Clifford v. Janklow
| Decision Date | 30 March 2023 |
| Docket Number | 1:22-cv-1259 (MKV) |
| Parties | STEPHANIE CLIFFORD, also known as Stormy Daniels; and STORMY ENTERTAINMENT, INC., Plaintiffs, v. LUCAS JANKLOW; and JANKLOW PARTNERS, LLC, doing business as Janklow & Nesbit Associates, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Plaintiffs Stephanie Clifford and Stormy Entertainment, Inc. (“Stormy Entertainment”) assert claims in this diversity action for breach of contract and breach of fiduciary duty. Defendants Lucas Janklow and Janklow Partners, LLC (“JNA”) move to dismiss Plaintiffs' claims pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), 12(b)(7), 9, and 19. For the reasons outlined below, the motion to dismiss is GRANTED IN PART and DENIED IN PART.
BACKGROUND[1]
Clifford better known by her alias “Stormy Daniels,” is the President of Stormy Entertainment. Amended Complaint ¶¶ 3, 4 [ECF No. 25] (“Am. Compl.”). Clifford is a citizen of Louisiana and Stormy Entertainment is a California corporation with its principal place of business in California. Am. Compl. ¶¶ 3, 4. Michael Avenatti was Clifford's attorney from February 2018 until February 2019. See Am. Compl. ¶¶ 28 n.2; 51 n.3. Lucas Janklow, a New York resident, is the President of JNA LLC, a literary agency registered in New York. Am. Compl. ¶¶ 5, 6 12.[2]
The Complaint alleges that on April 13, 2018, Stormy Entertainment and JNA executed a Retainer Agreement (“Retainer” or “Retainer Agreement”).[3] Am. Compl. ¶ 57. The Retainer addressed to “Stormy Entertainment, Inc. c/o Michael J. Avenatti, Esq.,” states that JNA would act as the “sole and exclusive representative and agent [of Stormy Entertainment] to negotiate for the disposition throughout the world of any and all [r]ights . . . to the next literary property . . . about the story of Stephanie Clifford . . . to be written by Ms. Clifford.” Affirmation of Lani Adler in Support of Motion to Dismiss (“Adler Aff.”) Exhibit N 1 [ECF No. 31-14] (“Retainer”).[4] In return, JNA would receive a fixed percentage commission on payments earned by Clifford from “the disposition of . . . [r]ights” to her book. Am. Compl. ¶ 17; Retainer 1-2. The Retainer also contemplates that any publisher payments would be made directly to JNA, which would thereafter “promptly remit the balance of the Gross Proceeds,” less its commission, to Stormy Entertainment. Am. Compl. ¶ 17; see also Retainer 2. The Retainer is governed by New York Law. Retainer 3.
On April 11, 2018, Clifford executed an Author Contract with St. Martin's Press (“SMP”) for the right to publish a nonfiction book written by Clifford.[5] Am. Compl. ¶ 19; Adler Aff. Exhibit O [ECF No. 31-15] (“Author Contract”). The Author Contract states that SMP would pay Clifford or her “duly authorized representative” an $800,000 advance in four installments. Author Contract 2.
SMP paid JNA the first installment of $250,000 upon Clifford's signing of the Author Contract. Am. Compl. ¶ 24. JNA transmitted that installment to Clifford (less its fees) without incident on April 11, 2018. Am. Compl. ¶¶ 24-25.
SMP paid JNA the second installment of $175,000 upon acceptance by SMP of Clifford's final manuscript. Am. Compl. ¶ 26. The Complaint alleges that, rather than remitting payment to Clifford directly, JNA diverted the second installment to Avenatti in August 2018, “without authorization or knowledge by” Clifford. Am. Compl. ¶ 28. Plaintiffs contend that it was “not [Defendants'] regular practice” to “direct[ payments] to an account of a third-party such as Michael Avenatti,” but Janklow “was trying to help [Avenatti] out.” Am. Compl. ¶¶ 29-31. After a several week delay, Avenatti transmitted the $175,000 payment to Clifford on September 5, 2018. Am. Compl. ¶ 34.
SMP paid JNA the third installment of $175,000 six months after it accepted Clifford's final manuscript. Am. Compl. ¶ 35. Plaintiffs contend that, as with the second installment, JNA diverted the third payment “to the account of Michael Avenatti” without Clifford's knowledge. Am. Compl. ¶ 38. But this time, Avenatti did not transmit the payment to Clifford.
Clifford and her publicist asked Janklow about the missing payment repeatedly. Am. Compl. ¶¶ 39, 40, 42, 44, 48, 50. Janklow initially failed to respond to these inquiries. Am. Compl.
¶¶ 39, 41, 43, 45, 49, 50. On February 19, 2019, however, Clifford “was finally informed” that JNA had redirected the second and third installments to Avenatti. Am. Compl. ¶ 51. That day, Clifford terminated her attorney-client relationship with Avenatti. Am. Compl. ¶ 51 n.3. Clifford thereafter directed JNA to transfer the fourth and final installment of $200,000 to an account controlled by Clifford.[6] Am. Compl. ¶ 52. JNA complied and wired the fourth installment to that account on February 21, 2019. Am. Compl. ¶¶ 53, 54.
Although the Complaint does not mention it explicitly, the Court takes judicial notice of the fact that on February 4, 2022, Avenatti was convicted in a jury trial for fraudulent conduct pertaining to the events described in this Complaint.[7] Adler Aff. Exhibit A 2 [ECF No. 31-1] (“Verdict Form”); Adler Aff. Exhibit I 1-15 [ECF No. 31-9] (“Indictment”). See Fed.R.Evid. 201(b); see also Schwartz v. Cap. Liquidators, Inc., 984 F.2d 53, 54 (2d Cir. 1993) (taking judicial notice of the fact that “a jury in a criminal prosecution pursuant to a six-count indictment, found [the plaintiff] guilty on all six counts”); Hooks v. City of New York, No. 21-CV-10771 (JGK), 2022 WL 16964010, at *4 (S.D.N.Y. Nov. 16, 2022) .[8] Less than two weeks later, on February 15, 2022, Plaintiffs filed their Complaint in this Court. Complaint [ECF No. 1]. Plaintiffs later filed an Amended Complaint, asserting two claims. See Am. Compl. First, Plaintiffs contend that JNA breached the Retainer Agreement with Stormy Entertainment “by failing to promptly remit . . . the balance of the Gross Proceeds and instead redirect[ing] the amounts to a third-party, Michael Avenatti.” Am. Compl. ¶ 58. Second, Plaintiffs allege that Janklow breached his fiduciary duty to Clifford by “intentionally ignor[ing] and refus[ing] to communicate” and “knowingly conceal[ing] that he was diverting monies to Michael Avenatti.” Am. Compl. ¶ 70. Plaintiffs seek $175,000 on the first claim and $75,000, in addition to a “further . . . award of punitive or exemplary damages,” on the second claim. Am. Compl. ¶ 73; Demand for Relief.
Defendants moved to dismiss the Amended Complaint. See Motion to Dismiss [ECF No. 28]; Memorandum of Law in Support [ECF No. 30] (“Def. Mem.”).[9] Defendants make three principal arguments in favor of dismissal: (1) Plaintiffs lack standing under Rule 12(b)(1); (2) the Complaint fails to state a claim under Rule 12(b)(6) and Rule 9; and (3) Plaintiffs failed to join a necessary party (Avenatti) under Rule 12(b)(7), whose joinder would destroy diversity jurisdiction.[10]
A district court “properly dismisses an action under Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction if the court ‘lacks the statutory or constitutional power to adjudicate it,' such as when . . . the plaintiff lacks constitutional standing to bring the action.” Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.a.r.l, 790 F.3d 411, 416-17 (2d Cir. 2015) (quoting Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000)). To satisfy the “‘irreducible constitutional minimum' of standing,” a plaintiff “must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016) (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992)). The burden is on “those who invoke the power of a federal court to demonstrate standing.” Already, LLC v. Nike, Inc., 568 U.S. 85, 90 (2013).
A Rule 12(b)(1) motion may be either facial or fact-based. See Carter v. HealthPort Techs., LLC, 822 F.3d 47, 56 (2d Cir. 2016). Where, as here, Defendants lodge a fact-based challenge to standing, the Court may take judicial notice of publicly available documents outside of the complaint in evaluating the motion. See id. at 57; see also Snowbridge Advisors LLC v. ESO Cap. Partners UK LLP, No. 21-CV-9086 (JSR), 2022 WL 1093194, at *6 (S.D.N.Y. Apr. 11, 2022).
To survive a Rule 12(b)(6) motion to dismiss, the Complaint must plead “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). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While the Court “must accept as true all of the allegations contained in a complaint,” this “tenet . . . is inapplicable to legal conclusions” and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.
The Court may consider “documents attached to the complaint as an exhibit or incorporated in it by reference, matters of which judicial notice may be taken, or documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit.” Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (alterations...
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