Ultra Dairy LLC v. Kondrat

514 F.Supp.3d 452

ULTRA DAIRY LLC, Plaintiff,

v.George KONDRAT; Andreas Pfeiffer ; John Does 1-5; and XYZ Corporations 1-5, Defendants.

5:19-CV-1353

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

Signed January 21, 2021

OF COUNSEL: JESSIE F. BEEBER, ESQ., PATRICK J. BOYLE, ESQ., MICHAEL ANTHONY GUERRA, ESQ., VENABLE LLP-NEW YORK OFFICE, Attorneys for Plaintiff, Rockefeller Center, 1270 Avenue of the Americas, New York, New York 10020.

MEMORANDUM–DECISION and ORDER

DAVID N. HURD, United States District Judge

I. INTRODUCTION AND BACKGROUND

Plaintiff Ultra Dairy LLC ("Ultra Dairy" or "plaintiff") is a New York corporation in the business of processing ultra-pasteurized dairy products. Apparently business was good, because in December of 2018, plaintiff began a $40 million construction project at one of its facilities. Plaintiff tabbed the Hayner Hoyt Corporation ("Hayner Hoyt") to mastermind its expansion.

For the first several months, the project went smoothly. Hayner Hoyt would periodically send Ultra Diary an invoice, and plaintiff would pay the invoice by check. But on July 18, 2019, plaintiff alleges that the project fell off the rails. On that day, and again on July 23 and 25, plaintiff claims it received emails, apparently from a ranking Hayner Hoyt accounting specialist, requesting that future payments to the construction company be made by wire transfer instead of by check. To hear plaintiff tell it, the emails appeared to be legitimate. They included a letter apparently signed by Hayner Hoyt's president and a voided check with all necessary routing information to transfer the invoiced amounts to a bank account (the "bank account").

But as evidenced by Ultra Dairy's filing a federal lawsuit, it alleges those emails were not legitimate. Instead, it claims that the account to which plaintiff was directed to send future construction payments did not belong to Hayner Hoyt, but was in actuality controlled by a law firm: the Perry Law Group ("PLG").

PLG operated that bank account as paymaster for both remaining defendants in this case: George Kondrat ("Kondrat"), a Canadian citizen, and Andreas Pfeiffer ("Pfeiffer", together with Kondrat "defendants"), a German citizen. As paymaster, PLG was responsible for keeping any funds transferred into the bank account in its attorney trust account. Defendants nevertheless retained the power to direct PLG to disburse those funds at their discretion.

On August 14 and 15, 2019, Hayner Hoyt sent Ultra Dairy two construction invoices totaling $1,858,250.21. Plaintiff does not dispute the legitimacy of those invoices. On September 12, 2019, plaintiff claims that it transferred into the bank account the full $1,858,250.21 the invoices called due.

By September 23, 2019, Ultra Diary's funds had been removed from the bank account in their entirety. Plaintiff alleges that Kondrat received $810,542.60, Pfeiffer received $910,542.61, and PLG retained $37,165.00 as its paymaster fee. The remaining $100,000 was split evenly between Ricardo McDonald¹ and former defendant Jennifer Pritchett ("Pritchett"),² whom plaintiff alleges to be a longtime business associate of Kondrat's.

Obviously, none of the recipients of Ultra Dairy's misguided money transfer worked for Hayner Hoyt, and none of the money ended up in its hands. Understandably curious as to when it would receive payment for its invoices, Hayner Hoyt contacted plaintiff on October 3, 2019. When Hayner Hoyt denied ever receiving the $1,858,250.21, or ever asking plaintiff to transfer the funds instead of paying by check, plaintiff alleges that it realized that defendants defrauded it.

On November 1, 2019, Ultra Dairy filed a complaint in the Northern District of New York, against a series of unnamed individual and corporate defendants. Plaintiff claimed diversity jurisdiction under 28 U.S.C. § 1332, because the amount in controversy exceeded $75,000 and no known defendant was domiciled in the same state as plaintiff. On August 3, 2020, plaintiff filed an amended complaint naming Kondrat and Pfeiffer as defendants.

The amended complaint, the current operative pleading, alleges seven counts under New York common law against both Kondrat and Pfeiffer: (I) fraud; (II) fraudulent inducement; (III) fraudulent misrepresentation; (IV) civil conspiracy to commit fraud; (V) aiding and abetting fraud; (VI) conversion; and (VII) unjust enrichment. On October 16, 2020, Ultra Dairy moved for default judgment under Federal Rule of Civil Procedure ("Rule") 55 against Kondrat. On December 30, 2020, plaintiff moved for default judgment against Pfeiffer under the same Rule. Those motions, having been fully briefed, will now be decided on the basis of the parties’ submissions without oral argument.

II. LEGAL STANDARD

Under Rule 55, a district court may grant default judgment against a party for the failure to plead or otherwise defend an action. FED. R. CIV. P . 55 ; see Enron Oil Corp. v. Diakuhara , 10 F.3d 90, 95 (2d Cir. 1993). A party moving for default judgment must first attain an Entry of Default from the Clerk of the Court. FED. R. CIV. P . 55(a). Once default is established, the Court must "accept all ... factual allegations as true and draw all reasonable inferences in" the moving party's favor. Finkel v. Romanowicz , 577 F.3d 79, 84 (2d Cir. 2009). However, a district court still must determine whether the allegations and evidence establish the defendant's liability as a matter of law before default judgment can attach. Id.

III. DISCUSSION

Ultra Dairy has adequately served both Kondrat and Pfeiffer with service of process. Despite that service, neither defendant has ever responded to plaintiff's complaint or amended complaint. Plaintiff has also moved for and been granted an entry of default against both defendants. Plaintiff has thus met every requirement of default judgment under Rule 55. FED. R. CIV. P . 55 ; see Enron , 10 F.3d at 95. Accordingly, plaintiff is entitled to default judgment against both Kondrat and Pfeiffer so long as its complaint and the evidence offered establish defendants’ liability as a matter of law. Finkel , 577 F.3d at 84.

A. Fraud.

The elements of common law fraud in New York are: "(1) a misrepresentation or a material omission of fact which was false and known to be false by [the] defendant; (2) made for the purpose of inducing the other party to rely upon it; (3) justifiable reliance of the other party on the misrepresentation or material omission; and (4) injury." Premium Mortg. Corp. v. Equifax, Inc. , 583 F.3d 103, 108 (2d Cir. 2009).

Ultra Dairy alleges that Kondrat and Pfeiffer were "jointly and severally" responsible for sending it the July 18, 23, and 25 emails. Plaintiff alleges those emails falsely claimed that Hayner Hoyt wanted future payments to come by wire transfer. Similarly, plaintiff alleges that the emails falsely identified Hayner Hoyt as the owner of the bank account. Considering that plaintiff has also alleged that both defendants had control over that bank account and received the lion's share of the money when it was disbursed, that allegation makes both defendants culpable for a misrepresentation known to be false. And because that false representation misled plaintiff as to whom it was paying a substantial sum of money, those representations were of course material. Accordingly, plaintiff has established the first element of common law fraud—a material misrepresentation—against both defendants.

The second element, Kondrat's and Pfeiffer's purpose of inducing Ultra Dairy's reliance, is similarly met. Defendants constructed an elaborate ruse to convince plaintiff that their emails originated from Hayner Hoyt. That ruse included fabricating a signature from Hayner Hoyt's president and submitting a voided check, apparently from the construction company. The effort defendants apparently expended in convincing plaintiff that the emails were genuine removes any doubt that they intended plaintiff to rely on those emails.

That same effort Kondrat and Pfeiffer spent giving the emails an air of legitimacy also makes Ultra Dairy's reliance on their veracity reasonable. As a result, the third element of reasonable reliance falls into place. Finally, plaintiff has alleged that it lost $1,858,250.21 to defendants’ alleged scheme, and the fourth element of injury is amply met as well. Having established all four elements of common law fraud as a matter of law, plaintiff is entitled to default judgment on Count I against both defendants.

B. Aiding and Abetting Fraud.

Under New York law, a plaintiff hoping to establish a defendant's aiding and abetting a fraud must prove: (1) the existence of a primary violation; (2) actual knowledge of the violation by the aider and abettor; and (3) substantial assistance. Kirschner v. Bennett , 648 F. Supp. 2d 525, 533 (S.D.N.Y. 2009).

As discussed above, Ultra Dairy has established fraud against Kondrat and Pfeiffer and the first element of aiding and abetting is met. Plaintiff has also alleged that defendants hatched a plan together to enact that fraud, and of course defendants could not have planned a fraud without knowing about it. Plaintiff's allegations that both defendants employed PLG as the paymaster of the account into which the fraudulent funds were transferred lends further credence to defendants’ knowledge. For the purposes of default judgment, plaintiff's showing is sufficient to establish the second element. Finally, plaintiff has alleged that both defendants were responsible for sending the fraudulent email and distributing the take from the fraud scheme. Either action constitutes assisting in the fraud, and the third element of aiding and abetting is therefore also satisfied. Plaintiff is entitled to default judgment on Count V.

C. Conversion.

New York law defines conversion as "the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights." Thyroff v. Nationwide Mut. Ins. Co. , ...