Bruderman Asset Management, LLC v. Real Time Consultants, Inc.

Background

Bruderman Asset Management, LLC, an investment adviser, entered into a Network Management Premium Support Agreement with Real Time Consultants, Inc. The agreement covered support, administration, and management of Bruderman’s Microsoft Office platform and office environments. Real Time’s premium services included monitoring alerts, notifying Bruderman of unusual events, managing antivirus and spyware protection, configuring and managing firewalls, and responding to alerts within a specified period.

According to the complaint, intruders gained access to Bruderman’s email environment and server administration privileges between February and May 2018. They changed email settings so that certain messages were hidden or forwarded, then used a forged transfer request to cause two wire transfers totaling $2,950,000 from a client’s account to a bank in Hong Kong. Bruderman alleged that Real Time failed to detect or report the activity. After an incident-response investigation identified six missing security controls, Bruderman alleged that Real Time was required to provide those services under the agreement. Bruderman paid its client back and later terminated the agreement.

Bruderman asserted claims for breach of contract and negligence. Real Time moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not plead enough facts to state a legally plausible claim.

Breach-of-Contract Claim

The agreement contained a New Jersey choice-of-law provision, and the court applied New Jersey law to the contract claim. Under that law, a plaintiff must allege a valid contract, the defendant’s failure to perform its obligations, and a causal connection between the breach and the claimed damages.

Real Time argued that Bruderman had not identified specific contract provisions imposing the alleged security duties. The court acknowledged that the complaint was not as clear as it could have been, but concluded that Real Time had fair notice of the agreement at issue, the alleged failures, and the connection between those failures and Bruderman’s claimed damages. The complaint referred to services such as monitoring alerts, notifying Bruderman of unusual events, responding to alerts, and evaluating alerts. The court also noted that factual questions remained about what services Real Time actually provided and whether the missing security controls were services required by the agreement. Those questions could not be resolved on a motion to dismiss.

The court therefore found that Bruderman sufficiently pleaded its breach-of-contract claim and denied the motion to dismiss Count One.

Negligence Claim

The court applied New York’s choice-of-law rules to the negligence claim because the agreement’s New Jersey choice-of-law provision did not extend broadly enough to cover tort claims arising from the contract. The court found no relevant conflict between New York and New Jersey law because both generally require a duty, a breach, an injury, and proximate cause.

Under both states’ law, however, a negligence claim generally cannot proceed alongside a contract claim unless the defendant violated a legal duty independent of the contract. The court concluded that Real Time’s only alleged duty to Bruderman arose from the agreement. The court also applied the economic-loss rule, which generally bars recovery in negligence for purely financial losses. Bruderman sought monetary damages only, and the court rejected its arguments that exceptions for a special relationship, negligent performance of contractual duties, or an abrupt and catastrophic event applied.

The court dismissed the negligence claim and granted Real Time’s motion as to Count Two.

Disposition

Judge Vernon S. Broderick ordered that Real Time’s motion to dismiss was denied as to Count One and granted as to Count Two. The court directed Real Time to file an answer within 14 days after the opinion and order was docketed and directed the Clerk to terminate the motion.