Palatkevich v. Choupak

Full title: ALEKSANDR PALATKEVICH and BPVN TECHNOLOGIES, INC., Plaintiffs, v. MICHAEL…

Court: UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Date published: Jan 24, 2014

No. 12 Civ. 1681 (CM) (S.D.N.Y. Jan. 24, 2014)

Opinion

No. 12 Civ. 1681 (CM) No. 12 Civ. 1682 (CM)

01-24-2014

ALEKSANDR PALATKEVICH and BPVN TECHNOLOGIES, INC., Plaintiffs, v. MICHAEL CHOUPAK, ANASTASIA KOROLEVA, STANACARD, LLC, INTERMEDIA NET, INC. Individually and as the Successor to INTERMEDIA NET, LLC and INTERMEDIA, INC., UNISON TECHNOLOGIES, INC., Individually and as Successor to UNISON TECHNOLOGIES, LLC, VICTORIAN MANAGEMENT, LLC, KEKU, INC., Individually and as Successor to KEKU, LLC, STANACARD, LTD., and EDUARD ROMANOV, Defendants. ARTUR NATAN ZAYTSEV and ANZFS, INC., Plaintiffs, v. MICHAEL CHOUPAK, ANASTASIA KOROLEVA, STANACARD, LLC, INTERMEDIA NET, INC., UNISON TECHNOLOGIES INC., VICTORIAN MANAGEMENT, LLC, KEKU, LLC, STANACARD, LTD. and EDUARD ROMANOV, Defendants.

McMahon, J.

MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS THE AMENDED CONSOLIDATED COMPLAINT

:

Plaintiffs in these two consolidated actions—former employees of Defendant Stanacard, LLC—allege that Stanacard, LLC, its officers and employees, and certain related entities defrauded them and infringed their intellectual property rights. They bring claims for copyright and trademark infringement, 17 U.S.C. § 501 and 15 U.S.C. § 1114, and related New York state law claims. They also seek civil damages under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964(c).

Defendants move to dismiss all claims pursuant to, inter alia, Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. Defendants' motions to dismiss are granted in part and denied in part.

ALLEGATIONS IN THE COMPLAINT

The Amended Consolidated Complaint ("Complaint") in this case is a mess. It has been difficult to tease out Plaintiffs' specific claims and factual allegations from the disorganized and scattershot statements masquerading as a pleading. In addition, the RICO case statement is among the least helpful I have ever seen; it includes a litany of accusations that bear no resemblance to anything in the Complaint. This is what I have managed to discern.

At the time of the events in question, Defendants Stanacard, LLC, Stanacard Ltd., Intermedia.net, Inc. ("Intermedia"),¹ Unison Technologies, Inc. ("Unison"),² Victorian Management, LLC ("Victorian"), and Keku, Inc. ("Keku")³ (collectively, "the Corporate Defendants") were related companies with common ownership and management.⁴ These companies were in the business of selling "Voice Over Internet Protocol" ("VoIP") services to users, which enabled the users to place phone calls over the internet at rates that were lower than those charged by phone companies. See Compl. at ¶¶ 40, 68, 71.

1 Though the two original complaints in this case named "Intermedia Net, Inc." as a Defendant, the Amended Complaint (referred to here as the "Complaint") corrected this to "Intermedia.net, Inc." The Court will refer to Intennedia.net, Inc. and its alleged predecessor companies—Intermedia Net, LLC, Intermedia DE, Inc., Intermedia MN, Inc., and Intermedia, Inc.—collectively as "Intermedia."

2 The Court will refer to both Unison Technologies, Inc. and its alleged predecessor company—Unison Technologies, LLC—as "Unison."

3 The Court will refer to both Keku, Inc. and its alleged predecessor company—Keku, LLC—as "Keku."

4 Intermedia was acquired by an unrelated entity named Oak Hill Capital Partners in 2011.

Defendant Michael Choupak was the founder, Chairman, Managing Member, and controlling shareholder of each of the six Corporate Defendants. See id. at ¶¶ 15-26, 77. Defendant Anastasia Koroleva—Choupak's wife—was the CEO and a shareholder of Stanacard, LLC; the "Vice President, Legal" of Intermedia (a position in which she supposedly performed no services); and a co-founder, Managing Member, and shareholder of Keku. See id. at ¶¶ 34-36; Palatkevich RICO Case Statement at 6. Defendant Eduard Romanov was a minority shareholder and an "employee and/or officer" of Stanacard, LLC. See Compl. at ¶¶ 38, 57.

In 2006 and 2007, Choupak hired each of the Plaintiffs to work for Stanacard, LLC.

Plaintiffs allege that Defendants engaged in a "theft of services" scheme from about 1995 until 2010, pursuant to which Defendants would hire employees for start-up companies, induce them to provide services by promising them equity interests in those companies, and then deprive the employees of their vested shares. See id. at ¶¶ 268-70; Palatkevich RICO Case Statement at 1-2, 5. Plaintiffs were brought on board pursuant to this scheme. They were promised equity interests but, according to Plaintiffs, Defendants never intended to give them equity in the start-ups; rather, Defendants defrauded Plaintiffs into believing that they would receive equity in the start-ups in order to induce Plaintiffs to work for Defendants. The Complaint generally alleges that Defendants employed the same "theft of services" scheme to deprive 23 other employees of equity interests, including non-parties Igor Balk, Constantin Filin, Dan Jangigian, and Vladimir Rivkin. See Compl. at ¶¶ 269, 323.

Palatkevich and BPVN's Employment at Stanacard, LLC

According to the Complaint, Plaintiffs Aleksandr Palatkevich and BPVN Technologies, Inc. ("BPVN")—an entity wholly owned by Palatkevich—entered into a contract with Stanacard, LLC in May 2006 to provide software coding services. Palatkevich agreed to serve as the company's Chief Technology Officer ("CTO"). See id. at ¶ 41. Plaintiffs state that, in return, Stanacard, LLC agreed to provide monetary compensation to Palatkevich and BPVN and to give Palatkevich a ten percent share in Stanacard, LLC. See id. at ¶¶ 94-97.

From May 2006 to July 2009, Palatkevich and a BPVN employee named Alexander Volkov developed software for Stanacard, LLC that implemented the company's VoIP technology. See id. at ¶¶ 96-97, 101-02. The Complaint states that this software "transformed the company into a viable producer and merchant of internet-based telephony." Id. at ¶ 102. Stanacard, LLC's VoIP system "went from being able to handle simultaneous transmission of 10 calls out of a customer base of 1100 subscribers, to simultaneous transmission of approximately 2,000 calls, with a client database of approximately 220,000 subscribers." Id. at ¶ 120. Plaintiffs state that, as a result, monthly revenues increased from $4,760 per month in September 2006 to approximately $1 million per month in 2009. See id. Thus, Palatkevich and BPVN assert that they performed under their contract with Stanacard, LLC.

Initially, Stanacard, LLC paid Palatkevich and BPVN the agreed-upon monetary compensation for their work. In June 2009, however, Choupak and Koroleva allegedly told Palatkevich that Stanacard, LLC was in dire financial condition and that the company would have to drastically reduce his salary or terminate his employment as CTO. See id. at ¶¶ 130-35. According to Plaintiffs, BPVN's operating costs made it impossible for Palatkevich to work for Stanacard, LLC for less money, and Palatkevich was "forced to resign" in July 2009. See id. at ¶¶ 136-37.

On March 31, 2010, Choupak and Koroleva commissioned a valuation of Stanacard, LLC from MFA Cornerstone Consulting ("MFA"), a business appraisal firm. See id. at ¶¶ 139-42. The Complaint alleges that Choupak, Koroleva, and Romanov provided false information to MFA in order to obtain a below-market valuation of the company. MFA valued a ten percent share in Stanacard, LLC at only $32,000, despite the company's $1 million per month revenue stream. In 2009, Koroleva had previously obtained a higher valuation of the company from a different appraisal firm, but it was "discarded." See id. at ¶ 142. Choupak, Koroleva, and Romanov used the low-ball MFA valuation to try to coax Palatkevich into selling his shares for $32,000, but Palatkevich refused. See id. at ¶¶ 141-43.

On August 12, 2010, Choupak unilaterally executed a "First Amended and Restated LLC Agreement" for Stanacard, LLC. See id. at ¶ 144. The document listed Palatkevich as a ten percent shareholder. However, the amendment provided that a shareholder whose employment terminated for any reason automatically forfeited any unvested equity interests, and forfeited vested shares if the company terminated his employment for cause. Palatkevich alleges that he had vested shares and was not terminated for cause. See id. at ¶¶ 144-48.

Nevertheless, Choupak, Koroleva, and Romanov "reassigned" Palatkevich's shares to themselves. See id. at ¶¶ 147-48. As a result, Palatkevich did not ultimately receive a ten percent equity interest in Stanacard, LLC.

Zaytsev and ANZFS's Employment at Stanacard, LLC

The Complaint asserts that Plaintiff Artur Natan Zaytsev and Defendant Choupak reached an agreement in December 2007 that Zaytsev would act as the Chief Financial Officer ("CFO") of Stanacard, LLC and provide financial services. Choupak, who was allegedly acting in his capacity as Chairman and Managing Member of Stanacard, LLC, agreed to compensate Zaytsev with a salary and a ten percent share in the company. See id. at ¶¶ 154-58. Zaytsev entered into the contract on behalf of both himself and Plaintiff ANZFS, Inc. ("ANZFS"), an entity wholly owned by Zaytsev. See id. at ¶¶ 8, 160, 177. The Complaint states that Zaytsev later confirmed his ten percent share of Stanacard, LLC with Choupak in a "written communication" dated March 17, 2008. See id. at ¶ 179. This communication is not appended to the pleading.

From September 2007 to November 2009, Zaytsev provided financial and accounting services to Stanacard, LLC and its related entities. The Complaint states that there were no books, records, or accounts dedicated to Stanacard, LLC prior to Zaytsev's time as CFO. He implemented mechanisms for allocating costs among the six Defendant entities and for complying with the Generally Accepted Accounting Principles on revenue recognition. Zaytsev also established lines of credit for Stanacard, LLC and reduced the company's cost of credit card processing by renegotiating its merchant banking contracts. As a result of Zaytsev's efforts, Stanacard, LLC allegedly obtained a "steady cash flow" through credit card payments by VoIP customers and achieved overall "financial stability." See id. at ¶¶ 160-64.

Stanacard, LLC, Unison, and Victorian paid Zaytsev's salary via transfers to ANZFS. See id. at ¶ 168. However, Zaytsev did not ultimately receive an equity interest in Stanacard, LLC, either.

On December 29, 2008, Stanacard, LLC's General Counsel presented Zaytsev with four documents: (1) a revised limited liability company agreement ("LLC agreement") for Stanacard, LLC, (2) a "Joinder" to the LLC agreement, which confirmed Zaytsev's ten percent ownership interest ("the Joinder"), (3) a "Non-Disclosure, Work-for-Hire and Non-Compete Agreement" ("Work-for-Hire Agreement") for Zaytsev, which assigned to the company Zaytsev's intellectual property rights in his work, and (4) an identical Work-for-Hire Agreement for ANZFS.⁵ On January 9, 2009, Koroleva forwarded these documents to Zaytsev via email and directed him to sign them. Zaytsev executed the agreements. See id. at ¶¶ 171, 174; see also Krol Aff. Exs. G, H.

5 Choupak and Koroleva also asked Palatkevich and BPVN to sign Work-for-Hire Agreements around this time. See Compl. at ¶ 126; see also Krol Aff. Exs. T, U.

In the summer and fall of 2009, Choupak, Koroleva, and Romanov allegedly tried to force Zaytsev out of the company. They misrepresented to Zaytsev that Stanacard, LLC was nearly bankrupt. Choupak and Koroleva also attempted to convince Zaytsev that he never obtained a valid equity interest in Stanacard, LLC, either because Choupak was intoxicated when he made the initial promise in December 2007 or because Koroleva had no authority to approve the Joinder agreement in January 2009. Choupak eventually fired Zaytsev via email on November 20, 2009. Choupak, Koroleva, and Romanov then denied that Zaytsev was ever CFO of Stanacard, LLC or that he was promised a ten percent share in the company, and they "reassigned" his vested shares to themselves. See Compl. at ¶¶ 173-75, 180.

Plaintiffs assert that several individuals who were apprised of these events criticized Choupak and Koroleva for their treatment of Zaytsev. For example, a man named Alexander Gellerman told Choupak that his conduct towards Zaytsev was "wrongful, rude and uncivil," and that Choupak should not have fired Zaytsev over email. See id. at ¶ 345. In response to this criticism from Gellerman and others, Choupak and Koroleva allegedly defended themselves by falsely asserting that Zaytsev had stolen money from Stanacard, LLC. See id. at ¶¶ 345-48.

Procedural History

Plaintiffs initially brought separate lawsuits in New York state court. Zaytsev and ANZFS filed suit on July 19, 2010, and Palatkevich filed suit on May 19, 2011. See id. at ¶¶ 59, 258. The original complaints in the two federal actions were initiated on March 7, 2012. On May 16, 2012, Plaintiffs' counsel orally requested that the state court dismiss the state actions so that Plaintiffs' state law claims could be adjudicated along with their intellectual property claims in federal court. She informed this Court on April 11, 2013 that the state court had granted her dismissal request, and that the Defendants' appeal of that decision had been decided in Plaintiffs' favor. See Docket 12 Civ. 1681 Nos. 10, 14.

The Claims

Plaintiffs assert several federal and New York state law causes of action against Defendants. They bring two separate breach of contract claims against Choupak, Koroleva, Romanov, and Stanacard, LLC for failure to give them the ten percent equity in the company; Palatkevich and BPVN do so in Count 1(a), and Zaytsev and ANZFS do so in Count 1(b).⁶ See Compl. at ¶¶ 146-49, 180-82. They also bring various state law claims for breach of fiduciary duty (Count 2), unjust enrichment (Count 4), minority shareholder oppression (Count 5), fraudulent conveyance (Count 6), fraud in the inducement (Count 7), and equitable accounting (Count 12).

6 The Complaint mistakenly labels each of these claims as the "First Cause of Action," but for clarity this Court will refer to them as Count 1(a) and Count 1(b), since they are breaches of separate contracts.

In Count 3, Palatkevich and BPVN (but not Zaytsev and ANZFS) allege that Defendants infringed their copyrights and trademarks in three computer programs—PipeBoost and Multi-Protocol COM Library ("MPCL"), as well as an unspecified "anti-fraud program." Palatkevich claims that he incorporated these three programs into the software code he wrote for Stanacard, LLC, and the Complaint asserts that Defendants' use of the code violated his copyrights and trademark rights. See id. at ¶¶ 63-64, 208, 296-312.

All Plaintiffs allege that Defendants were operating a criminal enterprise in violation of RICO. The Complaint alleges that Defendants engaged in four types of racketeering activity: (1) criminal copyright infringement, (2) money laundering, (3) mail fraud, and (4) wire fraud. Plaintiffs assert that the infringement of Palatkevich's copyrights in the three computer programs was knowing and willful and, therefore, criminal. They allege that Defendants used the proceeds from this criminal copyright infringement to enter into financial transactions, thereby engaging in money laundering. And Plaintiffs assert that Defendants' use of the mails and wires to further their "theft of services" scheme amounted to mail and wire fraud.

Through these acts, Defendants allegedly violated RICO in two ways: (1) a substantive violation under 18 U.S.C. § 1962(c) for conducting a RICO enterprise through a pattern of racketeering activity, and (2) a RICO conspiracy under § 1962(d). Based on these alleged RICO violations, Plaintiffs bring two civil RICO claims under § 1964(c):⁷ Count 8 is the substantive RICO violation, and Count 9 is the RICO conspiracy.

7 In Counts 8, 9, 10, and 11, Plaintiffs formulate their RICO claims as four separate causes of action—one for each of their theories of racketeering activity. But that is not how the civil RICO statute works. Under 18 U.S.C. § 1964(c), a plaintiff may bring a claim for any injury he suffered due to a violation of § 1962. Here, only two § 1962 violations are alleged—a violation of § 1962(c) and a violation of § 1962(d). Thus, Plaintiffs have two civil RICO claims under § 1964(c). The Court will refer to them as Count 8 and Count 9; Counts 10 and 11 are dismissed as surplusage.

Finally, in Count 13, Zaytsev asserts a claim for slander against Choupak and Koroleva for falsely telling people that he was fired was because he stole from Stanacard, LLC. He maintains that he was fired as part of the theft of services scheme. Zaytsev states that these comments have ruined his professional reputation and impaired his ability to earn income. See id. at ¶¶ 347, 349.

Defendants separately move to dismiss all claims pursuant to Rules 8, 9(b), 12(b)(1), 12(b)(4), 12(b)(5), 12(b)(6), and 41(b) of the Federal Rules of Civil Procedure.

DISCUSSION

I. Standard of Review

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court must liberally construe all claims, accept all factual allegations in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. See Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 44 (2d Cir. 2003); see also Roth v. Jennings, 489 F.3d 499, 510 (2d Cir. 2007).

However, to survive a motion to dismiss, "a complaint must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal quotations, citations, and alterations omitted). Thus, unless a plaintiff's well-pleaded allegations have "nudged [its] claims across the line from conceivable to plausible, [the plaintiff's] complaint must be dismissed." Id. at 570; see also Iqbal, 556 U.S. at 680.

In deciding a motion to dismiss, a court may consider the full text of documents that are quoted in or attached to the complaint, or documents that the plaintiff either possessed or knew about and relied upon in bringing the suit. See Rothman v. Gregor, 220 F.3d 81, 88-89 (2d Cir. 2000).

To survive a motion to dismiss pursuant to Rule 12(b)(1), a plaintiff must establish by a preponderance of the evidence that subject-matter jurisdiction exists over his or her claim. See Makarova v. U.S., 201 F.3d 110, 113 (2d Cir. 2000).

Under Rule 9(b), a plaintiff must also plead allegations of fraud with particularity. See FED. R. CIV. P. 9(b); infra at § III.A.4.c.

II. Count 3 Is Dismissed

In what is denominated as "Count 3," Plaintiffs Palatkevich and BPVN bring federal claims for both copyright and trademark infringement. These claims are dismissed.

A. Copyright Infringement

"To withstand a motion to dismiss, a complaint based on copyright infringement must allege: (1) which original works are the subject of the copyright claim; (2) that the plaintiff owns the copyrights in those works; (3) that the copyrights have been registered in accordance with the statute; and (4) 'by what acts during what time' the defendant infringed the copyright." Carell v. Shubert Org., Inc., 104 F. Supp. 2d 236, 250 (S.D.N.Y. 2000) (quoting Kelly v. L.L. Cool J., 145 F.R.D. 32, 35 (S.D.N.Y. 1992)). Infringement is the actual copying of a protectable expression. See Laureyssens v. Idea Grp., Inc., 964 F.2d 131, 139-40 (2d Cir. 1992).

Plaintiffs Palatkevich and BPVN allege that Defendants infringed their copyrights in three software programs: PipeBoost, MPCL, and an unspecified "anti-fraud program." But the Complaint concedes that Palatkevich "agreed to allow Stanacard, LLC to utilize three prior software programs developed by plaintiffs without any payment of licensure fees." Compl. at ¶ 119. Plaintiffs also admit that Palatkevich himself incorporated PipeBoost, MPCL, and the anti-fraud program into the "entirely new code" that he wrote for Stanacard, LLC during his time as CTO. See id. at ¶ 203.

Plaintiffs seem to contend, however, that the other Defendants had no right to use these three programs, and that all Defendants infringed Palatkevich and BPVN's copyrights when the Defendants transferred the new code among themselves and each used the code. See id. at ¶¶ 63-64; 208; 296-312.

Defendants argue that these claims must be dismissed because Palatkevich and BPVN have failed to adequately allege that they both owned and registered copyrights in the three programs. Defendants are correct.

Under 17 U.S.C. § 411(a), "no civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with" the Copyright Act. Though one may obtain copyright protection before registering his copyright, he may not ordinarily⁸ bring suit for copyright infringement prior to doing so. See Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157-58 (2010).

8 There are exceptions to this rule that are not relevant in this case.

Here, the Complaint does not allege that any Plaintiff holds a registered copyright in either PipeBoost or the anti-fraud program. Thus, neither of these programs may be the subject of a civil infringement action. See id.; 17 U.S.C. § 411(a).

The Complaint does allege that someone named Alexander Volkov, a non-party who is employed by BPVN, has a registered copyright in MPCL. See Compl. at ¶ 201. The Complaint asserts that Volkov licensed the program to both BPVN and Palatkevich. See id. at ¶¶ 106, 202; see also Palatkevich RICO Case Statement at 6. But the Complaint does not allege that this was an exclusive license; indeed, it alleges that Stanacard, LLC was "allow[ed]" to incorporate MPCL into its proprietary software. See Compl. at ¶ 119. While an exclusive licensee has standing to bring a copyright infringement claim, a non-exclusive licensee does not. See Plunket v. Doyle, No. 99 Civ. 11006 (KMW), 2001 WL 175252, at *5 (S.D.N.Y. Feb. 22, 2001); In re Patient Educ. Media, Inc., 210 B.R. 237, 240 (S.D.N.Y. 1997). Thus, Plaintiffs lack standing to assert any copyright infringement claim with respect to MPCL. See id.

Second, Plaintiffs do not own copyrights in any of the three programs at issue, because they assigned their rights to Stanacard, LLC.

As stated in the Complaint, Choupak and Koroleva asked Palatkevich, BPVN, Zaytsev, and ANZFS to each execute a Work-for-Hire Agreement. See Compl. at ¶ 126; see also Krol Aff. Exs. G, H, T, U. The four agreements were identical. Though the Complaint admits that Palatkevich "agreed to allow Stanacard, LLC to utilize three prior software programs developed by plaintiffs without any payment of licensure fees," see Compl. at ¶ 119, the Work-for-Hire Agreements that he and BPVN signed actually went much further—they assigned any rights that these Plaintiffs had in the software programs to Stanacard, LLC.

Each Work-for-Hire Agreement has a provision titled "Inventions and Work-for-Hire; Indemnification." Krol Aff. Exs. T, U. These provisions state:

Individual agrees that prior to and during the Relationship, any and all inventions, discoveries, innovations, improvements, trade secrets, designs, drawings, business processes, strategies and secret processes, whether or not patentable, which may be or have been

created, conceived, developed or made, and related or in any way connected with Company, its strategic plans, products, services, patents and patent applications, processes, apparatus or business now or hereafter carried on by Company (collectively, "Inventions"), shall be the sole and exclusive property of Company as against Individual. Individual shall immediately disclose to Company all Inventions with respect to Company conceived of, developed, or made by Individual. Whether during or after the Relationship, Individual further agrees to execute and acknowledge all papers and to do, at Company's expense, any and all other things necessary for or incident to the applying for, obtaining, and maintaining of such letters patent, copyrights, trademarks or other intellectual property rights, as the case may be, and to execute, on request, all papers necessary to assign and transfer such inventions, improvements, designs, discoveries, writings, copyrights, patents, patent applications and other intellectual property rights to Company, its successors and assigns.

Krol. Aff. Ex. T at § 6(a); id. Ex. U at § 6(a). The Work-for-Hire Agreements define "Relationship" as the "arrangement or agreement separate from this Agreement" under which each Plaintiff "perform[ed] services" for Stanacard, LLC. See id. at § 1. For Palatkevich and BPVN, the employment relationship lasted from May 2006 to July 2009. See Compl. at ¶¶ 94, 102. Thus, these Plaintiffs assigned to Stanacard, LLC any rights they had in pre-existing intellectual property that they used in connection with their software coding work for the company.⁹ Any software that Palatkevich developed within the scope of his employment for Stanacard, LLC of course belongs to the employer as a "work made for hire" under the Copyright Act. See 17 U.S.C. §§ 101 and 201(b).

9 It is worth noting that Plaintiffs do not argue that Stanacard, LLC's alleged breach of its May 2006 employment agreement with Palatkevich and BPVN had any effect on the validity of the intellectual property assignments in the December 2008 Work-for-Hire Agreements signed by these two Plaintiffs. In fact, each Work-for-Hire Agreement specifically refers to the employment agreement as "separate from this Agreement." Krol. Aff. Ex. T at § 1; id. Ex. U at § 1. The Complaint likewise distinguishes between the agreements and only alleges breach of the 2006 employment agreement. See Compl. at ¶¶ 96-101, 126-28, 146-49.

Plaintiffs assert that Palatkevich incorporated PipeBoost, MPCL, and the anti-fraud program into the "new code" he wrote for Stanacard, LLC. See Compl. at ¶ 203. These three programs clearly fall within the scope of "Inventions" that were "created, conceived, developed or made, and related or in any way connected with" Stanacard, LLC "prior to and during" Plaintiffs' employment relationships with the company. See Krol. Aff. Ex. T at § 6(a). Thus, if either Palatkevich or BPVN had any rights to these three programs, they assigned them to Stanacard, LLC at the time they executed the Work-for-Hire Agreements.

Further, the Work-for-Hire Agreements included warranties by Palatkevich and BPVN that the services they performed for Stanacard, LLC did not "infringe any patent, copyright, trade secret or any other intellectual property right or other proprietary or personal right of any third party . . ." See id. at § 3(a). And Plaintiffs even agreed to "indemnify and hold [Stanacard, LLC], its officers, directors, managers, representatives, vendors, agents and employees, harmless from any cost, expense, loss, damage or liability arising from or in connection with any claim, suit or actions arising from breach of any [ ] representation and warranty provided by [Plaintiffs]" under the Work-for-Hire Agreements. See id. at § 6(b). Thus, Stanacard, LLC has a right to sue Palatkevich and BPVN for indemnification for any loss it may suffer from false representations to the company that the new software code did not violate the intellectual property rights of third parties, such as Volkov (who is not a party to this action).

Palatkevich and BPVN do not contest the fact that they entered into the Work-for-Hire Agreements. See Compl. at ¶ 128. Instead, they argue that the agreements were "backdated" and that intellectual property rights cannot be transferred retroactively. See Pl. Opp. at 29. According to Plaintiffs, the Work-for-Hire Agreements were all prepared on December 29, 2008 but were backdated by Defendants to March 20, 2007.¹⁰ See id.; Compl. at ¶ 126.

10 The Agreement between Stanacard, LLC and BPVN is actually dated July 21, 2008. See Krol Aff. Ex, U. That fact is of no consequence, however.

Even if Plaintiffs' backdating allegation is true, it does not affect the outcome of this case. All the alleged copyright infringement took place "[f]ollowing the ouster of plaintiffs from Stanacard, LLC"—i.e., sometime after July 2009 when Palatkevich left the company. See id. at ¶¶ 41, 44, 63-64, 208-09. Assuming that the Work-for-Hire Agreements were executed in December 2008, it does not matter whether they had retroactive effect; Palatkevich and BPVN relinquished any intellectual property rights they had in PipeBoost, MPCL, and the anti-fraud program before the alleged infringement occurred. And indeed, there could be no infringement while Palatkevich and BPVN were employed by Stanacard, LLC.

Thus, Palatkevich and BPVN have not adequately alleged that they were owners of copyrights in the works at the time of the infringement, and the infringement claim fails. See Carell, 104 F. Supp. 2d at 250.

Plaintiffs also contend that the Work-for-Hire Agreements were executed at the same time as the "revised Stanacard, LLC limited liability company agreement" and the "Zaytsev Joinder of the LLC agreement," and that this Court should read the agreements to be "part of 'an interrelated package.'" See Pl. Opp. at 29-30. The opposition brief seems to argue that, in December 2008, Palatkevich and BPVN relinquished their intellectual property rights (via their Work-for-Hire Agreements) in exchange for the Joinder and the revised LLC agreement.

I gather Plaintiffs believe (though they never come out and say so) that Defendants' breaches of the other agreements somehow nullify the effectiveness of the Work-for-Hire Agreement assignments. None of this is alleged in the Complaint, however. Plaintiffs cannot add allegations through their opposition brief. See O'Brien v. Nat'l Prop. Analysts Partners, 719 F. Supp. 222, 229 (S.D.N.Y. 1989).

In any event, Plaintiffs' argument is seriously flawed. The Complaint alleges no facts indicating that Palatkevich or BPVN either knew about the other December 2008 agreements or signed the Work-for-Hire Agreements in exchange for them. With respect to these two Plaintiffs, the Complaint only states that Defendants asked them to sign Work-for-Hire Agreements at this time. See Compl. at ¶ 126.

Rather, the Complaint asserts that it was Zaytsev who was presented with "a series of documents for his signature:" the Joinder (which confirmed Zaytsev's ownership interest, not Palatkevich's), the revised LLC agreement, the Zaytsev Work-for-Hire Agreement, and the ANZFS Work-for-Hire Agreement. See Compl. at ¶ 171. Though Zaytsev could plausibly argue that he relinquished intellectual property rights through the Work-for-Hire Agreements he signed in exchange for the benefits he received in the Joinder, he is not suing for copyright infringement. Palatkevich and BPVN are.

Further, given that Plaintiffs point to no benefit that either Palatkevich or BPVN received in the Joinder or the revised LLC agreement, it is hard to see why these Plaintiffs would have traded their intellectual property rights in exchange for anything in those documents. Plaintiffs' argument fails, and this Court will enforce the plain language of the Work-for-Hire Agreements.

As Palatkevich and BPVN have failed to allege that they had any ownership rights in the three programs at the time the alleged copyright infringement occurred, the copyright aspect of Count 3 is dismissed.

B. Trademark Infringement

To prevail on a trademark infringement claim, a plaintiff must establish that "(1) it has a valid mark that is entitled to protection under the Lanham Act; and that (2) the defendant used the mark, (3) in commerce, (4) 'in connection with the sale . . . or advertising of goods or services,' [and] (5), without the plaintiff's consent." 1-800 Contacts, Inc. v. WhenU.Com, Inc., 414 F.3d 400, 406-07 (2d Cir. 2005) (citations omitted). In addition, the plaintiff must allege facts sufficient to establish that the defendant's use of the registered mark "is likely to cause confusion . . . as to the affiliation, connection, or association of [defendant] with [plaintiff], or as to the origin, sponsorship, or approval of [defendant's] goods, services, or commercial activities by [plaintiff]." Id. at 407 (citation omitted).

The Complaint alleges that PipeBoost™ is a trademark. See Compl. at ¶ 209; Pl. Opp. at 29. However, Plaintiffs have failed to allege basic elements of trademark infringement.

Under the Lanham Act, a mark is "used in commerce" on goods when it is "placed in any manner on the goods or . . . on documents associated with the goods or their sale." 15 U.S.C. § 1127. A mark is used on services when it is "used or displayed in the sale or advertising of services . . ." Id.

Plaintiffs do not allege that Defendants ever used the "PipeBoost" mark. Stanacard, LLC did not name the new software code written by Palatkevich "PipeBoost," and no fact alleged indicates that Defendant publicly stated that it was using the "PipeBoost" program in any form. In fact, Plaintiffs assert that Defendant Unison "claimed that it had developed a technology product known as 'Hosted Unison' . . ." See Compl. at ¶ 307. The Complaint merely alleges that Defendants used the code written by Palatkevich which incorporated the PipeBoost software program, and that Defendant Intermedia "integrated the PipeBoost™ program . . . into its system." See id. at ¶¶ 203, 297-300, 306, 311-12. Using software code that incorporates the PipeBoost program is not "us[ing] or display[ing]" the PipeBoost mark in commerce. See 15 U.S.C. § 1127.

Further, Plaintiffs do not allege that Defendants used the mark in a way that was "likely to cause confusion" about the origin of the software code. See 1-800 Contacts, 414 F.3d at 407. It is hard to imagine how Defendants could have caused confusion, given that there is no assertion that they ever uttered the term "PipeBoost" or any term like it.

The trademark infringement claim fails. Because Count 3 encompasses the copyright and trademark infringement claims, it is dismissed.

III. Civil RICO Claims

All Plaintiffs bring two civil RICO claims against all Defendants under 18 U.S.C. § 1964(c). To state a claim for damages under § 1964(c), a plaintiff must allege: "(1) a substantive RICO violation under § 1962; (2) injury to the plaintiff's 'business or property,' and (3) that such injury was 'by reason of the substantive RICO violation." City of New York v. Smokes-Spirits.com, Inc., 541 F.3d 425, 439 (2d Cir. 2008), rev'd on other grounds sub nom. Hemi Grp., LLC v. City of New York, N.Y., 559 U.S. 1 (2010).

Plaintiffs claim that they were injured by reason of substantive violations of both § 1962(c) and § 1962(d). The former prohibits conducting an enterprise through a pattern of racketeering activity; the latter prohibits engaging in a racketeering conspiracy. See 18 U.S.C. §§ 1962(c) and (d). Accordingly, they bring two § 1964(c) civil damages claims in Counts 8 and 9—one for each RICO violation.

Plaintiffs' opposition brief adds various new substantive RICO violation theories. See Pl. Opp. at 19-20. The Complaint, however, does not contain these allegations. Because a plaintiff may not amend a pleading through an opposition brief, the Court will disregard these theories. See O'Brien, 719 F. Supp. at 229.

Defendants argue that the two civil RICO claims must be dismissed because Plaintiffs have not sufficiently alleged either of the two § 1962 violations, injury, or causation.

A. Conducting a RICO Enterprise Under § 1962(c)

In Count 8, Plaintiffs claim that Defendants committed a substantive RICO violation under § 1962(c), which prohibits a "person employed by or associated with any enterprise" from "conduct[ing] or participat[ing], directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity . . ." 18 U.S.C. § 1962(c). The elements of a § 1962(c) violation include showing "that a person engaged in '(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'" Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 120 (2d Cir. 2013) (quoting DeFalco v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001)).

Defendants argue that Plaintiffs fail to adequately allege any of the elements of § 1962(c).

1. Enterprise

The Complaint sufficiently alleges the existence of an association-in-fact enterprise.

An "enterprise" is defined as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4); Smokes-Spirits, 541 F.3d at 447. The enterprise requirement is most easily satisfied "when the enterprise is a formal legal entity." First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 173 (2d Cir. 2004). However, an association-in-fact may also be a RICO enterprise. See id.

An "association-in-fact" enterprise is "'a group of persons associated together for a common purpose of engaging in a course of conduct' which is 'proved by evidence of ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.'" DeSilva v. North Shore-Long Island Jewish Health Sys., Inc., 770 F. Supp. 2d 497, 528 (E.D.N.Y. 2011) (quoting U.S. v. Turkette, 452 U.S. 576, 583 (1981)). To determine whether a plaintiff has sufficiently pled an association-in-fact, courts "look to the 'hierarchy, organization, and activities' of the association to determine whether 'its members functioned as a unit.'" Satinwood, 385 F.3d at 174-75.

The "enterprise" in this case is alleged to be an association-in-fact. The association-in-fact consists of six related companies—the Corporate Defendants—and certain individuals employed by them, namely Choupak, Koroleva, and Romanov. Plaintiffs assert that the association-in-fact had many purposes. If you read the Complaint, you would think that these nine "persons" associated for the purposes of cheating the Plaintiffs out of stock that was promised to them and cheating some of the Plaintiffs out of their intellectual property. See Compl. at ¶ 77. According to the RICO case statement, however, they associated for the purpose of carrying out a massive "money-laundering and tax evasion scheme buried within an interlocked series of companies." Palatkevich RICO Case Statement at 15; Zaytsev RICO Case Statement at 16.

Plaintiffs assert that Choupak, Koroleva, and Romanov "controlled" this association-in-fact enterprise. See Compl. at ¶¶ 78-80, 294. Choupak was the Chairman and controlling shareholder of the six related companies, and Koroleva was the CEO of Stanacard, LLC. The Complaint alleges that the six Corporate Defendants did not observe corporate formalities and in reality operated as one entity. See id. at ¶¶ 34-36, 77, 292-93.

Plaintiffs have adequately pled an association-in-fact enterprise comprised of the nine Defendants. They describe the organization and hierarchy of the association: Choupak was the central figure who controlled the six companies; he was assisted by Koroleva and Romanov. The allegations support the conclusion that the Defendants "function[ed] as a continuing unit" and had one or more "common purpose[s]." See Turkette, 452 U.S. at 583; Satinwood, 385 F.3d at 174-75.

Defendant Intermedia argues that its 2011 acquisition by an unrelated entity—Oak Hill Capital Partners—removed it from the enterprise from that point onwards. See Intermedia Reply at 8-9. But that alters nothing. Plaintiffs' allegations relate to Defendants' conduct between 2006 and 2010—prior to the acquisition. Intermedia was allegedly owned and controlled by Choupak during this time, and the Complaint describes Intermedia as an important member of the criminal enterprise.

Thus, all the Defendants are adequately alleged to be members of the association-in-fact.

2. Distinctness Requirement

However, the six Corporate Defendants are not sufficiently "distinct" from this association-in-fact enterprise that they may be named as defendant "persons" under § 1962(c).

For civil RICO claims based on substantive violations of § 1962(c), a plaintiff must allege "the existence of two distinct entities: (1) a 'person'; and (2) an 'enterprise' that is not simply the same 'person' referred to by a different name." Cruz, 720 F.3d at 120 (quoting Smokes-Spirits, 541 F.3d at 438 n.15) (alterations omitted); see also Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161-62 (2001). The "person"—not the "enterprise"—is the party who may be named as the defendant in a civil RICO claim based on a substantive violation of § 1962(c). See 18 U.S.C. § 1962(c). The Second Circuit has explained that "the plain language and purpose of the statute contemplate that a person violates the statute by conducting an enterprise through a pattern of criminality." Cruz, 720 F.3d at 120 (emphasis in original).

"[B]y virtue of the distinctness requirement, a corporate entity may not be both the RICO person and the RICO enterprise under section 1962(c)." Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339, 344 (2d Cir. 1994). Thus, an assertion that a corporate defendant "person" violated § 1962(c) fails where the plaintiff names the same corporate defendant as the "enterprise." See Bennett v. U.S. Trust Co. of New York, 770 F.2d 308, 315 (2d Cir. 1985).

Where a complaint names some combination of one or more related corporations and their agents as the "person" and the "enterprise," the § 1962(c) distinctness analysis becomes more difficult. Under current Second Circuit and Supreme Court precedents, the outcome varies depending on whether the party named as the defendant "person" is a corporate entity or a natural person. Compare Kushner, 533 U.S. at 161-64, with Cruz, 720 F.3d at 121.

In the Second Circuit, the distinctness requirement bars a corporate entity from being named as both the defendant "person" and the "enterprise" on its own. See Bennett, 770 F.2d at 315. However, this rule does not foreclose the possibility of a corporate entity's being held liable as the defendant "person" that conducts an enterprise "where it associates with others to form an enterprise that is sufficiently distinct from itself," and where "there is only a partial overlap between the RICO person and the RICO enterprise." Riverwoods, 30 F.3d at 344 (emphasis added). Accordingly, a corporate defendant "person" may be one of several members of an association-in-fact "enterprise," as long as the enterprise is distinct from the corporation. See Cullen v. Margiotta, 811 F.2d 698, 729-30 (2d Cir. 1987), overruled on other grounds, Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143 (1987).

But where the alleged "enterprise" consists of a group of closely related companies and their agents, the related companies are not sufficiently distinct from the enterprise such that they may be named as the defendant "persons." See Cruz, 720 F.3d at 121; Discon, Inc. v. NYNEX Corp., 93 F.3d 1055, 1064 (2d Cir. 1996), vacated on other grounds, 525 U.S. 128 (1998); Riverwoods, 30 F.3d at 343-45; DeSilva, 770 F. Supp. 2d at 529-30; Physicians Mut. Ins. Co. v. Greystone Servicing Corp., Inc., No. 07 Civ. 10490 (NRB), 2009 WL 855648, at *7 (S.D.N.Y. Mar. 25, 2009); In re Parmalat Sec. Litig., 479 F. Supp. 2d 332, 346-47 (S.D.N.Y. 2007).

In Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d at 344, the defendant "person" was a bank and the alleged "enterprise" included the bank and two of its employees (neither of whom was named as a defendant). The Second Circuit stated: "[B]y alleging a RICO enterprise that consists merely of a corporate defendant associated with its own employees or agents carrying on the regular affairs of the defendant, the distinctness requirement may not be circumvented." Id. The court held that the defendant bank was not a "person" distinct from the alleged "enterprise," and it affirmed the dismissal of plaintiffs' civil RICO claim. See id. at 343.

In Cruz v. FXDirectDealer, LLC, 720 F.3d at 121, the alleged RICO "enterprise" included the corporate defendant (the RICO "person") together with its parent company, its corporate counsel, and its chief operating officer, none of whom were defendants.¹¹ The Second Circuit first considered whether the corporate defendant combined with its counsel and chief operating officer could form an "enterprise" distinct from the corporate defendant "person." The court rejected the idea that a RICO enterprise could consist "merely of a corporate defendant associated with its own employees or agents carrying on the regular affairs of the defendant." Id. (quoting Riverwoods, 30 F.3d at 344). The court then determined that the corporate defendant combined with its parent company did not qualify as an "enterprise" distinct from the corporate defendant, because "corporations that are legally separate but 'operate within a unified corporate structure' and 'guided by a single corporate consciousness' cannot be both the 'enterprise' and the 'person' under § 1962(c)." Id. (quoting Discon, 93 F.3d at 1064). Accordingly, the Cruz court held that the complaint failed to allege an enterprise distinct from the corporate defendant "person." See id.

11 The Cruz court eliminated other parties from the alleged enterprise for reasons not relevant here. See Cruz, 720 F.3d at 120-21.

Similarly, in In re Parmalat Securities Litigation, 479 F. Supp. 2d at 346, the alleged corporate defendant "persons" included a corporation, its subsidiary, and its subsidiary's subsidiaries. The association-in-fact "enterprise" only partially overlapped with these corporate "persons;" it included the corporation (which was named as a defendant "person") and several affiliates and subsidiaries, plus named employees, directors, officers, outside counsel, and other unnamed agents. The court held that the alleged "enterprise" was not distinct from the corporate defendant "persons," since the additional parties in the association-in-fact enterprise included only affiliates, subsidiaries, agents, employees, and "instrumentalities" of the corporate defendants. See id. at 346-47.

Under Riverwoods, Cruz, and Parmalat, civil RICO claims against corporations who are sued as RICO "persons" fail where the members of the alleged "enterprise" include only the corporate defendant, related companies, and its employees or agents, and no other unrelated parties. For distinctness purposes, the related companies, employees, and agents add nothing to the corporate defendant itself. Thus, the enterprise is not "sufficiently distinct" from the corporate defendant "person." Riverwoods, 30 F.3d at 344.

The analysis is different, however, where the defendant "person" is a natural person who works for a corporation instead of the corporation itself. In Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163 (2001), a natural person—not a corporation—was sued as the defendant "person;" it was alleged that he was distinct from the corporation identified as the RICO "enterprise." The Supreme Court stated: "Linguistically speaking, an employee who conducts the affairs of a corporation through illegal acts comes within the terms of a statute that forbids any 'person' unlawfully to conduct an 'enterprise.'" Id. The employee was the "person;" the corporation whose affairs he conducted was the "enterprise." The Court held that they were distinct, even though the natural person defendant (boxing promoter Don King) was the president and sole shareholder of the "enterprise" corporation. See id.

At first blush, Kushner seems to be in tension with the reasoning of Riverwoods. However, the Kushner Court expressly distinguished Riverwoods, noting that this Second Circuit case "involved quite different circumstances which are not presented here." Id. at 164. The Court stated:

This case [Kushner] concerns a claim that a corporate employee is the "person" and the corporation is the "enterprise." It is natural to speak of a corporate employee as a "person employed by" the corporation. § 1962(c). The earlier Second Circuit precedent concerned a claim that a corporation was the "person" and the corporation, together with all its employees and agents, were the "enterprise." See Riverwoods Chappaqua Corp. v. Marine Midland Bank, N. A., 30 F.3d 339, 344 (1994) (affirming dismissal of complaint). It is less natural to speak of a corporation as "employed by" or "associated with" this latter oddly constructed entity.

Id. (emphasis added). Thus, Kushner distinguished Riverwoods based on the defendant's status as a corporation rather than a natural person employee.

Kushner did not overturn the Riverwoods line of cases, and the Second Circuit has since reaffirmed those precedents in Cruz. See Cruz, 720 F.3d at 121. After Kushner and Riverwoods/Cruz, the distinctness rules are as follows: within the meaning of § 1962(c), a natural person named as the defendant "person" is inherently distinct from a corporate entity "enterprise" for which he acts as an agent; in such a case, the distinctness requirement is met. See Kushner, 533 U.S. at 163. But where a corporate entity is named as the defendant "person," it is not distinct from any alleged "enterprise" consisting of that corporate defendant together with related companies, employees, or agents. See Cruz, 720 F.3d at 121; Riverwoods, 30 F.3d at 344-45.

Because the Complaint in this case names both corporate and natural person defendants, the Court must apply both Kushner and Riverwoods/Cruz. The association-in-fact "enterprise" consists of six closely related companies and their three officers. Each of these nine members of the enterprise is also named as a defendant, which means each of them is alleged to be a RICO "person." The question is which, if any, of the named Defendants is sufficiently distinct from the association-in-fact "enterprise" to be sued for a substantive RICO violation.

Under Riverwoods/Cruz, the six Corporate Defendants are not distinct from the alleged association-in-fact enterprise. The Complaint specifically alleges that these six related companies had common ownership and officers and that they failed to respect corporate formalities among themselves. See Compl. at ¶ 292. Plaintiffs thus affirmatively allege that the Corporate Defendants are effectively a single entity. The three natural person Defendants who are the additional members of the enterprise are owners/employees/agents of the six companies. The Corporate Defendants are not distinct from the enterprise, and so the substantive RICO claim asserted against them in Count 8 is dismissed. See Cruz, 720 F.3d at 121; Riverwoods, 30 F.3d at 344-45; Parmalat, 479 F. Supp. 2d at 346.

Under Kushner, however, the three natural person Defendants are inherently distinct from the association-in-fact enterprise, even though they acted at all times as agents of the six corporate members of the enterprise. Thus, Choupak, Koroleva, and Romanov qualify as defendant "persons" who can be held liable for substantive RICO violations. See Kushner, 533 U.S. at 163.

3. Conducting the Enterprise

Only two of the three remaining Defendants—Choupak and Koroleva—are alleged to have "conducted" the affairs of the association-in-fact enterprise within the meaning of § 1962(c).

RICO liability does not automatically extend to RICO "persons" associated with an enterprise. To be held liable under § 1962(c), the defendant person must "conduct or participate . . . in the conduct of such enterprise's affairs . . ." See 18 U.S.C. § 1962(c).

In Reves v. Ernst & Young, 507 U.S. 170, 183 (1993), the Supreme Court fleshed out the meaning of the "conduct" element of § 1962(c): "[O]ne is not liable under that provision unless one has participated in the operation or management of the enterprise itself." A person who conducts an enterprise "must have some part in directing [the enterprise's] affairs." Id. at 179 (emphasis added). "A defendant does not 'direct' an enterprise's affairs under § 1962(c) merely by engaging in wrongful conduct that assists the enterprise." Redtail Leasing, Inc. v. Bellezza, No. 95 Civ. 5191 (JFK), 1997 WL 603496, at *5 (S.D.N.Y. Sept. 30, 1997). Rather, she must "exert . . . control" over the enterprise. See Smokes-Spirits, 541 F.3d at 449.

Here, Plaintiffs allege that Choupak was the ringleader of the association-in-fact enterprise. He was the founder, Chairman, and controlling shareholder of the six Corporate Defendants, and he masterminded the alleged scheme to deprive the employees of their equity interests. As the central figure in the enterprise, Choupak unquestionably "participated in [its] operation or management." Reves, 507 U.S. at 183.

Plaintiffs also allege that Koroleva played a significant role in directing the affairs of the enterprise; she was CEO of Stanacard, LLC and the co-founder and managing member of Keku. Koroleva allegedly assisted in defrauding Zaytsev by directing him to execute the Joinder and later denying that she did so. See Compl. at ¶¶ 179-80. She also personally removed Zaytsev from a list of owners of Stanacard, LLC. See Zaytsev RICO Case Statement at 7. With respect to Palatkevich, Koroleva misrepresented to him that the company was losing money in order to justify the drastic reduction in his salary that led to his resignation. See id.; Compl. at ¶¶ 135-37. She also provided false information to MFA in order to obtain the low-ball valuation. See id. at ¶¶ 139-42. Due to her leadership roles and her acts in furtherance of the fraudulent scheme, Koroleva exerted enough control over the enterprise's affairs to be considered to have had "some part in directing" them. Reves, 507 U.S. at 179; Smokes-Spirits, 541 F.3d at 449.

With respect to Romanov, however, Plaintiffs have failed to allege facts showing that he participated in the "operation or management" of the enterprise. See Reves, 507 U.S. at 183. Romanov was merely a minority shareholder and an "employee and/or officer" of Stanacard, LLC. See Compl. at ¶¶ 38, 57. The Complaint lumps Romanov in with Choupak and Koroleva in claiming that he assisted in the scheme by providing false information to MFA, forcing Plaintiffs out of Stanacard, LLC, and wrongly obtaining Plaintiffs' shares. See id. at ¶¶ 141, 147, 173, 178, 241. However, Plaintiffs allege no specific facts indicating that Romanov had any degree of control over the enterprise. Rather, the allegations in the Complaint contend only that he took orders from Choupak and Koroleva. Thus, the Complaint merely indicates that Romanov "engag[ed] in wrongful conduct that assist[ed] the enterprise." Redtail Leasing, 1997 WL 603496, at *5. Under Reves, such allegations are insufficient to fulfill the "conduct" element of § 1962(c), and Count 8 is dismissed as against him.

4. Pattern of Racketeering Activity

The Complaint adequately alleges that the remaining Defendants—Choupak and Koroleva—engaged in a "pattern of racketeering activity" through four predicate acts of mail and wire fraud.

A "pattern of racketeering activity" requires the following proof: "(1) that each defendant committed at least two predicate acts of racketeering activity within a ten-year period, 18 U.S.C. § 1961(5); (2) 'that these racketeering predicates are interrelated; and (3) that they reveal continued, or the threat of continued, racketeering activity.'" Casio Computer Co. v. Sayo, No. 98 Civ. 3772 (WK), 2000 WL 1877516, at *11 (S.D.N.Y. Oct. 13, 2000) (quoting U.S. v. Diaz, 176 F.3d 52, 93 (2d Cir. 1999)). "While this definition of 'pattern of racketeering activity' suggests that only two predicate acts are necessary, such acts may not be sufficient." Id. (citing U.S. v. Indelicato, 865 F.2d 1370, 1375 (2d Cir. 1989)). Rather, "the requirements of relatedness and continuity prevent the application of RICO to isolated and sporadic criminal acts." Id. (quoting Diaz, 176 F.3d at 93).

In the hard-to-read Complaint, Plaintiffs assert that the "pattern of racketeering activity" included predicate acts of criminal copyright infringement, money laundering using the proceeds of the copyright infringement, and mail and wire fraud, each of which is a racketeering activity under 18 U.S.C. § 1961(1). In the RICO case statement, much more is alleged than appears in the pleading.

This Court will not dismiss the § 1964(c) civil RICO claim based on the underlying § 1962(c) violation (Count 8), since Plaintiffs sufficiently plead four acts of mail and wire fraud. However, because the civil copyright infringement claims have been dismissed, neither criminal copyright infringement nor "money laundering" of the proceeds of such activity can serve as a basis for substantive RICO liability.

a. Criminal Copyright Infringement

One commits criminal copyright infringement when he "willfully infringes a copyright . . . for purposes of commercial advantage or private financial gain." 17 U.S.C. § 506(a)(1). Because criminal copyright infringement requires proof of all the elements of civil copyright infringement, "conduct that does not support a civil action for infringement cannot constitute criminal conduct under 17 U.S.C. § 506(a)." Kelly, 145 F.R.D. at 39.

Plaintiffs claim that Defendants committed RICO predicate acts of criminal copyright infringement by engaging in the same conduct that supported their civil copyright infringement claim. To criminalize this conduct, they add that it was knowing and willful. See Compl. at ¶¶ 296, 316. But, as discussed above, see supra at § II.A, Palatkevich and BPVN's copyright infringement claim has been dismissed because, inter alia, they fail to allege that Defendants infringed any copyrights belonging to either Palatkevich or BPVN.

A plaintiff has no standing to bring civil RICO claims based on injuries it allegedly suffered from the infringement of copyrights belonging to third parties. See Perfect 10, Inc. v. CCBill, LLC, 340 F. Supp. 2d 1077, 1106 (C.D. Cal. 2004). Thus, Plantiffs could not bring civil RICO claims on the theory that they were somehow injured by Defendants' infringement of someone else's copyrights. Nor does the Complaint articulate such a theory.

The Complaint does not adequately allege an act of criminal copyright infringement, which is required in order for copyright infringement to be a predicate act.

b. Money Laundering

Plaintiffs also assert that Defendants committed RICO predicate acts of money laundering under 18 U.S.C. §§ 1956 and 1957.¹²

12 The Complaint actually states that Defendants violated 19 U.S.C. § 1957. See Compl. at ¶ 333. This is a typo.

To properly allege a violation of § 1956, Plaintiffs must plead that "(1) the defendant conducted a financial transaction in interstate commerce; (2) the defendant knew that the property involved in the transaction represented some form of specific unlawful conduct; (3) the transaction involves the proceeds of unlawful activity; and (4) the transaction was conducted with the purpose of concealing the nature, location, source, ownership, or the control of the illegally acquired proceeds." Casio, 2000 WL 1877516, at *16 (emphasis added).

To violate § 1957, a defendant must have "(1) knowingly engaged or attempted to engage in a monetary transaction involving criminally derived property, (2) with such property being valued at more than $10,000, and (3) with such money actually being derived from specific criminal activity." Bernstein v. Misk, 948 F. Supp. 228, 236 n.2 (E.D.N.Y. 1997) (emphasis added).

In the Complaint, Plaintiffs' money laundering allegations are premised on Defendants' having obtained illicit proceeds as a result of criminal copyright infringement. They state that Defendants violated § 1956 by "knowingly using the proceeds from the illegal use of plaintiffs' intellectual property without authorization or attribution, and licensure of same, to reinvest in the defendants' ongoing business concerns." Compl. at ¶ 332. These same factual allegations appear to underlie Plaintiffs' conclusory claim that Defendants violated § 1957; there is no other factual allegation in the Complaint identifying an alternative source of illicit proceeds. See id. at ¶ 333.

As discussed above, see supra at § III.A.4.a, Plaintiffs' premise is flawed; the Complaint does not allege that Defendants committed criminal copyright infringement. As a result, the Complaint has not sufficiently alleged a criminal source of funds, and it fails to fulfill the money laundering elements of "proceeds of unlawful activity" and "criminally derived property" under §§ 1956 and 1957.¹³

13 The RICO case statement includes allegations that Choupak "funnel[ed] huge amounts of money offshore," "regularly drain[ed] the companies he controlled . . . of large amounts of cash, for undisclosed and unrecorded purposes," and transferred money among the Corporate Defendants. See Palatkevich RICO Case Statement at 2, 3, 7. Whether any of this is intended to relate to money laundering other than the criminal copyright infringement money laundering is anyone's guess.

c. Mail and Wire Fraud

Finally, Plaintiffs allege that Defendants committed RICO predicate acts of mail and wire fraud while engaging in a "theft of services" scheme. See Compl. at ¶¶ 268-70.

A plaintiff alleging mail and wire fraud must plead: "(1) the existence of a scheme to defraud, (2) defendant's knowing or intentional participation in the scheme, and (3) the use of interstate mails or transmission facilities in furtherance of the scheme." S.Q.K.F.C., Inc. v. Bell Atlantic TriCon Leasing Corp., 84 F.3d 629, 633 (2d Cir. 1996); 18 U.S.C. §§ 1341 and 1343. Each use of the mails or wires in furtherance of the scheme is a separate act of mail or wire fraud.

The complaint must plead facts that give rise to a "strong inference" that the defendants possessed fraudulent intent, which is established by facts showing that the defendants had both a motive and a clear opportunity to commit fraud. See Shields v. City Trust Bancorp., 25 F.3d 1124, 1128 (2d Cir. 1994); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir. 1993).

The fraud allegations must meet the particularity requirement of Rule 9(b) of the Federal Rules of Civil Procedure. See Casio, 2000 WL 1877516, at *14. Specifically, they must "state the contents of the communications, who was involved, where and when they took place, and explain why they were fraudulent." Id. (quoting Sedima, S.P.L.R. v. Imrex Co., 473 U.S. 479, 495-96 (1985)). Where multiple defendants are involved in the fraud, the complaint must particularize each defendant's participation. See id. at *15.

With respect to the alleged mailing or wiring, a plaintiff must identify the purpose of the transmission within the defendant's fraudulent scheme. See Maersk, Inc. v. Neewra, Inc., 554 F. Supp. 2d 424, 463 (S.D.N.Y. 2008). There is no requirement that each defendant personally complete a mailing or wiring. See id. at 462-63. Rather, the plaintiff must show: "1) that the defendants 'caused' the mailing [or wiring], namely that they must have acted 'with knowledge that the use of the mails [or wires] will follow in the ordinary course of business, or where such use can reasonably be foreseen, even though not actually intended,' and 2) that the mailing [or wiring] was for the purpose of executing the scheme or, in other words, 'incident to an essential part of the scheme.'" U.S. v. Bortnovsky, 879 F.2d 30, 36 (2d Cir. 1989) (quoting Pereira v. U.S., 347 U.S. 1, 8-9 (1954)) (emphasis added).

As stated above, see supra at § III.A.4, the "pattern of racketeering activity" element requires each defendant to have committed at least two predicate acts within a ten-year period, and these acts must meet the relatedness and continuity requirements. See Casio, 2000 WL 1877516, at *11. Because Plaintiffs' other theories of RICO predicate acts fail, to avoid dismissal of Count 8 they must show that each of the remaining Defendants—Choupak and Koroleva—committed acts of mail or wire fraud.

Here, Plaintiffs have sufficiently alleged that Choupak and Koroleva each committed at least two predicate acts of mail and wire fraud within a ten-year period. They describe a lengthy "theft of services" scheme which defrauded Palatkevich and Zaytsev, among others. In the poorly-pled Complaint, this Court can identify four mail and wire communications sent by Choupak and Koroleva on specific dates in furtherance of the scheme.

On January 9, 2009, Koroleva sent Zaytsev an email attaching the Joinder which listed Zaytsev as a ten percent shareholder in the company. This communication allegedly furthered the scheme by maintaining the charade that Defendants intended to provide Zaytsev with an equity interest in Stanacard, LLC. See Compl. at ¶¶ 174, 179.

On November 20, 2009, Choupak then fired Zaytsev via email. Terminating Zaytsev's employment enabled Choupak, Koroleva, and Romanov to later deny that Zaytsev ever acted as CFO of Stanacard, LLC or earned an equity interest. See id. at ¶¶ 175, 180.

In defrauding Palatkevich, Choupak and Koroleva used mail, email, phone, or fax lines to request and obtain the low-ball valuation from MFA on March 31, 2010. They then used this low-ball valuation to try to convince Palatkevich to sell his shares for far less than they were worth. See id. at ¶¶ 139-43, 322, 327.

Once this tactic failed, Choupak executed and mailed the company's "First Amended and Restated LLC Agreement" on August 12, 2010, which stated that Palatkevich would forfeit his vested shares if he were terminated for cause. Choupak, Koroleva, and Romanov then used the agreement to justify reassigning Palatkevich's vested shares to themselves. See id. at ¶¶ 144, 147-48, 250, 322.

The Complaint adverts to several other mail and wire communications that allegedly furthered the scheme, but it does not identify the particulars of the communications. See id. at ¶¶ 179, 322, 327. Nevertheless, the Complaint describes four communications with sufficient particularity.

The Complaint adequately alleges that Choupak and Koroleva caused each of these four mail and wire communications, because they either directly sent the communication or could reasonably have foreseen that the communication would be sent as part of the scheme. See Bortnovsky, 879 F.2d at 36. Based on Choupak and Koroleva's participation in the scheme, a factfinder could conclude that they each had fraudulent intent.

These four RICO predicate acts of mail and wire fraud meet the "pattern of racketeering activity" element of § 1962(c). The Complaint asserts that the enterprise regularly conducted its business by defrauding employees and cheating them out of their promised equity interests. Victims of the scheme included Palatkevich, Zaytsev, and many other employees. Thus, the four acts of mail and wire fraud described in the Complaint meet the relatedness requirement because they "have the same or similar purposes, results, participants, victims, methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." Bernstein, 948 F. Supp. at 236 (quoting H.J., Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 240 (1989)).

The four predicate acts also fulfill the continuity requirement because they "extend[ed] over a substantial period of time." DeFalco, 244 F.3d at 321 (quoting H.J., 492 U.S. at 242). Generally, a pattern of racketeering activity with a duration of at least two years is considered to be continuous. See id.; Maersk, 554 F. Supp. 2d at 464. The Complaint specifically describes four mail and wire communications that Defendants sent between January 2009 and August 2010. It vaguely describes several other communications, including a "written communication" from Zaytsev to Choupak on March 17, 2008. See Compl. at ¶ 179. The Court can fairly infer that other mail and wire communications occurred during Plaintiffs' employment relationships with Stanacard, LLC, which occurred between 2006 and 2009. Plaintiffs assert that Choupak's scheme reached many other victims as far back as 1995. In the opinion of this Court, these allegations adequately fulfill the continuity requirement.

5. Injury and Causation

In addition to pleading that a defendant committed a substantive RICO violation under § 1962, a plaintiff bringing a civil RICO claim under § 1964(c) must prove causation of injury to his business or property. See 18 U.S.C. § 1964(c); Smokes-Spirits, 541 F.3d at 439. The plaintiff's injury must be factually and proximately caused by either the pattern of racketeering activity which violates § 1962 or by individual RICO predicate acts. See Lerner v. Fleet Bank, N.A., 318 F.3d 113, 120 (2d Cir. 2003).

Here, the injury is that Palatkevich and Zaytsev were not provided with their agreed-upon equity interests in Stanacard, LLC. The following facts alleged tend to show that these injuries were proximately caused by the pattern of racketeering activity or by the RICO predicate acts.

With respect to Zaytsev, the Complaint asserts that Koroleva's email attaching the Joinder induced him to continue working for Stanacard, LLC. Choupak's subsequent termination email then enabled Choupak, Koroleva, and Romanov to deny that Zaytsev earned his shares. These three Defendants then kept Zaytsev's vested shares for themselves, thereby injuring Zaytsev.

Similarly, the Complaint asserts that Choupak, Koroleva, and Romanov forced Palatkevich to resign and then used the "First Amended and Restated LLC Agreement" mailing to justify reassigning Palatkevich's vested shares to themselves. Thus, the Complaint adequately alleges that Zaytsev and Palatkevich suffered injuries caused by the RICO predicate acts of mail and wire fraud.

The Complaint does not, however, allege that BPVN or ANZFS suffered any injury at all it does not assert that these Plaintiffs were promised any equity interest. Thus, BPVN and ANZFS have no standing to bring Count 8. See 18 U.S.C. § 1964(c).

To summarize: the Complaint sufficiently pleads that Choupak and Koroleva committed a substantive RICO violation under § 1962(c) by conducting an enterprise through a pattern of racketeering activity. Palatkevich and Zaytsev (but not BPVN and ANZFS) have adequately alleged that they were injured "by reason of this violation, and they have standing to bring Count 8. See 18 U.S.C. § 1964(c).

Accordingly, the substantive civil RICO claim (Count 8) as asserted by Plaintiffs Palatkevich and Zaytsev is dismissed as against all Defendants except Choupak and Koroleva. As against these two Defendants, the motion to dismiss the substantive RICO claim as asserted by Palatkevich and Zaytsev is denied. The motion to dismiss Count 8 insofar as it is alleged by BPVN and ANZFS is granted.

B. RICO Conspiracy Under § 1962(d)

For their second civil RICO claim under § 1964(c) (Count 9), Plaintiffs allege that all nine Defendants engaged in a RICO conspiracy under § 1962(d).

Section 1962(d) prohibits any person from conspiring to violate any of the RICO substantive provisions of §§ 1962(a), (b), or (c). See 18 U.S.C. § 1962(d). The essence of a RICO conspiracy is an agreement to commit a substantive violation. See U.S. v. Applins, 637 F.3d 59, 74 (2d Cir. 2011). Such an agreement may be manifested "by words or actions." Maersk, 554 F. Supp. at 462. The defendant need not commit any overt acts himself, but he "must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive [RICO] offense." U.S. v. Cain, 671 F.3d 271, 291 (2d Cir. 2012) (quoting Salinas v. U.S., 522 U.S. 52, 65 (1997)). Each defendant is required to "possess[] knowledge of only the general contours of the conspiracy . . ." Applins, 637 F.3d at 75.

Section 1962(d) conspiracies are easier to prove than violations of § 1962(c). A plaintiff need not show that an enterprise was in fact established, but only that there was an agreement to form an enterprise. See id. at 75-77. Nor does § 1962(d) require that each defendant meet the Reves requirement of "directing" the enterprise's affairs. See U.S. v. Zichettello, 208 F.3d 72, 99 (2d Cir. 2000). As stated by the Second Circuit: "A defendant can be guilty of conspiring to violate a law, even if he is not among the class of persons who could commit the crime directly." Id. (internal citation omitted). Thus, a conspirator may be charged with violating § 1962(d), even if he is incapable of violating § 1962(c).

Here, Plaintiffs have adequately alleged that each of the Defendants manifested an agreement to commit a substantive RICO violation. As part of the enterprise's "theft of services" scheme, Choupak, Koroleva, and Romanov worked together to commit specific acts of mail and wire fraud, and they acted as agents of each of the six Corporate Defendants. From these alleged acts, a factfinder could infer that all the Defendants agreed to violate § 1962(c). One may reach this conclusion even though Romanov and the six Corporate Defendants cannot be sued on the theory that they committed the § 1962(c) violation themselves.

The Complaint also sufficiently alleges that the RICO conspiracy caused injury to Palatkevich and Zaytsev. See 18 U.S.C. § 1964(c). As discussed above, see supra at § III.A.5, the conspiracy to defraud Palatkevich and Zaytsev—and the acts taken in furtherance of the "theft of services" scheme—caused Palatkevich and Zaytsev to be deprived of their vested shares.

BPVN and ANZFS, however, suffered no injury and lack standing to bring Count 9.

The Complaint sufficiently alleges that all the Defendants engaged a RICO conspiracy in violation of § 1962(d) which caused injury to Palatkevich and Zaytsev. Accordingly, the motion to dismiss Count 9 is granted insofar as directed to the claims of BPVN and ANZFS; it is otherwise denied.

IV. State Law Claims

Defendants also move to dismiss Plaintiffs' state law claims on various grounds. Though not all their arguments for dismissal are coherent, the Court will address those that it can decipher.

A. Supplemental Jurisdiction

Defendants argue that this Court should decline to exercise supplemental jurisdiction over these state law claims under 28 U.S.C. § 1367(c)(3) if it dismisses all federal claims. See Choupak Memo at 59-60. Since I have not dismissed all federal claims, this argument fails.

B. Breach of Contract

To state a breach of contract claim under New York law, a plaintiff must allege: "(1) an agreement, (2) adequate performance by the plaintiff, (3) breach by the defendant, and (4) damages." Fischer & Mandell, LLP v. Citibank, N.A., 632 F.3d 793, 799 (2d Cir. 2011).

Defendant Romanov argues that the Complaint states no claim for breach of contract against him because it alleges no contract between any of the Plaintiffs and himself. See Romanov Memo at 2. He is correct.

Two separate breach of contract claims are alleged. In Count 1(a), the Complaint alleges that Palatkevich and BPVN entered into a contract with Stanacard, LLC in May 2006 to provide software coding services in exchange for monetary compensation and a ten percent share in the company. See Compl. at ¶¶ 94-97. In Count 1(b), the Complaint states that in December 2007 Zaytsev and ANZFS entered into a contract with Choupak, who was acting in his capacity as Chairman of Stanacard, LLC, to provide financial and accounting services in exchange for monetary compensation and a ten percent share. All Plaintiffs assert that they performed under the contracts and that Choupak, Koroleva, Romanov, and Stanacard, LLC breached these contracts by not providing the agreed-upon compensation: ten percent equity interests. See id. at ¶¶ 154-58, 171, 177.

The Complaint does not state facts tending to show that Romanov was a party to either contract. Plaintiffs do not allege that Romanov was at all involved in making the contracts; only Choupak was. Because one cannot breach a contract into which he has not entered, Counts 1(a) and 1(b) are dismissed as against Romanov.

C. Unjust Enrichment

In Count 4, all Plaintiffs bring an unjust enrichment claim against all Defendants. To state a claim for unjust enrichment, a plaintiff must allege "that (1) the other party was enriched, (2) at that party's expense, and (3) that 'it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered.'" Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 182 (N.Y. 2011) (citation omitted). The complaint must plead "some expectation of compensation that was denied." Tasini v. AOL, Inc., 851 F. Supp. 2d 734, 741 (S.D.N.Y. 2012).

Defendant Intermedia argues that Plaintiffs cannot bring an unjust enrichment claim against anyone other than Stanacard, LLC, since Plaintiffs only contracted to provide services to Stanacard, LLC. See Intermedia Memo at 26.

"[W]hile 'a plaintiff need not be in privity with the defendant to state a claim for unjust enrichment,' there must exist a relationship or connection between the parties that is not 'too attenuated.'" Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d 511, 517-19 (N.Y. 2012) (quoting Sperry v. Crompton Corp., 8 N.Y.3d 204, 215-16 (N.Y. 2007)). In Bradkin v. Leverton, 26 N.Y.2d 192, 197-98 (N.Y. 1970), for example, the Court of Appeals of New York found a sufficiently close relationship where the defendant was an officer of the corporation with which the plaintiff contracted to provide services, the plaintiff performed under the contract, and the defendant "obtained the benefit of the plaintiff's labors."

Here, the Complaint alleges that the six Corporate Defendants obtained benefits from the services provided by Plaintiffs. Plaintiffs supplied accounting, financial consulting, and software development services to Stanacard, LLC that allegedly provided the financial structure and the technology that the company needed to succeed in the VoIP market. See Compl. at ¶¶ 102, 214, 216. The Complaint alleges that the Plaintiffs agreed to provide such services in exchange for monetary compensation and ten percent shares in Stanacard, LLC. See id. at ¶¶ 119, 136, 161. However, Plaintiffs were denied these equity interests as part of an alleged scheme to cheat employees. These facts adequately state a claim for unjust enrichment against Stanacard, LLC. See Mandarin, 16 N.Y.3d at 182; Tasini, 851 F. Supp. 2d at 741.

The Complaint asserts that the five other Corporate Defendants—Intermedia, Stanacard Ltd., Unison, Victorian, and Keku—also used the software code created by Palatkevich and benefitted from Zaytsev's creation of accounting systems for the entities. See Compl. at ¶¶ 63-68, 218-22. Moreover, Plaintiffs claim that all six Corporate Defendants commingled funds and failed to respect corporate formalities, and that their corporate veils should be pierced. See id. at ¶¶ 293, 318. On these alleged facts, the relationship between the Plaintiffs and these Defendants is not "too attenuated," Georgia Malone, 19 N.Y.3d at 517-19, and the unjust enrichment allegations suffice at the pleading stage.

Finally, Plaintiffs state that Choupak, Koroleva, and Romanov—who were officers of Stanacard, LLC—were unjustly enriched when they kept Palatkevich and Zaytsev's vested shares in Stanacard, LLC for themselves. See Compl. at ¶¶ 147, 178, 218. Given the close relationship between the enrichment and the alleged contract to provide services to Stanacard, LLC, there is a sufficient connection between the Plaintiffs and these Defendants to support an unjust enrichment claim. See Georgia Malone, 19 N.Y.3d at 517-19; Bradkin, 26 N.Y.2d at 197-98.

It is worth noting that the unjust enrichment claim against Stanacard, LLC is duplicative of the two breach of contract claims. At the motion to dismiss stage, it is customary for courts to allow claims of both breach of contract and unjust enrichment to proceed against a defendant as alternative theories. However, Plaintiffs cannot recover against Stanacard, LLC on both these claims; they will ultimately have to elect their preferred remedy. See Antares Management LLC v. Galt Global Capital, Inc., No. 12 Civ. 6075 (TPG), 2013 WL 1209799, at *12 (S.D.N.Y. Mar. 22, 2013).

The motion to dismiss Count 4 is denied.

D. Equitable Accounting

Defendants Intermedia and Romanov argue that Plaintiffs fail to state a claim for accounting under New York law. See Intermedia Memo at 27; Romanov Memo at 11. In their opposition brief, Plaintiffs do not address these arguments or offer any support for the accounting claim. In light of this failure, the Court deems this claim to be abandoned. See Martinez v. Sanders, No. 02 Civ. 5624 (RCC), 2004 WL 1234041, at *3 (S.D.N.Y. June 3, 2004). Accordingly, Count 12 is dismissed with prejudice.

E. Fraudulent Conveyance

In Count 6, Palatkevich and Zaytsev bring a fraudulent conveyance claim under New York Debtor and Creditor Law § 273-a against Choupak, Koroleva, Romanov, Stanacard, LLC, and Keku.

To prevail on a fraudulent conveyance claim under New York Debtor and Creditor Law § 273-a, a plaintiff must establish three elements: "(1) the conveyance was made without fair consideration; (2) at the time of transfer, the transferor was a defendant in an action for money damages or a judgment in such action had been docketed against him; and (3) a final judgment has been rendered against the transferor that remains unsatisfied." Neshewat v. Salem, 365 F. Supp. 2d 508, 518-19 (S.D.N.Y. 2005); see also Sklaroff v. Rosenberg, 125 F. Supp. 2d 67, 73 (S.D.N.Y. 2000). The existence of an unsatisfied final judgment is a "necessary predicate" to bringing a fraudulent conveyance claim under § 273-a. See Grace v. Bank Leumi Trust Co. of NY, 443 F.3d 180, 188 (2d Cir. 2006). The plaintiff must be a creditor of the transferor in order to have standing to bring a § 273-a claim against the transferor. See Bravado Int'l Grp. Merchandising Servs., Inc. v. Ninna, Inc., 655 F. Supp. 2d 177, 193 (E.D.N.Y. 2009).

The Complaint asserts that Defendants made several fraudulent conveyances. First, Choupak unilaterally transferred Palatkevich's shares in Stanacard, LLC to himself and to Romanov. That is not a fraudulent conveyance—it is a breach of contract.

The Complaint also alleges that, after Zaytsev initiated his state court action, Choupak and Koroleva transferred assets of Stanacard, LLC to Keku in August 2010. After Palatkevich filed his state court action, Choupak then transferred half of his equity interest in Stanacard, LLC to Koroleva, who paid no consideration. The Complaint states that these transfers were designed to shield the assets of Choupak and Stanacard, LLC, should Plaintiffs obtain judgments against these Defendants in the state court actions or in this case. See Compl. at ¶¶ 250-62.

The allegations in the Complaint are fatally flawed. They contain no assertion that any of the Defendants has had a final judgment rendered against it in favor of Plaintiffs or that the judgment has not been satisfied. Rather, Palatkevich and Zaytsev claim that the assets at issue were transferred in order to shield them from any judgments that Plaintiffs might obtain against Defendants in this case. Obviously, no final judgment has been rendered against Choupak, Koroleva, Romanov, Stanacard, LLC, or Keku in this action, and the prior state court actions were voluntarily dismissed by the Plaintiffs before any final judgment was rendered. The Complaint fails to fulfill the third element of § 273-a. See Neshewat, 365 F. Supp. 2d at 518-19.

Thus, Count 6 is dismissed with prejudice.

F. Breach of Fiduciary Duty and Minority Shareholder Oppression

In Counts 2 and 5, Plaintiffs bring claims for breach of fiduciary duty and minority shareholder oppression, respectively. The breach of fiduciary duty claim is against Choupak and Koroleva, and the minority shareholder oppression claim is against Choupak, Koroleva, and Romanov.

Under New York law, "Shareholders in a close corporation owe each other a duty to act in good faith." Rusyniak v. Gensini, 629 F. Supp. 2d 203, 224 (N.D.N.Y. 2009) (quoting Patti v. Fusco, No. 10717-05, 10 Misc.3d 1058(A), 2005 WL 3372976, at *2 (N.Y. Sup. Ct., Nassau County 2005)). The failure to do so constitutes a breach of fiduciary duty.

Minority shareholder oppression is a specific form of breach of fiduciary duty. "[I]t 'is the fiduciary duty owed by . . . majority shareholder[s] in a closely held corporation to a minority shareholder, not to engage in oppressive actions toward minority shareholders.'" Id. (quoting McCagg v. Schulte Roth & Zabel LLP, No. 601566/04, 20 Misc.3d 1139(A), 2008 WL 4065920, at *8 (N.Y. Sup. Ct., New York County 2008)). The Supreme Court of New York has described oppressive actions as follows:

A shareholder who reasonably expected that ownership in the corporation would entitle him or her to a job, a share of corporate earnings, a place in corporate management, or some other form of security, would be oppressed in a very real sense when others in the corporation seek to defeat those expectations and there exists no effective means of salvaging the investment.

McCagg, 2008 WL 4065920, at *9.

The Complaint alleges that Choupak, Koroleva, and Romanov were shareholders in Stanacard, LLC, a closely-held company. It asserts that Choupak and Koroleva breached their fiduciary duties to Palatkevich and Zaytsev—who were allegedly "minority shareholders"—by transferring Stanacard, LLC's assets to themselves and to the other Corporate Defendants, thereby diluting the value of Palatkevich and Zaytsev's shares. See Compl. at ¶¶ 187-92. The Complaint also alleges that Choupak, Koroleva, and Romanov engaged in minority shareholder oppression by stealing Palatkevich and Zaytsev's shares for themselves. See id. at ¶ 241.

However, the Complaint does not allege that either Palatkevich or Zaytsev was ever actually issued shares in Stanacard, LLC. It asserts that the Defendants agreed (via the two employment contracts) to issue Palatkevich and Zaytsev ten percent shares in Stanacard, LLC. The Complaint also alleges that Choupak, Koroleva, and Romanov "reassign[ed]" the shares that rightfully belonged to Palatkevich and Zaytsev to themselves. See id. at ¶¶ 147, 178. But Plaintiffs' breach of contract claims are premised the allegation that Palatkevich and Zaytsev never ultimately received the shares that Defendants promised to them. And their theories of mail and wire fraud are founded on the allegation that Defendants never intended to provide them with the promised shares and, in fact, cheated them out of the shares. The only fair reading of the Complaint is that Palatkevich and Zaytsev never actually became minority shareholders in Stanacard, LLC. Minority shareholder oppression and fiduciary duty claims are inconsistent with the facts alleged in the Complaint.

Accordingly, the motions to dismiss Counts 2 and 5 are granted.

G. Remaining Claims

Defendants do not move to dismiss the remaining state law claims—Counts 7 and 13—except on supplemental jurisdiction grounds, which (as stated above) fail.

V. Delayed Service of Process

Finally, Defendant Intermedia moves to dismiss the claims against it pursuant to Rules 12(b)(4), 12(b)(5), and 41(b) of the Federal Rules of Civil Procedure due to Plaintiffs' failure to serve this party with the Amended Consolidated Complaint by May 8, 2013.

The two original complaints in this case were filed on March 7, 2012. They included all the same parties except Stanacard, LLC, who had not yet been named as a Defendant. All the Defendants were served with the original complaints, including Intermedia. See Docket 12 Civ. 1681 Nos. 3, 8; Docket 12 Civ. 1682 Nos. 4, 9.

This Court's order dated May 6, 2013 consolidated the two cases, granted Plaintiffs leave to file an Amended Consolidated Complaint adding Stanacard, LLC as a Defendant, and instructed Plaintiffs to file and serve the Complaint on all Defendants by May 8, 2013. It also set a deadline for Defendants to file motions to dismiss by May 31, 2013. See Docket 12 Civ. 1681 No. 16.

On May 8, 2013, Plaintiffs electronically filed the Amended Complaint and served the only attorney who had filed a notice of appearance—Igor Krol, counsel for Choupak, Koroleva, Stanacard, LLC, Stanacard Ltd., Unison, Victorian, and Keku. See Pl. Opp. at 7. It appears that Krol was mistakenly listed on the docket as counsel for Intermedia as well. Defendants Stanacard, LLC and Intermedia were not served on this date. See Docket 12 Civ. 1681 No. 23.

On May 10, 2013, counsel for Plaintiffs wrote a letter to this Court explaining that she had been unable to serve newly-added Defendant Stanacard, LLC, because the clerk's office had not yet issued the stamped summons for that party. She requested an extension to May 13, 2013, which this Court granted. The letter did not mention any difficulty serving Intermedia. See Docket 12 Civ. 1681 No. 18. Both Stanacard, LLC and Intermedia were served on May 16, 2013. See Docket 12 Civ. 1681 No. 23.

On May 17, 2013, two attorneys named David J. Berger and Michael S. Sommer entered notices of appearance on behalf of Intermedia. See Docket 12 Civ. 1681 Nos. 20, 21. They did not request any extension on the briefing schedule for Intermedia's motion to dismiss the Amended Consolidated Complaint based on the delay in service, and they filed such a motion (with an accompanying memorandum of law) on May 31, 2013. See Docket 12 Civ. 1681 Nos. 28, 29.

Defendant Intermedia argues that, because Plaintiffs failed to comply with the Court's order directing them to serve Intermedia with the Amended Consolidated Complaint by May 8, 2013, the Court should dismiss the claims against this party pursuant to Rules 12(b)(4) and 12(b)(5), which pertain to insufficient service, and Rule 41(b), which pertains to dismissals for failure to comply with a court's order. See FED. R. CIV. P. 12(b)(4), 12(b)(5), and 41(b).

However, Plaintiffs' delay in serving Intermedia was excusable, short in duration, and caused no prejudice to Intermedia. Because the docket mistakenly listed Krol as counsel for Intermedia, Plaintiffs' counsel could understandably have believed that he would accept service on behalf of Intermedia. Further, the delay was only eight days. During this time, Intermedia had access to the original complaints, which were very similar to the Amended Consolidated Complaint. Counsel for Intermedia submitted a motion to dismiss the Amended Consolidated Complaint by May 31, 2013; they did not request an extension. Under the circumstances, the Court declines Intermedia's request to dismiss the remaining claims against it on this basis. See Thomas v. Shinseki, No. 09 Civ. 4900 (ADS)(WDW), 2011 WL 4753525, at *5 (E.D.N.Y. Oct. 6, 2011).

CONCLUSION

For the foregoing reasons, the Defendants' motions to dismiss are granted in part and denied in part. The Clerk of the Court is directed to close out the motions at Docket 12 Civ. 1681 Nos. 24 and 28 and to remove same from the Court's list of pending motions. Dated: January 24, 2014

/s/_________

U.S.D.J. BY ECF TO ALL COUNSEL