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American E Group LLC v. Livewire Ergogenics Inc.

United States District Court, S.D. New York

January 14, 2020

AMERICAN E GROUP LLC, Plaintiff,
v.
LIVEWIRE ERGOGENICS INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          GREGORY H. WOODS, United States District Judge.

         Third-Party Plaintiff Livewire Ergogenics Inc. executed a note (the “Note”) with Third-Party Defendant American E Group LLC (“AEG”) on the advice of its counsel, Third-Party Defendant JS Barkats PLLC (“JSB”), and Third-Party Defendant Sunny Joseph Barkats (together with JSB, the “Barkats Defendants”). Livewire alleges that the terms of the Note were unfair and that the Barkats Defendants recommended that it accept the terms of the Note only because it had undisclosed conflicts of interest with AEG. Livewire pleads that these conflicts led the Barkats Defendants to breach their fiduciary duties as attorneys to Livewire. Livewire alleges that Third-Party Defendant Elana Hirsch-Barkats' wife and AEG's principal member-assisted the Barkats Defendants by concealing these conflicts. Hirsch now moves to dismiss the third-party claims against her. Because Livewire has plausibly alleged that the Barkats Defendants breached their fiduciary duties to Livewire and that Hirsch helped them do so by concealing the conflicts between the Barkats Defendants and AEG, Hirsch's motion to dismiss is DENIED.

         I. BACKGROUND [1]

         A. Facts [2]

         On November 3, 2015, Livewire entered into an agreement with JSB for JSB to represent Livewire as legal counsel. TPC ¶ 17. Barkats is “the managing partner of JSB.” Id. ¶ 10. The agreement between JSB and Livewire was “memorialized” in an engagement letter (the “Engagement Letter”). Id. ¶ 17. In the Engagement Letter, the Barkats Defendants “agreed to assist Livewire with financing.” Id. “The Engagement Letter also contained the following provision with respect to ‘Financing:'

[t]he firm will assist you with identifying sources of financing to pay service providers and make sure the Company is current with certain determined invoices, and will charge a $4, 500 flat fee for securing such financing on your behalf and review the terms of the not [sic], any conflicts shall be properly be waived by You in the event the funds are procured though another entity the firm may represent or partially own. The Firm will negotiate terms with vendors and such terms will not bound [sic] your Company but the financing which will be made to you in the aggregate of approximatively $50, 000 in value.

Id. ¶ 19. Soon after JSB and Livewire executed the Engagement Letter, Livewire executed the Note with AEG. Id. ¶ 24. Livewire alleges that the terms of the Note were unfavorable to Livewire. Id. ¶ 45.

         The TPC alleges that the Barkats Defendants committed various torts against Livewire when they negotiated the terms of the Note. Livewire alleges that these torts resulted from conflicts of interest that the Barkats Defendants were subject to in negotiating the terms of the Note. Livewire alleges that the Barkats Defendants “represented Livewire in securing the Note, while simultaneously owning and/or representing AEG.” Id. ¶ 33. The TPC also alleges that Livewire was never informed that the “funds procured via the Note were from an entity (AEG) that JSB represented[.]” Id. ¶ 20. Livewire alleges that these conflicts led the Barkats Defendants to recommend that it accept the terms of the Note, notwithstanding the fact that these terms were unfavorable to Livewire. Id. ¶ 45. Livewire alleges that as a result of these conflicts, the Barkats Defendants breached their fiduciary duties as attorneys to Livewire, id. ¶¶ 73-79, and committed legal malpractice, id. ¶¶ 108-115.

         Livewire alleges that Hirsch assisted the Barkats Defendants in committing these torts by concealing their conflicts of interest. The TPC alleges that Defendant Hirsch is married to and shares a residence with Barkats. Id. ¶ 47. Livewire also alleges that Hirsch is AEG's “principal member.” Id. Livewire further alleges that it was never informed that Barkats and Hirsch “were AEG's only members.” Id. ¶ 20. The TPC alleges that Hirsch actively concealed these conflicts by causing “the Note to identify AEG's offices located at 300 East 93rd Street, New York, New York 10128, when, in fact, AEG and JSB shared offices at 18 E. 41st Street, 19th Floor, New York, New York 10017.” Id. ¶ 87. Livewire alleges that Hirsch did this to “deceiv[e] Livewire” by concealing “the fact that AEG (and its principal) had deep business and personal relationships with JSB and Mr. Barkats.” Id. ¶ 86.

         B. Procedural History

         AEG initiated this lawsuit to enforce the terms of the Note on May 3, 2018, Dkt No. 1, and filed an amended complaint on May 10, 2018, Dkt No. 7. Livewire filed the TPC on April 10, 2019. Dkt No. 107. As against Hirsch, the TPC asserts claims for aiding and abetting a breach of the fiduciary duty owed to Livewire by the Barkats Defendants, TPC ¶¶ 80-93, and for civil conspiracy, id. ¶¶ 116-27. Hirsch filed the instant motion to dismiss on April 9, 2019. Dkt Nos. 104-05.[3]

         Livewire filed its opposition on April 24, 2019. Dkt Nos. 114-15. Hirsch filed her reply on May 1, 2019. Dkt No. 116.

         II. LEGAL STANDARD

         A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). However, a defendant may move to dismiss a plaintiff's claim for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a motion to dismiss under Rule 12(b)(6), the court accepts as true all well-pleaded factual allegations and draws all inferences in the plaintiff's favor. See Palin v. N.Y. Times Co., 933 F.3d 160, 165 (2d Cir. 2019) (quoting Elias v. Rolling Stone LLC, 872 F.3d 97, 104 (2d Cir. 2017); Chase Grp. Alliance LLC v. City of N.Y. Dep't of Fin., 620 F.3d 146, 150 (2d Cir. 2010)). To survive a motion to dismiss pursuant to Rule 12(b)(6), a complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when a plaintiff “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556).

         “To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient ‘to raise a right to relief above the speculative level.'” ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 544). Although Rule 8 “does not require ‘detailed factual allegations,' . . . it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Id. (quoting Twombly, 550 U.S. at 555). Determining whether a complaint states a plausible claim is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.

         III. ...


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