### Khan v Arena Serv. Co., LLC 2024 NY Slip Op 32037(U) June 18, 2024 Supreme Court, New York County Docket Number: Index No. 150388/2023 Judge: Mary V. Rosado Cases posted with a "30000" identifier, i.e., 2013 NY Slip

Op 30001(U), are republished from various New York State and local government sources, including the New

York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.NYSCEF DOC. NO. 19 INDEX NO. 150388/2023 RECEIVED NYSCEF: 06/18/2024 

### SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HON. MARY V. ROSADO PART 33M Justice --------X INDEX NO. 150388/2023 ASIF KHAN, MOTION DATE 02/02/2023 Plaintiff, MOTION SEQ. NO. 001

- V - ARENA SERVICE CO., LLC, and QUAESTOR DECISION + ORDER ON ADVISORS, LLC, MOTION Defendants. X The following e-filed documents, listed by NYSCEF document number (Motion 001) 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18 were read on this motion to/for DISMISS Upon the foregoing documents, and after oral argument which took place on November 21, 2023 with Corey Stark, Esq. appearing for Plaintiff Asif Khan ("Plaintiff') and Patrick Lamparello, Esq. appearing for Defendants Arena Service Co., LLC ("ASC") and Quaestor Advisors, LLC ("Quaestor") (together "Defendants") 1, Defendants motionfor an Order dismissing Plaintiff's Complaint is granted in part and denied in part. 

### I. Background Defendants are asset managers who provide financial services to clients (NYSCEF Doc. 5 at 7). Plaintiff was hired by Defendants to provide consultant services in May 2021, and was subsequently hired full time by Quaestor as Senior Vice President, ofHybrid Investments, with the Asset Management Team in September 2021 (NYSCEF Doc. 5 at 7).

1Defendants Arena and Quaestor are both wholly-owned subsidiaries ofArena Management Company LLC (NYSCEF Doc. 5 at n.2).

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On January 13, 2023 Plaintiff commenced the underlying action by filing a Summons (NYSCEF Doc. 1) and Verified Complaint (NYSCEF Doc. 7) against Defendants alleging causes of action for (1) breach of contract, and (2) violation of the New York State Whistleblower Protection Law Section 740 ofthe NewYorkLaborLaw (NYSCEF Doc. 7). Specifically, Plaintiff alleges that in March 2022 he was terminated by Defendants for complaining about Defendants' fraudulent conduct, in violationofDefendants' whistleblowerpolicy (the "WhistleblowerPolicy") (NYSCEF Doc. 17) and Labor Law§ 740. OnFebruary 2, 2023 Defendants broughtthe instant motion pursuant to CPLR 321 l(a)(l) and CPLR 3211 (a)(7) seeking (1) dismissal ofPlaintiffs breach ofcontract claim on the ground that no contractbetweenPlaintiffand Defendantsexists, and (2) dismissal ofPlaintiff'sLabor Law §740 claim on the ground that Plaintiff failed to adequately plead a reasonable belief that Defendants were engageg in illegal conduct (NYSCEF Doc. 5 at 6). 

### II. Discussion Preliminarily, while Defendants' Notice of Motion only references dismissal sought pursuantto CPLR 3211(a)(7), as the Notice ofMotion contains a general prayerfor reliefand both the moving and opposition papers proffer arguments with respect to documentary evidence, the Court, in its discretion, elects to also considerreliefpursuant to CPLR 321 l(a)(l) (see Nehmadi v Davis, 95 AD3d 1181, 1184 [2d Dept 2012] quoting Siegel, Practice Commentaries, McKinney's Cons Laws ofNY, Book 7B, CPLR C2214:5 at 84, holding that "[t]he Court may grant relief, pursuant to a general prayer contained in the notice ofmotion
...other than that specifically asked for, to such an extent as is warranted by the facts plainly appearing [in] the papers on both sides. It may do so ifthe reliefgranted is not too dramatically unlike the reliefsought, and ifthe proof

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offered supports it andthe court is satisfiedthat no onehas beenprejudicedby the formal omission to demand it specifically"). Under CPLR 321 l(a)(7), "[a] party may move forjudgmentdismissing one ormore causes ofaction asserted against him onthe ground that
...the pleading fails to state a cause ofaction
...." In considering a motion pursuant to CPLR 3211 (a)(7) to dismiss a complaint for failure to state a
cause ofaction, "the court must give the pleading a liberal construction, acceptthe facts alleged in the complaint to be true and afford the plaintiffthe benefit ofevery possible favorable inference" (JP. Morgan Sec. Inc. v Vigilant Ins. Co. 21 NY3d 324, 334 [2013]). "[T]he sole criterion is whether the pleading states a cause of action, and therefore if from its four corners factual allegations are discerned which iftaken together can manifest any cause ofaction, a motion for dismissal must fail" (Kusher v King 126 AD2d 446, 467 [1st Dept 1987]). Dismissal ofa claim pursuant to CPLR 321 l(a)(l) "is warranted only ifthe documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter oflaw" (Leon vMartinez, 84 NY2d 83, 88 [1994]). The First Department has held that "ifthe defendant's evidence establishes that the plaintiffhas no cause ofaction (i.e., that a well-pleaded cognizable claim is flatly rejectedby the documentary evidence), dismissal wouldbe appropriate" (Basis Yield Alpha Fund (Master) v Goldman Sachs Group, Inc., 115 AD3d 128, 135 [1st Dept 2014]). Further, while an attorney affirmation is ofno probative value, it is well established that "an affidavit from an individual, even ifthe person has no personal knowledge ofthe facts, may properly serve as the vehicle for the submission of acceptable attachments which provide evidentiary proofin admissible form, like documentary evidence. In such situations, the affidavit itselfis not considered evidence; it merely serves as a vehicle to introduce documentary evidence to the court" (Basis YieldAlphaFund (Master) v Goldman Sachs Group, Inc., 115 AD2d 128, n 4

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[1st Dept 2014]). However, the First Department has heldthat apaper will qualify as documentary evidence only if it satisfies the following: "(1) it is 'unambiguous'; (2) it is of 'undisputed authenticity'; and (3) its contents are 'essentially undeniable"' (VXI Lux Holdco S.A.R.L. v SIC Holdings, LLC, 171 AD3d 189, 193 [1st Dept 2019] citing (Fontanetta v John Doe I, 73 AD3d 78, 86, 87 [2d Dept 2010]).
1. Defendants Motion to Dismiss Plaintiff's Breach ofContract Claim is Granted Here, Plaintiff alleges that by terminating Plaintiff's employment in retaliation for his complaints aboutDefendants' illegal conduct, Defendants breached an implied contractcreated by the Whistleblower Policy (NYSCEF Doc. 7 at,,47-58). Preliminarily, "absent an agreement establishing a fixed duration, an employment relationship is presumed to be a hiring at will, terminable at any time by either party" (Sabetay v Sterline Drug, 69 NY2d 329, 333 [1987]). While NewYork Courts "recognize an actionfor breach of contract when plaintiff can show that the employer made its employee aware of an express written policy limiting the right of discharge and the employee detrimentally relied on that policy
...," the Court ofAppeals has held that "[r]outinely issued employee manuals, handbooks and policy statements should not lightly be converted into binding employment agreements...[which] would subject employers who have developed written policies to liability for breach ofemployment contracts upon the mere allegation ofreliance on aparticularprovision" Lobosco v NY Tel. Company/NYNEX, 96 NY2d 312, 316-317 [2001]). Further, in Matter of Thomas v MasterCardAdvisors, LLC, the First Department held that
a plaintiff does not have a viable claim for wrongful termination in violation of an employee handbookwhere adisclaimerincluded inthe plaintiff's Code ofConductestablishesthat "the Code ofConduct [ and] Employee Handbook
...are not contracts ofemployment and are not intended to

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create any implied promises or guarantees offixed terms ofemployment" (Matter ofThomas v MasterCardAdvisors, LLC, 74 AD3d 464,465 [1st Dept 2010]). Here, Plaintiffalleges that he was made aware ofand relied on the Whistleblower Policy (NYSCEF Doc. 7 at i1i130-31). Further, the "Non-Retaliation" provision of the Whistleblower Policy explicitly limits Defendants' right of discharge (NYSCEF Doc. 17 at 4). However, in support oftheir motionto dismiss, Defendants attach, as documentary evidence, an offer letter sent by Quaestor to Plaintiffand signed by Plaintiffon August 10, 2021 (the "Offer Letter") which states, inter alia: [w]hile this letter agreement is intended to summarize our offer, it shall not be used to interpret or in any way govern the terms ofyour employment relationship with Arena except to exclude terms inconsistent with it. You understand that you will be an at-will employee and that either you or Arena may terminate the relationship at will, with or without cause, at any time (NYSCEF Doc. 8 at 2). Defendants also attach Defendants' Employee Handbook dated January 2020, which states: [n]either this handbook nor any other verbal or written communication by a management representative is, nor should it be considered to be, an agreement, contract ofemployment, express or implied, or a promise oftreatment in any particular manner in any given situation, nor does it confer any contractual rights whatsoever. Arena Management Company, LLC adheres to the policy of employment at will, which permits the Company orthe employee to end the employment relationship at any time, for any reason, with or without cause or notice (NYSCEF Doc. 9 at 2). Together, the 2020 Employee Handbook and Plaintiff's August 2021 Offer Letter explicitly state that Plaintiffis an employee at will who may be terminated at any time, with or without cause, and that no written or verbal communications shall be considered either express or

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implied contracts ofemployment (NYSCEF Docs. 8-9).2 These disclaimers prevent the creation ofa contractual relationship and negate any protection from termination that Plaintiffmay have inferred from the Whistleblower Policy. In light of the foregoing, the Court finds that Defendants have proffered sufficient documentary evidence to establishthatthere was no employment agreementbetweenPlaintiffand Defendants. Accordingly, Defendants' motion to dismiss Plaintiff breach of contract claim is granted.
11. Defendants' Motion to Dismiss Plaintiffs Claim for Violation ofLabor Law §740 is Denied Here, Defendants argue that Plaintiffs claim for violation of Labor Law §740 must be dismissed because Plaintiff failed to allege that he disclosed a policy, activity or practice of Defendants that Plaintiff reasonable believed to be in violation of law, rule or regulation, and because Plaintifffailed to specify any factual basis for his beliefthat a law, rule or regulation was violated (NYSCEF Doc. 5 at 15).

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2 As the accuracy ofDefendants' documentary evidence is attested to in the affirmation ofDefendants' counsel and there is no opposition or dispute in the record regarding the authenticity ofthese documents, the Court finds that a proper foundation has been laid for admission ofthese documents as evidence.

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Labor Law § 740 "prohibits 'retaliatory personnel action' against an employee who undertakes to disclose conduct in violation ofany law or regulation, who furnishes information to
an investigatory body in regard to such activity or who refuses to participate in such activity" (Seung Won lee v Woori Bank, NY Agency, 131 AD3d 273,277 [1st Dept 2015]). Specifically, Labor Law§ 740(2)(a) states that: [a]n employer shall not take any retaliatory action against an employee, whether or not within the scope ofthe employee'sjob duties, because such employee does any of the following: (a) discloses, orthreatens to disclose to a supervisor orto apublic body an activity, policy or practice of the employer that the employee reasonably believes is in violation oflaw, rule or regulation or that the employee reasonably believes poses a substantial and specific danger to the public health or safety. Further, the First Department has held that "[t]h provisions of Labor Law § 740 regarding retaliatory discharge are to be strictly construed" (Cotrone v Consolidate Edison Co. of NY, Inc., 50 AD3d 354 [1st Dept 2008]). EffectiveJanuary 26, 2022 "LaborLaw§ 740 was amendedto, among otherthings, protect employees who disclose or threaten to disclose a practice than an employee 'reasonably believes is in violation oflaw,rule orregulation orthatthe employeereasonablybelievesposes a substantial and specific danger to the public health or safety" (Clendenin v VOA of AM

- Greater NY Inc., 214 AD3d 496,497 [1st Dept 2023]). However, as Plaintiffs alleged whistleblowing disclosures
were made in 2021, prior to the enactment ofthe 2022 amendment, the pre-amendment standard applies (Id.). Prior to the 2022 amendment, to succeed on a cause ofaction for violation ofLabor Law § 740 the "plaintiffhas the burden ofproving that an actual violation occurred, as opposed to merely establishing that the plaintiffpossessed areasonable beliefthat a violation occurred. And, the violation must be ofthe kind that creates a substantial and specific danger to the public health

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or safety" (Webb-Weber v Community Actionfor Human Servs., Inc., 23 NY3d 448, 452-453 [2014]). Forpleadingpurposes, the Court ofAppeals has heldthat "thecomplaintneed not specify the actual law, rule orregulationviolated, althoughitmustidentifytheparticularactivities,policies
orpractices inwhichthe employerallegedly engaged, so thatthe complaintprovidedthe employer with notice ofthe alleged complained-of-conduct" (Id. at 453). Plaintiffalleges inhis Complaintthat "Defendants were engaging in illegal and fraudulent conduct through a pump-and-dump scheme concerning two shell companies
... in which Defendantswereheavily invested" (NYSCEFDoc. 7 at

## ,r 36). PlaintiffComplaintgoesonto define
a "pump-and-dump scheme" as an instance "when a fraudster deliberately buys shares ofa very low-priced, thinly traded stock, then spreads false or misleading information to pump up the stock'sprice, thendumps its shares, causingthepriceto fall, leaving otherinvestorswithworthless
or nearly worthless shares ofstock" (Id.). Further, Plaintiffalleges that Defendants engaged in a "scheme ofmisrepresenting unrealized gains for shares that were very illiquid and not marketable to investors in order to inflate artificially and fraudulently Defendants' performance record" (NYSCEF Doc. 7 at

## ,r 40). Moreover, Plaintiffalleges that in October and November of2021 he disclosed Defendants' illegal acts to Arena'sExecutive DirectorDanielZwirn; Managing Director and President ofQuaestorJohn Felleter and his temporary supervisor, Vincent DeVito (NYSCEF Doc. 7 at

## ,r 34-41). The facts at bar are similar to those in Demir v Sandoz Inc., 155 AD3d 464 [2017] where the Court held that "plaintiffadequately pleaded a Labor Law § 740 violation against defendants in alleging that its manufacturer and procurement ofchemical ingredients for defendants' highest grossingproductwas notcompliantwithFDAregulatory requirements governingthe drug's safety

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and efficacy, and she need not plead an actual violation oflaws or regulations" (Demir v Sandoz Inc., 155 AD3d 464 [2017]). In light of the foregoing, according Plaintiff the benefit of every possible favorable inference, the Court finds that Plaintiffs pleading sufficiently identifies the specific activities, policies orpractices Defendant engaged inwhich constituteviolations, and sufficiently alleges that Plaintiff disclosed these violations to Defendants. As such, Defendants' motion to dismiss Plaintiffs cause ofaction for violation ofLabor Law§ 740 is denied. Accordingly, it is hereby, ORDERED that Defendants Arena Service Co., LLC and Quaestor Advisors, LLC's motion to dismiss PlaintiffAsifKhan's Labor Law § 740 claim is denied; and it is further ORDERED that Defendants Arena Service Co., LLC and Quaestor Advisors, LLC's motion to dismiss PlaintiffAsifKhan's breach ofcontract claim is granted; and it is further ORDERED that on or before July 23, 2024, the parties are directed to submit a proposed Preliminary Conference Order to the Court via e-mail to SFC-Part33-Clerk@nycourts.gov. Ifthe parties are unable to agree to a proposed Preliminary Conference Order, the parties are directed to appear for an in-person preliminary conference with the Court in Room 442, 60 Centre Street, on July 24, 2024 at 9:30 a.m.; and it is further

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ORDERED that within 10 days ofentry, counsel for PlaintiffAsifKhan shall serve a copy ofthis Decision and Order, with notice ofentry, on all parties to this case; and it is further ORDERED that the Clerk ofthe Court is directed to enterjudgment accordingly. This constitutes the Decision and Order ofthe Court.

6/18/2024

DATE CHECK ONE: CASE DISPOSED GRANTED

### □ DENIED APPLICATION: SETTLE ORDER CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN

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X NON-FINAL DISPOSITION
X GRANTED IN PART

## □ OTHER SUBMIT ORDER FIDUCIARY APPOINTMENT

### □ REFERENCE

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