La Pecora Bianca Holdings, LLC v. Empowered Hospitality LLC

Background

Holdings was the sole member of LPB1 and LPB2, which operated restaurants doing business as La Pecora Bianca NoMad and La Pecora Bianca Midtown. Holdings entered an independent-contractor agreement with Empowered Hospitality LLC for human-resources consulting services. The agreement included audits of human-resources documents and practices, including wage-and-hour practices.

The plaintiffs alleged that Sarah Diehl and Empowered failed to perform parts of that work, including properly auditing wage-acknowledgment forms and identifying improper tip-sharing and pay deductions. They alleged that these failures contributed to a later New York state-court class action against LPB1 and LPB2. The plaintiffs sought damages including the $462,500 settlement amount, defense costs, and reputational and goodwill losses.

The amended complaint asserted three claims: breach of contract against Empowered, negligence against Empowered, and fraud and deceit against Empowered and Diehl. The defendants moved to dismiss all claims for failure to state a legally sufficient claim under Rule 12(b)(6), which requires dismissal when a complaint does not plausibly allege a right to relief.

Breach of Contract

The court denied the motion to dismiss the contract claims. It held that the plaintiffs sufficiently identified contractual duties in the agreement’s scope of work and alleged that Empowered failed to perform those duties.

The court also held that LPB1 and LPB2 sufficiently pleaded that they were intended third-party beneficiaries of the agreement. Although the agreement did not expressly name them, the scope of work contemplated audits and compliance services concerning their employees. The court therefore declined to dismiss LPB1 and LPB2 from the contract claim. The plaintiffs had clarified that they were not pursuing a contract claim against Diehl.

The court also rejected the argument that the plaintiffs had failed to plead damages or were improperly seeking indemnification. It stated that the defendants might later show that some damages were caused by the plaintiffs’ own conduct, but that possibility did not mean the plaintiffs had suffered no damages from the alleged breach.

Negligence

The court granted the motion to dismiss the negligence claim. Under New York law, negligence generally requires a duty independent of the parties’ contract. The court concluded that the alleged failures—such as not completing the required audits or identifying noncompliance—were the same conduct alleged to breach the agreement.

The plaintiffs argued that human-resources consultants owe a professional duty of care. The court rejected that argument at the pleading stage because the amended complaint did not allege the recognized criteria for professional status. The court concluded that the plaintiffs had not pleaded a negligence claim distinct from the contract claim.

Fraud and Deceit

The court denied the motion to dismiss the fraud-and-deceit claim. The plaintiffs proceeded on a fraudulent-inducement theory, alleging that Diehl made false statements before the agreement was signed to persuade Holdings to hire Empowered. The court noted that the plaintiffs conceded that a claim based only on an alleged intent not to perform the contract would duplicate the contract claim, but it treated the fraudulent-inducement theory as distinct.

The court found that allegations about Diehl’s claimed experience managing compliance for thousands of employees were not sufficiently supported by particular facts when considered alone. However, it held that allegations about her present competence, knowledge, and ability to complete the required wage-and-hour work could support fraud because they concerned present facts rather than merely future performance.

The plaintiffs alleged that Diehl knew those statements were false, or made them recklessly, and that her later alleged mistakes showed a lack of the competence she had represented. The court found those allegations sufficient at this stage to plead actionable misstatements and fraudulent intent. It also rejected the argument that the plaintiffs could not show injury because they had voluntarily settled the state-court lawsuit and had not been found liable. Accepting the complaint’s allegations as true, the court found that the plaintiffs had sufficiently pleaded injury, even if some alleged losses were not ultimately attributable to the defendants.

Disposition

Judge Andrew L. Carter, Jr. granted the defendants’ motion to dismiss as to Count II, the negligence claim. He denied the motion to dismiss as to Counts I and III, the contract and fraud-and-deceit claims.