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denying motion to dismiss unjust enrichment claim because enforceable contract not yet proven and the federal rules allow plaintiffs to plead alternative and inconsistent claims
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07 Civ. 9227 (SHS) (KNF).
February 23, 2010
REPORT RECOMMENDATION
INTRODUCTION
The plaintiffs, Christine Rodriguez ("Rodriguez"), Sandra Burga ("Burga"), Karen Malak ("Malak"), James Tortora ("Tortora"), Lisa Bruno ("Bruno"), Janeen Cameron ("Cameron"), Karen McBride ("McBride"), and Andrew Woolf ("Woolf"), initiated this action, on October 15, 2007, agains It's Just Lunch International ("IJLI"), It's Just Lunch, Inc. ("IJL, Inc."), Harry and Sally, Inc. ("H S"), Riverside Company, Loren Schlachet, and seven IJLI franchises. In an order, dated March 11, 2009, your Honor adopted the undersigned's report and recommendation and dismissed the plaintiffs' First Amonded Complaint, as to all claims, save for unjust enrichment. With leave of the court, the plaintiff's filed their Second Amended Complaint on April 1, 2009.
Woolf has since withdrawn as a plaintiff in this action. See Pls.' Opp'n Br., p. 1, n. 1.
Before the Court are: (1) the defendants' motion to dismiss, in its entirety, the Second Amended Complaint, pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b) ; and (2) the defendants' request that sanctions be imposed on the plaintiffs' counsel, pursuant to Fed.R.Civ.P. 11. The plaintiffs oppose both motions.
By stipulation, the parties agreed to dismiss voluntarily, from this action, defendants Riverside Company and Loren Schlachet.See Docket Entry No. 64. Additionally, by stipulation, the parties agreed that "the arguments urged in support of and in opposition to the pending motion to dismiss" be extended to the three IJLI franchises, on which service was effectuated after the defendants filed their motion. See Docket Entry No. 70. In light of the stipulations, "the defendants," for the purpose of this Report, are: (1) IJLI; (2) IJL, Inc.; (3) H S; (4) IJL Orange County; (5) IJL Denver; and (6) IJL Austin. The plaintiffs have failed to serve a copy of the summons and complaint on three franchises listed in the Second Amended Complaint: IJL Chicago, IJL Palm Beach, and IJL Los Angeles-Century City. See generally Fed.R. Civ, P. 4(m) 41(b).
As Rule 9(b) "does not explicitly provide for a dismissal motion[,]" Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 125 n. 4 (2d Cir, 2001), the defendants' motion to dismiss is being made solely under Rule 12(b)(6). The Court will consider failure to comply with Rule 9(b), when necessary, as a ground warranting dismissal of affected claims.
BACKGROUND
A. Facts
The following facts are taken from the Second Amended Complaint and are taken to be true for the purpose of resolving the instant motion.
1. Generally
IJLI, a Nevada limited liability company with its principal place of business in California, is a franchisor that grants franchisees the right to operate under its trade name — It's Just Lunch — and to "provide dating services to busy single professionals." IJL Inc., a New York corporation, owned the IJL New York City franchise from "about April 1993 until on or about February 2002." H S, a New York corporation, has owned IJL New York City since "on or about February 2002 to the present time." IJL Orange County is an IJLI franchise "located in" California. IJL Denver is an IJLI franchise "located in" Colorado. IJL Austin is an IJLI franchise "located in" Texas.
Although IJLI "claims that each of its franchises is independently owned and operated, [it] [], in fact, exercises complete dominion and control over" them. For example, IJLI requires franchise owners and directors to attend a five-day, "rigid and highly structure training program." Further, IJLI requires franchise staff to memorize sales and other scripts that "must be followed during all phone calls and in-person interviews," lost the franchise be "subject to penalties and/or termination of [] franchise rights."
IJLI advertises "heavily in business and airline magazines" and on its Web site. On its Web site, IJLI claims it selects dates for its members, in part, based on their "desires"; however, IJLI franchises "almost completely ignore" member preferences. IJLI further claims, on its Web site, that its staff members are experienced matchmakers, when, in fact, it "routinely hires staff members who have no experience, training, or background whatsoever in the field of matchmaking." In 2007, IJLI placed advertisements in "prominent New York publications," describing its business as "[d]ating for busy professionals" and directing prospective clients to speak with "first-date specialists."
Before joining the dating service, prospective clients must be interviewed at an IJLI franchise, by a franchise staff member. During these interviews, franchise staff members "routinely": (1) claim they have several "'perfect' matches" in the franchise database for the prospective client, when none exists; (2) overstate the number of clients in the franchise database; (3) overstate the percentage of male clients in the database; (4) claim to match clients carefully, when matches are actually made at random; and (5) claim to have professionals only in their database, though some clients are not professionals.
2. The Plaintiffs
The plaintiffs are "'busy professional[s],'" who signed contracts at various IJLI franchises nationwide. The plaintiffs "were induced" to enter these contracts because of representations made by IJLI, on its Web site and in advertisements, and owing to representations by franchise staff members during their initial client interviews. The representations of franchise staff members were made in accordance with "the mandatory IJL[I] script" franchises are required to follow.
Rodriguez, a New York resident, signed two six-month contracts at the IJL New York City office in June 2004, paying $1,300 for dating services. During Rodriguez's initial client interview, an "IJL representative" promised Rodriguez "she would be matched strictly with other professionals" and "would be set up on at least six dates." Ultimately, Rodriguez was "set up" with four dates only, at least one of whom was not a "professional."
Bruno, a New York resident, "signed up at" the IJL New York City office on August 9, 2007. During Bruno's initial client interview, a franchise staff member told Bruno falsely "she could already think of two men that would fit what [Bruno] was looking for." All the dates Bruno procured through IJL New York City went "poorly." Bruno was "set up" with at least two men who were outside the "age parameters" she set during her initial client interview.
In 2004, Burga, a California resident, enrolled, for dating services, at the IJL Orange County office. At Burga's initial client interview, a "[f]ranchise representative" claimed falsely she had "a few people . . . in the database" who would be perfect matches for Burga. While an IJL Orange County client, Burga went on more than a dozen unsuccessful dates; none of Burga's dates "matched the in-depth criteria that [she] laid out" in her initial client interview.
On an unspecified date, Malak, an Illinois resident, enrolled, for dating services, at the IJL Chicago office. At Malak's initial client interview, a franchise staff member stated falsely "she had two or three people . . . in mind for Malak already." None of Malak's first few dates "matched the express criteria she has set out during her initial interview." When Malak moved from Chicago, she wrote to IJLI, seeking a partial refund, pursuant to a clause in her contract. However, IJLI refused to accept Malak's "numerous letters" and has not, to date, refunded her money.
On an unspecified date, Tortora, a Florida resident, enrolled, for dating services, at the IJL Palm Beach office. At Tortora's initial client interview, a franchise representative told Tortora "there were two or three people that perfectly matched his criteria," when, in fact, the franchise "did not have any suitable matches for Tortora at the time this representation was made." While an IJL Palm Beach client, Tortora was "set up with women with whom he had little to nothing in common," which led him to believe "his initial criteria had been neglected completely."
On September 4, 2007, Cameron, a Colorado resident, signed up for dating services at the IJL Denver office. At Cameron's initial client interview, the franchise's director told Cameron falsely "she already had two men in mind that she wanted to set Cameron up with." Cameron went on a total of five dates; none of the men she dated enjoyed hiking, despite Cameron's explanation, at her initial client interview, "that any potential dates must [] have an strong interest in hiking."
On an unspecified date, McBride, a Texas resident, signed up for dating services at the IJL Austin office. A franchise representative told McBride, at her initial client interview, that "there were two or three people that perfectly matched her criteria" for dates; however, the franchise "did not have any suitable matches for McBride at the time this representation was made." Ultimately, McBride "was set up with men with whom she had little to nothing in common with," and came to believe "her initial criteria had been neglected completely."
B. Procedural History
In their Second Amended Complaint, the plaintiffs assert sixteen claims for relief. However, in their opposition brief to the defendants' motion to dismiss, the plaintiffs "voluntarily dismiss" nine of their claims. Accordingly, only the following claims remain subjects of the motion to dismiss: (1) promissory fraud; (2) fraudulent inducement and misrepresentation; (3) violation of New York General Business Law ("NYGBL") § 349; (4) violation of NYGBL § 350; (5) breach of contract; (6) unjust enrichment; and (7) civil conspiracy.
DISCUSSION
A. Standard for Rule 12(b)(6) Motion to Dismiss
Fed.R.Civ.P. 8(a)(2) requires that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Allegations of fraud or mistake are subject to a heightened pleading standard. See Fed.R.Civ.P. 9(b). Under Fed.R.Civ.P. 12(b)(6), a party may move to dismiss a pleading for "failure to state a claim upon which relief can be granted."
When considering a Rule 12(b)(6) motion to dismiss, a court must accept all well-pleaded factual allegations as true and draw all reasonable inferences in favor of the non-moving party.Warney v. Monroe County, 587 F.3d 113, 116 (2d Cir. 2009); see Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949-50 (2009) (clarifying that a court is not bound to accept the veracity of "legal conclusions"). Factual allegations are limited, generally, to those asserted in the complaint, exhibits attached to the complaint and documents incorporated, in the complaint, by reference. See McCarthy v. Dun Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007); see also Fed.R.Civ.P. 10(c). A party must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974 (2007); see Iqbal, 129 S. Ct. at 1949 (finding "[t]he plausibility standard" implies more than "sheer possibility," but less than probability).
"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." Iqbal, 129 S. Ct. at 1949. "Determining whether a complaint states a plausible claim for relief . . . [is] a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.
B. Application 1. Promissory Fraud Fraudulent Inducement
To state a claim for promissory fraud in New York, a claimant must allege "the promisor, at the time of making certain representations, lacked any intention to perform them." Junk v. Aon Corp., No. 07 Civ. 4640, 2007 WL 4292034, at *7 (S.D.N.Y. Dec. 3, 2007) (internal quotation marks and citation omitted). To state a claim for fraudulent inducement, a plaintiff must allege: (1) the defendant made a false representation, knowingly or recklessly; (2) the representation concerned a material fact; (3) the defendant made the misrepresentation with intent to deceive or to induce the plaintiff to act; (4) the plaintiff relied reasonably on the misrepresentation; and (5) the plaintiff suffered damages. See Aetna Cas. and Sur. Co. v. Aniero Concrete, 404 F.3d 566, 580 (2d Cir. 2005).
"A federal court sitting in diversity . . . must apply the choice of law roles of the forum state." Rogers v. Grimaldi, 875 F.2d 994, 1002 (2d Cir, 1989). "However, where the parties have agreed to the application of the forum law, their consent concludes the choice of law inquiry." American Fuel Corp. v. Utah Energy Dev, Co., 122 F.3d 130, 134 (2d Cir. 1997) (applying New York law where the "parties' briefs rely primarily on New York law"). In the instant action, the plaintiffs and defendants, in their briefs, rely exclusively on New York law. Therefore, the Court will apply New York law to all the common-law claims that remain subjects of the motion to dismiss.
The defendants contend the plaintiffs' fraud claims fail because: (1) they are duplicative of the breach of contract claim; and (2) the allegations set forth in the complaint do not meet the heightened pleading requirements of Fed.R.Civ.P. 9(b).
a. Duplication of Contract Claim
The Second Circuit has noted that, under New York law, where a fraud claim hinges on the same factual allegations as a breach of contract claim, with the additional allegation that the defendant intended to breach, "the fraud claim is redundant and plaintiff's sole remedy is for breach of contract." See Telecom Int'l Am., Ltd. v. AT T Corp., 280 F.3d 175, 196 (2d Cir. 2001) (internal quotation marks and citation omitted); see also New York Univ. v. Continental Ins, Co., 87 N.Y.2d 308, 318-19, 639 N.Y.S.2d 283, 288-89 (1995). "To maintain a claim of fraud in such a situation, a plaintiff must either: (i) demonstrate a legal duty separate from the duty to perform under the contract; or (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the contract; or (iii) seek special damages that are caused by the misrepresentation and unrecoverable as contract damages." Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc, 98 F.3d 13, 20 (2d Cir. 1996) (internal citations omitted).
For their claim of promissory fraud, the plaintiffs allege that the defendants "had no intention of performing any of the terms of their agreement[s]" with each plaintiff. The plaintiffs' promissory fraud claim fails, as a matter of law, "because it is simply a breach of contract claim in [] tort clothing[.]" See Telecom Int'l, 280 F.3d at 196. However, "a claim based on fraudulent inducement of a contract is separate and distinct from a breach of contract claim under New York law." Merrill Lynch Co, Inc, v. Allegheny Enery. Inc., 500 F.3d 171, 184 (2d Cir. 2007); see Stewart v. Jackson Nash, 976 F.2d 86, 88-89 (2d Cir. 1992). Accordingly, the plaintiffs' fraudulent inducement claim satisfies the second Bridgestone exception and is not barred as duplicative of the breach of contract claim.
b. Rule 9(b)
Nevertheless, the plaintiffs' fraudulent inducement claim fails to meet the heightened pleading standard set forth in Fed.R.Civ.P. 9(b) and cannot be maintained. Fed.R.Civ.P. 9(b) requires allegations of fraud to be pled "with particularity," but permits "conditions of a person's mind" to be "alleged generally." In order to plead with the requisite specificity, "the complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent."Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993).
In their complaint, the plaintiffs list various "false statements" allegedly made by the "IJL Franchises" and IJLI. Attributing fraudulent statements to a group, such as the franchise defendants, does not satisfy the Rule 9(b) standard, as allegations of false representations must be attributed to specific defendants. See id. Therefore, the generic list of "false statements" cannot, as a matter of law, support the plaintiffs' fraudulent inducement claim. The false statements allegedly made directly by IJLI are also insufficiently pleaded. Simply averring that certain misrepresentations have been made, through a Web site and a "nationwide marketing campaign," since 1993, does not provide the requisite specificity to satisfy Rule 9(b). See Cohen v. Koenig, 25 F.3d 1168, 1173 (2d Cir. 1994) (plaintiffs pleaded with particularity where they specified who made misrepresentations and alleged the "precise dates and places at which" the defendants made false statements). Permitting the plaintiffs' laundry list of "false statements" to support a claim for fraudulent inducement would not only defeat the purpose of the heightened pleading standard, see generally O'Brien v. Nat'l Prop, Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991), but it would also be imprudent, as the advertisements and Web site pages annexed as exhibits to the complaint show none of the alleged false representations.
When considering a motion to dismiss, a court must accept the veracity of all factual allegations, even those which are "doubtful in fact." See Twombly, 550 U.S. at 555, 127 S.Ct. at 1965. However, "a court need not feel constrained to accept as truth conflicting pleadings . . . or that are contradicted either by statements in the complaint itself or by documents upon which its pleadings rely. . . ." In re Livent, Inc. Notcholders Sec. Litig., 151 F. Supp. 2d 371, 405-06 (S.D.N.Y. 2001).
The plaintiffs supplement their general contentions with plaintiff-specific allegations. Save for Rodriguez, each plaintiff alleges, in detail, that, at his or her initial client interview, at an IJLI franchise's office, a franchise staff member told him or her that the dating service had, already, at least two clients matching the qualities each plaintiff said he or she sought in a date. The plaintiffs allege the franchise staff members they interviewed with, knew, at the time they made the representations, that their statements were false. The plaintiffs claim they relied reasonably on these statements, given IJLI's reputed expertise in matchmaking. Relying on the statements, the plaintiffs "entered in to [sic] a contract with IJL Corporate, through the IJL Franchises," suffering "monetary damages and other losses."
Accepting Rodriguez's allegations as true, she has failed, as a matter of law, to state a claim for fraudulent inducement. Rodriguez contends she was falsely assured, by an "IJL representative," that "she would be matched strictly with other professionals" and "she would be set up on at least six dates." The misrepresentations actionable under a claim for fraudulent inducement must be "representations of present fact," not "future promises," See Jackson Nash, 976 F.2d at 89. As her allegations pertain to misrepresentations of future events, they cannot support her fraudulent inducement claim.
Although Rule 9(b) excuses a party from pleading scienter under an elevated standard, a claimant must "allege facts that give rise to a strong inference of fraudulent intent." Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994); see Ross v. A.H, Robins Co., 607 F.2d 545, 558 (2d Cir. 1979) (noting allegations must give rise to a "strong inference" the defendants acted recklessly or with knowledge). "The requisite 'strong inference' of fraud may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Shields, 25 F.3d at 1128. "In a case involving multiple defendants, plaintiffs must plead circumstances providing a factual basis for scienter for each defendant; guilt by association is impermissible." In re DDAVP Direct Purchaser Antitrust Litig., 585 F.3d 677, 695 (2d Cir. 2009).
The plaintiffs have failed to allege facts sufficient to demonstrate knowledge or scienter. The plaintiffs need not demonstrate actual knowledge, at this stage, but they are "required to supply a factual basis for their conclusory allegations regarding [] knowledge." Ross, 607 F.2d at 558. Two plaintiffs — Tortora and McBride — have failed even to posit that the franchise representatives, who they allege made misrepresentations, had knowledge of the falsity of their statements. Of the remaining plaintiffs, only Bruno attempts to allege facts supporting her contention that the defendants acted recklessly or with knowledge. Specifically, Bruno contends that, despite being told, at her initial client interview, that IJL New York City had two male clients who "fit what she was looking for," she "was not set up on a single date in the first month." This fact does not give rise to a strong inference that the franchise representative, with whom Bruno interviewed, knew she did not have any good matches for Bruno, when she represented she did. Eventually, Bruno went on at least four dates, albeit none to her pleasing, suggesting the first-month lag was likely due to IJL New York City's difficulty coordinating a mutually convenient date and time for Bruno to meet the men it deemed good matches for her. The delay does not give rise to an inference — let alone a strong inference — sufficient to support general allegations of knowledge in claims governed by Rule 9(b).
With respect to scienter, "no inference of fraudulent intent can be drawn . . . from the mere compilation of the experiences of [] dissatisfied" consumers. New York Univ., 87 N.Y.2d at 319, 639 N.Y.S.2d at 289; see Mills, 12 F.3d at 1176 (declining to infer fraudulent intent from the fact the defendant breached a number of contracts). The plaintiffs contend the defendants had motive and opportunity to commit fraud and "consciously engaged in fraud." The plaintiffs explain that the defendants' motive was to make "more money" and the opportunity was afforded by virtue of the fact that the plaintiffs "could not" know the defendants were lying. In assessing purported motives to commit fraud, a court "assume[s] that [a] defendant is acting in his or her informed economic self-interest." Shields, 25 F.3d at 1130. In other words, a desire to increase company profits cannot, standing alone, be a sufficient basis on which to predicate a fraud claim, lest every company be vulnerable to allegations of fraud. See id.
In the plaintiffs' attempt to plead "conscious misbehavior," they have undermined their allegations of fraudulent intent. The plaintiffs have annexed, as exhibits to the complaint, pages from a manual IJLI uses to train "franchise owners and directors." The training manual provides several "control points that are [to be] said in verbatim in an interview" by franchise staff members. Following the first control point, an interviewer says, to a prospective client, "if I have what you're looking for, I'll get you started today! If I don't, then we just hold off[.]" Following the second control point, an interviewer says to a prospective client, "I have 3-4 ideas for your first date." Given the plaintiffs' allegations that IJLI monitors its franchises to ensure strict adherence to the scripts it provides, it is unlikely franchise staff members veered from the control points during initial client interviews. The control points suggest IJLI advises its franchises against enrolling prospective clients, unless the franchise has matches suiting the prospective client's preferences. In fact, the training manual's "second step" for following up with a prospective client, who declines to enroll with an IJLI franchise at an initial client interview, is to "call [the prospective client] the next day with two people who fit their profile and are excellent matches" to entice the client to join. Here, contrary to the plaintiffs' assertions, the training manual instructs a franchise explicitly to find matches for prospective elients before representing such matches exists. If franchise staff members deviated from their script and represented to each plaintiff that the respective franchise had good matches for each plaintiff, this fact may be "sufficient to allege that the defendants were wrong; but misguided optimism is not a cause of action, and does not support an inference of fraud." Shields, 25 F.3d at 1129. As the plaintiffs' allegations "stop[] short of the line between possibility and plausibility[,]" see Twombly, 550 U.S. at 557, 127 S. Ct. at 1966, their fraudulent inducement claim fails.
2. Violation of NYGBL § 349
NYGBL § 349(a) prohibits "[d]eceptive acts or practices in the conduct of any business" in New York. The statute creates a private cause of action for any person injured by a violation of the law. See NYGBL § 349(h). To establish a prima facie case under NYGBL § 349, a plaintiff must show: (1) the defendant directed deceptive acts at consumers; (2) the defendant's acts mislead in a material way; and (3) an injury, as a result of the defendant's acts. See City of New York v. Smokes-Spirits.com, Inc., 541 F.3d 425, 455 (2d Cir. 2008), rev'd on other grounds sub nom. Hemi Group, LLC v. City of New York, ___ S. Ct. ___, 2010 WL 246151 (2010). A plaintiff is not subject to the heightened pleading requirements of Fed.R.Civ.P. 9(b) and need not prove actual reliance to state a claim under NYGBL § 349. See Pelman v. McDonald's Corp., 396 F.3d 508, 511 (2d Cir. 2005). However, "the transaction in which the consumer is deceived must occur in New York." Goshen v. Mutual Life Ins. Co. of New York, 98 N.Y.2d 314, 324, 746 N.Y.S.2d 858, 863 (2002).
Plaintiffs Rodriguez and Bruno assert claims under NYGBL § 349 against IJLI, IJL, Inc., and H S. In their motion to dismiss, the defendants contend the plaintiffs have not pleaded claims under NYGBL § 349 sufficiently, because they have failed to allege that deceptive acts were consumer-oriented, occurred in New York or were materially misleading.
a. Consumer-Oriented Acts
The threshold inquiry under NYGBL § 349 is whether the plaintiffs have pleaded facts demonstrating the alleged deceptive "acts or practices have a broad[] impact on consumers at large."Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 25, 623 N.Y.S.2d 529, 532 (1995). This may be shown by allegations that the acts complained of "potentially affect similarly situated consumers." See id., 85 N.Y. 2d at 27, 623 N.Y.S.2d at 533.
The plaintiffs allege IJLI and IJL New York City deceived consumers through three mechanisms; (1) misrepresentations made on IJLI's Web site and printed in magazine advertisements; (2) misrepresentations in the "scripts" spoken by franchise staff members during interviews with prospective clients; and (3) contract-signing appointments, where prospective clients were encouraged to execute two six-month contracts for $1,500.00, "to circumvent state laws which prohibit dating services from charging a client more than $1,000.00 per year."
IJLI's Web site and its magazine advertisements were clearly intended to reach the public at-large in order to increase franchise membership. Similarly, insofar as the complaint alleges the oral misrepresentations made by franchise staff members were "routine[]" and made "according to the mandatory IJL[I] [] script" all staff members were "required to follow," the statements made to Rodriguez and Bruno cannot be considered "unique to these two parties . . . or 'single shot transaction[s].'" See id., 85 N.Y.2d at 26, 623 N.Y.S.2d at 533 (internal quotation marks and citation omitted). Furthermore, with respect to the overcharging allegation, the New York attorney general's determination to conduct his own investigation into this charge, itself, signals the conduct was consumer-oriented. See Vitolo v. Mentor H/S, Inc., 213 Fed. Appx. 16, 18 (2d Cir. 2007), cert. denied, 552 U.S. 815, 128 S. Ct. 77 (2007).
In 2007, the New York attorney general determined that "[b]y having consumers sign two contracts simultaneously, for an aggregate amount in excess of $1,000.00, IJLI's New York State franchisees" violated NYGBL § 394.c(2). See Compl. Ex. D, ¶ 8. By violating this section, the attorney general found IJLI "therefore also violate[d] GBL Art. 22-A," under which NYGBL § 349 is codified. See id. ¶ 11. IJLI entered into an Assurance of Discontinuance with the attorney general's office to avoid litigation, though it did "not admit [to] the Findings," Id. ¶ 12. The Assurance expressly provides that it shall not be construed to "deprive any person . . . any private right under law." Id. ¶ VI.
The Court is convinced that "the gravamen of the complaint" is injury to the public interest. See Securitron Magnalock Corp. v. Schnabolk, 65 F.3d 256, 264 (2d Cir. 1995) (internal quotations and citation omitted), cert. denied, 516 U.S. 1114, 116 S. Ct. 916 (1996). Additionally, the plaintiffs have satisfied the geographic restriction of NYGBL § 349, insofar as they allege IJLI ran advertisements in New York and that IJL New York City staff members made oral misrepresentations, during initial client interviews, at their office.
b. Material Misrepresentations
"The New York Court of Appeals has adopted an objective definition of 'misleading,' under which the alleged act must be 'likely to mislead a reasonable consumer acting reasonably under the circumstances.'" Cohen v. JP Morgan Chase Co., 498 F.3d 111, 126 (2d Cir. 2007) (citing Oswego, 85 N.Y.2d at 26, 623 N.Y.S.2d at 533). NYBGL § 349 "contemplates actionable conduct that does not necessarily rise to the level of fraud." Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 343, 704 N.Y.S.2d 177, 182 (1999).
The plaintiffs attach, to their complaint, information posted to IJLI's Web site and three IJLI advertisements run in New York publications. On its Web site, IJLI claims its staff members have "years of experience," and that they match clients based on information discussed in a prospective client's initial interview. In its advertisements, IJLI describes its service as "[d]ating for busy professionals." The plaintiffs contend that IJLI routinely hires staff members with no "experience, training, or background" in matchmaking, IJLI franchises "almost completely ignore" client preferences when making matches, and IJLI franchises have persons who are not professionals in their databases.
As described by the plaintiffs, the representations made on IJLI's Web site and in its advertisements are not materially misleading. The representations are descriptions of the defendants' business, not express promises, which the defendants cannot fulfill. See, e.g., Smokes-Spirits.com, Inc., 541 F.3d at 456 (finding material misrepresentation where company "affirmatively assure[d]" consumers no taxes needed to be paid on a product, when they did). The claim that IJLI's "staff members have years of experience" appears, based on allegations in the complaint, to be true. IJLI began operating in 1991 and has arranged over two million first dates. Though an individual starting a new franchise may not have experience in matchmaking, IJLI provides training to all franchise owners and directors, passing on its institutional knowledge gained over the years. As to the claim that franchise clients are matched based on information discussed in their initial interview, a reasonable consumer would not interpret this to mean only qualities outlined in the initial client interview controlled the selection of dates. Matchmaking is an inherently subjective service; part of what IJLI offers is the ability to have a trained matchmaker use his or her "instincts" to determine client compatibility. Finally, IJLI's description of its business as "dating for busy professionals" is subjective. IJLI does not, in its advertisements, define who it considers to be a professional; it does not claim to be a dating service exclusively for lawyers or other white-collar professionals. A reasonable consumer would not be acting reasonably to assume otherwise, based solely on IJLI's advertisements. In sum, the plaintiffs have failed to allege representations on IJLI's Web site and in its advertisements that were materially misleading.
Rodriguez avers an "IJL representative," at the New York City office, promised her at least six dates, "strictly with other professionals," but Rodriguez was only "set up" with four dates, at least one of whom was not a "professional." Further, Bruno alleges that, at her initial client interview with IJL New York City, a franchise staff member told her falsely there were already two IJL members who "fit what [Bruno] was looking for." For the reasonable consumer considering membership with a dating service, oral assurances about the quantity and quality of potential dates would weigh heavily in deciding whether to join. Thus, the oral representations made allegedly by IJL New York City staff members may be deemed materially misleading.
"New York courts have held that collecting fees in violation of other federal or state laws may satisfy the misleading element of § 349." Cohen, 498 F.3d at 126. A reasonable consumer may assume that fees charged by a long-standing, established business are legal. See id. at 126-27. Given the New York attorney general's own conclusion, that IJLI and IJL New York City's practices violated NYGBL § 394-c(2), the plaintiffs' allegation, that IJLI and IJL New York City overcharged clients in violation of state law, satisfies the materially misleading element of the NYGBL § 349 claim. See generally Broder v. Cablevision Sys. Corp., 418 F.3d 187, 199-200 (2d Cir. 2005) (upholding dismissal of NYGBL § 349 claim premised on violation of state law that did not provide its own private right of action); Cohen, 498 F.3d at 127 (holding allegation that defendant charged a fee in violation of federal law, that created its own private right of action, as sufficient to constitute a deceptive practice under NYGBL § 349); NYGBL § 394-c(9)(b) (creating private right of action).
c. Actual Injury
A plaintiff seeking redress through NYGBL § 349 "must show that the defendant engaged in a material deceptive act or practice that caused actual, although not necessarily pecuniary, harm."Oswego, 85 N.Y.2d at 26, 623 N.Y.S.2d at 533. "Although a monetary loss is a sufficient injury to satisfy the requirement under [NYGBL] § 349, that loss must be independent of the loss caused by the alleged breach of contract." Spagnola v. Chubb Corp., 574 F.3d 64, 74 (2d Cir. 2009). The plaintiffs allege they have "suffered monetary damages and other losses" owing to the IJLI and IJL New York City's violations of NYGBL § 349. Rodriguez and Bruno appear to be seeking only refunds of their respective membership fees.
"[C]onsumers who buy a product that they would not have purchased, absent a manufacturer's deceptive commercial practices," have not suffered an injury cognizable under NYGBL § 349. Small v. Lorillard Tobacco Co., Inc., 94 N.Y.2d 43, 56, 698 N.Y.S.2d 615, 62021 (1999). As deception cannot be "both act and injury," id., 94 N.Y.2d at 56, 698 N.Y.S.2d at 621, Rodriguez and Bruno's allegations of registering for dating services, based on misleading representations by IJL New York City staff members, may not constitute injury, under NYGBL § 349. However, to the extent Rodriguez also alleges she paid a higher price for the dating service, than she otherwise would have, absent deceptive acts, she has suffered an actual injury and has stated a claim for relief under NYGBL § 349. See Jernow v. Wendy's Int'l, Inc., No. 07 Civ. 3971, 2007 WL 4116241, at *3 (S.D.N.Y. Nov. 15, 2007) (holding payment of a premium to constitute sufficient pleading of actual injury).
3. Violation of NYGBL § 350
NYGBL § 350 proscribes "[f]alse advertising in the conduct of any business . . . or in the furnishing of any service" in New York. Any person injured by a violation of the statute may bring an action to recover damages. See NYGBL § 350-e(3). "The standard for recovery under [NYGBL] § 350, while specific to false advertising, is otherwise identical to [NYGBL §] 349." Goshen, 98 N.Y.2d at 324 n. 1, 746 N.Y.S.2d at 863 n. 1. In other words, to establish a prima facie case under NYGBL § 350, a plaintiff must show: (1) the defendant directed advertisements at consumers; (2) the advertisements mislead in a material way; and (3) an injury, as a result of the advertisements. See Maurizio v. Goldsmith, 230 F.3d 518, 522 (2d Cir. 2000) (applying "same interpretation" to NYGBL § 350, as to NYGBL § 349); see also NYGBL § 350-a(1) (defining "false advertising" as that which is "misleading in a material respect"). Additionally, unlike a claim brought under NYGBL § 349, a claim brought pursuant to NYGBL § 350 requires proof of actual reliance. See Pelman, 396 F.3d at 511.
For the reasons detailed in the analysis of the Rodriguez and Bruno NYGBL § 349 claims, the plaintiffs have not stated a claim for relief, under NYGBL § 350, adequately.
4. Breach of Contract
To state a claim for breach of contract under New York law, a claimant must allege: (1) the formation of an agreement; (2) performance of the agreement by one party; (3) breach by the other party; and (4) damages. Berman v. Sugo LLC, 580 F. Supp. 2d 191, 202 (S.D.N.Y. 2008) "Stating in a conclusory manner that an agreement was breached does not sustain a claim of breach of contract." Id. Rather, a claimant must demonstrate the existence of an enforceable contract, through specific allegations about the parties to the agreement, the date of the contract's formation, and the contract's "major terms." See id. (dismissing breach of contract claim where pleading contained no facts relating to the formation of the contract). "[A] claim that fails 'to allege facts sufficient to show that an enforceable contract existed' between the parties is subject to dismissal." Id. (citation omitted). Moreover, a pleading must contain allegations about "the specific provisions of the contract upon which liability is predicated." Sud v. Sud, 211 A.D.2d 423, 424, 621 N.Y.S.2d 37, 38 (App. Div. 1st Dep't 1995); see Kramer v. Lockwood Pension Servs., Inc., 653 F. Supp. 2d 354, 386 (S.D.N.Y. 2009) (noting that a claimant must plead "what provisions of the agreement were breached").
In their complaint, the plaintiffs allege they enrolled for IJLI's services, at various franchise offices, at different times. They contend the defendants breached their contracts by not providing "expert" matchmaking, "based upon clients' preferences," as promised.
The plaintiffs have failed to plead facts sufficient to prove they entered into enforceable contracts. Though some plaintiffs allege when they signed their contracts, most do not. The plaintiffs have failed to specify the parties to alleged contracts, insofar as their allegations muddle the distinction between IJLI and its franchises. Most importantly, the plaintiffs have failed to set forth the terms of their alleged contracts. As the plaintiffs have failed to allege the essential terms of their contracts, they have, consequently, not pointed to the specific provisions they contend the defendants violated. Accordingly, the plaintiffs have failed to plead sufficiently a breach of contract claim against any of the defendants.
The plaintiffs allege they entered into contracts with IJLI, "through the IJL Franchises." However, insofar as IJLI is alleged to be a franchiser, albeit one that exercises "complete dominion" over its franchises, it is unclear why it would be entering into thousands of individual contracts with its franchisees' clients, rather than simply negotiating franchise agreements.
5. Unjust Enrichment
To state a claim for unjust enrichment under New York law, a claimant must allege facts establishing that: (1) the defendant benefitted; (2) the benefit came at the plaintiff's expense; and (3) "equity and good conscience require restitution." Beth Israel Med. Ctr. v. Horizon Blue Cross and Blue Shield of New Jersey Inc., 448 F.3d 573, 586 (2d Cir. 2006). The theory of unjust enrichment sounds in quasi-contract. Id. Therefore, although proof of an enforceable contract, either oral or written, precludes recovery under the theory of unjust enrichment, Fed.R.Civ.P. 8(d) permits parties to plead alternative, even inconsistent, claims. See Orange County Choppers Inc. v. Olaes Enters., Inc., 497 F. Supp. 2d 541, 557 (S.D.N.Y. 2007).
Since the plaintiffs have not, as of yet, demonstrated the existence of an enforceable contract(s), their unjust enrichment claim is not precluded, as a matter of law. The plaintiffs' allegations that they paid the defendants for dating services, but received service of an inferior quality to what they had been promised, are sufficient to state a claim of unjust enrichment.
6. Civil Conspiracy
The plaintiffs allege that the defendants "entered into a conspiracy to engage in [] wrongful conduct." The plaintiffs did not address the defendants' motion to dismiss with regard to this claim. Therefore, "it is deemed abandoned" and need not be entertained by the court. Hanig v. Yorktown Cent. Sch. Dist., 384 F. Supp. 2d 710, 723 (S.D.N.Y. 2005); see Abbatiello v. Monsanto Co., 522 F. Supp. 2d 524, 530 (S.D.N.Y. 2007).
Even if the plaintiffs had opposed the motion with respect to this claim, they would be unable to obtain relief on the claim as "New York does not recognize an independent tort of conspiracy."Kirch v. Liberty Media Corp., 449 F.3d 388, 401 (2d Cir. 2006).
B. Standard for Rule 11 Sanctions
Under Fed.R.Civ.P. 11(c)(2), a party may move for sanctions against an attorney or party, but "[a] motion for sanctions must be made separately from any other motion[.]" The moving party must wait at least 21 days after effectuating service of its motion to file it with the court, in order to permit the nonmoving party to "withdraw[] or appropriately correct[]" the challenged submission. See Fed.R.Civ.P. 11(c)(2).
The defendants' request that the court impose sanctions on the plaintiffs' counsel appears as the final point in the defendants' memorandum of law, submitted in support of the motion to dismiss. The defendants failed to submit either a separate Rule 11 sanctions motion or a memorandum of law in connection with their request for sanctions. Additionally, there is no evidence the defendants served the plaintiffs' counsel with their request at least 21 days prior to presenting it to the court.
In doing so, the defendants violate Local Civil Rule 7.1(a) of the Local Rules of the United States District Courts for the Southern and Eastern Districts of New York, which provides, in pertinent part, that "all motions . . . shall be supported by a memorandum of law[.]" That, alone, provides sufficient ground to deny their motion. See Local Rule 7.1(a).
The defendants have failed to comply with the procedural requirements of Rule 11; consequently, no basis exists for granting their motion for sanctions. See Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 142 (2d Cir. 2002) (holding an award of sanctions despite "contravention of the explicit procedural requirements of Rule 11" to be an abuse of discretion); Hadges v. Yonkers Racing Corp., 48 F.3d 1320, 1328 (2d Cir. 1995).
RECOMMENDATION
For the reasons set forth above, I recommend that the defendants' motion to dismiss the Second Amended Complaint, Docket Entry No. 59, be granted as to all claims except: (1) Rodriguez's claim for a violation of NYGBL § 349; and (2) unjust enrichment. I recommend further that the defendants' motion for sanctions be denied.
FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b)(2) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days from service of this Report to file written objections.See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Sidney H. Stein, 500 Pearl Street, Room 1010, New York, New York 10007, and to the chambers of the undersigned, 40 Centre Street, Room 540, New York, New York 10007. Any requests for an extension of time for filing objections must be directed to Judge Stein. FAILURE TO FILE OBJECTIONS WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140, 470 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 58-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).