Munn v. APF Mgmt. Co.

MOLLY MUNN, Plaintiff, v. APF MANAGEMENT COMPANY, LLC,CARL E. PETRILLO, GREGORY J. PETRILLO,MATTHEW J. PETRILLO, SELZNICK & CO. LLP,JOSEPH KLAUSNER, AND JOHN DOES 1-10, Defendants.

No. 19-CV-10791 (CS)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

December 10, 2020

OPINION & ORDER

Appearances:

Matthew T. Eyet

Eyet Law LLC

New Brunswick, New Jersey

Counsel for Plaintiff

Robert A. Spolzino

Edward A. Smith

Abrams, Fensterman, Fensterman, Eisman,

Formato, Ferrara, Wolf & Carone, LLP

White Plains, New York

Counsel for Defendants APF Management Company, LLC,

Carl E. Petrillo, Gregory J. Petrillo, and Matthew J. Petrillo

Robert J. Bergson

Alexander Rabinowitz

Abrams Garfinkel Margolis Bergson, LLP

New York, New York

Counsel for Defendants Selznick & Co. LLP

and Joseph Klausner

Seibel, J.

Before the Court are the motions to dismiss of Defendants Selznick & Co. LLP and Joseph Klausner (together, the "Selznick Defendants"), (Doc. 37), and Defendants Carl E. Petrillo, Gregory J. Petrillo, Matthew J. Petrillo (together, the "Petrillo Defendants"), and APF Management Company, LLC ("APF" and, together with the Petrillo Defendants, the "APF Defendants"), (Doc. 42). For the following reasons, the motions are GRANTED.

I. BACKGROUND

I accept as true the facts, but not the conclusions, set forth in Plaintiff's Second Amended Complaint, (Doc. 36 ("SAC")), as supplemented by documents incorporated therein.

Plaintiff Molly Munn contributed $400,000 to become a member and 50% owner of APF when the company was formed in 2011. (Id. ¶¶ 11-13; id. Ex. A at 1.) The other half of APF is owned by the Petrillo Defendants, who collectively contributed the same amount in exchange for their membership and ownership interests. (Id. ¶¶ 11-12, 14; id. Ex. A at 1.)

In 2013, APF filed suit in state court against Plaintiff, her father, her family business, and a former APF employee for breach of fiduciary duty, breach of contract, tortious interference with business relations, diversion of corporate opportunities, and unfair competition. (Id. ¶ 16; Doc. 43 ("Smith Decl.") Ex. A ¶ 1.) After a jury trial in 2017, APF obtained a multimillion-dollar judgment against those defendants, which precipitated the family business's filing for Chapter 11 bankruptcy less than a year later in 2018. (SAC ¶¶ 17-18; Smith Decl. Ex. E ¶¶ 14, 17; see id. Exs. B, D.)

During the bankruptcy proceedings, Plaintiff, her father, and her family business entered into a settlement agreement with APF to satisfy the state court judgment. (SAC ¶ 19; id. Ex. B ¶¶ 3, 5.) As part of the settlement agreement, the "Judgment Debtors," which included Plaintiff, agreed to release all claims against APF and its professionals, "whether known or unknown, . . . and whether anticipated or unanticipated," that they "had, have, may ever have, or may ever claim to have, against APF, that arose prior to the Effective Date," which the parties donot dispute is June 14, 2019. (Id. Ex. B ¶ 8; see Doc. 39 ("Selznick Ds' Mem.") at 9; Doc. 44 ("APF Ds' Mem.") at 7.)

At trial, one of the Petrillo Defendants had testified that APF reported losses of approximately $3,000,000 on its Form 1065 partnership tax returns over the years 2013-2018. (SAC ¶¶ 22-23.) In August or September of 2019, Plaintiff reviewed her Schedule K-1 tax forms for the years 2011-2018, which she alleges that she had never received before then, and "became aware for the first time that she had been allocated a combined loss of $400,000 in 2011 and 2012" but had not been allocated any losses in 2013-2018. (Id. ¶¶ 21, 22.) Plaintiff posits that under APF's operating agreement, she "should be entitled to allocations equal to the collective total allocated to the Petrillos" if the testimony at trial was accurate, and she alleges that "Defendants' failure to timely furnish Plaintiff with an annual Form K-1 may have deprived [her] of the ability to file an accurate personal income tax return for one or more tax years, and/or take advantage of potential tax savings." (Id. ¶¶ 25, 34.)

In pursuit of this theory, Plaintiff requested copies of APF's Form 1065 partnership returns for 2011-2018 from the Petrillo Defendants, but they failed to provide them. (Id. ¶¶ 26-27.) The Selznick Defendants, who are the APF Defendants' accountants, failed to provide copies of the forms as well, although Plaintiff does not allege that she requested these documents from them, but rather that they were merely "made directly aware" of Plaintiff's requests and the APF Defendants' "refusal to provide such information." (Id. ¶¶ 28, 35-36.)

In November 2019, Plaintiff brought this action against the Selznick and APF Defendants, as well as "John Does 1-10,"¹ seeking declaratory relief allowing her access toAPF's tax documents, and damages under 26 U.S.C. § 7434. (Doc. 4.) Before Defendants answered, Plaintiff filed an Amended Complaint in December containing minor changes and attaching APF's operating agreement and the bankruptcy settlement agreement as exhibits. (See Docs. 13 to 13-2.) In February 2020, Defendants filed letters in contemplation of motions to dismiss. (Docs. 20, 24.) Plaintiff responded, (Doc. 28), and the Court held a pre-motion conference on March 24, at which Plaintiff was granted further leave to amend, (Minute Entry dated Mar. 24, 2020). In April, Plaintiff filed her Second Amended Complaint, adding factual allegations and a "Tortious Interference and Conspiracy to Commit Tortious Interference with a Potential Business Benefit" claim against the Petrillo and Selznick Defendants. (SAC ¶¶ 50-57.) The instant motions followed.

II. LEGAL STANDARD

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "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." Id. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (alteration, citations, and internal quotation marks omitted). While Federal Rule of Civil Procedure 8 "marks a notable and generous departure from the hypertechnical, code-pleading regime of a prior era, . . . it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Iqbal, 556 U.S. at 678-79.

In considering whether a complaint states a claim upon which relief can be granted, the court "begin[s] by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth," and then determines whether the remaining well-pleaded factual allegations, accepted as true, "plausibly give rise to an entitlement to relief." Id. at 679. Deciding 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. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 'shown' - 'that the pleader is entitled to relief.'" Id. (alteration omitted) (quoting Fed. R. Civ. P. 8(a)(2)).

On a motion to dismiss, a court is generally confined to the four corners of the complaint, the documents incorporated in or attached thereto, documents on which the plaintiff relied in bringing the case, and matters of which it is entitled to take judicial notice. See Kleinman v. Elan Corp., 706 F.3d 145, 152 (2d Cir. 2013). Here, in addition to the Second Amended Complaint, the Court also considers the operating and settlement agreements attached thereto, (SAC Exs. A-B), as well as the complaint and judgment from the state court litigation initiated by APF, (Smith Decl. Exs. A-B), and the petition and declaration filed in the bankruptcy proceedings for Plaintiff's family business, (id. Exs. D-E). See Blue Tree Hotels Inv. (Can.), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004) (courts may "look to public records, including complaints filed in state court, in deciding a motion to dismiss"); Rosen v. Fink, No. 99-7354, 1999 WL 1212564, at *1 (2d Cir. Dec. 13, 1999) (summary order) (unpublished table decision) (court documents are matters of public record that district courts may consider on a motion to dismiss); Lynn v. McCormick, No. 17-CV-1183, 2017 WL 6507112, at *3 (S.D.N.Y. Dec. 18, 2017) ("A court may take judicial notice of public recordssuch as pleadings, orders, judgments, and other documents from prior litigation, including state court cases, but it does so not for the truth of the matters asserted in the other litigation, but rather to establish the fact of such litigation and related filings.") (citations and internal quotation marks omitted), aff'd, 760 F. App'x 51 (2d Cir. 2019) (summary order).

III. DISCUSSION

Plaintiff's Second Amended Complaint contains three counts: Count I alleges that all "Defendants have breached state common law, fiduciary law and/or contract law," i.e., APF's operating agreement, "by failing to allow Plaintiff access to, or provide copies of, [APF's] Forms 1065 and Forms K-1 . . . for [APF's] co-owners, the Petrillos, for tax years 2011-2018" and seeks declaratory relief allowing her to access and copy those forms. (SAC ¶¶ 38, 43-44.) Count II seeks damages under 26 U.S.C. § 7434 against the Petrillo and Selznick Defendants, who allegedly caused APF "to file numerous fraudulent information returns related to tax years 2011-2018" and defrauded Plaintiff through "a fraudulent scheme which classified certain...