Danusiar v. Auditchain USA, Inc.

Background

Christopher Danusiar sued Auditchain USA, Inc. (“Auditchain”), Matreya.io, LLC (“Matreya”), and Jason M. Meyers. He alleged that he began working under an employment agreement effective September 5, 2018, and that he performed services for both Auditchain and Matreya. The agreement described him as Auditchain’s director and chief executive officer, provided for a salary of at least $225,000 during the first year and at least $325,000 thereafter, and provided for possible bonuses, token interests, stock options, and reimbursement of customary business expenses.

Danusiar alleged that he received payments from Matreya for the first three months of his employment but later received no wages. He claimed that the defendants failed to pay salary, bonuses, separation pay, and business expenses, misclassified him as an independent contractor, and failed to withhold employment taxes. His amended complaint asserted four counts: an Illinois Wage Payment and Collection Act claim, a New York Labor Law claim pleaded as an alternative, breach of contract, and breach of the implied duty of good faith and fair dealing.

The employment agreement stated that the laws of the United States and New York would govern it. It was signed by Danusiar and Meyers as Auditchain’s chief executive officer.

Motions and Rule 12(b)(6) standard

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. They sought dismissal of the Illinois wage claim, the New York wage claim, and the fair-dealing claim, and sought to remove Meyers and Matreya from the contract claim.

Danusiar also filed a letter-motion asking the court not to consider new arguments and exhibits in the defendants’ reply. The defendants had submitted materials concerning earlier litigation in Illinois state court. The court found that those materials were outside the pleadings because the amended complaint did not refer to them. The court excluded them from consideration under Rule 12(b)(6), and therefore found Danusiar’s letter-motion moot.

Illinois wage claim

The court dismissed Count I, the Illinois Wage Payment and Collection Act claim. It applied New York’s choice-of-law rules because the case was in federal court based on diversity jurisdiction. The court noted that Danusiar did not claim that the New York choice-of-law provision was unclear, invalid, or unenforceable. It also found that he had not identified an actual conflict between Illinois and New York law or shown that applying New York law would violate an Illinois fundamental policy. The court therefore concluded that New York law governed and that dismissal of the Illinois claim was warranted.

New York Labor Law claim

The court declined to dismiss Count II, the New York Labor Law claim. It rejected the defendants’ arguments that the claim was unavailable merely because the alleged wage violations also involved an employment contract and that the claim was displaced by the contract claim.

The court concluded that Danusiar could not proceed under New York Labor Law Section 191 because executives are excluded from that provision when they earn more than $900 per week. The allegations and employment agreement described Danusiar as a director and chief executive officer with a salary above that amount.

The court reached a different conclusion concerning Section 193, which addresses certain unlawful deductions from wages. Section 193 does not expressly exclude executives. The court noted that New York courts had disagreed about whether failing to pay earned compensation could qualify as an unlawful deduction. Accepting Danusiar’s allegations as true, including his allegation that his salary, bonus, and separation pay were earned wages, the court found enough factual content to allow a reasonable inference that the defendants violated Section 193. The availability of remedies under Section 198 would depend on the resolution of the Section 193 claim.

Fair-dealing claim

The court dismissed Count IV, the claim for breach of the implied duty of good faith and fair dealing. Under New York law, that claim is duplicative when it is based on the same facts and contractual obligations as a breach-of-contract claim. The court found that Danusiar repeated the same factual allegations in both claims and did not identify a meaningful distinction. The court also noted that he had not asserted a separate tort or fraud claim.

Meyers and Matreya on the contract claim

The court dismissed Meyers from the contract claim. It treated Meyers as having signed the agreement for Auditchain in his official capacity and found that Danusiar did not allege that Meyers signed personally or clearly intended to become personally bound by Auditchain’s contractual obligations.

The court also dismissed Matreya from the contract claim. The agreement identified Auditchain as the company, did not mention Matreya, and was not signed by Matreya as a contracting party. The court found that Danusiar’s allegations that he worked for Matreya and received payments from Matreya did not establish a basis for a contract claim against Matreya under the Auditchain agreement. The court also noted that Danusiar did not allege improper use of the corporate form.

Disposition

The court granted in part and denied in part the defendants’ Rule 12(b)(6) motion. It dismissed Count I and Count IV. It allowed Count II, the New York Labor Law claim against all defendants, to continue. It allowed the contract claim to continue against Auditchain and dismissed Meyers and Matreya from that claim. The court denied as moot Danusiar’s letter-motion to strike and denied as moot the defendants’ request for more time to answer.

The opinion contains an internal numbering inconsistency in its conclusion: it says Meyers and Matreya are dismissed from “Count II breach of contract,” while the discussion identifies the breach-of-contract claim as Count III and the conclusion separately describes the surviving contract claim as Count III against Auditchain. Judge Kevin Nathaniel Fox directed the defendants to answer the remaining claims by October 13, 2020.