Haraden Motorcar Corp. v. Bonarrigo

HARADEN MOTORCAR CORPORATION d/b/a MOHAWK HONDA, Plaintiff, v. NICHOLAS S. BONARRIGO, Defendant.

1:19-cv-01079 (BKS/DJS)

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK

April 20, 2020

Appearances:

For Plaintiff:

James T. Towne, Jr.

Town, Ryan & Partners, P.C.

P.O. Box 15072

450 New Karner Road

Albany, NY 12212-5072

For Defendant:

James R. Peluso

Dreyer Boyajian LLP

75 Columbia Street

Albany, NY 12210

Hon. Brenda K. Sannes, United States District Judge:

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

Plaintiff Haraden Motorcar Corporation d/b/a Mohawk Honda brings this diversity action against Defendant Nicholas S. Bonarrigo, alleging the following claims under New York law stemming from Defendant's employment with Plaintiff: (1) conversion (First Claim), (2) violation of the faithless servant doctrine (Second Claim), (3) unjust enrichment (Third Claim), (4) fraud and deceit (Fourth Claim), and (5) breach of fiduciary duty (Fifth Claim). (Dkt. No. 12). Defendant moves to dismiss Plaintiff's Amended Complaint under Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 13). The parties have filed responsive briefing. (Dkt. Nos. 16, 18). For the following reasons, Defendant's motion is granted in part.

II. FACTS¹

Plaintiff owns Mohawk Honda, an automotive dealership in Scotia, New York. (Dkt. No. 12, ¶¶ 7-8). Plaintiff employed Defendant as the general manager of Mohawk Honda from February 1, 2012 until August 21, 2018. (Id. ¶ 9). As general manager, Defendant was "in control of day-to-day affairs and operations" at Mohawk Honda. (Id. ¶ 10). This included control over "financial affairs" and "financial information." (Id. ¶ 68).

Beginning on February 1, 2012, Defendant was paid an "annual base salary" of $220,000 along with 8% of net profits from January through December. (Id. ¶ 12). "On or about May 1, 2012," Defendant's annual base salary was reduced to $119,600. (Id. ¶ 13). Defendant's share of net profits "from January through November" was increased to 10%. (Id.).

On or about December 31, 2013, without Plaintiff's "knowledge or consent," Defendant's annual base salary was increased to $240,000, and Defendant's share of net profits was reduced to 6.5%. (Id. ¶ 14). As of the December 2013 change in compensation until his termination in or around August 2018, Defendant's "commission calculation did not include . . . the month of December" and was only calculated based on "net profits from January to November for each calendar year of Defendant's employment." (Id. ¶ 15).

After Defendant's employment with Plaintiff was terminated in or around August 2018, Plaintiff discovered "through a forensic accounting investigation that between Defendant's dateof hire" until Defendant's termination that "Defendant received overpayments in compensation, commission, and reimbursable expenses" that were "neither authorized or known to Plaintiff." (Id. ¶ 16). Defendant "caused to be entered" into Plaintiff's "books and records" various forms of overpayment in a deceptive way that "obscure[d]" their details. (Id. ¶¶ 16, 63, 66-67). As described in further detail below, Plaintiff alleges three broad categories of overpayment that Defendant received during his employment: (1) the strategic inflation of profits and losses, (id. ¶¶ 18-21), (2) undue reimbursable expenses, (id. ¶¶ 24-31), and (3) other excess and "otherwise unexplained" compensation. (Id. ¶¶ 22-25).

A. Profit/Loss Inflation

Plaintiff alleges that Defendant was overcompensated because he inflated net profits from January to November and inflated "net losses in December," the month excluded from Defendant's commission compensation. (Id. ¶¶ 15-17, 42, 62). To accomplish this, Defendant engaged in various actions from 2013-18 and "obscure[d] the details thereof." (Id. ¶¶ 18, 62, 76). These actions increased the compensation Defendant received through commission above what was he entitled to. (See id. ¶¶ 17, 20-21).

For instance, Defendant would carry an excessive "amount of prepaid taxes and expenses on balance sheets from January to November, which were subsequently written off as an expense in December." (Id. ¶¶ 18a, 62a). Defendant also overstated fixed assets by recording items as such from January to November only to write them off in December as "repairs, maintenance, [and] data processing" in addition to other items. (Id. ¶ 18e). Defendant also failed to "record depreciation expenses from January to November and only record[ed] depreciation expenses in December to inflate net profits." (Id. ¶ 18f). Plaintiff alleges other specific schemes that sought to inflate net profits "from January to November," including "improper recording of payroll expenses" and "payroll accruals," (id. ¶¶ 18g, 18h), while inflating net losses in December. (Id.¶¶ 18-20, 42, 62). As a result of his conduct, Defendant received a 13.1% commission in 2013, 8.5% in 2014, 15.1% in 2015, and 22.8% in 2016, 13.1% in 2017, and 7.1% in 2018. (Id. ¶ 20). Plaintiff did not know or authorize this conduct. (Id. ¶ 19). In total, Defendant received $644,858 in excess commission from 2013-18. (Id. ¶ 21).

B. Undue Reimbursements

Plaintiff's "forensic accounting investigation further uncovered that" from 2016-18 "Defendant invoiced expense reimbursements without providing sufficient documentation, proof and/or receipts to substantiate" the invoiced expenses. (Id. ¶¶ 26, 43, 63-64). Defendant caused "inaccurate, misleading, and false entries" to be entered into "Plaintiff's books and financial records" to "disguise and deceive . . . Plaintiff as to the true nature" of the reimbursements. (Id. ¶ 64). Plaintiff did not know or consent to Defendant's invoicing reimbursement practices. (Id. ¶ 26). Defendant "wrongfully received a total" of $79,405.68 in reimbursements. (Id. ¶¶ 27-30). Plaintiff suffered "monetary loss" as a result of these "entries and invoiced expenses" (Id. ¶¶ 31). Defendant knew he was "misrepresent[ing] the true value of his reimbursable expenses" during this time period. (Id. ¶¶ 64, 66-67).

C. Other Excess and Unexplained Compensation

Plaintiff's forensic accounting investigation also uncovered that Defendant received $2,209 in excess compensation from 2013 to 2018 that Defendant "was not entitled to receive as compensation." (Id. ¶¶ 22-23). In addition, Plaintiff's forensic accounting investigation uncovered that Defendant received "otherwise unexplained compensation from 2013-15" that "he was not entitled to receive." (Id. ¶¶ 24, 65). This "unexplained compensation" totaled $189,111. (Id. ¶ 25). "Defendant knew" he was "misrepresent[ing] the true value of his compensation," that he was receiving "overpaid and unexplained compensation," and "disguised. . . the true value of his compensation" while employed as Plaintiff's General Manager. (Id. ¶¶ 65-67). Plaintiff did not know or consent to any of this compensation. (Id. ¶¶ 23-25).

Defendant "wrongfully took from Plaintiff a total of $915,583.68 from January 1, 2013 to August 21, 2018. (Id. ¶ 32). Plaintiff has demanded Defendant return the funds but Defendant "continues to exercise dominion and control over Plaintiff's said funds." (Id. ¶¶ 37, 53-55, 69). Plaintiff requests compensatory and punitive damages, (id. at 20), and claims he is entitled to forfeiture of Defendant's "salary, benefits and commission paid by Plaintiff to Defendant for the period of Defendant's unfaithfulness," which Plaintiff estimates is no less than $3,042,705.68. (Id. ¶ 48).

III. LEGAL STANDARD

To survive a motion to dismiss under Rule 12(b)(6) for failure to state a claim, "a complaint must provide 'enough facts to state a claim to relief that is plausible on its face.'" Mayor & City Council of Balt. v. Citigroup, Inc., 709 F.3d 129, 135 (2d Cir. 2013) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plaintiff must provide factual allegations sufficient "to raise a right to relief above the speculative level." Id. (quoting Twombly, 550 U.S. at 555). The court must accept as true all factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. See EEOC v. Port Auth., 768 F.3d 247, 253 (2d Cir. 2014) (citing ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007)). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

IV. DISCUSSION

A. Documents to Consider in Deciding Motion to Dismiss

Defendant attaches several documents in support of his motion: (1) a declaration sworn by Defendant, (2) an email apparently sent on December 31, 2013, (3) a declaration sworn byDefendant that was submitted with Defendant's prior motion to dismiss in this case, (4) the original complaint filed in this case, (5) a state court complaint Plaintiff filed in a separate lawsuit,² and (6) and an affidavit submitted by Julie A. Harrison, the defendant in that lawsuit. (Dkt. Nos. 13-2, 13-3). Plaintiff has submitted a demand letter apparently sent to Defendant prior to the filing of this lawsuit. (Dkt. No. 16-1, at 85-86).

Thus, as a preliminary matter the Court must decide which of these documents, if any, to consider in resolving this motion. "Generally, consideration of a motion to dismiss under Rule 12(b)(6) is limited to consideration of the complaint itself." Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir. 2006). However, considering "materials outside the complaint is not entirely foreclosed on a 12(b)(6) motion." Id. A complaint "is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Nicosia v. Amazon.com, Inc., 834 F.3d 220, 230 (2d Cir. 2016) (quoting Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002)). "Where a document is not incorporated by reference, the court may nevertheless consider it where the complaint relies heavily upon its terms and effect, thereby rendering the document integral to the...