Birner v. Kensington Vanguard Holdings, LLC

Background

Mitchell Birner brought four claims against Kensington Vanguard Holdings, LLC, concerning an employment agreement under which he was to receive salary, bonuses, and commissions. Birner alleged that Kensington diverted business from a client he had originated to a joint venture between Kensington and that client. He alleged that Kensington thereby withheld commissions connected to three transactions—Apollo refinancing, Wilmarco, and Mahwah Portfolio—and that the unpaid commissions exceeded $200,000.

Birner asserted claims for breach of contract, breach of the implied duty of good faith and fair dealing, violation of New York Labor Law section 193, and conversion. Kensington moved to dismiss the complaint under Rule 12(b)(6), which tests whether a complaint states a legally sufficient claim, and also moved under Rule 12(f) to strike allegations it characterized as immaterial and scandalous.

Rulings on the Claims

The court denied the motion to dismiss Count I, the breach-of-contract claim. It held that Birner plausibly alleged an employment agreement, his performance, Kensington’s breach of the commission provision, and damages. The court found that the complaint gave sufficient detail about the relevant transactions, their approximate timing, and their value. The fact that the transaction-specific allegations appeared under the conversion claim rather than the contract claim did not require dismissal because the court considered the complaint as a whole.

The court denied the motion to dismiss Count II, the claim for breach of the implied duty of good faith and fair dealing. It held that Birner alleged conduct distinct from the alleged failure to pay commissions: Kensington’s alleged appropriation of the client and diversion of the client’s business to the joint venture. The court also rejected Kensington’s argument that the employment agreement’s provision allowing it to negotiate and adjust client fees necessarily authorized it to eliminate earned commissions. Even broad contractual discretion could not necessarily be exercised arbitrarily, irrationally, or in bad faith.

The court denied the motion to dismiss Count III, the claim under New York Labor Law section 193. The court explained that a 2021 amendment to that statute clarified that there is no exception to liability for an unauthorized failure to pay wages, benefits, or wage supplements. Because Birner alleged that Kensington failed to pay commissions that qualified as wages, the court rejected Kensington’s argument that the claim failed merely because the alleged conduct was a failure to pay rather than a specific deduction from wages.

The court granted the motion to dismiss Count IV, the conversion claim. Although unpaid employee wages can support a conversion claim in some circumstances, the court held that Birner had not identified a specific, identifiable fund containing his money and subject to an obligation to return or treat it in a particular way. Alleging that Kensington failed to pay commissions tied to three transactions was not enough. The court therefore dismissed the conversion claim without deciding whether the request for punitive damages would have made that claim non-duplicative of the contract claim.

Motion to Strike

The court granted in part and denied in part Kensington’s motion to strike. It ordered removed the entirety of paragraph 3; the first two sentences of paragraph 4; the second sentence of paragraph 19; and the phrase “disregarded governing anti-kick-back law concerning title insurance” from paragraph 41. The court found those allegations immaterial to the claims being litigated and prejudicial because they suggested possible violations of the Real Estate Settlement Procedures Act and related state laws that Birner had not asserted as claims.

The court denied the motion to strike the final clause of paragraph 1, the final sentence of paragraph 4, the entirety of paragraph 15, the first sentence of paragraph 19, the phrase “for the purpose of kicking-back referral fees to the Client” from paragraph 28, and the entirety of paragraph 29. The court found that these allegations provided context about the alleged joint venture, the parties’ possible motivations, and Kensington’s alleged lack of good faith.

Disposition

The court denied the motion to the extent it sought dismissal of Counts I through III. It granted the motion to the extent it sought dismissal of Count IV and the specified allegations. Birner was directed to file an amended complaint omitting the stricken allegations. The court stated that Birner could move for permission to amend the dismissed conversion claim within 30 days; if he did not timely seek permission to amend, Count IV would be dismissed with prejudice.