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Akerson Advertising & Marketing, Inc. v. St. John & Partners Advertising & Public Relations, Inc.

United States District Court, N.D. New York

February 25, 2015

AKERSON ADVERTISING & MARKETING, INC. and GEORGE E. AKERSON, Plaintiffs,
v.
ST. JOHN & PARTNERS ADVERTISING AND PUBLIC RELATIONS, INC., Defendant

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[Copyrighted Material Omitted]

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For Plaintiffs: DUSTIN B. BOWMAN, ESQ., STEVEN ZALEWSKI & ASSOCIATES PC, Kew Gardens, New York.

For Defendant: CAROLINE M. PRIETO, ESQ., TIMOTHY W. VOLPE, ESQ., ADAMS AND REESE LLP, Jacksonville, FL.

For Defendant: BARRY J. FRIEDBERG, ESQ., TRACHTENBERG RODES & FRIEDBERG LLP, New York, New York.

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MEMORANDUM-DECISION AND ORDER

Frederick J. Scullin, Jr., Senior United States District Judge.

I. INTRODUCTION

Currently before the Court is Defendant's motion to dismiss Plaintiffs' amended complaint. See Dkt. No. 27.

II. BACKGROUND

On August 2, 2013, the Court heard oral argument in support of, and in opposition to, Defendant's motion to dismiss Plaintiffs' complaint and Plaintiffs' cross-motion

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for leave to amend their complaint. At the conclusion of the argument, the Court denied both motions without prejudice and with leave to renew. In an Order dated August 5, 2013, the Court ordered that, " within twenty (20) days of the date of this Order, Plaintiffs may file an amended complaint. As the Court noted at oral argument, in any such amended complaint that Plaintiffs file, they may not replead their fraud claim[.]" See Dkt. No. 23 at 2. The Court further ordered that, if Plaintiffs filed an amended complaint within the required time frame, Defendant was to file its response, either an answer or an appropriate motion, to the amended complaint within the time frames set forth in Rule 12 of the Federal Rules of Civil Procedure. See id.

Plaintiffs filed an amended complaint, in which they asserted five causes of action and to which they attached five exhibits. See Dkt. No. 25. According to the amended complaint, Plaintiff Akerson is the principal of Plaintiff Akerson Advertising and Marketing, Inc. (" AAMI" ), which is a small advertising firm in Upstate New York. See id. at ¶ 4. Plaintiff AAMI's largest account was the Upstate Ford Dealers Advertising Association (" UFDAA" ), a group of twenty-two Ford Dealers in Upstate New York. See id. Plaintiff Akerson first met St. John, the principal of Defendant, in 1978. See id. at ¶ 8. Plaintiff Akerson formed Plaintiff AAMI and St. John formed Defendant at about the same time. See id. at ¶ 9. St. John, Plaintiff Akerson, and a few others helped form the National Organization of Independent Advertising Agencies (" IAA" ), which worked for Ford Dealer Groups across the country in sharing ideas and operational procedures. See id. By the beginning of 2012, Defendant had grown significantly and had four major Ford Dealer Groups as clients in the South, Michigan, and Pittsburgh with five offices in Jacksonville, Atlanta, New Orleans, Pittsburgh and Detroit. See id. at ¶ 10.

Ford Motor Company put a plan together, in Spring 2009, to eliminate all of the Independent Ad Agencies, of which Plaintiff AAMI and Defendant were two. See id. at ¶ 11. By Fall 2009, Ford Motor Company had pushed the Ford Dealer Groups using independent advertising agencies to permit J. Walter Thompson (" JWT" ) to give presentations. See id. Plaintiff AAMI was the only independent ad agency that did not have to make a presentation against JWT; UFDAA was not interested and would not let JWT present. See id. at ¶ 12. After the JWT presentations, Defendant was able to retain its dealer groups. See id. at ¶ 13.

In Fall 2009, Ford Motor Company completely changed the Ford Dealer Group rules and regulations to commence January 15, 2010. See id. at ¶ 15. Ford set the new rules up so that the independent ad agencies would get considerably less ad agency commissions than their counterparts at JWT. See id.

Also in Fall 2009, Plaintiff Akerson began to consider an exit strategy for himself and UFDAA as he was nearing retirement. See id. at ¶ 18. Plaintiff Akerson's relationship with the members of UFDAA and his years of work made him committed to making his exit mutually agreeable to UFDAA and Plaintiff AAMI. See id. Plaintiff Akerson knew that UFDAA was committed to its independent status and wanted to ensure that this status was retained. See id.

Since Defendant was so clearly committed to independent advertiser status, Plaintiff Akerson was led to believe that entering into an asset transfer agreement between Plaintiff AAMI and Defendant would be perfect. See id. at ¶ 19. Plaintiff Akerson would be able to retire, UFDAA

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would be able to maintain independent advertising, and Defendant would have another Ford Dealer Association as a client. See id. Defendant did not have the money for an immediate buyout. See id. at ¶ 20.

Plaintiff Akerson knew he was going to need additional support in the media and creative arenas to meet all of Ford's new requirements; therefore, he approached Defendant for use as a " supplier" to provide the support needed. See id. at ¶ 21. This need manifested into the first letter agreement among Plaintiff AAMI, Defendant, and UFDAA. See id. and Exhibit " A" attached thereto. This agreement was designed to keep Plaintiff AAMI viable, in all areas, while Defendant and Plaintiff Akerson could hammer out a deal acceptable to all parties. See id. at ¶ 22.

On or about November 2010, Plaintiff Akerson traveled to Defendant's home office to hammer out all of the details of how to keep Plaintiff AAMI operational until the assets of Plaintiff AAMI were sold to Defendant. See id. at ¶ 23. The final agreement, which was reflected in a January 10, 2011 letter, was a result of the November 2010 meeting in Jacksonville. See id. at ¶ 24. The agreement entered into at the November 2010 meeting, included the following terms: (1) on December 24, 2010, Plaintiff AAMI would transfer all responsibility to Defendant for the management and execution for all aspects of the UFDAA account, including but not limited to account management, media, creative, billing and accounting; (2) the purchase price of the assets of Plaintiff AAMI would be independently assessed at fair market value as of the first quarter of 2013 and paid on or before March 31, 2013; (3) for each month between January 2011 and January 2013, Defendant would pay Plaintiff AAMI at the end of each such month 10% of gross revenue; and (4) Defendant agreed not to transfer responsibility for the management and execution of all aspects of the UFDAA account to Retail First, Inc.[1] See id. Plaintiff Akerson did not require a formal contract as a result of the confidential relationship between him and St. John; and, in any event, the January 10, 2011 letter contained all essential terms of the agreement. See id. at ¶ 25 & Exhibit " B" attached thereto.

From the end of the November 2010 meeting in Jacksonville to the receipt of the letter dated January 10, 2011, there were no further discussions between Plaintiff AAMI and Defendant. See id. at ¶ 26. Based on the terms of the January 10, 2011 letter, Defendant took over operational control as ad agency of record for UFDAA at its Annual Meeting on Friday, January 14, 2011. See id. at ¶ 26. To this end, Defendant and UFDAA entered into a contract, which evidenced the transfer of control of the UFDAA account from Plaintiff AAMI to Defendant starting January 1, 2011. See id. & Exhibit " C" attached thereto.[2]

Chuck Wehde, Defendant's Executive Vice President and Managing Director, continued to inform all of the Upstate Ford Dealers, Ford Motor Company, and Plaintiff Akerson that Defendant was very excited and happy to have been able to work out a deal with Plaintiff AAMI to allow Plaintiff Akerson to have a very successful

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and profitable exit strategy. See id. at ¶ 27. All of the members of UFDAA were aware of all aspects and details of the deal between Defendant and Plaintiff AAMI to include the provision to execute a buy-out of Plaintiff AAMI no later than March 31, 2013, based on the current value of Plaintiff AAMI at that time and to include the UFDAA advertising placed with Defendant during the calendar years of 2011 and 2012. See id. at ¶ 28.

Plaintiff Akerson received a phone call from St. John on Friday, April 1, 2011, in which St. John informed him that Defendant had sold all Ford Dealer Groups to JWT on March 28, 2011. See id. at ¶ 28. In addition, on or about April 2, 2011, Plaintiff Akerson had conversations with one of Defendant's principals who told him that (1) the deal between Defendant and Team Detroit, Inc. had been signed and was a done deal; (2), as part of the agreement, Team Detroit, Inc. (also referred to as " Retail First, Inc." ) had agreed to hire all of the account people from Defendant who had been working on the UFDAA account for Defendant, i.e., Wehde, Pam Kidd-Mitchell, and Mike Phelan; and (3) Defendant had signed a no-compete clause. See id. at ¶ 28. On or about April 6, 2011, Defendant transferred the business assets of Plaintiff AAMI and management of the UFDAA account to a third party, Team Detroit, Inc. See id. at ¶ 29 & Exhibit " D" attached thereto.[3]

On or about May 4, 2011, Mr. Wehde, now working for Team Detroit, Inc., the third party to whom Defendant transferred the UFDAA Account, sent a letter to Plaintiffs indicating that the account was transferred. See id. at ¶ 30 & Exhibit " E" attached thereto. Finally, to date, Defendant has failed to pay Plaintiff AAMI the agreed upon consideration. See id. at ¶ 31.

Based on these allegations, Plaintiffs assert five causes of action. In their first cause of action for breach of contract, Plaintiffs allege that they entered into a contract to sell Plaintiff AAMI or its assets to Defendant, that they fully performed pursuant to the contract, that Defendant materially breached the contract by, among other things, failing to pay agreed consideration to Plaintiffs and transferring assets of Plaintiff AAMI to Team Detroit, Inc. See id. at ¶ ¶ 32, 29, 30, 31, 32.[4] Plaintiffs claim that, as a result of Defendant's breach, they have been damaged in an amount no less than $5,000,000.00.

In their second cause of action for breach of contract - implied covenant, Plaintiffs argue that, at the time they entered into the contract with Defendant, Defendant was aware that it would sell the business of Plaintiff AAMI to a third party to which Plaintiff AAMI and Defendant agreed not to sell. See id. at ¶ 34. Plaintiffs further allege that Defendant attempted to add additional terms to the contract in order to accept the benefits of the deal without making any payment therefor and that, by doing so, Defendant materially breached the contract and the implied covenant of good-faith and fair-dealing. See id. at ¶ ¶ 35-36. Plaintiffs claim that, as a result of Defendant's breach, they have been damaged in an amount no less than $5,000,000.00. See id. at ¶ 37.

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In their third cause of action for unjust enrichment, Plaintiffs claim that Plaintiff AAMI transferred the control of the UFDAA account to Defendant and that the value of that account was no less than $5,000,000.00. See id. at ¶ 40. Furthermore, Plaintiffs assert that, despite Defendant's acceptance and retention of the UFDAA account and subsequent sale for value, Defendant failed to pay adequate consideration to Plaintiffs. See id. at ¶ 41. Plaintiffs claim that, as a result of Defendant's unjust enrichment, they were damaged in an amount no less than $5,000,000.00. See id. at ¶ 42.

In their fourth cause of action for breach of contract, Plaintiffs contend that Defendant entered into a verbal contract in which, among other things, the parties agreed that (1) between January 2011 and January 2013, at the end of each month Defendant would pay Plaintiffs 10% of gross profits and (2) Defendant would not transfer control of the UFDAA account from Defendant to any third party. See id. at ¶ 44. Plaintiffs fully performed pursuant to the contract by transferring control of the UFDAA account to Defendant; and Defendant breached the agreement by, among other things, failing to pay Plaintiffs pursuant to the Agreement and transferring control of the UFDAA account to a third party. See id. at ¶ ¶ 45-46. Plaintiffs claim that, as a result of Defendant's breach, they have been damaged in an amount no less than $5,000,000.00. See id. at ¶ 47.

Finally, in their fifth cause of action for a constructive trust, Plaintiffs state that Plaintiff Akerson and St. John, the principal of Defendant, had a confidential relationship, see id. at ¶ 49; and Defendant agreed and promised to, among other things, (1) pay Plaintiffs certain consideration for the transfer of control of the UFDAA account and (2) not to transfer the UFDAA account to a third party, see id. at ¶ 50. Plaintiffs assert that, in light of such relationship and in reliance on such promise, Plaintiffs transferred the control of the UFDAA account to Defendant. See id. at ¶ 51. Plaintiffs assert that Defendant breached the agreement and promise by (1) transferring the UFDAA account to a third party and (2) by failing to pay certain consideration. See id. at ¶ 52. Therefore, Plaintiffs assert that they have been damaged in an amount no less than $5,000,000.00. See id. at 53.

III. DISCUSSION

A. Standard of review

Rule 8(a)(2) of the Federal Rules of Civil Procedure requires that a pleading contain " a short and plain statement of the claim showing that the pleader is entitled to relief[.]" Fed.R.Civ.P. 8(a)(2). This pleading standard does not require " detailed factual allegations," but it does require " more than labels and conclusions, and a formulaic recitation of the elements of a cause of action . . . ." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted). The complaint must tender more than mere " 'naked assertion[s]' devoid of 'further factual enhancement.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting [ Twombly, 550 U.S.] at 557, 127 S.Ct. 1955, 167 L.Ed.2d 929).

To survive a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, " a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id . (quotation omitted). A court must " draw all reasonable inferences in favor of the non-moving party." Gorman v. Consol. Edison Corp., 488 F.3d 586, 591-92 (2d Cir. 2007) (citation

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omitted). Furthermore, when deciding a motion to dismiss for failure to state a claim, a court may consider the following without triggering the summary judgment standard:

" (1) documents attached as an exhibit to the complaint or answer, (2) documents incorporated by reference into the complaint (and provided by the parties), (3) documents that, although not incorporated by reference, are 'integral' to the complaint, or (4) any matter of which the court can take judicial notice for the factual background of the case."

Pflaum v. Town of Stuyvesant, 937 F.Supp.2d 289, 300 (N.D.N.Y. 2013) (quoting Planck v. Schenectady Cnty., No. 12-CV-0336, 2012 WL 1977972, at *5 (N.D.N.Y. June 1, 2012) (Suddaby, J.)).

Finally, the Court notes that it is appropriate for a court to consider the affirmative defense of statute of frauds on a motion to dismiss. See Rosbach v. Indus. Trading Co., Inc., 81 F.Supp.2d 522, 524 (S.D.N.Y. 2000) (citation omitted).

B. Plaintiffs' first cause of action - breach of contract

According to Plaintiffs' amended complaint, the terms of the oral agreement between Plaintiffs and Defendant, reached in November 2010, are as follows:

(1) on December 24, 2010, Plaintiff AAMI would transfer all responsibility to Defendant for the management and execution for all aspects of the UFDAA account, including but not limited to account management, media, creative, billing and accounting;
(2) the purchase price of the assets of Plaintiff AAMI would be independently assessed at a fair market value as of the first quarter of 2013 and paid on or before March 31, 2013;
(3) for each month between January 2011 and January 2013, Defendant would pay Plaintiff AAMI at the end of each such month 10% of gross revenue; and
(4) Defendant would not transfer responsibility for the management and execution for all aspects of the UFDAA account to Retail First, Inc.

See Amended Complaint at ¶ 24.

The January 20, 2011 letter from Defendant's Executive Vice President Chuck Wehde to Plaintiff Akerson, on which Plaintiffs rely to support their argument that the November 2010 oral agreement was subsequently ...


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