Enemigo LTD. v. Trinity Beverage Group, LLC

Background

Enemigo Ltd., described in the opinion as a United Kingdom-based tequila company, sued Michael Bell, Hill Flynn, Trinity Beverage Group, LLC, Verity Wines, LLC, Oracles Capital, Inc., Oracles Imports, LLC doing business as Oracles Craft Brands, Kathryn Selby, and Selby New York, Inc. The case concerns investments and agreements connected to importing and distributing Enemigo’s tequila in the United States.

Enemigo alleged that Trinity agreed to purchase specified minimum quantities of tequila under a July 27, 2021 supplier agreement but purchased only a fraction of the required amount. The agreement also required Trinity to provide marketing services. Bell told Enemigo that Trinity intended to use Selby New York for marketing, but Enemigo alleged that Bell did not disclose that Selby New York was owned by his wife, Kathryn Selby. After limited communications, Selby and Selby New York allegedly performed no marketing services for Enemigo. Enemigo later invested an additional $250,000 in Trinity through a convertible note.

The Second Amended Complaint asserted fraud against all defendants; breach of contract against Verity and Trinity; unjust enrichment against all defendants; declaratory judgment against Verity and Trinity; conversion against Trinity and Oracles Craft; civil conspiracy against Bell, Selby, and Selby New York; and alter ego liability against Bell and Flynn concerning several entities. The motion addressed in this opinion was filed by the Selby defendants under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The Selby defendants also sought dismissal of Flynn’s cross-claims for indemnification and contribution.

Fraud

Under New York law, fraud requires a material misrepresentation or omission, knowledge that it was false, an intent to defraud, reasonable reliance, and resulting injury. Federal Rule of Civil Procedure 9(b) additionally requires fraud to be pleaded with particularity, including the time, place, speaker, and content of the alleged misrepresentation.

The court held that Enemigo did not identify any material misrepresentation or material omission by either Selby defendant. The court also found that Enemigo did not allege that it relied on a statement by either Selby defendant when entering the Trinity Supplier Agreement or when making the later $250,000 investment. The court rejected Enemigo’s reliance on the marital relationship between Bell and Selby and on the alleged shifting of business entities as insufficient to support fraudulent intent. The court granted the Selby defendants’ motion to dismiss the fraud claim.

Civil Conspiracy

The court explained that New York does not recognize civil conspiracy as an independent tort. A civil conspiracy claim must be based on an underlying actionable tort and must allege an agreement, an overt act advancing the agreement, intentional participation, and resulting injury.

The court held that Enemigo’s conspiracy claim failed because its underlying fraud claim failed. The court further held that, even if the fraud claim had been adequately pleaded, Enemigo had not alleged facts suggesting that the Selby defendants agreed to participate in a conspiracy or committed an overt act in furtherance of one. The court dismissed the civil conspiracy claim against the Selby defendants.

Unjust Enrichment

To state an unjust enrichment claim under New York law, a plaintiff must allege that the defendant was enriched at the plaintiff’s expense and that fairness requires the defendant to return the benefit. The court emphasized that an indirect benefit is insufficient without a specific and direct link between the plaintiff’s loss and the defendant’s gain.

The court found that the complaint did not specifically allege how the Selby defendants were enriched or that Enemigo paid them directly. Enemigo relied on evidence that Trinity paid the Selby defendants at least approximately $85,000 over about fifteen months, but the court found no sufficient allegation connecting those payments to Enemigo’s one-time payment to Trinity. The court also held that Bell and Selby’s marital relationship did not establish the required specific and direct benefit. The court dismissed Enemigo’s unjust enrichment claim against the Selby defendants.

Alter Ego Liability

Under New York law, piercing the corporate veil is not an independent cause of action; it is a theory for imposing a corporation’s obligations on its owners. Generally, the plaintiff must show that the owners completely dominated the corporation concerning the transaction at issue and used that domination to commit a fraud or wrong that injured the plaintiff.

The court held that Enemigo failed to allege facts showing that Bell or Flynn controlled or dominated Selby New York. The court dismissed the alter ego claims to the extent they involved the Selby defendants. The court expressly stated that this ruling had no effect on Enemigo’s remaining alter ego claims against Bell and Flynn concerning Jureta, Verity, Oracles, and Trinity.

Cross-Claims

Flynn asserted cross-claims against co-defendants, including the Selby defendants, for indemnification and contribution. No defendant opposed the Selby defendants’ request to dismiss those cross-claims. The court therefore treated Flynn as having abandoned the cross-claims and granted the Selby defendants’ motion to dismiss them. The court noted that the same ruling applied to any other co-defendants’ cross-claims against the Selby defendants, while Flynn’s cross-claims against his remaining co-defendants were unaffected.

Disposition

Judge Naomi Reice Buchwald granted in full the Selby defendants’ motion to dismiss Enemigo’s claims against them. The court also dismissed Flynn’s cross-claims for indemnification and contribution as to the Selby defendants. The Clerk of Court was directed to terminate the motion at ECF No. 149.