Preview
(FILED: SUFFOLK COUNTY CLERK 06/05/2014) INDEX NO. 063193/2013
NYSCEF DOC. NO. 17 RECEIVED NYSCEF 06/05/2014
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF SUFFOLK
wae. fete
nee ee ne rn eee ne enn neenenceneneee,
ALBERT PEREZ, individually and derivatively
on behal
of TOTAL
f COMPUTER SOFTWARE, LLC, Index No. 063193/2013
~ Plaintiff-
~ against -
VINCENT TEDESCO, TOTAL COMPUTER SYSTEMS,
LTD. d/b/a TOTAL COMPUTER GROUP, TOTAL
COMPUTER GROUP, LLC, TOTAL COMPUTERS, LTD.
and JOHN DOE CORPORATION,
- Defendants -
mene nen te ne ene ene nae ne ee
MEMORANDUM OF LAW IN FURTHER SUPPORT OF DEFENDANTS’
MOTION TO DISMISS
ALSTON & BIRD LLP
Michael E. Johnson, Esq.
Jessica L. Supernaw, q.
90 Park Avenue
New York, New York 10016
Tel: (212) 210-9400
Fax: (212) 210-9444
Email: michael johnson@alston.com
jessica.supernaw@alston.com
Attorneys for Defendants
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES eocvlli
I ARGUMENT
A Dismissal of the Derivative Causes of Action is Appropriate ..........
B. Causes of Action Against TCG LLC and TC Ltd. Must be Denied
The Derivative Breach of Contract (Count 1), Conversion (Count 4), and
Accounting (Count 3) Causes of Action Are Improperly Pled As Claims on
Behalf of the Company
1 The Derivative Breach of Contract Cau of Action Must Be
Dismissed
2. The Derivative Conversion Cause of Action Must Be Dismissed
3. The Derivative Accounting Cause of Action Must Be Dismissed
Perez’s Derivative Breach of Fiduciary Duty Cause of Action (Count 2)
Impermissibly Combines Derivative and Individual Claims...ccccccscccssseeeseeeee 8
E Claims Duplicative of the Individual Breach of Contract Cause of Action
Must Be Dismissed (Counts 4, 5, 6, 12, 13, 15, 16)
1 The Conversion Causes of ACtion wi...
2 The Waste Cause of Action 10
3
The Unjust Enrichment Causes of Action 11
4 Fraudulent Inducement Cause of Action nl
5 Common Law Fraud Cause of Action sere ree etter eer eteentrietinesetiesitenesres 12
F The Injunctive Relief Causes of Action Must Be Dismissed . 13
G The Limited Liability Law/Partnership Law Cause of Action Must Be
Dismissed........... 14
H The Punitive Damages Demands Must Be Dismissed 14
Page
Perez, Had Improperly Disclosed Settlement Discussions.......... 15
Il. CONCLUSION. 16
i
TABLE OF AUTHORITIES
Cases Page(s)
274 Madison Co. LLC y. Ramsundar,
Index No. 153425/12, 2013 WL 6328670 (Sup. Ct. N.Y. County Dec. 2, 2013). 14
Abrams v. Donati,
66 N.Y.2d 951, 498 N.Y.S.2d 782 (1985) 6,8
Barr v. Wackman,
36 N.Y.2d 371, 368 N.Y.S.2d 497 (1975)
Bettan v. Geico General Ins, Co.,
296 A.D.2d 469, 745 N.Y.S.2d 545 (2d Dep't 2002).. 9,11
Bread Chalet, Ine. v. Royal Ins. Co.,
224 A.D.2d 650, 639 N.Y.S.2d 73 (2d Dep’t 1996) veces 14
Broome v. ML Media Opportunity Partners L.P.,
273 A.D.2d 63, 709 N.Y.S.2d 59 (1st Dep’t 2000) veces
D'Amour v. Ohrenstein & Brown, LLP.
17 Misc. 3d 1130(A), 2007 WL 4126386 (Sup. Ct. N.Y. County Aug. 13, 2007) 13
DeMarco v. Clove Estates, Ine.,
250 A.D.2d 724, 672 N.Y.S.2d 784 (2d Dep’t 1998)... seed, 7, 8
Demorey v, State,
137 A.D.2d 650, 524 N.Y.S.2d 742 (2d Dep't 1988)
DePierra v. Bank of N.Y.,
308 A.D.2d 430, 764 N.Y.S.2d 208 (2d Dep't 2003) 14
Englert v, Schaffer,
61 A.D.3d 1362, 877 N.Y.S.2d 780 (4th Dep’t 2009)
Fort Ann Cent, Sch, Dist. v. Hogan,
206 A.D.2d 723, 614 N.Y.S.2d 803 (3d Dep’t 1994)
Fromowitz v. W. Park Assoes., Inc.,
106 A.D.3d 950, 965 N.Y.S.2d 597 (2d Dep’t 2013) 12
Hefjez v. L&G Gen. Constr. Inc.,
36 A.D.3d 526, 867 N.Y.S.2d 198 (2d Dep't 2008) 12
Luxonomy Cars, Inc. v. Citibank, N.A.,
65 A.D.2d 549, 408 N.Y,S.2d 951 (2d Dep’t 1978) i2
iii
Cases Page(s)
Marx v. Akers,
88 .N.Y.2d 189, 655 N.Y.S.2d 121 (1996) 2,3
New York Univ, v. Continental Ins. Co.,
87 N.Y.2d 308, 639 N.Y.S.2d 283 (1995) 12
Prince y. Gurvitz,
57 A.D.2d 860, 394 N.Y.S.2d 258 (2d Dep’t 1977) 15
Rocanova y. Equitable Life Assurance Soc'y,
83 N.Y.2d 603, 612 N.Y.S.2d 339 (1994). 14
Rolls-Royce Motor Cars v. Schudroff,
929 F, Supp. 117 (S.D.N.Y. 1996)
Roy v. Vayntrub,
15 Misc. 3d 1127(A), 2007 WL 1218356 (Sup. Ct. Nassau County Mar. 15, 2007)
Rudnick vy. Glendale Sys., Inc.,
222 A.D.2d 572, 635 N.Y.S.2d 657 (2d Dep’t 1995) 13
Steinowitz v. Gambescia,
24 Misc. 3d 132(A), 2009 WL 192676] (Sup. Ct. App. T. 9th, 10th J.D. June 29,
2009)
Sterling Nat. Bank v. J.H.Cohn LLP,
40 Misc. 3d 1230(A), 2013 WL 446740] (Sup. Ct. N.Y. County Aug. 20, 2013). 15
Stewart Tenants Corp. v. Square Indus., Inc.,
269 A.D.2d 246, 703 N.Y.S.2d 453 (Ist Dep’t 2000)
V. Groppa Pools, Inc. v. Massello,
106 A.D.3d 722, 964 N.Y.8.2d 563 (2d Dep’t 2013)
Wallace vy. Perret,
28 Misc. 3d 1023, 903 N.Y.S.2d 888 (Sup. Ct. Kings County 2010)
West Branch Conservation Assoc., Inc. v, County of Rockland,
227 A.D.2d 547, 642 N.Y.S.2d 966 (2d Dep't 1996) 13
Whitman Realty Group, Inc. v. Galano,
41 A.D.3d 590, 838 N.Y.S.2d $85 (2d Dep't 2007)
Statutes
CAPLLAR, S45 47 ccscstcssessenesseecsseesseesssessseessusessesssvesquncesesssneqasurssvesssssssvessusscsuesanessusesseseesuccusetessneceree 15
Iv
AL its core, the Amended Complaint! alleges a simple breach of Software’s Operating
Agreement and breach of fiduciary duty by Tedesco, and nothing more.* Perez complains that
he has not been paid all the monies to which he claims entitlement, which entitlement supposedly
arises from the Operating Agreement and his relationship with Defendants Tedesco and TCG,
who along with Perez constitute Software’s three members, Notwithstanding the straightforward
nature of his grievance, in his Amended Complaint Perez trots out a bevy of legal claims that are
duplicative of his contract and fiduciary duty claims or are simply not applicable to the facts
alleged. No amount of spin-doctoring in Perez’s pleading can change the essential nature of his
laims. Perez has also loaded up his Amended Complaint with a host of derivative causes of
action, none of which fit the core facts he has alleged. This is a dispute among the members ofa
closely-held LLC as to the proper allocation of company funds among the three members and
payment of debts, and derivative claims for the benefit of the whole company (that is, all three
members, both plaintiff and defendants) make no sense at all. Defendants’ Motion to Dismiss
should be granted and the Amended Complaint narrowed, so that Perez proceeds in his
individual capacity against only the proper Defendants on the limited causes of action that fit the
facts alleged.
I ARGUMENT
Throughout his opposition to Defendants’ Motion to Dismiss (the “Opposition Brief” or
“Opp. Br.”), Perez cites to case law that in the abstract might correctly state a legal principle, but
in the instant matier is inapplicable. While this Court must generally take the allegations ofa
complaint in the light most favorable to Plaintiff
on a motion to dismiss, it is not required to
‘Terms utilized but not defined herein are as defined in Defendants’ Opening Brief.
? Perez also individually seeks an accounting in his eleventh cause of action, which is not subject of this motion.
accept as truthful “allegations consisting of bare conclusory assertions, and such allegations are
not accorded every favorable inference.” Steinowitz v. Gambescia, 24 Misc, 3d 132(A), *2, 2009
WL 1926761 (Sup. Ct. App. T. 9th, 10th J.D, June 29, 2009); see V. Groppa Pools, Inc. v.
Massello, 106 A.D.3d 722, 722-23, 964 N.Y.S.2d 563, 565 (2d Dep’t 2013) (“Allegations of
the pleading cannot be vague and conclusory, but must contain sufficiently particularized
allegations from which a cognizable cause of action reasonably could be found”); Demorey v.
State, 137 A.D.2d 650, 651, 524 N.Y.S.2d 742, 743 (2d Dep't 1988) (holding that “as the
complaint contains mere conclusory allegations with respect to these causes of action which have
been dismissed, they are insufficient”),
Further, dismissal of many of Perez’s claims and his demands for punitive damages is
appropriate at this time because while Perez argues that certain facts are solely within
Defendants’ possession, he has “not established that additional discovery would disclose facts
essential to justify opposition to defendants’ motion.” Englert v. Schaffer, 61 A.D.3d 1362, 1363 >
877 N.Y.S.2d 780, 781 (4th Dep’t 2009) (rejecting plaintiffs contention that motion to dismiss
was premature due to discoverable facts solely within defendants’ possession).
A Dismissal of the Derivative Causes of Action is Appropriate
Perez, does not allege with the requisite particularity that the majority of Software’s
members are interested in particular challenged transactions. It is not sufficient for Perez to
name, as he has in his Amended Complaint, a majority of the directors of Software as defendants
with conclusory allegations of wrongdoing or control in order to justify a failure to make a
demand prior to making derivative claims. Marx v. Akers, 88 N.Y.2d 189, 199-200, 655
N.Y.S.2d 121, 127 (1996). This is so because such a “pleading tactic would only beg the
question of actual futility and ignore the particularity requirement of the statute.” Barr v.
Wackman, 36 N.Y.2d 371, 379, 368 N.Y.S.2d 497, 506 (1975). Contrary to Perez’s assertion,
the Amended Complaint is far from “replete” with specific examples or details sufficient to
justify a failure to make a demand upon Software; instead, it is full of bald, conclusory assertions
unsupported by facts, allegations made “upon information and belief,” and unsupported
allegations concerning Tedesco’s purported intentions and control of his co-defendant, TCG,
none of which the Court need accept as true. See supra at 1-2. While Perez cites to a number of
paragraphs of the Amended Complaint in support of his argument, a review of these same
paragraphs shows that they do not, in fact, support his failure to make demand. The allegations
do not assert with particularity the purported egregiousness of the challenged transactions;
indeed, the loans made and services rendered certainly could have been (and Defendants
maintain were) the product of sound business judgment, in an effort to keep Software afloat
when it was in need of money and manpower.
Perez’s conclusory allegations of wrongdoing are insufficient to excuse demand, and the
Amended Complaint does not allege specific facts to support Perez’s contention that Sofiware’s
members failed to deliberate or exercise business judgment in making the distributions with the
proceeds from the Tiburon Sale or take actions to keep Software in business over its years of
operation. Marx, 88 N.Y.2d at 202, 655 N,Y.S.2d at 128-29 (1996) (affirming grant of motion to
dismiss for failure to make a demand because allegations were merely conclusory and did not
particularly allege a failure to deliberate or exercise business judgment in setting compensation
levels). Perez's failure to make demand is not excusable, and all derivative causes of action must
therefore be dismissed.
Causes of Action Against TCG LLC and TC Ltd, Must be Dismissed
The substantive allegations of the Amended Complaint identify no wrongful conduct by
TCG LLC or TC Ltd. Instead, they consist of conclusory allegations without factual support that
are insufficient to state causes of action against them. Review of the paragraphs of the Amended
Complaint cited by Perez in his Opposition Brief confirms this. Paragraphs 22 — 25 concern
alleged financial diversions by Tedesco, payment of Software funds to certain non-party
employees, and Perez’s purported lack of consent to distributions of Tiburon Sale proceeds, none
of which facts support claims against TCG LLC or TC Ltd. This failing is not cured simply by
Perez asserting in conclusory fashion that “[u]pon information and belief, Defendants... TCG
LLC, and TC Systems* acquiesced and participated in this wrongful conduct.” Cmplt. 24!
The other paragraphs on which Tedesco relies improperly resort to generalized
allegations agains! multiple Defendants. Paragraph 58 refers generally to “Defendants,” with the
conclusory allegation that they caused to be transferred and converted monies and other assets
belonging to Software. Paragraphs 25 and 26 refer only to “Tedesco-controlled entities.”” As
the Amended Complaint does not allege actual wrongful conduct, and only makes at best
conclusory allegations against Defendants TCG LLC and TC Ltd., all causes of action raised
+ Paragraph 24 does not even mention TC Ltd.
“Paragraph 38 of the Amended Complaint concerns Tedesca’s release of funds received in the Tiburon Sale, and
Pare raph 72 notes Tedesco 's purported future intent concerning funds, not any action already taken by TCG LLC
or TC Ltd,
* Nor do Perez's claims in the affidavit submitted with the Opposition Brief (the “Perez Affidavit”) make the causes
of action viable, as they consist of only more bald and conclusory aliegations unsupported by fact. Paragraph 13 of
the Perez Affidavit alleges that payments to TCG LLC and TC Ltd. employees were made for prior work, and
concludes without support that the employees did not perform work for Software. Paragraph 22 contains further
unsupported conclusory allegations, that indebtedness io “Tedesco, TCG, TCG LLC, or other Tedesco entities and
subsequent disbursements are part of an over-all plan by Tedesco to siphon off Software’s assets and steal millions
of doflars and avoid paying taxes on any gains,” (emphasis added)
against them must be dismissed. See Stewart Tenants Corp. v. Square Indus., Inc., 269 A.D.2d
246, 248, 703 N.Y.S.2d 453, 455 (1st Dep’t 2000); see also supra at 1-2; Br. at 6-7.
Cc The Derivative Breach of Contract (Count 1), Conversion (Count 4), and Accounting
(Count 3) Causes of Action Are Improperly Pled As Claims on Behalf of the Company.
Counts 1, 3 and 4 are not properly pled as derivative claims because they seek redress for
Perez individually, not Software, While titled as derivative claims, they are actually duplicative
and/or improper recharacterizations of Perez’s individual claims. This is because Perez claims
that he, personally, as a result of Tedesco’s actions, has been deprived of monies from the
Tiburon Sale and other amounts to which he feels entitled. While contract, conversion and
accounting causes of action can be brought derivatively in certain situations, this is simply not
one of those situations. Perez has sued the only other two members of the LLC at issue, and by
his own pleadings seeks recovery of money from those other two members for himself, not for
the collective benefit of all three.
1 The Derivative Breach of Contract Cause of Action Must Be Dismissed
The crux of Perez’s derivative breach of contract cause of action is found in Paragraph 44
of the Amended Complaint. A reading of this paragraph, together with the other allegations,
reveals that while titled as harms to Software, Perez actually seeks redress for alleged individual
harms: that Perez was purportedly denied access to Software’s books and records; that Perez has
purportedly not received proper distributions from Sofiware; and that Perez has not been kept
apprised of all Software matters. Although Perez tactically refers to harms to “members” of
Sofiware, the only member Perez could be referring to in these allegations is himself, personally,
because the only other members are Defendants Tedesco and TCG, the supposed wrongdoers.
Notwithstanding Perez’s careful attempt to cloak his claim in the language of a derivative cause
of action, taken as a whole the allegations of Count One seck a personal remedy for purported
individual harms. See DeMarco v, Clove Estates, Inc., 250 A.D.2d 724, 725, 672 N.Y.S.2d 784,
784 (2d Dep’t 1998); see also Br. at 9-11,
While Perez has identified certain alegations that he claims distinguishes the derivative
and individual breach of contract claims, the majority of the factual allegations are essentially
identical. Compare Cmplt. {9 44(b) and 83(b); 44(d) and 83(c); 44(f) and 83(a); 44(vii) and
834); see Br. at 10. Given the significant overlap between Perez's individual and derivative
breach of contract causes of action, the derivative and individual causes of action simply cannot
co-exist.’ Hither the purported breaches of the Operating Agreement are injuries to Software and
Software recovers damages or the injuries are to Perez directly and he recovers the damages. As
a whole, these duplicative claims allege personal harms, and the derivative claim should be
dismissed.
2 The Derivative Conversion Cause of Action Must Be Dismissed
Perez grossly distorts the actual text of his pleading when he argues that the derivative
and individual causes of action for conversion are “completely different.” See Cmplt. $f] 58, 96.
Neither has any factual specificity, instead vaguely referring to allegations “set forth above,” Id.
In the individual claim, Perez alleges that unspecified “Defendants caused to be transferred and
received funds belonging to Perez,” while in the derivative claim, Perez alleges nearly identically
that “Defendants caused to be transferred and converted monies and other assets belonging to
a
° To the extent th Court views any other allegations of harm in the derivative breach of contract cause of action as
stating harm against Soflware directly, this cause of action must still be dismissed, as it impermissibly mixes
individual and derivative claims and remedies. Abrams y, Donati, 66 N.Y.2d 951, 953, 498 N.Y.S.2d 782, 783
(1985) (“A complaint the allegations of which confuse a shareholder’s derivative and individual rights will [ ] be
dismissed”); see Br. at 13.
7 See Opp. Br. at 6, citing Broome v. ML Media Opportunity Partners L.P., 273 A.D.2d 63, 64, 709 N.Y.S.2d 59, 60
(Ist Dep’t 2000) (where claims “do not implicate any injury to plaintiffs distinct from harm to the partnership”
claims are derivative and cannot be maintained in direct action.)
Software.”® Jd, In both, the damages sought are “no less than $5,460,000, plus punitive and
special damages.” Cmplt. {{] 60, 99. Just as with his individual breach of contract cause of
action, the thrust of Perez’s derivative conversion claim is to secure relief for a personal harm he
believes he has suffered at the hands of his only other LLC members. As a result, this cause of
action must be dismissed. See DeMarco, 250 A.D.2d at 725, 672 N.Y.S.2d at 784.
3 The Derivative Accounting Cause of Action Must Be Dismissed
In Paragraph 53 of Perez’s derivative cause of action for accounting, he alleges that he
personally made a demand on or about June 26, 2013 for an accounting, and an agreement with
him was made on August 5, 2013 for same. He further alleges that “Tedesco has failed and
refused to provide the full financial records and accounting of the affairs of Software or to
provide full access to the books and records.” As noted in Defendants’ Opening Brief (at 1 1-12),
a claim such as Perez’s arising out of a lack of personal access to books and records is an
individual, not derivative claim. Wallace v. Perret, 28 Misc. 3d 1023, 1033, 903 N.Y.S.2d 888,
897 (Sup. Ct. Kings County 2010); Roy v. Vaynirub, 15 Misc. 3d 1127(A), 2007 WL 1218356
(Sup. Ct. Nassau County Mar. 15, 2007).
Perez’s attempt to distinguish the derivative claim as vindicating a distinct legal right is
unavailing. While Perez argues that his individual cause of action for accounting states a
different kind of accounting claim from his derivative claim, both claims allege the same written
agreement. Compare Cmplt. { 53 with § 92. Nor can the provisions of New York LLC law
distinguish his two accounting claims. In his derivative claim, Perez explicitly invokes New
York LLC Law and Software’s Operating Agreement (Cmplt. 4] 52), but his individual claim also
en a a
* While Perez adds certain allegations to his individual conversion claim (Amended Complaint § 97), such additions
only reinforce the conclusion that the derivative claim is entirely subsumed within the individual claim.
implicates the rights that spring from LLC law and the Operating Agreement, See Cmplt. 492
CTA]s a member of Software, and also pursuant to the parties August 5, 2013 agreement, {Perez]
is ontitled to an accounting” (emphasis added)). Tedesco’s purported refusal to provide access to
Software’s books and records to Perez cannot be carved into two separate accounting claims, and
the redundant derivative claim should be dismissed. See Br. at 11; see also DeMarco, 250
A.D.2d at 725, 672 N.Y.S.2d at 784.
D. Petez’s Derivative Breach of Fiduciary Duty Cause of Action (Count 2) Impermissibly
Combines Derivative and Individual Claims
While some breaches of fiduciary duty can give rise to both direct and derivative causes
of action, this is not such a case. As discussed in the Opening Brief at 13, and as with his other
derivative claims, Perez’s derivative fiduciary duty claim constitutes nothing more than an
individual claim couched in the verbiage of a claim on behalf
of the company. While Perez,
changed some of the wording between the individual and derivative breach of fiduciary duty
causes of action, the “thrust” of certain allegations in the derivative cause of action is to remedy
purported harms to Perez, not to Software. By essentially pleading a number of the same
individual alleged wrongs within his derivative cause of action, Perez has “confuse[d] a
shareholder’s derivative and individual rights,” and the derivative claim for breach of fiduciary
duty must therefore be dismissed. Abrams v. Donati, 66 N.Y.2d 951, 953, 498 N.Y.S.2d 782,
783 (1985).
BE Claims Duplicative of the Individual Breach of Contract Cause of Action Must Be
Dismissed (Counts4, 5, 6, 12, 13, 15, 16
While pleading in the alternative is, in the abstract, permissible, New York law is clear
that claims that are duplicative ofa breach of contract claim can and should be dismissed at the
outset of the case.’ As the Second Department has explained, “the use of familiar tort language
in the pleading does not change the cause of action to a tort claim in the absence of an underlying
tort duty.” Bettan v. Geico General Ins. Co., 296 A.D.2d 469, 470, 745 N.Y.S.2d 545, 546 (2d
Dep't 2002); see also Fort Ann Cent. Sch. Dist. v. Hogan, 206 A.D.2d 723, 724, 614 N.Y.S.2d
803, 805 (3d Dep’t 1994) (“[A] simple breach of contract is not to be considered a tort unless a
legal duty independent of the contract has been violated, which duty must arise from
circumstances extraneous to, and not constituting elements of, said contract.”)
i The Conversion Causes of Action
The same acts, in certain circumstances, may constitute both conversion and breach of.
contract; however, such is not the case here, where the allegations raise, at best, a breach of
contract claim. What Perez secks in both the breach of contract and conversion causes of action
is what he views as his due from the proceeds of the Tiburon Sale and other amounts to which he
was allegedly entitled wnder the terms of the Operating Agreement. Because the sole basis for
the rights Perez claims were abrogated is the Operating Agreement, the conversion claims cannot
stand, Whitman Realty Group, Inc. v. Galano, 41 AD.3d 590, 592, 838 N.Y.S.2d 585, 587 (2d
Dep’t 2007) (where plaintiff showed, at best, only a contractual right to the property in dispute,
the conversion cause of action could not stand); see also Rolls-Royce Motor Cars v, Schudroff,
929 F. Supp. 117, 124 (S.D.N.Y. 1996) (“To state a viable conversion claim here, plaintiff must
allege acts that are unlawful or wrongful as distinguished from acts that are a mere violation of
contractual rights”) (internal quotes and additional citations omitted), While Perez asserts that he
has gone beyond repetition of his breach of contract cause of action by naming additional parties
as defendants in his conversion claims, the tacking on of entities that have nothing to do with the
° See Br, at 14-22.
9
conduct at issue (see supra at 4) merely aggravates, and does not correct, the improper nature of
the conversion claims.
Perez inaccurately portrays the allegations of the Amended Complaint in an attempt to
distinguish the breach of contract and conversion causes of action, For example, what is alleged
in the Amended Complaint as funds “never paid back” to LanPro is now referred to as “theft.”
(Compare Cmplt. {17 and Opp. Br. at 14.) Based upon the allegations in the Amended
Complaint, LanPro would be a creditor’? of Software in respect of the purported $750,000 in
“significant resources, personnel and equipment” allegedly “loaned” to Software, and Sofiware’s
failure to repay or compensate LanPro does not support a conversion claim by Perez."
Conclusory assertions that “Defendants caused to be transferred and converted monies and
assets” (Cmplt. | 58), Defendants’ transfer or receipt of funds without Perez’s consent
constitutes a conversion (Cmplt. 96), and that “Defendants converted Perez’s membership
interest, economic rights and title in Software” (Cmplt. { 97) are not factual and cannot sustain
the claims. See supra at 1-2. Because the conversion causes of action do not state claims
independent of the breach of contract claim, they must be dismissed.
2 The Waste Cause of Action
Perez incorrectly construes Defendants’ Opening Brief argument. Defendants do not
argue that a waste claim should be brought individually; instead, the relief Perez ultimately seeks
here is for himself and not Software, which makes it an inappropriate derivative claim. See Br.
at 16. Perez’s allegations do not set forth any duty separate from the operative contract, the
Defendants do not admit that LanPro is a creditor of Software, and assumes so only arguendo, taking the
allegations of the Amended Complaint as true for the purposes of the Motion to Dismiss. Defendants reserve all
rights to dispute the purported amounts owed to LanPro.
"' Perez also refers to the purported “loan[]” from LAN Professionals, Inc. in his affidavit at Paragraph 6.
10
Operating Agreement, that was purportedly violated. See Bettan, 296 A.D.2d at 470, 745
N.Y.8.2d at 546.
3 The Unjust Enrichment Causes of Action
Astoundingly, it appears Perez now alleges that the Operating Agreement, which is
central to all of Perez’s claims, might not be a valid contract. Defendants have no basis to
dispute the validity of the Operating Agreement, which at all relevant times has been in effect
and was entered into for fair consideration.'? The Operating Agreement fully encompasses the
rights and responsibilities Perez contends have been violated. In his unjust enrichment causes of
action, Perez has alleged nothing beyond the failure to receive funds that Perez maintains he
should have received, a subject fully addressed in the Operating Agreement’s provisions on the
members’ division of membership interests and obligations in respect of the company’s
creditors. Contrary to Perez’s assertion, the existence of the Tiburon Agreement is irrelevant to
and does not support the unjust enrichment causes of action. The funds from the Tiburon Sale
are received by Software, and their application falls under the Operating Agreement
requirements regarding the use of company assets. Because the Operating Agreement governs
the members’ rights and responsibilities, Perez’s unjust enrichment causes of action must be
dismissed. See Bettan, 296 A.D.2d at 470, 745 N.Y.S.2d at 546 (affirming dismissal of unjust
enrichment and tort claims as duplicative of breach of contract cause of action); see also Br. at
16-17.
4 Fraudulent Inducement Cause of Action
In support of his fraudulent inducement claim, Perez again cites to law that has no
applicability to the specific facts alleged. While a plaintiff may seck damages as a result ofa
° The Amended Complaint maintains the validity of the Operating Agreement. Cmplt. 4 43.
il
fraudulent inducement, Perez does not specifically allege any unique harm actually suffered as a
result of the purported misrepresentations by Tedesco. Instead, he apparently seeks recompense
for the same damages that underlie his breach of contract claim: the failure to distribute to him
all monies to which he is entitled under the Operating Agreement. See Cmplt. | 44. As Perez
merely seeks to enforce his rights under the Operating Agreement for a pro rata share of the
Tiburon Sale proceeds and repayment of purported loans, and not obtain remedy for a violation
of non-contractual rights, the fraudulent inducement claim cannot survive. See New York Univ.
v. Continental Ins, Co., 87 N.Y.2d 308, 316, 639 N.Y.S.2d 283, 288 (1995); Fromowitz v. W.
Park Assoes., Inc., 106 A.D.3d 950, 951, 965 N.Y.S.2d 597, 599 (2d Dep’t 2013); Luxonomy
Cars, Ine, v, Citibank, N.A., 65 A.D.2d 549, $50, 408 N.Y.S.2d 951, 954 (2d Dep’t 1978); see
also Br, at 19-22.
5 Common Law Fraud Cause of Action
Like his fraudulent inducement and other tort claims, Perez’s common-law fraud cause of
action must be dismissed as duplicative of his breach of contract claim. While a separate cause
of action may lie ifa separate duty apart from the Operating Agreement is alleged, Perez’s
Amended Complaint does not so allege. To the contrary, by his own account, Perez’s fraud
claim is based on a set of allegations to the effect that “Tedesco and TCG did not act honestly
with respect to the affairs of Software.” Cmplt. 114. The duties of Tedesco and TCG “with
respect to the affairs of Software” are governed by the Operating Agreement. and any failure to
adhere to such duties gives rise to a breach of contract, not tort, claim. Heffez v, L&G Gen,
Constr, Inc., 56 A.D,3d $26, 527, 867 N.Y.S.2d 198, 199 (2d Dep’t 2008) (affirming dismissal
of, among others, fraud cause of action because “a cause of action premised upon fraud cannot
lie where it is based on the same allegations as the breach of contract claim”).
12
Like his other tort claims, the thrust of Perez’s allegations is that following the Tiburon
Sale, he has not received all amounts that he would like in respect of his membership interest or
purported loans to Software.'? Perez’s membership share in Software, and his entitlement to
receipt of proceeds following a sale, fall squarely under the Operating Agreement and do not
arise from separate duty, independent of the governing contract. This makes the common law
fraud action, like the fraudulent inducement and other tort claims, duplicative of his breach of
contract claim, See supra at 12.
Finally, Perez’s claim must also be dismissed because he has failed to adequately plead
the elements of fraud. As discussed in the Opening Brief, Perez has not adequately alleged
justifiable reliance; nor has he alleged any detriment to himself as a result of the purported
reliance on the allegedly incorrect information. See Rudnick v. Glendale Sys., Ine., 222 A.D.2d
572, 573, 635 N.Y.S.2d 657, 658 (2d Dep’t 1995); see also Br. at 18-19, These deficiencies
independently require dismissal of the fraud cause of action
F, The Injunctive Relief Causes of Action Must Be Dismissed
Keven if Defendants waste, convert, or divert Software’s assets as alleged by Perez, he has
“failed to allege facts indicating that [he] cannot be fully compensated by an award of money
damages. Accordingly, plaintiff [has] failed to allege the sort of irreparable injury which is
prerequisite to the granting of an injunction.” D'Amour y. Ohrenstein & Brown, LLP, 17 Misc.
“ Further, Perez misrepresents the content of an email referenced multiple times in his papers (at Exhibit G).
Contrary to his statements, the email from Tedesco does nor indicate to Perez that his claimed $1,582,166,99 would
be paid from the Tiburon proceeds, but generaily that “there was a lot of debt, payments, non-payments as well as
issues that we will need to review... We will pay off the rest of our personal debt with the Hine [of credit] and/or next
payments [from the Tiburon Sale].” Perez Aff., Exh, G. The Court, of course, need not accept allegations (or
arguments in briefs) that are contradicted by the documents on which they are based, West Branch Conservation
Assoc., Ine. v. County of Rockland, 227 ATD.24 547, 547, 642 N.Y.S.2d 966, 966 (2d Dep't 1996),
13
3d 1130(A), *14, 2007 WL 4126386 (Sup. Ct. N.Y. County Aug, 13, 2007) (dismissing cause of
action for injunctive relief).
G The Limited Liability Law/Partnership Law Cause of Action Must Be Dismissed
Perez does not oppose Defendants’ argument that no cause of action can lie under LLC
Law §504 or Partnership Law §121-604. See Br. at 23, Opp. Br. at 23. Further, the sole case
Perez cites as support of his claim under LLC Law §704, 274 Madison Co. LLC v, Ramsundar,
Index No. 153425/12, 2013 WL 6328670, *10 (Sup. Ct. N.Y. County Dec. 2, 2013), is
inapplicable because the decision addressed to a creditor's rights in liquidation under subsection
(a), not members’ rights under subsection (c). Since Perez is suing as a member of Software, his
reliance on Ramsundar is misplaced. The LLC and Partnership Law claims should therefore be
dismissed.
H. The Punitive Damages Demands Must Be Dismissed
New York courts have held that claims for punitive damages are properly dismissed at
the motion to dismiss stage. See, e.g, DePierro v. Bank of N.Y., 308 A.D.2d 430, 430-31, 764
N.Y.S.2d 208, 208 (2d Dep’t 2003). Even in the light most favorable to Perez, the Amended
Complaint alleges no facts rising to the high level of moral turpitude or wanton and reckless
misconduct that is necessary to support the “extraordinary remedy” of punitive damages. Bread
Chatet, Inc. v, Royal Ins. Co., 224 A.D.2d 650, 651, 639 N.Y.S.2d 73, 74 (2d Dep't 1996).
Perez’s punitive damages demands should be dismissed because he “failed to present sufficient
evidentiary allegations of ultimate facts ofa fraudulent and deceitful scheme in dealing with the
general public or to imply a criminal indifference to civil obligations.” Jd.; see also Rocanova v.
Equitable Life Assurance Soc'y, 83 N.Y.2d 603, 615, 612 N.Y.S.2d 339, 344 (1994) (“A
complaint does not state a claim for compensatory or punitive damages by alleging merely that
14
the [defendant] engaged in a pattern of bad-faith conduct. The complaint must first state a claim
of egregious tortious conduct directed at the [plaintiff].”); Prince v. Gurvitz, 57 A.D.2d 860, 861 .
394 N.Y.S.2d 258, 258 (2d Dep’t 1977) (deleting provision of punitive damages in action to
recover for coercion of plaintiff to transfer shares in defendant company, finding the proof did
not establish “such gross, wanton, or willful fraud or other morally culpable conduct to a degree
sufficient to justify an award of punitive damages”); Sterling Nat. Bank y. JLH.Cohn LLP, 40
Misc. 3d 1230(A), *4, 2013 WL 4467401 (Sup. Ct. N.Y. County Aug. 20, 2013) (dismissing
claim for punitive damages against entity retained to prepare audited financial statements, where
reports did not disclose payments on defaulted leases and defendant allegedly knew such
practices violated covenants of lender banks and that reports would be relied upon).
I Perez Has Improperly Disclosed Settlement Discussions
Finally, Perez should be reprimanded for his disclosure of the substance of settlement
discussions between the parties, Prior to the filing of the Amended Complaint, Perez raised a
baseless conflict of interest argument, which Defendants disputed and the parties subsequently
resolved in a confidential written letter agreement. Perez’s argument that Defendants had an
“undisclosed motivation” to make their Motion to Dismiss based on Perez’s specious conflict
claim is not only patently absurd given the parties’ resolution of the issue, but his disclosure of
settlement discussions between counsel flagrantly violates the letter and spirit of the parties’
agreement and CPLR §4547. Perez’s decision to include this matter in a document filed with
the Court speaks volumes about the lengths to which he will apparently go to pursue his
meritless claims.
15
Il. CONCLUSION
For all the reasons stated herein and in Defendants’ Opening Brief, Defendants
respectfully request that this Court dismiss Counts 1, 2, 3, 4, 5, 6, 7, 8, 12, 13, 14, 15, 16, and 17
of the Amended Complaint in their entirety, Defendants further request that Plaintiffs demands
for punitive damages in Counts 4, 5, 6, 12, 15, and 16 be dismissed.
Dated: New York, New York
June 5, 2014
LSTON & BIRD LLP.
Michael E. Johnson, Es
es Jessica L. Supérnaw, Esq.
90 Park Avenue
New York, New York 10016
Tel: (212) 210-9400
Fax: (212) 210-9444
Email: michael.johnson@alston.com
jessica.supernaw@alston.com
Attorneys for Defendants
16
Preview
(FILED: SUFFOLK COUNTY CLERK 06/05/2014) INDEX NO. 063193/2013 NYSCEF DOC. NO. 17 RECEIVED NYSCEF 06/05/2014 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF SUFFOLK wae. fete nee ee ne rn eee ne enn neenenceneneee, ALBERT PEREZ, individually and derivatively on behal of TOTAL f COMPUTER SOFTWARE, LLC, Index No. 063193/2013 ~ Plaintiff- ~ against - VINCENT TEDESCO, TOTAL COMPUTER SYSTEMS, LTD. d/b/a TOTAL COMPUTER GROUP, TOTAL COMPUTER GROUP, LLC, TOTAL COMPUTERS, LTD. and JOHN DOE CORPORATION, - Defendants - mene nen te ne ene ene nae ne ee MEMORANDUM OF LAW IN FURTHER SUPPORT OF DEFENDANTS’ MOTION TO DISMISS ALSTON & BIRD LLP Michael E. Johnson, Esq. Jessica L. Supernaw, q. 90 Park Avenue New York, New York 10016 Tel: (212) 210-9400 Fax: (212) 210-9444 Email: michael johnson@alston.com jessica.supernaw@alston.com Attorneys for Defendants TABLE OF CONTENTS Page TABLE OF AUTHORITIES eocvlli I ARGUMENT A Dismissal of the Derivative Causes of Action is Appropriate .......... B. Causes of Action Against TCG LLC and TC Ltd. Must be Denied The Derivative Breach of Contract (Count 1), Conversion (Count 4), and Accounting (Count 3) Causes of Action Are Improperly Pled As Claims on Behalf of the Company 1 The Derivative Breach of Contract Cau of Action Must Be Dismissed 2. The Derivative Conversion Cause of Action Must Be Dismissed 3. The Derivative Accounting Cause of Action Must Be Dismissed Perez’s Derivative Breach of Fiduciary Duty Cause of Action (Count 2) Impermissibly Combines Derivative and Individual Claims...ccccccscccssseeeseeeee 8 E Claims Duplicative of the Individual Breach of Contract Cause of Action Must Be Dismissed (Counts 4, 5, 6, 12, 13, 15, 16) 1 The Conversion Causes of ACtion wi... 2 The Waste Cause of Action 10 3 The Unjust Enrichment Causes of Action 11 4 Fraudulent Inducement Cause of Action nl 5 Common Law Fraud Cause of Action sere ree etter eer eteentrietinesetiesitenesres 12 F The Injunctive Relief Causes of Action Must Be Dismissed . 13 G The Limited Liability Law/Partnership Law Cause of Action Must Be Dismissed........... 14 H The Punitive Damages Demands Must Be Dismissed 14 Page Perez, Had Improperly Disclosed Settlement Discussions.......... 15 Il. CONCLUSION. 16 i TABLE OF AUTHORITIES Cases Page(s) 274 Madison Co. LLC y. Ramsundar, Index No. 153425/12, 2013 WL 6328670 (Sup. Ct. N.Y. County Dec. 2, 2013). 14 Abrams v. Donati, 66 N.Y.2d 951, 498 N.Y.S.2d 782 (1985) 6,8 Barr v. Wackman, 36 N.Y.2d 371, 368 N.Y.S.2d 497 (1975) Bettan v. Geico General Ins, Co., 296 A.D.2d 469, 745 N.Y.S.2d 545 (2d Dep't 2002).. 9,11 Bread Chalet, Ine. v. Royal Ins. Co., 224 A.D.2d 650, 639 N.Y.S.2d 73 (2d Dep’t 1996) veces 14 Broome v. ML Media Opportunity Partners L.P., 273 A.D.2d 63, 709 N.Y.S.2d 59 (1st Dep’t 2000) veces D'Amour v. Ohrenstein & Brown, LLP. 17 Misc. 3d 1130(A), 2007 WL 4126386 (Sup. Ct. N.Y. County Aug. 13, 2007) 13 DeMarco v. Clove Estates, Ine., 250 A.D.2d 724, 672 N.Y.S.2d 784 (2d Dep’t 1998)... seed, 7, 8 Demorey v, State, 137 A.D.2d 650, 524 N.Y.S.2d 742 (2d Dep't 1988) DePierra v. Bank of N.Y., 308 A.D.2d 430, 764 N.Y.S.2d 208 (2d Dep't 2003) 14 Englert v, Schaffer, 61 A.D.3d 1362, 877 N.Y.S.2d 780 (4th Dep’t 2009) Fort Ann Cent, Sch, Dist. v. Hogan, 206 A.D.2d 723, 614 N.Y.S.2d 803 (3d Dep’t 1994) Fromowitz v. W. Park Assoes., Inc., 106 A.D.3d 950, 965 N.Y.S.2d 597 (2d Dep’t 2013) 12 Hefjez v. L&G Gen. Constr. Inc., 36 A.D.3d 526, 867 N.Y.S.2d 198 (2d Dep't 2008) 12 Luxonomy Cars, Inc. v. Citibank, N.A., 65 A.D.2d 549, 408 N.Y,S.2d 951 (2d Dep’t 1978) i2 iii Cases Page(s) Marx v. Akers, 88 .N.Y.2d 189, 655 N.Y.S.2d 121 (1996) 2,3 New York Univ, v. Continental Ins. Co., 87 N.Y.2d 308, 639 N.Y.S.2d 283 (1995) 12 Prince y. Gurvitz, 57 A.D.2d 860, 394 N.Y.S.2d 258 (2d Dep’t 1977) 15 Rocanova y. Equitable Life Assurance Soc'y, 83 N.Y.2d 603, 612 N.Y.S.2d 339 (1994). 14 Rolls-Royce Motor Cars v. Schudroff, 929 F, Supp. 117 (S.D.N.Y. 1996) Roy v. Vayntrub, 15 Misc. 3d 1127(A), 2007 WL 1218356 (Sup. Ct. Nassau County Mar. 15, 2007) Rudnick vy. Glendale Sys., Inc., 222 A.D.2d 572, 635 N.Y.S.2d 657 (2d Dep’t 1995) 13 Steinowitz v. Gambescia, 24 Misc. 3d 132(A), 2009 WL 192676] (Sup. Ct. App. T. 9th, 10th J.D. June 29, 2009) Sterling Nat. Bank v. J.H.Cohn LLP, 40 Misc. 3d 1230(A), 2013 WL 446740] (Sup. Ct. N.Y. County Aug. 20, 2013). 15 Stewart Tenants Corp. v. Square Indus., Inc., 269 A.D.2d 246, 703 N.Y.S.2d 453 (Ist Dep’t 2000) V. Groppa Pools, Inc. v. Massello, 106 A.D.3d 722, 964 N.Y.8.2d 563 (2d Dep’t 2013) Wallace vy. Perret, 28 Misc. 3d 1023, 903 N.Y.S.2d 888 (Sup. Ct. Kings County 2010) West Branch Conservation Assoc., Inc. v, County of Rockland, 227 A.D.2d 547, 642 N.Y.S.2d 966 (2d Dep't 1996) 13 Whitman Realty Group, Inc. v. Galano, 41 A.D.3d 590, 838 N.Y.S.2d $85 (2d Dep't 2007) Statutes CAPLLAR, S45 47 ccscstcssessenesseecsseesseesssessseessusessesssvesquncesesssneqasurssvesssssssvessusscsuesanessusesseseesuccusetessneceree 15 Iv AL its core, the Amended Complaint! alleges a simple breach of Software’s Operating Agreement and breach of fiduciary duty by Tedesco, and nothing more.* Perez complains that he has not been paid all the monies to which he claims entitlement, which entitlement supposedly arises from the Operating Agreement and his relationship with Defendants Tedesco and TCG, who along with Perez constitute Software’s three members, Notwithstanding the straightforward nature of his grievance, in his Amended Complaint Perez trots out a bevy of legal claims that are duplicative of his contract and fiduciary duty claims or are simply not applicable to the facts alleged. No amount of spin-doctoring in Perez’s pleading can change the essential nature of his laims. Perez has also loaded up his Amended Complaint with a host of derivative causes of action, none of which fit the core facts he has alleged. This is a dispute among the members ofa closely-held LLC as to the proper allocation of company funds among the three members and payment of debts, and derivative claims for the benefit of the whole company (that is, all three members, both plaintiff and defendants) make no sense at all. Defendants’ Motion to Dismiss should be granted and the Amended Complaint narrowed, so that Perez proceeds in his individual capacity against only the proper Defendants on the limited causes of action that fit the facts alleged. I ARGUMENT Throughout his opposition to Defendants’ Motion to Dismiss (the “Opposition Brief” or “Opp. Br.”), Perez cites to case law that in the abstract might correctly state a legal principle, but in the instant matier is inapplicable. While this Court must generally take the allegations ofa complaint in the light most favorable to Plaintiff on a motion to dismiss, it is not required to ‘Terms utilized but not defined herein are as defined in Defendants’ Opening Brief. ? Perez also individually seeks an accounting in his eleventh cause of action, which is not subject of this motion. accept as truthful “allegations consisting of bare conclusory assertions, and such allegations are not accorded every favorable inference.” Steinowitz v. Gambescia, 24 Misc, 3d 132(A), *2, 2009 WL 1926761 (Sup. Ct. App. T. 9th, 10th J.D, June 29, 2009); see V. Groppa Pools, Inc. v. Massello, 106 A.D.3d 722, 722-23, 964 N.Y.S.2d 563, 565 (2d Dep’t 2013) (“Allegations of the pleading cannot be vague and conclusory, but must contain sufficiently particularized allegations from which a cognizable cause of action reasonably could be found”); Demorey v. State, 137 A.D.2d 650, 651, 524 N.Y.S.2d 742, 743 (2d Dep't 1988) (holding that “as the complaint contains mere conclusory allegations with respect to these causes of action which have been dismissed, they are insufficient”), Further, dismissal of many of Perez’s claims and his demands for punitive damages is appropriate at this time because while Perez argues that certain facts are solely within Defendants’ possession, he has “not established that additional discovery would disclose facts essential to justify opposition to defendants’ motion.” Englert v. Schaffer, 61 A.D.3d 1362, 1363 > 877 N.Y.S.2d 780, 781 (4th Dep’t 2009) (rejecting plaintiffs contention that motion to dismiss was premature due to discoverable facts solely within defendants’ possession). A Dismissal of the Derivative Causes of Action is Appropriate Perez, does not allege with the requisite particularity that the majority of Software’s members are interested in particular challenged transactions. It is not sufficient for Perez to name, as he has in his Amended Complaint, a majority of the directors of Software as defendants with conclusory allegations of wrongdoing or control in order to justify a failure to make a demand prior to making derivative claims. Marx v. Akers, 88 N.Y.2d 189, 199-200, 655 N.Y.S.2d 121, 127 (1996). This is so because such a “pleading tactic would only beg the question of actual futility and ignore the particularity requirement of the statute.” Barr v. Wackman, 36 N.Y.2d 371, 379, 368 N.Y.S.2d 497, 506 (1975). Contrary to Perez’s assertion, the Amended Complaint is far from “replete” with specific examples or details sufficient to justify a failure to make a demand upon Software; instead, it is full of bald, conclusory assertions unsupported by facts, allegations made “upon information and belief,” and unsupported allegations concerning Tedesco’s purported intentions and control of his co-defendant, TCG, none of which the Court need accept as true. See supra at 1-2. While Perez cites to a number of paragraphs of the Amended Complaint in support of his argument, a review of these same paragraphs shows that they do not, in fact, support his failure to make demand. The allegations do not assert with particularity the purported egregiousness of the challenged transactions; indeed, the loans made and services rendered certainly could have been (and Defendants maintain were) the product of sound business judgment, in an effort to keep Software afloat when it was in need of money and manpower. Perez’s conclusory allegations of wrongdoing are insufficient to excuse demand, and the Amended Complaint does not allege specific facts to support Perez’s contention that Sofiware’s members failed to deliberate or exercise business judgment in making the distributions with the proceeds from the Tiburon Sale or take actions to keep Software in business over its years of operation. Marx, 88 N.Y.2d at 202, 655 N,Y.S.2d at 128-29 (1996) (affirming grant of motion to dismiss for failure to make a demand because allegations were merely conclusory and did not particularly allege a failure to deliberate or exercise business judgment in setting compensation levels). Perez's failure to make demand is not excusable, and all derivative causes of action must therefore be dismissed. Causes of Action Against TCG LLC and TC Ltd, Must be Dismissed The substantive allegations of the Amended Complaint identify no wrongful conduct by TCG LLC or TC Ltd. Instead, they consist of conclusory allegations without factual support that are insufficient to state causes of action against them. Review of the paragraphs of the Amended Complaint cited by Perez in his Opposition Brief confirms this. Paragraphs 22 — 25 concern alleged financial diversions by Tedesco, payment of Software funds to certain non-party employees, and Perez’s purported lack of consent to distributions of Tiburon Sale proceeds, none of which facts support claims against TCG LLC or TC Ltd. This failing is not cured simply by Perez asserting in conclusory fashion that “[u]pon information and belief, Defendants... TCG LLC, and TC Systems* acquiesced and participated in this wrongful conduct.” Cmplt. 24! The other paragraphs on which Tedesco relies improperly resort to generalized allegations agains! multiple Defendants. Paragraph 58 refers generally to “Defendants,” with the conclusory allegation that they caused to be transferred and converted monies and other assets belonging to Software. Paragraphs 25 and 26 refer only to “Tedesco-controlled entities.”” As the Amended Complaint does not allege actual wrongful conduct, and only makes at best conclusory allegations against Defendants TCG LLC and TC Ltd., all causes of action raised + Paragraph 24 does not even mention TC Ltd. “Paragraph 38 of the Amended Complaint concerns Tedesca’s release of funds received in the Tiburon Sale, and Pare raph 72 notes Tedesco 's purported future intent concerning funds, not any action already taken by TCG LLC or TC Ltd, * Nor do Perez's claims in the affidavit submitted with the Opposition Brief (the “Perez Affidavit”) make the causes of action viable, as they consist of only more bald and conclusory aliegations unsupported by fact. Paragraph 13 of the Perez Affidavit alleges that payments to TCG LLC and TC Ltd. employees were made for prior work, and concludes without support that the employees did not perform work for Software. Paragraph 22 contains further unsupported conclusory allegations, that indebtedness io “Tedesco, TCG, TCG LLC, or other Tedesco entities and subsequent disbursements are part of an over-all plan by Tedesco to siphon off Software’s assets and steal millions of doflars and avoid paying taxes on any gains,” (emphasis added) against them must be dismissed. See Stewart Tenants Corp. v. Square Indus., Inc., 269 A.D.2d 246, 248, 703 N.Y.S.2d 453, 455 (1st Dep’t 2000); see also supra at 1-2; Br. at 6-7. Cc The Derivative Breach of Contract (Count 1), Conversion (Count 4), and Accounting (Count 3) Causes of Action Are Improperly Pled As Claims on Behalf of the Company. Counts 1, 3 and 4 are not properly pled as derivative claims because they seek redress for Perez individually, not Software, While titled as derivative claims, they are actually duplicative and/or improper recharacterizations of Perez’s individual claims. This is because Perez claims that he, personally, as a result of Tedesco’s actions, has been deprived of monies from the Tiburon Sale and other amounts to which he feels entitled. While contract, conversion and accounting causes of action can be brought derivatively in certain situations, this is simply not one of those situations. Perez has sued the only other two members of the LLC at issue, and by his own pleadings seeks recovery of money from those other two members for himself, not for the collective benefit of all three. 1 The Derivative Breach of Contract Cause of Action Must Be Dismissed The crux of Perez’s derivative breach of contract cause of action is found in Paragraph 44 of the Amended Complaint. A reading of this paragraph, together with the other allegations, reveals that while titled as harms to Software, Perez actually seeks redress for alleged individual harms: that Perez was purportedly denied access to Software’s books and records; that Perez has purportedly not received proper distributions from Sofiware; and that Perez has not been kept apprised of all Software matters. Although Perez tactically refers to harms to “members” of Sofiware, the only member Perez could be referring to in these allegations is himself, personally, because the only other members are Defendants Tedesco and TCG, the supposed wrongdoers. Notwithstanding Perez’s careful attempt to cloak his claim in the language of a derivative cause of action, taken as a whole the allegations of Count One seck a personal remedy for purported individual harms. See DeMarco v, Clove Estates, Inc., 250 A.D.2d 724, 725, 672 N.Y.S.2d 784, 784 (2d Dep’t 1998); see also Br. at 9-11, While Perez has identified certain alegations that he claims distinguishes the derivative and individual breach of contract claims, the majority of the factual allegations are essentially identical. Compare Cmplt. {9 44(b) and 83(b); 44(d) and 83(c); 44(f) and 83(a); 44(vii) and 834); see Br. at 10. Given the significant overlap between Perez's individual and derivative breach of contract causes of action, the derivative and individual causes of action simply cannot co-exist.’ Hither the purported breaches of the Operating Agreement are injuries to Software and Software recovers damages or the injuries are to Perez directly and he recovers the damages. As a whole, these duplicative claims allege personal harms, and the derivative claim should be dismissed. 2 The Derivative Conversion Cause of Action Must Be Dismissed Perez grossly distorts the actual text of his pleading when he argues that the derivative and individual causes of action for conversion are “completely different.” See Cmplt. $f] 58, 96. Neither has any factual specificity, instead vaguely referring to allegations “set forth above,” Id. In the individual claim, Perez alleges that unspecified “Defendants caused to be transferred and received funds belonging to Perez,” while in the derivative claim, Perez alleges nearly identically that “Defendants caused to be transferred and converted monies and other assets belonging to a ° To the extent th Court views any other allegations of harm in the derivative breach of contract cause of action as stating harm against Soflware directly, this cause of action must still be dismissed, as it impermissibly mixes individual and derivative claims and remedies. Abrams y, Donati, 66 N.Y.2d 951, 953, 498 N.Y.S.2d 782, 783 (1985) (“A complaint the allegations of which confuse a shareholder’s derivative and individual rights will [ ] be dismissed”); see Br. at 13. 7 See Opp. Br. at 6, citing Broome v. ML Media Opportunity Partners L.P., 273 A.D.2d 63, 64, 709 N.Y.S.2d 59, 60 (Ist Dep’t 2000) (where claims “do not implicate any injury to plaintiffs distinct from harm to the partnership” claims are derivative and cannot be maintained in direct action.) Software.”® Jd, In both, the damages sought are “no less than $5,460,000, plus punitive and special damages.” Cmplt. {{] 60, 99. Just as with his individual breach of contract cause of action, the thrust of Perez’s derivative conversion claim is to secure relief for a personal harm he believes he has suffered at the hands of his only other LLC members. As a result, this cause of action must be dismissed. See DeMarco, 250 A.D.2d at 725, 672 N.Y.S.2d at 784. 3 The Derivative Accounting Cause of Action Must Be Dismissed In Paragraph 53 of Perez’s derivative cause of action for accounting, he alleges that he personally made a demand on or about June 26, 2013 for an accounting, and an agreement with him was made on August 5, 2013 for same. He further alleges that “Tedesco has failed and refused to provide the full financial records and accounting of the affairs of Software or to provide full access to the books and records.” As noted in Defendants’ Opening Brief (at 1 1-12), a claim such as Perez’s arising out of a lack of personal access to books and records is an individual, not derivative claim. Wallace v. Perret, 28 Misc. 3d 1023, 1033, 903 N.Y.S.2d 888, 897 (Sup. Ct. Kings County 2010); Roy v. Vaynirub, 15 Misc. 3d 1127(A), 2007 WL 1218356 (Sup. Ct. Nassau County Mar. 15, 2007). Perez’s attempt to distinguish the derivative claim as vindicating a distinct legal right is unavailing. While Perez argues that his individual cause of action for accounting states a different kind of accounting claim from his derivative claim, both claims allege the same written agreement. Compare Cmplt. { 53 with § 92. Nor can the provisions of New York LLC law distinguish his two accounting claims. In his derivative claim, Perez explicitly invokes New York LLC Law and Software’s Operating Agreement (Cmplt. 4] 52), but his individual claim also en a a * While Perez adds certain allegations to his individual conversion claim (Amended Complaint § 97), such additions only reinforce the conclusion that the derivative claim is entirely subsumed within the individual claim. implicates the rights that spring from LLC law and the Operating Agreement, See Cmplt. 492 CTA]s a member of Software, and also pursuant to the parties August 5, 2013 agreement, {Perez] is ontitled to an accounting” (emphasis added)). Tedesco’s purported refusal to provide access to Software’s books and records to Perez cannot be carved into two separate accounting claims, and the redundant derivative claim should be dismissed. See Br. at 11; see also DeMarco, 250 A.D.2d at 725, 672 N.Y.S.2d at 784. D. Petez’s Derivative Breach of Fiduciary Duty Cause of Action (Count 2) Impermissibly Combines Derivative and Individual Claims While some breaches of fiduciary duty can give rise to both direct and derivative causes of action, this is not such a case. As discussed in the Opening Brief at 13, and as with his other derivative claims, Perez’s derivative fiduciary duty claim constitutes nothing more than an individual claim couched in the verbiage of a claim on behalf of the company. While Perez, changed some of the wording between the individual and derivative breach of fiduciary duty causes of action, the “thrust” of certain allegations in the derivative cause of action is to remedy purported harms to Perez, not to Software. By essentially pleading a number of the same individual alleged wrongs within his derivative cause of action, Perez has “confuse[d] a shareholder’s derivative and individual rights,” and the derivative claim for breach of fiduciary duty must therefore be dismissed. Abrams v. Donati, 66 N.Y.2d 951, 953, 498 N.Y.S.2d 782, 783 (1985). BE Claims Duplicative of the Individual Breach of Contract Cause of Action Must Be Dismissed (Counts4, 5, 6, 12, 13, 15, 16 While pleading in the alternative is, in the abstract, permissible, New York law is clear that claims that are duplicative ofa breach of contract claim can and should be dismissed at the outset of the case.’ As the Second Department has explained, “the use of familiar tort language in the pleading does not change the cause of action to a tort claim in the absence of an underlying tort duty.” Bettan v. Geico General Ins. Co., 296 A.D.2d 469, 470, 745 N.Y.S.2d 545, 546 (2d Dep't 2002); see also Fort Ann Cent. Sch. Dist. v. Hogan, 206 A.D.2d 723, 724, 614 N.Y.S.2d 803, 805 (3d Dep’t 1994) (“[A] simple breach of contract is not to be considered a tort unless a legal duty independent of the contract has been violated, which duty must arise from circumstances extraneous to, and not constituting elements of, said contract.”) i The Conversion Causes of Action The same acts, in certain circumstances, may constitute both conversion and breach of. contract; however, such is not the case here, where the allegations raise, at best, a breach of contract claim. What Perez secks in both the breach of contract and conversion causes of action is what he views as his due from the proceeds of the Tiburon Sale and other amounts to which he was allegedly entitled wnder the terms of the Operating Agreement. Because the sole basis for the rights Perez claims were abrogated is the Operating Agreement, the conversion claims cannot stand, Whitman Realty Group, Inc. v. Galano, 41 AD.3d 590, 592, 838 N.Y.S.2d 585, 587 (2d Dep’t 2007) (where plaintiff showed, at best, only a contractual right to the property in dispute, the conversion cause of action could not stand); see also Rolls-Royce Motor Cars v, Schudroff, 929 F. Supp. 117, 124 (S.D.N.Y. 1996) (“To state a viable conversion claim here, plaintiff must allege acts that are unlawful or wrongful as distinguished from acts that are a mere violation of contractual rights”) (internal quotes and additional citations omitted), While Perez asserts that he has gone beyond repetition of his breach of contract cause of action by naming additional parties as defendants in his conversion claims, the tacking on of entities that have nothing to do with the ° See Br, at 14-22. 9 conduct at issue (see supra at 4) merely aggravates, and does not correct, the improper nature of the conversion claims. Perez inaccurately portrays the allegations of the Amended Complaint in an attempt to distinguish the breach of contract and conversion causes of action, For example, what is alleged in the Amended Complaint as funds “never paid back” to LanPro is now referred to as “theft.” (Compare Cmplt. {17 and Opp. Br. at 14.) Based upon the allegations in the Amended Complaint, LanPro would be a creditor’? of Software in respect of the purported $750,000 in “significant resources, personnel and equipment” allegedly “loaned” to Software, and Sofiware’s failure to repay or compensate LanPro does not support a conversion claim by Perez." Conclusory assertions that “Defendants caused to be transferred and converted monies and assets” (Cmplt. | 58), Defendants’ transfer or receipt of funds without Perez’s consent constitutes a conversion (Cmplt. 96), and that “Defendants converted Perez’s membership interest, economic rights and title in Software” (Cmplt. { 97) are not factual and cannot sustain the claims. See supra at 1-2. Because the conversion causes of action do not state claims independent of the breach of contract claim, they must be dismissed. 2 The Waste Cause of Action Perez incorrectly construes Defendants’ Opening Brief argument. Defendants do not argue that a waste claim should be brought individually; instead, the relief Perez ultimately seeks here is for himself and not Software, which makes it an inappropriate derivative claim. See Br. at 16. Perez’s allegations do not set forth any duty separate from the operative contract, the Defendants do not admit that LanPro is a creditor of Software, and assumes so only arguendo, taking the allegations of the Amended Complaint as true for the purposes of the Motion to Dismiss. Defendants reserve all rights to dispute the purported amounts owed to LanPro. "' Perez also refers to the purported “loan[]” from LAN Professionals, Inc. in his affidavit at Paragraph 6. 10 Operating Agreement, that was purportedly violated. See Bettan, 296 A.D.2d at 470, 745 N.Y.8.2d at 546. 3 The Unjust Enrichment Causes of Action Astoundingly, it appears Perez now alleges that the Operating Agreement, which is central to all of Perez’s claims, might not be a valid contract. Defendants have no basis to dispute the validity of the Operating Agreement, which at all relevant times has been in effect and was entered into for fair consideration.'? The Operating Agreement fully encompasses the rights and responsibilities Perez contends have been violated. In his unjust enrichment causes of action, Perez has alleged nothing beyond the failure to receive funds that Perez maintains he should have received, a subject fully addressed in the Operating Agreement’s provisions on the members’ division of membership interests and obligations in respect of the company’s creditors. Contrary to Perez’s assertion, the existence of the Tiburon Agreement is irrelevant to and does not support the unjust enrichment causes of action. The funds from the Tiburon Sale are received by Software, and their application falls under the Operating Agreement requirements regarding the use of company assets. Because the Operating Agreement governs the members’ rights and responsibilities, Perez’s unjust enrichment causes of action must be dismissed. See Bettan, 296 A.D.2d at 470, 745 N.Y.S.2d at 546 (affirming dismissal of unjust enrichment and tort claims as duplicative of breach of contract cause of action); see also Br. at 16-17. 4 Fraudulent Inducement Cause of Action In support of his fraudulent inducement claim, Perez again cites to law that has no applicability to the specific facts alleged. While a plaintiff may seck damages as a result ofa ° The Amended Complaint maintains the validity of the Operating Agreement. Cmplt. 4 43. il fraudulent inducement, Perez does not specifically allege any unique harm actually suffered as a result of the purported misrepresentations by Tedesco. Instead, he apparently seeks recompense for the same damages that underlie his breach of contract claim: the failure to distribute to him all monies to which he is entitled under the Operating Agreement. See Cmplt. | 44. As Perez merely seeks to enforce his rights under the Operating Agreement for a pro rata share of the Tiburon Sale proceeds and repayment of purported loans, and not obtain remedy for a violation of non-contractual rights, the fraudulent inducement claim cannot survive. See New York Univ. v. Continental Ins, Co., 87 N.Y.2d 308, 316, 639 N.Y.S.2d 283, 288 (1995); Fromowitz v. W. Park Assoes., Inc., 106 A.D.3d 950, 951, 965 N.Y.S.2d 597, 599 (2d Dep’t 2013); Luxonomy Cars, Ine, v, Citibank, N.A., 65 A.D.2d 549, $50, 408 N.Y.S.2d 951, 954 (2d Dep’t 1978); see also Br, at 19-22. 5 Common Law Fraud Cause of Action Like his fraudulent inducement and other tort claims, Perez’s common-law fraud cause of action must be dismissed as duplicative of his breach of contract claim. While a separate cause of action may lie ifa separate duty apart from the Operating Agreement is alleged, Perez’s Amended Complaint does not so allege. To the contrary, by his own account, Perez’s fraud claim is based on a set of allegations to the effect that “Tedesco and TCG did not act honestly with respect to the affairs of Software.” Cmplt. 114. The duties of Tedesco and TCG “with respect to the affairs of Software” are governed by the Operating Agreement. and any failure to adhere to such duties gives rise to a breach of contract, not tort, claim. Heffez v, L&G Gen, Constr, Inc., 56 A.D,3d $26, 527, 867 N.Y.S.2d 198, 199 (2d Dep’t 2008) (affirming dismissal of, among others, fraud cause of action because “a cause of action premised upon fraud cannot lie where it is based on the same allegations as the breach of contract claim”). 12 Like his other tort claims, the thrust of Perez’s allegations is that following the Tiburon Sale, he has not received all amounts that he would like in respect of his membership interest or purported loans to Software.'? Perez’s membership share in Software, and his entitlement to receipt of proceeds following a sale, fall squarely under the Operating Agreement and do not arise from separate duty, independent of the governing contract. This makes the common law fraud action, like the fraudulent inducement and other tort claims, duplicative of his breach of contract claim, See supra at 12. Finally, Perez’s claim must also be dismissed because he has failed to adequately plead the elements of fraud. As discussed in the Opening Brief, Perez has not adequately alleged justifiable reliance; nor has he alleged any detriment to himself as a result of the purported reliance on the allegedly incorrect information. See Rudnick v. Glendale Sys., Ine., 222 A.D.2d 572, 573, 635 N.Y.S.2d 657, 658 (2d Dep’t 1995); see also Br. at 18-19, These deficiencies independently require dismissal of the fraud cause of action F, The Injunctive Relief Causes of Action Must Be Dismissed Keven if Defendants waste, convert, or divert Software’s assets as alleged by Perez, he has “failed to allege facts indicating that [he] cannot be fully compensated by an award of money damages. Accordingly, plaintiff [has] failed to allege the sort of irreparable injury which is prerequisite to the granting of an injunction.” D'Amour y. Ohrenstein & Brown, LLP, 17 Misc. “ Further, Perez misrepresents the content of an email referenced multiple times in his papers (at Exhibit G). Contrary to his statements, the email from Tedesco does nor indicate to Perez that his claimed $1,582,166,99 would be paid from the Tiburon proceeds, but generaily that “there was a lot of debt, payments, non-payments as well as issues that we will need to review... We will pay off the rest of our personal debt with the Hine [of credit] and/or next payments [from the Tiburon Sale].” Perez Aff., Exh, G. The Court, of course, need not accept allegations (or arguments in briefs) that are contradicted by the documents on which they are based, West Branch Conservation Assoc., Ine. v. County of Rockland, 227 ATD.24 547, 547, 642 N.Y.S.2d 966, 966 (2d Dep't 1996), 13 3d 1130(A), *14, 2007 WL 4126386 (Sup. Ct. N.Y. County Aug, 13, 2007) (dismissing cause of action for injunctive relief). G The Limited Liability Law/Partnership Law Cause of Action Must Be Dismissed Perez does not oppose Defendants’ argument that no cause of action can lie under LLC Law §504 or Partnership Law §121-604. See Br. at 23, Opp. Br. at 23. Further, the sole case Perez cites as support of his claim under LLC Law §704, 274 Madison Co. LLC v, Ramsundar, Index No. 153425/12, 2013 WL 6328670, *10 (Sup. Ct. N.Y. County Dec. 2, 2013), is inapplicable because the decision addressed to a creditor's rights in liquidation under subsection (a), not members’ rights under subsection (c). Since Perez is suing as a member of Software, his reliance on Ramsundar is misplaced. The LLC and Partnership Law claims should therefore be dismissed. H. The Punitive Damages Demands Must Be Dismissed New York courts have held that claims for punitive damages are properly dismissed at the motion to dismiss stage. See, e.g, DePierro v. Bank of N.Y., 308 A.D.2d 430, 430-31, 764 N.Y.S.2d 208, 208 (2d Dep’t 2003). Even in the light most favorable to Perez, the Amended Complaint alleges no facts rising to the high level of moral turpitude or wanton and reckless misconduct that is necessary to support the “extraordinary remedy” of punitive damages. Bread Chatet, Inc. v, Royal Ins. Co., 224 A.D.2d 650, 651, 639 N.Y.S.2d 73, 74 (2d Dep't 1996). Perez’s punitive damages demands should be dismissed because he “failed to present sufficient evidentiary allegations of ultimate facts ofa fraudulent and deceitful scheme in dealing with the general public or to imply a criminal indifference to civil obligations.” Jd.; see also Rocanova v. Equitable Life Assurance Soc'y, 83 N.Y.2d 603, 615, 612 N.Y.S.2d 339, 344 (1994) (“A complaint does not state a claim for compensatory or punitive damages by alleging merely that 14 the [defendant] engaged in a pattern of bad-faith conduct. The complaint must first state a claim of egregious tortious conduct directed at the [plaintiff].”); Prince v. Gurvitz, 57 A.D.2d 860, 861 . 394 N.Y.S.2d 258, 258 (2d Dep’t 1977) (deleting provision of punitive damages in action to recover for coercion of plaintiff to transfer shares in defendant company, finding the proof did not establish “such gross, wanton, or willful fraud or other morally culpable conduct to a degree sufficient to justify an award of punitive damages”); Sterling Nat. Bank y. JLH.Cohn LLP, 40 Misc. 3d 1230(A), *4, 2013 WL 4467401 (Sup. Ct. N.Y. County Aug. 20, 2013) (dismissing claim for punitive damages against entity retained to prepare audited financial statements, where reports did not disclose payments on defaulted leases and defendant allegedly knew such practices violated covenants of lender banks and that reports would be relied upon). I Perez Has Improperly Disclosed Settlement Discussions Finally, Perez should be reprimanded for his disclosure of the substance of settlement discussions between the parties, Prior to the filing of the Amended Complaint, Perez raised a baseless conflict of interest argument, which Defendants disputed and the parties subsequently resolved in a confidential written letter agreement. Perez’s argument that Defendants had an “undisclosed motivation” to make their Motion to Dismiss based on Perez’s specious conflict claim is not only patently absurd given the parties’ resolution of the issue, but his disclosure of settlement discussions between counsel flagrantly violates the letter and spirit of the parties’ agreement and CPLR §4547. Perez’s decision to include this matter in a document filed with the Court speaks volumes about the lengths to which he will apparently go to pursue his meritless claims. 15 Il. CONCLUSION For all the reasons stated herein and in Defendants’ Opening Brief, Defendants respectfully request that this Court dismiss Counts 1, 2, 3, 4, 5, 6, 7, 8, 12, 13, 14, 15, 16, and 17 of the Amended Complaint in their entirety, Defendants further request that Plaintiffs demands for punitive damages in Counts 4, 5, 6, 12, 15, and 16 be dismissed. Dated: New York, New York June 5, 2014 LSTON & BIRD LLP. Michael E. Johnson, Es es Jessica L. Supérnaw, Esq. 90 Park Avenue New York, New York 10016 Tel: (212) 210-9400 Fax: (212) 210-9444 Email: michael.johnson@alston.com jessica.supernaw@alston.com Attorneys for Defendants 16