Zap Cellular, Inc. v. Weintraub

ZAP CELLULAR, INC. d/b/a AMP CELLULUAR, Plaintiff, v. ARI WEINTRAUB, MORTON WEINTRAUB, ESTI DRESDNER, STEVE WEINSTOCK,MAZAL TECH MEDIA, INC., Defendants.

15-CV-6723 (PKC) (VMS)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

September 30, 2020

MEMORANDUM & ORDER

PAMELA K. CHEN, United States District Judge:

Plaintiff Zap Cellular, Inc. ("Zap Cellular") initiated this action on November 23, 2015, alleging two civil violations of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030, against Defendant Ari Weintraub ("A. Weintraub"), in addition to six pendent state law claims, collectively asserted against all Defendants.¹ (Complaint ("Compl."), Dkt. 1, ¶¶ 49-112.) On September 8, 2017, in a second amended answer ("SAA"), Defendant A. Weintraub asserted a counterclaim and brought a third-party complaint against Third-Party Defendants Jacob Yarmish ("J. Yarmish"), A and Y Sales and Marketing, Inc. ("A&Y"), Mazal Tech Media, Inc. ("Mazal Tech"), Chana Yarmish ("C. Yarmish"), Michael Yarmish ("M. Yarmish"), Topline Contracting, Inc. ("Topline") (collectively ("Third-Party Defendants"), and the unknown entities of John Does1-100 and ABC Companies 1-100. (SAA, Amended Counterclaim, and Third-Party Complaint², Dkt. 84.) Currently pending before the Court is the joint summary judgment and dismissal motion of Plaintiff and Third-Party Defendants, seeking dismissal of all of Defendant A. Weintraub's counterclaims. (Plaintiff and Third-Party Defendants' Motion for Summary Judgment ("Pl. & TPD Mot."), Dkt. 137-1.) The Court construes the motion as a motion to dismiss pursuant to Federal Rules of Civil Procedure ("FRCP") 12(b)(1), and as a motion to strike the complaint pursuant to FRCP 12(f), and, for the reasons contained herein, the Court finds that it lacks subject matter jurisdiction over Defendant A. Weintraub's counterclaims and third-party complaint and dismisses them in full.

As an initial matter, the Court explains its decision to construe Plaintiff and Third-Party Defendants' motion not as one seeking summary judgment. Though styling their motion as such, the motion relies on the alleged deficiencies in the pleadings and not on the summary judgment record. It is therefore more appropriately construed as an omnibus motion to dismiss for lack of subject matter jurisdiction pursuant to FRCP 12(b)(1), and motions to dismiss and strike pleadings for failure to comply with the Federal Rules of Civil Procedure, pursuant to FRCP 12(b)(6) and FRCP 12(f). As the Honorable Joseph F. Bianco found in Dolce v. Suffolk County:

The following discussion relies as much on the deficiencies in the complaint as on the summary judgment record. [Plaintiff and Third-Party Defendants] styled [their] motion as one for summary judgment, but the Court may dismiss on the basis of the pleadings alone. . . . To the extent that dismissal is based on the complaint alone, that result is particularly appropriate here because [the parties have] failed to . . . cite[] to the record at all in [their] filings with this Court.

No. 12-CV-108 (JFB) (WDW), 2014 WL 655371, at *3 (E.D.N.Y. Feb. 20, 2014) (internal citations omitted) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986), for proposition that"[FRCP] 56(e) [] requires the nonmoving party to go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial"), aff'd, 599 F. App'x 15 (2d Cir. 2015); see also IMS Health Inc. v. Sorrell, No. 07-CV-188 (JGM), 2008 WL 2483299, at *2 (D. Vt. June 17, 2008); Moses v. Air Afrique, No. 99-CV-541 (JG), 2000 WL 306853, at *3 (E.D.N.Y. Mar. 21, 2000) (construing Defendant's "motion for summary judgment for lack of subject matter jurisdiction to be a motion to dismiss pursuant to [FRCP] 12(b)(1)"). Moreover, "[t]he existence of federal subject matter jurisdiction [] is determined by what is pleaded in the complaint . . . [and o]n a motion to dismiss, a court must accept as true all material factual allegations in the complaint concerning subject matter jurisdiction." Godinger Silver Art Ltd. v. Hirschkorn, 433 F. Supp. 3d 417, 423 (E.D.N.Y. 2019) (citing AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1055 (2d Cir. 1993); Broich v. Inc. Vill. Of Southampton, 650 F. Supp. 2d 234, 241 (E.D.N.Y. 2009)).

Because Plaintiff and Third-Party Defendants' motion is essentially a motion to dismiss, and because the parties rely on the alleged facts as set out in the pleading papers, the Court will set out the facts as alleged in the Complaint and the SAA. Cf. Burton v. Label, 344 F. Supp. 3d 680, 687 n.1 (S.D.N.Y. 2018).

BACKGROUND

I. Plaintiff Zap Cellular's Complaint

Plaintiff Zap Cellular filed this case on November 23, 2015, against Defendants A. Weintraub, Morton Weintraub ("M. Weintraub"), Esti Dresdner, Steve Weinstock, and Mazal Tech. (Compl., Dkt. 1.) Plaintiff is "an international telecommunications company" that "provides telecom products and services to consumers. It is the leading provider of cellular products and services in Israel." (Id. ¶ 9.) Plaintiff secures its customer payment information within an Authorize.Net account, and uses a third-party vendor to process payments fromcustomers. (Id. ¶¶ 11, 13.) From about May 2013 until August 2013, it contracted with Mazal Tech to provide this service, including authorizing Mazal Tech to access customer payment information through Authorize.Net and to charge for services rendered by Zap Cellular. (Id. ¶¶ 13-15.)

A. Weintraub, the Chief Executive Officer ("CEO") of Mazal Tech, prior to his termination, was also CEO and Operations Manager of Plaintiff Zap Cellular, and held 20% of the shares of Plaintiff, which allowed him access to Plaintiff's accounts and other sensitive administrative information, including customer lists and payment information stored on Authorize.Net. (Id. ¶¶ 18-22.) After the August 2013 billing cycle, Plaintiff and Mazal Tech agreed to discontinue their business relationship. (Id. ¶ 25.) Thereafter, in September 2013, A. Weintraub's position as CEO of Plaintiff was terminated. (Id. ¶ 27.)

Following his termination, A. Weintraub schemed with Defendants M. Weintraub, Esti Dresdner, and Steve Weinstock to defraud Plaintiff's customers by illegally accessing Plaintiff's corporate files, and opening a merchant bank account to deposit Plaintiff's September and October 2013 billing into an account affected by Mazal Tech, without authorization. (Id. ¶¶ 29-38.) Although many of the charges were "dishonored by the customers' [credit card companies]," Defendants billed those customers again and "were successful in obtaining additional money from [Plaintiff's] customers through this scheme," and continued to charge Plaintiff's customers until at least January 2014, when Plaintiff sent a communication to its customers asking them to contact their credit card companies to report the charges as fraudulent. (Id. ¶¶ 39-45.) Plaintiff alleges that Defendant A. Weintraub then "accessed an external [] email server [belonging to Plaintiff] and sent out an email stating that the January 29, 2014 communications were a mistake." (Id. ¶ 46.)

II. Defendant A. Weintraub's Answer, Counter-Claims, and Third-Party Complaint

Defendants initially answered Plaintiff's complaint on January 8, 2016 (Dkt. 14), but then filed an amended answer, counterclaim, and third-party complaint on January 28, 2016 (Amended Answer, Counterclaim, and Third-Party Complaint, Dkt. 17). Defendants further amended that pleading on September 8, 2017. (SAA, Dkt. 84.) The amended counterclaim and third-party complaint were filed on behalf of Defendant A. Weintraub, "both individually and derivatively on behalf of [Plaintiff], A and Y Sales and Marketing, Inc., and Mazal Tech Media, Inc." (See id. at 8.) Defendant A. Weintraub³ asserted his claims against Plaintiff, and Third-Party Defendants J. Yarmish, A&Y, Mazal Tech, EZ Roamer LLC, Topline, E. Yarmish, C. Yarmish, M. Yarmish, and the unknown entities of John Does 1-100 and ABC Companies 1-100. (Id. at 9 ¶ 4-10 ¶ 14.)

The SAA sets out additional facts and allegations. J. Yarmish is the principal shareholder of Plaintiff Zap Cellular, which he incorporated in New York on or about May 19, 2010. (Id. at 10 ¶¶ 15, 18.) J. Yarmish hired A. Weintraub as CEO of Plaintiff. (Id. at 10 ¶ 18.) Part of the compensation package offered to A. Weintraub as CEO included 20% of the shares of Plaintiff. (Id. at 10 ¶ 19.) As a result of A. Weintraub's efforts and the increased volume of transactions, J. Yarmish and A. Weintraub created A&Y and Mazal Tech together. (Id. at 11 ¶¶ 21-22.) "At all times [referenced], A&Y and Mazal Tech [] have had common shareholders, directors, officers and personnel, have commingled funds, and have operated one and the same credit card processing business. Accordingly, these entities are—for all intents and purposes—one organization." (Id. at 11 ¶ 23.) Although A. Weintraub's "extensive efforts generated millions of dollars in incometo the Companies [i.e., A&Y and Mazal Tech]" (id. at 11 ¶ 25), and he "was at all times a twenty percent (20%) shareholder in the Companies," (id. at 11 ¶ 24), he "has never received any shareholder distributions based on his twenty percent (20%) equity interest" (id. at 11 ¶ 26). "Instead, throughout all this time, [J.] Yarmish was secretly misappropriating, looting and diverting the Companies' assets for personal and/or non-corporate purposes (id. at 11 ¶ 27), and "with the assistance of family members, personal friends[,] and business associates, [] made unlawful transfers of millions of dollars from the Companies' bank and/or merchant accounts" (id. at 11-12 ¶ 28). Those unlawful transfers were made into the personal bank accounts of the other Third-Party Defendants. (Id. at 12 ¶¶ 29-32.) In response to A. Weintraub's "repeated demands for his rightful twenty percent (20%) share of distributions, ...