Franko v. Lewnowski

Background

Michael Franko sued Oskar Lewnowski and Orion Resource Partners (USA) L.P., Orion Commodities GP Limited, and Orion Commodities Management LLC. According to Franko’s amended complaint, he, Lewnowski, and Barry Feldman discussed creating a precious-metals commodities trading fund. Franko alleged that the parties agreed he would become a partner and the fund’s chief investment officer, while Lewnowski would become its chief executive officer.

Franko further alleged that the parties later agreed Orion Partners would provide him specified equity interests in Orion Commodities GP Limited and Orion Commodities Management LLC, and that Orion Commodities would employ him as chief investment officer at a salary of $1,500,000. Franko also alleged that the defendants knew about an investigation by CME Group into his conduct, encouraged him to accept a proposed consent order, and told him that doing so would not affect the fund’s launch or his future involvement. Less than a week after Franko signed the consent order, Lewnowski allegedly terminated Franko’s involvement. Franko said he consequently did not become chief investment officer, receive the promised equity or salary, or participate further in the fund.

Franko asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, common-law fraud, fraudulent inducement, quantum meruit, unjust enrichment, and promissory estoppel. The defendants moved to dismiss the amended complaint under Rule 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim. In deciding that motion, the court treated the complaint’s factual allegations as true and drew reasonable inferences in Franko’s favor; it did not make findings about whether those allegations were true.

Contract and Related Claims

The defendants argued that New York’s Statute of Frauds barred Franko’s claims because the alleged agreement was not in writing and could not be fully performed within one year. The court rejected that argument at the motion-to-dismiss stage. It reasoned that the alleged employment arrangement, salary, and equity transfer could potentially be completed within one year, including because the fund could have launched within that period. The court also distinguished agreements involving annual profit distributions, which may be impossible to perform within one year, from Franko’s alleged agreement for equity interests upon the fund’s launch.

The court therefore denied the motion as to Franko’s breach-of-contract claim. It also denied the motion as to the claims for breach of the implied covenant of good faith and fair dealing, quantum meruit, unjust enrichment, and promissory estoppel. The court concluded that these claims were not barred by the Statute of Frauds based on the allegations at that stage. It also concluded that Franko’s implied-covenant claim was not necessarily duplicative of his contract claim because he alleged that he was deprived of the benefit of his bargain when he was terminated weeks before the fund’s launch, even if the contract might have allowed at-will termination.

Fraud Claims

The court granted the motion as to Franko’s common-law fraud and fraudulent-inducement claims. It held that the alleged misrepresentations—that the CME investigation and consent order would not interfere with the fund or Franko’s future role—arose from the same facts as Franko’s contract claims. Franko did not allege a separate legal duty or a misrepresentation independent of the alleged contractual promises.

The court also held that the fraud allegations did not satisfy Rule 9(b), which requires fraud to be pleaded with particularity. The allegations did not sufficiently show that Lewnowski had a motive to defraud Franko or provide strong circumstantial evidence of intentional or reckless misconduct.

Disposition

The court granted in part and denied in part the defendants’ motion to dismiss. It granted the motion as to the Third and Fourth Causes of Action—common-law fraud and fraudulent inducement—and denied it as to the First, Second, Fifth, and Sixth Causes of Action. The defendants were directed to answer the amended complaint within 21 days after the Opinion and Order was filed.