12 Civ. 5196 (LLS)
MEMORANDUM AND ORDER
The issues raised by defendants' motion to dismiss the complaint and plaintiff's motion to dismiss defendants' counterclaims are disposed of as follows.
Defendants' Motion to Dismiss the Complaint
Plaintiff Aero Media LLC, d/b/a The Cross Agency ("Cross") brings claims against both defendants, World Healing Center Church, Inc., d/b/a Benny Hinn Ministries (the "Church") and Benny Hinn, for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, tortious interference, defamation per se, libel per se, trade libel, trade defamation, unfair business practices, and injurious falsehood. Defendants move to dismiss all counts of the complaint, save Cross's breach of contract claims against the Church.
All claims against Mr. Hinn individually are dismissed.
Mr. Hinn did not personally sign or guarantee either of the contracts at issue, and Cross seeks to hold him personally liable by piercing the corporate veil. To pierce the corporate veil, Cross must sufficiently plead "(i) that [Mr. Hinn] exercised complete domination over the corporation with respect to the transaction at issue; and (ii) that such domination was used to commit a fraud or wrong that injured the party seeking to pierce the veil." Network Enterprises, Inc. v. APBA Offshore Productions, Inc., 264 Fed. App'x 36, 40 (2d Cir. 2008).
The parties dispute the applicability of Mew York law or Florida law with respect to veil piercing. Under Florida law, "a plaintiff must show that the corporation is a mere instrumentality or alter ego of the defendant and that the defendant engaged in 'improper conduct.'" Id. (quoting Dania Jai-Alai Palace, Inc. v. Skykes, 450 So.2d 1114, 1117-21 (Fla. 1984)). Because veil piercing is not warranted under either formulation, I do not reach the question of which standard applies. --------
The complaint states that:
It has been reported that Mr. Hinn controls [the Church] and utilizes [the Church] for his personal gain such that [the Church] is a mere alter ago. In particular, it has been reported that Mr. Hinn lives a lavish lifestyle with funds intended for [the Church], that Mr. Hinn resides in a multi-million dollar residence, that Mr. Hinn travels for business in a private jet and luxurious automobiles, and stays in luxurious hotels, that Mr. Hinn refuses to be held accountable to anyone, except God, that Mr. Hinn personally uses [Church] funds, that Mr. Hinn refuses to be held accountable to anyone, including other board members, that [the Church's] board composition is questionable, and that Mr. Hinn is in a position to exercise total control over the affairs of the board and [the Church].
Compl. ¶ 25. Cross also alleges that Mr. Hinn directed the Church's business relationship with Cross, see, e.g., Compl. ¶¶ 14-16.
The allegation that "Mr. Hinn controls World Healing and utilizes World Healing for his personal gain such that World Healing is a mere alter ago" is a conclusion without sufficient factual support. The luxury of Mr. Hinn's lifestyle and travel arrangements are irrelevant to Cross's veil piercing claims. Cross's allegations that Mr. Hinn "refuses to be held accountable," that "[the Church's] board composition is questionable," and that "Mr. Hinn is in a position to exercise total control over the affairs of the board and [the Church]" are vague and do not plausibly show that Mr. Hinn dominated the Church, or that it was his alter ego. Although Cross's allegation that "Mr. Hinn personally uses [Church] funds" could be read as pleading that Mr. Hinn disregards the corporate form by siphoning off Church funds, that allegation is not clearly stated, and unsupported by concrete factual allegations. There is no pleaded factual support for any claim that Mr. Hinn directed the Church's business relationship with Cross, nor does Cross plead that Mr. Hinn's position vis-à-vis the Church was used improperly or to perpetrate fraud against Cross.
Accordingly, defendants' motion to dismiss the claims against Mr. Hinn is granted. Counts two, four, six, eight, ten, and twelve are dismissed.
"There is an implied covenant of good faith and fair dealing in every contract. However, in general, '[i]f the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.'" District Lodge 26, Intern. Ass'n of Machinists & Aerospace Workers, AFL-CIO v. United Echnologies Corp., 610 F.3d 44, 54-55 (2d Cir. 2010) (quoting Hall v. Earthlink Network, Inc., 396 F.3d 500, 508 (2d Cir. 2005)). Cross's claims for breach of the implied covenant of good faith and fair dealing merely restate its breach of contract claims. Therefore, Cross's claims for breach of the implied covenant of good faith and fair dealing, counts three and seven of the complaint, are dismissed as comprehended within its breach of contract claims.
Under New York law, "The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi-contract for events arising out of the same subject matter." Valley Juice Ltd., Inc. v. Evian Waters of France, Inc., 87 F.3d 604, 610 (2d Cir. 1996) (quoting Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 388 (1987)).
However, New York courts allow a plaintiff to defer making an election of remedies and damages in cases "where there is a dispute over the existence, scope, or enforceability of the putative contract." Reilly v. Natwest Markets Group, Inc., 181 F.3d 253, 263 (2d Cir. 1999).
Here, depending on whether it is able to recover under the contract, Cross may be entitled to submit its unjust enrichment claims to a jury. At this stage of the proceedings, it is premature to dismiss those claims.
Defendants' motion to dismiss Cross's unjust enrichment claim against the Church (count nine of the complaint) is denied.
The complaint alleges that defendants sent letters to Cross's clients, including TCT Network, advising those clients that:
(i) [Cross] is no longer [the Church's] exclusive "Agency of Record;" (ii) moving forward, [the Church] "will work on a direct basis with TCT regarding all aspects of media programming . . . .;" (iii) [the Church] "is committed to maintaining the long standing ministry partnership it has with TCT [without [Cross] . . . .;" and (iv) [Cross] terminated the Letter Agreement.
Compl. ¶ 114.
Cross does not allege that it lost a single client, or that its relationships with its clients were damaged in any concrete way, and thus does not show that defendants' letters injured its business relationships with any third parties, see Scutti Enterprises, LLC v. Park Place Entertainment Corp., 322 F.3d 211, 215 (2d Cir. 2003) ("To state a claim for tortious interference with business relations under New York law, four conditions must be met: (i) the plaintiff had business relations with a third party; (ii) the defendants interfered with those business relations; (iii) the defendants acted for a wrongful purpose or used dishonest, unfair, or improper means; and (iv) the defendants' acts injured the relationship."). The complaint's allegation that "As a result of the aforementioned conduct, Mr. Hinn and [the Church] have tortiously interfered with Aero's contractual relations," Compl. ¶ 115, is merely a conclusion without pleaded factual support, and the complaint's claims for tortious interference (counts eleven, thirteen, and fourteen) are dismissed.
Cross claims that defendants' allegedly false statements that:
(i) [Cross] is no longer [the Church's] exclusive "Agency of Record;" (ii) moving forward, [the Church] "will work on a direct basis with TCT regarding all aspects of media programming . . . .;" (iii) [the Church] "is committed to maintaining the long standing ministry partnership it has with TCT [without [Cross] . . . .;" and (iv) [Cross] terminated the Letter Agreement[,]
Compl. ¶ 114, "tended to injure [Cross] in its trade, business, or profession, including but not limited to that it could not perform its contractual duties, it made false statements, and that it terminated the letter agreement," Compl. ¶ 133, and brings claims for defamation per se, libel per se, trade libel, trade defamation, and injurious falsehood.
Cross fails to "identify a plausible defamatory meaning of the challenged statement or publication," Celle v. Filipino Reporter Enter. Inc., 209 F.3d 163, 178 (2d Cir. 2000), and thus its claims fail as a matter of law. Cross's proffered defamatory meaning cannot be fairly discerned from the letters sent by the Church (quoted above). Those letters indicate only that the business relationship between Cross and the Church has ended, without impugning Cross's professionalism. Counts fifteen, sixteen, seventeen, eighteen, and twenty of the complaint are therefore dismissed.
Similarly, Cross does not sufficiently allege a claim for unfair business practices, because it does not show that the Church "got away" its customers, nor that the letters were sent without justifiable cause, see Duane Jones Co. v. Burke, 306 N.Y. 172, 190 (1953)("An injury to his business by procuring others not to deal with him, or by getting away his customers, if unlawful means are employed, such as fraud or intimidation, or if done without justifiable cause, is an actionable wrong.").
Count nineteen of the complaint is dismissed.
Plaintiff's Motion to Dismiss Defendants' Counterclaims
Defendants assert counterclaims for breach of contract, fraud, an accounting, conversion, and declaratory judgment that Cross terminated the letter agreement between the parties. Cross moves to dismiss all of defendants' counterclaims.
Cross argues that defendants' breach of contract claim fails because Cross performed, whereas the Church did not; defendants contend that the Church did perform. That factual dispute is inappropriate for resolution at this stage, and may have to await trial.
Cross also argues that the Church's breach of contract claim is precluded by a provision of the letter agreement that provides;
This Agreement shall be effective as of the Effective Date and continue thereafter for a period of three (3) years (the "Initial Term"); provided that this Agreement may be terminated . . . (iii) with 60 days notice following one party's notification to the other that such other party is in material breach of a material term of this Agreement, but only if the allegedly breaching party fails to cure such material breach by the end of such sixty (60) day period . . .[,]
Rowe Decl. Ex. C at ¶ VIII(A). Cross argues that "under paragraph VIII(A) of the letter agreement, [the Church] agreed to notify [Cross] of a material breach and to provide it an opportunity to cure any alleged material breach," Pl's. Br. at 16, and that "[the Church] accepted [Cross's] performance and never notified [Cross] of an alleged material breach. And, under New York law, a party's failure to provide requisite notice of breach prevents an argument that the other party breached the agreement," id.
The case cited by Cross is inapposite. In RBFC One, LLC v. Zeeks, Inc., 171 Fed. App'x 902 (2d Cir. 2006), the contract provided that:
19. RIGHT TO CURE; No failure by Producer or Band to perform any of Producer's or Band's respective obligations hereunder shall be deemed a breach hereof, unless Band or Producer gives the other written notice of such failure and such party fails to cure such nonperformance within forty-eight (48) hours after such party's receipt of such notice.
See RBFC One, LLC v. Zeeks, Inc., 367 F.Supp.2d 604, 610 (S.D.N.Y. 2005). That provision precluded the parties from asserting breach at all without the requisite notice and opportunity to cure. Here, in contrast, paragraph VIII(A) of the letter agreement only restrains the Church from terminating the letter agreement for Cross's breach without the requisite notice and opportunity to cure. It does not, however, prevent the Church from asserting a breach claim against Cross without terminating or providing notice. Thus, defendants may proceed with their breach of contract claim, even if they never notified Cross of its breach.
Cross's motion to dismiss defendants' breach of contract claim is denied.
Defendants allege that Cross fraudulently induced the Church to enter into the contract by misrepresenting Cross's media expertise. Cross argues defendants' fraud claim fails as a matter of law because it is duplicative of their breach of contract claim, and barred by the terms of the contract.
To plead fraud under New York law a plaintiff must allege "(1) a material misrepresentation or omission of fact (2) made by defendant with knowledge of its falsity (3) and intent to defraud; (4) reasonable reliance on the part of the plaintiff; and (5) resulting damage to the plaintiff." Crigger v. Fahnestock and Co., Inc., 443 F.3d 230, 234 (2d Cir. 2006). A fraud claim that alleges material misrepresentations about a matter collateral to the contract (as opposed to misrepresentations about essential terms of the contract, or the intent to perform), and which were an inducement for the contract and might warrant rescission, is not comprehended within a related breach of contract claim and may be pled separately. See Telecom Int'l Am., Ltd. v. AT&T Corp., 280 F.3d 175, 196 (2d Cir. 2001) ("[W]here a fraud claim arises out of the same facts as plaintiff's breach of contract claim, with the addition only of an allegation that defendant never intended to perform the precise promises spelled out in the contract between the parties, the fraud claim is redundant and plaintiff's sole remedy is for breach of contract."); Wall v. CSX Transp., Inc., 471 F.3d 410, 416 (2d Cir. 2006) ("New York law specifically recognizes causes of action for fraud in the inducement when the misrepresentation is collateral to the contract it induced.").
Defendants adequately plead fraud by alleging that Cross made material misrepresentations about its qualifications, Countercl. ¶¶ 45-50, with knowledge of their falsity, id. ¶¶ 50, 90-91, and scienter, id. ¶ 93, and that the Church reasonably relied on those misrepresentations, id. 94-96, and was consequently injured, id. ¶ 97. Cross was contractually obligated to service the Church with "strategic planning and Media . . . buying and tracking services," see Rowe Decl. Ex. C at ¶ I(A). Cross's alleged misrepresentation that it "had expertise in the field of media buying nationally and internationally, especially Christian media," id. ¶ 47(a), is collateral to the contract because it goes beyond Cross's mere undertaking to perform its contractual obligations. Defendants also plead that the Church was induced into the contract by that misrepresentation, id. ¶¶ 48, 49, and thus sufficiently state a claim for fraud that is not comprehended in their breach of contract claim.
Cross also argues that the merger clause contained in the contract precludes defendants from asserting their fraud claim.
Although the letter agreement between the parties provides that it "constitutes the entire understanding and agreement of the parties relating to the matters contained herein and no representations . . . not embodied herein will be of any force or effect," Rowe Decl. Ex. C at ¶ IX(E), because fraudulent inducement is remedied with rescission of the entire contract including its merger clause, New York courts routinely permit fraudulent inducement claims to go forward although the written contract contains a merger clause, see Wall v. CSX Transp., Inc., 471 F.3d 410, 416 (2d Cir. 2006) ("New York also permits the use of parol evidence to prove a claim of fraud in the inducement, even where the written contract contains an integration, or merger, clause.") (citing Deerfield Communications Corp. v. Chesebrough-Ponds, Inc., 68 N.Y.2d 954, 956 (1986)).
Plaintiff's motion to dismiss defendants' fraud counterclaim is denied.
Cross argues that defendants' conversion claim is duplicative of their breach of contract claim because it merely alleges a violation of Cross' contractual duties.
"For a conversion claim to succeed in the context of a dispute regarding a contract, the breach of contract must result in some 'wrong' that is separately actionable." Citadel Mgmt. Inc. v. Telesis Trust, Inc., 123 F.Supp.2d 133, 148 (2d Cir. 1997).
Pursuant to the letter agreement, Cross regularly received funds from the Church that were earmarked to pay specific media vendors. The agreement did not specify the amount of such funds or which media vendors were due payment; that information was supplied by subsequent instruction from the Church.
Defendants allege that Cross "effectively, if not expressly, held such funds in trust for the Church, to use as specifically instructed by the Church," Countercl. ¶ 107, and that "Cross used an undetermined amount of such funds for purposes other than payments for media buys," id. ¶ 108. Although Cross received these funds pursuant to the agreement, it is alleged to have "effectively" held them in implied trust to meet the Church's obligations (under other, separate media agreements) to its media providers, so that Cross's exercise of dominion over those segregated funds (never Cross's property) and diversion of them to Cross's purposes was an act of conversion as well as its alleged breach of contract.
The facts are not yet sufficiently clear to dismiss this claim as a matter of law; it may ultimately add nothing to the claim for breach of contract.
Cross's motion to dismiss defendants' third counterclaim, for conversion, is denied.
In order to sustain an action for accounting under New York law a party must establish four elements: "(1) relations of a mutual and confidential nature; (2) money or property entrusted to the defendant imposing upon him a burden of accounting; (3) that there is no adequate legal remedy; and (4) in some cases, a demand for an accounting and a refusal." Pressman v. Estate of Steinvorth, 860 F.Supp. 171, 179 (S.D.N.Y.1994). At least two of the four required elements are not satisfied here.
First, defendants have not sufficiently pled that the contractual relationship between Cross and the Church rises to the level of a fiduciary relationship. See Faulkner v. Arista Records, LLC, 602 F.Supp.2d 470, 482 (S.D.N.Y. 2009) ("[A] conventional business relationship does not create a fiduciary relationship in the absence of additional factors.").
Second, defendants allege that Cross's payment obligations arose out of the written agreements between the parties. Thus, a damages suit for breach of contract provides an adequate legal remedy. See Arnold Productions, Inc. v. Favorite Films Corp., 298 F.2d 540, 542-32 (2d Cir. 1962) (accounting improper absent a fiduciary relationship and because plaintiff could discover "by means of familiar discovery devices" any information it needed to establish damages for its breach of contract claim). If defendants prevail on their breach of contract claim, discovery as to the measure of damages, encompassing all the information defendants seek in their accounting claim, will be available. See Leveraged Leasing Admin. Corp., PacifiCorp. Capital, Inc., 87 F.3d 44, 49 (2d Cir. 1996).
Accordingly, Cross's motion to dismiss defendants' fourth counterclaim is granted.
Defendants seek declaratory judgment that "Cross itself terminated the Letter Agreement as a result of Cross's many material breaches," Countercl. ¶ 127, and that the Church "does have the right to terminate the Letter Agreement and that, to the extent that Cross did not do so, the Church did," Countercl. ¶ 128.
Declaratory judgment is "inappropriate where, as here, a party has already invoked its right to a coercive remedy," S.E.C. v. Credit Bancorp, Ltd., 738 F. Supp. 2d 376, 388 (S.D.N.Y. 2010) (quotations omitted), and where the "party seeks to adjudicate past conduct," id. Defendants' fifth counterclaim, for declaratory judgment, is dismissed.
Defendants' motion to dismiss the complaint (Dkt. No. 40) is granted with respect to counts two, three, four, six, seven, eight, ten, eleven, twelve, thirteen, fourteen, fifteen, sixteen, seventeen, eighteen, nineteen, and twenty. It is denied with respect to all other counts. Thus, counts one and five (which were not subjects of the defendants' motion), and nine survive.
Plaintiff's motion to dismiss defendants' counterclaims (Dkt. No. 29) is granted with respect to counts four and five. It is denied with respect to all other counts. Thus, counts one, two, and three survive.
So ordered. Dated: New York, NY
June 11, 2013
LOUIS L. STANTON