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United States District Court, S.D. New York

February 10, 2004.


The opinion of the court was delivered by: SIDNEY STEIN, District Judge


Octavio Pena brings this action in diversity alleging that Emmanuel Gutierrez Guzman ("Gutierrez") failed to pay him for services Pena rendered under a contract. Pena seeks to recover damages based on (1) breach of contract, (2) quantum meruit, (3) unjust enrichment, (4) constructive trust, and (5) fraud. Gutierrez now moves to dismiss the claims for constructive trust and fraud pursuant to Fed.R.Civ.P. 12(b)(6) on the grounds that plaintiff fails to set forth claims for relief, and to strike certain "immaterial, impertinent, or scandalous" language from the complaint pursuant to Fed.R.Civ.P. 12(f).

I. Background

 A. The Parties

  Octavio Pena maintains a place of business in New York and is a citizen of Pennsylvania. Gutierrez is an attorney authorized to practice in Mexico who now resides in Canada. In the past, he and plaintiffs brother, Gabriel Garcia Pena Rey ("Garcia Pena"), were partners at a Mexican law firm entitled Garcia Pena Gutierrez. (Compl. ¶¶ 2, 7). Page 2

 B. The Facts

  The following facts are as set forth in the complaint. In July of 1998, a Mexican court awarded Gutierrez and Garcia Pena $13,715,504 from Commercial Union Assurance Company, PLC ("Commercial Union"). (Am. Compl. ¶ 12). Gutierrez and Garcia Pena were concerned about their ability to recover that judgment because Commercial Union neither acknowledged the validity of the Mexican judgment nor had any assets in Mexico, (Am. Compl, ¶ 15).

  1. Contract Negotiations

  Pena alleges that Gutierrez traveled to New York in July of 1998 and met Pena there. (Am. Compl. ¶¶ 10, 13). They then traveled together to Pennsylvania. During that trip, Gutierrez requested Pena's help in recovering the judgment from Commercial Union and offered to pay him between 10% and 15% of the sum recovered, with a minimum payment of $1,000,000. (Am, Compl. ¶ 13). Plaintiff agreed to help and that oral agreement was confirmed by a letter dated August 17, 1998. (Am. Compl. ft 13, 20; Exh. A). Plaintiff then began his efforts to collect the judgment. (Am. Compl., Exh. B).

  2. Pena's Efforts to Recover the Judgment

  In August 1998, Pena's initial steps to recover the judgment included starting investigations and developing a plan to travel to Switzerland to meet with Commercial Union executives. Gutierrez paid him his expenses for those efforts. (Am, Compl. ¶¶ 25-26). The next month, Pena traveled first to Switzerland and then to Mexico and met with Garcia Pena and Gutierrez there. (Am. Compl. ¶¶ 27, 28). In Mexico, the parties executed a written contract in which Gutierrez agreed to pay $1,000,000 to plaintiff upon recovery of any sum from Commercial Union and to reimburse any expenses incurred by Pena. (Am. Compl. ¶ 30; Exh. Page 3

  B). The written contract contains no references to any percentage of recovery that may be due and instead obligates Gutierrez and Garcia Pena to pay the $1,000,000 fee regardless of the means or amount of any recovery. (Id.). Gutierrez denies that he ever entered into this contract. (Answer, ¶ 30).

  In October through December of 1998, Pena continued investigating the facts and advising Gutierrez and Garcia Pena on recovery strategies. (Am. Compl. ¶¶ 31-34). He claims that although he was promised $15,000 in repayment of his expenses for that period, he received only $6,500. (Am. Compl. ¶ 47).

  For at least two months beginning in December, Pena repeatedly tried to contact Garcia Pena and Gutierrez but was told that they were away or unable to speak with him. (Am. Compl. ¶ 47). This was allegedly part of a plan by Gutierrez to avoid paying Pena. (Am. Compl. ¶¶ 48, 91).

  3. Recovery of the Judgment

  Pena alleges that Gutierrez and Garcia Pena used the information Pena gave him to secure a settlement of $8,000,000 in satisfaction of the 1998 judgment from Commercial Union in May of 1999. (Am. Compl. ¶ 51-54). Of that amount, Gutierrez received $4,239,099,00. (Am. Compl. ¶¶ 58, 60). Pena further claims that Gutierrez structured that payment through a British law firm to a Swiss bank account in order to prevent Pena from learning of the settlement and to avoid paying Mexican taxes. (Am. Compl. ¶ 55-67).

 II. Discussion

 A. Standard of Review and Choice of Law

  When deciding a motion to dismiss a claim for relief pursuant to Fed.R.Civ.P. 12(b)(6), a court must accept all of the well-pleaded facts in the complaint as true and draw all reasonable Page 4 inferences from those allegations in favor of the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). The complaint will survive the defendant's motion to dismiss unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." See Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The court may only consider "the facts alleged in the complaint and any documents attached to the complaint or incorporated by reference." Rombach v. Chang, — F.3d — 2004 WL 77928, at *3 (2d Cir. 2004); see also Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir. 1991).

  Neither party contends that any law other than that of New York should apply to this diversity action. In addition, both parties employed New York law in their memoranda. Because they thus agree that New York law governs this diversity action, that law shall be applied. See 3Com Corp. v. Banco do Brasil, S.A., 171 F.3d 739, 743 (2d Cir. 1999) ("[T]he parties rely exclusively on New York substantive law, and `where the parties have agreed to the application of the forum law, their consent concludes the choice of law inquiry, "`(citing Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d Cir. 1997))).

 B. Pena Has Not Alleged Sufficient Facts to Support a Constructive Trust Claim

  Gutierrez seeks to dismiss plaintiff's claim for a constructive trust primarily because it is duplicative of the breach of contract claim. In order to establish a claim for constructive trust, the plaintiff must make an allegation that is not merely "duplicative of the breach of contract claim" but instead must "allege . . . distinct harm or actions giving rise to a[] separate claim [for a] constructive trust." Spanierman Gallery PSP, LLC v. Love, No. 03 Civ. 3188, 2003 WL 22480055, at *3 (S.D.N.Y. Oct. 31, 2003). A constructive trust is a remedy imposed "when property has been acquired under such circumstances that the holder of legal title may not in Page 5 good conscience retain the beneficial interest therein." Sec. Pac. Mortgage and Real Estate Serv., Inc. v. Rep, of Phil., 962 F.2d 204, 210 (2d Cir. 1992) (quoting Scivoletti v. Marsala, 97 A.D.2d 401, 402, 467 N.Y.S.2d 228, 230 (2d Dep't 1983)).

  Courts adhere to the principle that a constructive trust should not be imposed unless "it is demonstrated that a legal remedy is inadequate," Bertoni v. Catucci, 117 A.D.2d 892, 498 N.Y.S.2d 902 (3d Dep't 1986), and the constructive trust is "essential to prevent unjust enrichment." Counihan v. Allstate Ins. Co., 194 F.3d 357, 362 (2d Cir. 1999). See also Strom v. Goldman, Sachs & Co. 202 F.3d 138, 144 & n.6 (2d Cir. 1999); United States v. Ribadeneira, 105 F.3d 833, 837 (2d Cir. 1997).

  Plaintiff is not entitled to a constructive trust because he has not demonstrated that the available legal remedy, i.e., money damages, is inadequate to fully compensate for the damage he allegedly suffered.

 C. Pena's Fraud Claims Are Sufficiently Pled

  Pursuant to New York law, "[t]o make out a prima facie case of fraud, the complaint must contain allegations of a representation of material fact, falsity, scienter, reliance and injury." Small v. Lorillard Tobacco Co., Inc., 94 N.Y.2d 43, 57, 720 N.E.2d 892, 898, 698 N.Y.S.2d 615, 621 (1999). The general rule in New York is that "[a] cause of action for fraud does not generally lie where the plaintiff alleges only that a defendant entered into a contract with no intention of performing." Grappo v. Atitalia Linee Aeree Italiane, 56 F.3d 427, 434 (2d Cir. 1995). "A fraud action is permitted, however, where the plaintiff alleges that the defendant engaged in other fraudulent conduct besides entering the contract with no intention to perform." Id (citing Fort Howard Paper Co. v. William D. Witter. Inc., 787 F.2d 784, 792-95 (2d Cir. Page 6 1986); see also Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 389, 521 N.Y.S.2d 653 (1987).

  Pena alleges that Gutierrez engaged in fraudulent conduct apart from signing the contract with no intention of performing his contractual duties. Specifically, Pena alleges that Gutierrez instructed persons in his office to tell Pena that he was unavailable and thereby prevented Pena from communicating with him about the judgment. Pena further claims that Gutierrez fraudulently structured the settlement in such a way that Pena could not learn that defendant had received it, and therefore would not know that his right to recover from the settlement had vested. These actions may have constituted further frauds, outside alleged lack of intention to perform on the contract. Therefore, based on the allegations in the complaint, Pena has sufficiently alleged fraud to withstand defendant's motion to dismiss.

 D. Motion to Strike

  Defendant moves to strike the allegations contained in paragraphs 55-56, 58-59, 61-62, and 64-67 of the amended complaint pursuant to Fed.R.Civ.P, 12(f). Those paragraphs concern Gutierrez's alleged scheme to launder settlement proceeds through Swiss banks and to evade Mexican taxes due on the settlement.

  Fed.R.Civ.P. 12(f) grants this Court authority to "order stricken from any pleading any . . . redundant, immaterial, impertinent, or scandalous matter." However, "the courts should not tamper with pleadings unless there is a strong reason for so doing." Lipskv v. Commonwealth United Corp., 551 F.2d 887, 893 (2d Cir. 1976). Because "motions to strike are not favored" such a motion will not be granted "unless it is clear that the allegations in question can have no possible bearing on the subject matter of the litigation." Ulia-Maija, Inc. v. Kivimaki, No. 02 Civ. 3604, 2003 WL 169777, at *4 (S.D.N.Y. Jan. 23, 2003). Page 7

  Gutierrez claims that the challenged allegations "are interposed only so that Plaintiff can compel discovery of Gutierrez's private, personal and financial affairs . . ." (Def.'s Mot. Strike, p. 12), and that the allegations are unrelated to the "alleged contract, the rendering of services, or damages." We now turn to an examination of each challenged portion of the amended complaint.

  Paragraphs 55-56 contain allegations that Gutierrez and others met with representatives of the Banque Nacional de Paris, Mexico to arrange for the opening of Swiss bank accounts under confidential code names. The final sentence of paragraph 55 goes on to state, "[d]efendants opened these accounts for the specific purpose of avoiding payment of plaintiff's fee and to launder the proceeds of the Settlement . . . in order to avoid payment of corporate and personal income taxes in Mexico." (Am. Compl. ¶ 55). Allegations that defendant sought to hide the settlement from plaintiff may be relevant to plaintiff's fraud cause of action. However, the allegation that Gutierrez opened a bank account "to launder the proceeds of the Settlement . . . in order to avoid payment of corporate and personal income taxes in Mexico" is not relevant, and that latter part of the sentence is stricken from the complaint.

  Paragraphs 58-59 contain further allegations about defendant's involvement in routing the settlement funds through a British law firm and then to the Swiss bank accounts. (Am. Compl. ¶¶ 58-59). Those allegations are potentially relevant to plaintiff's assertion that Gutierrez fraudulently disguised the fact that he had received the settlement, and therefore are not stricken.

  Paragraph 61 again alleges that Gutierrez engaged in a money laundering "conspiracy" to hide the settlement from plaintiff and to avoid income taxes. Because paragraph 61 merely repeats allegations made in paragraph 55, it is redundant. Also, because it contains accusations Page 8 of illegal conduct stricken from paragraph 55, paragraph 61 is stricken from the amended complaint. Paragraph 62 alleges that "there was no legitimate reason for Gutierrez and Garcia Pena and their wives to have arranged to have the Settlement Check made payable to `Howard Kennedy' other than to launder the money and avoid paying plaintiff's fee." (Am. Compl. ¶ 62). Again, this allegation is relevant to plaintiff's fraud claims, and to the extent it alleges that defendant attempted to avoid paying plaintiff's fee, it is appropriate. However, the portion of the allegation that reads "other than to launder the money," again improperly charges defendant with criminal conduct not relevant to this civil action and is striken.

  Paragraph 64 contains allegations concerning Gutierrez's motivations for hiding settlement proceeds which may be relevant to this action; that paragraph is not stricken. Paragraphs 65-66 are entirely devoted to detailing defendant's allegedly illegal Mexican tax evasion scheme. These paragraphs have no bearing on the issues of this litigation and are stricken from the complaint. Similarly, paragraph 67 claims that Gutierrez, more than a year after receiving the settlement proceeds, instructed one of his clients to pay a fee into an account in the United States. Plaintiff has already alleged in several places in the complaint that defendant sought to hide assets in order to avoid paying plaintiff's fee. Therefore, this paragraph contains implicit allegations of criminal conduct and is also "redundant" and "immaterial" within the meaning of Fed.R.Civ.P. 12(f); it is stricken from the complaint. Page 9

 III. Conclusion

  For the reasons set forth above, defendant's motion to dismiss the fourth claim — for a constructive trust — and fifth claim — for fraud — pursuant to Fed.R.Civ.P. 12(b)(6) is granted with respect to the fourth claim and denied as to the fifth claim. Further, defendant's motion to strike certain language from the complaint is granted in part and denied in part, as set forth above.



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