Supreme Court, New York County, March 23, 2022

Engel Law Group PLLC, New York City (Adam Engel of counsel), for defendants.

Carla Kerr Stearns, New York City, for plaintiffs.

Plaintiffs originally brought this action alleging breach of a contract with defendants Inspire Summits LLC doing business as Skytop Strategies and owner Christopher Skroupa, plus related claims. The current operative complaint is the third amended class action complaint. (NY St Cts Elec Filing [NYSCEF] Doc No. 134.) Plaintiffs have added parties and causes of action, including fraud, claims under General Business Law § 350 and unspecified sections of the Labor Law, equitable claims, and intentional infliction of emotional distress, based on Skytop Strategies' alleged failure to pay its employees and contractors, overcharging participants in its conferences, and related conduct.

Defendants David Katz and Paula Luff together move to dismiss all claims pleaded [*2]against these defendants in the{**76 Misc 3d at 589} third amended complaint. (CPLR 3211 [a] [7].) Plaintiffs cross-move to amend the complaint again, submitting a proposed fourth amended class action complaint. (CPLR 3025 [b]; NYSCEF Doc No. 165.) Only defendants Katz and Luff oppose the cross motion to amend the complaint.

Leave to amend a complaint is freely granted unless the amendment would surprise or otherwise prejudice the opposing parties (Davis v South Nassau Communities Hosp., 26 NY3d 563, 580 [2015]; Kimso Apts., LLC v Gandhi, 24 NY3d 403, 411 [2014]; Machado v Gulf Oil, L.P., 195 AD3d 26, 30 [1st Dept 2021]; Mashinsky v Drescher, 188 AD3d 465, 466 [1st Dept 2020]), or the amendment lacks merit. (CPLR 3025 [b]; Mashinsky v Drescher, 188 AD3d at 466; Avail 1 LLC v Acquafredda Enters. LLC, 184 AD3d 476, 477 [1st Dept 2020]; Brook v Peconic Bay Med. Ctr., 172 AD3d 468, 469 [1st Dept 2019]; Jean-Baptiste v 153 Manhattan Ave. Hous. Dev. Fund Corp., 124 AD3d 476, 477 [1st Dept 2015].) Defendants Katz and Luff oppose the proposed fourth amended class action complaint on the grounds that it fails to state a cause of action against these defendants. As the remaining defendants have not opposed, and as moving defendants' opposition essentially seeks to dismiss the proposed amended complaint pursuant to CPLR 3211 (a) (7), the court grants the cross motion to amend the complaint, treats the fourth amended complaint as the active complaint, and considers defendants' opposition as seeking dismissal of the fourth amended complaint against Katz and Luff. (49 W. 12 Tenants Corp. v Seidenberg, 6 AD3d 243, 243 [1st Dept 2004]; Sage Realty Corp. v Proskauer Rose, 251 AD2d 35, 38 [1st Dept 1998].)

In their reply, which opposes the cross motion, Katz and Luff alternatively seek their costs, including attorneys' fees, if the court allows the amendment. (CPLR 3025 [b].) The court denies this request for attorneys' fees and other costs as a condition of granting amendment, since defendants show neither surprise nor other prejudice from the amendment, and it is not completely without merit. (Id. ["Leave (to amend) shall be freely given upon such terms as may be just"]; Peach Parking Corp. v 346 W. 40th St., LLC, 52 AD3d 260, 261 [1st Dept 2008]; 92 E. LLC v Lee, 65 Misc 3d 137[A], 2019 NY Slip Op 51678[U] [App Term, 1st Dept 2019].){**76 Misc 3d at 590}

A. Standard

Upon a motion to dismiss a complaint pursuant to CPLR 3211 (a) (7), the court considers the facts alleged in the complaint and presumes them to be true. (Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v Matthew Bender & Co., Inc., 37 NY3d 169, 175 [2021]; Connaughton v Chipotle Mexican Grill, Inc., 29 NY3d 137, 141 [2017]; Seaman v Schulte Roth & Zabel LLP, 176 AD3d 538, 538 [1st Dept 2019].) Moving defendants bear the burden to establish that plaintiffs' fourth amended complaint "fails to state a viable cause of action." (Connolly v Long Is. Power Auth., 30 NY3d 719, 728 [2018].) In evaluating the motion, the court must accept plaintiffs' allegations as true, liberally construe the fourth amended complaint, and draw all reasonable inferences in plaintiffs' favor. (Doe v Bloomberg L.P., 36 NY3d 450, 454 [2021]; Connolly v Long Is. Power Auth., 30 NY3d at 728; JF Capital [*3]Advisors, LLC v Lightstone Group, LLC, 25 NY3d 759, 764 [2015]; M & E 73-75 LLC v 57 Fusion LLC, 189 AD3d 1, 5 [1st Dept 2020].)

The court will not give such consideration, however, to allegations that consist of only bare legal conclusions. (Myers v Schneiderman, 30 NY3d 1, 14 [2017]; Simkin v Blank, 19 NY3d 46, 52 [2012]; M & E 73-75 LLC v 57 Fusion LLC, 189 AD3d at 5.) Instead, the court accepts as true only plaintiffs' factual allegations that set forth the elements of a legally cognizable claim and from them draws all reasonable inferences in their favor. Dismissal is warranted if the fourth amended complaint fails to allege facts that fit within any cognizable legal theory against Katz or Luff. (Sassi v Mobile Life Support Servs., Inc., 37 NY3d 236, 239 [2021]; Faison v Lewis, 25 NY3d 220, 224 [2015].)

B. The Claims against Katz and Luff

The fourth amended complaint's claims are based largely on Skytop Strategies' alleged failure to pay plaintiffs, who were its employees and consultants, what Skytop Strategies owed them.

1. First Claim—Fraud

The first claim is for fraud, based on alleged misrepresentations about Skytop Strategies' revenue, funding, and prospects and defendants' nondisclosure of its financial irregularities.{**76 Misc 3d at 591} Katz and Luff maintain that the fourth amended complaint fails to allege that they owed any duties to plaintiffs or made any misrepresentations on which plaintiffs reasonably relied and that the allegations otherwise lack the required particularity for a fraud claim. (CPLR 3016 [b].)

The fourth amended complaint does not credit Katz or Luff with any fraudulent statements. Plaintiffs rest on their allegations that "defendants" made material misrepresentations and fraudulent omissions to plaintiffs. "Defendants" misrepresented that they profited only from Skytop Strategies' conferences and not from inducing employees, consultants, and vendors to provide services without payment and that Skytop Strategies possessed the financial ability to pay employees so as to produce high performance, was growing fast, and offered employees rapid growth. (Affirmation of Carla Kerr Stearns in support of cross mot to amend, exhibit C [fourth amended complaint] ¶¶ 30-31.)

The failure to distinguish among the various defendants regarding which misrepresentations and omissions each defendant made to each plaintiff, when, and where is "improper group pleading." (Principia Partners LLC v Swap Fin. Group, LLC, 194 AD3d 584, 584 [1st Dept 2021].) By pleading the fraud claim against all defendants collectively, without any specification of the conduct charged to particular defendants, plaintiffs deprive defendants of the notice regarding "the material elements of each cause of action" to which defendants are entitled under CPLR 3013. By referring to all defendants together, plaintiffs also fail to plead their fraud claim with the particularity required by CPLR 3016 (b). (El Toro Group, LLC v Bareburger Group, LLC, 190 AD3d 536, 541 [1st Dept 2021]; Total Asset Recovery Servs. LLC v Metlife, Inc., 189 AD3d 519, 523 [1st Dept 2020].)

Plaintiffs do allege that Katz speaks at Skytop Strategies' conferences and consults with Skroupa regarding its business (fourth amended complaint ¶¶ 4, 24), and that both Katz and Luff "knowingly and recklessly participate[ ] in the Skytop fraud" (id. ¶¶ 4, 6), but these allegations are similarly vague and conclusory and fail to support a fraud claim against either Katz or Luff. [*4]Therefore the court dismisses the fraud claim against both of them.

2. Second Claim—Violation of General Business Law § 350

General Business Law § 350 prohibits "[f]alse advertising in the conduct of any business, trade or commerce or in the{**76 Misc 3d at 592} furnishing of any service." (Plavin v Group Health Inc., 35 NY3d 1, 9 [2020].) As plaintiffs do not allege any false advertising by Katz or Luff, personally, plaintiffs rely on respondeat superior to hold Skytop Strategies liable for the conduct of the individual who conveyed the false advertising, combined with piercing the corporate veil to hold Katz and Luff liable for Skytop Strategies' conduct.

Plaintiffs contend that Katz and Luff are liable by piercing the corporate veil because they are Skytop Strategies' alter egos. To pierce the corporate veil and hold Katz and Luff liable for Skytop Strategies' actions, plaintiffs must show that Katz and Luff dominated Skytop Strategies and used that domination to commit a fraud or other wrong against plaintiffs. (Walsam 316, LLC v 316 Bowery Realty Corp., 190 AD3d 626, 626 [1st Dept 2021]; Springut Law PC v Rates Tech. Inc., 157 AD3d 645, 646 [1st Dept 2018].) The fourth amended complaint alleges that Skroupa is Skytop Strategies' founder, owner, and Chief Executive Officer (CEO) and commingles his personal funds with its funds. (Fourth amended complaint ¶ 2.) Plaintiffs allege that Katz is an investor and part owner of Skytop Strategies, speaks at its conferences, frequently consults with Skroupa regarding its business, and is its alter ego. (Id. ¶¶ 4, 24.) The latter allegation is a mere legal conclusion, which the former allegations do not support, to pierce the corporate veil to reach Katz. (Gateway Intl., 360, LLC v Richmond Capital Group, LLC, 201 AD3d 406, 408 [1st Dept 2022]; P & HR Solutions, LLC v Ram Capital Funding, LLC, 195 AD3d 473, 474 [1st Dept 2021]; Springut Law PC v Rates Tech. Inc., 157 AD3d at 646.)

Plaintiffs allege that Luff holds a current or contingent equity interest in Skytop Strategies and "actively participate[s] in Skytop's finances and payroll" (fourth amended complaint ¶¶ 6, 27), "engage[s] in self-dealing in Skytop's finances . . . , and knowingly or recklessly participate[s] in the Skytop fraud." (Id. ¶ 6.) These allegations likewise fall far short of indicating that she dominates Skytop Strategies, rather than participates in it, as would be expected if she holds an equity interest (see Walsam 316, LLC v 316 Bowery Realty Corp., 190 AD3d at 626; Springut Law PC v Rates Tech. Inc., 157 AD3d at 646), and thus also fail to support a claim for piercing the corporate veil. (Springut Law PC v Rates Tech. Inc., 157 AD3d at 646.) Plaintiffs offer no clue what they mean by "self-dealing," but it certainly does not suggest the requisite domination or any{**76 Misc 3d at 593} direct false advertising by her. (Fourth amended complaint ¶ 6.) Therefore the court dismisses the false advertising claim under General Business Law § 350 against both Katz and Luff.

3. Third Claim—Omitted

The fourth amended complaint omits a third claim.

4. Fourth Claim—Violation of Labor Law

The fourth claim alleges that Skroupa, Skytop Strategies, and Katz failed to pay plaintiffs their full salaries and overtime pay, as required by Labor Law §§ 193 and 652. Plaintiffs do not allege this claim against Luff. While plaintiffs allege that Katz, along with Skroupa and Skytop Strategies, controlled its employees, no factual allegations support the conclusion that he, personally, qualified as an employer pursuant to the Labor Law or any other law.

The fourth amended complaint does allege that Katz "is personally involved in hiring and/or inducing employees to keep working." (Fourth amended complaint ¶ 10.) Inducing employees to [*5]keep working does not qualify Katz as the employer of those employees, even if they were plaintiffs, which the fourth amended complaint does not specify. While Katz hiring plaintiffs to work for him might qualify him as an employer, the fourth amended complaint specifies that he merely consults with Skroupa "as to hires, hiring plans," portraying Skytop Strategies' CEO as seeking advice about prospective employees as anyone making hiring decisions might seek from various sources, inside and outside the employer's business. (Id. ¶ 24.)

Plaintiff Hendrickson attests that Katz was familiar with Skytop Strategies employees' job performance. Although defendants in moving to dismiss the complaint may not rely on evidence outside the pleaded claims, plaintiffs may rely on admissible evidence to supplement and remedy any defects in their complaint. (Nonnon v City of New York, 9 NY3d 825, 827 [2007]; Cron v Hargro Fabrics, 91 NY2d 362, 366 [1998]; US Suite LLC v Baratta, Baratta & Aidala LLP, 171 AD3d 551, 551 [1st Dept 2019]; Ray v Ray, 108 AD3d 449, 452 [1st Dept 2013].) Nevertheless, familiarity with employees' performance is a far cry from fulfilling the functions of an employer. Defendants concede, at least for purposes of defendants' motion, that Katz conducted business and consulted with Skytop Strategies and its CEO. Coworkers may be familiar with each other's job performance, but that familiarity does not render them each other's employer.{**76 Misc 3d at 594}

Plaintiffs' attorney also presents an unsworn email from Skroupa to plaintiff Murphy and other recipients. Plaintiffs' attorney, however, is not among the recipients competent to authenticate the email. (Clarke v American Truck & Trailer, Inc., 171 AD3d 405, 406 [1st Dept 2019]; AQ Asset Mgt. LLC v Levine, 128 AD3d 620, 621 [1st Dept 2015]; Taylor v One Bryant Park, LLC, 94 AD3d 415, 415 [1st Dept 2012]; IRB-Brasil Resseguros S.A. v Portobello Intl. Ltd., 84 AD3d 637, 637 [1st Dept 2011]; see People v Javier, 154 AD3d 445, 445 [1st Dept 2017]; People v Agudelo, 96 AD3d 611, 611 [1st Dept 2012].) Nor does she attest that she received the email in response to a request for such a document created by defendants. (CPLR 4540-a.)

The email from Skroupa also is inadmissible for reasons other than its lack of an oath or authentication. Skroupa states: "we will catch up on all late payroll . . . . This is my priority, David [Katz]'s priority, and everyone else's priority." (Affirmation in further opp to mot to dismiss, exhibit A.) What Katz's priorities are is not within Skroupa's personal knowledge. (Residential Credit Solutions, Inc. v Gould, 171 AD3d 638, 642 [1st Dept 2019]; Clarke v American Truck & Trailer, Inc., 171 AD3d at 406; 345 E. 69th St. Owners Corp. v Platinum First Cleaners, Inc., 158 AD3d 452, 453 [1st Dept 2018]; Viselli v Riverbay Corp., 155 AD3d 439, 440 [1st Dept 2017]; see Matter of Kenneth J. v Lesley B., 165 AD3d 439, 441 [1st Dept 2018].) Finally, were the court to consider the email's contents, Katz's interest in his coworkers being paid does not render him their employer.

The fourth amended complaint does not allege that Katz is personally or directly involved in any other functions of an employer, such as compensating or firing employees. Therefore the Labor Law claim also fails against Katz.

5. Fifth Claim—Conspiracy to Commit Fraud

Plaintiffs allege that Katz and Luff knew of the alleged fraud, but plaintiffs fail to allege these defendants' agreement to participate in a fraudulent scheme with the required particularity to support a claim of conspiracy to commit fraud. (CPLR 3016 [b]; First Nationwide Bank v 965 Amsterdam, 212 AD2d 469, 472 [1st Dept 1995]; Abrahami v UPC Constr. Co., 176 AD2d 180, 180 [1st Dept 1991]; see FIA Leveraged Fund Ltd. v Grant Thornton LLP, 150 AD3d 492, 495 [1st Dept 2017].) Plaintiffs do not rely on piercing the corporate veil, as it is an alternative theory of liability to conspiracy. Thus this claim also fails against Katz and Luff due to the lack of any specific allegations of an agreement.{**76 Misc 3d at 595}

6. Sixth Claim—Unjust Enrichment and Restitution

To sustain a claim for unjust enrichment, with restitution being the remedy, plaintiffs must allege that (1) Katz and Luff were enriched, (2) at plaintiffs' expense, and (3) it is against equity and good conscience to permit these defendants to retain what plaintiffs seek to recover. (Tutor Perini Bldg. Corp. v Port Auth. of N.Y. & N.J., 191 AD3d 569, 571 [1st Dept 2021]; Metropolitan Bank & Trust Co. v Lopez, 189 AD3d 443, 444 [1st Dept 2020].) Plaintiffs do not allege that either Katz or Luff was enriched.

Plaintiffs allege that Katz invested in Skytop Strategies in return for marketing as a sponsor and speaker at Skytop Strategies' conferences, but do not allege that this marketing was worth more than his investment, sponsorship, or services, nor, critically, that any such enrichment was at plaintiffs' expense. As he received that consideration from Skytop Strategies, the consideration was at Skytop Strategies' expense.

Again, plaintiffs allege that Luff "engage[s] in self-dealing in Skytop's finances" (fourth amended complaint ¶ 6), without any description of what the "self-dealing" entails. Even if it means that Luff sought to increase the value of her equity interest or otherwise enriched herself, nothing indicates the enrichment was at plaintiffs' expense. If anything, her "self-dealing in Skytop's finances" indicates that it was at Skytop Strategies' expense.

Finally, plaintiffs again rest on their impermissible "group pleading" (Principia Partners LLC v Swap Fin. Group, LLC, 194 AD3d at 584), that "defendants" prioritized payment of their personal expenses and profits over employees' compensation. (Fourth amended complaint ¶ 30 [g].) Therefore the unjust enrichment claim also fails against both Katz and Luff.

7. Seventh Claim—Conversion

A claim for conversion would accrue against Katz and Luff if they took control of plaintiffs' personal property, interfering with their right of possession. (Colavito v New York Organ Donor Network, Inc., 8 NY3d 43, 49-50 [2006]; Reif v Nagy, 175 AD3d 107, 120 [1st Dept 2019]; William Doyle Galleries, Inc. v Stettner, 167 AD3d 501, 505 [1st Dept 2018].) When the property alleged to have been converted is money, that money must be specifically identifiable. (Gateway Intl., 360, LLC v Richmond Capital Group, LLC, 201 AD3d at 409; SH575 Holdings LLC v Reliable Abstract Co., L.L.C., 195 AD3d 429, 430-431{**76 Misc 3d at 596}[1st Dept 2021]; McBride v KPMG Intl., 135 AD3d 576, 580 [1st Dept 2016]; Lemle v Lemle, 92 AD3d 494, 497 [1st Dept 2012].) Even assuming plaintiffs otherwise sustain a conversion claim against Skytop Strategies for their salaries and fees, plaintiffs do not allege that defendants separated those funds or that those specific funds are in Katz's or Luff's possession. Thus this claim also fails against Katz and Luff.

8. Eighth Claim—Intentional Infliction of Emotional Distress

Plaintiffs' eighth claim is alleged only against Skroupa and Skytop Strategies, not against Katz or Luff.

9. Ninth Claim—Breach of Contract

Plaintiffs' breach of contract claim is against Katz, but not Luff. Plaintiffs allege no written or oral contract to which Katz was a party, but only that he loaned or gave funds to Skytop Strategies or invested in it and that he conducted business with it and served as its consultant. This claim against Katz again depends on plaintiffs' veil piercing theory, which fails, as discussed above, and therefore fails to support a breach of contract claim against Katz. (Gateway Intl., 360, LLC v Richmond Capital Group, LLC, 201 AD3d at 408; P & HR Solutions, LLC v Ram Capital Funding, LLC, 195 AD3d at 473-474.)

10. Tenth Claim—Promissory Estoppel

Plaintiffs' promissory estoppel claim requires allegations of defendants' unambiguous promise and plaintiffs' reasonable reliance on that promise, causing injury to plaintiffs. (Condor Funding, LLC v 176 Broadway Owners Corp., 147 AD3d 409, 411 [1st Dept 2017].) Plaintiffs do not allege any promise by Katz or Luff, nor is either defendant liable under a veil piercing theory, so this claim also fails against them.

For the reasons explained above, the court grants the cross motion to amend the complaint, considers the fourth amended complaint the active complaint, grants the motion by defendants Katz and Luff to dismiss the claims against these defendants, and thus dismisses all claims against Katz and Luff. (CPLR 3025 [b]; 3211 [a] [7].) The remaining defendants shall file an answer to the fourth amended complaint within 20 days after the date this decision and order is filed. (CPLR 3025 [d].)