United States District Court, S.D. New York
May 5, 2005.
CAROLYN FORREST, Plaintiff,
UNIFUND FINANCIAL GROUP, INC., UNIFUND AMERICA, INC., UNIFUND PARTNERS FUND, L.P. SERIES X, UNIFUND PARTNERS FUND, L.P. SERIES XI, UNIFUND PARTNERS FUND, L.P. SERIES XII, UNIFUND PARTNERS FUND, L.P. SERIES XIV, RALPH SCOTT BARTER, and MURIEL BARTER, Defendants.
The opinion of the court was delivered by: LAURA TAYLOR SWAIN, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Carolyn Forrest ("Forrest") brings this action,
asserting causes of action for breach of contract, breach of
fiduciary duty, fraud, and conspiracy to commit fraud, against
Unifund Partners Fund, L.P. Series X, Unifund Partners Fund, L.P.
Series XI, Unifund Partners Fund, L.P. Series XII, Unifund
Partners Fund, L.P. Series XIV (collectively "Unifund Partners"),
Unifund Financial Group, Inc. ("Unifund Financial"), Unifund
America, Inc. ("Unifund America"), Ralph Scott Barter and Muriel
Barter. This matter comes before the Court on the motion of
Defendants to dismiss the complaint pursuant to Rule 12(b)(6) of
the Federal Rules of Civil Procedure for failure to state a claim
upon which relief may be granted, and pursuant to Rule 9(b) of
the Federal Rules of Civil Procedure for failure to adequately
plead fraud. Plaintiff asserts that the Court has jurisdiction of
this matter pursuant to 28 U.S.C. § 1332. The Court has
considered thoroughly all the parties' submissions and argument
in connection with the instant motion. For the following reasons,
the complaint is dismissed for lack of subject matter
jurisdiction, with leave to replead certain causes of action.
The following facts, which are alleged in the complaint, are
taken as true for the purpose of deciding the instant motion.
Carolyn Forrest, an individual, is a citizen of Michigan. (Compl.
¶ 4.) Defendants Unifund Financial and Unifund America are
corporations, incorporated under the laws of New York with their
principal places of business in New York. (Id. ¶ 5.) The
defendants Unifund Partners are limited partnerships. Defendant
Unifund Financial is general partner of each of the limited
partnerships. (Id. ¶¶ 6, 13, 17.) Plaintiff makes no specific
allegations regarding the citizenship of the limited partners in
the various partnerships, but does allege that she made debt and
limited partnership interest investments in each of the limited partnerships. (Id. ¶¶ 17, 18, 19.)
Defendant Ralph Scott Barter, a citizen of New York, was
president and principal owner of Defendants Unifund Financial,
Unifund America and Unifund Partners. (Id. ¶ 7.) Defendant
Muriel Barter, also a citizen of New York, was an employee and/or
officer of Defendants Unifund Financial, Unifund America and
Unifund Partners. (Id. ¶ 8.)
In July 1998, Muriel Barter solicited Forrest to purchase
investments created and marketed by Unifund Financial. (Id. ¶
9.) At that time and all times relevant to the Complaint, Forrest
was an unsophisticated investor. (Id. ¶¶ 10, 30.) Muriel Barter
is not a licensed securities broker. (Id. ¶ 12.) However,
Muriel Barter portrayed herself to Forrest as a "securities
broker." (Id. ¶ 11.) Muriel Barter encouraged Forrest to rely
on her for investment advice, and advised Forrest to invest in
limited partnerships. (Id. ¶¶ 11, 17.) Muriel Barter advised
Forrest that the recommended limited partnership investments
would be "good and appropriate investments for retirement money
by an investor with limited other resources for retirement," and
that these investments would be safe. (Id. ¶ 14.)
Forrest agreed to purchase the recommended limited partnership
investments using her retirement and severance money. (Id. ¶¶
10.) Beginning in July 1998, Forrest invested more than $200,000
in Unifund Partners investments. (Id. ¶ 17.) The Unifund
Partners investments were not registered with the state or
federal government. (Id. ¶ 15.) Forrest was not notified by any
of the Defendants that the Unifund Partners investments were not
registered. (Id. ¶ 16.) For one half of each limited
partnership investment, Forrest received a promissory note
payable at fifteen percent interest annually, with principal
payable in either three or four years. (Id. ¶ 18.) The
remaining half of Forrest's limited partnership investments was
to be invested by the general partner in "emerging small capitalization companies"
to be identified by the general partner. (Id. ¶ 19.) Account
statements from the year 2000 valued Forrest's investments at
$272,000. (Id. ¶ 20.)
In January 2000, Muriel Barter and/or Ralph Scott Barter,
induced Forrest to invest an additional $21,151 in a promissory
note with an entity named Fifthmar Capital Corporation. (Id. ¶
21.) The Fifthmar promissory note, by its terms, became payable
in three years. (Id.) The Fifthmar Capital Corporation,
however, is not a party to this suit.
When the principal of Forrest's limited partnership investments
became due, she demanded payment. (Id. ¶¶ 22, 23.) Defendants
paid nothing on the promissory notes to Forrest. (Id. ¶¶ 22,
23) Defendants have not informed Forrest where her money was
actually invested or what happened to the alleged gain from her
investment activities with them. (Id. ¶ 24.)
Subject Matter Jurisdiction
The Court has an independent obligation to satisfy itself that
it has subject matter jurisdiction of the controversies before
it. "Whenever it appears by suggestion of the parties or
otherwise that the court lacks jurisdiction of the subject
matter, the court shall dismiss the action." Fed.R.Civ.P.
12(h)(3). As noted above, Plaintiff asserts that she is a citizen
of the state of Michigan, that each of the defendants is a
citizen of New York State, and that the Court therefore has
diversity jurisdiction of the instant controversy under
28 U.S.C. § 1332.
Alleging that Unifund, Inc., is both a citizen of New York and
the general partner of the Unifund limited partnerships,
Plaintiff alleges that the limited partnerships are all citizens of New York. However, for diversity jurisdiction purposes,
partnerships share the citizenship of each of their partners; the
law makes no distinction for this purpose between general and
limited partners. See Cooper v. Parsky, 140 F.3d 433, 438 (2d
Cir. 1998). Here, Plaintiff asserts that she made both equity and
debt investments in each of the defendant limited partnerships.
Taking her allegations as true, the limited partnerships thus
share her Michigan citizenship. Complete diversity of
citizenship, and thus subject matter jurisdiction, therefore
appears to be lacking in this case and it must be dismissed on
The Court will afford plaintiff an opportunity to amend her
complaint to pursue her viable claims against the diverse
defendants if she wishes to do so. In anticipation of such an
amendment, the interests of judicial economy dictate that the
Court address the issues raised in defendants' motion to dismiss
the complaint, as certain of plaintiff's causes of action are not
viable and will not be permitted to be reasserted in an amended
Rule 12(b)(6) and 9(b) Standards
Dismissal for failure to state a claim upon which relief may be
granted pursuant to Federal Rule of Civil Procedure 12(b)(6) is
appropriate only where "the plaintiff can prove no set of facts
in support of his claim which would entitle him to relief."
Onebeacon Ins. Co. v. Forman Int'l, Ltd., No. 04 Civ. 2271
(RWS), 2005 WL 100849, at *3 (S.D.N.Y. Jan. 19, 2005) (quoting
Bolt Elec., Inc. v. City of New York, 53 F.3d 465, 469 (2d.
Cir. 1995)). In deciding such a motion, "the Court must accept
the factual allegations in the complaint as true and draw all
reasonable inferences in plaintiff's favor." Advanced Ceramics
Corp. v. Saint-Gobain Advanced Ceramics Corp., No. 01 CV
7864(GBD), 2005 WL 323739, at *2 (S.D.N.Y. Feb. 10, 2005).
Federal Rule of Civil Procedure 9(b) provides that, "[i]n all
averments of fraud . . . the circumstances constituting fraud . . . shall be stated with
particularity." Fed.R.Civ.P. 9(b). The particularity demanded
by Federal Rule of Civil Procedure 9(b) requires a plaintiff to
"(1) specify the statements that the plaintiff contends were
fraudulent, (2) identify the speaker, (3) state where and when
the statements were made, and (4) explain why the statements were
fraudulent." Anatian v. Coutts Bank (Switzerland) Ltd.,
193 F.3d 85, 88 (2d Cir. 1999) (quoting Shields v. Citytrust
Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1984) (internal
Defendants' Motion to Dismiss the Breach of Fiduciary Duty
Claim Pursuant to Rule 12(b)(6).
The parties agree that it is appropriate to look to New York
law for the statute of limitations for a breach of fiduciary duty
cause of action. The parties disagree, however, as to which
statute of limitations is applicable to the breach of fiduciary
duty claim presented in the case at bar. Forrest argues that the
six-year limitations period applicable to contract actions,
pursuant to N.Y.C.P.L.R. § 213(2), governs in this case.
Defendants, however, argue that the three-year limitations period
under N.Y.C.P.L.R. § 214(1) relating to actions to recover
damages for injury to property applies.
The general rule is that the applicable statute of limitations
for breach of fiduciary duty depends on the type of remedy
sought. Loengard v. Santa Fe Indus., Inc., 70 N.Y.2d 262, 263,
514 N.E.2d 113, 519 N.Y.S.2d 801 (1987). Where the plaintiff is
seeking equitable relief, the applicable statute of limitations
is six years; when the plaintiff is seeking only monetary
damages, the applicable statute of limitations is three years.
See Cooper, 140 F.3d at 440-441. Here, Plaintiff seeks only
monetary damages. See Complaint. The statute of limitations applicable to her breach of fiduciary duty claim is therefore
Whether the claim can survive the statute of limitations prong
of Defendants' motion to dismiss therefore depends on whether the
relevant conduct occurred within the three-year period before the
instant action was commenced. It is clear on the face of
Plaintiff's complaint that her breach of fiduciary duty claims
are time-barred. The allegations of breach of fiduciary duty turn
on Defendants' alleged false representations and material
omissions concerning Barter's status as a securities broker and
the suitability of the Unifund entities as investments for a
person of Plaintiff's age and investment goals. The
representations, and Plaintiff's investments, were allegedly made
in 1998, more than five years before the complaint in this action
was filed. Plaintiff also alleges that she was induced to make a
further investment in an entity called Fifthmar Capital
Corporation in January 2000. This second alleged investment also
predates the filing of the complaint by more than three years.
Accordingly, Plaintiff's claims for breach of fiduciary duty
will be dismissed. Because it is apparent on the face of the
complaint that they are time barred, she will not be granted
leave to replead them. Defendants' Motion to Dismiss the Fraud and Conspiracy Claims
Pursuant to Rules 9(b) and 12(b)(6).
Defendants argue that Forrest has failed to plead her cause of
action for fraud with particularity as is required by Federal
Rule of Civil Procedure 9(b). In order to comply with the
heightened pleading requirements, the complaint "must (1) specify
the statements that the plaintiff contends were fraudulent, (2)
identify the speaker, (3) state where and when the statements
were made, and (4) explain why the statements were fraudulent."
Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir. 2000) (internal
citations omitted). Here, the complaint specifies four allegedly
fraudulent statements or representations. However, with respect
to each of the allegedly fraudulent statements or
representations, the pleadings fail to identify the speaker,
when, where, or even by what means each was made. For the
foregoing reasons, the Court finds that the cause of action for
fraud is inadequately pleaded, and, therefore, the Court grants
Defendants' motion to dismiss the cause of action for fraud
pursuant to Federal Rule of Civil Procedure 9(b) with leave to
On a related point, Defendants moved to dismiss Forrest's cause
of action for conspiracy to commit fraud. A cause of action for
conspiracy cannot stand independently of its underlying tort.
See Sokol v. Addison, 293 A.D.2d 600, 742 N.Y.S.2d 311 (2d
Dept. 2002). Here, the tort underlying the claim for conspiracy
is fraud. The Court has dismissed the cause of action for fraud
with leave to replead. Accordingly, the Court also grants the
motion to dismiss the cause of action for conspiracy to commit
fraud with leave to replead.
Defendants' Motion to Dismiss the Breach of Contract Cause of
Action Pursuant to Rule 12(b)(6).
Defendants also move to dismiss Forrest's cause of action for
breach of contract. "To state a claim in federal court for breach of contract under
New York law, a complaint need only allege (1) the existence of
an agreement, (2) adequate performance of the contract by the
plaintiff, (3) breach of contract by the defendant, and (4)
damages." Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir.
1996) (internal citations omitted). "[U]nder the relaxed pleading
requirements . . . [of the Federal Rules of Civil Procedure] it
is enough that the complaint contains a short and plain statement
of the claim sufficient to put the defendant on notice of the
grounds for which plaintiff seeks relief." Reuben H. Donnelley
Corp. v. Mark I Mktg. Corp. 893 F. Supp 285, 290-291 (S.D.N.Y.
1995) (internal citations omitted).
The complaint asserts a breach of contract claim against the
defendants generally. However, Forrest does not allege that all
Defendants are parties to the contract. Therefore, the motion to
dismiss must be considered with respect to each Defendant
individually. The parties concur, in their memoranda supporting
and opposing this motion, that neither Ralph Scott Barter nor
Muriel Barter is alleged to have been a party to any contract
being sued upon. Therefore, the motion to dismiss the breach of
contract claim is granted as to those defendants.
With respect to the four Unifund Partners defendants and
Unifund Financial, as general partner of the limited
partnerships, the Court finds that the breach of contract claim
has been plead sufficiently. Therefore, Plaintiff will be
permitted to replead her contract cause of action as against
Finally, the pleadings do not specify whether Defendant Unifund
America is a party to any of the contracts. With respect to
Unifund America, the motion to dismiss the cause of action for
breach of contract is granted with leave to replead. Defendants' Motion to Dismiss the Claims for Punitive Damages,
Special Damages and Attorney's Fees.
Although Forrest demands punitive damages in her complaint, she
does not specify which causes of action serve as the basis for
her demand. The Court will thus evaluate Forrest's demand for
punitive damages with respect to Forrest's breach of contract
claim, the only cause of action that she will be permitted to
Punitive damages are not ordinarily available as a remedy for
breach of contract. New York Univ. v. Cont'l Ins. Co.,
87 N.Y.2d 308, 315, 662 N.E.2d 763, 639 N.Y.S. 2d 283 (1995).
Punitive damages claims are permissible in connection with
breaches of contract under the following circumstances: "(1)
defendant's conduct must be actionable as an independent tort,
(2) the tortious conduct must be . . . [egregious], (3) the
egregious conduct must be directed to plaintiff, and (4) it must
be part of a pattern directed at the public generally." Id. at
Although Forrest failed to plead that Defendants' conduct was
directed at the public generally, she argues that she has alleged
facts which suggest that the conduct might have been directed at
the public. Citing Merrill Lynch & Co., Inc. v. Allegheny
Energy, Inc., No. 02 Civ. 7689(HB), 2003 WL 22795650, at *9
(S.D.N.Y. Nov. 25, 2003), Forrest argues that she should be
permitted to advance to discovery so that she can try to
establish whether Defendants' conduct was directed at the public.
However, Merrill Lynch is distinguishable from the instant
case. As Forrest notes, the Merrill Lynch court relied on "the
wrongful conduct of Merrill Lynch, coupled with its alleged
breach of fiduciary duty and its public persona" in denying the
motion to dismiss the claim for punitive damages. Id. at *9.
Here, the claim for breach of fiduciary duty has been dismissed
as time-barred. Moreover, Forrest does not allege that any of the
defendants has a public persona of the same, or similar, magnitude as
Merrill Lynch. Without the breach of fiduciary duty claim or the
public persona element, only the allegedly wrongful conduct
remains. The Court finds that in the case at bar, the alleged
breach of contract is insufficient to support a claim for
punitive damages. Accordingly, Plaintiff will not be permitted to
replead her claim for punitive damages.
Federal Rule of Civil Procedure 9(g) requires that "[w]hen
items of special damages are claimed they must be specifically
stated." Fed.R.Civ.P. 9(g). "Special damages are those that
are not the necessary result of the complained of act and the
plaintiff should allege facts upon which to predicate recovery of
such damages." PdP Parfums De Paris, S.A. v. Int'l Designer
Fragrances, Inc., 901 F.Supp. 581, 585 (E.D.N.Y. 1995). Here,
Forrest, who has not opposed Defendants' motion to dismiss the
special damages claim, alleged no such facts on which to
predicate recovery of special damages. Accordingly, Plaintiff
will not be permitted to replead her claim for special damages.
It is well settled that attorney's fee awards are not generally
available in absence of a contractual or statutory basis.
Fleischmann Distilling Corp. v. Maier Brewing Co.,
386 U.S. 714, 718, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967). Forrest pleaded
neither a contractual nor a statutory basis for her demand, and
has failed to oppose Defendants' motion to dismiss this claim.
Accordingly, as the Court finds that the claim for attorney's
fees lacks legal foundation, Plaintiff will not be granted leave
to replead it. CONCLUSION
For the foregoing reasons, Plaintiff's complaint is dismissed
for lack of subject matter jurisdiction. Plaintiff is hereby
granted leave to serve and file, within fourteen (14) days of the
date of this Memorandum Opinion and Order, an amended complaint
reasserting her breach of contract claims against Defendants
Unifund Financial Group, Inc. and Unifund America, Inc. If no
such timely amended complaint is served and filed, this case
shall be closed without further advance notice to the parties.