United States District Court, S.D. New York
For American Federated Title Corporation, a Florida corporation, Plaintiff: Franklin Lewis Zemel, Lori G. Adelson, Arnstein & Lehr LLP, Fort Lauderdale, FL; Joshua Morgan Atlas, Arnstein & Lehr LLP, Ft. Lauderdale, FL; Mark Edward McGrath, Robert Sanford Friedman, Sheppard, Mullin, Richter & Hampton, LLP (NYC), New York, NY.
For GFI Management Services, Inc., a New York corporation, Allen I. Gross, an individual, Edith Gross, an individual, Defendants: Joseph Zelmanovitz, LEAD ATTORNEY, Stahl & Zelmanovitz, New York, NY; Abraham Neuhaus, Neuhaus & Yacoob LLC, Brooklyn, NY.
MEMORANDUM & ORDER
ALISON J. NATHAN, United States District Judge.
Defendants GFI Management Services, Inc. (" GFI Management" ), Allen I. Gross,
and Edith Gross move pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss Count I of Plaintiff American Federated Title Corp.'s amended complaint, which seeks to hold Defendants liable for a prior judgment entered against two corporate entities alleged to be Defendants' alter egos. For the following reasons, Defendants' motion is denied.
The following factual allegations are drawn from Plaintiff's amended complaint, Dkt. No. 20, and for purposes of Defendants' motion are assumed to be true. See Kassner v. 2nd Ave. Delicatessen, Inc.., 496 F.3d 229, 237 (2d Cir. 2007).
Plaintiff is a Florida corporation that acts as trustee for a number of land trusts holding real property in Florida. Am. Compl. ¶ ¶ 5, 12. In 2000, Plaintiff leased four properties to three entities owned and controlled by the Grosses (the " A& M Entities" ). Id. ¶ ¶ 13, 16. After the A& M Entities entered into the leases, GFI Management, an " operating entity" also controlled by the Grosses, took control of and managed the properties. Id. ¶ ¶ 19, 47.
In 2007, Allen Gross notified Plaintiff that he was interested in buying the properties that the A& M Entities had leased. Am. Compl. ¶ 21. He formed an entity called GFI Acquisition, LLC (" GFI Acquisition" ), which entered into a purchase and sale agreement with Plaintiff under which Plaintiff would sell the properties to GFI Acquisition for $41,457,647. Id. ¶ ¶ 22-23. When that contract was signed, Allen Gross negotiated an " adjournment" of rent that the A& M Entities owed to Plaintiff, under which that rent would instead be added to the purchase price paid for the properties by GFI Acquisition. Id. ¶ 24. Plaintiff also agreed to delay the closing date for the sale of the properties. Id. ¶ 25. During this period, Defendants continued collecting subtenant rent (through the A& M Entities) without paying anything to Plaintiff. Id.
On the closing date for the purchase, GFI Acquisition failed to attend the closing, pay any agreed-upon deposits, or prepare closing documents as it had agreed to do under its contract with Plaintiff. Am. Compl. ¶ 26. GFI Acquisition and the A& M Entities then sued Plaintiff in Florida state court, a lawsuit that Plaintiff challenged as a " sham." Id. ¶ ¶ 27-28. Thereafter, two of the A& M Entities filed for bankruptcy in the Southern District of New York, the Florida claims against Plaintiff were transferred to that court, and those claims were eventually dismissed on summary judgment. Id. ¶ ¶ 29-30. As part of the bankruptcy proceeding, Plaintiff asserted its own claims against the A& M Entities for unpaid rent and against GFI Acquisition for breaching the purchase and sale contract. Id. ¶ 31.
On October 20, 2010, Plaintiff, the A& M Entities, and GFI Acquisition entered into a settlement stipulation resolving Plaintiff's claims. Am. Compl. ¶ 31; see id. Ex. 4. Pursuant to the terms of that stipulation, the bankruptcy court entered a final judgment providing that Plaintiff was entitled to $7,000,000 from the A& M Entities and $500,000 from GFI Acquisition. Id. ¶ 34; see id. Ex. 5.
Plaintiff then sought post-judgment discovery in New York state court pursuant to § 5222 of New York's Civil Practice Law and Rules (" CPLR" ). The A& M Entities and GFI Acquisition initially refused to provide such discovery until the court granted Plaintiff's motion for contempt and motion to compel. Am. Compl. ¶ 39. After the A& M Entities and GFI Acquisition then produced roughly 3,000 pages of documents, Plaintiff uncovered what it alleges are abuses of the entities' corporate form by Defendants. Id. ¶ 42.
(The Court will describe these allegations in greater detail later in this opinion. See infra section III.C.) To date, Plaintiff " has been unable to identify any recoverable assets of the A& M Entities or GFI Acquisition that are currently still in those entities' possession," and the bankruptcy court's final judgment " remains completely unsatisfied." Am. Compl. ¶ 48.
Plaintiff brought this action on September 12, 2013. Defendants moved to dismiss Plaintiff's veil-piercing claim (Count I) on November 26, 2013, and pursuant to Rule 3.F of this Court's individual practices in civil cases, Plaintiff amended its complaint in response to Defendants' motion. Defendants again moved to dismiss Count I on February 10, 2014, and that motion was fully submitted as of March 24, 2014. The parties have been engaged in discovery on Plaintiff's other claims pursuant to a case management plan and scheduling order entered by the Court on May 30, 2014. Dkt. No. 47.
II. Legal Standards
" To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. At this stage, the Court must draw all reasonable inferences in favor of the non-moving party, see Kassner, 496 F.3d at 237, but it need not " accept as true a legal conclusion couched as a factual allegation," Twombly, 550 U.S. at 555. In addition to the amended complaint itself, the Court may consider documents attached as exhibits, incorporated by reference, or relied upon by Plaintiff in bringing suit, as well as judicially noticeable matters. See Halebian v. Berv, 644 F.3d 122, 131 n.7 (2d Cir.2011); In re Harbinger Capital Partners Funds Investor Litig., No. 12-cv-1244 (AJN), 2013 WL 5441754, at *15 n.6 (S.D.N.Y. Sept. 30, 2013) .
Additionally, as explained below, the Court assumes arguendo that certain of Plaintiff's allegations must meet the heightened pleading standards of Rule 9(b). See infra section III.C. Under Rule 9(b), a plaintiff alleging fraud must state " with particularity" the circumstances that amount to fraud. " This means the who, what, when, where, and how: the first paragraph of any newspaper story." DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990) (Easterbrook, J.). See generally 5A Charles Alan Wright et al., Federal Practice & Procedure. Civil § 1298 (3d ed. 2004 & Supp. 2014). Although the Rule provides that " [m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally," Fed.R.Civ.P. 9(b), " plaintiffs are still ...