United States District Court, D. Connecticut
THE STANLEY WORKS ISRAEL LTD. f/k/a ZAG INDUSTRIES, LTD., Plaintiff,
500 GROUP, INC. and PAOLO TIRAMANI, Defendants.
RULING ON MOTION TO DISMISS
CHARLES S. HAIGHT, JR. SENIOR UNITED STATES DISTRICT JUDGE
Stanley Works Israel Ltd., f/k/a ZAG Industries, Ltd.
("Plaintiff"), an Israeli limited liability
company, brings this diversity action against Defendants 500
Group, Inc., a New York corporation, and Paolo Tiramani, a
citizen of Nevada (collectively, "Defendants").
Plaintiff and Defendant 500 Group were parties to certain
product license agreements that related generally to patent
rights owned by 500 Group. Plaintiff's claims against
Defendants arise from a dispute over monies paid pursuant to
a settlement agreement between the parties.
now move pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure to dismiss the Amended Complaint for failure
to state a claim upon which relief can be granted, Doc. 26.
Plaintiff has resisted the motion, Doc. 29, and Defendants
have filed a reply brief, Doc. 32. This Ruling resolves
following facts are derived from Plaintiff's Amended
Complaint, and are assumed true for the purposes of this
and Defendant 500 Group were parties to certain product
license agreements and a letter agreement (collectively, the
"License Agreements"), which related generally to
patent rights owned by 500 Group. Amended Complaint, Doc. 24
¶ 7. The License Agreements were silent on the tax
treatment of royalty payments made under their terms.
Id. ¶ 8. However, under Israeli law, Plaintiff
was required to withhold certain percentages of such royalty
payments to 500 Group, and to then remit that amount to the
Israeli tax authority to satisfy 500 Group's tax
obligations in Israel. Id. Therefore, during the
term of the License Agreements, with 500 Group's consent
and agreement, Plaintiff withheld the appropriate amounts
from 500 Group's royalty payments, and remitted the tax
to the Israeli tax authority. Id.
between the parties relating to the License Agreements arose;
these disputes resulted in a demand for arbitration.
Id. ¶ 9. The disputes were then negotiated and
the parties ultimately reached a settlement. Id.
¶ 10. Plaintiff and 500 Group entered into a Settlement
Agreement on March 31, 2017, which provided, among other
things, that Plaintiff would pay a sum of ten million dollars
to Defendant 500 Group. Id. ¶¶11-12. The
parties agreed that of this total, six million dollars
constituted payment for Plaintiff's purchase of 500
Group's patent rights; the remaining four million dollars
constituted royalty payments to 500 Group. Id.
was required to withhold a portion of total amount payable
under the Settlement Agreement for tax purposes, and then
remit the tax to the Israeli tax authority on behalf of 500
Group. Id. ¶ 13. In this situation, pursuant to
Israeli law, Plaintiff was required to withhold $2, 500, 000,
or 25% of the total payment amount, unless the parties
obtained prior approval from the Israeli tax authority for a
different withholding arrangement. Id. ¶ 14.
500 Group would then be responsible to seek a refund of any
portion of the withheld amount that was not taxable directly
from the Israeli tax authority. Id. ¶ 14.
parties decided to delay the payment of the amount due under
the Settlement Agreement so that they could obtain
pre-approval from the tax authority for "structuring a
reduced amount of withholding, in view of the agreed-upon
structure of the Settlement Agreement." Id.
¶ 15. This agreement was made in mutually-signed
electronic writings. Id. The parties believed that
under Israeli law, the six million dollar patent rights
payment should not be taxed, and the four million dollar
royalty payment should be taxed at the prior royalty rate of
15%. Id. Thus, if pre-approval was obtained, 500
Group's total tax burden would be $600, 000. Id.
According to the signed electronic agreements between the
parties, that amount would be withheld by Plaintiff and
remitted to the Israeli tax authority. Id.
Group hired Ernst & Young to act on its behalf to assist
in obtaining the aforementioned pre-approval. Id.
¶ 17. Defendant Tiramani and other agents of 500 Group
confirmed the parties' agreement relating to the tax
withholdings multiple times in writing, including in emails
signed by Tiramani and other agents of 500 Group.
Id. ¶ 18. Tiramani was personally involved in
efforts to further the parties' tax withholdings
agreement, and agreed that the parties should continue to
seek approval for the withholdings under the current
Settlement Agreement, rather than re-execute the Agreement to
explicitly split the payments into two categories.
Id. ¶ 20.
was ultimately obtained by Ernst & Young, acting on
behalf of 500 Group for the parties' proposal.
Id. ¶ 21. 500 Group agreed that Plaintiff was
to retain $600, 000 from the payment total under the
Settlement Agreement. The parties' agreement to seek
preapproval and proceed with withholding 15% of the royalty
payment was "acted on to completion." Id.
500 Group's agreements, representations and conduct
regarding the tax withholding issue induced Plaintiff's
reliance, in that Plaintiff aided 500 Group to obtain the
preapproval, and Plaintiff performed its obligation under the
agreement by remitting $600, 000 to the Israeli tax authority
in satisfaction of 500 Group's tax obligations.
Id. ¶ 22.
the Settlement Agreement, 500 Group was to provide Plaintiff
with instructions for wiring the payment from Plaintiff to
500 Group called for by the Agreement. Id. ¶
23. 500 Group instructed Plaintiff to wire the payment to its
account at Patriot Bank in Stamford, Connecticut.
Id. ¶ 24. The settlement funds were wired to
this bank account on June 1, 2017. Id. ¶ 25.
However, Plaintiff mistakenly failed to deduct $600, 000 from
the total as the agreed-upon tax withholdings. Id.
Thus, Plaintiff overpaid 500 Group by $600, 000. Id.
5, 2017, Plaintiff's bank requested that the funds which
were erroneously transmitted be recalled; this request was
denied. Id. ¶ 26. On or about June 7, 2017,
Plaintiff explained to 500 Group that it had mistakenly
overpaid, and asked 500 Group to return the $600, 000
overpayment. Id. ¶ 27. 500 Group "failed
to diligently respond" to Plaintiff's request.
Id. ¶ 28. Plaintiff then made multiple
follow-up requests to 500 Group for it to return the money.
Id. ¶ 29. Although Tiramani initially indicated
by email that he intended to return the funds and asked about
the logistics of such a transfer, all of Plaintiff's
follow-up communications and requests were either ignored or
refused, without any legal explanation by Defendants.
Id. ¶ 30.
was still liable on behalf of 500 Group to the Israeli tax
authority for the full amount of the pre-approved
withholdings under the Settlement Agreement. Id.
¶ 31. Accordingly, Plaintiff paid $600, 000 to the tax
authority on or about August 15, 2017. Id.
Defendants continue to refuse to return Plaintiff's $600,
000, despite continued and repeated requests and demands.
Id. ¶ 32.
STANDARD OF REVIEW
a motion to dismiss, the issue is 'whether the claimant
is entitled to offer evidence to support the
claims.'" Patane v. Clark, 508 F.3d 106,
111 (2d Cir. 2007) (quoting Scheuer v. Rhodes, 416
U.S. 232, 236 (1984)). "To survive a motion to dismiss,
a complaint must contain sufficient factual matter, accepted
as true, to 'state a claim that is plausible on its
face.'" Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) ("Iqbal") (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)
("Twombly")). This pleading standard
creates a "two-pronged approach," Iqbal,
556 U.S. at 679, based on "[t]wo working
principles." Id. at 678.
all factual allegations in the complaint must be accepted as
true and all reasonable inferences must be drawn in the favor
of the non-moving party. See id.; see also Gorman v.
Consolidated Edison Corp., 488 F.3d 586, 591-92 (2d Cir.
2007) (citation omitted). The presumption of truth does not
extend, however, to "legal conclusions" or
"[t]hreadbare recitals of the elements of a cause of
action supported by mere conclusory statements[.]"
Iqbal, 556 U.S. at 678. Second, "a complaint
that states a plausible claim for relief" will survive a
motion to dismiss and "[d]etermining whether a complaint
states a plausible claim for relief will . . . be a
context-specific task that requires the reviewing court to
draw on its judicial experience and common sense."
Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009)
(quoting Iqbal, 556 U.S. at 679) (quotation marks
omitted). "Dismissal under Federal Rule of Civil
Procedure 12(b)(6) is appropriate when 'it is clear from
the face of the complaint, and matters of which the court may
take judicial notice, that the plaintiff's claims are
barred as a matter of law.'" Associated Fin.
Corp. v. Kleckner, 480 Fed.Appx. 89, 90 (2d Cir. 2012)
(quoting Conopco, Inc. v. Roll Int'l, 231 F.3d
82, 86 (2d Cir. 2000)).
Amended Complaint raises counts sounding in breach of
contract, unjust enrichment, unfair trade practices,
conversion, and civil theft. The Court will address each of
Defendants' arguments for Rule 12(b)(6) dismissal of the
claims asserted by Plaintiff, based on the well-pled factual
allegations of the Amended Complaint.
Choice of Law
argue that New York law should apply to all of the claims in
this matter, and on this ground, move to dismiss
Plaintiff's CUTPA and tort claims. The Court addresses
the choice of law analysis as an initial matter.
federal court sitting in diversity follows the choice of law
principles of the forum state. Bigio v. Coca-Cola
Co., 675 F.3d 163, 169 (2d Cir. 2012) (citation
omitted). When evaluating choice of law questions sounding in
tort, Connecticut courts apply the 'most significant
relationship' test from the Restatement (Second) of
Conflict of Laws, § 145. W. Dermatology Consultants,
P.C. v. VitalWorks, Inc., 322 Conn. 541, 558 (2016). The
relevant factors that are considered are: (1) the place where
the injury occurred; (2) the place where the conduct causing
the injury occurred; (3) the domicile, residence,
nationality, place of incorporation, and business of the
parties, and (4) the place where the relationship, if any,
between the parties is based. Otis Elevator Co. v.
Factory Mut. Ins. Co., 353 F.Supp.2d 274, 285 (D. Conn.
the Settlement Agreement contains a choice of law clause,
which provides that the "Agreement and Mutual Release
shall, in all respects, be interpreted, enforced, and
governed under the laws of the State of New York without
regard to its conflicts of laws principles." Doc. 24-1
at 8. The parties are in agreement that pursuant to this
provision, New York law governs Plaintiff's breach of
contract claim. The parties are also in apparent agreement
that New York law should apply to the unjust enrichment and
conversion claims. Plaintiff cites to Connecticut law in
arguing against dismissal of its CUTPA and civil theft
determine which law to apply, the Court first addresses
whether the aforementioned clause in the Settlement Agreement
controls the choice of law analysis for the remaining CUTPA
and civil theft claims. Courts in this District have held
that general choice of law provisions in contracts must be
sufficiently broad to encompass tort claims. See In re
Trilegiant Corp., Inc., 11 F.Supp.3d 132, 144-45 (D.
Conn. 2014) (noting that in this District, courts have found
that "general choice-of-law provisions in contracts must
explicitly include tort claims to prevent a plaintiff from
bringing a cause of action under CUTPA" and finding that
the choice of law provision in certain credit card agreements
was not so broad as to bar the Plaintiff's tort causes of
action under CUTPA (citing Country Club Assocs. v.
Shaw's Supermarkets, Inc., 643 F.Supp.2d 243, 252-55
(D. Conn. 2009))). See also Country Club Assocs.,
643 F.Supp.2d at 252-55 (construing a contractual choice of
law provision narrowly as to not explicitly encompass tort
claims); Aviamax Aviation Ltd. v. Bombardier Aerospace
Corp., No. 3:08-CV-1958(CFD), 2010 WL 1882316, at *2-4
(D. Conn. May 10, 2010) (finding an analogous choice of law
provision "too narrowly drawn" to encompass the
"closely related" tort claims).
the choice of law clause in the Settlement Agreement is
similar to the provisions detailed in the cases cited above.
It states that it applies to the Agreement and the mutual
release; not to all claims arising thereof. The Court follows
these courts in deciding that the choice of law provision
here is too narrow to encompass the CUTPA or civil theft
the Court turns to the 'most significant
relationship' test. According to the allegations in the
Amended Complaint, Plaintiff is an Israeli entity, with its
principal place of business in Israel. It is owned by a Dutch
company, which, in turn, is owned by a Canadian corporation.
Defendant 500 Group is a New York corporation with its
principal place of business in Nevada. It maintains a regular
place of business in Connecticut. Defendant Tiramani is a
citizen of Nevada. Tiramani previously resided in Connecticut
and maintains a place of business in Connecticut. It is
unclear from the record before the Court where the
relationship between the parties is centered; there are no
allegations as to where the contract was signed. While it
appears that the injury was felt in Israel, the allegations
of the Amended Complaint do not shed light on whether the
injury-causing conduct occurred in Nevada, New York, or
appears that it would be premature to undertake this analysis
at this early stage in the litigation. The record before the
Court on this motion to dismiss does not contain the
necessary information to determine where the relationship
between the parties was based; where the Settlement Agreement
was signed; and where the injury-causing conduct took place.
See Bristol-Myers Squibb Co. v. Matrix Labs. Ltd.,
655 Fed.Appx. 9, 13 (2d Cir. 2016) (noting that
"[n]umerous district courts in this Circuit have
concluded that choice-of-law determinations are
fact-intensive inquiries that would be premature to resolve
at the motion-to-dismiss stage" (collecting cases)).
See also Meserole v. Sony Corp. of Am., No.
08-CV-8987(RPP), 2009 WL 1403933, at *5 n.6 (S.D.N.Y. May 19,
2009) (noting that a detailed choice of law analysis would be
premature to undertake in ruling on a motion to dismiss);
First Union Nat. Bank v. Paribas, 135 F.Supp.2d 443,
453 (S.D.N.Y. 2001) (declining to decide whether New York or
English law applies on a motion to dismiss, because
"because it is not yet clear that there is a conflict
between New York and English law and because the litigation
is at a preliminary stage" (footnotes omitted)),
aff'd sub nom., FUNB v. Arab African
Int'l Bank, 48 Fed.Appx. 801 (2d Cir. 2002).
the Court will not grant Defendants' motion to dismiss
the CUTPA and civil theft claims on choice of law grounds at
this time. Based on the apparent agreement of the parties,
however, the Court will apply New York law to Plaintiff's
claims of breach of contract, unjust enrichment, and
Breach of Contract
move to dismiss Plaintiff's breach of contract claim on
the grounds that it is contrary to the express terms of the
Settlement Agreement, which "plainly establishes"
that ten million dollars is the amount Plaintiff was required
to pay. Defendants argue that Plaintiff failed to identify a
provision of the Settlement Agreement that states that a
portion of the settlement amount would be withheld for tax
purposes, and the parties' prior course of dealing cannot
contradict the plain language of the Settlement Agreement.
Defendants claim that Plaintiff has failed to allege an
enforceable agreement that would require 500 Group to refund
the $600, 000 payment.
part, Plaintiff argues that the Amended Complaint plausibly
alleges that 500 Group was contractually obligated to allow
for the tax withholding, because: (1) the Settlement
Agreement is silent on the issue, and therefore ambiguous;
(2) there exist subsequent, signed writings in which 500
Group agrees to the tax withholdings, thereby amending the
operative contract; (3) the parties acted on this
understanding to, at a minimum, partial completion; and (4)
Plaintiff relied on the tax agreement to its detriment, thus,
500 Group is equitably estopped from evading its
is well established that settlement agreements are contracts
and must therefore be construed according to general
principles of contract law." Collins v.
Harrison-Bode, 303 F.3d 429, 433 (2d Cir. 2002)
(quotation marks and citation omitted). In New York, a breach
of contract claim requires proving four elements: "the
making of an agreement, performance by the plaintiff, breach
by the defendant, and damages suffered by the
plaintiff." Greenberg v. Greenberg, 646
Fed.Appx. 31, 32 (2d Cir. 2016) (quotation marks and citation
omitted). "Under New York law the initial interpretation
of a contract is a matter of law for the court to decide.
Included in this initial interpretation is the threshold
question of whether the terms of the contract are
ambiguous." Alexander & Alexander Servs., Inc.
v. These Certain Underwriters at Lloyd's, London,
England, 136 F.3d 82, 86 (2d Cir. 1998) (quotation marks
and internal citations omitted).
contract is unambiguous if "the contract language has a
definite and precise meaning and concerning which there is no
reasonable basis for a difference of opinion."
Orchard Hill Master Fund Ltd. v. SBA Commc'ns
Corp., 830 F.3d 152, 157 (2d Cir. 2016) (quoting Law
Debenture Tr. Co. of New York v. Maverick Tube Corp.,
595 F.3d 458, 467 (2d Cir. 2010)). "It is axiomatic that
where the language of a contract is unambiguous, the
parties' intent is determined within the four corners of
the contract, without reference to external evidence."
Feifer v. Prudential Ins. Co. of Am., 306 F.3d 1202,
1210 (2d Cir. 2002) (citation omitted). Thus, "[i]f the
contract is unambiguous, that is, only susceptible to one
reasonable interpretation, the court must give effect to the
contract as written." Madeleine L.L.C. v. St.,
757 F.Supp.2d 403, 405 (S.D.N.Y. 2010) (quotation marks and
other hand, "[c]ontract language is ambiguous if it is
'capable of more than one meaning when viewed objectively
by a reasonably intelligent person who has examined the
context of the entire integrated agreement.'"
Collins, 303 F.3d at 433 (quoting Compagnie
Financiere de CIC et de L'Union Europeenne v. Merrill
Lynch, Pierce, Fenner & Smith Inc., 232 F.3d 153,
158 (2d Cir. 2000)). "[T]he question of ambiguity
vel non must be determined from the face of the
agreement, without reference to extrinsic evidence."
the motion to dismiss stage, a district court may dismiss a
breach of contract claim only if the terms of the contract
are unambiguous." Orchard Hill Master Fund
Ltd.., 830 F.3d at156; see also Maniolos v. United
States, 741 F.Supp.2d 555, 567 (S.D.N.Y. 2010)
("Where a contract's language is clear and
unambiguous, a court may dismiss a breach of contract claim
on a Rule 12(b)(6) motion to dismiss. . . . However, when the
language of a contract is ambiguous, its construction
presents a question of fact, which of course precludes
summary dismissal on a Rule 12(b)(6) motion." (quotation
marks and citations omitted) (collecting cases)),
aff'd, 469 Fed.Appx. 56 (2d Cir. 2012).
"[W]hile a court is not obliged to accept the
allegations of the complaint as to how to construe a
contract, it should resolve any contractual ambiguities in
favor of the plaintiff on a motion to dismiss."
Maniolos, 741 F.Supp.2d at 567 (quotation marks and
present case, the Settlement Agreement is attached to the
Amended Complaint. The language of the contract requires
Plaintiff to wire a sum of ten million dollars to Defendants;
it makes no provision for any withholding from that sum for
tax purposes. Plaintiff does not point to any clause that
states otherwise; to the contrary, Plaintiff argues that the
Settlement Agreement is silent on the issue of tax treatment.
See, e.g., Doc. 29 at 9. Plaintiff contends,
however, that the silence of the contract on the issue of the
tax treatments renders the Agreement ambiguous, precluding
dismissal of its breach of contract claim.
support for its position, Plaintiff refers the Court to the
Second Circuit's decision in White v. White Rose
Food, a Div. of DiGiorgio Corp., 237 F.3d 174
(2d Cir. 2001) ("White Rose"). This case
involved, in part, a settlement agreement resolving a labor
dispute between an employer and a union that represented a
group of striking employees. Id. at 176-77. The
settlement agreement provided that the employer, White Rose,
would place a sum of $1.5 million into an escrow account to
be distributed to the now-former employees. Id. at
177. The agreement was "silent on the issue whether such
payroll taxes could be drawn from the Settlement Fund, and
who was to pay those taxes." Id. After White Rose
deducted payroll taxes from the Settlement Fund, the
employees brought the ...