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Zdanowski v. Digital Health Dep't, Inc.

United States District Court, N.D. New York

September 5, 2017

THOMAS ZDANOWSKI, Plaintiff,
v.
DIGITAL HEALTH DEP'T, INC., Defendant.

          JEFFREY M. NARUS, ESQ. SUGARMAN LAW FIRM LLP Counsel for Plaintiff

          PHILIP E. KARMEL, ESQ., JACQUELYN N. SCHELL, ESQ., BRYAN CAVE LLP Counsel for Defendant

          DECISION AND ORDER

          HON. GLENN T. SUDDABY, CHIEF U.S. DISTRICT JUDGE.

         Currently before the Court, in this breach-of-contract action filed by Thomas Zdanowski ("Plaintiff") against Digital Health Department, Inc. ("Defendant"), is Defendant's motion to dismiss Plaintiff's Complaint with prejudice for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6), and Plaintiff's cross-motion to amend pursuant to Fed.R.Civ.P. 12(b)(6). (Dkt. Nos. 7, 10.) For the reasons set forth below, Defendant's motion to dismiss is granted in part and denied in part, and Plaintiff's cross-motion to amend is denied without prejudice.

         I. RELEVANT BACKGROUND

         A. Plaintiff's Complaint

         Generally, liberally construed, Plaintiff's Complaint alleges as follows: (1) on February 8, 2008, Plaintiff entered into an invoicing agreement (the “Agreement”) with Garrison Enterprises; (2) pursuant to the Agreement, Plaintiff would loan $100, 000 to Garrison Enterprises at an annual interest rate of eighteen percent; (3) the Agreement matured on December 31, 2012; (4) since that time Plaintiff has not been paid the principal or interest due according to the Agreement; (5) in February 2013, all or substantially all of Garrison Enterprises' assets were sold to Defendant, which has refused to pay Plaintiff; (6) because of the continuity of ownership, management, personnel, and general business operation, the uninterrupted continuation of business after Garrison Enterprises was acquired and the dissolution of Garrison Enterprises, a de facto merger occurred between Garrison Enterprises and Defendant; (7) because a de facto merger occurred, Defendant is liable for the debts of Garrison Enterprises, including the liability to Plaintiff for breaching the Agreement; and (8) Defendant is in debt to Plaintiff for the original $100, 000 loan plus $57, 978.12 in interest pursuant to the Agreement. (See generally Dkt. No. 2 [Plf.'s Compl.].) Based on these factual allegations, Plaintiff's Complaint asserts a claim of breach of contract. (Id.) Familiarity with the factual allegations supporting this claim in Plaintiff's Complaint is assumed in this Decision and Order, which is intended primarily for the review of the parties. (Id.)

         B. Parties' Briefing on Defendant's Motion to Dismiss

         Generally, in support of its motion to dismiss, Defendant argues as follows: (1) Defendant was not a party to the Agreement and is not restricted by its terms; (2) Plaintiff has not alleged facts plausibly suggesting all four elements of the de facto merger theory of successor liability; (3) with respect to the first element (i.e., the continuation of management, personnel, physical location, assets, and general business operations of the seller), Plaintiff has named only one person; (4) with respect to the second element (i.e., the continuity of shareholders achieved by paying for the acquired assets via transfer, to the seller's shareholders, of shares in the purchasing corporation), continuity of shareholders between the transferor and the transferee did not exist as Plaintiff has inferred because Defendant paid cash for Garrison Enterprises, which was easily discoverable with the pre-lawsuit inquiry; (5) with respect to the third element (i.e., the seller ceasing its ordinary business operations, liquidating, and dissolving as soon as legally and practically possible), Plaintiff has not alleged that Garrison Enterprises ceased its ordinary business operations, liquidated, and dissolved as soon as legally and practically possible after the sale; (6) with respect to the fourth element (i.e., the assumption by the purchaser of those liabilities and obligations of the seller ordinarily necessary for the uninterrupted continuation of normal business operations of the seller), a provision in the Agreement that binds “successors and assignees” does not prove that a stranger to the Agreement is bound by its terms. (See generally Dkt. No. 7, Attach. 3 [Def.'s Memo. of Law].)

         Generally, in Plaintiff's response to Defendant's motion, he argues as follows: (1) Defendant's denial of the truth of Plaintiff's allegation is unavailing because the allegations in Plaintiff's Complaint must be taken as true for the purposes of a claim under Fed.R.Civ.P. 12(b)(6); (2) the original Complaint alleges enough facts to plausibly suggest a de facto merger between Defendant and Garrison Enterprises; (3) if the Court does not find the original claim survives a motion to dismiss, Plaintiff alleges in his Amended Complaint another exception to the rule against successor liability, i.e., the mere-continuation theory of successor liability; (4) at the time of the sale, the officers and directors of both Garrison Enterprises and Defendant were the same, including Rahul Saxena serving as CEO of both companies, satisfying the first element of mere continuation (only one corporation remained after the transfer); (5) at the time Garrison Enterprises sold all or substantially all of its assets to Defendant, Seraph Group was the same shareholder of both Defendant and Garrison Enterprises, satisfying the second element (identity of stockholders and directors between the two corporations); (6) the sale of all of the assets of Garrison Enterprises was for less than fair market value, satisfying the third element (inadequate consideration for the purchase); (7) Defendant and Garrison Enterprises entered into the sale in order to avoid paying Plaintiff, satisfying the fourth element (lack of some elements of a good faith purchaser for value). (See generally Dkt. No. 10, Attach. 4 [Plf.'s Opp'n Memo. of Law].)

         Generally in its reply, Defendant argues as follows: (1) Plaintiff has done nothing to cure the pleading defects in his breach-of-contract claim under a de facto merger theory of successor liability; (2) Plaintiff's Complaint is a formulaic recitation of the four elements of a mere-continuation theory of successor liability, and Plaintiff's allegations are unwarranted deductions of fact; (2) with regard to the first element (i.e., the existence of only one corporation remaining after the transfer of assets), Plaintiff failed to allege any facts plausibly suggesting that only one corporation remained after the transfer of assets; (3) with regard to the second element (i.e., the identify of stockholders and directors between the two corporations), the identity of one person does not satisfy the requirement of the identify of stockholders and directors between corporations; (4) with regard to the third element (i.e., the existence of inadequate consideration for the purchase), Plaintiff does not allege any facts plausibly suggesting inadequate consideration for the sale of Garrison Enterprises (and he does specify what constitutes adequate consideration for the sale of Garrison Enterprises); and (5) with regard to the fourth element (i.e., the lack of some of the elements of a good-faith purchaser for value), Plaintiff has failed to allege facts plausibly suggesting that Defendant was not a good-faith purchaser. (See generally Dkt. No. 11 [Def.'s Reply Memo. of Law].)

         C. Parties Briefing on Plaintiff's Cross-Motion to Amend

         Generally, in support of its motion to amend, Plaintiff argues as follows: (1) pursuant to Fed.R.Civ.P. 15(a)(1)(B), he is allowed to amend the complaint as a matter of right within twenty one days after the service of his complaint; (2) absent undue delay, bad faith, or undue prejudice, leave to amend should be freely given; (3) leave to amend must be given so the case may be resolved on the merits, as the Federal Rules intend; and (4) leave is necessary for Plaintiff to allege new facts in support of an additional claim, mere continuation. (See generally Dkt. No. 10 [Plf.'s Reply Memo. of Law].)

         Generally, in Defendant's response to Plaintiff's motion, he argues as follows: (1) Plaintiff has failed to satisfy the standard to amend his Complaint; (2) Plaintiff's proposed amendments with respect to the de facto merger theory of successor liability have done nothing to correct the pleading deficiencies of his breach-of-contract claim, rendering the claim futile; (3) Plaintiff's proposed amendment to add a mere continuation claim is also futile because he has not alleged facts plausibly suggesting that theory; and (4) although the Court must take Plaintiff's amended claims as true, the majority of them are false, and a reasonable pre-suit inquiry would reveal the falsity of those claims. (See generally Dkt. No. 11 [Def.'s Reply Memo. of Law].)

         II. RELEVANT LEGAL STANDARDS

         A. Legal Standard Governing a Motion to Dismiss for ...


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