On October 29, 2008, Plaintiff Judy W. Soley, a citizen of the State of New York, filed this diversity action against her brother, Defendant Peter J. Wasserman, a citizen of the State of California, asserting a variety of claims arising out Wasserman's conduct as Soley's financial advisor over the past approximately thirty years. After multiple claims in her original complaint were dismissed, Soley filed an amended complaint on May 14, 2010. (See Amended Complaint ("AC") (Dkt. No. 20).) In the AC, Soley asserts claims under New York state law for breach of contract, breach of fiduciary duty, common law fraud, an equitable accounting, and alter ego liability. On July 6, 2010, Wasserman moved to dismiss the AC pursuant to Federal Rules of Civil Procedure 8(a)(1), 12(b)(1), and 12(b)(6). (Dkt. No. 24.)
On February 9, 2011, the Court referred Wasserman's motion to Magistrate Judge Frank Maas for a Report and Recommendation ("R&R"). On August 11, 2011, Judge Maas issued an R&R, recommending that the Court deny Wasserman's Rule 12(b)(6) motion with respect to certain aspects of Soley's accounting claim, but dismiss the remainder of Soley's claims. (Dkt. No. 30.) Both Wasserman and Soley have filed objections to the R&R. (Dkt. Nos. 31 & 32.)
For the reasons stated below, the Court adopts the R&R in part. Accordingly, Wasserman's motion to dismiss the AC is granted in part and denied in part.
The facts of this case are set forth in the R&R, familiarity with which is assumed. The Court restates only those facts that are relevant in addressing the parties' objections to the R&R.
Sometime during the late 1970s and or early 1980s, Wasserman, who had worked for more than thirty years in the securities industry, sought to take a more active role in his sister's financial affairs, assuring her, "this is my field." (AC ¶ 7.) After Soley agreed to end her relationship with her then-financial advisor, Wasserman "took on the role of Soley's agent and trusted financial advisor." (Id.)
During the following years, at Wasserman's insistence, Soley opened brokerage accounts with multiple firms, including Fagenson & Company, Inc. ("Fagenson"). Soley designated Wasserman as her agent for those accounts, allowing Wasserman full trading authority. Wasserman gained "complete control" over Soley's investments. (Id. ¶ 8.) Soley did not have contact with the brokers associated with her accounts; the communication was through Wasserman. (Id. ¶¶ 11-12.)
Soley, along with Wasserman and Wasserman's close friend, invested in the stock of four companies in 1997 (the "Joint Stock Investments"). Soley's initial investment in the four companies totaled $70,000. (Id. ¶ 46.) As of June 2007, the total value of those investments was $75,469. (Id. ¶ 47.) In 2006 and 2007, Soley made multiple attempts to obtain more information about the status of the Joint Stock Investments but was not successful, even after Wasserman promised to "gather the necessary and appropriate information regarding those investments. (Id. ¶¶ 48-53.)
On February 25, 1991, Wasserman founded Patriot Partners, L.P., a Delaware limited partnership. The purpose of Patriot Partners was to invest "for its own account in securities and other investment instruments traded on established markets in the United States." (Id. ¶ 14.) Wasserman was the General Partner, and was responsible for all of Patriot Partner's investment decisions. (Id.)
In September 1991, after being solicited by Wasserman, Soley agreed to purchase a limited partnership interest in Patriot Partners, and signed a subscription agreement. A month later, Soley transferred $500,000 from her Fagenson account to her Patriot Partners account to purchase the limited partnership interest. (Id. ¶ 18.) Soley entered into a partnership agreement (the "Partnership Agreement"), under which Wasserman, as general partner, was obligated to "exercise good faith and integrity in handling Partnership affairs." (Id. ¶ 15.) The Partnership Agreement required Wasserman to maintain accurate and complete accounting records, and to provide various financial statements within 60 days after the close of each of the first three fiscal quarters, and within 120 days after the close of each fiscal year. (Id. ¶ 16.) The Partnership Agreement also required Wasserman to "take all action which may be necessary or appropriate for the preservation of the Partnership's properties and the conduct of its business." (Id. ¶ 17.) On October 19, 1998, Soley transferred an additional $150,000 to Patriot Partners from her Fagenson account, at the request of Wasserman. (Id. ¶ 19.) This amount was never credited to Soley's Patriot Partners account, because it was deposited into another one of Soley's investment accounts. (Id.)
Between 1991 and 2004, Soley never received any of the financial documents to which she was legally entitled under the Partnership Agreement other than an occasional letter. The letters that Soley did receive were misleading. (Id. ¶ 20.) Although Wasserman returned $552,361 to Soley, Patriot Partners still owes Soley at least $423,000 in "unreturned capital." (Id.) This amount does not include the $150,000 that Soley transferred to Patriot Partners from her Fagenson account in October 1998. (Id.)
On or about December 31, 1995, Patriot Partner's certificate of limited partnership was canceled by the Secretary of State of Delaware "for neglect, refusal, or failure to pay its annual taxes." (Id. ¶ 23.) Wasserman never informed Soley of this event. (Id.) Patriot Partners continued to operate after the cancellation of its certificate.
Beginning in 2002, Soley repeatedly told Wasserman that she wanted Patriot Partner's affairs wound up, and her shares returned to her. On December 29, 2004, Wasserman sent Soley an email, stating that he "had not ended Patriot Partners as of yet" but that he expected to do so in 2005. (Id. ¶ 22.) In 2008, Soley learned, through counsel, about the cancellation of Patriot Partners' certificate. (Id. at 23.)
In November 1992, Wasserman founded Patriot Group, a New York state general partnership with only two partners: himself and Soley's son, John. (Id. ¶ 24.) The purpose of Patriot Group was to profit from "hot issues," defined as newly issued stocks that sell at a premium over the public offering price on the first day of trading. (Id. ¶ 25.)
In or about November 1992, Wasserman asked Soley to loan Patriot Group $200,000 evidenced by a promissory note. In 1993, Soley loaned Patriot Group "an additional $225,228." (Id. ¶ 26.) Wasserman promised to pay Soley interest on her loans "at a rate of 7%." (Id.) Soley has never received an interest payment from Patriot Group. (Id.)
In 1994, Soley opened an account at Merrill Lynch, and funded it with $200,000 in tax-free bonds so that Patriot Group would have access to additional funds. (Id. ¶ 27.) That $200,000 was to be used "for short term loans only." (Id.)
On or about July 10, 1998, at Wasserman's request, Soley wrote a $150,000 check from her Merrill Lynch account, payable to "Patriot Group/Fagenson." (Id. ¶ 37.) Wasserman represented to Soley that this sum "was to be used as a short-term loan" to Patriot Group. (Id.) However, after receiving the check from Soley, Wasserman deposited the check into Soley's personal account at Fagenson without Soley's knowledge. Soley claims that, when she subsequently transferred $150,000 from her Fagenson account to her Patriot Partner's account on October 19, 1998, she was in effect transferring the money she believed she had loaned to Patriot Group three months earlier. (Id. ¶ 37; ¶ 19.) Because the July 1998 check was drawn on a Merrill Lynch account, Soley incurred interest at the rate of 9.125% from the date it was negotiated. (Id. ¶ 37.) Wassermann told Soley that Patriot Group would be responsible for all fees associated with her Merrill Lynch account, but Soley has paid those fees. (Id. ¶ 27.)
Between 1992 and 1998, Soley extended seventeen loans to Patriot Group, totaling more than $1.4 million. (Id. ¶ 29.) These loans gave Soley "a beneficial interest" in Patriot Group. (Id. ¶ 28.) Patriot Group has repaid Soley only $877,150, leaving an outstanding balance of $575,487. (Id. ¶ 29.) As noted above, Soley has never been paid interest on these loans, despite Wasserman's promise that she would be paid interest at a rate of 7%. (Id. ¶ 30.)
In 1999, Soley wrote to Wasserman about closing Patriot Group and about repayment of her loans. (AC ¶ 38.) In October 2006, Soley again wrote to Wasserman, as well as to Patriot Group's accountant, Peter Kamras. In January 2007, Kamras provided Soley with a spreadsheet which purported to account for all of Soley's loans. (Id. ¶ 35.) According that spreadsheet, Patriot Group has paid Soley $240,150 more than she was owed. (Id. ¶ 36.) Soley contends that the spreadsheet failed to account for six loans, totaling $690,000, that Soley had made to Patriot Group between 1994 and 1998. (Id.)
Wasserman and Soley exchanged a series of letters between December 2006 and February 2007 addressing these discrepancies. On January 25, 2007, Wasserman sent Soley a letter promising to "respond as promptly as possible" to her inquiries, provided that she send him documentation supporting her claim that Patriot Group still owed her money. (Id. ¶ 40.) On February 2, 2007, Soley provided Wasserman with the documentation that he had asked for. On February 15, 2007, Wasserman wrote Soley, stating that Patriot Group had actually overpaid her, and that, with respect to any loans advanced during or prior to 1994, "there no longer exists any legally enforceable obligation." (Id. ¶ 42.)
Soley commenced this action on October 29, 2008. (Dkt. No. 1.) On April 23, 2009, Wasserman moved to dismiss the complaint. (Dkt. No. 10.) On March 10, 2010, the Honorable Paul A. Crotty, to whom this case was originally assigned, granted in part and denied in part Wasserman's motion. (Dkt. No. 17.) The motion to dismiss was denied with respect to Soley's breach of contract, unjust enrichment, and accounting claims. Soley was granted leave to replead claims for breach of fiduciary duty, fraud, and fraudulent conveyance. (Id.)
On May 14, 2010, Soley filed an AC, asserting New York state law claims for breach of contract, breach of fiduciary duty, common law fraud, an accounting, and alter ego liability. (Dkt. No. 20.) On July 6, 2010, Wasserman moved to dismiss the AC pursuant to Federal Rules of Civil Procedure 8(a)(1), 12(b)(1), and 12(b)(6). (Dkt. Nos. 24 & 25.) Wasserman contends that dismissal is required by Rules 8(a)(1) and 12(b)(1) because Soley has failed to establish that the amount in controversy exceeds $75,000. (Dkt. No. 25 at 18-21.) Wasserman further contends that the AC fails to state a claim under Rule 12(b)(6). (Id. at 21-22.)
On February 9, 2011, Wasserman's motion was referred to Judge Maas. On August 11, 2011, Judge Maas issued an R&R, recommending that the Court deny Wasserman's Rule 12(b)(6) with respect to certain aspects of Soley's accounting claim, but dismiss the remainder of her claims. (Dkt. No. 30.) Both Wasserman and Soley have filed objections to the R&R. (Dkt. Nos. 31 & 32.)
A. Report and Recommendation
When reviewing an R&R, the court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C); Fed. R. Civ. P. 72(b).
The court must make "a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir. 1997) (internal citations omitted); see also Huelbig v. Auroroa Loan Servs., LLC, No. 10 cv. 6215, 2011 WL 4348275, at *1 (S.D.N.Y. Sept. 16, 2011) (Holwell, J.) ("[T]he court is required to make a de novo determination of those portions of a report to which specific objection is made . . . by reviewing the Report, the record, applicable legal authorities, along with Plaintiff's and Defendant's objections and replies.") (citations omitted). However, to the extent that a party makes only "conclusory or general objections, or simply reiterates the original arguments, the [c]court reviews the Report and Recommendation only for clear error." See Pearson-Fraser v. Bell Atl., No. 01 Civ. 2343, 2003 WL 43367, at *1 (S.D.N.Y. Jan. 6, 2003) (Knapp, J.).
The Court will review for clear error those portions of the R&R to which the parties do not object. See Fed. R. Civ. P. 72(b) advisory committee's note; see also Rodriguez v. Morton, No. 04 Civ. 3787, 2009 WL 414033, at *1 (S.D.N.Y. Feb. 13, 2009) (Batts, J.). Pursuant to "clear error" review, the Court considers whether the Report-or an applicable provision thereof-is free of "clear error on the face of the record." Fed. R. Civ. P. 72(b) advisory committee note; Rodriguez, 2009 WL 414033, at *1.
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must have pleaded sufficient factual allegations "to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, -- U.S. --, 129 S. Ct. 1937, 1949 (2009). Where a plaintiff has not "nudged [his or her] claims across the line from conceivable to plausible, [the] complaint must be dismissed." Twombly, 550 U.S. at 570. The Court must accept as true all well-pleaded factual allegations in the complaint, and "draw[ ] all inferences in the plaintiff's favor." Allaire Corp. v. Okumus, 433 F.3d 248, 249-50 (2d Cir. 2006) (internal quotations omitted). However, "the tenet that a court must accept as true ...