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Allison v. Clos-Ette Too, LLC

United States District Court, S.D. New York

January 9, 2015

CLAIRE ALLISON, Plaintiff,
v.
CLOS-ETTE TOO, L.L.C., CLOS-ETTE, L.L.C., and MELANIE CHARLTON FASCITELLI, Defendants.

MEMORANDUM AND ORDER

JAMES C. FRANCIS, IV, Magistrate Judge.

The plaintiff, Claire Allison, has filed motions to amend the Complaint, to compel the production of electronically stored information in native format, and to quash subpoenas issued by the defendants to several non-parties. For the following reasons, the motions to amend and compel are denied, and the motion to quash is granted in part and denied in part.

Background

This action was originally filed in New York Supreme Court, and was removed to this Court on March 10, 2014. The Complaint asserted employment-related claims against three defendants: Closette Too, LLC ("C2"), the plaintiff's former employer; Melanie Charlton Fascitelli ("Ms. Charlton"), the owner of C2; and Closette, LLC, the alleged parent company of C2. In short, the Complaint alleges as follows. Ms. Allison applied for a position with C2 and was hired by Ms. Charlton. (Complaint ("Compl."), ¶¶ 4, 5, 15-16). At the time, she was employed as Vice President of Asset Management at Lone Star Funds. (Compl., ¶ 15). In March 2012, she began to work in her spare time for C2, devoting up to forty hours per week to the company, while continuing her full-time employment at Lone Star Funds. (Compl., ¶¶ 16, 18). After working for C2 for several months, Ms. Allison and Ms. Charlton began discussions regarding Ms. Allison's salary and membership interest in C2. (Compl., ¶¶ 24, 30, 31). Ms. Allison alleges that she and Ms. Charlton ultimately agreed that she would receive a salary of $150, 000 per year and an 8% membership interest, with 3% to vest immediately and 5% to vest at various milestones. (Compl., ¶¶ 30-31, 33-34). Ms. Allison was terminated from Lone Star Funds in December 2012. (Compl., ¶ 35). On January 17, 2013, having received no compensation from C2, she inquired about her salary. (Compl., ¶ 36). Ms. Charlton responded that the plaintiff was being paid with a membership interest. (Compl., ¶ 36). On April 4, 2013, Ms. Allison informed Ms. Charlton that she would no longer work for C2, but would retain her equity interest. (Compl., ¶ 38). Ms. Charlton informed the plaintiff that her equity interest had not vested, but offered her a one-half percent interest for "helping with the business plan." (Compl., ¶¶ 38-39).

The defendants filed motions to dismiss the Complaint for failure to state a claim. The plaintiff opposed the defendants' motions and filed a cross-motion to amend the Complaint. I recommended that the motion to amend be denied with leave to replead and that the defendants' motions to dismiss be granted in part and denied in part. Allison v. Clos-ette Too, LLC, No. 14 Civ. 1618, 2014 WL 4996358, at *1 (S.D.N.Y. Sept. 15, 2014), report and recommendation adopted, 2014 WL 5002099 (S.D.N.Y. Oct. 7, 2014). The dismissed claims included all claims against Clos-ette, as the facts alleged in the Complaint "show[ed] no more than the existence of a parent-subsidiary relationship between Clos-ette and C2, which is not enough to justify piercing the corporate veil." Id. at *7. The surviving claims allege violation of the Fair Labor Standards Act and New York Labor Law by C2 and Ms. Charlton, and breach of contract and quasi-contract by C2. Id. at *12.

Discussion

A. Motion to Amend

The plaintiff moves to amend the complaint to add "numerous additional facts clarified and fully developed during discovery, " which she states "not only lend more specificity to the Plaintiff's claims, but also further support [the] Plaintiff's claim for veil piercing as to Clos-ette." (Plaintiff's Memorandum of Law in Support of Plaintiff's Motion to Amend Complaint and Compel Discovery ("Pl. Memo. I") at 3).

1. General Legal Standard

Rule 15 of the Federal Rules of Civil Procedure provides that courts should "freely give leave [to amend] when justice so requires." Fed.R.Civ.P. 15(a)(2); see also Foman v. Davis, 371 U.S. 178, 182 (1962); Aetna Casualty & Surety Co. v. Aniero Concrete Co., 404 F.3d 566, 603-04 (2d Cir. 2005). However, it is within "the sound discretion of the court" to determine whether to grant or deny leave to amend. John Hancock Mutual Life Insurance Co. v. Amerford International Corp., 22 F.3d 458, 462 (2d Cir. 1994). Regarding the use of this discretion, the Supreme Court has stated:

In the absence of any apparent or declared reason - such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. - the leave sought should... be freely given.

Foman, 371 U.S. at 182 (internal quotation marks omitted); see also McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007) ("A district court has discretion to deny leave for good reason, including futility, bad faith, undue delay, or undue prejudice to the opposing party."). In this case, there has not been undue delay in the filing of the motion, which was filed less than one month after the motions to dismiss were decided, see Securities and Exchange Commission v. DCI Telecommunications, Inc., 207 F.R.D. 32, 34-35 (S.D.N.Y. 2002) (allowing amendment where plaintiff obtained discovery supporting amendment a few months before filing motion); American Medical Association v. United Healthcare Corp., No. 00 Civ. 2800, 2006 WL 3833440, at *4 (S.D.N.Y. Dec. 29, 2006) (finding no undue delay where party moved to amend several months after learning relevant facts in discovery), nor have the defendants alleged that the amendment would be unduly prejudicial, see Alexander Interactive, Inc. v. Adorama, Inc., No. 12 Civ. 6608, 2014 WL 113728, at *3 (S.D.N.Y. Jan. 13, 2014) (noting that the non-moving party bears the burden of demonstrating that "substantial prejudice" would result if the proposed amendment were granted). However, the defendants argue that the motion should be denied as futile. (Defendants' Memorandum of Law in Opposition to Plaintiff's Motion to Amend and Compel Discovery ("Def. Memo. I") at 7-8).

2. Futility

"It is well established that [l]eave to amend need not be granted... where the proposed amendment would be "futil[e]."'" Williams v. Citigroup Inc., 659 F.3d 208, 214 (2d Cir. 2011) (alterations in original) (quoting Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 18 (2d Cir. 1997)). "An amendment is futile when it could not withstand a motion to dismiss pursuant to Rule 12(b)(6).'" Demel v. Group Benefits Plan for Employees of Northern Telecom, Inc., No. 07 Civ. 0189, 2012 WL 1108311, at *6 (S.D.N.Y. March 30, 2012) (quoting Oneida Indian Nation v. City of Sherrill, 337 F.3d 139, 168 (2d Cir. 2003), rev'd on other grounds, 544 U.S. 197 (2005)); see also AEP Energy Services Gas Holding Co. v. Bank of America, N.A., 626 F.3d 699, 726 (2d Cir. 2010); Slay v. Target Corp., No. 11 Civ. 2704, 2011 WL 3278918, at *2 (S.D.N.Y. July 20, 2011) ("Futility generally turns on whether the proposed amended pleading states a viable claim."); Penn Group, LLC v. Slater, No. 07 Civ. 729, 2007 WL 2020099, at *4 (S.D.N.Y. June 13, 2007) (collecting cases). A court may deny a motion to amend as futile only where no colorable grounds exist to support the proposed claim; if it "sets forth facts and circumstances which may entitle the plaintiff to relief, then futility is not a proper basis on which to deny the amendment." Saxholm AS v. Dynal, Inc., 938 F.Supp. 120, 124 (E.D.N.Y. 1996); see also Cinelli v. Oppenheim-Ephratah Central School District, No. 6:07 CV 235, 2008 WL 111174, at *1 (N.D.N.Y. Jan. 7, 2008) (where amendments are colorable and based upon disputed facts, "they should be allowed, and a comprehensive legal analysis deferred to subsequent motions to dismiss or for summary judgment."). As when considering a motion to dismiss under Rule 12(b)(6), the court must "accept as true all of the proposed complaint's factual allegations, and draw all reasonable inferences in favor of plaintiff." Henneberry v. Sumitomo Corp. of America, 415 F.Supp.2d 423, 433 (S.D.N.Y. 2006). The party opposing the motion to amend bears the burden of establishing that leave to amend would be futile. Amaya v. Roadhouse Brick Oven Pizza, Inc., 285 F.R.D. 251, 253 (E.D.N.Y. 2012); Sotheby's, Inc. v. Minor, No. 08 Civ. 7694, 2009 WL 3444887, at *3 (S.D.N.Y. Oct. 26, 2009).

3. Piercing the Corporate Veil

The plaintiff claims that the proposed amendment alleges facts sufficient to justify piercing the corporate veil as to Clos-ette under an alter-ego theory of liability. (Pl. Memo. I at 3; Plaintiff's Reply Memorandum of Law in Support of Plaintiff's Motion to Amend Complaint and Compel Discovery at 4). Under Delaware law, [1] "a court can pierce the corporate veil of an entity... where a subsidiary is in fact a mere instrumentality of its owner." Geyer v. Ingersoll Publications Co., 621 A.2d 784, 793 (Del. Ch. 1992). To prevail under the alter-ego theory of veil piercing, a Ms. Allison must show "(1) that the parent and subsidiary operated as a single economic entity and (2) that an overall element of injustice or unfairness... [is] present." Fletcher v. Atex, Inc., 68 F.3d 1451, 1457 (2d Cir. 1995) (alterations in original) (internal quotation marks omitted) (discussing Delaware law).

a. Single Economic Entity

"[A]n alter ego analysis must start with an examination of factors which reveal how the corporation operates and the particular defendant's relationship to that operation." NetJets Aviation, Inc. v. LHC Communication, LLC, 537 F.3d 168, 176-77 (2d Cir. 2008) (alteration in original) (internal quotation marks omitted). Whether two corporations functioned as a single economic entity is determined by looking at such factors as whether corporate formalities were ignored, funds were siphoned or intermingled, capitalization was adequate, or the subsidiary was a "mere sham." In re Digital Music Antitrust Litigation, 812 F.Supp.2d 390, 418 (S.D.N.Y. 2011). "Simply phrased, the standard may be restated as: whether [the two entities] operated as a single economic entity such that it would be inequitable for th[e] Court to uphold a legal distinction between them.'" NetJets Aviation, 537 F.3d at 177 (alteration in original) (quoting Mabon, Nugent & Co. v. Texas American Energy Corp., No. Civ. A. 8578, 1990 WL 44267, at *5 (Del. Ch. April 12, 1990)). "In the alter-ego analysis of [a limited liability corporation ("LLC")], somewhat less emphasis is placed on whether the LLC observed internal formalities because fewer such formalities are legally required."[2] NetJets Aviation, 537 F.3d at 178.

"[N]o single factor c[an] justify a decision to disregard the corporate entity, but... some combination of them [i]s required...." Id. at 177 (alteration in original) (internal quotation marks omitted) (quoting Harco National Insurance Co. v. Green Farms, Inc., Civ. A. No. 1131, 1989 WL 110537, at *5 (Del. Ch. Sept. 19, 1989)); see, e.g., National Gear & Piston, Inc. v. Cummins Power, 975 F.Supp.2d 392, 404 (S.D.N.Y. 2013) (finding allegations that "do no more than restate the common characteristics of a parent-subsidiary relationship" to be insufficient for veil-piercing under Delaware law); VFS Financing, Inc. v. Falcon Fifty LLC, 17 F.Supp. 3d 372 (S.D.N.Y. 2014) ("The separate corporate existences of parent and subsidiary will not be set aside merely on a showing of common management of the two entities, nor on a showing that the parent owned all the stock of the subsidiary." (internal quotation marks omitted)). However, under ...


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