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Agee v. Newtek Business Services Holdco 5, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

September 27, 2019

KERRI L. AGEE, Plaintiff,
v.
NEWTEK BUSINESS SERVICES HOLDCO 5, INC., et al., Defendants.

          ORDER ON MOTION TO DISMISS AND MOTION TO STAY

          JAMES R. SWEENEY II, JUDGE UNITED STATES DISTRICT COURT

         Plaintiff Kerri L. Agee started ADR Partners, LLC d/b/a banc-serv Partners, LLC, a lending service provider for banks and financial institutions. Defendant Newtek Business Services Corp. through a subsidiary bought Agee’s 100% membership interest in banc-serv, and the parties entered into an employment agreement. Agee alleges Newtek has breached that agreement and brings claims for violations of New York Labor Law, breach of contract, piercing the corporate veil, and tortious interference with contract. She also brings a claim to set aside alleged fraudulent transfers and to enforce a lien under Indiana law.

         This case was originally filed in state court. Defendants properly removed it under 28 U.S.C. § 1441(a). The Court has subject-matter jurisdiction on the basis of diversity of citizenship of the parties. 28 U.S.C. § 1332(a).

         Defendants filed a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Plaintiff then filed a motion to stay this litigation pending disposition of a criminal case against her. She later filed a voluntary chapter 7 bankruptcy petition. Both the criminal case and the bankruptcy case are currently pending. Having considered the motions, the Court decides as follows:

         The Complaint

         Plaintiff Kerri L. Agee started banc-serv, a lending service provider in 2002. (Compl. ¶ 1, ECF No. 1-2.) Banc-serv assists banks and other lenders in administering small business loans through the United States Small Business Administration. Defendant Newtek provides business lending services. Newtek became interested in acquiring banc-serv. (Compl. ¶ 2, ECF No. 1-2.) Agee agreed to sell banc-serv to Newtek for an up-front payment of money and the promise of future income, including salary and commission on loans and other services generated to Newtek from banc-serv’s client base. (Compl. ¶ 22, ECF No. 1-2.)

         On or about June 24, 2016, Newtek Business Services Holdco 5, Inc. (“Holdco”), a wholly owned subsidiary of Newtek Business Services Corp. (“Newtek”), purchased 100% ownership of the membership interests in banc-serv from Agee, and Agee entered into an employment agreement with banc-serv (the “Employment Agreement”), which was amended on or about November 15, 2016 (Compl. ¶¶ 1, 4–5, 24, 27, ECF No. 1-2.)[1] A true and correct copy of the Employment Agreement, with its amendment, is attached to the Complaint as Exhibit 1. The Employment Agreement refers to Agee as the “Executive” and provides that she is to be employed as an “executive officer in the capacity of President and Chief Executive Officer.” (Compl. ¶ 28 & Ex. 1, ECF No. 1-2.) The Employment Agreement further provides that Agee:

shall render such administrative and management services for the Company and its subsidiaries as are currently rendered and as are customarily performed by persons situated in a similar executive capacity and consistent with the duties of a President and Chief Executive Officer.

(Compl., Ex. 1, ¶ 2, ECF No. 1-2.) Under the agreement, Agee “shall report to the Chairman of the Board.” (Id.) The agreement also provides for base compensation for Agee of a salary of $275, 000 per annum as well as cash bonuses and incentive compensation. (Compl. ¶ 29 & Ex. 1 ¶¶ 3–4, ECF No. 1-2.)

         Count I of the Complaint purports to state a claim under New York Labor Law for wages as a “commission salesman, ” a severance payment, and reimbursement for business expenses, along with attorney’s fees, interest, and liquidated damages. See New York Labor Law §§ 191-c, 198-c, 191(3), and 198(1-a). (Compl. ¶¶ 68–76, ECF No. 1-2.) Count II alleges breach of contract, namely the June 24, 2016, Employment Agreement between Agee and banc-serv. (Compl. ¶¶ 77–81, ECF No. 1-2.) The Complaint alleges adequate performance under the Employment Agreement by Agee, banc-serv’s breach of the agreement, and damages to Agee due to that breach. Count III of the Complaint asserts that “Newtek exercised such control over banc-serv . . . that banc-serv . . . became a mere instrumentality of Newtek” and Newtek should be held “liable for any judgment against banc-serv, ” thus seeking to pierce the corporate veil. (Compl. ¶¶ 83, 85, ECF No. 1-2.)

         Count IV attempts to allege a claim for tortious interference with contract in claiming that Newtek caused banc-serve to enter into and then breach the Employment Agreement with Agee. (Compl. ¶¶ 86–91, ECF No. 1-2.) It is alleged that Newtek was unjustified in causing banc-serv to breach the agreement. (Compl. ¶ 90, ECF No. 1-2.) Count V alleges that Newtek has “made transfers” and “caused banc-serv to incur obligations” and attempts to state a claim to set aside fraudulent transfers and appoint a receiver over banc-serv under Indiana Code § 32-30-5-1(5) to accomplish that purpose. (Compl. ¶ 93, ECF No. 1-2.) It is alleged that Newtek acted “with the intent to hinder, delay, or defraud banc-serv’s creditors, ” that Newtek “caused banc-serv to incur obligations without receiving reasonably equivalent value in exchange, ” “caused banc-serv to incur debts beyond its ability to pay, ” and “caused banc-serv to become undercapitalized, ” resulting in banc-serv’s insolvency or imminent danger of insolvency. (Compl. ¶¶ 93–97, ECF No. 1-2.) Lastly, the Complaint purports to state a claim to enforce Agee’s lien under Indiana Code § 32-38-12-1 et seq. on banc-serv’s property and earnings. (Compl. ¶¶ 101–03, ECF No. 1-2.)

         Discussion

         A. Motion to Dismiss

         To survive a Rule 12(b)(6) motion to dismiss for failure to state a claim, a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In considering a Rule 12(b)(6) motion, the court takes the complaint’s factual allegations as true and draws all reasonable inferences in the plaintiff’s favor. Orgone Capital III, LLC v. Daubenspeck, 912 F.3d 1039, 1044 (7th Cir. 2019). However, the court need not accept as true conclu-sory allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The court “may consider documents attached to the pleadings so long as the documents are referred to in the complaint and central to the plaintiff’s claims.” Doe v. Columbia Coll. Chi., No. 18-1869, 2019 WL 3796000, at *2 (7th Cir. Aug. 13, 2019). “[I]f a plaintiff pleads facts that show [her] suit [is] barred . . ., [she] may plead [her]self out of court under a Rule 12(b)(6) analysis.” Orgone Capital, 912 F.3d at 1044 (quotation and citation omitted); see also Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2013) (on a motion to dismiss “district courts are free to consider ‘any facts set forth in the complaint that undermine the plaintiff’s claim’”) (quotation and citation omitted).

         A plaintiff alleging fraud faces heightened pleading requirements. Cornielsen v. Infinium Capital Mgmt., LLC, 916 F.3d 589, 598 (7th Cir. 2019). Under Rule 9(b) of the Federal Rules of Civil Procedure, “a party alleging fraud . . . ‘must state with particularity the circumstances constituting fraud . . ., ’ although ‘[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.’” Id. (quoting Rule 9(b)). “This generally means ‘describing the “who, what, when, where, and how” of the fraud.’” Id. (quoting AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011)).

         1. New York Labor Law Claims

         Count I of the Complaint purports to state a claim under New York Labor Law for wages as a “commission salesman, ” a severance payment, and reimbursement for business expenses, along with attorney’s fees, interest, and liquidated damages.

         Agee alleges that under New York Labor Law § 191, a “commission salesman” is to be paid “wages, salary, drawing account, commissions and all other monies earned or payable in accordance with the agreed terms of employment . . . .” (Compl. ¶ 71, ECF No. 1-2.) “Commission salesman” is defined in subdivision (6) of the Labor Law to mean “any employee whose principal activity is the selling of any goods, wares, merchandise, services, real estate, securities, insurance or any article or thing and whose earnings are based in whole or in part on commissions.” N.Y. Labor Law §190(6). The Labor Law excludes from this definition “an employee whose principal activity is of a supervisory, managerial, executive, or administrative nature.” Pachter v Bernard Hodes Group, Inc., 891 N.E.2d 279, 282 (N.Y. 2008) (quoting Labor Law §190(6)). As Defendants argue, “New York courts have looked to an employee’s title when determining whether an employee qualifies as an executive under Article 6.” Lauria v. Heffernan, 607 F.Supp.2d 403, 408 (E.D.N.Y. 2009) (citation omitted). But an employee’s job functions and responsibilities matter as well. Id.

         Defendants argue that Agee cannot state a claim under New York Labor Law because she was employed in an executive or managerial capacity. Agee responds that the Complaint alleges that Defendants did not recognize and undermined what would have otherwise been her executive and managerial functions. She maintains that the question is whether her “principal activity” was of a supervisory, managerial, executive, or administrative nature.

         Several paragraphs of the Complaint and the Employment Agreement state that Agee is an “Executive.” (See, e.g., Compl. ¶ 28, Ex. 1, preamble (identifying Agee as “the “Executive’”), ¶ 2 (“The Executive is employed as the President and Chief Executive Officer of the Company. The Executive shall render such administrative and management services . . . as are customarily performed by persons situated in a similar executive capacity and consistent with the duties of a President and Chief Executive Officer.”), ECF No. 1-2.) Agee reported to the Chairman of the Board (Compl., Ex. 1 ¶ 2, ECF No. 1-2), and earned a salary of $275, 000 per year, (id. ¶ 3). These allegations seem to indicate that Agee was employed in an executive capacity as the term is used under New York Labor Law. However, the Complaint also suggests, albeit without express allegations, that Agee was a “commission salesman” and was entitled to payment of a sales commission under New York Labor Law 191(1-c). (See Compl. ¶¶ 44, 70–71, ECF No. 1-2.) And other paragraphs of the Complaint state that Newtek’s President, Chairman and Chief Executive Officer told Agee “that her job was just to sell, and not to directly manage the Company.” (Compl. ¶ 44, ECF No. 1-2.) While Agee’s job title, salary, and duties as stated in the Employment Agreement would suggest that she is an “executive” and not a “commission salesman” and is not covered by Article 6 of the Labor Law, there are enough allegations to suggest that her actual job functions and responsibilities were not of an executive nature. Thus, the Court finds that the Complaint sufficiently states a claim under Labor Law 191-c. The determination of whether Agee was or was not an executive will have to await further development through discovery.

         The Complaint also alleges that Agee is entitled to reimbursement for legitimate business expenses under Labor Law § 198-c. (Compl. ¶¶ 72, 75, ECF No. 1-2.) The statute provides that “this section shall not apply to any person in a bona fide executive . . ., capacity whose earnings are in excess of nine hundred dollars a week.” N.Y. Labor Law § 198-c(3); see also Pachter, 891 N.E.2d at 282. Defendants argue that Agee is not entitled to assert this claim because she was in an executive capacity and her earning exceeded $900 per week. While the Employment Agreement indicates that Agee’s base compensation was $275, 000 per year, which far exceeds the $900 per week ceiling, and also states that Agee is employed as an “Executive, ” other allegations in the Complaint suggest that she was not actually employed in such a capacity. At this point, Agee has made sufficient allegations to state a claim for business expenses under Labor Law § 198-c.

         The Complaint further alleges that Agee is entitled to wages under Labor Law §191(3) “not later than the regular pay day for the pay period during which [her employment] termination occurred.” N.Y. Labor Law § 191(3). (Compl. ¶ 73, ECF No. 1-2.) The Complaint alleges that “[u]nder New York Labor Law § 191(3)[, i]f employment is terminated, the employer shall pay the wages not later than the regular pay day for the pay period during which the termination occurred[.]” (Compl. ¶ 73, ECF No. 1-2.) The Complaint further alleges that banc-serv has failed to pay Agee’s “Severance Payment, ” (Compl. ¶ 75, ECF No. 1-2), which presumably is her claim for wages due on termination under Labor Law § 191(3).

         As before, Defendants argue that as an “executive, ” Agee is excluded from the categories of workers to which Labor Law § 191 applies-manual workers, railroad workers, commission salespersons, and clerical or other workers. Defendants maintain that Agee did not directly respond to their motion with respect to this claim. But she did. Defendants’ argument as to why Agee failed to state a claim under § 191 is essentially the same as their argument with respect to whether she qualifies as a “commission salesman”-she is an executive and not covered. Agee’s arguments in response to that claim apply equally to her claim under § 198-c-she maintains that she was not functioning as an executive.

         Under New York law, “employees serving in an executive, managerial or administrative capacity do not fall under section 191 of the Labor Law and, as a result, those individuals are not entitled to statutory attorney's fees under section 198(1– a)[.]” Pachter, 891 N.E.2d at 283; see also Henkel v. Wagner, No. 12-cv-4098 (AJN), 2016 WL 1271062, at *9 (S.D.N.Y. Mar. 29, 2016) (stating “it is firmly established that § 191 is inapplicable to executives”) (quotation and citation omitted). However, Agee has made sufficient allegations to state a claim under Labor Law § 191(3). Whether the evidence establishes that she was not employed in an executive capacity must await further factual development.

         It necessarily follows from the fact that Agee has stated a claim under New York Labor Law sections 191-c, 198-c, and 191(3), that Agee has stated a claim to attorney’s fees, prejudgment interest, or liquidated damages under New York Labor Law §198(1-a). See, e.g., Contrera v. Langer, 314 F.Supp.3d 562, 569–70 (S.D.N.Y. 2018) (“The remedies of section 198 may not be invoked when the ...


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