Opinion
CIVIL NO. 2:20cv217
2020-08-07
JTH TAX, LLC, et al., Plaintiffs, v. Bablu SHAHABUDDIN, Defendant.
Counsel for Plaintiff: Patrick Kevin Burns, Gordon & Rees Scully Mansukhani, 1101 King Street, Suite 520, Alexandria, VA 22314. Counsel for Defendant: Edward James Powers, James Richard Harvey, III, Vandeventer Black LLP, 101 West Main Street, Suite 500, Norfolk, VA 23510.
Counsel for Plaintiff: Patrick Kevin Burns, Gordon & Rees Scully Mansukhani, 1101 King Street, Suite 520, Alexandria, VA 22314.
Counsel for Defendant: Edward James Powers, James Richard Harvey, III, Vandeventer Black LLP, 101 West Main Street, Suite 500, Norfolk, VA 23510.
MEMORANDUM ORDER
REBECCA BEACH SMITH, SENIOR UNITED STATES DISTRICT JUDGE
JTH Tax, LLC d/b/a Liberty Tax Services ("Liberty") and SiempreTax+, LLC ("Siempre") ("the Plaintiffs") filed a Motion for Temporary Restraining Order and Preliminary Injunction on April 29, 2020, ECF No. 37; (2) the Defendant Bablu Shahabuddin ("Shahabuddin") filed a Motion to Dismiss the First Amended Complaint on May 5, 2020, ECF No. 43; and (3) the Plaintiffs filed a Motion to Dismiss certain Counterclaims on May 26, 2020, ECF No. 50. The motions have been fully briefed and are ripe for decision.
I. Procedural History
On March 17, 2020, the Plaintiffs filed a Complaint against Shahabuddin and other Defendants, who have since been dismissed, in the Southern District of New York. ECF No. 1. On March 23, 2020, the Plaintiffs filed the First Amended Complaint ("FAC") against Shahabuddin and the same other Defendants who have since been dismissed. ECF No. 4. The FAC asserts claims against Shahabuddin for Breach of Contract (Counts One and Two), Breach of Implied Covenant of Good Faith and Fair Dealing (Count Three), Unjust Enrichment (Count Four), and requests a preliminary injunction (Count Five). On the same day, the Plaintiffs filed a Motion for a Temporary Restraining Order and Preliminary Injunction. ECF No. 11.
On April 29, 2020, the case was transferred from the Southern District of New York to this court. ECF No. 35. On April 29, 2020, the Plaintiffs filed a new Motion for Temporary Restraining Order and Preliminary Injunction. ECF No. 37. On May 5, 2020, Shahabuddin filed his Answer and Counterclaims. ECF Nos. 41, 42.
II. Defendant Shahabuddin's Motion to Dismiss the FAC
In considering a motion for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), the facts alleged in the FAC are assumed to be true, and the FAC is viewed in the light most favorable to the plaintiff. E.g., Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993).
The Plaintiffs are franchisors of tax preparation centers across the United States. FAC ¶¶ 2, 20. The Plaintiffs grant licenses to franchisees "to participate in their confidential and proprietary business system pursuant to written franchise agreements." Id. ¶ 22. Shahabuddin is a former franchisee of the Plaintiffs. Id. ¶ 2. Plaintiffs terminated Shahabuddin's franchisee status "at the beginning of the 2016 tax season." Id. On June 30, 2016, the Plaintiffs and Shahabuddin entered into an Agreement of Purchase and Sale ("PSA"). Id. ¶ 3; see ECF No. 4-1 (the PSA). The Plaintiffs assert that the PSA required Shahabuddin to transfer leases for his former Liberty and Siempre franchises, referred to as the "Subject Locations," to the Plaintiffs upon request, and allow the Plaintiffs to operate Liberty and Siempre offices from the offices of his former franchise locations. Id. ¶¶ 3, 25. In exchange for this, according to the Plaintiffs, the Plaintiffs agreed "to pay nearly $675,000 to Shahabuddin, plus ten (10%) percent net revenue for Fiscal Years 2017, 2018 and 2019." Id. ¶ 26.
The court may consider documents attached to the FAC in adjudicating a motion to dismiss. E.g., Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 166 (4th Cir. 2016).
The Subject Locations are: 252 Willis Ave., Bronx, NY 10459, 462 East Fordham Road, Bronx, NY 10458, 2168A Westchester Ave., Bronx, NY 10461, 750 Allerton Ave., Bronx, NY 10467 and 2104 Adam Clayton Powell Blvd. a/k/a 201-209 W. 125th Street, New York, NY 10026.
After the parties entered into the PSA, the Plaintiffs requested that Shahabuddin transfer the leases to the Plaintiffs. Id. ¶ 28. However, Shahabuddin did not transfer the leases to the Plaintiffs. Id. ¶ 29. Between June 2016 and November 2018, the Plaintiffs operated Liberty and Siempre services at the Subject Locations. Id. ¶ 30.
On January 1, 2020, the Plaintiffs and Shahabuddin entered into Licensing Agreements related to the Subject Properties. Id. ¶¶ 4, 32; see ECF No. 4-2 (Licensing Agreements). According to Plaintiffs, the Licensing Agreements provided them with the right to continue to operate tax preparation businesses at the Subject Locations from January 1, 2020, through April 30, 2020. Id. ¶ 5. In exchange, the Plaintiff "agreed to pay licensing fees in the collective amount of approximately $392,000." Id. ¶ 34. According to the Plaintiffs, they "believed Shahabuddin would assign the Leases to Plaintiffs" after April 30, 2020. Id. Shahabuddin again did not assign the leases. Id. ¶ 37.
b. Legal Analysis
Shahabuddin moves to dismiss the FAC for failure to state a claim. ECF No. 43. "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Facial plausibility means that a "plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ). It is, therefore, not enough for a plaintiff to allege facts demonstrating a "sheer possibility" or "mere[ ] consist[ency]" with unlawful conduct. Id. (citing Twombly, 550 U.S. at 557, 127 S.Ct. 1955 ).
Shahabuddin argues that Counts One and Two of the FAC should be dismissed. Counts One and Two assert breach of contract claims against Shahabuddin for violation of the PSA. FAC ¶¶ 38-46. The Plaintiffs' requested remedy for Count One is specific performance, and for Count Two is monetary damages. Id. ¶ 46. The FAC requests that the court order Shahabuddin to "assign[ ] the Leases to Plaintiffs." Id.
The elements of breach of contract under Virginia law are "(1) a legally enforceable obligation of a defendant to a plaintiff; (2) the defendant's violation or breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation." Filak v. George, 267 Va. 612, 614, 594 S.E.2d 610 (2004) (citations omitted).
The PSA contains a Virginia choice-of-law clause, ECF No. 4-1 ¶ 24, and the parties agree Virginia law should apply to the contract dispute.
The Plaintiffs have adequately pleaded all of these elements. The FAC alleges that, pursuant to the PSA, Shahabuddin had a contractual duty to transfer the leases to the Plaintiffs upon demand. FAC ¶ 25. The FAC further alleges that, notwithstanding this obligation, Shahabuddin refused to transfer the leases after a request made by the Plaintiffs. Id. Finally, the Plaintiffs allege that the refusal to transfer the leases caused damages in the form of, among other things, lost revenues. Id. ¶ 54. These factual allegations are sufficient to adequately plead a breach of contract.
Shahabuddin's counter-arguments are unpersuasive. First, Shahabuddin argues that Count One should be dismissed because specific performance, i.e. transfer of the leases, is "impossible." ECF No. 44 at 4. According to Shahabuddin, he is no longer a party to any of the leases and therefore he cannot transfer them. Id. The Plaintiffs respond that Shahabuddin "controls all of the entities that hold and control the Leases." ECF No. 46 at 7. However, the court need not resolve this factual dispute at this juncture. Impossibility is an affirmative defense under Virginia law. RECP IV WG Land Inv'rs LLC v. Capital One Bank (USA), N.A., 295 Va. 268, 284, 811 S.E.2d 817 (2018). A Rule 12(b)(6) motion generally "cannot reach the merits of an affirmative defense." Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007). An affirmative defense will be reached on a motion to dismiss in the "relatively rare circumstances" when "all facts necessary to the affirmative defense clearly appear on the face of the complaint." Id. (internal quotations and alterations omitted). Here, there are not enough facts on the face of the FAC that indicate it will be impossible for Shahabuddin to comply with any orders regarding the leases. Thus, this is not a reason to dismiss Count One or Two.
Next, Shahabuddin argues that Count Two should be dismissed because "the terms of the PSA" have been "superseded" by the later Licensing Agreements. ECF No. 44 at 7-8. However, the FAC alleges that Shahabuddin failed to transfer the relevant leases before the parties entered into the Licensing Agreements. FAC ¶ 32. Thus, assuming the well-pleaded facts in the FAC to be true, Shahabuddin breached the PSA before the Licensing Agreements entered into force.
Shahabuddin argues Count Three of the FAC should be dismissed because it asserts a claim for breach of the covenant of good faith and fair dealing under New York law, but the PSA is governed by Virginia law. ECF No. 44 at 8. It is accurate that the FAC asserts this count under New York law, but the PSA is governed by Virginia law. See No. 4-1 ¶ 24 (PSA contains Virginia choice of law clause).
However, like in New York, "[i]n Virginia, every contract contains an implied covenant of good faith and fair dealing." Enomoto v. Space Adventures, Ltd., 624 F. Supp. 2d 443, 450 (E.D. Va. 2009) (Cacheris, J.); accord Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 407 (2d Cir. 2006) ("New York law implies a covenant of good faith and fair dealing...."). Because these claims are viable under Virginia law, and the Plaintiffs adequately pleaded them in Count Three, the court will not dismiss Count Three.
Shahabuddin argues that Count Four, for unjust enrichment, should be dismissed because "[t]o the extent that Plaintiffs have any facts to support their allegation that Shahabuddin did not assign a Lease in contravention of the express terms of the PSA, then their cause of action under Virginia law is limited to one for breach of contract, and they have no cause of action under the doctrine of unjust enrichment." ECF No. 44 at 9. The Defendant is correct that, under Virginia law, "unjust enrichment claims are only appropriate in the absence of an enforceable contract." McPike v. Zero-Gravity Holdings, Inc., 280 F. Supp. 3d 800, 810 (E.D. Va. 2017) (Ellis, J.). Here, "neither party ... challenges the validity or enforceability of the [contract]." Id. The Plaintiffs offer no response to this argument, and do not dispute the validity of the PSA. Accordingly, Count Four will be dismissed. See id. (dismissing unjust enrichment claim).
Finally, Shahabuddin argues that the Plaintiffs' demand for punitive damages should be dismissed. See FAC ¶¶ 55, 82 (claim for punitive damages). Under Virginia law, "punitive damages generally are not allowed for breach of contract claims." Riley v. Barringer, 337 F. Supp. 3d 647, 656 (W.D. Va. 2018). Because the court will dismiss the Plaintiffs' unjust enrichment claim, the only remaining counts are for breach of contract and breach of the implied contractual duties of good faith and fair dealing. Furthermore, the Plaintiffs do not allege "facts sufficient for the court to infer that [the Defendant] acted fraudulently, with malice, or with special motives of aggravation." Id. Accordingly, it is appropriate to dismiss the punitive damages claims. See id. (dismissing punitive damages demand).
In sum, the court will grant Shahabuddin's Motion to Dismiss Count Four (Unjust Enrichment) and the punitive damages claims. The court will deny the Motion to Dismiss in all other respects.
III. Plaintiffs' Motion to Dismiss Shahabuddin's Counterclaims
On May 26, 2020, the Plaintiffs filed a Motion to Dismiss Counts Two and Three of Shahabuddin's Counterclaims. ECF No. 50.
Like with the Motion to Dismiss the FAC, the court assumes the well-pleaded facts in the Counterclaims to be true and views the Counterclaims in the light most favorable to Shahabuddin. See supra note 1.
Count One of the Counterclaims is a breach of contract claim against the Plaintiffs. ECF No. 42 ¶¶ 9-19. It alleges that the Plaintiffs have failed to make payments to Shahabuddin required under a settlement agreement entered into by the Plaintiffs and Shahabuddin on November 9, 2018. Id. Count Two asserts a claim for Tortious Interference with Business. Id. ¶¶ 20-36. Count Two alleges that the Plaintiffs interfered with a lease between Shahabuddin and the landlord of 2104 Adam Clayton Powell Boulevard, New York, New York 10026. Id. The landlord of this property is 209 West 125th Street Realty Associates, LLC (hereinafter "Landlord"). Id. ¶ 21. Specifically, Count Two alleges that Liberty "demanded that Landlord lease the Property directly to Liberty Tax." Id. ¶ 25. Furthermore, Shahabuddin alleges that the Plaintiffs interfered with the lease by previously naming the Landlord as a defendant in this action. Id. ¶ 30.
Count Three is a defamation claim. It alleges that Liberty "made false statements about Shahabuddin" to the property manager of the Landlord. Id. ¶ 38. According to the Counterclaims, "Liberty Tax falsely asserted that Shahabuddin had no right to lease the Property. Liberty Tax further falsely asserted that Shahabuddin was not a reliable tenant or would be unable to pay the rent and that Liberty Tax would be a better tenant than Shahabuddin." Id. ¶ 25.
b. Legal Analysis
The Plaintiffs move to dismiss Count Three for failure to state a claim. Under New York law, the elements of a defamation claim are "a false statement, published without privilege or authorization to a third party, constituting fault ... and it must either cause special harm or constitute defamation per se." Peters v. Baldwin Union Free Sch. Dist., 320 F.3d 164, 169 (2d Cir. 2003) (quoting Dillon v. City of New York, 261 A.D.2d 34, 704 N.Y.S.2d 1, 5 (1999) ). The following four categories of statements are defamatory per se: "(1) those that accuse the plaintiff of a serious crime; (2) those that tend to injure another in his or her trade, business or profession; (3) those that accuse the plaintiff of having a loathsome disease; and (4) those that impute unchastity to a woman." Stern v. Cosby, 645 F. Supp. 2d 258, 273 (S.D.N.Y. 2009) (quoting Liberman v. Gelstein, 80 N.Y.2d 429, 435, 590 N.Y.S.2d 857, 605 N.E.2d 344 (1992) ). Here, the Counterclaims assert that the statements fall into the second category, "those that tend to injury another in his or her trade, business or profession." See ECF No. 53 at 5.
The parties agree that New York law applies to Counts Two and Three of the Counterclaims, and therefore the court will apply it for purposes of the Motion to Dismiss these Counterclaims.
The statements that Shahabuddin alleges are defamatory are: (1) "Shahabuddin had no right to lease the Property"; and (2) "Shahabuddin was not a reliable tenant or would be unable to pay the rent and that Liberty Tax would be a better tenant than Shahabuddin." Counterclaims ¶ 25. According to the Counterclaims, the Plaintiffs made these statements to the Landlord "through [the Landlord's] management company." Id.
The court concludes that these allegations do not sufficiently plead a defamation claim, for several reasons. First, the Counterclaims do not allege that these statements injured Shahabuddin's trade or business. Indeed, the Counterclaims state that the property manager "responded that Landlord had a valid lease with Shahabuddin," Counterclaims ¶ 26, suggesting that the statements did not in fact have any negative effect on Shahabuddin's trade or business. Furthermore, the statements that Shahabuddin "was not a reliable tenant," "would be unable to pay the rent," and that Liberty would be a "better tenant," are expressions of opinion that are not actionable under New York law. See Celle v. Filipino Reporter Enterprises Inc., 209 F.3d 163, 178 (2d Cir. 2000) ("[T]he New York Constitution provides for absolute protection of opinions."). These statements are protected opinion because they lack "precise meaning" and are not "capable of being objectively characterized as true or false." Steinhilber v. Alphonse, 68 N.Y.2d 283, 292, 508 N.Y.S.2d 901, 501 N.E.2d 550 (1986) (setting out factors that courts consider in determining whether statement is opinion).
Finally, the Plaintiffs move to dismiss Count Two of the Counterclaims, which is a claim for tortious interference. The Counterclaims allege that Liberty Tax "took intentional actions to interfere with the lease agreement between Landlord and Shahabuddin" and this action "caused Shahabuddin to incur damages." Counterclaims ¶¶ 31, 35. Under New York law, the elements of tortious interference with contract are "that a valid contract exists; (b) that a ‘third party’ had knowledge of the contract; (c) that the third party intentionally and improperly procured the breach of the contract; and (d) that the breach resulted in damage to the plaintiff." Albert v. Loksen, 239 F.3d 256, 274 (2d Cir. 2001) (quoting Finley v. Giacobbe, 79 F.3d 1285, 1294 (2d Cir. 1996) ).
Count Two fails to state a claim because it does not allege a necessary element of the tort, namely breach of the lease. The third element of the tort requires that the third party "procure[ ] breach of the contract." Id. Here, however, Shahabuddin does not allege that the Plaintiffs procured any breach of the lease. Accordingly, Count Two fails to state a claim for relief.
IV. Plaintiffs' Motion for Temporary Restraining Order and Preliminary Injunction
The Plaintiffs have also moved for a Temporary Restraining Order and Preliminary Injunction. ECF No. 37. The Motion requests that the court order Shahabuddin to transfer the leases for the Subject Locations to the Plaintiffs. ECF No. 38 at 1.
Parties seeking preliminary injunctions are required to "demonstrate that (1) they are likely to succeed on the merits, (2) they are likely to suffer irreparable harm, (3) the balance of hardships tips in their favor, and (4) the injunction is in the public interest." Pashby v. Delia, 709 F.3d 307, 320 (4th Cir. 2013) (citing Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) (referred to as "the Winter standard")).
Furthermore, the Plaintiffs request an injunction that alters the status quo, because they request that the court order Shahabuddin to transfer the leases to the Plaintiffs. Therefore, Plaintiffs seek a "mandatory injunction," rather than a "prohibitory injunction." League of Women Voters of N. Carolina v. North Carolina, 769 F.3d 224, 236 (4th Cir. 2014). "The [ Winter standard] becomes even more exacting when a plaintiff seeks a preliminary injunction that mandates action , as contrasted with the typical form of preliminary injunction that merely preserves the status quo pending trial." Vollette v. Watson, No. 2:12cv231, 2012 WL 3026360, at *3 (E.D. Va. July 24, 2012) (Davis, J.) (emphasis in original); see Taylor v. Freeman, 34 F.3d 266, 270 n.2 (4th Cir. 1994) ("Mandatory preliminary injunctive relief in any circumstance is disfavored, and warranted only in the most extraordinary circumstances.").
In these circumstances, the court concludes that injunctive relief is not appropriate, because the Plaintiffs have not demonstrated that they will suffer irreparable harm absent an injunction. The Plaintiffs argue they will suffer irreparable harm because, without the court ordering the leases transferred to the Plaintiffs, they will suffer loss of reputation, good will, and business opportunities. ECF No. 38 at 6. However, the Plaintiffs do not offer any actual evidence in support of this contention. It is undisputed that the Plaintiffs have access to other properties in New York. Plaintiffs offer no evidence as to why Shahabuddin's refusal to transfer leases for these properties would result in irreparable harm. To the extent that Shahabuddin wrongfully refused to transfer the leases and caused lost profits, the Plaintiffs can be compensated with money damages. "[H]arm is not ‘irreparable’ if it can be compensated by money damages." Person v. Mayor & City Council of Baltimore, 437 F. Supp. 2d 476, 479 (D. Md. 2006) (citing Hughes Network Sys. v. InterDigital Commc'ns Corp., 17 F.3d 691, 694 (4th Cir. 1994) ). Indeed, the Plaintiffs seek money damages in Count Two of the FAC as a result of Shahabuddin's refusal to transfer the leases. This undercuts any argument that not transferring the leases at this juncture would result in irreparable harm. In sum, the Plaintiffs' showing of irreparable harm is "remote and speculative," rather than "actual and immediate." Al-Abood v. El-Shamari, 71 F. Supp. 2d 511, 515 (E.D. Va. 1999) (Lee, J.).
Because the Plaintiffs have failed to show irreparable harm, an injunction is not appropriate and the court need not consider the remaining Winter factors. See, e.g., Holbrook v. Univ. of Virginia, 706 F. Supp. 2d 652, 655 (W.D. Va. 2010) ("Because [plaintiff] cannot demonstrate that he is likely to suffer irreparable harm, his motion fails to meet the four-prong standard required by Winter.").
The portion of the Motion seeking a Temporary Restraining Order is untimely at this juncture and is denied because the Plaintiffs fail to show irreparable harm. See Moore v. Kempthorne, 464 F. Supp. 2d 519, 525 (E.D. Va. 2006) (Morgan, J.) (standards for evaluating temporary restraining order and preliminary injunction are the same).
V. Conclusion
Shahabuddin's Motion to Dismiss the FAC, ECF No. 43, is GRANTED in part, and DENIED in part, such that: Count One of the FAC (Breach of Contract), Count Two of the FAC (Breach of Contract), and Count Three of the FAC (Breach of Covenant of Good Faith and Fair Dealing) remain pending; Count Four of the FAC (Unjust Enrichment) is DISMISSED; and the Plaintiffs' request for punitive damages is DISMISSED . The Plaintiffs' Motion to Dismiss certain Counterclaims, ECF No. 50, is GRANTED , such that: Count Two (Tortious Interference) and Count Three (Defamation) of the Counterclaims are DISMISSED . Finally, the Plaintiffs' Motion for Temporary Restraining Order and Preliminary Injunction, ECF No. 37, is DENIED .
The Clerk is DIRECTED to forward a copy of this Memorandum Order to counsel of record for the parties in this case