the Court.” Bansbach v. Zinn, 1 N.Y.3d 1
(2003). “Demand is futile, and excused, when the directors are incapable of making an impartial
decision as to whether to bring suit.” Bansbach, at 9. However, “to justify failure to make a
demand, it is not sufficient to name a majority of the directors as defendants with conclusory
allegations of wrongdoing.” Walsh v. Wwebnet, Inc., 116 A.D.3d845, 847 (2d Dep’t 2014).
Rather, to show that the Board lacks the independence to evaluate a demand, “the complaint must
set forth facts alleging that the directors received a direct financial benefit from the transaction
which is different from the benefit to shareholders generally.” Id. (citing Marx v. Akers, 88 N.Y.2d
189, 202 (1996)). There are no such allegations here. Rather, the Complaint only globally and
wholly in conclusory fashion alleges what the statute requires be plead with specificity.
Accordingly, there is no basis to excuse demand, and the complaint must be dismissed.
"A charge of interest must be made with particularity. Simply naming a majority of the
board as defendants with conclusory allegations of wrongdoing or control is insufficient to
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circumvent the requirement of demand." Bansbach, 1 N.Y.3d at 11 (citing Barr v. Wackman, 36
N.Y.2d 371, 379 (1975)); see Wandel v. Eisenberg, 2007 WL 6822868, at *1 (Sup. Ct. N.Y. Cnty.
2007), aff'd, 60 A.D.3d 77 (1stDep't 2009) (quoting Marx, 88 N.Y.2d at 199-200).
In the Appellate Division, First Department case Wandel v. Eisneberg, 60 A.D.3d 77 (1st
Dep’t 2009), the Court set forth three different burdens that a derivative plaintiff must show in
order to establish demand futility. The Wandel Court held: “therefore, the demand requirement is
excused only when the complaint’s specific allegation support the conclusion that: (1) a majority
of the directors are interest in the transaction; or (2) the directors failed to inform themselves to a
degree reasonably necessary about the transaction; or (3) the directors failed to exercise their
business judgment in approving the transaction. The Plaintiff’s Complaint fails to meet any of the
three prongs to show demand futility.
Regarding the first prong, there is no majority that can be established. According to the
Complaint, Plaintiff and Defendant Dumbo are equal fifty (50%) percent shareholders each
maintaining equal levels of control over GCF.
Regarding the second prong, the Plaintiff does not make any allegation that either party
lacked proper information regarding any subject transaction. Again, the “transaction” alleged to
be at issue in the Complaint is that Defendants Sitt and Dumbo breached their fiduciary duties by
diverting assets, funds and opportunities from GCF. Without more, this bald claim cannot establish
demand futility.
Finally, and similar to the second prong, the Plaintiff has not established demand futility
under the third prong. The Complaint is silent as to any failure to exercise business judgment
because this Complaint is not prefaced on any specific transaction that allegedly harmed the
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shareholders. Instead, the Plaintiff is baldly alleging that Defendants Sitt and Dumbo engaged in
unnamed and unspecific actions to divert “assets funds and opportunities” away from GCF.
If a Plaintiff in a derivative action can baldly allege a transaction or event that was harmful
to its company, without more, demand futility would be needless. As the Appellate Division, First
Department held in Wandel, supra, “indeed, if we were to find demand futility wherever it was
asserted that a majority of directors were substantially likely to be held liable then all well-plead
complaints would be able to establish demand futility.”
Nevertheless, the First Department decision, Tomczak v. Trepel, 283 A.D.2d 229 (1st Dep't
2001), is instructive on this issue. There, the First Department held that a "derivative action . . .
was properly dismissed since the allegations in plaintiffs' amended verified complaint failed to 'set
forth with particularity the efforts of . . . plaintiffs to secure the initiation of such action by the
board [or] the reason for not making such effort.'" Tomczak, 283 A.D.2d at 229-30. The First
Department went on to explain that "[w]hile plaintiffs allege that unsuccessful demands were made
on the [board] . . . to initiate legal action, the complaint provides no indication as to who made the
demands, when they were made, which Board members they were made to, the content of the
demands or why the Board refused to take action." Tomczak, 283 A.D.2d at 230 (emphasis added).
It is clear that Plaintiff is grasping at straws and this speculative Complaint is nothing more
than the Plaintiff “taking the offensive” to cover up its (and Mishaan’s) own misconduct and
breach. This is underscored by the Plaintiff naming Defendant Simmons Capital which is believed
to be a competitor of Mishaan’s new company (Gold Capital Funding LLC) in attempting to create
a non-existent relationship between Defendant Sitt and Simmons. That Defendants’ counsel has
not appeared for Simmons was not by accident.
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Accordingly, because the Plaintiff has failed to establish demand futility, the Plaintiff lacks
standing to bring this shareholder’s derivative action and the Complaint must be dismissed.
PLAINTIFF’S SECOND THROUGH SEVENTH CAUSES OF ACTION MUST BE
DISMISSED PURSUANT TO CPLR §3211(a)(7)
Notwithstanding that this Complaint must be dismissed due to the Plaintiff’s failure to
establish demand futility, the Plaintiff’s second through seventh causes of action must be dismissed
pursuant to CPLR §3211(a)(7) as they are duplicative of one another and fail to state a cause of
action.
Plaintiff cannot claim both a breach of fiduciary duty (second cause of action) and a claim
sounding in faithless servant (sixth cause of action) because they are contradictory in nature. The
former claim relates to a partnership issue whereas the latter refers to an employer-employee
relationship. Which one is it? Plaintiff cannot claim the same facts and assert the same claim
against a partner and an employee. Indeed, and as discussed in greater detail below, Plaintiff
effectively concedes that Sitt was not an employee of GCF warranting denial of the faithless
servant claim.
Notwithstanding the fatal defect of failing to make a proper demand or showing futility,
Defendants do not intend on seeking dismissal of the first cause of action for an accounting and
if/when the Plaintiff actually makes a formal demand or request to review the
books/records/accounts that it wishes to review. Plaintiff’s Complaint does not allege any specifics
about such a demand. It is no surprise that the Complaint is silent as to any specifics regarding
when and how Plaintiff made a request to review the books/records/accounts.
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Aside from the Plaintiff’s first cause of action, each other causes of action seek identical
relief arising out of the same transactions and occurrences and are not only duplicative of one
another, but because the Plaintiff’s speculation and inability to sufficiently allege damages as
underscored within each cause of action alleged within the Complaint, each fail to state a cause of
action and must be dismissed.
As stated briefly above, the Plaintiff concedes that damages here are speculative and not
quantified to any discernible degree. After all, aside from specifying three minor transactions, the
Complaint only generally alleges that Sitt and/or Dumbo damaged GCF by “diverting assets, funds
and opportunities away from GCF” for their personal gain.
The Second cause of action for Breach of Fiduciary duty fails to sufficiently state a cause of
action and must be dismissed.
To state a claim for breach of fiduciary duty, plaintiff must plead the existence of a
fiduciary duty between the parties, breach of that duty, and damages suffered as a result of the
breach. Kurtzman v Bergstol, 40 A.D.3d 588, 590 (2d Dep’t 2007) (emphasis supplied). "Plaintiff
must go beyond merely alleging that these essential elements are present if its claim is to survive
a motion to dismiss pursuant to CPLR §3211(a)(7)" (Gall v. Summit, Rovins and Feldesman, 222
A.D.2d 225, 226 (1st Dep’t 1995)(dismissing a claim for breach of fiduciary duty where the
"verified complaint is devoid of factual allegations which sufficiently demonstrate a causal
relationship between purported conduct on the part of defendants and damages suffered by
plaintiff." Levy ex rel. Morsly Inc. v. Stein, 2014 N.Y. Slip Op. 30839, 8 (N.Y. Sup. Ct. 2014)
Here, Plaintiff’s repetition that Defendants Sitt and Dumbo “diverted assets, funds, and
opportunities,” without more, cannot establish a breach of fiduciary duty. Additionally, the
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Complaint fails to sufficiently allege how that repeated action actually damaged the Plaintiff,
baldly claiming that because of Defendants’ actions, GCF had to close (See ¶4 of the Complaint).
In fact, the only allegations that quantify or specify particular transactions lending to the
alleged breach are contained in paragraphs 53 and 54 of the Complaint wherein the Plaintiff alleges
that Sitt and Dumbo “secretly funded” two “loans” and diverted any commissions, interest, fees,
and income to themselves. However, as stated above, the mere characterization and conflation of
“cash advance loan portfolios for qualified borrowers” is deafening to Mishaan’s competence and
understanding of the “cash advance” business itself – something that Mishaan claims to have
started and for which seeks to recoup damages.
Even assuming those allegations are correct (which is the standard on a pre-answer motion
to dismiss), the Complaint does not allege that those “loans” were profitable or that any benefit
was derived/earned from those “loans.” Differently, what is the relevance of mentioning that
Sitt/Dumbo “secretly funded” those “loans?” Notably missing from the Complaint is an allegation
that those deals were profitable and that Sitt/Dumbo pocketed or diverted those profits for
themselves at GCF’s detriment. Assuming those “loans” were non-performing, and the “borrower”
on those “loans” failed to repay them, logically, there couldn’t be a claim for diversion of corporate
opportunities.
Plaintiff’s cause of action for breach of fiduciary duty is akin to Gall, supra, where the
Plaintiff merely alleges that the elements of a breach of fiduciary duty are present without
specifying the details of when the breach occurred or the actual damages that were suffered to GCF
as a result (Plaintiff merely alleges that damages should be “in no event less than $1 million” – see
wherefore clause of the Complaint). As a result, the cause of action must fail and should be
dismissed pursuant to CPLR §3211(a)(7).
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The Third cause of action for Conversion is duplicative of the second cause of action
and fails to properly plead any intentional tort and must be dismissed
Plaintiff’s third cause of action alleges the intentional tort of conversion, stemming from
the same “assets, funds, opportunities and income streams that Sitt, Dumbo… diverted to
themselves from Plaintiff,” or the same exact allegation as the insufficiently plead breach of
fiduciary duty, which as established above, falls short as it does not specifically allege damages.
Here, the bases upon which the conversion claim lies are not subject to a claim for
conversion. 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.” Colavito v. N.Y. Organ Donor Network, Inc., 8 N.Y.3d 43 (2006).
Two key elements of conversion are (1) plaintiff’s possessory right or interest in the property and
(2) defendant’s dominion over the property or interference with it, in derogation of plaintiff’s
rights. Id. It has been held that a conversion claim must be predicated on the Plaintiff’s loss of its
ability to exercise at least some of its ownership rights in the subject property. Id.
Here, the Complaint alleges that the property that was converted was “assets, funds,
opportunities and income streams.” The Complaint fails to identify which “assets” it is referring
to, which “funds” it is referring to, which “opportunities” it is referring to and which “income
streams” it is referring to. Regardless, a business opportunity cannot be converted. See City of
New York v. Shellbank Rest Corp.,169 A.D.3d 581, 583 (1st Dep't 2019), see also Sun Gold Corp
v Stillman,95 A.D.3d 668, 670 (1stDep't 2012)(conversion of future business interests not
actionable).
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Additionally, the claim is nonetheless subject to dismissal because Plaintiff did not allege
that it demanded return of those items. See State of New York v Seventh Regiment Fund, Inc., 98
N.Y.2d 249, 260 (2002).
More, because Plaintiff’s Complaint asserts a cause of action for unjust enrichment, a
quasi-contractual claim, Plaintiff cannot sustain the conversion claim because “an action for
conversion cannot be validly maintained where damages are merely being sought for breach of
contract.” Peters Griffin Woodward, Inc. v WCSC, Inc., 88 A.D.2d 883, 883-84 (1st Dep’t 1982).
In effect, the crux of the Complaint claims that Defendants did not pay Plaintiff the money that
Plaintiff claims it should have been paid (and that Defendants deprived Plymouth of access to
documents which is irrelevant to this cause of action) which is a breach of contract claim or the
unjust enrichment claim.
Plaintiff must have sufficient standing to bring a conversion cause of action in that it must
allege that it owned, possessed or had control over the “specific identifiable thing” alleged in the
Complaint. See Castaldi v 39 Winfield Associates, 30 A.D.3d 458, 820 N.Y.S.2d 279 (2d Dep’t
2006) (dismissing plaintiff’s conversion claim because plaintiff never had “ownership, possession,
or control of the alleged proceeds in question despite alleging that it had a contractual right” to it);
Batsidis v Batsidis, 9 A.D.3d 342, 778 N.Y.S.2d 913 (2d Dep’t 2004) (emphasizing that plaintiff
must show ownership or an immediate right of possession to a specific identifiable thing); see also
Davis v Davis, 2012 N.Y. Misc. LEXIS 4527, 2012 NY Slip. Op. 32407(U) (N.Y. Sup. Ct. Sept.
18, 2012) (dismissing conversion cause of action because plaintiff did not assert that plaintiff
“owned, possessed or had control over the account at issue”).
If the alleged converted property is money, the Appellate Division, First Department has
held that: “money may be the subject of a conversion claim, it must be specifically identified and
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segregated, and there must be an obligation to return or otherwise treat the specific fund in a
particular manner.” Manufacturers Hanover Trust Co. v. Chemical Bank, 160 A.D.2d 113, 124
(1st Dep’t 1990). No such allegations are made as to what funds were converted, how they were
supposed to be kept and if the Plaintiff’s or GCF’s possession of same was interfered with. If
Plaintiff never had its hands on the alleged property that was converted, the claim for conversion
fails as a matter of law. Castaldi v. 39 Winfield Associates, supra.
In any event, the cause of action for conversion seeks the same unspecified damages that
are not alleged stemming from Defendants Sitt and Dumbo’s alleged breach of fiduciary duty.
Thus, the cause of action similarly fails to state a cause of action, is duplicative, and must be
dismissed.
The fourth cause of action for a Constructive Trust fails to sufficiently plead the
elements required, is duplicative of the second cause of action for breach of
fiduciary duty and must be dismissed.
Just as with the third cause of action for conversion, the cause of action seeking
constructive trust fails as it is duplicative to the second cause of action for breach of fiduciary duty
and separately fails to state a cause of action.
For the Court to impose a constructive trust, the Plaintiff must show: (1) a confidential or
fiduciary relationship; (2) an express or implied promise; (3) a transfer in reliance thereon; and (4)
unjust enrichment flowing from the breach of the promise. Bankers Sec. Life Inc. Society v.
Shakerdge, Shakerdge, 49 N.Y.2d 939 (1980); Galasso, Langione & Botter, LLP., v. Galasso, 176
A.D.3d 1176 (2d Dep’t 2019).
Plaintiff seeks a constructive trust over the “ill-gotten gains” derived from the same alleged
diversion of “assets, fund, and opportunities” that are the basis of the cause of action for breach of
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fiduciary duty. Those same assets, funds, and opportunities are not defined in the Complaint but
even they were, the cause of action for constructive trust must fail.
Plaintiff alleges no express or implied promise regarding the alleged transactions needed
to establish a constructive trust. Additionally, Plaintiff makes no allegations as to any transfer in
reliance to the Defendants surrounding the subject transactions of the Complaint. Lastly, and as
explained above, the Plaintiff’s Complaint concedes that damages are speculative. In fact, the
Complaint at ¶92 states the Plaintiff is seeking a constructive trust “to the extent they benefitted
from the assets, funds, opportunities or income streams.” (emphasis supplied).
Thus, not only is the fourth cause of action for constructive trust duplicative of the second
cause of action for breach of fiduciary duty, but Plaintiff’s Complaint falls far short of sufficiently
stating a cause of action for same as the Complaint does not state any information or details that
can suffice to establish the second, third, and fourth element required to impose a constructive
trust.
Accordingly, the Plaintiff’s fourth cause of action for constructive trust fails and must be
dismissed.
The fifth cause of action for unjust enrichment is duplicative of causes of action two
through four and cannot specifically state damages and must be dismissed.
In New York, a claim for unjust enrichment is available only in unusual situations when
the defendant has not breached a contract nor committed a recognized tort, but circumstances
create an equitable obligation running from the defendant to the plaintiff. Suber v. Churchill
Owners Corp., 2023 N.Y. Slip Op. 30637, 3 (N.Y. Sup. Ct. 2023); Georgia Malone & Co., Inc. v.
Rieder,19 N.Y.3d 511, 516, 950 NY.S.2d 333, 973 N.E.2d 743 [internal quotation marks
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omitted]; see, IDT Corp. v. Morgan Stanley Dean Witter & Co.,12 N.Y.3d 132,142, 879 NY.S.2d
355, 907 N.E.2d 268). "The theory of unjust enrichment lies as a quasi-contract claim. Unjust
enrichment is an obligation imposed by equity to prevent injustice, in the absence of an actual
agreement between the parties concerned" (IDT Corp., 12 N.Y.3d at 132 [internal citations and
quotations omitted]). The cause of action "is not a catchall cause of action to be used when other
[causes of action] fail" (Corsello v Verizon NY, Inc., 18 N.Y.3d 777, 790 (2012)).
Again, the Plaintiff’s Complaint alleges that the Defendants were unjustly enriched by
utilizing the same “funds, assets and opportunities for their own personal benefit” which is also
the basis of the second cause of action for breach of fiduciary duty, which fails.
If anything, the gravamen of the unjust enrichment theory is subsumed and duplicative of
the first cause of action for an accounting: ¶77. “As a result, Plaintiff is entitled to the equitable
remedy of an accounting to determine the value of Sitt’s and Dumbo’s misconduct and, upon
completion of said accounting, Plaintiff is entitled to recover from Sitt and Dumbo all damages
that Plaintiff has suffered as a result of their misconduct.”
Based on well-established case law, not only does the fifth cause of action for unjust
enrichment fail due to the Plaintiff’s failure to specifically allege damages (“Sitt, Dumbo…should
pay over to Plaintiff, any amounts that they misappropriated”), but it fails because it is duplicative
of the second cause of action for breach of fiduciary duty.
Accordingly, the Plaintiff’s fifth cause of action for unjust enrichment must be dismissed.
The sixth cause of action for faithless servant is improperly plead against the
Defendants and is nonetheless duplicative of the second cause of action and
therefore must be dismissed.
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As stated at the outset of this Memorandum, Plaintiff claims that Sitt was both an employee
(in order to sustain the faithless servant claim) and a partner (necessary for a breach of fiduciary
claim). Plaintiff cannot have it both ways. Specifically, the Complaint alleges:
“24. Sometime in or around early 2019, Sitt joined the Company through his
wholly owned vehicle, Dumbo. Upon joining the Company, Sitt took the title of
Chief Executive Officer, or CEO, of the Company.
26. The Company thereafter divided supervision and management of its two
business…”
Here, Defendant Sitt was not an employee of GCF but an officer of GCF. Defendant
Dumbo was a fifty (50%) percent shareholder/owner of GCF. Because Sitt was not an employee
of GCF, the faithless servant claim against him fails.
Under the faithless servant doctrine, “an employee who acts in any manner inconsistent
with his agency or trust and fails to exercise the utmost good faith and loyalty in the performance
of his duties is deemed a faithless servant and must account to his principal for secret profits and
forfeit his right to compensation. Rattner v. Orpen, 2014 N.Y. Slip Op. 33510 (N.Y. Sup. Ct.
2014); Feiger v. Iral Jewelry, Ltd., 41 N.Y.2d 928 (1977).
The Plaintiff cannot have it both ways, meaning it cannot seek damages from the
Defendants based on a breach of fiduciary duties stemming from their roles as officers/owners and
also seek damages as their role as an employee.
The Complaint seeks damages under the faithless servant doctrine that are identical to the
damages being sought against Defendants under the second cause of action for breach of fiduciary
duty, to wit: “embezzling company funds and usurping company opportunities.”
Given that neither Sitt nor Dumbo are employees of GCF and the Plaintiff asserts a cause
of action for the breach of fiduciary as each Defendants’ role as an officer/owner, this sixth cause
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of action under the faithless doctrine cannot state a cause of action against Defendants, is
duplicative of the second cause of action, and must be dismissed.
The seventh cause of action for unfair competition and misappropriation is
duplicative of the second cause of action for breach of fiduciary duty and the sixth
cause of action and must be dismissed.
To prevail on a claim for misappropriation, a plaintiff must demonstrate: (1) that it
possessed a trade secret, and (2) that the defendants used that trade secret in breach of an
agreement, confidential relationship or duty, or as a result of discovery by improper means.
Schroeder v. Pinterest Inc., 2015 N.Y. Slip Op. 7232 (1st Dep’t 2015). As particularly relevant to
this action, to support a claim for unfair competition, the subject information must be “secret” – to
wit, it must not be ascertainable from outside sources or generally known in the trade. See Ashland
Mgt. v Janien, 82 N.Y.2d 395, 407 (1993); Weiner v Lazard Freres & Co., 241 A.D.2d 114 (1st
Dep’t 1998); IVI Environmental, Inc. v Matthew A. McGovern, 269 A.D.2d 497, 498 (2d Dep’t
2000).
Plaintiff claims that the “Proprietary Leads” which forms the basis of the unfair
competition cause of action was “a compilation of over 100,000 business leads to pursue, which
was developed by the Company over several years” (¶37 of the Complaint). However, the obvious
question of how did the Company get those leads is fatal to Plaintiff’s claims:
¶38: “All the information contained in the Proprietary Leads was initially purchased
by the Company at great expense using Company funds and then further developed
through the use of proprietary research and the individual and collective judgment
of the Company and its members and employees.”
¶39: “The Proprietary Leads were stored on a hard drive and the data was encrypted
and password protected.”
Finally, ¶40: “No one other than Sitt and Mishaan had access to the Proprietary
Leads.”
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The answer to how the Company secured those leads was not the product of “great
expense” or the “use of proprietary research and the individual and collective judgment …” but
rather, they were “purchased by the Company.”
Customer lists qualify as trade secrets only if they have been secured by years of effort and
advertising effected by the expenditure of substantial time and money. Leo Silfen, Inc, v Cream,
29 NY2d 387, 393(1972). There is no allegation of such effort here. Quite the opposite actually:
“the Proprietary Leads was initially purchased by the Company” (¶38 of the Complaint).
Additionally, Plaintiff failed to allege "what specific data the individual defendants
misappropriated or used in their [subsequent] employ." (H. Meer Dental Supply Co. v Commisso,
269 A.D.2d 662, 664 (1st Dep’t 2000).
As an aside, if the Company purchased those leads, why couldn’t the Company just have
that list resent? Why is there no such claim or mention about that? Separately, “over 100,000 leads”
is incredulous. Notably, Plaintiff does not claim that its purchase of those leads was unique to it or
that the seller of those leads only sold those leads to Plaintiff.
Thus, it seems that Plaintiff is claiming that the “Proprietary Leads” were not proprietary
but in fact purchased, akin to prospective users or consumers of the Plaintiff’s products. That the
100,000+ number of leads is so large suggests that there was nothing proprietary about it at all
(claiming a list of recognized retailers as a proprietary client is not intellectual property) and that
the “leads” were a compilation of records in the public domain. 100,000 of anything is certainly
not unique and can be replaced, especially given that Plaintiff concedes that they were not
developed by the Plaintiff. More, that the “leads” were available for purchase suggests that there
was nothing exclusive about them and they were and are available for purchase to anyone,
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including competitors of all parties hereto. If anything, Plaintiff’s damages relating to the “leads”
should be limited to whatever Plaintiff paid for them.
Further, Plaintiff has not alleged that an exclusive property right or commercial advantage
was infringed or "misappropriated" in "bad faith," especially not as against Defendants. See, e.g.,
LoPresti v. Mass. Mut. Life Ins. Co., 30 A.D.3d 474, 476 (2d Dep't 2006) ("the plaintiff’s cause
of action alleging unfair competition was properly dismissed insofar as asserted against the
respondents because the complaint failed to allege the bad faith misappropriation of a commercial
advantage which belonged exclusively to him."). See also Starlight Limousine Serv. v. Cucinella,
275 A.D.2d 704, 705 (1st Dep't 2000) (Dismissing unfair competition claim where defendants
allegedly solicited the plaintiff's customers, stating "notwithstanding the plaintiffs” expenditures
of time and money in compiling the customer list, this type of information can be acquired with
no extraordinary effort from non-confidential sources and therefore is not entitled to trade secret
protection.").
A trade secret is “any formula, pattern, device or compilation of information which is used
in one’s business and which gives him an opportunity to obtain an advantage over competitors
who do not know or use it. Id.
Client identities that are "ascertainable outside the employer's business as prospective users
or consumers of the employer's services or products" do not constitute trade secrets. Thus, where
customers are not known in the trade and are discoverable "only by extraordinary efforts . . .
effected by the expenditure of substantial time and money," their identities constitute trade secrets.
(Leo Silfen, Inc. v Cream, 29 NY2d 387, 392-394(1972); 1 Model Mgt., LLC v Kavoussi, 82
A.D.3d 502, 503 (1st Dept 2011) (applying Silfen rule to candidate contact information)).
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This cause of action seeks damages due to the same ongoing allegations that Defendants
dive
Preview
FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK Index No.: 652864/2023 PLYMOUTH STREET LLC, derivatively on behalf of GOLD CAPITAL FUND LLC, Plaintiff(s), -against- ABRAHAM SITT, DUMBO CAPITAL HOLDINGS LLC, and SIMMONS CAPITAL LLC Defendant(s). -and- GOLD CAPITAL FUND LLC Nominal Defendant. DEFENDANTS ABRAHAM SITT AND DUMBO CAPITAL HOLDINGS LLC’S MEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION TO DISMISS PLAINTIFF’S COMPLAINT July 25, 2023 Law Offices of Jason J. Rebhun, P.C. Jason J. Rebhun 40 Wall Street, 45th Floor New York, New York 10005 (646) 201-9392 Attorneys for Defendants ABRAHAM SITT and DUMBO CAPITAL HOLDINGS LLC 1 1 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 Preliminary Statement This firm is counsel to Defendants Abraham Sitt (“Sitt”) and Dumbo Capital Holding LLC (“Dumbo”) (hereinafter together the “Defendants”) in the above-captioned action. As such, we are fully familiar with the facts and circumstances herein. This firm does not represent Defendant Simmons Capital LLC. This Memorandum of Law submitted in Support of the Defendants’ motion seeking an Order: (1) pursuant to CPLR §3211(a)(3) dismissing this shareholder’s derivative action for Plaintiff’s failure to establish demand futility; and (2) pursuant to CPLR §3211(a)(7) dismissing the second through seventh causes of action in their entirety based upon Plaintiff’s failure to state a cause of action against these Defendants. This action appears to be nothing more than a gross over exaggeration and misguided attempt by the Plaintiff Plymouth Street LLC (“Plymouth”) and its principal, non-party Abraham Mishaan (“Mishaan”) to foist blame for the failures of Gold Capital Fund LLC (“GCF”) onto Defendants and to misdirect the Court from Mishaan and Plymouth’s own breaches, malfeasance, incompetence, and misappropriation of GCF assets. Plaintiff’s un-verified Complaint was e-filed as NYSCEF doc. 1. That the Complaint was not verified by Mishaan personally (or by counsel for Plaintiff) is likely to avoid, at the outset, the perjurious claims set forth in the Complaint which will be addressed if the instant motion is not granted. The Complaint asserts a total of seven causes of action as follows: the first cause of action seeks an accounting against Defendants Sitt and Dumbo; the second cause of action asserts a breach of fiduciary duty claim against Sitt; the third cause of action asserts a conversion claim against all Defendants; the fourth cause of action asserts a constructive trust claim against all 2 2 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 Defendants; the fifth claim asserts an unjust enrichment claim against all Defendants; the sixth claim asserts a faithless servant claim against Sitt, and the seventh claim asserts an unfair competition - misappropriation against all Defendants. Notwithstanding the true underlying motive for Plaintiff’s Complaint, the shareholder derivative Complaint must nonetheless be dismissed as Plaintiff has not established demand futility. Additionally, the second, third, fourth, fifth, sixth, and seventh causes of action not only fail to state a cause of action for which relief can be granted, but are based upon the same transactions and occurrences, are duplicative and seek the same damages which are not specified or quantified in the Complaint rendering each cause of action ripe for dismissal. The Complaint is also contradictory on its face. Plaintiff claims Sitt improperly transferred over $1 million in assets and business opportunities (¶45) to himself, Dumbo and Simmons, though Plaintiff also claims that he does not have any financial records and “is unable to reconcile the salary Sitt paid himself …” (¶34). How can Plaintiff speak out of both sides of its mouth? Finally, that Plaintiff concedes that the Company was in the “cash advances” business (¶21 of the Complaint) and also claimed that it provided “loans to qualified borrowers” (¶22; ¶23 “the Company … its own cash advance loan portfolios for qualified borrowers”) is also contradictory. It is well established that to qualify as a cash advance and not a loan, the underlying transaction cannot be subject to usury. "The rudimentary element of usury is the existence of a loan or forbearance of money, and where there is no loan, there can be no usury, however unconscionable the contract may be." Principis Capital LLC v I Do, Inc., 201 A.D.3d 752, 754 (2d Dep’t 2022); LG Funding, LLC v United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (2d Dep’t 2020). "To determine whether a transaction constitutes a usurious loan, it must be considered in its totality 3 3 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it" (LG Funding, 181 A.D.3d 664 [internal quotation marks omitted]). As the Kings County Supreme Court in Vernon Capital Grp. v. Walnut Spring Farms LLC, 2022 N.Y. Slip Op. 32731 (N.Y. Sup. Ct. 2022) held in its Order dated August 12, 2022: “One recent lower court decision noted that there have been at least 38 recent New York State Court cases considering merchant agreements substantially similar to the one in the instant matter, and all have been determined to be merchant agreements and not loans, and were not usurious (see Yellowstone Capital LLC v Central USA Wireless LLC, 60 Misc.3d 1220 (A)(Sup Ct, Erie County 2018)).” Thus, Plaintiff’s Complaint establishes that Plaintiff Plymouth and its principal Mishaan, even though he claims to have created the subject company, had no idea what he was doing. Not only did Mishaan have no idea what he was doing when he started the business, the Complaint suggests that Mishaan still does not understand the “cash advance” business or its legal implications by referring to cash advance transactions as loans. If the “cash advance” transactions are found to be loans (which the Complaint suggests that they were), Plaintiff would be exposed to a plethora of claims, including but not limited to RICO. See Fleetwood Servs. v. Richmond Capital Grp., 22-1885-cv (2d Cir. June 8, 2023). THIS SHAREHOLDER’S DERIVATIVE COMPLAINT MUST BE DISMISSED PURSUANT TO CPLR §3211(a)(3) AS PLAINTIFF FAILED TO ESTABLISH DEMAND FUTILITY The Complaint concedes that no demand was made (Complaint, ¶16) and falls far short of establishing that there is demand futility. Accordingly, these claims must be dismissed because Plaintiff did not make a demand on the board prior to commencing this action. Nor does Plaintiff adequately allege that such demand would be futile. 4 4 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 Plaintiff’s Complaint essentially argues that because Defendant Sitt is responsible for the alleged/purported “breaches, malfeasance, and theft complained of herein” (Complaint, ¶16) the demand would be futile. However, such sweeping claims fail to satisfy Plaintiff’s burden to establish demand futility per the well-established law. BCL §626(c) requires that a shareholder bringing a derivative action seeking to vindicate the rights of the corporation must allege, with particularity, either that an attempt was first made to get the board of directors to initiate such an action or that any such effort would be futile. The Court of Appeals has held that: “the demand requirement rests on basic principles of corporate control – that the management of the corporation is entrusted to its board of directors, who have primary responsibility for acting in the name of the corporation and who are often in a position to correct alleged abuses without resort to the Court.” Bansbach v. Zinn, 1 N.Y.3d 1 (2003). “Demand is futile, and excused, when the directors are incapable of making an impartial decision as to whether to bring suit.” Bansbach, at 9. However, “to justify failure to make a demand, it is not sufficient to name a majority of the directors as defendants with conclusory allegations of wrongdoing.” Walsh v. Wwebnet, Inc., 116 A.D.3d845, 847 (2d Dep’t 2014). Rather, to show that the Board lacks the independence to evaluate a demand, “the complaint must set forth facts alleging that the directors received a direct financial benefit from the transaction which is different from the benefit to shareholders generally.” Id. (citing Marx v. Akers, 88 N.Y.2d 189, 202 (1996)). There are no such allegations here. Rather, the Complaint only globally and wholly in conclusory fashion alleges what the statute requires be plead with specificity. Accordingly, there is no basis to excuse demand, and the complaint must be dismissed. "A charge of interest must be made with particularity. Simply naming a majority of the board as defendants with conclusory allegations of wrongdoing or control is insufficient to 5 5 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 circumvent the requirement of demand." Bansbach, 1 N.Y.3d at 11 (citing Barr v. Wackman, 36 N.Y.2d 371, 379 (1975)); see Wandel v. Eisenberg, 2007 WL 6822868, at *1 (Sup. Ct. N.Y. Cnty. 2007), aff'd, 60 A.D.3d 77 (1stDep't 2009) (quoting Marx, 88 N.Y.2d at 199-200). In the Appellate Division, First Department case Wandel v. Eisneberg, 60 A.D.3d 77 (1st Dep’t 2009), the Court set forth three different burdens that a derivative plaintiff must show in order to establish demand futility. The Wandel Court held: “therefore, the demand requirement is excused only when the complaint’s specific allegation support the conclusion that: (1) a majority of the directors are interest in the transaction; or (2) the directors failed to inform themselves to a degree reasonably necessary about the transaction; or (3) the directors failed to exercise their business judgment in approving the transaction. The Plaintiff’s Complaint fails to meet any of the three prongs to show demand futility. Regarding the first prong, there is no majority that can be established. According to the Complaint, Plaintiff and Defendant Dumbo are equal fifty (50%) percent shareholders each maintaining equal levels of control over GCF. Regarding the second prong, the Plaintiff does not make any allegation that either party lacked proper information regarding any subject transaction. Again, the “transaction” alleged to be at issue in the Complaint is that Defendants Sitt and Dumbo breached their fiduciary duties by diverting assets, funds and opportunities from GCF. Without more, this bald claim cannot establish demand futility. Finally, and similar to the second prong, the Plaintiff has not established demand futility under the third prong. The Complaint is silent as to any failure to exercise business judgment because this Complaint is not prefaced on any specific transaction that allegedly harmed the 6 6 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 shareholders. Instead, the Plaintiff is baldly alleging that Defendants Sitt and Dumbo engaged in unnamed and unspecific actions to divert “assets funds and opportunities” away from GCF. If a Plaintiff in a derivative action can baldly allege a transaction or event that was harmful to its company, without more, demand futility would be needless. As the Appellate Division, First Department held in Wandel, supra, “indeed, if we were to find demand futility wherever it was asserted that a majority of directors were substantially likely to be held liable then all well-plead complaints would be able to establish demand futility.” Nevertheless, the First Department decision, Tomczak v. Trepel, 283 A.D.2d 229 (1st Dep't 2001), is instructive on this issue. There, the First Department held that a "derivative action . . . was properly dismissed since the allegations in plaintiffs' amended verified complaint failed to 'set forth with particularity the efforts of . . . plaintiffs to secure the initiation of such action by the board [or] the reason for not making such effort.'" Tomczak, 283 A.D.2d at 229-30. The First Department went on to explain that "[w]hile plaintiffs allege that unsuccessful demands were made on the [board] . . . to initiate legal action, the complaint provides no indication as to who made the demands, when they were made, which Board members they were made to, the content of the demands or why the Board refused to take action." Tomczak, 283 A.D.2d at 230 (emphasis added). It is clear that Plaintiff is grasping at straws and this speculative Complaint is nothing more than the Plaintiff “taking the offensive” to cover up its (and Mishaan’s) own misconduct and breach. This is underscored by the Plaintiff naming Defendant Simmons Capital which is believed to be a competitor of Mishaan’s new company (Gold Capital Funding LLC) in attempting to create a non-existent relationship between Defendant Sitt and Simmons. That Defendants’ counsel has not appeared for Simmons was not by accident. 7 7 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 Accordingly, because the Plaintiff has failed to establish demand futility, the Plaintiff lacks standing to bring this shareholder’s derivative action and the Complaint must be dismissed. PLAINTIFF’S SECOND THROUGH SEVENTH CAUSES OF ACTION MUST BE DISMISSED PURSUANT TO CPLR §3211(a)(7) Notwithstanding that this Complaint must be dismissed due to the Plaintiff’s failure to establish demand futility, the Plaintiff’s second through seventh causes of action must be dismissed pursuant to CPLR §3211(a)(7) as they are duplicative of one another and fail to state a cause of action. Plaintiff cannot claim both a breach of fiduciary duty (second cause of action) and a claim sounding in faithless servant (sixth cause of action) because they are contradictory in nature. The former claim relates to a partnership issue whereas the latter refers to an employer-employee relationship. Which one is it? Plaintiff cannot claim the same facts and assert the same claim against a partner and an employee. Indeed, and as discussed in greater detail below, Plaintiff effectively concedes that Sitt was not an employee of GCF warranting denial of the faithless servant claim. Notwithstanding the fatal defect of failing to make a proper demand or showing futility, Defendants do not intend on seeking dismissal of the first cause of action for an accounting and if/when the Plaintiff actually makes a formal demand or request to review the books/records/accounts that it wishes to review. Plaintiff’s Complaint does not allege any specifics about such a demand. It is no surprise that the Complaint is silent as to any specifics regarding when and how Plaintiff made a request to review the books/records/accounts. 8 8 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 Aside from the Plaintiff’s first cause of action, each other causes of action seek identical relief arising out of the same transactions and occurrences and are not only duplicative of one another, but because the Plaintiff’s speculation and inability to sufficiently allege damages as underscored within each cause of action alleged within the Complaint, each fail to state a cause of action and must be dismissed. As stated briefly above, the Plaintiff concedes that damages here are speculative and not quantified to any discernible degree. After all, aside from specifying three minor transactions, the Complaint only generally alleges that Sitt and/or Dumbo damaged GCF by “diverting assets, funds and opportunities away from GCF” for their personal gain. The Second cause of action for Breach of Fiduciary duty fails to sufficiently state a cause of action and must be dismissed. To state a claim for breach of fiduciary duty, plaintiff must plead the existence of a fiduciary duty between the parties, breach of that duty, and damages suffered as a result of the breach. Kurtzman v Bergstol, 40 A.D.3d 588, 590 (2d Dep’t 2007) (emphasis supplied). "Plaintiff must go beyond merely alleging that these essential elements are present if its claim is to survive a motion to dismiss pursuant to CPLR §3211(a)(7)" (Gall v. Summit, Rovins and Feldesman, 222 A.D.2d 225, 226 (1st Dep’t 1995)(dismissing a claim for breach of fiduciary duty where the "verified complaint is devoid of factual allegations which sufficiently demonstrate a causal relationship between purported conduct on the part of defendants and damages suffered by plaintiff." Levy ex rel. Morsly Inc. v. Stein, 2014 N.Y. Slip Op. 30839, 8 (N.Y. Sup. Ct. 2014) Here, Plaintiff’s repetition that Defendants Sitt and Dumbo “diverted assets, funds, and opportunities,” without more, cannot establish a breach of fiduciary duty. Additionally, the 9 9 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 Complaint fails to sufficiently allege how that repeated action actually damaged the Plaintiff, baldly claiming that because of Defendants’ actions, GCF had to close (See ¶4 of the Complaint). In fact, the only allegations that quantify or specify particular transactions lending to the alleged breach are contained in paragraphs 53 and 54 of the Complaint wherein the Plaintiff alleges that Sitt and Dumbo “secretly funded” two “loans” and diverted any commissions, interest, fees, and income to themselves. However, as stated above, the mere characterization and conflation of “cash advance loan portfolios for qualified borrowers” is deafening to Mishaan’s competence and understanding of the “cash advance” business itself – something that Mishaan claims to have started and for which seeks to recoup damages. Even assuming those allegations are correct (which is the standard on a pre-answer motion to dismiss), the Complaint does not allege that those “loans” were profitable or that any benefit was derived/earned from those “loans.” Differently, what is the relevance of mentioning that Sitt/Dumbo “secretly funded” those “loans?” Notably missing from the Complaint is an allegation that those deals were profitable and that Sitt/Dumbo pocketed or diverted those profits for themselves at GCF’s detriment. Assuming those “loans” were non-performing, and the “borrower” on those “loans” failed to repay them, logically, there couldn’t be a claim for diversion of corporate opportunities. Plaintiff’s cause of action for breach of fiduciary duty is akin to Gall, supra, where the Plaintiff merely alleges that the elements of a breach of fiduciary duty are present without specifying the details of when the breach occurred or the actual damages that were suffered to GCF as a result (Plaintiff merely alleges that damages should be “in no event less than $1 million” – see wherefore clause of the Complaint). As a result, the cause of action must fail and should be dismissed pursuant to CPLR §3211(a)(7). 10 10 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 The Third cause of action for Conversion is duplicative of the second cause of action and fails to properly plead any intentional tort and must be dismissed Plaintiff’s third cause of action alleges the intentional tort of conversion, stemming from the same “assets, funds, opportunities and income streams that Sitt, Dumbo… diverted to themselves from Plaintiff,” or the same exact allegation as the insufficiently plead breach of fiduciary duty, which as established above, falls short as it does not specifically allege damages. Here, the bases upon which the conversion claim lies are not subject to a claim for conversion. 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.” Colavito v. N.Y. Organ Donor Network, Inc., 8 N.Y.3d 43 (2006). Two key elements of conversion are (1) plaintiff’s possessory right or interest in the property and (2) defendant’s dominion over the property or interference with it, in derogation of plaintiff’s rights. Id. It has been held that a conversion claim must be predicated on the Plaintiff’s loss of its ability to exercise at least some of its ownership rights in the subject property. Id. Here, the Complaint alleges that the property that was converted was “assets, funds, opportunities and income streams.” The Complaint fails to identify which “assets” it is referring to, which “funds” it is referring to, which “opportunities” it is referring to and which “income streams” it is referring to. Regardless, a business opportunity cannot be converted. See City of New York v. Shellbank Rest Corp.,169 A.D.3d 581, 583 (1st Dep't 2019), see also Sun Gold Corp v Stillman,95 A.D.3d 668, 670 (1stDep't 2012)(conversion of future business interests not actionable). 11 11 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 Additionally, the claim is nonetheless subject to dismissal because Plaintiff did not allege that it demanded return of those items. See State of New York v Seventh Regiment Fund, Inc., 98 N.Y.2d 249, 260 (2002). More, because Plaintiff’s Complaint asserts a cause of action for unjust enrichment, a quasi-contractual claim, Plaintiff cannot sustain the conversion claim because “an action for conversion cannot be validly maintained where damages are merely being sought for breach of contract.” Peters Griffin Woodward, Inc. v WCSC, Inc., 88 A.D.2d 883, 883-84 (1st Dep’t 1982). In effect, the crux of the Complaint claims that Defendants did not pay Plaintiff the money that Plaintiff claims it should have been paid (and that Defendants deprived Plymouth of access to documents which is irrelevant to this cause of action) which is a breach of contract claim or the unjust enrichment claim. Plaintiff must have sufficient standing to bring a conversion cause of action in that it must allege that it owned, possessed or had control over the “specific identifiable thing” alleged in the Complaint. See Castaldi v 39 Winfield Associates, 30 A.D.3d 458, 820 N.Y.S.2d 279 (2d Dep’t 2006) (dismissing plaintiff’s conversion claim because plaintiff never had “ownership, possession, or control of the alleged proceeds in question despite alleging that it had a contractual right” to it); Batsidis v Batsidis, 9 A.D.3d 342, 778 N.Y.S.2d 913 (2d Dep’t 2004) (emphasizing that plaintiff must show ownership or an immediate right of possession to a specific identifiable thing); see also Davis v Davis, 2012 N.Y. Misc. LEXIS 4527, 2012 NY Slip. Op. 32407(U) (N.Y. Sup. Ct. Sept. 18, 2012) (dismissing conversion cause of action because plaintiff did not assert that plaintiff “owned, possessed or had control over the account at issue”). If the alleged converted property is money, the Appellate Division, First Department has held that: “money may be the subject of a conversion claim, it must be specifically identified and 12 12 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 segregated, and there must be an obligation to return or otherwise treat the specific fund in a particular manner.” Manufacturers Hanover Trust Co. v. Chemical Bank, 160 A.D.2d 113, 124 (1st Dep’t 1990). No such allegations are made as to what funds were converted, how they were supposed to be kept and if the Plaintiff’s or GCF’s possession of same was interfered with. If Plaintiff never had its hands on the alleged property that was converted, the claim for conversion fails as a matter of law. Castaldi v. 39 Winfield Associates, supra. In any event, the cause of action for conversion seeks the same unspecified damages that are not alleged stemming from Defendants Sitt and Dumbo’s alleged breach of fiduciary duty. Thus, the cause of action similarly fails to state a cause of action, is duplicative, and must be dismissed. The fourth cause of action for a Constructive Trust fails to sufficiently plead the elements required, is duplicative of the second cause of action for breach of fiduciary duty and must be dismissed. Just as with the third cause of action for conversion, the cause of action seeking constructive trust fails as it is duplicative to the second cause of action for breach of fiduciary duty and separately fails to state a cause of action. For the Court to impose a constructive trust, the Plaintiff must show: (1) a confidential or fiduciary relationship; (2) an express or implied promise; (3) a transfer in reliance thereon; and (4) unjust enrichment flowing from the breach of the promise. Bankers Sec. Life Inc. Society v. Shakerdge, Shakerdge, 49 N.Y.2d 939 (1980); Galasso, Langione & Botter, LLP., v. Galasso, 176 A.D.3d 1176 (2d Dep’t 2019). Plaintiff seeks a constructive trust over the “ill-gotten gains” derived from the same alleged diversion of “assets, fund, and opportunities” that are the basis of the cause of action for breach of 13 13 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 fiduciary duty. Those same assets, funds, and opportunities are not defined in the Complaint but even they were, the cause of action for constructive trust must fail. Plaintiff alleges no express or implied promise regarding the alleged transactions needed to establish a constructive trust. Additionally, Plaintiff makes no allegations as to any transfer in reliance to the Defendants surrounding the subject transactions of the Complaint. Lastly, and as explained above, the Plaintiff’s Complaint concedes that damages are speculative. In fact, the Complaint at ¶92 states the Plaintiff is seeking a constructive trust “to the extent they benefitted from the assets, funds, opportunities or income streams.” (emphasis supplied). Thus, not only is the fourth cause of action for constructive trust duplicative of the second cause of action for breach of fiduciary duty, but Plaintiff’s Complaint falls far short of sufficiently stating a cause of action for same as the Complaint does not state any information or details that can suffice to establish the second, third, and fourth element required to impose a constructive trust. Accordingly, the Plaintiff’s fourth cause of action for constructive trust fails and must be dismissed. The fifth cause of action for unjust enrichment is duplicative of causes of action two through four and cannot specifically state damages and must be dismissed. In New York, a claim for unjust enrichment is available only in unusual situations when the defendant has not breached a contract nor committed a recognized tort, but circumstances create an equitable obligation running from the defendant to the plaintiff. Suber v. Churchill Owners Corp., 2023 N.Y. Slip Op. 30637, 3 (N.Y. Sup. Ct. 2023); Georgia Malone & Co., Inc. v. Rieder,19 N.Y.3d 511, 516, 950 NY.S.2d 333, 973 N.E.2d 743 [internal quotation marks 14 14 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 omitted]; see, IDT Corp. v. Morgan Stanley Dean Witter & Co.,12 N.Y.3d 132,142, 879 NY.S.2d 355, 907 N.E.2d 268). "The theory of unjust enrichment lies as a quasi-contract claim. Unjust enrichment is an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties concerned" (IDT Corp., 12 N.Y.3d at 132 [internal citations and quotations omitted]). The cause of action "is not a catchall cause of action to be used when other [causes of action] fail" (Corsello v Verizon NY, Inc., 18 N.Y.3d 777, 790 (2012)). Again, the Plaintiff’s Complaint alleges that the Defendants were unjustly enriched by utilizing the same “funds, assets and opportunities for their own personal benefit” which is also the basis of the second cause of action for breach of fiduciary duty, which fails. If anything, the gravamen of the unjust enrichment theory is subsumed and duplicative of the first cause of action for an accounting: ¶77. “As a result, Plaintiff is entitled to the equitable remedy of an accounting to determine the value of Sitt’s and Dumbo’s misconduct and, upon completion of said accounting, Plaintiff is entitled to recover from Sitt and Dumbo all damages that Plaintiff has suffered as a result of their misconduct.” Based on well-established case law, not only does the fifth cause of action for unjust enrichment fail due to the Plaintiff’s failure to specifically allege damages (“Sitt, Dumbo…should pay over to Plaintiff, any amounts that they misappropriated”), but it fails because it is duplicative of the second cause of action for breach of fiduciary duty. Accordingly, the Plaintiff’s fifth cause of action for unjust enrichment must be dismissed. The sixth cause of action for faithless servant is improperly plead against the Defendants and is nonetheless duplicative of the second cause of action and therefore must be dismissed. 15 15 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 As stated at the outset of this Memorandum, Plaintiff claims that Sitt was both an employee (in order to sustain the faithless servant claim) and a partner (necessary for a breach of fiduciary claim). Plaintiff cannot have it both ways. Specifically, the Complaint alleges: “24. Sometime in or around early 2019, Sitt joined the Company through his wholly owned vehicle, Dumbo. Upon joining the Company, Sitt took the title of Chief Executive Officer, or CEO, of the Company. 26. The Company thereafter divided supervision and management of its two business…” Here, Defendant Sitt was not an employee of GCF but an officer of GCF. Defendant Dumbo was a fifty (50%) percent shareholder/owner of GCF. Because Sitt was not an employee of GCF, the faithless servant claim against him fails. Under the faithless servant doctrine, “an employee who acts in any manner inconsistent with his agency or trust and fails to exercise the utmost good faith and loyalty in the performance of his duties is deemed a faithless servant and must account to his principal for secret profits and forfeit his right to compensation. Rattner v. Orpen, 2014 N.Y. Slip Op. 33510 (N.Y. Sup. Ct. 2014); Feiger v. Iral Jewelry, Ltd., 41 N.Y.2d 928 (1977). The Plaintiff cannot have it both ways, meaning it cannot seek damages from the Defendants based on a breach of fiduciary duties stemming from their roles as officers/owners and also seek damages as their role as an employee. The Complaint seeks damages under the faithless servant doctrine that are identical to the damages being sought against Defendants under the second cause of action for breach of fiduciary duty, to wit: “embezzling company funds and usurping company opportunities.” Given that neither Sitt nor Dumbo are employees of GCF and the Plaintiff asserts a cause of action for the breach of fiduciary as each Defendants’ role as an officer/owner, this sixth cause 16 16 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 of action under the faithless doctrine cannot state a cause of action against Defendants, is duplicative of the second cause of action, and must be dismissed. The seventh cause of action for unfair competition and misappropriation is duplicative of the second cause of action for breach of fiduciary duty and the sixth cause of action and must be dismissed. To prevail on a claim for misappropriation, a plaintiff must demonstrate: (1) that it possessed a trade secret, and (2) that the defendants used that trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means. Schroeder v. Pinterest Inc., 2015 N.Y. Slip Op. 7232 (1st Dep’t 2015). As particularly relevant to this action, to support a claim for unfair competition, the subject information must be “secret” – to wit, it must not be ascertainable from outside sources or generally known in the trade. See Ashland Mgt. v Janien, 82 N.Y.2d 395, 407 (1993); Weiner v Lazard Freres & Co., 241 A.D.2d 114 (1st Dep’t 1998); IVI Environmental, Inc. v Matthew A. McGovern, 269 A.D.2d 497, 498 (2d Dep’t 2000). Plaintiff claims that the “Proprietary Leads” which forms the basis of the unfair competition cause of action was “a compilation of over 100,000 business leads to pursue, which was developed by the Company over several years” (¶37 of the Complaint). However, the obvious question of how did the Company get those leads is fatal to Plaintiff’s claims: ¶38: “All the information contained in the Proprietary Leads was initially purchased by the Company at great expense using Company funds and then further developed through the use of proprietary research and the individual and collective judgment of the Company and its members and employees.” ¶39: “The Proprietary Leads were stored on a hard drive and the data was encrypted and password protected.” Finally, ¶40: “No one other than Sitt and Mishaan had access to the Proprietary Leads.” 17 17 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 The answer to how the Company secured those leads was not the product of “great expense” or the “use of proprietary research and the individual and collective judgment …” but rather, they were “purchased by the Company.” Customer lists qualify as trade secrets only if they have been secured by years of effort and advertising effected by the expenditure of substantial time and money. Leo Silfen, Inc, v Cream, 29 NY2d 387, 393(1972). There is no allegation of such effort here. Quite the opposite actually: “the Proprietary Leads was initially purchased by the Company” (¶38 of the Complaint). Additionally, Plaintiff failed to allege "what specific data the individual defendants misappropriated or used in their [subsequent] employ." (H. Meer Dental Supply Co. v Commisso, 269 A.D.2d 662, 664 (1st Dep’t 2000). As an aside, if the Company purchased those leads, why couldn’t the Company just have that list resent? Why is there no such claim or mention about that? Separately, “over 100,000 leads” is incredulous. Notably, Plaintiff does not claim that its purchase of those leads was unique to it or that the seller of those leads only sold those leads to Plaintiff. Thus, it seems that Plaintiff is claiming that the “Proprietary Leads” were not proprietary but in fact purchased, akin to prospective users or consumers of the Plaintiff’s products. That the 100,000+ number of leads is so large suggests that there was nothing proprietary about it at all (claiming a list of recognized retailers as a proprietary client is not intellectual property) and that the “leads” were a compilation of records in the public domain. 100,000 of anything is certainly not unique and can be replaced, especially given that Plaintiff concedes that they were not developed by the Plaintiff. More, that the “leads” were available for purchase suggests that there was nothing exclusive about them and they were and are available for purchase to anyone, 18 18 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 including competitors of all parties hereto. If anything, Plaintiff’s damages relating to the “leads” should be limited to whatever Plaintiff paid for them. Further, Plaintiff has not alleged that an exclusive property right or commercial advantage was infringed or "misappropriated" in "bad faith," especially not as against Defendants. See, e.g., LoPresti v. Mass. Mut. Life Ins. Co., 30 A.D.3d 474, 476 (2d Dep't 2006) ("the plaintiff’s cause of action alleging unfair competition was properly dismissed insofar as asserted against the respondents because the complaint failed to allege the bad faith misappropriation of a commercial advantage which belonged exclusively to him."). See also Starlight Limousine Serv. v. Cucinella, 275 A.D.2d 704, 705 (1st Dep't 2000) (Dismissing unfair competition claim where defendants allegedly solicited the plaintiff's customers, stating "notwithstanding the plaintiffs” expenditures of time and money in compiling the customer list, this type of information can be acquired with no extraordinary effort from non-confidential sources and therefore is not entitled to trade secret protection."). A trade secret is “any formula, pattern, device or compilation of information which is used in one’s business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. Id. Client identities that are "ascertainable outside the employer's business as prospective users or consumers of the employer's services or products" do not constitute trade secrets. Thus, where customers are not known in the trade and are discoverable "only by extraordinary efforts . . . effected by the expenditure of substantial time and money," their identities constitute trade secrets. (Leo Silfen, Inc. v Cream, 29 NY2d 387, 392-394(1972); 1 Model Mgt., LLC v Kavoussi, 82 A.D.3d 502, 503 (1st Dept 2011) (applying Silfen rule to candidate contact information)). 19 19 of 21 FILED: NEW YORK COUNTY CLERK 07/25/2023 05:05 PM INDEX NO. 652864/2023 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 07/25/2023 This cause of action seeks damages due to the same ongoing allegations that Defendants dive