MEMORANDUM-DECISION AND ORDER
Presently before the Court is Defendants' Motion to dismiss (Dkt. No. 5) Plaintiffs' Complaint (Dkt. No. 1) in its entirety. Plaintiffs Richard Abramo, Robert Brown and John Tomassetti assert claims of professional malpractice (Claim One), fraudulent misrepresentation (Claim Two), aiding and abetting fraud (Claim Three), aiding and abetting a breach of fiduciary duty (Claim Four), and conspiracy in violation of the Racketeering Influence and Corrupt Organizations Act under section 1962(d) of that Act (Claim Five). Defendants are the accounting firm Teal, Becker & Chiaramonte, CPA's, P.C. ("TBC") and James W. Drislane, CPA ("Drislane"). On March 6, 2009, Defendants removed this case from Albany County Supreme Court to the Northern District of New York, whereupon this Court assumed jurisdiction pursuant to 28 U.S.C. §1441(a) and 28 U.S.C. 1332(a) based on an amount in controversy in excess of $75,000 and complete diversity between Plaintiffs, citizens of New Jersey, and Defendants, citizens of New York. For the reasons that follow, Defendants' Motion to dismiss is granted in part and denied in part.
Plaintiffs in this action are three former co-owners of Tougher Industries, Inc. ("Tougher"), a closely-held New York corporation which operated as a general contractor for construction work during the period relevant for this litigation. Compl. at 3. Along with non-party Steven Shaw ("Shaw"), the Plaintiffs obtained all capital stock in Tougher on or around September 22, 2003. Id. Plaintiffs' ownership interest in the company continued until December 31, 2005, at which time they sold all of their shares to Shaw. In the intervening period, Plaintiffs held positions on the Tougher board of directors, and Shaw served as the company's president. Id. Of particular importance to this action, Shaw employed Defendant TBC to provide various accounting-related services for Tougher beginning, according to Plaintiffs, in September 2003. Defendants explain that TBC was engaged after the acquisition of the company by Plainitiffs and Shaw, and that TBC was employed only by Tougher. Mot. at 2. The Complaint's causes of action stem from the manner in which Plaintiffs allege that TBC and Drislane performed certain services in the course of their work for Tougher and Shaw.
Plaintiffs allege that TBC was hired as Tougher's independent certified accountants and auditors, with Drislane principally in charge of this work. Compl. at 4. From the fiscal year ending on December 31, 2003 through part of 2005 and fiscal quarters during that period, Plaintiffs assert that Defendants undertook to prepare and certify the financial statements of Tougher, and that TBC generally undertook to examine and advise Tougher's accounting and bookkeeping. Id. Plaintiffs contend that Defendants also performed tax filing work for the Plaintiffs' personal tax returns in 2003 and 2004; the Defendants, however, expressly deny that this latter work occurred and submit that Jump, Scutellaro and Company, L.L.P, said to be Plaintiffs' personal accountants in New Jersey, performed the tasks. Mot. at 2. Plaintiffs allege that Shaw functioned as the primary contact between Tougher and TBC, and that the documents and information used by Defendants was provided by Shaw and employees under his control. Compl. at 5.
Plaintiffs allege that, in addition to general accounting services, TBC provided business advice which included aiding Tougher's efforts to secure bonding for public sector contracts. On February 26, 2004, Defendants issued a report of Tougher's consolidated financial statements for the year ending December 31, 2003. Subsequently, on April 7, 2004, Plaintiffs entered into an indemnity agreement with Zurich American Company and Fidelity & Deposit Company of Maryland ("the Surety"), contractually establishing the contingency of personal liability by Plaintiffs for Tougher debts; Plaintiffs allege they entered this agreement in reasonable reliance upon the report TCB issued in February. Compl. at 6. Plaintiffs assert they continued to operate Tougher based upon that report, believing the company to be financially viable and the potentiality of exposure to personal liability under the indemnity agreement would not come to pass. Id. at 7.
Thereafter, Defendants conducted an audit of Tougher as of December 31, 2004; related to this audit, Defendants are alleged to have provided Plaintiffs with a preliminary consolidated balance sheet and statement of income and earnings for that period on or about April 7, 2005 which stated net income to be $143,694 and a high level of accounts receivable. Id. at 8. Next, Defendants are alleged to have produced a preliminary 2004 report listing a net loss of $95,538 and a similarly high level of accounts receivable, which Tougher and Plaintiffs received on April 20, 2005. Id. Plaintiffs allege that they proceeded, individually and through their accountants, Jump, Scutellaro and Company, L.L.P. ("Jump L.L.P."), to ask Defendants whether the reports accurately stated allowances for accounts receivable for previous years, to which the Defendants are alleged to have responded with assurances of accuracy. Id. at 9. Acting in reasonable reliance on the reports and Defendants' assurances, Plaintiffs allege that they allowed the Surety to issue bonds in connection with new construction jobs taken on by Tougher in May and June of 2005. Id. at 10.
On July 25, 2005, Defendants are alleged to have issued the final report of their audit of Tougher as of December 21, 2004, reporting substantially similar high levels of accounts receivable of approximately $13,000,000 and net income of $142,462. Id. Then on or around September 27, 2005, Defendants are alleged to have reported on Tougher's balance sheet as of June 30, 2005 and stated accounts receivable as now being approximately $8.9 million and net income as $148,337. Plaintiffs allege that they continued to reasonably rely on this September 2005 report. Id. at 11. Jump L.L.P. is alleged to have reviewed Tougher's finances soon thereafter in October 2005 and determined that Tougher's accounts receivable were "grossly overstated, in that nearly $2.9 million of accounts receivable was over 120 days old, $1.6 million was invoiced in 2004 or earlier, and nearly $500,000 had been invoiced in 2003 or earlier." Id. Further, Jump L.L.P. is alleged to have found that, due to a lack of certain documentation, recognized revenue figures reported by Defendants were overstated by at least $1.4 million. Id.
Several month later, on December 31, 2005, Plaintiffs sold their entire interest in Tougher to Shaw, but "it was too late [for Plaintiffs] to limit their exposure on the Surety bonds" under the indemnification agreement, and "subsequent to the Plaintiffs' sale of their interest . . . Tougher began to default on its bonded contracts and obligations, both in respect to performance and payment, resulting in claims being filed against the bonds issued by the Surety." Id. at 13. Eventually, after Plaintiffs ceased to have any interest in the company, Tougher entered Chapter 11 bankruptcy on November 3, 2006, and, as a result, Plaintiffs allege that there are no assets to satisfy obligations under the Surety bonds, leaving Plaintiff personally liable to the Surety in excess of $1.8 million in addition to attorney fees, costs and other damages which Plaintiffs claim amount to approximately $3 million. Id. at 13-14.
Plaintiffs commenced this action against Defendants in Albany County Supreme Court on or about March 20, 2008, and it came before this Court on March 6, 2009. Previously, Plaintiffs brought an action against Shaw in this Court on November 28, 2006, for breaching the terms of their stock purchase agreement, which included an assumption by Shaw of indemnification obligations with respect to the Surety; Plaintiffs' unopposed motion for summary judgment was granted, thereby awarding them, inter alia, compensatory damages and specific performance by Shaw of his obligations under the purchase agreement. See generally Abramo et al v. Shaw, Case No. 1:06-cv-1433, Dkt No. 14. In the present action, however, Defendants have moved to dismiss Plaintiffs' Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that Plaintiffs' claims are legally deficient. The Court turns now to that Motion.
When considering a motion to dismiss pursuant to Rule 12(b)(6), a district court must accept the allegations made by the non-moving party in its pleading as true and "draw all inferences in the light most favorable" to the non-moving party. In re NYSE Specialists Securities Litig., 503 F.3d 89, 95 (2d Cir. 2007). A party seeking dismissal of a pleading under Rule 12(b)(6) bears a heavy burden, as the question presented by such a motion is not whether the claimant is ultimately likely to prevail, "'but whether the claimant is entitled to offer evidence to support the claims.'" Log On America, Inc. v. Promethean Asset Mgmt. L.L.C., 223 F. Supp. 2d 435, 441 (S.D.N.Y. 2001) (quoting Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d. Cir. 1995) (internal quotation and citations omitted)). "In order to withstand a motion to dismiss, a complaint must plead 'enough facts to state a claim for relief that is plausible on its face.'" Patane v. Clark, 508 F.3d 106, 111-12 (2d Cir. 2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "While Twombly does not require heightened fact pleading of specifics, it does require enough facts to 'nudge [the non-moving party's] claims across the line from conceivable to plausible.'" In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 570). When considering a motion to dismiss a pleading for failure to state a claim, a court "may consider all papers and exhibits appended to the [pleading], as well as any matters of which judicial notice may be taken." Hirsch v. Arthur Andersen and Co., 72 F.3d 1085, 1092 (2d Cir. 1995); see Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991) ("the complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference.") (citation omitted). "'[W]hen a plaintiff chooses not to attach to the complaint or incorporate by reference a [document] upon which it solely relies and which is integral to the complaint,' the court may nevertheless take the document into consideration in deciding the defendant's motion to dismiss[.]" Int'l Audiotext Network, Inc. v. American Tel. and Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (quoting Cortec Industries, 949 F.2d at 47); see Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (emphasizing that "a plaintiff's reliance on the terms and effect of a[n external] document in drafting the complaint is a necessary prerequisite to the court's consideration of the document on a dismissal motion; mere notice or possession is not enough."). If a court considers materials other than those listed above, "the motion must be treated as one for summary judgment under Rule 56." FED. R. CIV. P. 12(d); see Global Network Communications, Inc. v. City of New York, 458 F.3d 150, 154-56 (2d Cir. 2006).
A. Professional Malpractice - ...