United States District Court, S.D. New York
February 10, 2004.
OCTAVIO PENA, Plaintiff -against- EMMANUEL GUTIERREZ GUZMAN, Defendant
The opinion of the court was delivered by: SIDNEY STEIN, District Judge
OPINION & ORDER
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).
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).
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.
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.
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
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
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
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.
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).
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
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.
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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