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Dervan v. Gordian Group LLC

United States District Court, S.D. New York

February 28, 2017

Christopher E. Dervan, Plaintiff,
Gordian Group LLC, Defendant.

          OPINION & ORDER

          ALISON J. NATHAN, District Judge.

         Plaintiff Christopher E. Dervan ("Plaintiff or "Dervan") brings this diversity action against his former employer, Gordian Group LLC ("Defendant" or "Gordian"), asserting claims for breach of the parties' December 2010 severance agreement (the "Agreement") and unjust enrichment. Before the Court is Gordian's motion to dismiss Dervan's Second Amended Complaint, Dkt. No. 17 ("SAC"). For the reasons set forth below, Gordian's motion is GRANTED in part and DENIED in part.

         I. Background

         Unless otherwise noted, the following facts are taken from the SAC or from the Agreement, which is attached as Exhibit 1 to the SAC, see Dkt. No. 17-1.

         Dervan was employed by Gordian, an investment bank, as an Associate and then a Vice President from July 24, 2006 to December 17, 2010. SAC ¶ 5. In connection with Dervan's departure from the firm, the parties entered into the Agreement, which was memorialized in a December 23, 2010 letter from Gordian's President, Peter S. Kaufman, to Dervan. SAC ¶ 6. The Agreement sets forth terms by which Gordian would continue to provide Dervan with certain monetary compensation and benefits following the termination of his employment. Agreement at 1. As relevant here, Paragraph 2 of the Agreement provides:

If you [(Dervan)] choose to continue to work with us [(Gordian)] as an outside consultant in regards to Thermacell through the closing of any transaction that generates a fee, then you will be entitled to 25% of any such fees received by us.

SAC ¶ 7; Agreement ¶ 2. The terms "work, " "consultant, " and "transaction" as used in Paragraph 2 are neither defined nor otherwise clarified in the Agreement. The word "Thermacell, " as used in Paragraph 2, is also not defined in the Agreement, but is alleged by Dervan to refer to "certain technology and related products and businesses using that technology then owned by The Schawbel Corporation." SAC ¶ 7.

         The Agreement does not expressly require Dervan to maintain or acquire any license or other regulatory authority or clearance in connection with performing any of the "work" referenced in Paragraph 2. See generally Agreement; see also SAC ¶ 15. The Agreement contains a merger clause, which provides that the terms of the Agreement are limited to those set forth within the four corners of the written instrument and that no extrinsic materials or prior negotiations or agreements constitute part of the contract between the parties. Agreement ¶ 14.

         Following the termination of his employment, Dervan did in fact choose to work as an outside consultant to Gordian with regard to Thermacell. SAC ¶ 8. Dervan alleges that in that capacity he provided "valuable services, as appropriate and as requested by Defendant." SAC ¶¶ 8-9. The SAC does not describe Dervan's services in any detail, other than to allege that they did not involve "interacting] with customers or potential investors regarding the offer or sale of securities." Id. ¶ 17.

         During the course of his post-termination work for Gordian, Dervan was not registered as a broker-dealer under Section 15(a) of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise registered in any way with the Financial Industry Regulatory Authority ("FINRA"). Id. ¶ 16. It is alleged that Gordian was contemporaneously aware of that fact, and did not suggest that Dervan was in any way required to be so registered or that registration was a condition to Dervan receiving compensation pursuant to the Agreement. Id.

         Dervan's work ultimately helped Gordian to close a transaction in approximately July 2014 by which an entity affiliated with the private equity firm Kinderhook Industries acquired The Schawbel Corporation's "Thermacell Mosquito business" (the "Thermacell Transaction"). Id. ¶¶ 9-10. Dervan alleges on information and belief that Gordian was paid a fee of $1.25 million or more upon closing of the Thermacell Transaction. Id. ¶ 11. Dervan demanded that Gordian pay him twenty-five percent of that fee pursuant to the Agreement, but Gordian refused. Id. ¶ 13.

         Dervan initiated this action on March 5, 2016, asserting claims for breach of contract and unjust enrichment. Dkt. No. 1. Gordian now moves pursuant Federal Rule of Procedure 12(b)(6) to dismiss Dervan's SAC in its entirety. Gordian argues principally (i) that the SAC inadequately pleads Dervan's own performance under the Agreement, (ii) that Dervan's failure to register with FFNRA renders enforcement of the Agreement's terms illegal, thereby precluding both a breach of contract claim and an unjust enrichment claim arising from the same facts, and (iii) that the unjust enrichment claim is, in any event, impermissibly duplicative.

         II. Discussion

         A. Standard of Review

         In order to survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a plaintiff must plead "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 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (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. "The plausibility standard is not akin to a 'probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief" Id. (quoting Twombly, 550 U.S. at 557) (additional internal quotation marks omitted).

         In deciding a motion to dismiss, a court is required to "accept[] the complaint's factual allegations as true and draw[] all reasonable inferences in the plaintiffs favor." Steginsky v. Xcelera, Inc. 741 F.3d 365, 368 (2d Cir. 2014). It should not, however, give "effect to legal conclusions couched as factual allegations." Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117, 121 (2d Cir. 2007). At the pleading stage, the court generally "must limit its analysis to the four corners of the complaint." Vassilatos v. Ceram Tech Int'l Ltd., 92-cv-4574, 1993 WL 177780, at *5 (S.D.N.Y. May 19, 1993) (citing Kopec v. Coughlin, 922 F.2d 152, 154-55 (2d Cir. 1991)). However, it may "consider 'documents attached to the complaint as an exhibit or incorporated in it by reference, matters of which judicial notice may be taken, or documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit.'" Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (internal alterations omitted) (quoting Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993)). Here, accordingly, the Court may consider the Agreement, which as noted is attached as Exhibit 1 to the SAC.

         B. Dervan Fails to Plausibly Allege His Own Performance Under the Agreement

         Gordian argues that the SAC fails to adequately plead Dervan's own performance under the Agreement. Specifically, Gordian maintains that the SAC is devoid of "well-pleaded facts providing even the most basic description of the services [Dervan] supposedly performed" for Gordian and, furthermore, that it does not specifically allege that Dervan provided any such services "through the closing" of the Thermacell Transaction, as purportedly required to merit compensation under the express terms of the Agreement. See Defendant Gordian's Memorandum of Law in Support of its Motion to Dismiss Plaintiffs Second Amended Complaint, Dkt. No. 20 ("Br."), at 3-4.

         Dervan responds primarily that his own performance under the Agreement is a "condition precedent" to suit and therefore may be "allege[d] generally" under Federal Rule of Civil Procedure 9(c). Plaintiffs Memorandum of Law in Opposition to Defendant's Motion to Dismiss the Second Amended Complaint, Dkt. No. 24 ("Opp."), at 6-7. As such, Dervan maintains, allegations that he "serv[ed] as an outside consultant with Defendant in regard to Thermacell" and "provided valuable services, as appropriate and as requested by Defendant, " SAC ¶ 9, along with the general averment that "[a]ll conditions precedent to Defendant's contractual obligation to pay Plaintiff his twenty-five percent share of the fees received from the [Thermacell Transaction] have occurred, " id. ¶ 20, are sufficient to survive a motion to dismiss. Opp. at 5-7. The unmistakable, if implicit, premise of Dervan's argument is that, by virtue of Rule 9(c), conditions precedent are subject to a lesser pleading requirement than the plausibility standard embodied in Rule 8(a). The Court disagrees.

         Several preliminary matters are not disputed. In order to successfully state a claim for breach of contract under New York law, [1] a complaint must allege: "(1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of the contract by the defendant, and (4) damages." Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 177 (2d Cir. 2004) (internal quotation marks omitted). "Although the substantive merits of any contract claim[] are governed by New York law, any pleading requirements are governed by federal law, which controls procedural matters in diversity cases." Mendez v. Bank of Am. Home Loans Servicing, LP, 840 F.Supp.2d 639, 647 (E.D.N.Y.2012); see also Biro v. Conde Nast, 807 F.3d 541, 544 (2d Cir. 2015) ("federal pleading rules and standards . .. prevail in all civil actions, including diversity litigation") (internal quotation marks and citations omitted). Federal Rule of Civil Procedure 9(c) provides that "[i]n pleading conditions precedent, it suffices to allege generally that all conditions precedent have occurred or been performed. But when denying that a condition precedent has occurred or been performed, a party must do with particularity." Fed.R.Civ.P. 9(c). When a contract expressly makes payment by the defendant contingent on the plaintiffs performance of specified services - as does the Agreement at issue here - the plaintiffs performance qualifies as a condition precedent. See, e.g., Oppenheimer & Co., Inc. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690, 660 N.E.2d 415, 418, 636 N.Y.S.2d 734, 737 (1995) ("[a] condition precedent is an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises") (internal quotation marks omitted); cf. Allis-Chalmers Mfg. Co. v. Malan Const. Corp., 30 N.Y.2d 225, 231 n.4, 282 N.E.2d 600, 602, 331 N.Y.S.2d 636, 639 (1972) (rejecting argument that the term "conditions precedent, " as used in the pleading rules set forth in CPLR 3015, "has reference to conditions precedent to the existence of a contract" but "not as to one party's performance under the contract"); 22 NY. Jur. 2d Contracts § 262 (2d ed. 2017) ("If one covenant precedes performance of the other, or is concurrent therewith, and is necessary or proper to enable the other to be performed, or relates to such performance, it or its performance is a condition precedent."). Therefore, by the plain terms of Rule 9(c), Dervan's own performance may indeed, as he suggests, be "alleged generally."

         The critical question, however, is precisely what that means.

         Since the Supreme Court established the plausibility pleading standard under Federal Rule of Civil Procedure 8(a) in Twombly and Iqbal, courts in this Circuit have largely, although not uniformly, taken the view urged by Dervan - that is, notwithstanding the seemingly broadly applicable requirements of Rule 8(a), only "at most, a general averment to the satisfaction of any conditions precedent" is required to withstand a motion to dismiss under Rule 12(b)(6). Superior Site Work, Inc. v. Nasdi, LLC, 14-cv-1061, 2016 WL 526238, at *6 (E.D.N.Y. Feb. 9, 2016) (internal quotation marks omitted); see also In re Residential Capital, LLC, 524 B.R. 563, 584 (Bankr. S.D.N.Y. 2015) ("Courts in the Second Circuit are largely in agreement that a general allegation that all conditions precedent have been met is sufficient to satisfy Rule 9(c).") (internal quotation marks and alteration omitted); Beautiful Home Textiles (USA), Inc. v. Burlington Coat Factory Warehouse Corp., 13-CV-1725, 2013 WL 3835191, at *3 (S.D.N.Y. Jul. 25, 2013) ("In this Circuit, a general allegation that all conditions precedent have been met... is sufficient to satisfy Rule 9(c)"); Mendez v. Bank of Am. Home Loans Servicing, LP, 840 F.Supp.2d 639, 647 (E.D.N.Y. 2012) (collecting cases and noting that "it is clear that even where courts require allegations in the complaint with regard to the satisfaction of conditions precedent, courts have consistently accepted only general averments of their fulfillment"). The Court of Appeals has not interpreted Rule 9(c) in the wake of Twombly and Iqbal; indeed, "there is scant binding case law in this Circuit regarding [Rule 9(c)]" more generally. Superior Site Work, 2016 WL 526238, at *6; see also Mendez, 840 F.Supp.2d at 648 ("There is little case law in this Circuit regarding this particular provision of the Federal Rules."); Ackerley Media Gr., Inc. v. Sharp Elecs. Corp., 170 F.Supp.2d 445, 453 (S.D.N.Y. 2001) ("Perhaps because [the] language [of Rule 9(c)] is so straightforward, there is relatively little case law interpreting this rule. The court knows of no Second Circuit case passing on the matter...."). At least two other courts of appeals, however, have adopted what can only be characterized as the prevailing view among the District Courts of this Circuit. See Hildebrand v. Allegheny Cty., 757 F.3d 99, 112 (3d Cir. 2014) (under Rule 9(c), "the pleading of conditions precedent falls outside the stricture of Iqbal and Twombly"); Myers v. Central Fla. Invs., Inc., 592 F.3d 1201, 1224 (11th Cir. 2010) (post-Twombly/Iqbal decision concluding that plaintiffs "general statement" that she had "fulfilled all conditions precedent to institution of this action" was "sufficient to discharge her duty under Rule 9 of the Federal Rules of Civil Procedure").

         The analytic rationale for this conclusion, to the extent it is expressly articulated in the case law, would appear to be neatly summarized in the Third Circuit's Hildebrand decision:

Iqbal and Twombly interpreted Federal Rule of Civil Procedure 8(a), which governs the standard for pleading a claim for relief. The pleading of conditions precedent is governed by Rule 9(c), not Rule 8(a). Neither Iqbal nor Twombly purport to alter Rule 9. We see no indication that those ...

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