Sphere Digital, LLC v. Armstrong

Background

Sphere Digital, LLC brought a breach-of-contract and unjust-enrichment action against Offer Space, LLC, Christopher Armstrong, and Traffic Space, LLC. The amended complaint alleged that Sphere Digital and Offer Space entered an advertising-services agreement called the Insertion Order. Sphere Digital alleged that Offer Space failed to pay invoices totaling $212,980.

The complaint sought to hold Armstrong and Traffic Space responsible for Offer Space’s alleged breach under an alter-ego theory. It also asserted two alternative unjust-enrichment claims against all three defendants. The opinion states that the damages sought under each count were just over $200,000.

The opinion describes Armstrong as the sole member and only registered principal of Offer Space and Traffic Space. It also states that the companies shared an office and principal place of business, Armstrong sent emails using accounts associated with both companies, and Traffic Space had paid invoices issued to Offer Space. The Insertion Order did not mention Traffic Space.

Motions and Arguments

Armstrong and Traffic Space filed separate, identical motions under Rule 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. Offer Space did not move to dismiss. The court treated the motions as seeking dismissal of all three causes of action against Armstrong and Traffic Space.

The defendants argued that Sphere Digital had not pleaded enough facts to show that they were alter egos of Offer Space. They also argued that the unjust-enrichment claims failed because Sphere Digital had not adequately alleged that either defendant benefited from its services.

Court’s Analysis

The court treated the well-pleaded allegations in the amended complaint as true for purposes of the motions. It noted that the parties disputed which of two agreements governed their relationship, what obligations existed, and which law applied. The court stated that those disputes could not be resolved on a motion to dismiss.

Assuming the Insertion Order governed, the court applied New York law to the alter-ego issue. Under that law, disregarding the separate legal identity of a company requires allegations that the company was dominated or controlled and that the control was used to commit a fraud or other wrong causing the plaintiff’s loss. The court explained that the degree of domination and control is generally a factual question.

The court found that the allegations about a shared principal, shared office space, and payment of one company’s debts by another were enough to plausibly allege domination and control at the pleading stage. They were not enough to establish that the corporate veil should ultimately be pierced. The court emphasized that the complaint did not need to plead every factor relevant to alter-ego liability, and that discovery would determine what the evidence showed.

The court also refused to dismiss the unjust-enrichment claims. Under New York law, such a claim requires a benefit to the defendant, at the plaintiff’s expense, and circumstances making restitution appropriate. The court found that Sphere Digital had alleged that it provided services benefiting Armstrong and Traffic Space, that those defendants were not parties to the alleged contract with Offer Space, and that Sphere Digital should be paid for what it provided.

The court rejected the argument that an unjust-enrichment claim can be brought only against the parties to the contract for the services. It stated that New York law requires a relationship that is not too attenuated, and found that Sphere Digital had alleged a sufficiently direct relationship, including through its alter-ego allegations and Traffic Space’s alleged payments for services.

Disposition

The court denied the motions at Docket Nos. 32 and 33. The ruling allowed the claims against Armstrong and Traffic Space to proceed, but it did not determine whether either defendant was ultimately liable or whether the corporate veil should be pierced.