D'Amato v. Five Star Reporting, Inc.

80 F.Supp.3d 395

Dorothy D'AMATO, Plaintiff

v.FIVE STAR REPORTING, INC. and Michael Rafkind, Defendants.

No. 12–cv–3395 ADSAKT.

United States District Court, E.D. New York.

Signed Jan. 17, 2015.

Zabell & Associates, P.C. by Saul D. Zabell, Esq., of Counsel, Bohemia, NY, Attorney for the Plaintiff.

Kaufman, Dolowich, Voluck & Gonzo, LLP by Leslie M. DiBenedetto, Esq., Scott A. Goodman, Esq., Jeffery A. Meyer, Esq., of Counsel, Woodbury, NY, Attorneys for the Defendant.

MEMORANDUM OF DECISION & ORDER

SPATT, District Judge.

On August 31, 2010, Reporter's Ink Corp. (“Reporter's Ink”) entered into an agreement with the Plaintiff Dorothy D'Amato (“D'Amato”) to acquire her shares of the Defendant Five Star Reporting, Inc. (“Five Star”) in exchange for structured payments of $500,000. As part of the agreement, the Plaintiff was hired by Five Star as a manager of sales and customer retention.

On July 10, 2012, the Plaintiff commenced this action against the Defendants Five Star and Michael Rafkind, the President of Five Star, (collectively, the “Defendants”) seeking declaratory relief and monetary damages for overtime compensation and commissions allegedly owed to her by the Defendants. She asserted common law causes of actions for breach of contract and in the alternative, quantum meruit and unjust enrichment. In addition, she asserted that the Defendants violated various provisions of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq. and New York Labor Law (“NYLL”), N.Y. Lab. Law § 190 et seq.

On September 21, 2012, the Defendants filed counterclaims against the Plaintiff. In particular, the Defendants sought $210,000 in monetary damages and asserted that the Plaintiff (i) breached the Share Purchase Agreement by failing to disclose to Reporter's Ink the pre-acquisition liabilities, tax liens, and obligations of Five Star; and (ii) in the alternative, was unjustly enriched by her failure to disclose Five Star's pre-acquisition liabilities.

On December 21, 2012, the Plaintiff amended her complaint to add claims for retaliation under the FLSA and the NYLL.

Presently before the Court are (i) the Plaintiff's motion for summary judgment pursuant to Federal Rule of Civil Procedure (“Fed. R. Civ.P.”) 56 on its claims against the Defendants and to dismiss the Defendants' counterclaims; and (ii) the Defendants' cross-motion pursuant to Fed.R.Civ.P. 56 for summary judgment on their counterclaims and to dismiss the Plaintiff's claims.

For the following reasons, the parties' motions are granted in part and denied in part.

I. BACKGROUND

Unless stated otherwise, the following facts are drawn from the parties' Rule 56.1 statements. Triable issues of fact are noted.

A. The Parties

The Defendant Five Star is a New York corporation that manages and owns court reporting operations in Suffolk County, New York. (Am. Compl. at ¶ 13; the Defs.' Counterstatement of Facts at ¶ 3.) Five Star has gross revenues in excess of $500,000 per year.

The Defendant Michael Rafkind (“Rafkind”) is a domiciliary of New Jersey (Am. Compl. at ¶ 4; the Def.'s Answer at ¶ 4.) Prior to the acquisition of Five Star by Reporter's Ink on August 31, 2010, Rafkind was a principal of Reporter's Ink. (Rafkind Decl. at ¶ 18.) Following the acquisition, Rafkind became the President of Five Star. (Id. at ¶ 1.)

The Plaintiff is a resident of Suffolk County. From August 31, 2010 to March 12, 2012, she was employed by Five Star as a “manager of sales and customer retention.” (D'Amato Decl. at ¶¶ 4, 33.)

B. Pre–Acquisition Debts and Obligations of Five Star

Prior to Reporter's Ink acquiring Five Star on August 31, 2010, Five Star had defaulted on certain obligations and incurred tax assessments. In particular, on October 3, 2007, Five Star entered into an equipment lease with De Lage Landen Financial Services, Inc. (“De Lage”) to lease equipment for a period of sixty-three months for $1,915.06 per month. (Meyer Decl., Ex. F.) Five Star made a total of $6,300 of the $76,602.40 in payments owed to De Lage before defaulting on the lease agreement. (Id. )

In addition, Five Star had a lien for unpaid taxes that was later assessed by the Internal Revenue Service (“IRS”) on September 1, 2010 to be $28,268.66. (Meyer Decl., Ex. G; Rafkind Decl. at ¶ 24.)

Lastly, prior to August 31, 2010, Five Star had outstanding invoices for services rendered by the following vendors: “State Insurance Fund, Safe Guard, Pitney Bowes, Broadview Networks, Village Office Supply, Votto & Cassata, Steinberg & Boyle, Lisseth Cutti, U.S. Legal Support and Wells Fargo.” (Rafkind Decl. at ¶ 24; Meyer Decl., Ex. E.) The Defendants do not provide the invoices from these vendors, nor do they make clear how much money Five Star owed to each of the vendors.

C. Negotiations Prior to the Share Purchase Agreement

Prior to entering the Share Purchase Agreement, the Plaintiff, together with Lisa Lugo (“Lugo”) and Adrienne Militello (“Militello”) (collectively, the “Sellers”), were the sole shareholders of Five Star. As stated above, Rafkind was then a principal of Reporter's Ink and was involved in negotiating the Share Purchase Agreement with the Sellers. (Rafkind Decl. at ¶ 19.) The parties do not make clear when negotiations commenced.

During negotiations, Lugo, Militello, and the Plaintiff provided documents to Reporter's Ink regarding Five Star's business. (Zabell Decl., Ex. I.) The parties do not make clear the precise date when the Plaintiff provided these documents to Reporter's Ink. However, an undated report entitled, “Due Diligence” lists the documents that were provided to Reporter's Ink as part of the due diligence process. (Id. at 1.) In particular, page 13 of the report, entitled “Financial Information,” notes in response to a request for “tax returns” “for the last five years,” “[t]ax returns [were] supplied.” (Id. at 13.) In addition, page 16 of the document, entitled “Taxation,” asks “each member of the Group” to specify the “latest date up to which tax returns and computations have been settled.” In response, the document states, “3rd quarter 2010 for all taxes.” (Id. at 16.) For purposes of the present motion, the parties did not provide the Court with the tax returns or other documents that were allegedly provided to the Defendants prior to the closing.

The Plaintiff asserts that based on reviewing Five Star's tax returns, the Defendants were aware of Five Star's tax liabilities and other obligations. (The Pl.'s Statement of Facts at ¶ 27.) However, the Defendants assert that these documents, including the tax returns, did not indicate Five Star's outstanding debts. (Rafkind Decl. at ¶ 16.)

In addition, the Plaintiff, represents that Rafkind “assured” her prior to the signing the Share Purchase Agreement that “he would take responsibility for any and all remaining liabilities attributable to Five Star and to [her], as a former shareholder.” (D'Amato Decl. at ¶ 50.) Rafkind disputes making such a statement. (Rafkind Decl. at ¶ 24.)

D. The Share Purchase Agreement

On August 31, 2010, Reporter's Ink entered into an agreement with the Sellers to purchase one hundred fifty shares of common stock of Five Star, which shares represented one hundred percent of the total outstanding shares of stock of the corporation. (Meyer Decl., Ex. B, at 1.) As a result, Reporter's Ink became the sole shareholder of Five Star. (See id. ). As described below, it appears that Reporter's Ink became the parent company of Five Star, and Five Star continued to do business as a court reporting company under its own name. However, the parties do not make clear the precise relationship of Reporter's Ink to Five Star following the acquisition. In addition, Reporter's Ink is not a party to this action.

In consideration for the shares, Reporters Ink agreed to pay each Seller $500,000 for a total of $1,500,000. (Id. at 1–2.) In that regard, Reporter's Ink agreed to pay each Seller $200,000 at closing and the remaining $300,000 in structured payments beginning on September 1, 2011. (Id. at 2.)

As “additional consideration,” the Sellers agreed to “retain responsibility and liability for any lawsuits, claims or other obligations or liabilities of [the] [S]ellers or Five Star, incurred prior to the date of closing, of any kind and nature other than those specifically assumed under this Agreement.” (Id. at 3.)

In addition, Reporter's Ink. agreed that the Sellers “will be guaranteed court reporting work for a minimum of $20,000 per seller per calendar year for three (3) years starting January 1, 2011.” (Id. )

In a section entitled, “Representations by Sellers,” the Sellers represented that: (i) “[the] Sellers have disclosed all assets and liabilities of Five Star to [the] buyer”; (ii) “Five Star's payment of the taxes owed by it is current and not in arrears”; (iii) “[the] Sellers are aware of no actions against [the] [S]ellers(s) and no facts which could or may give rise to an action against [the] [S]ellers(s)”; (iv) “[the] [S]ellers are aware of no actions against the corporation and no facts which could or may give rise to an action against the corporation or Five Star other than the New York State Department of Labor investigation involving Rebecca Wood”; and (v) “[the] [S]ellers are not aware of any liens against corporate property[.]” (Id. at 4.)

In a section entitled, “Warranties by Sellers,” the Sellers warranted that “Five Star will be free of any debt at the date of the sale (including shareholders loans, and/or other shareholder financing), as related to Five Star, not personally by each shareholder.” Id. at 5. The Sellers further warranted that “[a]ny existing UCC filings will be removed and federal, state and local taxes will be filed and paid to date other than the disclosed IRS Payroll Tax Lien.”

Finally, in a section entitled, “Indemnity for taxes—Sale of stock,” the Agreement states that the Sellers “will indemnify [Reporter's Ink] for ... any and all liabilities, including, without limitation, interest, additions to tax, fines,...