MSV Synergy, LLC v. Shapiro

Background

MSV Synergy, LLC and Mark Barron alleged that defendants induced them to pay $2 million for personal protective equipment, primarily medical gloves, that was never properly delivered. The transaction involved a Sale and Purchase Agreement between MSV and PAZ Global Ventures, an Escrow & Paymaster Agreement involving Shapiro & Associates, and assignment and guarantee agreements involving Saadia Shapiro.

The Sale and Purchase Agreement required disputes between the parties to be resolved through arbitration under American Arbitration Association rules. The escrow agreement required proceedings arising from that agreement to be litigated in federal courts in New York, but also stated that it did not amend or supersede the Sale and Purchase Agreement. Plaintiffs asserted common-law claims including breach of contract, unjust enrichment, negligent misrepresentation, fraud, and fraudulent inducement.

Motion to Compel Arbitration

Shapiro, Shapiro & Associates, and PAZ moved to compel arbitration. Plaintiffs argued that the agreements were invalid because a provision stating that the parties were not subject to litigation that could interfere with performance was an unmet condition required for contract formation. The court held that this language was not clear enough to make the existence of the contract depend on the absence of litigation. The court did not decide whether defendants breached that provision.

Plaintiffs also argued that defendants fraudulently induced them to accept the arbitration clause by placing a conflicting federal-court venue provision in the escrow agreement. The court rejected that argument. It concluded that the Sale and Purchase Agreement stated that it superseded the escrow agreement and that the escrow agreement did not supersede the Sale and Purchase Agreement. The court therefore held that the arbitration clause applied to claims concerning the Sale and Purchase Agreement, escrow agreement, and guarantee agreement.

The court granted the motion to compel arbitration. It denied the moving defendants’ motion to dismiss without prejudice to renewal after arbitration and stayed the action as to Shapiro, Shapiro & Associates, and PAZ pending arbitration.

East 125th Development’s Motion to Dismiss

East 125th Development moved to dismiss under the rule governing failure to state a legally sufficient claim. The court noted that plaintiffs did not actually assert claims against East 125th Development. It alternatively held that the allegations were insufficient because the complaint mainly described East 125th Development’s ownership relationship to other entities and did not allege that East 125th Development participated in or knew about the alleged fraud.

The court also rejected plaintiffs’ argument that East 125th Development was a required party because it allegedly owned property offered as collateral. Plaintiffs primarily sought money damages, and the court concluded that East 125th Development was not necessary to the action. The court granted East 125th Development’s motion to dismiss.

Vadim Leybel and Cast Capital Lending’s Motion to Dismiss

Vadim Leybel and Cast Capital Lending moved to dismiss the fraud, fraudulent inducement, negligent misrepresentation, and unjust enrichment claims asserted against them.

The court held that the fraud and fraudulent inducement allegations against Vadim did not satisfy the heightened pleading requirement for fraud. The complaint did not identify a specific false statement by Vadim, when or where it was made, or whether the statements were directed to plaintiffs. General allegations describing a broader glove-selling scheme were not enough. The court therefore dismissed the fraud and fraudulent inducement claims.

The court also dismissed the negligent misrepresentation claim against Vadim. The complaint did not adequately plead the required particularity or a special relationship between Vadim and plaintiffs. The court noted that plaintiffs contracted with PAZ, not Vadim, and that the complaint did not allege specialized expertise by Vadim or another defendant sufficient to create such a relationship.

As to unjust enrichment, the court held that the complaint did not explain how Vadim was enriched at plaintiffs’ expense, particularly because the alleged escrow funds were described as being controlled by Shapiro or Shapiro & Associates. The allegation that Cast substantially benefited from the funds was conclusory and insufficient. The court dismissed the unjust enrichment claims against Vadim and Cast and granted their motion to dismiss.

Disposition

Judge Edgardo Ramos granted Shapiro, Shapiro & Associates, and PAZ’s motion to compel arbitration; denied their motion to dismiss without prejudice to renewal pending arbitration; and stayed the action as to those defendants. He granted East 125th Development’s motion to dismiss and granted Vadim Leybel and Cast Capital Lending’s motion to dismiss. Plaintiffs could file an amended complaint by September 28, 2022. The opinion does not expressly characterize the dismissals of East 125th Development, Vadim, or Cast as with or without prejudice.