La Pecora Bianca Holdings, LLC v. Empowered Hospitality LLC

Background

La Pecora Bianca Holdings, LLC was the sole member of LPB1 LLC and LPB2 LLC, which operated restaurants doing business as La Pecora Bianca NoMad and La Pecora Bianca Midtown. Mark Barak, who principally managed the companies and restaurants, sought human-resources consulting to help ensure compliance with wage-and-hour law.

The plaintiffs alleged that Sarah Diehl represented that she had extensive hospitality human-resources and restaurant-management experience, had overseen human-resources systems and wage-and-hour compliance for thousands of restaurant employees, and could bring the restaurants into compliance. Holdings and Empowered Hospitality LLC later entered an independent-contractor agreement that included audits of human-resources documents and practices, including wage acknowledgments and wage-and-hour procedures.

The plaintiffs alleged that the defendants performed the work improperly or failed to perform it. Among other things, they alleged that the defendants incorrectly completed wage-acknowledgment forms, failed to correct facially incorrect forms, and failed to warn about improper tip sharing and deductions for breakage. The plaintiffs alleged that these failures contributed to a later New York state-court class action against LPB1 and LPB2, which they settled for $462,500, as well as defense costs and reputational harm.

The amended complaint asserted three claims: negligence against Empowered, breach of contract against Empowered, and fraud and deceit against Empowered and Diehl. The defendants moved to dismiss under Rule 12(b)(6), which permits dismissal when a complaint does not adequately state a legally recognized claim.

Breach of contract claim

The court denied the motion to dismiss the contract claims. It held that the plaintiffs identified specific tasks in the agreement’s scope of work that Empowered allegedly failed to perform, which was enough to plead a breach of a specific contract provision.

The defendants argued that LPB1 and LPB2 could not sue because they were not parties to the agreement and were not third-party beneficiaries. A third-party beneficiary is someone whom the contracting parties intended to benefit through their agreement. The court concluded that, although the agreement did not expressly name LPB1 or LPB2, the scope of work contemplated audits and compliance services concerning their employees. The court therefore found that the plaintiffs adequately pleaded that LPB1 and LPB2 were intended beneficiaries and could proceed against Empowered.

The plaintiffs clarified that they were not pursuing a contract claim against Diehl. The court also declined to dismiss the contract claim on the ground that the alleged damages were actually indemnification or were caused by the plaintiffs’ own conduct. The court stated that those issues did not establish that the plaintiffs suffered no damages from the alleged breach at the pleading stage.

Negligence claim

The court granted the motion to dismiss Count I, the negligence claim against Empowered. Under New York law, a negligence claim generally requires a duty separate from the duties created by the contract. The court held that the alleged failure to conduct audits and identify noncompliance was the same conduct alleged to breach the agreement. The plaintiffs did not plead an independent duty of care.

The plaintiffs argued that human-resources consultants have a professional duty similar to the duties imposed on certain other professionals. The court rejected that argument because the amended complaint did not allege the recognized characteristics of professional status, such as formal training, licensing, regulation, or a disciplinary system.

Fraud and deceit claim

The court denied the motion to dismiss Count III, the fraud and deceit claim against Empowered and Diehl. The plaintiffs clarified that they were proceeding on a fraudulent-inducement theory—an allegation that false statements caused someone to enter a contract—rather than on a theory that the defendants merely never intended to perform the contract.

The court found that allegations about Diehl’s claimed years of experience and the number of employees whose compliance she had overseen were not, standing alone, pleaded with enough detail to support fraud. But the allegations that she overstated her current expertise, competence, and ability to complete the paperwork and bring the restaurants into wage-and-hour compliance were sufficient at this stage. The court reasoned that the alleged contrast between those statements and her later performance supported an inference that the statements were false or made with reckless disregard for the truth.

The court also declined to dismiss for failure to plead fraudulent intent or injury. It found that the alleged contrast between Diehl’s statements and her performance provided a minimal factual basis for an inference of conscious misconduct, and that the plaintiffs adequately alleged injury even if some damages were not attributable to the alleged fraud. The defendants did not dispute that the plaintiffs adequately alleged that the statements were intended to induce Holdings to enter the agreement and that Holdings reasonably relied on them.

Disposition

The court granted the defendants’ motion to dismiss as to Count I. It denied the motion to dismiss as to Counts II and III. The order therefore dismissed the negligence claim while allowing the contract and fraud claims to proceed at that stage of the case.