Danusiar v. Auditchain USA, Inc.

Background

Christopher Danusiar sued Auditchain USA, Inc., Matreya.io, LLC, and Jason M. Meyers. He alleged that he worked under an employment agreement with Auditchain, performed work for both Auditchain and Matreya, and was not paid all of his salary, bonuses, separation pay, and business expenses. His first amended complaint asserted four claims: (1) violation of the Illinois Wage Payment and Collection Act; (2) violations of the New York Labor Law, pleaded as an alternative to the Illinois claim; (3) breach of contract; and (4) breach of the implied covenant of good faith and fair dealing.

The employment agreement identified Auditchain as the company and stated that New York law would govern. It also stated that Danusiar would serve as Auditchain’s director and chief executive officer. Meyers signed the agreement as Auditchain’s chief executive officer.

Motions and legal standard

The defendants moved under Rule 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. They sought dismissal of Counts I, II, and IV and dismissal of Meyers and Matreya from the action. Danusiar separately asked the court not to consider arguments and exhibits that the defendants submitted with their reply.

On a Rule 12(b)(6) motion, the court accepts the complaint’s factual allegations as true and decides whether they plausibly show a right to relief. The court generally may not consider material outside the complaint and documents attached to or incorporated into it unless the motion is converted into a motion for summary judgment.

Materials outside the pleadings

The defendants submitted documents concerning an earlier Illinois state-court proceeding. Because the amended complaint did not refer to that proceeding, the court treated those documents as outside the pleadings and declined to consider them. As a result, the plaintiff’s letter-motion asking the court to strike those materials and related arguments was denied as moot.

Count I: Illinois wage claim

The court dismissed Count I. The employment agreement contained a New York choice-of-law provision. Danusiar argued that Illinois law should apply because Illinois had significant contacts and a strong public-policy interest, but he did not identify an actual conflict between Illinois and New York law or show that applying New York law would violate a fundamental Illinois policy. The court therefore found that a choice-of-law analysis was unnecessary and held that New York law governed the action. It concluded that dismissal of the Illinois Wage Payment and Collection Act claim was warranted.

Count II: New York wage claim

The court did not dismiss Count II. The defendants argued that the claim was really a contract claim, that Danusiar had not alleged an unlawful wage deduction under Section 193 of the New York Labor Law, and that his executive position prevented him from relying on relevant provisions of Article 6 of that law.

The court rejected the argument that a wage claim cannot exist when the facts also support a breach-of-contract claim. It held that Danusiar’s executive status and salary excluded him from Section 191, which concerns certain payment-timing requirements, but did not exclude him from Section 193. Section 193 prohibits certain deductions from employee wages.

Although Danusiar alleged that the defendants failed to pay earned salary, bonuses, and separation pay rather than identifying a specific deduction, the court noted that New York courts had disagreed about whether withholding earned wages can qualify as an unlawful deduction. Relying on the allegations that the compensation was earned and unpaid, the court found enough factual content to reasonably infer a violation of Section 193. The court also held that any remedies under Section 198, such as attorney’s fees or liquidated damages, would depend on the Section 193 claim. Count II therefore remained pending against all defendants.

Count IV: implied covenant of good faith and fair dealing

The court dismissed Count IV. Under New York law, a claim for breach of the implied covenant of good faith and fair dealing is duplicative when it is based on the same facts and contractual obligations as a breach-of-contract claim. Danusiar asserted that the claim was different and was pleaded in the alternative, but he did not explain how it differed from Count III. Because Count IV repeated the allegations supporting the contract claim and did not assert an independent tort or fraud claim, the court found it duplicative and dismissed it.

Meyers and Matreya on Count III

The court dismissed Meyers and Matreya as defendants only from Count III, the breach-of-contract claim.

As to Meyers, the court held that an agent who signs a contract for a disclosed principal is not personally bound unless there is clear evidence that the agent intended to assume personal liability. The amended complaint alleged that Meyers signed the employment agreement for Auditchain as its chief executive officer. Danusiar did not allege that Meyers signed in his personal capacity or otherwise intended to be personally bound. The court therefore dismissed Meyers from Count III.

As to Matreya, the court observed that Matreya was not a party to and was not mentioned in the employment agreement. Although Danusiar alleged that he worked for Matreya and received payments from Matreya during the first three months of his employment, he did not allege improper use of the corporate form. The court concluded that Matreya could not be sued for breaching an agreement to which it was not a party and dismissed Matreya from Count III. The contract claim against Auditchain remained pending.

Disposition

The court granted in part and denied in part the defendants’ Rule 12(b)(6) motion. It dismissed Count I, the Illinois Wage Payment and Collection Act claim, and Count IV, the implied-covenant claim. It dismissed Meyers and Matreya as defendants only from Count III, the breach-of-contract claim. Count II, the New York Labor Law claim, remained pending against all defendants, and Count III remained pending against Auditchain. The plaintiff’s letter-motion to strike was denied as moot, and the defendants’ motion for an extension of time to answer was also denied as moot.