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Leviton Mfg. Co., Inc. v. Reeve

United States District Court, E.D. New York

February 7, 2013


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For Plaintiff: Bryon L. Friedman, Esq., Jason P. Sultzer, Esq., Of Counsel, Littleton Joyce Ughetta Park & Kelly LLP, Purchase, NY.

For Defendants George J. Reeve, Jr. and Charlotte H. Reeve: Maria del Carmen Calzon, Esq., Of Counsel, Law Office of Maria del Carmen Calzom, Coral Gables, FL.

The Law Firm of Arthur M. Garel, Defendant, Pro se, Miami, FL.

For Arthur M. Garel, Defendant: The Law Firm of Arthur M. Garel, Miami, FL.


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ARTHUR D. SPATT, United States District Judge.

On December 22, 2011, the Plaintiff Leviton Manufacturing Co., Inc. commenced this action against the Defendants George J. Reeve, Jr., Charlotte H. Reeve, The Law Firm of Arthur M. Garel, and Arthur M. Garel (collectively, " the Defendants" ), asserting claims for breach of contract, fraud, and negligent misrepresentation. Presently before the Court are three motions to dismiss the Complaint pursuant to Federal Rule of Civil Procedure (" Fed. R. Civ. P." ) 12 for lack of personal jurisdiction, lack of subject matter jurisdiction, and failure to state a claim upon which relief may be granted. The motions were filed on behalf of (1) the Defendants the Law Firm of Arthur M. Garel and Arthur M. Garel (collectively the " Attorney Defendants" ) (Docket Entry No. 18); (2) the Defendant Charlotte H. Reeve (Docket Entry No. 24); and (3) the Defendant George J. Reeve, Jr. (Docket Entry No. 25.) For the reasons set forth below, the motion made by the Defendants the Law Firm of Arthur M. Garel and Arthur M. Garel is granted, and the motions made by the Defendants Charlotte H. Reeve and George J. Reeve, Jr. are granted in part and denied in part.


A. Factual Background

The following facts are drawn from the Complaint and construed in the light most favorable to the Plaintiff.

Non-party East Coast Electrical Services, Inc. (" ECES" ) is a Florida corporation. Prior to May 6, 2009, the Defendants George J. Reeve, Jr. (" George Reeve" ) and Charlotte H. Reeve (" Charlotte Reeve" ) (collectively " the Reeve Defendants" )

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owned 1,500 shares of ECES, which was all of the outstanding stock of the corporation. George Reeve served as ECES's Chief Operating Officer, Chief Executive Officer, and Chairman of the Board.

On or about May 6, 2009, the Plaintiff Leviton Manufacturing Co., Inc. (" Leviton" or " the Plaintiff" ) and the Reeve Defendants entered into a Stock Purchase Agreement, under which the Reeves agreed to sell Leviton all issued and outstanding ECES stock for $2 million (" the Stock Purchase Agreement" ). On the closing date, May 6, 2009, the Reeves sold all of the ECES stock to Leviton at Leviton's offices in Little Neck, New York.

In Section 4.2 of the Stock Purchase Agreement, titled " Representations, Warranties and Covenants with Respect to ECES", the Reeves represented and warranted as follows:

Litigation, etc . Except for those matters disclosed in Schedule L hereto, there is no outstanding judgment, arbitration award, injunction, decree or warrant against or otherwise affecting ECES, nor is there any litigation, proceeding, arbitration or United States, state or local governmental investigation pending or, so far as is known to the Stockholders, threated against or relating to ECES or its properties or business or the transactions contemplated by this Agreement, nor is there any basis known to the Stockholders for any such litigation, proceeding, arbitration or investigation.

Stock Purchase Agreement § 4.2(q). Schedule L, referred to above, stated " NONE" .

In Section 6.1 of the Stock Purchase Agreement, titled " Access to and Information Concerning Properties and Records, etc.", the Reeve Defendants further represented and warranted as follows:

The Stockholders agree that they will give and cause ECES to give to Buyer and to Buyer's counsel, accountants and other representatives full access during normal business hours throughout the period up to the Closing Date to all of ECES's properties, book, contracts, commitments and records, and will furnish Buyer during such period with all such information and documents concerning ECES as Buyer may reasonably request.

Stock Purchase Agreement § 6.1.

Section 6.2 of the Stock Purchase Agreement stated that ECES would maintain its books and records in a correct and regular manner. In that same section, it also stated that between the date of the agreement and the closing date, the Stockholders would advise Leviton promptly in writing " of any fact which, if known at the date hereof, would have been required to be set forth or disclosed in or pursuant to this Agreement including any material adverse change in the financial condition, results or operations, cash flow or prospects of ECES", as well as any material damage to or material loss of any of the assets of ECES.

Finally, Section 7 of the Stock Purchase Agreement, titled " Conditions Precedent to Obligations of Buyer", stated that the obligations of Leviton were subject to the following conditions precedent: (a) accuracy of representations and warranties; (b) performance of agreements, meaning the performance of covenants and conditions contained in the agreement; and (c) that the buyer was satisfied with the results of its due diligence investigation.

On May 6, 2009, the Defendant Arthur M. Garel, the attorney for the Garels, executed and delivered a letter to Leviton (the " Opinion Letter" ). According to the Plaintiff, this letter was delivered for the purpose of inducing Leviton to proceed to

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consummate the transaction contemplated by the Stock Purchase Agreement. The Opinion Letter stated that the Attorney Defendants were acting as counsel to the Reeves in connection with the stock sale to Leviton; they furnished the letter solely for Leviton's benefit; they had examined ECES's documents, records, and other instruments; and that there were no outstanding orders, judgment, injunctions, awards, or any other claim, notice, or threatened action or proceeding, that could adversely affect the Sellers, ECES, or any of their respective assets.

After the closing date, Leviton learned that, contrary to the Defendants' warranties and representations, ECES was and had been subject to two racial discrimination claims filed with the EEOC in November 2007 by two former employees of ECES. One of the Reeve Defendants had in fact retained counsel to represent ECES in the EEOC matters, vigorously contesting the charges. After the stock sale to Leviton, the EEOC claimants filed a lawsuit in the United States District Court of the Southern District of Florida against Leviton under case number 10-CV-20338, based on the identical racial discrimination claims asserted in the EEOC matters they filed against ECES. Leviton expended $20,000 to settle this litigation, plus an additional $98,853 in legal fees and expenses. In addition, the Plaintiff alleges that in order to address this litigation, it was required to devote immeasurable corporate energies and assets, which distracted Leviton from making efforts to manage, develop, and increase the ECES business operations.

Leviton filed the instant action on December 22, 2011. The Plaintiff asserts several causes of action against the Reeve Defendants, including breach of contract, fraud, rescission, and negligent misrepresentation. Leviton has also asserted two causes of action against the Attorney Defendants for fraud and negligent misrepresentation. All four Defendants have filed motions to dismiss the Complaint.


A. Legal Standards

1. Personal Jurisdiction

On a motion to dismiss for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2), the plaintiff bears the burden of demonstrating that the Court has jurisdiction over the defendant. See Whitaker v. Am. Telecasting, Inc., 261 F.3d 196, 208 (2d Cir. 2001); Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999) (citing Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996)). Where, as here, the parties have not yet conducted discovery, the plaintiff may defeat such a motion by making a prima facie showing of jurisdiction by way of the complaint's allegations, affidavits, and other supporting evidence. Bank Brussels Lambert, 171 F.3d at 784; Kernan v. Kurz-Hastings, Inc., 175 F.3d 236, 240 (2d Cir. 1999). Furthermore, materials presented by the plaintiff should be construed in the light most favorable to the plaintiff and all doubts resolved in its favor. See A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993).

Personal jurisdiction over a non-resident defendant in a federal diversity action is determined by the law of the forum state. See Whitaker, 261 F.3d at 208. Therefore, this Court must look to New York's personal jurisdiction statutes, namely the New York Civil Practice Law and Rules (" CPLR" ) Sections 301 and 302, to determine whether the Plaintiff has made a prima facie showing of personal jurisdiction over the out-of-state defendants--here, the Attorney Defendants. Then, if

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jurisdiction is found, the Court must determine whether the exercise of such jurisdiction under state law satisfies the federal due process requirements of " fair play and substantial justice." Burger King Corp., v. Rudzewicz, 471 U.S. 462, 477, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 320, 66 S.Ct. 154, 90 L.Ed. 95 (1945)); see also Bank Brussels Lambert, 171 F.3d at 784.

2. Subject Matter Jurisdiction

" A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). The standard for reviewing a 12(b)(1) motion to dismiss is essentially identical to the 12(b)(6) standard set forth below, except that " [a] plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists." Id. at 113. In adjudicating a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), the court may consider matters outside the pleadings. Makarova, 201 F.3d at 113.

3. Failure to State a Claim

Under the now well-established Twombly standard, a complaint should be dismissed pursuant to Rule 12(b)(6) only if it does not contain enough allegations of fact to state a claim for relief that is " plausible on its face." Bell A. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929, 570 (2007). The Second Circuit has explained that, after Twombly, the Court's inquiry under Rule 12(b)(6) is guided by two principles. Harris v. Mills, 572 F.3d 66 (2d Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)).

" First, although 'a court must accept as true all of the allegations contained in a complaint,' that 'tenet' 'is inapplicable to legal conclusions,' and '[t]hreadbare recitals of the elements of a cause of action, supported by mere concl usory statements, do not suffice.'" Id. at 72 (quoting Iqbal, 129 S.Ct. at 1949). " 'Second, only a complaint that states a plausible claim for relief survives a motion to dismiss' and '[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'" Id. (quoting Iqbal, 129 S.Ct. at 1950). Thus, " [w]hen there are well-pleaded factual allegations, a court should assume their veracity and . . . determine whether they plausibly give rise to an entitlement of relief." Iqbal, 129 S.Ct. at 1950.

In considering a motion to dismiss, this Court accepts as true the factual allegations set forth in the complaint and draws all reasonable inferences in the Plaintiff's favor. Zinermon v. Burch, 494 U.S. 113, 118, 110 S.Ct. 975, 979, 108 L.Ed.2d 100 (1990); In re NYSE Specialists Secs. Litig., 503 F.3d 89, 91 (2d Cir. 2007). Only if this Court is satisfied that " the complaint cannot state any set of facts that would entitle the plaintiff to relief will it grant dismissal pursuant to Rule 12(b)(6)" . Hertz Corp. v. City of N.Y., 1 F.3d 121, 125 (2d Cir. 1993). The issue on a motion to dismiss is " not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Todd v. Exxon Corp., 275 F.3d 191, 198 (2d Cir. 2001) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)).

B. Whether the Motions to Dismiss Should be Accepted

The Defendants George Reeve and Charlotte Reeve (collectively " the Reeve

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Defendants" ) filed motions to dismiss the complaint on February 2, 2012. However, on April 2, 2012, the Court dismissed these motions without prejudice for failure to comply with the Local Rules of the Eastern District of New York. On June 4, 2012, the Reeve Defendants filed their second motions to dismiss. (Docket Entry Nos. 24 & 25.) However, these motions were filed outside of the timeline of Fed.R.Civ.P. 12(a)(4). In addition, upon discovering that the electronic filing of their second motions to dismiss had failed to attach the supporting affidavits, the motions were re-filed on June 5, 2012. (Docket Entry Nos. 26 & 27.)

The Reeve Defendants' counsel has filed an affidavit with the Court seeking to explain the basis for this delay. She states that during the time when the motions were due to be filed, she was dealing with both the illness of her parent, as well as battling with her own personal illness that prevented her from filing the pleading before the appropriate deadline. She asserts that this supports a finding of good cause to extend the time to file the motions to dismiss and that the failure to act was the result of excusable neglect.

Under Rule 6(b)(1)(B), the Court may, for good cause, extend time " on a motion made after the time has expired if the party failed to act because of excusable neglect." Fed.R.Civ.P. 6. In the Court's view, the affidavit submitted by the counsel for the Reeve Defendants suggests excusable neglect, namely that both she and her father suffered from illnesses. In addition, there does not appear to be any prejudice to the Plaintiff that would result from accepting this late filing. The Plaintiff was put on notice that such a motion would likely be filed when the Court denied the first motion to dismiss without prejudice. In addition, the Plaintiff has not cited to any prejudicial effect in its opposition. Therefore, the Court will grant the Reeve ...

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