UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK CITIBANK, N.A., MEMORANDUM & ORDER Plaintiff, 23-CV-02420 (NGG) (RML) -~against- SHULEM FRIEDMAN and MIRIAM FRIEDMAN, Ci efenddatts. NICHOLAS G. GARAUFIS, United States District Judge. Plaintiff Citibank, N.A. (“Citibank” or “Plaintiff’) brings several claims against Defendants Shulem and Miriam Friedman (“Fried- mans” or “Defendants”) for allegedly pursuing a fraudulent scheme to misuse and overcharge nine personal credit accounts with Citibank. (See Am. Compl. (Dkt. 16) § 8-10, 19-24.) Citi- bank seeks to recover $1,738,035.63 in damages from the Defendants’ alleged overcharging scheme and asserts claims for (i) fraudulent misrepresentation; (ii) false pretenses; (iii) actual fraud with respect to misrepresentations and fraudulent conduct; (iv) civil conspiracy; (v) breach of contract; and (vi) unjust en- richment. (See generally id.) Defendants move to dismiss Plaintiffs Amended Complaint in its entirety under Federal Rule of Civil Procedure 12(b)}(6) for failure to state a claim. (See Not. of Mot. (Dkt. 20); Defs.’ Mot. to Dismiss (“Mot,”) (Dkt. 20-5).) For the following reasons, the Defendants’ motion is GRANTED in part and DENIED in part. I. BACKGROUND! Defendants Shulem and Miriam Friedman opened nine credit card accounts (the “Credit Accounts”) with Plaintiff Citibank. The following facts are taken from the Amended Complaint and, for the purposes of this motion to dismiss, are assumed to be true. See Ark. Pub.
(See Am. Compl. { 8.) Upon opening these accounts, Defendants, through Citibank’s credit agreements, agreed to use the accounts only for consumer purposes, to pay all amounts due, make monthly minimum payments, and not use their accounts for un- lawful transactions. (id. {{ 29, 31, 33.) They also agreed to a total credit limit on all accounts of $184,000. (Am. Compl. { 34; see also Credit Agreements at 2.) Initially, Defendants “were good customers;” they honored their credit agreements and made timely payments on their Credit Accounts for consumer goods. (Am. Compl. § 9.) After several years, however, Defendants un- dertook a fraudulent scheme to “drastically increase and swiftly charge up the balances of their Credit Agreements before Citi- bank could identify their illicit manipulations.” @d. { 10.) This resulted in overcharged amounts, totaling over $1,738,035.63 across all nine Credit Accounts. (Id.} Specifically, Defendants used their Credit Accounts to make large purchases, including some in excess of $50,000, at eyewear com- panies, as well as for shipping and related business expenses, at times in excess of $15,000. (id. {{ 11-14.) To obtain excess credit above authorized limits and to avoid default in doing so, Defend- ants used four primary mechanisms to carry out their fraudulent scheme. Ud. § 24.) First, Defendants disputed the large transaction charges made on their Citibank Credit Accounts, triggering Citibank to automati- cally apply a conditional credit in the amount of the disputed transaction on the relevant Credit Account pending investigation
Emps. Ret. Sys. v. Bristol-Myers Squibb Co., 28 F.4th 343, 349 (2d Cir, 2022). The Amended Complaint is also deemed to include documents in- corporated in it by reference and that are “integral.” Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002), The court considers the exhibits that Defendant submitted with its motion—the Citibank credit card agreements and notices of account closures—to be integral to the Complaint. (See Ex. B to Cwibeker Decl. (“Credit Agreements”) (Dkt. 20- 3); Ex. C to Cwibeker Decl. (“Notices of Account Closures”) (Dkt. 20-4).)
of the dispute. (Id. { 24(a).) When Citibank applied the condi- tional credit, the disputed transaction was no longer reflected against the Defendants’ credit limit, thereby allowing Defendants to continue spending on the account in excess of their credit limit. id.) Citibank alleges that Defendants disputed charges aimed at obtaining extensions of credit in excess of their credit limit on 66 known occasions, resulting in a fraudulent credit ex- tension of $2,480,184.69. Cid.) The second mechanism by which Defendants carried out their fraudulent scheme was to file false payment disputes with their banks after submitting payments to their Credit Accounts. (Id. { 24(b).) Here, Defendants made payments to their Credit Ac- counts using their accounts at different banks, including a $149,157.53 payment using their Valley National Bank account and a $67,425.40 payment using their JP Morgan Chase account, and then disputed those same payments with the Defendants’ paying banks. (Id.) By first making the payment to Citibank, De- fendants obtained additional borrowing capability under their Credit Accounts. When they later disputed the payments with the payor banks, this triggered the payor banks to recall the initial payment, allowing Defendants to also re-use the same funds with their payor banks. Citibank asserts that Defendants disputed pay- ments with payor banks on four known occasions. (id.) Third, on 115 known occasions, Defendants used false or fraud- ulent account numbers to submit large payments on their Credit Account balances. (Id. § 24(c).} All the payments were returned on or after June 7, 2018, as Citibank was unable to process any payments because the account numbers listed on each payment did not exist or were not owned by Defendants. (Id.) Finally, on at least eight occasions, Defendants submitted their false payments right before the billing cycle causing the Credit Accounts to reflect a zero amount owed for the period, even though the payments were ultimately rejected. (id. { 24(d).) This
additional mechanism allowed Defendants to manipulate the timing of their fraudulent payments to prevent Defendants’ ac- counts “from being flagged as in default for failure to make monthly payments, and prevent collection.” fd.) As a result of the fraudulent scheme, Citibank commenced this action by filing a complaint in this district on March 29, 2023 and asserting causes of action for (1) fraudulent misrepresentation; (2) false pretenses; (3) actual fraud — misrepresentation; (4) ac- tual fraud — fraudulent conduct; (5) civil conspiracy; (6) breach of contract; and (7) unjust enrichment. (See generally Complaint (Dkt. 1).} Plaintiff shortly thereafter amended its complaint, rais- ing all of its previous causes of action, but adding additional allegations as support. (See generally Am. Compl.) Defendants’ motion to dismiss was fully briefed on January 12, 2024. (See Scheduling Order (Dkt. 19); see also Mot.; PL’s Opp. to Mot. (“Opp.”) (Dkt. 20-6); Defs.’ Reply (“Reply”) (Dkt. 20-7).) Il. LEGAL STANDARD To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, 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 miscon- duct alleged.” Id. A complaint must contain facts that do more than present a “sheer possibility that a defendant has acted un- lawfully.” Id. In deciding a motion to dismiss, the court accepts all factual allegations in the complaint as true and draws all rea- sonable inferences in the plaintiffs favor. See Fink v. Time Warner
2 When quoting cases, unless otherwise noted, all citations and internal quotation marks are omitted, and all alterations are adopted.
Cable, 714 F.3d 739, 740-41 (2d Cir. 2013). However, allega- tions that “are no more than conclusions [] are not entitled to the assumption of truth.” Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). Further, disrnissal for failure to state a claim is appro- priate if it is clear from the face of the complaint that a claim is barred as a matter of law. Biocad JSC v. F. Hoffman-La Roche, 942 F.3d 88, 93 (2d Cir. 2019). Ii. DISCUSSION Defendants seek to dismiss the Amended Complaint in its en- tirety, raising three primary arguments for dismissal: (1) that this action is barred by New York’s statute of limitations; (2) that Plaintiffs fraud and unjust enrichment claims are impermissibly duplicative; and (3) that the Amended Complaint fails to state a claim for which relief can be granted. (See generally Mot.) The court addresses each argument below. A. Statute of Limitations As a threshold matter, both parties agree that New York’s statute of limitations applies to this action. (See Mot. at 4; Opp. at 8.) “Where jurisdiction rests upon diversity of citizenship, a federal coutt sitting in New York must apply the New York choice-of-law rules and statutes of limitations.” Stuart v. Am. Cyanamid Co., 158 F.3d 622, 626 (2d Cir. 1998). “Choice of law provisions typ- ically apply to only substantive issues, and statutes of limitations are considered ‘procedural’ because they are deemed as pertain- ing to the remedy rather than the right.” Portfolio Recovery Assocs., LLC v. King, 14 N.Y.3d 410, 416, 927 N.E.2d 1059, 1061 (2010). Thus, while the Credit Agreements state that “[f]ederal law and the law of South Dakota govern the terms and enforce- ment of this Agreement,” the court applies New York’s statutes of limitations to Citibank’s claims. (Credit Agreements at 10.) Defendants assert that this action is barred by the three-year stat- ute of limitations pursuant to New York Civil Practice and Rules
(“CPLR”) § 214-13 because the most recent date complained of in the Amended Complaint occurred on April 3, 2019, and Citibank commenced this lawsuit on March 29, 2023, almost a year after the statute of limitations under CPLR § 214-i expired. (Mot. at 4- 5.) Citibank disagrees, arguing that CPLR § 214-i does not apply to this action, and instead under CPLR §§ 213(2) and (8), the applicable statute of limitations is six years. (Opp. at 7-10.) Un- der either provision, Plaintiff argues that Defendants’ fraudulent conduct justifies equitable tolling of the relevant statute of limi- tations. Ud. at 13-14.) CPLR § 213 provides a six-year statute of limitations for most ac- tions, including those governed by contract or based on fraud. Under CPLR § 213(2), “an action upon a contractual obligation or liability, express or implied, except as provided in section two hundred thirteen-a or two hundred fourteen-i of this article or article 2 of the uniform commercial code or article 36-B of the general business law,” is subject to the six-year statute of limita- tions. Similarly, under CPLR § 213(8), “an action based upon fraud” is subject to “the greater of six years from the date the cause of action accrued or two years from the time the plaintiff . .. discovered the fraud, or could with reasonable diligence have discovered it.” CPLR § 214-i, by contrast, mandates that “{a]n action arising out of a consumer credit transaction where a purchaser, borrower or debtor is a defendant must be commenced within three years|.]”
3 The Consumer Credit Fairness Act (“CCFA”) was signed into law on No- vember 8, 2021. See Murphy v. PHG Funding LLC, No, 656158/2021, 2023 WL 4290351, at *2 (N.Y. Sup. Ct. June 30, 2023). As part of that law, the statute of limitations was reduced from six years to three years for actions arising out of consumer credit transaction filed on or after April 7, 2022. Id.; see also Practice Commentaries to CPLR § 214-1.
1. Whether CPLR § 213 or § 214-i Applies Here, the relevant question is whether the Friedmans’ transac- tions must be considered consumer transactions per the Credit Agreements, or whether the allegations that the transactions were business transactions involving large eyewear purchases (Count VI and based upon fraud (Counts I-IV) are sufficient to apply the longer statute of limitations under CPLR § 213. With respect to Citibank’s fraud claims, the court concludes that claims based on fraud are governed by CPLR § 213(8) and are thus subject to the six-year statute of limitations. Defendants in their Reply cite no authority for their position that CPLR § 214-1 applies to fraud claims, instead arguing that because the statute does not differentiate between contract or fraud claims, it must apply to both so long as those claims “arisf{e] out of a consumer credit transaction.” (Reply at 2.) While true that CPLR § 214-i does not differentiate between con- tract and fraud claims, the general statute of limitations provision, CPLR § 213, provides that all actions are to be com- menced within six years, except where there is a limitation “specifically prescribed by law,” such as in CPLR § 214-i. CPLR § 213(1). Under CPLR § 213(8), where an action is based upon fraud, it must be afforded the longer statute of limitations period. On its face, CPLR § 213 is unambiguous, and includes specific carve outs for certain actions, including contract actions arising out of consumer credit transactions. See CPLR § 213(2). That the statute does not also include a similar carve out for cases based on fraud makes clear the Legislature’s intent to limit the shorter statute of limitations only in subsection two, and not in all actions enumerated in CPLR § 213. Accordingly, the court finds that ac- tions based upon fraud are subject to the six-year statute of limitations set forth in CPLR § 213(8).
Regarding Plaintiffs contract claim, Citibank does not dispute that CPLR § 214-i generally applies to consumer credit transac- tions, see CPLR § 213(2), but instead argues that Defendants’ transactions cannot be considered consumer transactions as de- fined in CPLR § 105(f). (Opp. at 8-10.) Here, it is undisputed that the Credit Agreements specify that each of the Defendants nine Credit Accounts were to be used for consumer purposes only. (See Credit Agreements at 2 (noting “Consumer Purposes” under “Account Use”).) However, the mere fact that the Defendants agreed to use their accounts only for consumer purposes does not automatically render their actual transactions “consumer.” See, ¢.g., Matthew Bender & Co. v. Shore, 447 N.Y.S.2d 39, 40 (N.Y. App. Div. 3d Dep’t 1982) (finding pur- chase of lawbooks by attorney for his “professional endeavors does not fall within the scope of a consumer credit transaction”). Indeed, Citibank contemplated this exact scenario, notifying De- fendants in the agreements that “[i]f you do use your Account for business purposes, this Agreement still applies, and you must pay us for those Transactions. You have to pay us for any damages and/or expenses resuiting from that use. In addition, we may also close your Account.” (See Credit Agreements at 2.) And, as made clear by the filing of the lawsuit, Citibank seeks to recover the expenses resulting from what it argues were business ex- penises. CPLR § 105(f) defines a consumer credit transaction as “a trans- action wherein credit is extended to an individual and the money, property, or service which is the subject of the transaction is primarily for personal, family or household purposes.” CPLR § 105() (emphasis added). Here, taking the allegations in the Amended Complaint as true, Citibank has sufficiently alleged that many of the transactions at issue were business expenses in violation of the Agreements. Spe- cifically, Citibank alleges that Defendants followed a “common
scheme” by opening accounts and making regular payments to “build the appearance” that they were good customers, which then enabled them to commit the alleged fraud. (Am. Comp!. { 19.) For example, Citibank alleges that in the year 2017, Defend- ant Shulem Friedman’s Credit Account ending in -3136 was riddled with purchases from eyewear companies, including in ex- cess of $50,000. (id. €{ 10-13.) And only three transactions on that account in 2017 did not involve purchases from eyewear companies; instead, two of the three transactions involved what Citibank alleges were business charges to the United Parcel Ser- vice (“UPS”) in excess of $3,000. Gd. 4 14.) With regard to Defendant Miriam Friedman’s Credit Account ending in -2412, Citibank submits that in 2017 and 2018, that account was used exclusively for commercial transactions with eyewear compa- nies, shipping companies, and other business entities. (id. § 17 (listing business transactions dated January 9, 2017 through June 7, 2018).} Only one of the transactions listed for this ac- count was for an amount under $10,000, and the most expensive single transaction was at the eyewear company ABB Concise for $60,000. Ud.) Other exemplar transactions include a $31,003.70 purchase at CallMax Solutions USA which Citibank submits is an “outsourcing staffing solutions service for businesses” and a FedEx transaction totaling $18,703.19. (Id.; see also id. {| 39, 53, 64, 79, 90, 98, 108.) Having found that Plaintiffs claims are subject to CPLR § 213, the court now determines the earliest date for which the court may consider the Defendants’ conduct and Citibank’s claims, and whether equitable tolling is warranted. 2. Equitable Tolling Under CPLR § 213(2), the statute of limitations for breach of con- tract claims is six years and “begins to run from the day the contract was breached, not from the breach was discovered, or
should have been discovered.” ABB Indus. Sys., Inc. v. Prime Tech., Inc., 120 F.3d 351, 360 (2d Cir. 1997). For causes of action based upon fraud, however, those claims must be commenced within six years from the date of accrual or within two years from the time the fraud is or should have been discovered, whichever is greater. See CPLR § 213(8); see also Neu- man y. Garcia, No. 20-CV-10723 (PKC), 2022 WL 4448722, at *11 (S.D.N.Y, Sept. 23, 2022). Additionally, the doctrine of equitable estoppel is available in “rare and exceptional” cases where “extraordinary circumstances prevented a party from timely performing a required act, and the party acted with reasonable diligence throughout the period to be tolled.” Daisley v. FedEx Ground Package Sys., Inc., No. 08-CV- 4063 (JG) (LB), 2008 WL 5083009, at *3 (E.D.N.Y. Dec. 1, 2008), affd, 376 F. App’x 80 (2d Cir. 2010); see also Neuman, 2022. WL 4448722, at *11 (“Where fraud or concealment of the existence of a claim prevents an individual from timely filing, eq- uitable tolling of a statute of limitations is permitted until the fraud or concealment is, or should have been, discovered by a reasonable person in the situation.”). Plaintiff bears the burden of establishing equitable tolling is warranted. See Daisley, 2008 WL 5083009, at *3. The earliest allegation of fraud alleged in the complaint is De- cember 30, 2015 and Citibank argues that the fraud continued through April 3, 2019. (See Am. Compl. {9 24(c) (i), (vi).) Thus, Citibank was required to bring the instant complaint within the greater of six years from the date the cause of action first accrued (December 30, 2021) or two years from the time the plaintiff dis- covered the fraud, GPLR § 213(8). As Defendants correctly note, notices of account closures were sent to Defendants on June 15,
2018. (See Notices of Account Closures at ECF 2-7.)* It is reason- able to infer that Citibank knew or should have known of the alleged fraud by that date and thus, under the two-year discovery period, was required to bring the instant lawsuit by June 15, 2020. Given that the six-year accrual date is greater than the two- year discovery period, the court concludes that Citibank was re- quired to bring the instant lawsuit by December 30, 2021. As Citibank did not bring the instant lawsuit until March 29, 2023, and thus after the statute of limitations expired, the court must either find that conduct prior to March 29, 2017 (six years prior to the commencement of this lawsuit) is time-barred, or whether equitable tolling is warranted under the circumstances to cover all alleged conduct. The court declines to apply the extraordinary remedy of equita- ble tolling at this juncture. Where Citibank knew or had reason to know of the Defendants’ fraud by June 15, 2018, but did not bring the instant lawsuit until almost three years later, the court is hesitant to conclude that Citibank has met its burden to find equitable tolling is warranted. However, should discovery reveal additional support for equitable tolling, Plaintiff is free to re-raise these issues after the close of discovery. See, e.g., Neurnan, 2022 WL 4448722, at *11 (S.D.N.Y. Sept. 23, 2022). Accordingly, the court finds that Plaintiffs claims relating to De- fendants’ conduct prior to March 29, 2017 is barred by the statute of limitations.
4 Additional notices were sent on December 11, 2018, but specify that the accounts were closed at the request of the Defendants. (See id. at ECF 8- 13.) To the extent these accounts are not the same ones for which notices were sent in June 2018, the court does not consider them in this analysis as it is unclear whether the accounts were closed at the request of the De- fendants for some other reason unrelated to the claims at issue here.
B. Whether Plaintiffs Claims are Duplicative Defendants also move to dismiss Plaintiffs fraud and unjust en- richment claims as duplicative of its breach of contract claim. (See Mot. 10-16.) Defendants in so arguing rely on New York law whereas Plaintiff asserts that South Dakota law must govern this analysis. (See id. at 10; Opp. at 14.) 1. Fraud Claims While true that the Credit Agreements specify that South Dakota law governs the contracts, (see Credit Agreements at 10), “fraud claims sound in tort, not contract, so the contractual choice of law provision in the [Credit Agreements] is inapplicable to the fraud causes of action.” J.A.O. Acquisition Corp. v. Stavitsky, 745 N.Y.S.2d 634, 638 (N.Y. Sup. Ct. 2000), affd, 293 A.D.2d 323, 739 N.Y.S.2d 821 (2002). Thus, for a “choice-of-law provision to apply to claims for tort arising incident to the contract, the express language of the pro- vision must be sufficiently broad as to encompass the entire relationship between the contracting parties.” J&R Multifamily Grp., Ltd. v. U.S. Bank N.A., No. 19-CV-1878 (PKC), 2019 WL 6619329, at *4 (S.D.N.Y. Dec. 5, 2019). Section 13 of the Credit Agreements states that “[flederal law and the law of South Dakota govern the terms and enforcement of this Agreement.” (Credit Agreements at 10.) Numerous courts have found similar language to be insufficiently broad to encom- pass tort claims. See J&R Multifamily Grp., Ltd, 2019 WL 6619329, at *4 (collecting cases); see also Flatiron Acquisition Ve- hicle, LLC v. CSE Mortg. LLC, No. 17-CV-8987 (GHW), 2019 WL 1244294, at *16 (S.D.N.Y. Mar. 18, 2019) (finding provisions stating that the “Parties agree that [the settlement agreement] shall in all respects be interpreted, enforced, and governed under the laws of Tennessee]” and that the purchase agreement “shall
be governed by and construed in accordance with the laws of the State of New York” do not encompass plaintiffs’ tort claim). While the parties agreed to apply South Dakota law for the terms of the Credit Agreements, fraud plainly falls outside of said agree- ments. Accordingly, the agreements’ choice-of-law provisions are inapplicable to Citibank’s fraud claims, and the court therefore applies New York’s choice-of-law rules to determine the appro- priate state law. Here, the court must first determine whether there is an actual conflict between New York’s and South Dakota’s laws regarding the coexistence of fraud and breach of contract causes of action. Flatiron Acquisition Vehicle, LLC, 2019 WL 1244294, at *16. If the relevant states’ laws do not conflict, New York will apply its own law. See Wall v. CSX Transp., Inc., 471 F.3d 410, 422 (2d Cir. 2006). Contrary to Plaintiffs assertion, the court finds that there does not appear to be a material difference in the laws of New York and South Dakota as both permit the coexistence of fraud and breach of contract claims so long as the fraud is separate and distinct from the breach of contract. (See Opp. at 15.) Compare Deutz & Crow Co. v. S. Dakota State Cement Plant Comm’n, 466 N.W.2d 631, 636-37 (S.D. 1991) (“Conduct that is merely a breach of contract is not a tort” and thus the fraud contemplated must be “extraneous to the contract” rather than a “fraudulent non-performance of the contract itself’), with McKernin v. Fanny Farmer Candy Shops, Inc., 574 N.Y.S.2d 58, 59 (N.Y. App. Div. 2d Dep’t 1991) (“It is well settled that where . . . a claim to recover damages for fraud is premised upon an alleged breach of con- tractual duties and the supporting allegations do not concern representations which are collateral or extraneous to the terms of the parties’ agreement, a cause of action sounding in fraud does not lie.”), and Graubard Mollen Dannett & Horowitz v. Mos- kovitz, 612 N.Y.S.2d 39, 40 (N.Y. App. Div. 1st Dep’t 1994), affd,
86 N.Y.2d 112, 653 N.E.2d 1179 (1995) (affirming lower court’s denial of summary judgment on fraud claims where the allega- tions of fraud were extraneous to the contract between the parties). ,
Moreover, both states look to the same elements when analyzing whether fraud has been proven. Compare Stabler v. First State Bank of Roscoe, 865 N.W.2d 466, 477 (S.D. 2015), with Spector v. Wendy, 881 N.Y.S.2d 465, 467 (N.Y. App. Div. 2d Dep’t 2009). Finding no material conflict between the two states’ laws, the court will apply New York law to Plaintiffs fraud claims. To prove fraud under New York law, “a plaintiff must show that (1) the defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance.” Bridge- stone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 19 (2d Cir. 1996). However, where a fraud claim is based on an al- leged breach of contract, there must be allegations of fraud collateral or extraneous to the terms of the agreement. See United States Reg’l Econ. Dev. Auth., LLC v. Matthews, No. 16-CV-01093 (CSH), 2017 WL 5992384, at *7 (D. Conn. Dec. 4, 2017) (citing Bridgestone/Firestone, Inc., 98 F.3d at 20). Thus, to maintain a fraud claim in conjunction with a breach of contract claim, “a plaintiff must either: (i) demonstrate a legal duty separate from the duty to perform under the contract; or (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the con- tract; or (iii) seek special damages that are caused by the misrepresentation and unrecoverable as contract damages.” Bridgestone/Firestone, Inc., 98 F.3d at 20. Defendants argue that Citibank fails to make a showing under any of the three ways set forth above and thus Citibank’s fraud claims, ie, Counts I (Fraudulent Misrepresentation), II (False
Pretenses), III (Actual Fraud — Misrepresentations), and IV (Ac- tual Fraud -— Fraudulent Conduct), must be dismissed as duplicative of Plaintiffs breach of contract claim (Count Vi). (See Mot. at 10-14.) Relatedly, Defendants argue that Count V (Civil Conspiracy) must also fail if the court finds that none of Citi- bank’s fraud claims can survive. (Ud. at 14-15.) Citibank argues that the Defendants’ fraudulent conduct was ex- traneous to the contract and thus its fraud claims are separate from its breach of contract claim. (See Opp. at 16-17.) Citibank argues that the Friedmans’ fraud “went beyond the mere breach of the promise to pay” as the Friedmans purported to make pay- ments with third party bank accounts they did not own, that did not exist, and for payor accounts they did own but then disputed the authorization of those same payments with the payor bank once the account closing date had passed. (Id. at 16; Am. Compl. € 24.) Citibank argues that because the credit agreements do not speak to issues of payments using unauthorized accounts, pay- ment disputes with payor banks, or improper manipulation of payments and account closing dates to obtain credit beyond the contractual amount, the fraud alleged is extraneous to perfor- mance under the Credit Agreements. (Opp. at 17.) Under the collateral or extraneous exception of the Bridge- stone/Firestone analysis, “[mlisrepresentations made after a contract is entered into which relate to a present fact that would exist if the contract were performed, are collateral or extraneous to the contract... and are actionable in fraud.” Jordan (Ber- muda) Inv. Co., Lid., No. O0-CV-9214 (RWS), 2003 WL 1751780, at *8 (S.D.N.Y. Apr. 1, 2003). The Amended Complaint alleges that at the time the Defendants entered into their Citibank credit agreements, and for the next few years, they “were good customers, honored their agree- ments, and made timely payments under their Credit
Agreements on their Credit Accounts.” (Am. Compl. {{ 8-9.) Fol- lowing the contracts’ formation, however, “Defendants embarked on a fraudulent scheme to drastically increase and swiftly charge up the balances of their Credit Agreements before Citibank could identify their illicit manipulations.” Gd. { 10.) In doing so, Defendants repeatedly made false representations to Citibank and payor banks, through false payment disputes, with fake payment account numbers/accounts, and manipulative tac- tics to prevent account aging. Ud. { 24.) Defendants argue that these allegations arise out of the same facts as the breach of contract claim and are thus insufficient to survive the instant motion to dismiss. (See Reply at 9.) However, the relevant question is not simply whether the allegations arise out of the same facts, but whether the allegations are extraneous to the contract. And construing the facts in Plaintiffs favor, Plain- tiff does not only allege that Defendants entered into the contract while misrepresenting their intent to perform as agreed, (see Am, Compl. § 20), but additionally alleges that, after the contracts were entered into in 2014 and 2015, Defendants repeatedly mis- represented “present facts” concerning their performance under the Credit Agreements on numerous occasions between 2017° and 2019, (See Am. Compl. 9 21-24; see also Opp. at 5 (alleging that the Friedmans opened the nine Credit Accounts with Citi- bank in 2014 and 2015).) Here, by actively representing that Defendants were making payments under the contract for con- sumer use, as well as disputing and authorizing charges that permitted them to exceed their credit limits, these allegations rise to the level of ongoing misrepresentations of present facts that are extraneous to the Credit Agreements. See Jordan, 2003 WL 1751780, at *8; Minnie Rose LLC v. Yu, 169 F. Supp. 3d 504, 520- 21 (S.D.N.Y. 2016).
5 The earliest date by which this court has found the alleged conduct timely. See section ILA.
The court therefore concludes that the alleged fraud on the basis of these misrepresentations is collateral to the Credit Agree- ments. As Plaintiffs fraud claims survive on this basis, the court declines to dismiss the civil conspiracy count. (See Mot. at 14 (ar- guing that Plaintiffs civil conspiracy count must fail in the event the fraud claims fail because liability based on conspiracy must be based on an independent underlying tort).) See also Vasile v. Dean Witter Reynolds Inc., 20 F. Supp. 2d 465, 481 (E.D.N.Y. 1998), affd, 205 F.3d 1327 (2d Cir. 2000) (“[U]nder New York law, civil conspiracy to commit fraud, standing alone, is not ac- tionable if the underlying independent tort has not been adequately pleaded”); Philip S. Schwartzman, Inc. v. Pliskin, Rubano, Baum & Vitulli, 187 N.Y.S.3d 702, 707 (N.Y. App. Div. 2d Dep’t 2023). Accordingly, Defendants’ Motion to Dismiss Plaintiff's fraud and civil conspiracy claims as duplicative is DENIED. 2. Unjust Enrichment Claim As with the fraud claims, the court finds no material difference in the laws of New York and South Dakota with respect to the coexistence of unjust enrichment and breach of contract claims. Under both laws, the first consideration is whether the contracts expressly cover the subject-matter alleged in an unjust enrich- ment claim. See Redwing Constr. Co. v. Sexton, 120 N.Y.S.3d 215, 219 (N.Y. App. Div. 3d Dep’t 2020) (“An unjust enrichment claim is not available where it simply duplicates, or replaces, a conven- tional contract or tort claim”); Johnson v. Larson, 779 N.W.2d 412, 416 (“[T]he equitable remedy of unjust enrichment is un- warranted when the rights of the parties are controlled by an express contract’). If it is determined that the subject matter comprising the unjust enrichment claim is separate and distinct from the contract, then both states adopt nearly identical tests for plaintiffs seeking to prove an unjust enrichment claim exists: (1) that the defendant
benefitted; (2) at the plaintiffs expense; and (3) that it would be inequitable to allow defendant to retain the benefit without pay- ing for it. Compare Hofeldt v. Mehling, 658 N.W.2d 783, 788, with Freedom Holding, Inc. v. Haart, 172 N.Y.S.3d 873, 888 (N.Y. Sup. Ct. 2022), As such, the court will apply New York law to Plaintiffs unjust enrichment claim. The only argument Plaintiff advances in arguing that its unjust enrichment claim should survive separate from its breach of con- tract claim is that “Citibank continued to suffer damages after the credit agreements terminated when payments were returned due to Friedman’s [conduct]” and thus where there is a “bona fide dispute as to whether a relevant contract exists or overs the dis- puted issue,” its unjust enrichment claim must survive. (Opp. at 18 (citing Marshall v. Hyundai Motor Am., 51 F, Supp. 3d 451, 471 (S.D.N.Y, 2014).) However, in the singular case Plaintiff uses to support its argu- ment, the district court held that while it is unclear at the motion to dismiss stage whether the express warranty applied to the facts as alleged, the court nevertheless declined to hold that the par- ties’ pleadings “suggest a bona fide dispute about the existence of the express warranty.” Marshall, 51 F. Supp. 3d at 472 (emphasis added). The plain language of the Credit Agreements indicates that the contract covers conduct and transactions posted after the termi- nation of Defendants’ accounts. (See Credit Agreements at 7 (“If we close or suspend your Account, or if you close your Account, you must pay us all amounts you owe on the Account .. . even tf they post to your Account after it’s closed or suspended.”) (emphasis added).) Nonetheless, even taking Plaintiffs argument that it might be un- clear whether the Credit Agreements cover the Defendants’
conduct following Citibank’s termination of the contracts, there can be no dispute about the existence of the Agreements and that they prohibited improper, non-consumer use. (See generally Credit Agreements.) Indeed, where Citibank’s breach of contract claim seeks to recover the same amount (inclusive of the pay- ments returned after the Credit Accounts were closed), the court concludes that Plaintiffs unjust enrichment claim must be dis- missed as duplicative of its conventional contract claim. (Am. Compl. {| 96-118.) See Marshall, 51 F. Supp. 3d at 472; Bristol Vill., Inc. v. La.-Pac. Corp., 916 F. Supp. 2d 357, 367 (W.D.N.Y. 2013) (dismissing plaintiffs unjust enrichment claim where “there [was] no bona fide dispute about the existence of the ex- press warranty, only the validity of the limitation on the amount of recovery stated therein”). Accordingly, Defendant’s Motion to Dismiss Plaintiff's unjust en- richment claim is GRANTED. C. Failure to State a Claim Defendants also separately argue that Plaintiffs Amended Com- plaint must be dismissed because it fails to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6), (Mot. 16-20.) In support, Defendants point to the Credit Agreements which state that Citibank “may authorize Transactions that cause your balance to exceed your credit limit.” (Credit Agreements at 2.) Defendants further argue that because Citibank allowed and au- thorized Defendants to overcharge their accounts, Citibank cannot now “twist[] the facts to allege fraud.” (Mot. at 18-19.) The court finds that Plaintiff has sufficiently pled facts sufficient to withstand dismissal under Rule 16(b)(6). Taking all the alle- gations in the Amended Complaint as true, it is more than reasonable to infer that Citibank authorized transactions that ex- ceeded the Credit Account limits through fraud and that it was
the Defendants intent to misrepresent facts to induce Citibank to continuously authorize Defendants’ transactions. However, it is highly unlikely that Citibank’s agreements contemplated author- ization of fraudulent conduct. See J.A.O, Acquisition Corp., 745 N.Y.S.2d at 638-39. Defendants dispute the entirety of Plaintiff's complaint arguing none of the transactions were fraudulent, and instead an attempt to criticize and re-cast Defendants’ spending habits as fraud. (Mot. at 19.) However, such arguments dispute the underlying facts, not the sufficiency of the allegations, and are thus improper considerations on a motion to dismiss. The Defendants’ Motion to Dismiss the Plaintiffs Amended Com- plaint for failure to state a claim is therefore DENIED. IV. CONCLUSION For the reasons set forth above, the court GRANTS in part and DENIES in part Defendants’ Motion to Dismiss the Amended Complaint. Plaintiffs claims to the extent they concern Defend- ants’ conduct prior to March 29, 2017 are barred by the statute of limitations and therefore DISMISSED; Plaintiffs unjust enrich- ment claim is DISMISSED; all other claims remain. The parties are DIRECTED to contact the chambers of Magistrate Judge Rob- ert M, Levy regarding next steps in the case.
SO ORDERED.
Dated: Brooklyn, New York August #7, 2024 s/Nicholas G. Garaufis NICHOLAS G. GARAUFIS United States District Judge
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