Fratelli bvba v. APM Music Services, LLC

Background

Fratelli, a Belgian music distribution company, contracted with APM Music Services, LLC, to collect and administer Fratelli’s music royalties in the United States. Fratelli alleged that APM Music received more than $229,000 from Warner Music, should have deducted its contractual commission and permitted expenses, and should have sent Fratelli more than $150,000. Fratelli alleged that APM Music instead paid nothing, failed to provide required accountings, failed to maintain the required separate bank account, and diverted some or all of the money to All Parts Move, LLC, or to Maurice Keizer and Glenn Stone.

Fratelli’s amended complaint asserted breach of contract against APM Music, fraud against APM Music and Keizer, and unjust enrichment against APM Music, All Parts Move, Keizer, and Stone. Stone, who was proceeding without a lawyer, asserted crossclaims against Keizer for breach of contract, breach of fiduciary duty, conversion, indemnity, and violation of Florida’s civil theft statute.

APM Music, All Parts Move, and Keizer moved to dismiss most of Fratelli’s claims. Keizer separately moved to dismiss Stone’s crossclaims. A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests whether the pleading states a legally sufficient claim, with the allegations generally treated as true for that motion.

Rulings on Fratelli’s Claims

The court dismissed Fratelli’s fraud claim against APM Music. Under New York law, the court held that the allegations against APM Music amounted to promises to perform the Recording Agreement and therefore described a contract breach, not a separate fraud claim. The later promises to pay the royalties were also promises to perform the contract. The court further held that Fratelli’s general request for punitive damages did not establish separate damages for fraud.

The fraud claim against Keizer survived dismissal. Because Keizer was not a party to the Recording Agreement, the claim against him was not duplicative of Fratelli’s contract claim against APM Music. The court held that Fratelli adequately alleged that Keizer knowingly made false statements about his intent to perform and falsely promised in 2017 that he had wired, or was about to wire, money to Fratelli, while allegedly diverting the money to himself.

The court dismissed Fratelli’s unjust enrichment claims against APM Music, All Parts Move, Keizer, and Stone. It held that New York law does not permit an unjust enrichment claim when a valid contract governs the same subject matter, including when the claim is asserted against a non-signatory to that contract. The court dismissed the claim against Stone even though he had not moved for dismissal, after concluding that he had an opportunity to respond to the same arguments and that the reasoning applied equally to him.

Because dismissal of the unjust enrichment claim was the only ruling needed to terminate All Parts Move as a party, the court did not decide All Parts Move’s personal-jurisdiction challenge. The court also did not decide whether Fratelli adequately pleaded a theory for disregarding the separate legal identity of APM Music or All Parts Move, because none of the surviving claims depended on that theory.

Rulings on Stone’s Crossclaims

The court dismissed Stone’s breach of contract crossclaim against Keizer. Stone alleged that Keizer was responsible for managing APM Music’s account and that Stone and Keizer would split APM Music’s commission equally. The court held that the alleged duty to manage the account was owed to APM Music, not Stone, so an injury to the company could not support Stone’s direct claim. It also held that APM Music, rather than Keizer personally, was responsible for paying Stone’s share, and Stone did not allege that the oral agreement made Keizer personally liable for the company’s obligations.

Stone’s breach of fiduciary duty crossclaim survived. Applying Florida law, the court held that an LLC member owes fiduciary duties to the LLC and to individual members. Stone alleged that Keizer diverted more than $25,000 that should have gone to Stone personally. The court concluded that this alleged personal injury and the alleged violation of duties owed specifically to Stone allowed Stone to bring the claim directly against Keizer rather than only through a lawsuit on behalf of APM Music.

The court dismissed Stone’s conversion crossclaim. Under Florida law, a conversion claim involving money requires specific and identifiable funds that the defendant was required to keep intact or deliver. The court found that the royalties were deposited into APM Music’s account in lump sums and were not earmarked for Stone. It therefore concluded that the claim sought payment of money allegedly owed, rather than the return of specifically identifiable property.

The court dismissed Stone’s civil theft crossclaim for the same reason. Under Florida law, civil theft requires a conversion and criminal intent; because Stone had not adequately pleaded conversion, he had not adequately pleaded civil theft. The court also held that Keizer could recover reasonable attorneys’ fees and court costs for defending against the civil theft claim, but only for work on that claim. The court directed Stone and Keizer to try to agree on the amount of fees and set procedures for a fee request if they could not agree.

The court dismissed Stone’s indemnity crossclaim without prejudice as moot because Fratelli’s only claim against Stone had been dismissed. The court nevertheless retained supplemental jurisdiction over Stone’s remaining crossclaims against Keizer because those claims were related to Fratelli’s surviving claims.

Other Dispositions

The court denied both Fratelli’s and Stone’s requests for leave to amend. Each had already amended once, neither identified proposed new allegations apart from Fratelli’s proposed personal-jurisdiction allegations, and the court concluded that they had notice of the asserted pleading deficiencies.

The court’s final order stated that both motions to dismiss were granted in part and denied in part. It dismissed with prejudice Fratelli’s fraud claim against APM Music and all of Fratelli’s unjust enrichment claims. It dismissed with prejudice Stone’s breach of contract, conversion, and Florida civil theft claims, and dismissed without prejudice Stone’s indemnity claim. The surviving claims were Fratelli’s breach of contract claim against APM Music, Fratelli’s fraud claim against Keizer, and Stone’s breach of fiduciary duty claim against Keizer. The court also denied the request for oral argument and directed the parties to address the remaining claims and the attorneys’ fees issue on the schedules stated in the order.