Atax New York, Inc. v. Canela 1

Background

ATAX New York, Inc., ATAX Franchise Inc., and ATAX Cloud Bookkeeping, Inc. sued Joel Canela #1, Alcides Mendoza, Sterling Mateo, Ingrid LaMarche, Walber Lugo, Arcadio Consulting, Inc., F1 Consulting Services, Inc., and other named defendants. The complaint alleged breach of contract and violations of federal and New York racketeering laws. It also sought recognition of an order from New York Supreme Court, Bronx County, as entitled to full faith and credit, but the motion at issue concerned only the breach of contract and racketeering claims against Sterling Mateo, Ingrid LaMarche, Walber Lugo, and Arcadio Consulting, Inc.

The complaint alleged that Mateo, LaMarche, and Lugo had signed non-compete agreements with the plaintiffs. According to the complaint, the agreements treated customer lists as confidential information and restricted the employees’ use and disclosure of that information and their competition with the plaintiffs. The plaintiffs alleged that the three employees took customer information, solicited clients they had served while employed by the plaintiffs, provided services to those clients, and worked with other defendants in alleged wrongdoing.

Motion to Dismiss Standards and Outside Materials

The moving defendants sought dismissal under Federal Rule of Civil Procedure 12(b)(1) and Rule 12(b)(6). Rule 12(b)(1) concerns the court’s subject-matter jurisdiction, while Rule 12(b)(6) tests whether the complaint states a legally sufficient claim. Because the complaint alleged violations of federal law and the allegations were not wholly insubstantial or frivolous, the court treated the motion as one under Rule 12(b)(6).

The court considered the complaint’s allegations as true for purposes of the motion and drew reasonable inferences for the plaintiffs. It declined to consider the contents of an affidavit from a prior state-court action for their truth because the affidavit was not incorporated into the complaint and could not be used to add new allegations. The court also declined to resolve factual disputes concerning a purported employment agreement involving Mateo, including disputes about whether it was the agreement described in the complaint and whether it was signed, complete, or enforceable.

Breach of Contract Claim

The court held that the complaint plausibly alleged breach of contract claims against Mateo, LaMarche, and Lugo. The complaint alleged that each had signed a non-compete agreement, that the agreements identified customer lists as confidential information, and that the agreements restricted the use and disclosure of that information. The defendants’ arguments that the agreements did not exist, were not enforceable, or were unreasonable presented factual questions that could not be decided on a motion to dismiss.

The court reached a different result for Arcadio Consulting, Inc. It concluded that the complaint did not plausibly allege that Arcadio Consulting, Inc. had an agreement with the plaintiffs or had breached one. The court therefore dismissed the breach of contract claim as to Arcadio Consulting, Inc. only and denied dismissal of that claim as to Mateo, LaMarche, and Lugo.

Federal Racketeering Claim

The complaint’s federal racketeering claim was based on alleged theft, larceny, fraud, cybertheft, cyberfraud, misrepresentation, and deceit. To state a civil claim under the federal Racketeer Influenced and Corrupt Organizations Act, commonly called RICO, a plaintiff must allege a violation of the statute, an injury to business or property, and causation. For the type of RICO violation discussed by the court, the plaintiff must also plausibly allege at least two qualifying predicate acts of racketeering activity.

The court held that none of the acts identified in the complaint appeared on RICO’s exhaustive list of qualifying racketeering activity. In particular, the court explained that ordinary theft offenses and the other alleged acts were not sufficient predicate acts under RICO. The plaintiffs’ reliance on the denial of an earlier motion to dismiss in the related state-court action did not change the result, because that denial was not a final judgment binding on this court. The court also did not consider the affidavit from that action as proof of the alleged facts.

The court therefore granted the motion to dismiss Count Two, the federal RICO claim, as to Mateo, LaMarche, Lugo, and Arcadio Consulting, Inc. The court stated that it did not construe the complaint as asserting a separate New York racketeering cause of action because the plaintiffs did not identify a specific New York statute and the parties did not address that issue in their motion papers.

Disposition

The court granted in part and denied in part the moving defendants’ motion to dismiss. It denied the motion to dismiss Count One, the breach of contract claim, as to Sterling Mateo, Ingrid LaMarche, and Walber Lugo. It granted the motion to dismiss Count One as to Arcadio Consulting, Inc. It also granted the motion to dismiss Count Two, the federal RICO claim, as to Sterling Mateo, Ingrid LaMarche, Walber Lugo, and Arcadio Consulting, Inc. The opinion did not resolve the liability of the defendants who had not appeared or responded to the complaint.