Advanced Knowledge Tech LLC v. Fleitas

Background

Advanced Knowledge Tech, LLC (AKT) brought this diversity action against Marcello Fleitas, identified as Ubergig, LLC’s managing member and director. Ubergig was not a party to the action, and the amended complaint alleged that it had filed for Chapter 7 bankruptcy protection in October 2020. AKT alleged that it entered an agreement with Ubergig on January 3, 2020, to provide information-technology consulting services to Ubergig’s client, Hello Elephant. AKT alleged that Ubergig failed to pay invoices from January through October 2020, when AKT stopped providing services after learning of Ubergig’s bankruptcy filing.

AKT alleged that, before the agreement, Fleitas represented that Ubergig would pay for the services and had sufficient funds to do so. According to AKT, Fleitas knew that Ubergig was insolvent, could not pay, and did not intend to pay. AKT also identified later emails and phone conversations in which Fleitas allegedly made statements about Ubergig’s funding and intention to pay, inducing AKT to continue providing services. AKT further alleged that Hello Elephant paid Ubergig for services that included AKT’s work, but Fleitas used the money for his own personal and financial benefit.

AKT asserted claims for common-law fraud, negligent misrepresentation, unjust enrichment, conversion, and veil piercing. Fleitas moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a legal claim. The opinion addressed the amended complaint filed after an earlier motion to dismiss was withdrawn.

Court’s analysis

Fraudulent inducement. The court held that AKT adequately stated a claim for fraudulent inducement, a type of fraud based on being induced to enter an agreement by a false statement. Under New York law, a fraud claim may proceed when a defendant made a promise while having a previously formed and undisclosed intention not to perform it. The court found that AKT’s allegations that Fleitas promised Ubergig would pay while knowing Ubergig could not and would not pay met that standard. The claim was not duplicative of a possible contract claim against Ubergig because Fleitas was sued individually and was not a party to the contract.

The court also held that AKT pleaded fraud with the particularity required by Rule 9(b). AKT identified the allegedly false statements, Fleitas as the speaker, the relevant time periods and communications, and why the statements were allegedly false. The court further found that AKT alleged facts supporting a strong inference that Fleitas intended to defraud it, including the allegation that he used payments received by Ubergig for his personal and financial benefit. The motion to dismiss the fraud claim was denied.

Negligent misrepresentation. The court also denied dismissal of AKT’s negligent-misrepresentation claim. Such a claim generally requires a special relationship involving trust or confidence, or a speaker’s specialized expertise and awareness that the information would be used for a particular purpose. The court found AKT’s allegations about a close trust relationship and special expertise conclusory, but concluded that AKT plausibly alleged that Fleitas knew AKT would rely on his statements about Ubergig’s financial condition when deciding whether to do business with Ubergig. At the pleading stage, that was sufficient for the claim to stand.

Unjust enrichment. The court granted dismissal of the unjust-enrichment claim. AKT did not allege facts unique to that claim and instead relied on the same allegations underlying its fraud and negligent-misrepresentation claims. Because unjust enrichment is not a substitute or catch-all claim when other legal remedies address the same conduct, the claim was considered duplicative.

Conversion. The court granted dismissal of the conversion claim. Conversion requires an ownership or immediate right to possess a specific identifiable item, along with unauthorized control over it. For money, the funds generally must be specifically identifiable and segregated, and the plaintiff must have owned, possessed, or controlled them before the alleged conversion. AKT alleged that Hello Elephant paid Ubergig and that Fleitas failed to forward the money to AKT, but it did not identify a segregated fund or allege that AKT owned, possessed, or controlled the money before Fleitas allegedly used it.

Veil piercing. The court granted dismissal of the veil-piercing claim. Under New York law, veil piercing is not an independent cause of action; it is a theory for imposing a company’s obligations on its owners. The court also concluded that the theory did not apply to AKT’s surviving fraud and negligent-misrepresentation claims, which were asserted directly against Fleitas rather than against Ubergig under the contract.

Disposition

Judge Castel’s order granted Fleitas’s motion to dismiss the amended complaint with respect to the unjust enrichment, conversion, and veil-piercing claims, and denied the motion with respect to the fraudulent-inducement and negligent-misrepresentation claims. The Clerk was directed to terminate the motion.