commercial division online law report

COMMERCIAL DIVISION ONLINE LAW REPORT 2020-2021�,VVXH�1R��

ST. JOHN’S UNIVERSITY SCHOOL OF LAW BOARD OF EDITORS

EDITOR-IN-CHIEF MICHAEL S. DAUBER

MANAGING EDITOR ZACHARY BENAHARON

ASSOCIATE MANAGING EDITORS RYAN IGLESIAS

ANTHONY J. NORRIS RUBEN HUERTERO

EDITOR FOR DIVERSITY AND INCLUSION MICHAEL OFORI

SENIOR STAFF MEMBERS

TARA GUARINO HEATHER F. LEWIN BERTA REIZIN BRADLEY W. JENNINGS ZACHARY J. MANASIA LAILA RIZK YAQARAH LETELLIER MICHELLE E. MANDLER SARAH VINCI

STAFF MEMBERS

JULIE ABERASTURI DANIEL GREEN JESSICA MINGRINO STEPHEN BONA NIKKI GROVER GABRIEL NICULESCU NICHOLAS BONELLI MEGAN HARDY BRENNAN O’GORMAN STEVEN BUYNITSKY BLAIR HENDRICKS GABRIEL RAHME JENNA CODIGNOTTO BENJAMIN KAZENOFF KRISTIN RUSSO SOPHIE COPENHAVER MATTHEW KIPNIS VINCENT SCALA EILEEN CREASER GABRIELLA LUMERMAN MICHELLE G. SCANLON

MATTHEW SEYMOUR MARY .$7(�SHERWOOD ERIC SILVERSTEIN SABRINA SOFFER ALBERT STANCIL BILL TURNBULL CONNOR WINSHIP

MARY MICHALOS ANTONO SCIAROTTA

FACULTY ADVISORS ROSA CASTELLO DANIEL K. WIIG

Commercial Division Online Law Report

TABLE OF CONTENTS

Setter Capital, Inc. v. Chateauvert

Michael S. Dauber, Editor-in-Chief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Hammad v. Jamal Kamal Corp.

Zach T. Benaharon, Managing Editor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Somera Road – 1100 Main Street, LLC v. TPG RE Finance 1, LTD

Anthony Norris, Associate Managing Editor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

XL Diamonds LLC v. Charles Rosen, E.M.DIAM., Inc.

Ryan Iglesias, Associate Managing Editor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2004 Parker Family LP v. BDO USA LLP

Ruben Huertero, Associate Managing Editor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Curacao Oil N.V. v. Trafigura Pte. Ltd.

Michael Ofori, Editor for Diversity & Inclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Acacia Invs., B.S.C. v. West End Equity I, Ltd.

Tara Guarino, Senior Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Board of Directors of Big Deal Realty on Greene St., Inc.

Yaqarah Letellier, Senior Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

City of New York v. T-Mobile USA, Inc.

Zachary J. Manasia, Senior Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Community Ass’n of the East Harlem Triangle, Inc. v. Butts

Julie Aberasturi, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Flink v. Smith


Stephen Bona, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Weinstein v. RAS Property Management LLC

Nicholas Bonelli, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Sabourin v. Chodos

Steven Buynitsky, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Reed Smith LLP v. LEED HR, LLC

Jenna M. Codignotto, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

J.G. Jewlry Pte. LTD. v. TJC Jewelry, Inc.

Sophie Copenhaver, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Chun You Cheng v. Yang

Eileen M. Creaser, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Bullen v. Sterling Evaluation Group, Inc.

Daniel A. Green, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Deane v. Brodman

Nikki Grover, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Patel v. Patel

Megan Hardy, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Castle Restoration, LLC v. Castle Restoration & Constr., Inc.

Blair J. Hendricks, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Shoreham Hills, LLC v. Sagaponack Dream House, LLC

Benjamin J. Kazenoff, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

New Media Holding Company LLC, VG Managing Corp. v. East West United Bank SA

Matthew Kipnis, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69


Sands Bros. Venture Capital II, LLC v. Huff

Gabriella Lumerman, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Wey v. NASDAQ, Inc.

Mary T. Michalos, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Setter Capital, Inc., v. Chateauvert

Jessica Mingrino, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Matter of Sundial Growers Inc. Sec. Litig.

Gabriel V. Niculescu, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Truetox Laboratories, LLC v. Healthfirst PHSP, Inc.

Brennan O’Gorman, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

In re Netshoes Securities Litigation v. XXX

Gabriel Rahme, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Stairway Legacy Assets, L.P. v. McKenna, Long & Aldridge, LLP

Kristin Russo, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Sonenshine Partners LLC v. Duravant LLC

Vincent R. Scala, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Advanced Alternative Media, Inc. v. Hindlin

Michelle G. Scanlon, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Condor Capital Corp. v. Cals Investors, LLC

Matthew Seymour, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Stone Source, LLC, v. Hubbard

Mary Kate Sherwood, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

FGP 1, LLC v. Dubrovsky


Eric H. Silverstein, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Antonini v. Petito

Sabrina Soffer, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

GMX Technologies, LLC v. Pegasus Capital Advisors, L.P.

Albert Stancil, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Allergan Fin., LLC v. Pfizer Inc.

Bill Turnbull, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Misty Cleaning Serv. Inc. v. Independent Group Home, Inc.

Connor Winship, Staff Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123


Setter Capital, Inc., v. Chateauvert

651992/2020, 2020 WL 4723526 (N.Y. Sup. Ct. July 15, 2020)

Michael S. Dauber

Editor-in-Chief

Plaintiff Setter Capital, Inc. (“Setter Capital”) commenced an action against its former employee, Maria Chateauvert, in New York County on May 26, 2020. See generally Compl. (NYSECF No. 1). The complaint alleged claims for breach of contract and fiduciary duties and misappropriation of trade secrets, among others. Compl. ¶¶ 32–41, 48–55. On June 8th, 2020, Setter Capital moved for a temporary restraining order (“TRO”) against Chateauvert to enjoin use and disclosure of its trade secrets. See Order to Show Cause (NYSECF No. 24). On July 15, 2020, the court denied Setter Capital’s motion. See Setter Capital, Inc. v. Chateauvert, 651992/2020, 2020 WL 4723526, at *4 (N.Y. Sup. Ct. July 15, 2020).

Setter Capital is an investment analysis and brokerage firm located in Ontario, Canada, doing business in New York. Compl. ¶¶ 2, 4. The firm touts its “proprietary secondary market network, SecondaryLink™,” which provides information about secondary market investments and facilitates collaboration between investors “on over 9,000 private equity, real estate, infrastructure, real asset and hedge fund families and over 20,000 funds.” Setter Capital, 2020 WL 4723526, at *2. The firm also offers “the Setter Liquidity Rating, a powerful and proprietary tool available exclusively on the platform which ranks thousands of funds according to their liquidity, saleability and popularity.” Id. Setter Capital alleged that the information that contributes to the rating is based on confidential, nonpublic information it accumulated over a span of 14 years. Id. Chateauvert signed a non-compete agreement at the beginning of her employment with Setter Capital on September 16, 2013, two years after graduating from college. Id. Her job duties involved “making cold calls using a script and sending emails to identify buyers and sellers in the secondary market.” Id. After Chateauvert resigned, Setter Capital based its action on the idea that the information contained in the list

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Chateauvert received for making cold calls was a confidential trade secret, while Chateauvert argued that the information was all publicly available and thus not entitled to trade secrets protection. Id.

In order to obtain a TRO from a court, a plaintiff must demonstrate (1) that the plaintiff is likely to succeed on the merits, (2) that irreparable harm would result in the absence of an injunction, and (3) that the balance of equities favors the plaintiff. Id. at *1 (citing Nobu Next Door, LLC v. Fine Arts Hous., Inc., 4 N.Y.3d 839, 840 (N.Y. 2005)). Here, the court denied Setter Capital’s TRO request for four reasons. First, the court found factual issues as to whether it could exercise jurisdiction over the parties, given that Chateauvert was a resident of Canada. Id. at *2. The court acknowledged that New York’s General Obligations law “provides for the enforcement of choice of law provisions in contracts over $250,000 and . . . forum selection provisions in contracts over $1,000,000.” Id. But it was unclear whether those provisions conferred jurisdiction in this case because those statutes do not cover personal service or labor contracts of non-residents, and because Chateauvert may not have been a sufficiently sophisticated business party at the time she signed the contract. Id. at *2–3 (citations omitted). Accordingly, the court found that these unresolved factual jurisdiction issues made success on the merits unclear. Id. at *3.

Second, the court found that Setter Capital had not demonstrated a sufficient likelihood of success on the merits because it was unclear that the information it sought to protect constituted trade secrets. Generally speaking, a trade secret is commercially valuable, nonpublic information that the owner has taken reasonable measures to protect from public disclosure. Id. at *3; accord Ashland Mgt. Inc. v. Janien, 82 N.Y.2d 395, 407 (N.Y. 1993); Rest. of Torts § 757, comment b (factors). Here, the court found that Setter Capital failed to refute Chaeuvert’s claims that her job “was to make thousands of cold calls” and that the lists with “personal contact information,” were available online. Setter Capital, 2020 WL 4723526, at *3. Additionally, the allegedly proprietary “liquidity rating” was already available on the internet, and Setter Capital failed to show any evidence that it took adequate protective measures to preserve the secrecy of the information. Id.

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Thus, the court determined that Setter Capital failed to show that the proprietary information was a protectable trade secret. Id.

Third, the court denied Setter Capital’s TRO request because it “fail[ed] to establish irreparable harm.” Id. The court found that Setter Capital failed to describe what irreparable harm, if any, would flow from the absence of the injunction, and found that mere “diversion of future deals” was “hardly irreparable. Id.

Finally, the court denied the injunction because the equities favored Chateauvert, not Setter Capital. The court stated that the TRO request was “impermissibly broad,” and, if granted, would cost Chateauvert “her livelihood.” Id. at *3–4. Because “[t]he purpose of a noncompete is to prevent unfair competition[,] not competition altogether,” the court denied the injunction. Id. at *4 (quoting BDO Seidman v. Hirschberg, 93 N.Y.2d 382 (N.Y. 1999)).

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Hammad v. Jamal Kamal Corp.

713239/2017, 2020 WL 5755548 (N.Y. Sup. Ct. Sept. 9, 2020)

Zach T. Benaharon

Managing Editor

Petitioner Nedal Hammad (“Nedal”) commenced special proceedings on September 25, 2017, to dissolve two corporations which he co-owned with respondents – his brothers. The petition alleged that pursuant to Business Corporation Law (“BCL”) § 1104-a, dissolution was proper because “those in control of the corporations” acted illegally, fraudulently, and oppressively towards Nedal. See generally Verified Pet. (NYSECF No. 1). The Court held eleven hearings between September 11, 2019, and October 2, 2019, and concluded that the reclassification of certain payments into loans payable solely by Nedal constituted oppressive conduct. See Hammad v. Jamal Kamal Corp., 713239/2017, 2020 WL 5755548 (N.Y. Sup. Ct. Sept. 9, 2020).

Nedal was a 25% owner of the family-owned real estate holding companies, JamalKamal Corp. and Maysa Realty Corp. (“Maysa”) (together, the “Subject Corporations”). Id. at *1. His brothers, Jamal, Kamal, Omar, and Samir (the “Brothers”) collectively owned the remaining 75%. Id. at *2. Additionally, Nedal owned 25% in five other businesses, including Al-Lid Food Corp., Siham Realty Corp., Amal Meat Corp., Zaid Realty Corp., and Hammad Hardware Corp (together, the “Companies”). The Brothers owned the other 75% of the Companies. Id.

In 1988, Jamal became President of each of the existing companies. Id. In 1994, Jamal moved to Jordan to run other businesses located there and remained president of the Companies. In 2006, Nedal had a personal falling out with Jamal. Id. Then, in 2011, a shareholder meeting was held and Nedal, Kamal, Omar, and Samir voted unanimously to elect Nedal as President of the Companies. Id. In 2013, Jamal, who was still living in Jordan, decided to sell his shares in the Companies to his brothers. Id.

In 2014, Nedal and Samir formed Highcrest Management Corp. (“Highcrest”) and each owned 50% of the Highcrest. Id. The

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Companies paid management fees to Highcrest in return for “centralized management and administrative services.” Id. Highcrest was paid “Nedal's and Samir's salaries and benefits, including, health and car insurance, car and gas payments, rent payments to Jamal Kamal, and the overhead expenses such as utilities and office supplies, for the Companies.” Id.

In 2016, Kamal, Omar, and Samir were unhappy with Nedal’s leadership and transferred 5% of their company shares back to Jamal to reinvolve him in the Companies. Id. Although Jamal “received K-1 statements in 2016, the stock certificates were not dated until January 19, 2017.” Id. The boiling point occurred on January 5, 2017, when Nedal made distributions of $220,000 from Jamal Kamal and $240,000 from Maysa. Id. Based on the then-existing stock certificates, the distributions were made to each brother except Jamal. Id. at *3. The Brothers believed that Nedal was using Highcrest to drain money from the Companies and to enrich himself, so they demanded Nedal stop making payments to Highcrest. Id. Nedal did not comply and made payments to Highcrest in the amount of $59,825 in March of 2017. Id. Additionally, on August 9, 2017, Nedal made distributions of $150,000 from Maysa, and $160,000 from Jamal Kamal, to himself and the Brothers, including Jamal, without their approval. Id. Nedal's share of the distributions was $37,500 and $40,000, respectively. Id. The Brothers did not cash their August distribution checks. Id. In fact, Kamal, Omar, and Samir repaid the January distributions back to Jamal Kamal and Maysa.

Finally, on August 21, 2017, the Brothers held a shareholder meeting and elected Jamal as President. Id. Nedal was not present and filed the petition for dissolution on the same day. Id. After becoming President, Jamal retroactively changed the August distributions to loans from the Subject Corporations to Jamal, and did the same with the March payments to Highcrest. Id. Jamal claimed that the August distributions were unaffordable and that the March payments constituted self-dealing. Id. On December 25, 2018, Maysa and Jamal Kamal issued distributions of $509,400 and $499,900, respectively. Dividends were disbursed to Nedal, but were calculated to reduce the balance of Nedal’s newly reclassified loans to zero. Id.

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Under BCL § 1104-a, a shareholder must own at least 20% of the shares of a business corporation to obtain dissolution for “oppressive actions.” Id. at *4. The term “oppressive actions” used in BCL § 1104-a (a) (1) “refers to conduct that substantially defeats the reasonable expectations of the minority shareholder.” Id. Such expectations include a reasonable return or opportunity for return on the investment. Id. Furthermore, even where a showing of oppression is properly made, a court “determining whether to proceed with involuntary dissolution” must consider whether dissolution is the only means whereby the petitioner can obtain a fair return on investment. Id. at *4. “Once oppressive conduct is found, consideration must be given to the totality of circumstances . . . to determine whether some remedy short of or other than dissolution constitutes a feasible means of satisfying both the petitioner's expectations and the rights and interests of any other substantial group of shareholders.” Id. at *4 (quoting Matter of Kemp & Beatley, Inc., 64 N.Y. 2d 63, 73 (1984)).

Here, Nedal owned 25% of the total shares of the Subject Corporations and therefore qualified for the use of BCL § 1104-a. 2020 WL 5755548 at *4. But the Court held that dissolution of the Subject Corporations would be improper. Id. First, the Court concluded that Nedal’s removal from the position of President and Manager did not constitute oppressive conduct because shareholders may vote on who fills which roles on the board of directors. Id. at *5. Second, the Subject Corporation’s retention of Highcrest, Nedal and Samir’s management company, was not a reasonable expectation of Nedal as a shareholder. Id. Third, the reclassification of the August 2017 distributions as loans was not oppressive because each brother returned the distributions. Id. However, the reclassification of the Highcrest payments constituted oppressive conduct because the Brothers did not prove their allegations of Nedal’s alleged self-dealing. Id. Additionally, Highcrest was the contracted management company at the time of the payments to Nedal. Id. Ultimately, the Court concluded that the alleged oppressive conduct against Nedal was “to remedy what the Brothers viewed as unauthorized and oppressive conduct by Nedal.” Id. The Court did not find that any future oppressive conduct was intended by the Brothers and that Nedal would share in future distributions. Id. To address the improper

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reclassification of the Highcrest payments, the Court ordered that the Subject Corporations pay Nedal $59,825. Id.

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Somera Road – 1100 Main Street, LLC v. TPG RE Finance 1, LTD

652288/2020, 2020 WL 4059147 (N.Y. Sup. Ct. July 20, 2020)

Anthony Norris

Associate Managing Editor

Plaintiff Somera Road – 1100 Main Street, LLC (“Plaintiff”), commenced an action against its lenders, TPG RE Finance 1, TRTX 2019-FL3 Issuer, LTD and TPG RE Finance Trust, Inc. (collectively “Defendants”) on June 5, 2020. Somera Rd. – 1100 Main St., LLC v. TPG RE Fin. 1, LTD, 652288/2020, 2020 WL 4059147 (N.Y. Sup. Ct. July 20, 2020). Plaintiff asked the court for (1) an injunction pursuant to CPLR 6301, (2) a declaratory judgment on the amount of shortfall, and (3) a ruling on a claim for breach of contract. Id. at *2. The Court denied Plaintiff’s motion for an injunction and found the remaining arguments without merit. Id. at *3 (“The court has considered the parties’ remaining arguments and finds them unavailing, without merit, or otherwise not requiring an alternate result”).

Plaintiff was provided a $60,200,000 loan by the Defendants to purchase and renovate a 30-story office building in Kansas City. Id. at *1. After Plaintiff purchased the building, $31,950,000 of the loan remained unused and was allocated for renovation. Id. Defendants subsequently released funds totaling $11,289,483.90 to Plaintiff for renovations. Id. After further requests by Plaintiff totaling $5,948,392.52, Defendants declared a “shortfall” of $2,459,777 pursuant to the parties’ agreement and refused to make any further advances until Plaintiff “clear[ed] it.” Id. Plaintiff disagreed, claiming the shortfall was $0. Id.

The Court first discussed the Plaintiff’s likelihood of success on the merits. Id. at *2. The Court disagrees with Plaintiff’s interpretation of the contract’s language, noting that the contract did not use the term “budget” but instead titled the amounts “the cost of all Projected Related Costs necessary to achieve Final Completion.” Id. Taking into account that debt servicing was estimated at $4.5 million, the Court then concluded

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that Plaintiff exceeded the remaining balance on the loan, indicating a shortfall. Id.

The Court then turned to irreparable harm. The Court concluded that Plaintiff had not established irreparable harm because any alleged harm to Plaintiff’s reputation could be measured by monetary damages. Id. at *3. Further, the Agreement between the parties provided a formula for damages, making damages easy to calculate. Id.

Lastly, the Court discussed the balance of equities. The court concluded that the balance of equities did not favor Plaintiff because Plaintiff was trying to compel performance, which is contrary to the purpose of a preliminary injunction. Id. Instead, the purpose of a preliminary injunction is “to maintain the status quo.” Id.

After discussing the above elements, the Court concluded that injunctive relief was not appropriate. Id. Considering the rest of the parties’ arguments unavailing, the Court denied the motion. Id.

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XL Diamonds LLC v. Charles Rosen, E.M.DIAM., Inc.

656102/2019, 2020 WL 4003593 (N.Y. Sup. Ct. July 15, 2020)

Ryan Iglesias


Plaintiff XL Diamonds LLC (“XL Diamonds”) commenced an action against its former employee, Charles Rosen (“Mr. Rosen”), and its direct competitor, E.M. Diam. Inc. (“EM Diamonds”), in New York on October 18, 2019. See generally Compl. (NYSECF No. 1). XL Diamonds asserted causes of action for breach of a Non-Compete Agreement against Mr. Rosen, breach of a Confidentiality Agreement against Mr. Rosen, tortious interference with contract against EM Diamonds and misappropriation of trade secrets against both EM Diamonds and Mr. Rosen. See id. On July 13, 2020, both EM Diamonds and Charles Rosen motioned the court to dismiss the complaint against them pursuant to CPLR § 3211(a)(1) and (7). See XL Diamonds LLC v. Charles Rosen, E.M.DIAM., Inc., 656102/2019, 2020 WL 4003593 (N.Y. Sup. Ct. July 15, 2020). On July 15, 2020, the court granted in part and denied in part both motions. Id at *1.

XL Diamonds is a New York corporation that engages in selling and buying wholesale diamonds and jewelry to jewelers throughout the United States and internationally. Id. Xl Diamonds catalogues all of its purchases, sales, and tracks their inventory through “a unique computer and software system.” Compl. ¶ 8. Additionally, XL Diamonds states that it has a “proprietary sales training, selling techniques, and systems tailored from years of experience.” Compl. ¶ 9. Through these systems, XL Diamonds has procured a list of customers and vendors that have contributed to their success in the industry. Compl. ¶ 12. In order to guard these systems, XL Diamonds employees sign confidentiality agreements and non-compete agreements. Compl. ¶ 11.

In August 2019, Defendant, Mr. Rosen, contacted XL Diamonds seeking potential employment citing dissatisfaction with previous place of employment. Compl. ¶ 17. XL Diamonds hired him on August 20, 2019. Compl. ¶ 20. And on that same date, Defendant signed a terms and conditions of employment letter, a covenant not to compete, and a confidentiality agreement. Compl. ¶¶ 18-22. Shortly thereafter, Defendant was contacted by XL Diamonds’ direct competitor, and Defendant’s prior place of employment, EM Diamonds, to return to work. Compl. ¶ 23. Defendant only worked at XL Diamonds for three and-a-half

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weeks before he returned to EM Diamonds. XL Diamonds LLC, 2020 WL 4003593, at *1. As result, EM Diamonds asserted the aforementioned causes of action: (1) breach of the Non-Compete Agreement and the Confidentiality Agreement against Mr. Rosen; (2) tortious interference with the Non-Compete Agreement and the Confidentiality Agreement against EM Diamonds; and (3) misappropriation of trade secrets against both Mr. Rosen and EM Diamonds. Id. at *2. Both EM Diamonds and Charles Rosen moved to dismiss those actions.

In New York, pursuant to CPLR § 3211(a)(7), a motion to dismiss for failure to state a cause of action, tasks the court with the inquiry of “whether the facts alleged fit within any cognizable legal theory.” Id. The court affords the pleadings a “liberal construction and accepts the facts alleged in the complaint as true.” Id. Additionally, a motion to dismiss pursuant to CPLR § 3211(a)(1), will only be granted where the “documentary evidence conclusively establishes a defense to the plaintiff’s claims as a matter of law.” Id.

Breach of Non-Compete Agreement

First, Mr. Rosen argued that the Non-Compete Agreement was overbroad and that the geographic scope was unreasonable. Id. at *3. He also contended that this would place undue hardship on him. Id. XL Diamonds argued that Defendants work history and time in the industry was short enough to allow him to enter into different fields. Id. The Court was unpersuaded by XL Diamonds’ argument—rejected this argument. Id. The Court held that the geographic scope was overboard, and the Non-Compete Agreement would bar Plaintiff from working in the diamond industry anywhere in the United States. Id. Therefore, the first cause of action for breach of the Non-Compete Agreement was dismissed. Id.

Breach of Confidentiality Agreement

Second, Mr. Rosen argued that XL Diamonds had failed to allege that they sustained any damages or that EM Diamonds had received any confidential information. Id. XL Diamonds argued that Plaintiff received confidential information and then proceeded to disseminate it to EM Diamonds. Id. The Court was unpersuaded by XL Diamonds’ argument. Id. The Court held that XL Diamonds’ allegation that Mr. Rosen breached the Confidentiality Agreement and disseminated confidential information was conclusory. Id.; Moreover, in its complaint, XL Diamonds failed to indicate specific facts, including what, if any,

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information was leaked or disseminated. Accordingly, the Court dismissed the second cause of action, namely, breach of the Confidentiality Agreement. Id.

Tortious Interference with the Non-Compete Agreement and Confidentiality Agreement

Third, the Court laid out the necessary elements to plead tortious interference with a contract: (1) there must be a valid and binding contract between plaintiff and a third-party; (2) defendant must have knowledge of that contract; (3) defendant’s intentional procurement of the third-party’s breach of the contract without justification; (4) actual breach of the contract; and (5) resulting damages. Id.

Here, Defendant, EM Diamonds, contended that XL Diamonds failed to allege that EM Diamonds had knowledge of the Confidentiality Agreement or the Non-Compete Agreement, failed to allege that EM Diamonds induced a breach of either of these agreements, and lastly, failed to allege any damages. Id. at *4. XL Diamonds argued that there was enough factual background in the complaint to show that EM Diamonds tortiously interfered with the contract. The Court was unpersuaded by XL Diamonds’ argument. Id.

The Court focused on the last element, resulting damages, to dismiss the third cause of action. Id. The Court pointed to the fact that XL Diamonds failed to allege “irreparable harm to its business,” as a result of EM Diamonds’ involvement. Id. Therefore, the third cause of action was dismissed. Id.

Misappropriation of Trade Secret

Finally, EM Diamonds argued that misappropriation of trade secrets cause of actions had to be dismissed because XL Diamonds failed to allege in their complaint that EM Diamonds was in receipt of any trade secrets. Id. XL Diamonds argued that the complaint sufficiently laid out the proprietary training, sales, and cataloguing software used and clearly laid out the Plaintiff’s training on and use of those systems. Id. The Court held that XL Diamonds did sufficiently state a cause of action for misappropriation of trade secrets by outlining the proprietary software they have used to their advantage for over thirty years. Id. Additionally, XL Diamonds sufficiently stated that at a minimum, their customer list was used. Id. Therefore, the Court denied the motion to dismiss the fourth cause of action. Id.

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2004 Parker Family LP v. BDO USA LLP

657152/2019, 2020 WL 2844578 (N.Y. Sup. Ct. May 29, 2020)

Ruben Huertero


Plaintiffs, a group of 94 investors, commenced an action against BDO USA, LLP (“BDO USA”), BDO Cayman Ltd. (“BDO Cayman”) (together, “BDO”); CohnReznick LLP and CohnReznick (“Cayman”) Certified Public Accountants (together, “CohnReznick”); and SS & C Technologies, Inc. (“SS & C”). 2004 Parker Family LP v. BDO USA LLP, 657152/2019, 2020 WL 2844578, at *1 (N.Y. Sup. Ct. May 29, 2020). Plaintiffs commenced this action in connection to their “investment losses in Platinum Partners Value Arbitrage Funds (“the PPVA Funds”).” Id. Plaintiffs asserted the following three claims against each Defendant: (1) breach of the duty of care for failing to “properly audit the PPVA Funds;” (2) breach of contract alleging that as “third-party beneficiaries” the Plaintiffs were harmed as a result of the Defendants’ failure to properly audit the PPVA Funds; and (3) that the Defendants “aided and abetted Platinum Management’s breach of fiduciary duty by failing to properly audit the PPVA Funds and detect and disclose to plaintiffs evidence of material misrepresentations.” Id. at *3. Defendants CohnReznick and BDO brought motions to “compel the arbitration of claims . . . pursuant to CPLR § 7503(a).” Id at *1. Defendants argued that because Plaintiffs allege that they are third-party beneficiaries of the Engagement Agreements between the BDO, CohnReznick, and Platinum Management, Plaintiffs are bound by the arbitration provision in the agreement. Id at *2. Plaintiffs responded by stating that they would agree to arbitrate if BDO and CohnReznick “agree that the plaintiffs are third-party beneficiaries of the Engagement Agreement.” Id. If the Defendants did not agree, Plaintiffs argued that further discovery was necessary to assess whether as non-signatories they were still bound by the arbitration agreement. Id.

The arbitration agreement, titled “Dispute Resolution,” contained broad language stating that “Any dispute, controversy,

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or claim arising out of or relating to the services or the performance or breach of this Agreement . . . shall be finally resolved in arbitration.” Id. BDO submitted twelve Engagement Letters (Engagement Agreements) that contain the similar “Dispute Resolution Procedure (the “Procedure”) section [that is] broadly worded to encompass virtually all types of disputes.” Id. at *3. Under the Procedure, the first step to resolve disputes is either “facilitated negotiations” or “non-binding negotiations.” Id. If the first step fails to resolve the controversy, the Procedure stipulates that the dispute “shall be decided by binding arbitration.” Id.

In determining whether a party is bound by an arbitration agreement in a contract they did not sign, the Court focused on the Court of Appeals decision, Matter of Belzberg v. Verus Invs. Holdings Inc. Id. The Court of Appeals held that under the “theory of estoppel, a nonsignatory can be compelled to arbitrate where the nonsignatory ‘knowingly exploits’ the benefits of an agreement containing an arbitration clause.” Id. at *3-4 (quoting Matter of Belzberg v. Verus Invs. Holdings Inc., 21 NY3d 626, 630-31 (2013)). Here, Plaintiffs exploited the Engagement Agreements by alleging that they were “third-party beneficiaries” to the agreements and by seeking compensatory damages by claiming that the Defendants breached the agreements by failing to properly perform the audits. Id. at *4.

The Court also compared this case to Matter of Long Is. Power Auth. Hurricane Sandy Litigation where the plaintiffs alleged in their complaint that they were “third-party beneficiaries” to an agreement between the Long Island Power Authority and National Grid Electrical Services, LLC. Id. at *4-5. Both in Matter of Long Is. Power Auth. Hurricane Sandy Litigation and 2004 Parker Family LP, the plaintiffs sought compensatory damages “on an alleged breach of services contract they did not sign.” Id. at *5. Following the decision in Matter of Long Is. Power Auth. Hurricane Sandy Litigation, where the court held that the plaintiffs should be compelled to arbitration under a theory of estoppel, the Court held that the claims against BDO and CohnReznick should be severed and sent to arbitration so long as the first step of the Engagement Agreements is satisfied. Id. at *5-6.

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Curacao Oil N.V. v. Trafigura Pte. Ltd.

651746/2019, 2020 WL 3494685 (N.Y. Sup. Ct. 2020)

Michael Ofori

Editor for Diversity & Inclusion

Plaintiff Curacao Oil N.V. (“Curoil”), a marketing and distribution company for oil products, brought this action against Defendant Trafigura Pte. Ltd. (“Trafigura”), an international commodity trading company. See Compl. ¶¶ 3–5 (NYSECF No. 24). The dispute concerned a transaction in which “Trafigura agreed to supply Curoil with 150,000 barrels of fuel oil.” Curacao Oil N.V. v. Trafigura Pte. Ltd., 651746/2019, 2020 WL 3494685, at *2 (N.Y. Sup. Ct. 2020) Curoil sought $9 million in damages due to non-conformities in the shipment, claiming breach of contract and negligence on the part of Trafigura. Id. at *2. On July 2, 2019, Trafigura moved to dismiss because (1) there was insufficient documentary evidence stemming from the contract and the report commissioned by an independent party hired to inspect the oil, and (2) Plaintiff failed to state a cause of action. See id. at *2. On February 3, 2020, the New York Supreme Court granted Trafigura’s motion to dismiss. Id. at *2, 5.

Curoil entered into business with Trafigura in order to restock on marine fuel oil that would be sold “to commercial ocean-going vessels in the Caribbean region.” Id. at *1–2. A key part of the contract between the businesses required an “independent inspector”—“a firm called Intertek”—to “determine the quantity and the quality” of that oil. Id. at *2. However, this inspection coincided with reports within the marine industry and from the U.S. Coast Guard of fuel oil including dangerous contaminants undetectable by standard testing methods. Id. at *3–4. After an Intertek report ensuring the oil was of good quality, Curoil learned of the possibility of these contaminants and conducted its own testing of the fuel oil. Id. The resulting tests discovered compounds that “allegedly rendered the product unacceptable for marine use [and] were not detectable” by the “standard limited testing” that Intertek used. Id. at *4. Curoil then

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demanded that Trafigura take back the fuel oil it had sold, and, when Trafigura refused, Curoil initiated this action to recover the cost of the fuel oil. Id. at *4–5.

To succeed on a motion to dismiss founded on documentary evidence, “the defendant has the burden of demonstrating that the documentary evidence conclusively resolves all factual issues and that [the] plaintiff's claims fail as a matter of law.” Id. at *5 (citing Robinson v. Robinson, 303 A.D.2d 234, 235 (N.Y. App. Div. 2003) (citing CPLR § 3211(a)(1))). Concerning the breach of contract claim, the Court noted that the Quality Determination Clause of the sales agreement explicitly made the Intertek report “final and binding on the parties for all purposes save for fraud or manifest error.” Id. at *6 (quoting Contract No. 1693458 (“Sales Contact”) (NYSECF No. 21)). The Court subsequently found that, because Curoil never claimed the Intertek report included fraud or error (within “the standard specified in the contract”), the Sales Contract should still be binding. Id. at *2. Moreover, the Court decided to maintain the standard of an earlier First Department case, Sempra Energy Trading Corp. v. BP Prod. N. Am., which found that “a pre-discharge report showing compliance with agreed-on parameters barred, as a matter of law, the plaintiff's breach of contract claim based on the results of its own subsequent testing.” Id. at *6 (discussing Sempra Energy Trading Corp. v. BP Prod. N. Am., 52 A.D.3d 350 (N.Y. App. Div. 2008)). The court dismissed Plaintiff’s breach of warranty claim on similar grounds, finding that the Sales Contract contained “limiting language” that relieved Defendant of liability for “the quality of the fuel oil once the independent inspector issues its” findings. Id. at •7–8.

Finally, when assessing the negligence claim, the Court adhered to the “well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated.” Id. at *6 (quoting Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 389 (N.Y. 1987)). The Court found that no such duty existed to evaluate the fuel when Intertek had already done so. Curacao Oil, 2020 WL 3494685, at *8.

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Acacia Invs., B.S.C. v. West End Equity I, Ltd.

161709/2018, 2020 WL 809721 (N.Y. Sup. Ct. Feb. 18, 2020)

Tara Guarino

Senior Staff Member

Plaintiff Acacia Investments, B.S.C.(C) (“Acacia”) commenced a judgment collection action alleging a fraudulent scheme by Defendants and seeking to pierce the corporate veil between (i) DCD America, Inc. (“DCD”) and the West Entities and (ii) AION Entities, Siraj Dadabhoy, Shabir Randeree, and Michael Betancourt. Acacia Invs., B.S.C. v. West End Equity I, Ltd., 161709/2018, 2020 WL 809721 at *1 (N.Y. Sup. Ct. Feb.18, 2020). The complaint alleged causes of action for: (1) piercing the corporate veil, (2) actual fraudulent conveyance, (3) constructive fraudulent conveyance, (4) director liability, and (5) accounting. Id. On February 13, 2020, AION’s motion to dismiss was granted with respect solely to the first and fifth causes of action. Id. Michael Betancourt’s motion to dismiss and Siraj Dadabhoy and Shabir Randeree’s motion to dismiss were granted in their entirety. Id. The moving Defendants were instructed to file an answer within 20 days of this decision and order. Id. at *11.

In 2011, TAIB Bank, a non-party to the action at hand, sued DCD and the West End Entities in New York State Supreme Court for defaulting on a 2007 loan of $17 million that “was secured by a guaranty of up to $10 million from . . . DCD.” See Acacia Invs., 2020 WL 809721, at *1. DCD and the West End Entities defaulted on the loan in 2010. Id. Acacia Investments also loaned the West End Entities $3.25 million as part of the same transaction and claimed this loan was never recovered. Id. In 2016, TAIB procured a judgment against the West End Entities and DCD. Id. Despite TAIB’s many attempts to recover the judgement, it currently remains due. Id.

In the instant action, Acacia’s Complaint alleges that DCD fraudulently transferred its assets to AION. Id. DCD began “winding up its operations around 2009,” after the loan was defaulted on, and dissolved in 2012, four years before TAIB

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procured the judgment. Id. at *2. DCD allegedly never notified TAIB nor Acacia about winding up. Id. During this time, DCD created AION Entities to conduct the same type of work. Compl. ¶ 54. The majority of DCD’s employees began working at Acacia in the same capacity and DCD transferred some of its contracts to AION. See Acacia Invs., 2020 WL 809721, at *2. Additionally, AION acquired DCD’s lease, worked out of the same office, and continued to use DCD’s phone and fax numbers. Id. Acacia additionally alleges that TAIB’s asset discovery was hindered because of its inability to acquire financial information from DCD and the West End Entities due to (i) failure to retain such records and (ii) concealment. Id.

Acacia’s first and fifth causes of action were dismissed. Id. at *1. Acacia’s first cause of action for piercing the corporate veil was dismissed. Id. at *3. AION correctly asserted that New York fails to acknowledge a separate cause of action to pierce the corporate veil. Id. ; see also Chiomenti Studio Legale, LLC v. Prodos Capital Mgmt. LLC, 140 A.D.3d 635 (N.Y. App. Div. 2016). Additionally, Acacia’s fifth cause of action, the accounting claim, was dismissed because AION correctly contended that the fiduciary relationship between parties that is required for an accounting cause of action did not exist here. See Acacia Invs., 2020 WL 809721, at *6. Acacia was never entitled to an accounting “simply as a judgment creditor.” Id.

In addition to the first and fifth causes of action against AION, Acacia’s individual claims against Michael Betancourt, Siraj Dadabhoy, and Shabir Randere were dismissed. Id. at *7. Michael Betancourt’s motion to dismiss concerned the fourth cause of action for director liability—this was the only claim directly asserted against him. Id. The claim for director liability was also one of the claims asserted against Siraj Dadabhoy and Shabir Randere. Id. New York law holds that claims regarding the “duties and obligations of directors” are ruled by the substantive law of the state of incorporation. Diamond v. Oreamuno, 24 N.Y.2d 494, 503-04 (1969). In this case, Delaware law governed. See Acacia Invs., 2020 WL 809721, at *7. Under Delaware law, direct claims for fiduciary duty breaches by creditors cannot

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prevail. North Am. Catholic Edu. Programming Foundation, Inc. v. Gheewalla, 930 A2d at 101-102 (2007). Thus, this cause of action was dismissed against Betancourt, Dadabhoy, and Randeree. Acacia Invs., 2020 WL 809721, at *10.

In addition to the claim against Dadabhoy and Randeree for director liability, Acacia alleged that both Dadabhoy and Randeree were personally liable for the fraudulent transfer claims. Id. at *11. As stated above, Delaware law governed Id. at *7. Delaware law states that in order to assert a claim against individual officers, “the officers’ and directors’ complete dominion of the company such that the company no longer has legal or independent significance of its own” must be proven. Wallace v. Wood, 752 A2d 1175, 1184 (1999). The complaint failed to show that Dadabhoy and Randeree exercised complete dominion and control over the corporation; thus, Acacia failed to meet its burden and the complaint was dismissed. Acacia Invs., 2020 WL 809721, at *11.

Acacia’s remaining causes of action against AION were not dismissed—AION’s arguments for dismissal failed to be recognized by the Court. Id. at *3-*6. AION’s motion to dismiss the second cause of action, actual fraudulent conveyance, for failure to state a claim was denied. Id. at *4. Under NY Debtor & Creditor Law § 276, plaintiffs must assert that “(1) a transfer was made (2) with the actual intent to hinder, delay, or defraud either present or future creditors.” N.Y. DCL § 276. Acacia adequately alleged that many of AION’s actions were done without consideration. Acacia Invs., 2020 WL 809721, at *4. Acacia also pled the specific transfers, their dates, and the transferors and transferees. Id. Acacia sufficiently asserted all of the necessary facts to survive a motion to dismiss. Id. at *5.

AION’s motion to dismiss the third cause of action, constructive fraudulent conveyance, for failure to state a claim was denied. Id. at *6. Under NY Debtor and Creditor Law § 273, a plaintiff must assert that “(1) a transfer was made without fair consideration, and (2) the transfer rendered the conveyor insolvent.” N.Y. DCL § 273. Here, the only question that arose was whether the conveyances from DCD to AION were made with fair consideration. Acacia Invs., 2020 WL 809721, at *5. Because

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this question could not be determined at the pleading stage, Acacia’s allegation that AION did not pay consideration for DCD’s assets, coupled with AION’s failure to present any contradictory evidence, was sufficient to defeat AION’s motion to dismiss. Id. at *6.

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Board of Directors of Big Deal Realty on Greene St., Inc.

656819/2020, 2020 WL 4459731 (N.Y. Sup. Ct. Aug. 2, 2020)

Yaqarah Letellier

Senior Staff Member

Plaintiff, Board of Directors of Big Deal Realty on Greene St., Inc. (“The Board”), commenced an action against 60G 133 Greene Street Owner LLC (“60G”), proprietary lessee and shareholder of the building located at 133-137 Greene Street, New York, New York (“the Co-Op”) in New York County on November 15, 2019. See generally Compl. ¶¶ 3, 4, 37, 49 (NYSECF No. 1). The complaint alleged claims for breach of contract. Id. The Board alleged that 60G’s conveyance of its entire ownership interest was invalid because 60G failed to obtain the Board’s approval, or in the alternative, 60G's failure to seek the Board’s approval or pay the Flip Tax constitutes a breach of the Lease and the Co-Op's bylaws. Id. at *2. Thus, the Board argued it was entitled to “terminate 60G's interest in the Lease and shares appurtenant thereto and recover the Flip Tax.” Id. 60 G moved to dismiss the complaint pursuant to CPLR § (a)(1) and (7). Id. at *1. On August 2, 2020, the Court granted 60G’s motion. Id.

The Board is the owner of the Co-Op. Compl. ¶ 10. The previous owners of the 60G Co-Op space agreed to be bound by the Co-Op Lease and By-Laws when they purchased two shares of the Co-Op. Id. at ¶ 15. The Co-Op lease dated July 18, 1980 states in paragraph 16 that:

“the Lessee shall not assign this lease or transfer the shares to which it is appurtenant or any interest therein, and no such assignment or transfer shall take effect as against the Lessor for any purpose, until . . . consent to such assignment shall have been authorized by resolution of the Directors, or given in writing by a majority of Directors; or, if the Directors shall have failed or refused to give such consent within 30 days after submission of references to

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them or Lessor’s agent, then by lessees owning or record at least 66-2/3% of the then issued shares of the Lessor.”

Compl. ¶ 13. Further, Article V, Section 5 of the Co-Op’s By-Laws State empowers the Board to enforce an assignment request or transfer of interest. Id. Additionally, the Board “approved a mandatory flip tax of 1% to be paid by a selling shareholder.” Id. at ¶ 14. During the “Fall of 2018, the previous owners of 60G conveyed their entire ownership interest in 60G” to satisfy a debt and forego foreclosure elsewhere. Board of Directors of Big Deal Realty on Greene St., Inc., 2020 WL 4459731, at *1. The Board argued that the transfer of the interest of a tenant is an assignment of the lease. Id. at *2.

A motion to dismiss pursuant to C.P.L.R § 3211 (a) (7) is granted when the pleadings fail to state a cause of action, or actions, upon which relief can be granted. C.P.L.R § 3211 (a) (7). The standard for a motion is “whether the facts alleged fit within any cognizable legal theory.” Id. at *2 (citing Morone v Morone, 50 N.Y. 2d 481, 484 (1980). The alleged facts are construed in favor of the plaintiff favor and are accepted as true. Board of Directors of Big Deal Realty on Greene St., Inc., 2020 WL 4459731, at *2. Mere legal conclusions are not construed as true. Id. (citing Biondi v Beekman Hill House Apt. Corp., 257 A.D.2d 76, 81 (N.Y. App. Div. 1999)). Here, the Court granted 60G’s motion based on “well settled” law of assignment. Id. at *2.

The Court noted that “a transfer of an interest in a tenant does not constitute an assignment of a lease absent a contractual provision which provides otherwise.” Id. The Court cited Dennis' case to underscore the aforementioned rule. Id. (citing Dennis' Natural Mini-Meals, Inc. v 91 Fifth Ave. Corp., 172 A.D.2d 331, 334 (N.Y. App. Div. 1991)). In that case, the court ruled that a commercial retail store tenant’s assignment to another corporation was not a breach of a non-assignment clause in its lease because a landlord can protect itself by writing into the lease a condition subsequent. Id. at *3. Here, the Co-op could have added a clause expressly stating “that transfers of interests in the tenant required Board approval.” Id. Similarly, the Court cites the Sea Cliff case to underscore the jurisprudence surrounding tenants and

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assignment. Id. (citing Sea Cliff Delicatessen, Inc. v Skrepek, 199 A.D.2d 510, 511 (N.Y. App. Div. 1993)). The court in Sea Cliff held that a tenant’s transfer of shares to another person was not a violation of the lease’s non-assignment clause. Id. Further, even when a lease expressly provided that “50% of the stock of the tenant constituted an assignment of the lease,” it was not a violation of the lease because it was not an assignment when “‘[t]he merger did not change the beneficial ownership, possession, or control of [the tenant's] property or leasehold estate’.” Id. at *4. (quoting Brentsun Realty Corp. v D'Urso Supermarkets, Inc., 182 A.D.2d 604 (N.Y. App. Div. 1992)).

Thus, the Board’s failure to expressly state that the transfer of a tenant’s or lessee’s interest is an assignment shows that 60G’s interest was freely transferable. Id. Last, the Court found that since 60G’s transfer was an assignment, the tax was not due either. Id. Therefore, the Court found the previous owners of 60G did not violate its lease. Id.

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City of New York v. T-Mobile USA, Inc.

451540/2019, 2020 WL 1498522 (N.Y. Sup. Ct. Mar. 23, 2020)

Zachary J. Manasia

Senior Staff Member

Plaintiff, City of New York and the New York City Department of Consumer Affairs (hereafter collectively “DCA”), commenced an action against T-Mobile USA (“T-Mobile”) and MetroPCS New York, LLC (“MetroPCS”), as well as 42 dealers (“Dealer Stores”) on September 4, 2019. See City of New York v. T-Mobile USA, Inc. 451540/2019, 2020 WL 1498522 (N.Y. Sup. Ct. Mar. 23, 2020). DCA brought the action “seeking broad declaratory and injunctive relief, significant civil penalties, and restitution based on alleged violations of the Consumer Protection Law and regulations.” Id. at *1. T-Mobile moved to dismiss the action pre-answer, pursuant to CPLR 3211(a)(1) and (7), due to documentary evidence and failure to state a cause of action. Id.

T-Mobile is a wireless cellular network services provider that offers services to consumers in the City of New York. Id. The complaint alleged that T-Mobile targeted lower income consumers under its subsidiary MetroPCS, which is the lower-priced prepaid brand, by using deceptive acts and practices in violation of New Yorkconsumer protection laws. Id. DCA asserted that, through MetroPCS, T-Mobile “deceptively markets, sells, leases, and finances cell phones and services through 12 Corporate Stores directly operated by its subsidiary MetroPCS and through various independent ‘authorized dealers’ with whom MetroPCS contracts.” Id. Specifically, DCA alleged that the practices violating New York City’s Consumer Protection Law included: “(1) selling used phones as thought they were new; (2) deceiving consumers about financing; (3) overcharging consumers; (4) providing defective receipts; (5) failing to provide a receipt; and (6) making deceptive representations about the Metro by T-Mobile refund policy.” Id. at *2.

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DCA commenced this suit by bringing two causes of action. “The first cause of action alleged that T-Mobile, MetroPCS, and various specified dealers engaged in deceptive trade practices in violation ofNYC Code § 20-700.” Id. This amounted to at least 2,260 violations by T-Mobile and at least 57 violations by MetroPCS. Id. NYC Code § 20-700 prohibits deceptive trade practices, including “any deceptive or unconscionable trade practice in the sale of any consumer goods or services.” Id. Deceptive practices include “representations that goods are original or new if they are deteriorated, altered, reconditioned, reclaimed or secondhand” and “the use, in any oral or written representation, of exaggeration, innuendo, or ambiguity as to a material fact or failure to state a material fact if such use deceives or tends to deceive.” Id.

The second cause of action charged T-Mobile and MetroPCS “with at least 25 violations and 20 dealers with at least [one] violation each for failing to properly document transactions in violation of 6 RCNY §5-32.” Id. at *3. According to DCA, 6 RCNY §5-32 “provides that sellers of consumer goods and services must ‘offer a consumer a receipt for any retail purchase if the amount of the purchase is twenty dollars or more’ and must ‘provide a consumer with a receipt upon request for any retail purchase if the amount of the purchase is between five and twenty dollars.’” Id.

The standard of review governing motions to dismiss relied upon is articulated by the Court of Appeals in Leon v. Martinez, 84 NY2d 83, 87-88 (1994). The standard is: “On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction. [Courts] accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory.” City of New York, 2020 WL 1498522, at *3. “Under CPLR 3211(a)(1), dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law.” Id.

The Court denied the motion for three reasons. First, T-Mobile and MetroPCS argued that the DCA violated due process

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of law and the CPL by failing to provide adequate notice of the claims in the Pre-Litigation Notices that DCA served upon T-Mobile and MetroPCS. Id. at *4. CPL at Code § 20-703(c) establishes that “[b]efore instituting an action under this subdivision, the commissioner shall give the prospective defendant written notice of the possible action and an opportunity to demonstratein writing within five days that no repeated, multiple, or persistent violations have occurred.” Id. Neither T-Mobile nor MetroPCS have established via legal precedent that the Code establishes a constitutional right to pre-litigation due process of law. Id. Further, the DCA noted that in a similar situation that would require the Attorney General to provide notice under the New York false advertising statute that an opportunity to be heard is a “matter of grace, not a matter of constitutional right.” Id. The notices provided by the DCA adequately summarized the violations and satisfied the requirements of the five-day rule in the CPL. Id.

Second, the Court held that the notices provided by the DCA adequately satisfied the heightened pleading standard of CPLR 3016(b). . Id. The heightened complaint standard of the statutes state that “[w]here a cause of action or defense is based upon misrepresentation, fraud, mistake, willful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail.” Id. The Court held that the lengthy complaint, which even includes consumer names, satisfies the pleading standard regardless of whether or not CPLR 3016(b) applies. Id.

Third, T-Mobile also argued “that it cannot be held liable for the alleged unlawful conduct by independent dealers because T-Mobile has no contract with those dealers giving them actual authority to act on behalf of T-Mobile, and the facts do not support a theory of apparent authority.” Id. The Court rejected this argument because those stores created an “impression of agency based on the relationship between the parties.” Id. For these reasons, the charges against T-Mobile and MetroPCS survived the motion to dismiss. Id. at *5.

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Community Ass’n of the East Harlem Triangle, Inc. v. Butts

656028/2018, 2020 WL 3511497 (N.Y. Sup. Ct. 2020)

Julie Aberasturi

Staff Member

Plaintiffs, Community Association of the East Harlem Triangle, Inc. (“CAEHT”) and Derrick Taitt, commenced an action alleging defendants, Windels Marx Lane & Mittendorf LLP (“Windels”), Charles Simpson (a partner at Windels), Ariel Property Advisors, LLC (“Ariel”), Victor Sozio (a real estate broker at Ariel), Abyssinian Development Corporation (“ADC”), Reverend Dr. Cavin O. Butts III (Chairperson of ADC), James Howard (Senior VP of ADC) deliberately concealed an offer to purchase property from Plaintiffs and that Defendants had previously agreed upon a scheme to sell the property to a third party. See First Amended Complaint (“Amend. Compl.”) (NYSECF No. 72). The Amended Complaint presented 58 causes of action which alleged fraud, breach of fiduciary duty, and aiding and abetting, violation of the Business Corporations Law (“BCL”) § 720. See id. It also included a demand for punitive damages. See id. Defendants filed various motions to dismiss. See Cmty. Ass’n of the E. Harlem Triangle, Inc. v. Butts, 656028/2018, 2020 WL 3511497, *1 (N.Y. Sup. Ct. 2020).

In March 1994, Plaintiff, CAEHT, and Defendant, ADC, created a joint venture agreement to develop the property located at 160 East 125th Street (“the Property”) as a supermarket. Id. These parties also created East Harlem Abyssinian Triangle Limited Partnership (“EHAT LP”) to own and develop the Property. Id. Additionally, they created East Harlem Triangle Corp. (“EHAT Corp.”) to carry out the joint venture’s business. Id. EHAT Corp. was the general managing partner of EHAT LP. Id. EHAT Corp. owned a 51% interest in EHAT LP, and the New York City Economic Development Corporation owned the remaining 49%. Id. CAEHT and ADC each held 50% of EHAT Corp.'s stock. Id.

At a board meeting in March 2013, Defendant Howard, who was also a director of EHAT Corp., initiated a discussion with the board of directors (“the Board”) regarding the sale of the

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Property. Id. Following the meeting, Defendants Butts, Howard, and Simpson each played a part in managing the sale of the Property on behalf of EHAT Corp . Id.

Integrated Urban Holdings, LLC (“Integrated”) started working with Peebles Corp. (“Peebles”) in October 2013 to submit a joint offer to purchase the Property. Id. at *2. In November 2013, Howard informed the Board that he knew of seven potential purchasers of the Property and identified Peebles and Extell Development Company (“Extell”) among those potential purchasers. Id.

In January 2014, Integrated and Peebles jointly submitted a $40 million offer to purchase the Property. Id. They sent the offer to Butts and mailed copies of the order to Sozio and Simpson. Id. Afterward, Sozio told Derek Johnson of Integrated that EHAT Corp. would accept an offer of $42 million, and Johnson increased the offer on behalf of Integrated and Peebles to $42 million. Id. In February 2014, Sozio sent Johnson the terms for EHAT Corp.’s acceptance of the $42 million offer. Id. After Johnson consented, Sozio informed him that Simpson would follow-up to formalize a contract. Id. However, Simpson failed to do so. Id.

In March 2014, the Board held a meeting to consider Extell’s $39 million offer to purchase the Property. Id. During the meeting, a CAEHT representative asked whether there were any other offers to purchase the Property aside from Extell’s. Id. However, Simpson falsely stated that Extell was the only party interested in the Property. Id. Sozio and Howard also attended the meeting, but neither one disclosed the higher offer from Integrated and Peebles, despite knowing Simpson’s statement was false. Id. At the meeting, the Board discovered that ADC had already received an advance payment of $2.5 million from Extell, which Simpson, Howard, Sozio, and Butts failed to disclose. Id. Moreover, at this meeting, Plaintiffs learned that ADC had not informed Extell of Plaintiffs’ interest in the Property. Id. The Board met again in April 2014 to discuss the sale, and Howard falsely denied that there were any other offers. Id. At a later meeting, a majority of the Board voted in favor of the sale. Id.

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First, regarding the fraud claims, the court discussed the “out-of-pocket” rule. Community, 2020 WL 3511497 at *3. Under the “out-of-pocket” rule, “the true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong.” Id. (quoting Connaughton v. Chipotle Mexican Grill, Inc., 29 N.Y.3d 137, 142–43 (2017)). The court explained that an underpayment for property constitutes loss. Id. (citing Bernstein v Kelso & Co., 231 A.D.2d 314 (N.Y. App. Div. 1997) (finding that, where a plaintiff is seeking to recover the difference between the price he would receive without deception and the price he actually received, the overall gain from the sale is irrelevant)). Therefore, the “out-of-pocket” rule did not bar recovery. Community, 2020 WL 3511497 at *3. Next, the court addressed whether Defendants intended to defraud and explained that a plaintiff must only allege specific facts that make it possible to infer defendant knew its statements were false. Id. at *5 (citing Houbigant, Inc. v. Deliotte & Touche, 101 A.D.2d 92, 99 (N.Y. App. Div. 2003)). The court found that the allegations that defendants falsely denied the existence of the Peebles/Integrated offer sufficed to demonstrate knowledge for the fraud claim. Id. Consequently, the court rejected the ADC defendants’ argument that plaintiffs failed to allege defendants possessed the requisite intent to defraud. Id.

Second, the court considered the aiding and abetting claim and explained that “a defendant aids and abets a fraud or breach of fiduciary duty when he or she provides substantial assistance by affirmatively assisting, helping to conceal or failing to act when required to do [so].” Id. at *6 (citing Schroeder v. Pinterest Inc., 133 A.D.3d 12, 25 (N.Y. App. Div. 2015)). Accordingly, the court held that Plaintiffs’ allegations regarding defendants’ communications with the ADC Defendants and counsel, together with their attendance at board meetings, adequately support the claim. Id. However, because the aiding and abetting claims were duplicative of the breach of fiduciary duty claims, the court dismissed the aiding and abetting claim only as to Defendant ADC. Id.

Third, the court reviewed the civil conspiracy claim and explained that a plaintiff must demonstrate a primary tort plus “an

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agreement between two or more parties; an overt act in furtherance of the agreement; the parties’ intentional participation in the furtherance of a plan or purpose; and resulting damage or injury.” Id. (quoting Cohen Bros. Realty Corp. v. Mapes, 181 A.D.3d 401, 404 (N.Y. App. Div. 2020)). The court found that the Amended Complaint sufficiently outlined the parties’ joint effort to sell the Property to the lower bidder, which caused plaintiff to suffer. Id. Thus, the court denied Defendants’ motion to dismiss the civil conspiracy claim. Id.

Fourth, the court discussed the claim against ADC for monetary damages under BCL § 720, explaining that “the section cannot be used to obtain a money judgment in action at law.” Id. (quoting Ali Baba Creations, Inc. v. Cong. Textile Printers, Inc., 41 A.D. 2d 924, 924 (N.Y. App. Div. 1973)). Hence, the court dismissed this claim. Id.

Fifth, the court discussed Plaintiffs’ demand for punitive damages and explained that punitive damages are not available in the ordinary fraud and deceit case, unless the defendant’s wrongdoing “evinces a high degree of moral turpitude and demonstrates such wanton dishonesty.” Id. (quoting Hoeffner v. Orrick, Herrington & Sutcliffe LLP, 85 A.D.3d 457, 458 (N.Y. App. Div. 2011)). Here, the court found that the Amended Complaint did not allege an “evil motive.” Id. For that reason, the court dismissed the punitive damages demand. Id.

Sixth, the court addressed whether the statute of limitations had expired and whether Plaintiffs were characterizing their cause of action as fraud strictly because a claim for professional malpractice was time-barred. Id. at *6–7. It found that Defendants’ act of deception made the claim one of fraud and not mere negligence. Id. at *7. Therefore, the time-bar did not apply. Id. The court also explained that because there were allegations of fraud, a six-year statute of limitations applied on the breach of fiduciary duty claims. Id. (citing IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132, 139). Therefore, those claims were also timely pled. Id. Further, the court explained that even without the fraud allegations, “the conveyance of the Property for significantly under market value would constitute waste or an injury to

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property,” and the statute of limitations for officer and director liability had not expired. Id.

Seventh, the court discussed the doctrine of in pari delicto, which orders that the court not decide a dispute between two wrongdoers. Id. (quoting Kirschner v. KPMG LLP, 15 N.Y.3d 446, 452 (2010)). The court concluded that because a question of fact exists over whether Plaintiffs benefited from the sale, despite the net loss of $3 million, it cannot hold, as a matter of law, that Plaintiffs benefited simply because they gained money from the sale. Id. at 9.

Eighth, the court explained the Business Judgment Rule, protects defendants from liability in routine decisions, such as this decision concerning the sale of a corporate asset. Id. It further explained that plaintiffs are entitled to “adduce evidence of self-dealing, fraud, or other acts constituting a breach of fiduciary duty sufficient to overcome the business judgment rule.” Community, 2020 WL 3511497 (quoting Parker, 56 A.D.3d at 374). Therefore, the court concluded that resolution of this issue is inappropriate at the pleading stage. Id.

Ultimately, the court denied the motions except to the extent of dismissing the aiding and abetting claims as against ADC, the BCL § 720 claims as against Butts and Howard, and the demand for punitive damages. Id. at *3.

[1] The court wrote that “defendants are entitled to ‘adduce evidence of self-dealing, fraud, or other acts constituting a breach of fiduciary duty sufficient to overcome the business judgment rule.’” Id. (emphasis added). However, the plaintiff adduces the evidence, not the defendant. See Parker v. Marglin, 56 A.D.3d 374, 374 (N.Y. App. Div. 2008).

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Flink v. Smith

902890-19, 2020 WL 1037487 (N.Y. Sup. Ct. 2020)

Stephen Bona

Staff Member

Plaintiffs Edward B. Flink and Flink Smith Law LLC (together, “Flink”) commenced several actions against their former law partners, Jay A. Smith and Jennifer L. Dominelli (together, “Smith”). See Flink v. Smith, 902890-19, 2020 WL 1037487 (N.Y. Sup. Ct. 2020). Plaintiffs alleged that Defendants decided to illegally fold Flink Smith and LLC (FSL) with an intention to create a new law firm. conspired to unlawfully collapse Flink Smith Law LLC (FSL) and divert its business to a newly-created law firm. Id. Jennifer Dominelli was also an associate for this law firm and was part of the plaintiff’s alleged agreement to buy the remaining stocks upon his retirement. Id. at 2. Plaintiffs’claims include Defendants’ breach of contract, Defendants’ breach of fiduciary duties to Plaintiffs, and other claims relating to this breach, and an accounting claim. Id. at 1-2. The defendants moved for dismissal of six of the seven causes of actions brought by Plaintiffs. Id. On February 7, 2020, the court granted Defendants’ motion to dismiss to four of these causes of actions and denied the motion to dismiss for two of these actions. Id. at 12.

Flink and Smith founded FSL, a limited liability company, in 1999. FSL is a limited liability company, established in 1999 by Flink and Smith. Id. at 2. With Flink approaching retirement, the FSL partners agreed to a new operating agreement in 2010, which established a process for gradually transitioning ownership and leadership from Flink to Smith, Dominelli, and a nonparty, Robert Coughlin. Id. By April 30th, 2018, Flink was to sell the remaining shares of his company to Smith, Dominelli, and Coughlin, with each having the opportunity to become equal shareholders in the company. Id. FSL agreed to purchase the remaining shares from Flink on the last day of 2018 if the other members decided not to purchase them, with an understanding that Smith and Dominelli would purchase the shares, even in the event that the LLC was no longer an operating entity. Id. Smith, Dominelli & Guetti formed their new law firm, Smith, Dominelli & Guetti, (SDG) on December 22, 2016 while Smith and Dominelli were still members of FSL. Id. at 3. On February 8, 2017, Smith and Dominelli gave their written notices of their intention to formally withdraw from FSL. Id. This agreement became effective in May of 2017. Id.

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Smith and Dominelli gave written notice to FSL on February 8, 2017 of their intent to withdraw, which became effective in May 2017. Id.

Flink alleged that Smith and Dominelli breached their 2010 agreement by refusing to purchase Flink’s remaining shares, failing to satisfy the company’s minimum billable hour requirements, and by conspiring to collapse FSL and redirect its business to SDG. Id. Flink further alleged that Defendants breached their fiduciary duty by secretly forming SDG, a competing firm and by soliciting Flink’s clients for its own business purposes. Id. He also argued that SDG caused the Defendant’s breaches of the 2010 operation agreement and they assisted the defendant’s in their tortious conducts. Id. Flink then sought to compel Defendants to provide a full accounting of FSL’s escrow accounts. Id. Defendants moved to dismiss on six of the seven causes of action, with the only exception being the second claim on failing to satisfy the company’s’ minimum billable hour requirement. Id.

Plaintiffs are given any benefit of the doubt when arguing against a motion to dismiss. Id. There are limitations to this, however, as the Court does not need to accept allegations that are “inherently incredible or flatly contradicted by documented evidence.” Id. at 3 (quoting Washington Ave. Assoc. v. Rose & Kiernam, 260 AD2d 770, 771 (N.Y. App. Div. 1999), 97 NY2d 46, 54 (N. Y.2001.)) The Court denied Defendants’ motion to dismiss the breach of contract claim. Defendants believed that an email from Flink to Dominelli stating the 2018 agreement was now moot was a mutual understanding that each party agreed to that their operating agreement would no longer be valid. Id. Further, Defendants argued that once they gave away their remaining interest in the company, they no longer had the power to operate under the operating agreement. Id. at 5. Plaintiffs, on the other hand, argued that under the 2010 operating agreement, the withdrawal of Smith and Dominelli from FSL did not relieve them of their obligation to purchase Flink's shares “in the event that the LLC is no longer an operating entity.” Id. at 4.

The court stated that there was nothing in the text of the 2010 agreement to support Defendants’ contention that the agreement only survived while the company was in operation. Id. While there are some duties in an operating agreement that can only be completed for active members, the court cites several cases in which other LLC agreements included provisions that were intended to apply to former members. Id. at 6-7. The court found that the purpose of the contract was to give Flink financial security.

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Id. In addition, the email Flink sent to Defendants was sent towards the beginning of the buy-out process. Id. There was still ample time for Defendants to buy the remaining shares of the company and there was no definite understanding that Flink was calling the agreement moot. Id. at 8-9. Therefore, it was not against Flink’s intent for Defendants to be relieved of their duty to purchase the remaining shares of the company, even though they withdrew from it. Thus, the court denied Defendants’ motion to dismiss. Id.

The court granted Defendants’ motion to dismiss as to each of Plaintiffs’ additional claims, except the claim on the full accounting of FSL’s escrow accounts. Plaintiffs claimed that Defendants breached their fiduciary duty by secretly forming a competing entity for the purposes of soliciting Flink's clients, diverting Flink's business opportunities and good will, hiring FSL’s former employees, and marketing falsely, amongst other complaints. Id. at 9 (citing Compl. ¶¶ 78-79). Here, Defendants successfully defeated Plaintiffs’ arguments by proving that they did not begin operations for their new company until their withdrawal from FSL was completed. Id. at 9. The court said forming a new company, alone, is not breaching a fiduciary duty, there are no allegations in the complaint that Defendants made improper use of the company’s time or resources, and they did not hire FSL employees until after the withdrawal was effective. Id. at 10. Because the breach of the fiduciary duty claim is dismissed, Defendants also did not aid and abet a breach of fiduciary duty. Thus, the court also dismissed that claim. Id. at 11.

In addition, the court granted Defendants’ motion to dismiss Plaintiff’s claim of tortious interference of contract. Id. at 10. Some reasons the court gave for granting Defendant’s motion include the alleged misconduct having not occurred until after Smith and Dominelli had already withdrawn from FSL and that several of the other allegations were already successfully argued by tDefendants in the breach of the fiduciary duty claim. Id. at 11. Finally, the court did not grant Defendants’ motion to dismiss the accounting claim because Defendants failed to demonstrate that they no longer have access to the FSL account. Id. There was no conclusive evidence that they no longer possessed documents or receipts from the account, and thus, Plaintiffs defeated Defendants’ motion to dismiss. Id. at 11-12.

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Weinstein v. RAS Property Management LLC

653735/2019, 67 Misc.3d 240, 241 (N.Y. Sup. Ct. 2020).

Nicholas Bonelli

Staff Member

Petitioner Lois Weinstein pursued a derivative lawsuit against respondents RAS Property Management LLC (“RAS”), Ninety-Five Madison Company, LP (“NFMC”), and several NFMC trustees. See generally Petition (NYSECF No. 1). Weinstein originally petitioned the Commercial Division seeking “judicial dissolution, the appointment of a receiver, and the sale of . . . a 16-story commercial building located at 95 Madison Avenue, New York, New York.” See Weinstein v. RAS Prop. Mgt. LLC, 653725/2019, 67 Misc.3d 240, 241 (N.Y. Sup. Ct. 2020). This

building was NFMC’s primary asset, and Weinstein wanted to sell the building in order to dissolve the partnership. See id. Weinstein was a limited partner in NFMC and sought to sell the building based on alleged trustee misconduct. Petition ¶¶ 5–9. Unfortunately, Weinstein passed away during the course of litigation. See Id.

Subsequent to Weinstein’s death, “Carol E. Keller and Gail Shields were appointed as preliminary executors of Weinstein’s estate.” Id. Pursuant to CPLR 1015 and 1021, Keller and Shields moved to substitute themselves into the derivative lawsuit. Id. Respondents argued that Keller and Shields’s motion for substitution raised an issue of standing, namely, whether a personal representative of an estate has standing to maintain a derivative lawsuit on behalf of a New York limited partnership that was commenced when the decedent was alive and partner. Id. Keller and Shields maintained they could substitute themselves into the action based on their executor status. Id.

The court denied the motion for substitution. Id. Judge Andrew Borrock ruled that a personal representative cannot maintain a derivative lawsuit where the party seeking to be

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substituted does not automatically become a successor partner under the terms of a partnership agreement. See id. At 245.

NFMC’s partnership agreement expressly provided for a limited partner’s death. Id. at 241–43. The agreement stated that the death of a limited partner would not dissolve the partnership. Id. at 241–42. Critically it also stated “[s]uch successor in interest [the executor] shall not become a Substitute Partner except upon compliance with the provisions of Sections 8.3 and 8.4 herein.” Id. at 242 (citation and emphasis omitted). Section 8.3 declared that “[n]o partner shall have any right to substitute an Assignee as a Partner in his place without the prior written permission of the other Partner. Any purported substitution of an Assignee as a Partner without such consent shall be void ab initio and shall not bind the Partnership.” Id. (citation and emphasis omitted)..

Respondents cited three cases to argue that the petitioners lacked standing. See id. At 243. Respondents first used Salter v. Columbia Concerts, Inc., to distinguish a successive shareholder in a corporation from the personal representative in a limited partnership. See id. (citing Salter v. Columbia Concerts, Inc., 191 Misc. 479 (N.Y. Sup. Ct. 1948)).In that case the court denied the defendant’s effort to dismiss the matter for lack of standing because a shareholder in a corporation becomes a “successor” shareholder without any further action by either the other shareholders or the corporation itself.” Id. In other words, “being an owner of stock provides the necessary currency of standing to assert stockholder rights in the corporation.” Id.

Respondents next cited Pappas v. 3840 LLC, a case in which “apersonal representative brought a suit that was dismissed for lack of standing because they were deemed strictly successors in interest. Id. at 243–44 (citing Pappas v. 3840 LLC, (2018 NY Slip Op 30329 (N.Y. Sup. Ct. 2018)). Similarly to the NFMC agreement, the partnership agreement in Pappas provided that upon a member’s death, executors were entitled to allocations and distributions, but did not automatically make the personal representative an LLC member. Id.

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Finally, Respondents cited Estate of Calderwood v. ACE Group Intl. LLC, in which a decedent’s estate had its claim dismissed because the terms of the LLC’s operating agreement only made the estate successors in interest. Id. at 244–45 (citing Estate of Calderwood v. ACE Group Intl. LLC, 157 Ad3d 190, 194 (N.Y. App. Div. 2017)). The estate was therefore not an LLC member and foreclosed from exercising the decedent’s right to declaratory relief. Id.

In the case at bar, “pursuant to the terms of the governing documents of the company, the personal representative succeeds to owning the equity interest in the business without becoming a substitute limited partner in the partnership.” Id. at 245–46 (emphasis in original). Therefore, although Keller and Shields assumed the economic rights of Weinstein as executors to her estate, they did not automatically become substitute limited NFMC partners without consent from the other partners. Id. “Put another way, unlike in a corporation where the estate becomes a stockholder by operation of law, the personal representative in the limited partnership may never become a successor limited partner under the terms of the partnership agreement.” Id. at 245. They thus lacked standing and could not be substituted for the decent. Id. Consequently, the action was “automatically stayed pursuant to CPLR 1015. Id. at 245–46.

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Sabourin v. Chodos

650591/2015, 2020 WL 4379112 (N.Y. Sup. Ct. 2020).

Steven Buynitsky

Staff Member

On March 30, 2015, Plaintiffs Isabelle Sabourin (“Sabourin”), Sheriff Ishak (“Ishak”), as well as various business entities under their control (collectively, “Plaintiffs”), filed suit against Adam Chodos (“Chodos”), an attorney who allegedly conspired with and assisted non-party judgement debtor William Jack Frost (“Frost”) in attempting to gain control of plaintiffs’ fashion magazine, Z!NK, its assets, and intellectual property. See generally Compl. (NYSECF No. 3). Plaintiffs had a judgement against Frost for $62.3 million, though he disappeared without paying it, and none of that sum had been paid. Sabourin v. Chodos, 650591/2015, 2020 WL 4379112, at *6 (N.Y. Sup. Ct. 2020); Compl. ¶ 34.

Plaintiffs asserted several causes of action including fraud, aiding and abetting a breach of fiduciary duty, and civil conspiracy to commit conversion, and sought at least $5 million in damages. Compl. ¶¶ 133-76. In December 2019, Defendant Chodos filed a motion for summary judgement on grounds of (i) the action being time-barred, (ii) Chodos not being culpable for the actions of the actions of his client Frost, and (iii) non-cognizable damages. See generally Mem. of Law In Supp. of Mot. for Summ. J. (“Def’s. Mot.”) (NYSECF No. 154). On July 30, 2020, the court dismissed the motion in its entirety. Sabourin, 2020 WL 4379112, at *13.

Z!nk, a “fashion and lifestyle magazine”, was founded by Sabourin and Ishak in 2002. Id. at *2. In 2007, Frost entered into an agreement to invest a total of $8 million in the magazine in exchange for a 25% stake in I.T. Global Media, LLC (“ITGM”) which would own the magazine and its intellectual property. Id. Despite an early default by Frost, he eventually performed on his obligation by providing funds which, unbeknownst to plaintiffs, he had sourced from his father. Id. Plaintiffs allege that from this point on, Frost engaged in “a campaign of misrepresentations and forgeries in an attempt to take over Z!nk Magazine.” Id. at *3. Plaintiffs allege that Chodos helped Frost forge Ishak’s signature

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on a document indicating Ishak’s resignation from ITGM, which they used to terminate ITGM employees and bank accounts. Id. Chodos convinced Ishak not to retain an independent auditor, threatened to report Ishak to various regulators, and indicated he intended to sell the business. Id. at *3–4. Chodos threatened to cause Ishak’s deportation, and Frost represented to Ishak that Chodos was associated with organized crime. Id. at *8.

In 2008, Chodos attempted to effectuate a transfer of Z!NK’s trademark rights to one of Frost’s companies, filing with New York State and Delaware. Id. at *4. Chodos communicated with ITGM’s bank and webhost, attempting to gain complete control over the magazine. Id. Chodos executed false promissory notes and filed tax returns purporting to show substantial debts and payment distributions that never occurred. Id. The purported debt instruments were each seemingly secured by the entirety of ITGM’s intellectual property. Id. At some point in 2008, under advisement from Chodos, Frost physically removed substantial amounts of company documents and files from Z!NK’s offices, making it nearly impossible for plaintiffs to continue operating the magazine. Id. at *5.

Due to false reports made by Chodos to law enforcement authorities, Ishak was shut out of ITGM’s finances and investigated by the Federal Bureau of Investigations (“FBI”) until they learned of the fraudulent nature of several of the relevant evidentiary documents. Id. at *4. Plaintiffs filed suit against Frost in 2010. Id. at *5. The parties entered into arbitration on September 13, 2012 and received judgement against Frost for over $62 million on February 23, 2015. Id. at *6. Plaintiffs now attempt to recover against his attorney. See Compl. ¶ 34.

“An action based on fraud must be commenced within six years from the commission of the fraud or within two years from the time that the fraud was discovered or, with reasonable diligence, could have been discovered.” Id. at *7 (citing CPLR § 213(8)); Saphir Intl., SA v. UBS PaineWebber Inc., 25 A.D.3d 315, 315 (N.Y. App. Div. 2006). The court held that this action against Chodos was not time-barred, despite being filed seven years after the conduct began. Id. at 7–8. The court found plaintiffs’ claims credible that they were unaware of Chodos’ involvement until discovery in the 2013–2014 Frost arbitration. Id. The court stated

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that, due to the actions allegedly taken by Frost and Chodos, including the removal of Z!NK documents, there remained a material issue of fact as to whether plaintiffs could reasonably have discovered the facts necessary to sue Chodos prior to their appearance at arbitration. See id. Since the limitations and tolling rules for the claim of aiding and abetting a breach of fiduciary duty are the same as the rules for fraud, the court denied summary judgement for that count for the same reasons. Id. at *9–10. The court further held that plaintiffs had neither inquiry nor actual notice of the Chodos’ conduct. Id. at *11.

The court also rejected defendant’s contentions that the unjust enrichment claim (6-year statute of limitations), civil conspiracy to commit conversion (3-year statute of limitations) tortious interference with prospective economic advantage claim (3-year statute of limitations) were time barred. Id. at *12. The court found that Chodos was unjustly enriched through 2010, coming within the limitations period, and that for the other counts, “plaintiff[s were] induced by fraud, misrepresentations or deception from filing a timely action,” and the doctrine of equitable tolling applied. Id. (quoting Zumpano v Quinn, 6 N.Y.3d 666, 674 (N.Y. 2006)). The court rejected the contention that this action was based on the conduct of Chodos’ client, for whom Chodos was not responsible, in light of the fact that Plaintiffs alleged complicity in fraud specifically attributable to Chodos’ actions. See id. at *12–13.

Finally, the court held there was a material issue of fact as to whether damages in the case were ascertainable. Id. at *13. On the one hand, the arbitrator awarded over $60 million in damages in the Frost action; on the other, Chodos’ financial expert claimed that ITGM was of zero value. Id. at *12–13. Accordingly, Judge Borrok denied the motion for summary judgement in its entirety. Id. at *13.

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Reed Smith LLP v. LEED HR, LLC

654213/2012, 2020 WL 2516809 (N.Y. Sup. Ct. 2020)

Jenna M. Codignotto

Staff Member

On December 3, 2012, Plaintiff Reed Smith, LLP (“Reed Smith”) commenced an interpleader action against Defendants LEED HR, LLC (“LEED”), Big Red Investments Partnerships, Ltd. (“Big Red”), Uplift Capital LLC, and Continental Stock Transfers & Trust Company, Inc. to deposit stock certificates issued by General Employment Enterprises, Inc. (“GEE”) into the Court. Compl. (NYSECF No. 230). On October 21, 2014, Intervenors Sands Brothers Venture Capital II, LLC, Sands Brothers Venture Capital III, LLC, Sands Brothers Venture Capital IV, LLC, and Genesis Merchant Partners LP (collectively, “the Intervenors”) filed their Answer and asserted the following cross-claims: (1) fraudulent conveyance; (2) aiding and abetting fraudulent conveyance; (3) conspiracy to commit fraudulent conveyance; (4) breach of fiduciary duty; (5) aiding and abetting breach of fiduciary duty; (6) conspiracy to breach fiduciary duty; (7) constructive trust; (8) rescission; (9) equitable restitution; (10) unjust enrichment; and (11) declaratory judgment that they own the Shares. Answer with Cross-cl. (NYSECF No. 113); Reed Smith LLP v. LEED HR, LLC, 654213/2012, 2020 WL 2516809 at *3 (N.Y. Sup. Ct. 2020). LEED filed this motion for summary judgment to dismiss the aforementioned cross-claims. Reed Smith LLP, 2020 WL 2516809, at *3.

The lawsuit arose out of fraud conducted by Wilbur Anthony Huff. Id. at *1. The Intervenors alleged that Mr. Huff used Thomas Bean, the CEO of O2HR, LLC (“O2HR”), to convey O2HR assets through Big Red, a company owned by Mr. Bean, which were then converted into GEE shares “that were passed through entities owned by Mr. Huff’s family, and ultimately deposited with LEED.” Id. In turn, O2HR was rendered insolvent, causing it to default on certain promissory notes in favor of the Intervenors. Id. However, LEED disputed its liability and argued that the Intervenors did not produce sufficient evidence to support their cross-claims. Id. at *6. The Court granted a limited summary

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judgment order on the breach of fiduciary duty and conspiracy to breach a fiduciary duty claims. Id. at *1.

As a threshold matter, the Court addressed LEED’s argument that Kentucky law applied, which does not recognize claims of conspiracy or aiding and abetting fraudulent conveyance. Id. at *5. In addressing this choice of law issue, the Court had to “determine whether an actual conflict exist[ed] between the laws of the jurisdictions involved.” Id. (citing Allstate Ins. Co. v. Stolarz, 81 N.Y.2d 219, 223 (1993)). The Court found no conflict between Kentucky and New York law, leading it to conclude that applying New York law was proper. Id. at *6.

Then, the Court went on to address which, if any, of the Intervenors’ cross-claims it would dismiss. Id. In determining which cross-claims to dismiss, the Court looked to whether LEED produced “sufficient evidence to demonstrate the absence of any material issues of fact.” Id. at *5 (citing Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 (1986)). First, the Court analyzed the Intervenors’ fraudulent conveyance claim and found material issues of fact regarding the “various steps in the allegedly fraudulent transfers” and “the ultimate source of the funds.” Id. at *6. Thus, the Court denied LEED’s motion on that claim. Id.

Second, the Court denied LEED’s motion for summary judgment on the Intervenors’ claims for aiding, abetting, and conspiracy to commit fraudulent conveyance. Id. at *7. The Court based this decision on the fact that “the only testimony as to LEED’s knowledge of any potential fraud [was] provided by Mr. Schroering,” the manager of LEED, and was not confirmed by any other source. Id. Therefore, “there remained material issues of fact concerning LEED’s knowledge of the alleged fraud and its role in the same.” Id.

Next, the Court looked to the Intervenors’ fourth cross-claim, the breach of fiduciary duty claim, and determined that an award of summary judgment on this claim was proper. Id. It reasoned that the claim was “only asserted against Mr. Bean, rather than LEED.” Id. Then, the Court went on to deny summary judgment with respect to the Intervenors’ fifth cross-claim for aiding and abetting breach of fiduciary duty. Id. It found that

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“there were still issues of fact concerning the nature and extent of the relationship between Mr. Bean and Mr. Schroering prior to Big Red’s sale of the Shares to LEED, as well as the structure of the resulting transactions and the lack of documentation for the same.” Id.

Lastly, the Court granted “LEED’s motion to dismiss the Intervenors’ sixth cross-claim for conspiracy to breach a fiduciary duty” since the claim “require[d] that each defendant independently owe a fiduciary duty to the claimant, and there is no independent fiduciary duty owed by LEED to the Intervenors.” Id. For the remaining cross-claims, claims seven through eleven, the Court determined that, for the same reasons above, “there remained material issues of fact concerning the claim for fraudulent conveyance such that the seventh through eleventh cross-claims should not be dismissed.” Id.

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J.G. Jewlry Pte. LTD. v. TJC Jewelry, Inc.

651469/2018, 2020 WL 3578454 (N.Y. Sup. Ct. 2020)

Sophie Copenhaver

Staff Member

Plaintiffs JDM Entities (“JDM”) and JGJ Entities (“JGJ”) commenced this action against SRK Entities (“SRK”), The Jewelry Company, and TJC (SRK’s and The Jewelry Company’s U.S. agent), on March 27, 2018. See J.G. Jewlry v. TJC Jewelry, 651469/2018, 2020 WL 3578454, at *2-3 (N.Y. Sup. Ct. 2020). On June 29, 2018, plaintiffs filed an amended complaint and asserted seven claims: “(1-3) breach of contract, (4) fraud, (5) unjust enrichment, (6) quantum meruit, and (7) conversion.” Am. Compl. (NYSECF No. 14) . The defendants then made three motions; first, a motion to dismiss the amended complaint for improper service of process, “lack of personal jurisdiction, forum non conveniens, the existence of an arbitration provision in an unsigned draft document, and a lack of standing as to certain [p]laintiffs”; second, a motion “for reconsideration of the court’s ex parte order authorizing email service on [d]efendants”; and third, a motion to dismiss the amended complaint based on the purported invalidity of the September 2019 service. See TJC Jewelry, 2020 WL 3578454,. at *4.

Plaintiff JDM was comprised of plaintiff entities JDM, MG Worldwide, Miles Bernard, and Asia Pacific. See id. at *2. The plaintiff entities are all involved in the diamond business and have a principal place of business in New York. See id. TJC is a corporation authorized to do business in New York with its principal place of business in New York; plaintiffs allege that TJC “is controlled by, is a marketing affiliate of, and serves as SRK’s and the Jewelry Company’s agent in the United States.” See id. All the defendants are also involved in the diamond trade business. See id.

Under New York law, service of a summons and complaint must “be made within 120 days after commencement,” but in cases where “service is not made upon a defendant within the time provided,” the court shall either dismiss the action or extend time

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for good cause. CPLR § 306-b. While the September 2019 service fell outside of the time limits established in § 306-b, the court deemed service timely in the interest of justice. See id. at *5 (citing Edan v Johnson, 117 A.D.3d 528, 529 (N.Y. App. Div. 2014)). The court found that plaintiffs had shown a “diligent record of attempting service on defendants through various means,” including through The Hague Convention, serving directors personally at a trade show, and through email. See id. Defendant had not alleged any prejudice suffered because of an extension of the service period as they had actual notice of this action. See id. (citing Henneberry v Borstein, 91 A.D.3d 493, 496 (N.Y. App. Div. 2012). Hong Kong has never objected to Article 10 of The Hague Convention, which provides that the country where a defendant is to be served does not object, service may be accomplished directly through judicial officers, officials, or other competent persons of the State of destination. See id. Because the manner of service in September 2019 was valid under The Hague Convention, it neutralized the defendant’s objection to the September 2018 service and the motion to dismiss the amended complaint for invalid September 2019 service was denied. See id. at *6.

CPLR § 302(a)(1) allows for personal jurisdiction where the defendant’s New York activities were purposeful and substantially related to the claim. See id. at *7. The Court, taking the facts alleged in the complaint as true, found that TJC acted as an agent in New York for SRK and The Jewelry Company; is allegedly controlled, or wholly owned, by SRK; and sells only products of SRK and The Jewelry Company. See id. “TJC’s chief executive allegedly worked at JDM’s offices and provided services on behalf of those companies.” See id. SRK and The Jewelry Company co-authorized the JGJ bank account in New York from which it transferred funds. See id. SRK and The Jewelry Company also allegedly shipped goods to JDM’s offices in New York en route to their final customers, deployed employees to work out of the JDM office, and more. See id. The court held that these all amount to volitional acts on the part of defendants to conduct business in New York in conjunction with plaintiffs. See id. The court also held that this comports with the due process clause as defendants have minimum contacts within the state and personal jurisdiction is reasonable under the circumstances. See id. at *8.

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Considering that the defendants’ business arm extended into New York, it is only fair to extend the state’s jurisdictional long arm to the defendants. See id. Therefore, the motion to dismiss the amended complaint for lack of personal jurisdiction is denied. See id.

The doctrine of forum non conveniens allows a court to transfer to a foreign court as it would be better litigated elsewhere. CPLR § 327(a). The court found that all but one party conducted business or maintained offices in JDM’s New York office; the other party is the corporate embodiment of the joint venture that flowed in part through New York. See id. at *9. Because a significant part of the joint venture took place out of JDM’s New York office, key witnesses and relevant documents are likely based in New York. See id. For these reasons, the court denied the motion to dismiss the amended complaint under the doctrine of forum non conveniens. See id.

It is well settled law that a party will not be “compelled to arbitrate . . . absent evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes.” See id. (citing Waldron v Goddess, 61 N.Y.2d 181, 183 (N.Y. 1984)). This agreement must be clear, explicit, and unequivocal. See id. The court found that neither party signed the agreement here and JDM denies even being presented the document. See id. Kriss Aff. (NYSECF No. 91). Therefore, the motion to dismiss the amended complaint due to the presence of an arbitration provision in an unsigned document is denied. See id. at *10.

Finally, the court denied the motion to dismiss the amended complaint for lack of standing. See id. The claims presented by plaintiffs are only viable if the court finds that no joint venture existed. See id. Plaintiffs may plead alternative and inconsistent causes of action to seek relief, and therefore there must be further discovery on the issues. See id.

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Chun You Cheng v. Yang

701690/2012, 2020 WL 3886393 (N.Y. Sup. Ct. 2020)

Eileen M. Creaser

Staff Member

Plaintiffs Chun You Cheng (“Cheng”) and Chiu Ming Yang Cheng (“Chiu-Ming”), commenced nine causes of action against defendants Roger Yang (“Roger”) as Administrator of the Estate of Mu-Chiao Yang (“Mark”), Hsiu-Lan Yang (“Tracy”), A.J. Chan (“A.J.”), Ju Yi Garden LLC, Dahlia Realty, and Garden View Ltd (“GVL”) in 2019 in Queens County. See generally Compl. (NYSECF No. 1). The complaint, which included individual and derivative class action claims, alleged that defendants wasted corporate assets, and plaintiffs sought a declaratory judgment “declaring the ownership interests of the parties.” Chun You Cheng v. Yang, 701690/2012, 2020 WL 3886393, at *1 (N.Y. Sup. Ct. 2020).

GVL is a real estate management corporation managed by Tracy with the help of her son, Roger. Id. at *1. Mark is Tracy’s deceased husband, Roger’s father, and plaintiff Chiu-Ming’s older brother. Id. Plaintiff Chiu-Ming is married to Plaintiff Cheng. Id. Defendant A.J. is Tracy’s father and Roger’s grandfather. Id. at *2. “Defendant Dahlia Realty is a real estate brokerage company” of which Mark was the sole owner until his death. Id. at *2. “Defendant Ju Yi is a limited liability company that purchased commercial spaces from GVL,” and “is owned by non-parties to this litigation.” Id. “Mark, Cheng, and Cheng’s brother (“Kung”) orally agreed to build and run a hotel in Flushing, Queens in 1998.” Id. The three men considered equal one-third ownership interests but determined that ownership would be determined by each individual’s capital investment at the time the Hotel was finished. Id. at *2. Cheng and Kung signed the contract for the land’s purchase and invested the capital for said purchase in 1998. Id. In 2000, Kung left the joint venture (“The Hotel Project”) and Cheng and Mark again orally agreed that instead of equal fifty percent ownership interests upon the Hotel’s completion, the ownership percentages would be determined by the capital invested by each man. Id.

The project fell apart soon after because of a “zoning issue,” but GVL filed new plans to make the building “mixed-use” and ultimately received a construction loan for $8 Million in 2003. Id. Mark, Tracy, Cheng, and Chiu-Ming each guaranteed the loan,

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but $8 Million “was insufficient to cover GVL’s construction expenses,” and A.J. invested $4.5 million in return for an equity interest in the property. Id. The building was completed in 2004 and GVL made Dahlia a selling broker. Id. Mark, through Dahlia, marketed condominiums in the property and received commissions. Id. “Cheng originally objected to A.J. becoming an equity member” but eventually agreed, and, in 2005, Mark and Cheng wrote a memorandum stating “AS PER OUR AGREEMENT, THE PROFIT SHARING FROM GARDEN VIEW LTD., FOR CHUN YOU CHENG & CHIU MING YANG CHEN HAS BEEN CHANGED FROM ORIGINAL 1/2 to 1/3.” Id. at *2–3.

Cheng himself received $3,954,121 in payments from GVL, and $713,000 from Defendants. Id. at *3. He also was allowed to use an apartment in New York which was kept off the market. Id. Defendants in turn received payments from GVL totaling $1,959,382 and between 2005 and 2001, had seven condominiums transferred to family members with discounts of $281,176.00. Dahlia, created by Dfendants, received $511,176.00 and made $204,539 in extra commissions because of increased commissions charged to GVL. Id. at *3. Defendants gave four units to family members rent free, depriving GVL of $1,908,000.00 in income, and GVL made donations on Defendants’ behalf totaling $208,415.00. Id. In terms of payments, GVL repaid $434,062.00 in non-business expenses for Defendants and made $1,693,960.00 in pension and life insurance payments . Id. To the extent they knew about the payments, Plaintiffs “acquiesced to them as part of the defendants[‘] share of the profits because all parties still expected to arrive at an amicable solution.” Id.

The Court first grappled determined “the scope of the parties[’[ agreement” in order to declare the split of ownership interest. Id. The Court relied on Metro-Goldwyn-Mayer v. Scheider to enforce the parties’ memorandum from 2005, in which the parties agreed that the ownership percentages would be the amount of capital each person invested. Id. at *4 (explaining that even when parties complete agreements expressly omitting elements that require future negotiation, the court may enforce a contract by finding objective criteria in the agreement such as typical practice or commercial custom). Therefore, the Court found that plaintiffs Cheng and Chiu-Ming owned one third, Defendant A.J. owned one third,, and defendants Tracy and Roger, “as Administrator[s] of Mark’s estate,” owned one third of GVL, respectively. Id. at 4. The Court also held that Roger, Tracy, and A.J. were “entitled to additional dividends to be paid by GVL in

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the amount of $3,802,486,” and Plaintiffs’ attorney’s fees would be set at a hearing on October 30, 2019. Id. at *7.[1]

Accordingly, for the first cause of action alleging corporate waste, the Court decided that Plaintiffs had proven waste because “[w]aste occurs when assets [are] utilized improperly or unnecessarily in breach of fiduciary duty.”. Id. at *6 (citation omitted). However, the Court found for Defendants on the the second cause of action, which alleged that Ju Yi Garden LLC and Dahlia Realty Inc. also wasted assets, and thus was duplicative of the first cause of action. Id. The third cause of action requested that each defendant post security so that the Court could indemnify GVL against future losses that arose from the causes of action at issue, but the Court found for Defendants because Plaintiffs failed to prove future losses. Id. . The fourth cause of action sought a permanent injunction stopping defendants from “self-dealing.” Id. To obtain a permanent injunction, a plaintiff must prove “that he or she has no adequate remedy at law,” but Plaintiffs failed to do so because “the rules of corporate governance provide an adequate remedy at law.” Id. (citations omitted). The Court also rejected Plaintiffs’ fifth cause of action, which sought a “constructive trust on the shares of GVL owned by [D]efendants,” because Plaintiffs “failed to prove that shares were transferred to [D]efendants in reliance of a promise arising from a fiduciary relationship.” Id. at 6–7. The seventh cause of action sought attorneys fees, and the Court stated that, “[a]s a general rule, a fee award is appropriate if the plaintiff has achieved a substantial benefit for the corporation.” Id. at *7. The Court reasoned that Plaintiffs were entitled to an award because the litigation did confer a benefit upon the corporation insofar as the corporation recovered “insurance payments, commissions,” donations, and other payments that would have otherwise been wasted. Id. The Court dismissed the eighth cause of action seeking “a preliminary injunction pending trial” as moot. Id. Lastly, the Court decided that Plaintiffs failed to prove conduct “so reckless as to” allow exemplary damages under the ninth cause of action. Id.

[1] This date is inconsistent with the timeline of this case and presumably, the court intended to write October 30, 2020.

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Bullen v. Sterling Evaluation Group, Inc.

650050/2019, 2020 WL 3053697 (N.Y. Sup. Ct. 2020) Daniel A. Green

Staff Member

Plaintiffs Bruce Bullen, et al. (“Bullen”) commenced an action against Sterling Valuation Group, Inc, (“Sterling”) in New York County on January 4, 2019. See generally Compl. (NYSECF No. 1). Plaintiff amended their complaint on October 21, 2019 after the Court dismissed the initial claims on September 19, 2019. See generally Amended Compl. (NYSECF No. 61). The amended complaint alleged three claims: “[1) fraud; (2) aiding and abetting fraud; and (3) and aiding and abetting breach of fiduciary duty.” Compl. ¶¶ 32–41, 48–55. Defendant moved to dismiss the claims pursuant to CPLR 3211(a)(1), (7), and (4), or, in the alternative, moved for a stay pending a separate resolution by a District Court judge. Bullen v. Sterling Evaluation Group, Inc. 650050/2019, 2020 WL 3053697, at *1 (N.Y. Sup. Ct. 2020) (citing SEC v. Platinum Management (NY) LLC, et al., No. 16-cv-6848 (EDNY) (BMC) (the “SEC Action”)). Plaintiffs sought to recover damages from Sterling “based on allegedly improper valuation reports” that Defendant had prepared$63,000,000 in investment funds. Id. The Court denied Sterling’s motion to dismiss “without prejudice to a motion for summary judgment upon the completion of discovery,” as well as “the alternative request for a stay pending the resolution of the SEC Action, finding that such a delay would not be beneficial.” Id.

Defendant is an international valuation firm that provides independent valuation services throughout the United States, Europe and Asia. See Compl. (NYSECF No. 61) at 14. Plaintiffs, who are “individuals, retirement plans, trusts, limited liability companies, and corporations,” alleged that they collectively “invested about $63,000,000 in a now-defunct hedge fund, PlatinumPartners Credit Opportunities (‘PPCO’ or the ‘Fund’)” from “September 2014 through May 2016.” Bullen, 2020 WL 3053697, at *1. PPCO retained Sterling around September of 2009 “to provide valuation and consulting services,” in addition to issuing quarterly reports (“the Sterling Reports”) with Defendant’s

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opinion on the fair value assets held by PPCO. Id. Plaintiffs alleged that they were provided with significant parts of the Sterling Reports from PPCO, “from about April 2011 through at least July 2015.” Id. Plaintiffs also alleged that Defendant “knew that the Reports were being provided to investors,” such as Plaintiffs, and that these investors “would rely on them in making investment decisions. Id. Plaintiffs alleged that “they did in fact rely on the Sterling Reports” when deciding to invest, but learned “via proceedings in the SEC action and elsewhere that PPCO had inflated its valuations,”, and that Defendant “failed to carefully scrutinize” or “challenge the improper valuations in any meaningful way.” Id. Further, Plaintiffs alleged that Defendant “corroborated” the inaccurate valuations, even “while in possession of significant questionable materials” obtained partly through PPCO’s internal valuation meetings, and that Defendant knew “that the auditors of the PPCO sister fund PPVA had identified a ‘material weakness’ in the Fund’s investment valuation.” Id. Plaintiffs sought to recover their investment of $63,000,000 and punitive damages based on the “allegedly improper valuation report” that Defendant had prepared. Id.

The Court proceeded to explain why Defendant’s motion to dismiss was denied with respect to each of the Plaintiffs’ three claims. Defendant alleged that Plaintiffs’ Amended Complaint did not provide enough particularity to support a claim of fraud, merely making conclusory statements. Id. at *2. Plaintiffs, however, detailed Defendant’s presence at “monthly, quarterly, and annual meetings,” their access to vast amounts of private, confidential documents, and significant evidence of overvaluations which “could not reasonably have escaped” a third-party valuator’s attention. Id. at *2–3. Plaintiffs also specified “60 valuations by Sterling and note[d] that in only 17 of those cases did” Defendant look closely enough to give a lower valuation than PPCO. Id. at *3. Moreover, Sterling had “superior access to PPCO’s confidential information” than Plaintiffs. Id. at *4. Thus, the Court held that Plaintiffs had provided enough issues of fact to defeat Defendant’s motion to dismiss as to the claim of fraud, and were therefore entitled to proceed to discovery. Id.

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The Court also denied Defendant’s motion to dismiss Plaintiffs’ second claim, namely, “that Sterling aided and abetted Platinum’s fraud.” Id. To survive the motion, Plaintiffs’ were required to specifically allege that Defendant helped conceal or enabled the fraud to proceed by “failing to act when required to do so,” and that Defendant’s actions “proximately caused the harm on which the primary liability is predicated.” Id. (citing Stanfield Offshore Leveraged Assets, Ltd. v. Metro Life Ins. Co. 64 A.D.3d 472, 476 (N.Y. App. Div. 2009). The Court explained that Plaintiffs had “adequately alleged Platinum’s underlying fraud and Sterling’s knowledge of that fraud.” Id. Further, although they had not alleged direct evidence, “circumstantial evidence is sufficient” to allege the “actual knowledge” requirement for their claim. Id. Plaintiffs’ showing of Defendant’s adoption of PPCO’s improper valuations adequately pleaded Sterling’s substantial assistance in failing to challenge the Fund’s valuations, and that “that failure helped enable the fraud to proceed.” Id.

The Court also denied Defendant’s motion to dismiss Plaintiffs’ third claim for“aiding and abetting Platinum’s breach of fiduciary duty.” Id. at *5. The Court acknowledged the existence of a clear fiduciary duty because Plaintiffs investment with PPCO and PPCO’s discretion and control of the investments. Id. Additionally, “Sterling was indisputably aware of this fiduciary duty.” Id. Plaintiffs alleged that Defendant “knew or should have known” that the Sterling Reports “would be used to mislead Plaintiffs.” Id. (citation omitted). Due to Sterling’s alleged “sham [r]eports,” and their failure “to conduct proper independent valuations,” Plaintiffs sufficiently stated a claim of aiding and abetting breach of fiduciary duty Id.

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Deane v. Brodman

150373/2017, 2020 WL 3317018 (N.Y. Sup. Ct. 2020) Nikki Grover Staff Member

Plaintiff Gary Deane (“Mr. Deane”) commenced an individual and derivative action on behalf of Big Machine Media, LLC (BMM) Big Machine Agency, LLC (BMA, and together with BMM, hereinafter “the Company”) against Howard Brodman, Ligget Vogt & Webb P.A. (“LVW”) and RBSM LLP (LVW, together with RBSM and Brodman, hereinafter “the Accountants”) in New York County on January 12, 2017. See generally Compl. (NYSECF No. 2). Plaintiff alleged claims for “professional negligence, aiding and abetting breach of fiduciary duty, and breach of fiduciary duty.” Deane v. Brodman, 150373/2017, 2020 WL 3317018, at *2 (N.Y. Sup. Ct. 2020). On March 13, 2017, the defendants moved for summary judgment on all three claims. See generally Mem. of Law in Supp. (NYSECF No. 14). On June 18, 2020, the Court granted the Accountants’ motion on the breach of fiduciary duty claim, but denied the motions on the professional negligence and aiding and abetting breach of fiduciary duty claims. See Deane, 2020 WL 3317018, at *4.

BMM was a publicity and marketing company for the music and entertainment industry. Its holding company was BMA (collectively, “the Company”). Id. at *1. In 2008, Leslie Taylor and Taylor founded and managed the Company. Id. “Non-party Maurice Deane made an initial investment of $150,000 in BMM, representing a 24.5% ownership interest,” and throughout 2010 his personal loans totaled $327,150. Id. In September 2012, Maurice Deane “sold his equity interest in the Company and interest as a creditor to his son, Gary Deane.” Id. Between August 2010 and September 2011, Mr. Deane “made additional personal loans to the company totaling $86,978.30, . . . of which $2,500 ha[d] been repaid.” Id. A Limited Liability Company Agreement (the “Operating Agreement”) stated that “any guaranteed payments or distributions to members (except as otherwise expressly authorized) required unanimous member approval and for the

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assets of the Company to exceed its liabilities.” Id. (citing NYSECF No. 88 § 6.02). The Company hired Mr. Brodman, CPA, in May of 2011 “to prepare the Company’s 2010 tax returns.” Id. “Mr. Brodman requested a copy of the Operating Agreement to assist in preparing the tax returns” and subsequently “prepared the Company’s tax returns from 2011 through 2015.” Id. During this time, “the Taylors did not seek unanimous member approval for the guaranteed payments or distributions.” Id.. In 2014, the Taylors discussed hiring Mr. Brodman for additional services, but did not pursue the option. Id. Mr. Deane claimed “that the Taylors misused the Company’s assets for their own personal use and benefit, including by using the Company’s funds to pay for their personal expenses, and that Mr. Brodman negligently performed accounting and tax preparation services, failed to represent the Company with undivided loyalty, and provided assistance to the Taylors in their tortious conduct.” Id. at *2.

Summary judgment is granted when the moving party presents evidence that no disputed issues of material fact exist, and that no defense to the cause of action exists. Id. (citing CPLR §3212; Alvarez v Prospect Hosp., 501 N.E.2d 572, 573 (N.Y. 1986)). The moving party must make a “prima facie showing of entitlement to judgment as a matter of law,” and the motion will be denied if the moving party fails to do so. Id. (citing Alvarez, 501 N.E.2d at 573).

To demonstrate liability for accounting malpractice, the “plaintiff must establish that the conduct of the defendant departed from accepted standard of accounting practice, and that such deviation proximately cause injury to the plaintiff.” Id. (citing Herbert H. Post & Co. v. Sidney Bitterman, Inc., 639 N.Y.S.2d 329, 335 (N.Y. App. Div. 1996)). In order to do so, the plaintiff must show that the conduct fell below the accepted standard and caused the plaintiff’s injury. Id. (citing D.D. Hamilton Textiles, Inc. v. Est. of Mate, 703 N.Y.S.2d 451, 453 (N.Y. App. Div. 2000)). Here, the court denied the Accountants’ motion for summary judgment for two reasons: (1) “it [wa]s undisputed that Mr. Brodman had a copy of the Operating Agreement,” and thus

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he should have known that it “expressly prohibited the payment of guaranteed payments or distributions without the unanimous consent of the members or when the Comany’s liabilities exceeded its assets”; and (2) Mr. Brodman “knew of the payments to the Taylors” and “directed their recharacterization as distributions”—without checking or inquiring as to “whether the Taylors obtained unanimous member approval”—and “he knew, or should have known, that the company’s liabilities exceeded its assets.” Id. at *7–8.

To establish liabilityfor breach of fiduciary duty, “a plaintiff must prove ‘the existence of a fiduciary relationship, misconduct by the other party, and damages directly caused by the parties’ misconduct.’” Id. at 8 (quoting Pokoik v. Pokoik, 982 N.Y.S.2d 67, 70 (N.Y. App. Div. 2014)). Generally, accountants do not bear fiduciary duties toward their clients, and no such duty arises even when he or she agrees to perform services outside of tax preparation. Id. at *3 (citing Bitter v. Renzo, 955 N.Y.S.2d 332, 332 (N.Y. App. Div. 2012)). Here, the Court granted the Accountants’ motion for summary judgment because there was “no evidentiary basis to support a finding that Mr. Brodman’s conduct or relationship with the Company warrant[ed] a deviation from the general rule.” Id. It was undisputed that Mr. Brodman never “play[ed] a larger role within the Company”—despite plans to do so—and thus “his contractual relationship with the Company was limited to preparing its taxes. Id.

Finally, to recover for aiding and abetting a breach of fiduciary duty, “a plaintiff must establish ‘a breach of fiduciary duty, that defendant knowingly induced or participated in the breach, and damages resulting from the breach.’” Id. at *4 (quoting Glob. Minerals and Metals Corp. v. Holme, 35 A.D.3d 93, 101 (N.Y. App. Div. 2006)). When a person “provides ‘substantial assistance’ to the primary violator,” he or she “knowingly participates in a breach of fiduciary duty.” Id. (quoting Glob. Minerals, 35 A.D.3d at 101). Moreover, “[a]ctual knowledge, as opposed to merely constructive knowledge, is required and a plaintiff may not merely rely on conclusory and sparse allegations that the aider or abettor knew or should have

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known about the primary breach of fiduciary duty.” Id. (quoting Glob. Minerals, 35 A.D.3d at 101–02). The Court also stated that “the mere inaction of an alleged aider and abettor constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff.” Id. (quoting Kaufman v. Cohen, 307 A.D.2d 113, 126 (N.Y. App. Div. 2003)). Here, the Court denied the Accountants’ motion for summary judgment because, as a matter of law, the Accountants did not “knowingly assist the Taylors in breaching their fiduciary duties.” Id. The Court based the ruling on several findings: Mr. Brodman (1) “had a close personal relationship with the Taylors”; (2) knew “of the Taylors’ receipt of improper payments and misuse of the Company funds”; (3) “advised them on how to classify the payments as guaranteed payments and distributions”; and (4) once “personally added entries to the Company’s accounting system to reflect the same.” Id.

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Patel v. Patel

655348/2018, 2020 WL 3201803 (N.Y. Sup. Ct. 2020)

Megan Hardy

Staff Member

Plaintiff Mayuriben Patel commenced an action against Defendant Paresh Patel in New York County on October 26, 2018. Patel v. Patel, 655348/2018, 2020 WL 3201803, at *2 (N.Y. Sup. Ct. 2020). The complaint alleged “a mix of derivative and individual claims,” including claims for “(1) accounting, (2) breach of fiduciary duty (derivative claim), (3) breach of fiduciary duty (individual claim), (4) conversion, (5) fraudulent inducement, and (6) judicial dissolution.” Id. Defendant moved to dismiss the claims based on “an assortment of grounds, including documentary evidence, lack of standing to bring a derivative claim, lack of personal jurisdiction, and failure to state a cause of action.” Id. The motion to dismiss was granted on all claims except the accounting claim, and Plaintiff’s cross-motion to amend was denied without prejudice. Id.

Defendant is the managing partner of M&D Pharmacy, LLC (“M&D”) which operated Harlem Pharmacy. Id. Plaintiff claims she “became a member of M&D with a 20% ownership interest” in December 17, 2012. Id. “Defendant initially had a 40% ownership interest, but acquired a third member’s interest around January 2015, and so defendant now has an 80% interest.” Id. M&D has no formal operating agreement, but in January 2015, the “Board of Directors and Shareholders allegedly passed resolutions . . . noting both Defendant’s 80% stake and Plaintiff’s 20% stake.” Id.

In December 2017, M&D “entered into a purchase agreement with RiteAid of New York, Inc. (“Rite Aid”).” identifying the parties “as the sole member[s] of M&D,” and “RiteAid agreed to pay M&D $483,000.00 for M&D’s files, records, and data.” Id. at *2. The purchase agreement also specified a payment by RiteAid to M&D of “$191,000.00 for a restrictive covenant barring [the parties] from operating a pharmacy within three miles” of the Harlem location for the next seven years. Id. RiteAid also purchased all of M&D’s fixed assets and saleable inventory for $1,000,000 and $94,762.87, respectively, and executed the sale onJanuary 16, 2018. Id.

Defendant “took possession of all proceeds from the Rite Aid transaction, and promised Plaintiff” she would receive her 20% share of the profits. Id. However, Plaintiff alleges she was shut . . . out of M&D’s affairs,” that “[t]he sale proceeds were not deposited into M&D’s operating bank account,” and that she “has not been able to

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inspect M&D’s financial records . . . or have a say in M&D’s management.” Id. Defendant allegedly texted Plaintiff that he had “no intention of distributing those proceeds to her, stating ‘I cannot pay you for something that’s not right full [sic] yours.’” Id. (quoting Compl. ¶¶ 54-55 (NYSECF No. 1)).

The Court wrote that it was unclear whether the cross-motion was seeking leave to amend or opposing the motion to dismiss. Id. The Court explained that the cross-motion stated the legal standard for a motion for leave to amend, but seemingly argued in opposition to the motion to dismiss. Id. The amended complaint had no information or documentation regarding what new factual allegations are made and it apparently abandoned both the individual and derivative claims of breach of fiduciary duty and conversion. Id. Accordingly, the court denied the cross-motion for leave to amend, without prejudice. Id. at *3.

In deciding a motion to dismiss, the court must view the factual allegations in the complaint as true, give the plaintiff “every possible favorable inference,” and determine whether the alleged facts make out a “legally cognizable theory.” Id. (citations omitted). Defendant sought dismissal of the original complaint, and thus the Court reviewed the claims that “claims for an accounting, fraudulent inducement, and judicial dissolution.” Id.

Defendant first argued that service was improper, and therefore that the Court lacked personal jurisdiction. Id. Specifically, Defendant alleged he was not shown the Summons and Complaint as the person who received them was “suffering from a number of mental illnesses,” and thus could not be considered “a person of suitable age and discretion.” Id. The Court held there was “no factual allegation that the process server should have known that service upon Defendant’s family member, at Defendant’s home, was not reasonably likely to convey the Summons and Complaint,” and thus the Court denied the motion. Id. at *4.

Defendant also argued that “Plaintiff lack[ed] standing to sue derivatively on behalf of M&D because . . . she is not a member,” submitting “M&D’s Articles of Incorporation and Meeting Minutes” from November 2008 as evidence. Id. But that evidence did not address Plaintiff’s claim that she became a member of M&D in 2012. Id. Plaintiff also submitted meeting minutes from 2015 indicating that she held twenty units of membership, along with “M&D’s tax return forms from 2015-2017,” which showed her membership. Id. Accordingly, the court denied the defendant’s motion to dismiss for lack of standing. Id.

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Plaintiff alleged she was entitled to an accounting because Defendant failed to “share information concerning M&D’s financial records,” but Defendant replied that Plaintiff failed to support her claims with evidence. Id. Because these arguments raised questions of fact thatwarranted further discovery, the Court denied the motion to dismiss. Id. at *4–5.

The Court granted Defendant’s motion to dismiss the claim of fraudulent inducement. Id. at *5. A claim for fraudulent inducement requires “a knowing misrepresentation of a material fact, which is intended to deceive another party and induce the party to act on in, resulting in injury.” Id. (citations omitted). The Court found that the Complaint did not specifically allege “that M&D was going to distribute all of the proceeds from the sale of M&D’s assets” in sufficient detail, including when or how the representation was made, whether the representation included distributing “a particular share of the profits” to Plaintiff, or how Plaintiff relied on the representation. Id.

Finally, the Court granted Defendant’s motion to dismiss the claim for judicial dissolution. Id. at *5–6. A limited liability company may decree dissolution “whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” Id. (citing N.Y. Ltd. Liab. Co. § 702) (emphasis omitted). Plaintiff’s allegations of exclusion from the company and the sale to RiteAid did not establish that it was not “reasonably practicable” for M&D to “carry on its business” and compel judicial dissolution. Id. at *6 (citations omitted). Accordingly, the Court dismissed Plaintiff’s claim. Id.

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Castle Restoration, LLC v. Castle Restoration & Constr., Inc.,

67 Misc. 3d 1240(A) (N.Y. Sup. Ct. 2020)

Blair J. Hendricks

Staff Member

Plaintiff Castle Restoration LLC (“Castle LLC”) brought suit against Castle Restoration and Construction Inc. (“Castle Inc.”) for breach of their consulting agreement, among other causes of action. See generally Castle Restoration, LLC v. Castle Restoration & Constr., Inc., 67 Misc. 3d 1240(A), 2020 WL 3886330 (N.Y. Sup. Ct. 2020). The Complaint alleged ten causes of action, including breach of the asset-sale and consulting agreements, breach of contract, and fraud in the inducement, among several others. Id. at *2. Defendants moved for summary judgement, dismissing all causes of action against them. Id.

Defendants Robert and Diane Castaldi sold their business, Castle Inc., to plaintiff Anthony Colao of Castle LLC. Id. Castle Inc. entered into an agreement with Castle LLC on March 15, 2012, and sold its assets to Castle LLC, which “including customer list and equipment,” for $1.2 million. Id. “Castle LLC paid Castle Inc. $100,000 at closing, and gave a promissory note in the amount of $1.1 million.” Id. The note was to be paid in monthly installments. Id. Additionally, Robert Castaldi entered into a consulting agreement with Castle LLC, in which he “agreed to make reasonable efforts to seek business opportunities” and help with bidding preparations for Castle LLC. Id.

On April 15, 2012, Castle LLC defaulted on the promissory note. Id. Castle Inc. then brought suit to recover on the note and moved for summary judgement, which was denied by the trial court, but the Appellate Division reversed. Id. Castaldi then commenced an action against Castle LLC and Colao, alleging breach of the consulting agreement, among other things. Id. On June 10, 2015, Castle LLC commenced the instant action alleging the ten causes of action. Id. Defendants moved for summary judgement to dismiss the complaints against them. Id.

To survive a motion for summary judgment, the moving party must show that there are no “triable issues of material fact.” Id. at *5. Here, the court granted summary judgment and dismissed the “second, fourth, fifth, sixth, seventh, eighth, ninth, and tenth causes of action, but denied the motion on all other causes of action Castle Restoration, 2020 WL 3886330, at *6.

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Breach of Asset-Sale Agreement

Castle LLC alleged that Castle Inc. breached the asset-sale agreement because Castle Inc. failed to complete its work-in-progress by the closing date, failed “to honor its warranty obligations to existing customers and satisfy[ing] its other debts and liabilities,” failed “to pay its vendors,” and failed “to indemnify Castle LLC for losses incurred” by the breach. Id. at *2. Conversely, Castle Inc. argued that it was discharged of its obligations because Castle LLC’s default on the note was “a material breach of the asset-sale agreement.” Id. Further, Castle Inc. contended that Castle LLC was collaterally estopped from relitigating the issue because the Second Department granted summary judgment on the default, and therefore, the issue of breach of the asset-sale agreement had already been litigated. Id. Castle LLC rebutted by asserting “that it was not delinquent on the promissory note” because an oral agreement formed between Castle Inc. and Castle LLC allowed Castle LLC to offset the obligations on the note by providing materials and labor. Id. Moreover, “Castle argued that Castle Inc. breached the alleged oral agreement” by refusing to honor it. Id.

Collateral estoppel means that a party in a court case cannot re-litigate an issue that has already been decided in a previous case. Id. For an issue to be collaterally estopped, (1) an “identical issue must have been decided in the prior action and be decisive in the current action,” and (2) “the party to be precluded must have had full and fair opportunity to contest the prior determination.” Id. (citing Matter of Juan C. v. Cortines, 89 N.Y.2d, 659, 667 (N.Y. 1997)). Here, the Court held that the issue was not collaterally estopped because “the Appellate Division did not determine that Castle LLC had breached the asset-sale agreement,” and thus Castle Inc. had not shown that the issue had been decided in a prior action. Id. at *3. Because the issue of breach was not collaterally estopped, the cause of action for breach of the asset-sale agreement was not dismissed. Id. at *3.

Fraud in the Inducement

The second cause of action alleged fraud in the inducement. Id. at *4. Castle LLC specifically alleged that (1) “Castle Inc. made false representations on the customer list” as part of the asset-sale agreement, and that (2) “[D]efendants falsely represented that Castle Inc. intended to complete the work-in-progress.” Id. Castle Inc. stated that the Complaint “merely allege[d] a breach of asset-sale agreement and an insincere

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promise of future performance,” and “that Castle LLC could have discovered the misrepresentations” with due diligence. Id.

The Court stated that a cause of action for fraud cannot be maintained for a breach of contract absent a violation of an independent legal duty. Id. As such, a breach of contract alone is not a tort. Id. (citing Lee v. Matarrese, 17 A.D.3d 539, 540 (N.Y. App. Div. 2005)). Here, the Court reasoned that the alleged fraud only related to a breach of contract, and not any independent legal duty. Id. Further, the court reasoned that Castle LLC could have discovered the alleged misrepresentations on the customer list if they had used due diligence because it had full opportunity to go through important documents prior to closing. Id. (citing Orlando v. Kukielka, 40 A.D.3d 829, 831 (N.Y. App. Div. 2007)). Thus, the Court dismissed the second cause of action. Id. at *3-4.

Breach of Contract

For the third cause of action, Castle LLC alleged that Castle Inc . breached the oral agreement by failing to compensate Castle LLC for completing Castle Inc.’s work-in-progress. Id. Castle Inc. asserted that this cause of action was duplicative of the claim for breach of asset-sale agreement, and that the oral agreement was “barred by the no-oral-modification provision of the asset-sale agreement.” Id. at *4–5.

The Court stated that parties in a written agreement that prohibits “oral modifications are protected by the statute of frauds.” Id. at *5 (citing N.Y. Gen. Oblig. Law § 15-301[1]; Rose v. Spa Realty Assoc., 42 N.Y.2d 338, 343 (N.Y. 1977)). However, the Court also stated that “[t]here are two exceptions to the statute of frauds: partial performance and promissory estoppel.” Id. (citing Richardson & Lucas, Inc. v. New York Athletic Club of City of NY, 304 A.D.2d 462, 463 (N.Y. App. Div. 2003)). These exceptions are only available when there are no other explanations for a party’s conduct. Id. Here, the Court reasoned that Castle Inc. failed to meet its burden in showing that the contract could not be modified by oral agreement because it failed to address these exceptions, despite the no-oral modification provision in the asset-sale agreement. Id. Thus, “the court decline[d] to dismiss the third cause of action.” Id.

Quantum Meruit & Unjust Enrichment

Castle LLC also brought a claim for quantum meruit as an alternative to recover on the costs incurred from completing Castle Inc.’s work-in-progress. Id. at *5–6. Further, Castle LLC alleged

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that “Castle Inc. was unjustly enriched by retaining payments from third parties for work performed by Castle LLC.” Id. at *6. Castle Inc. argued that the dispute was governed by the asset-sale agreement, and thus off-contract remedies such as quantum meruit and unjust enrichment were barred. Id.6. Off-contract remedies are only available in the absence of an agreement; if an agreement exists, the rules of the agreement govern the dispute. Id. (citing Pappas v. Tzolis, 20 N.Y.3d 228, 234 (N.Y. 2012); Cox v. NAP Constr. Co., Inc., 10 N.Y.3d 592, 607 (N.Y. 2008)). Here, there was “no dispute as to the existence” of the asset-sale agreement, and that completion of the work-in-progress was a part of that agreement in Sec. 2.04. Id. at *6. Thus, the Court dismissed the causes of action for quantum meruit and unjust enrichment because the existence of the asset-sale agreement barred off-contract remedies. Id.

Breach of Restrictive Covenant

For its seventh cause of action, Castle LLC alleged that Castle Inc. breached Section 11.04 of asset-sale agreement, which is a restrictive covenant under which Castle Inc. and the Castaldis were prohibited from managing, controlling, or owning “a competing construction or restoration business within a 40-mile radius of the Queens Midtown Tunnel” for the duration of Robert Castaldi’s consulting agreement and for two years after that agreemend ended. Id. Castle LLC alleged that the Castaldis breached the restrictive covenant by directing the renovation of a theater in Riverhead, New York, through competing construction and restoration companies. Id. Castle Inc. countered by stating that the restrictive covenant was contingent on Castle LLC’s timely payments on the promissory note. Id. The Appellate Division had previously found that Defendants submitted proof of the asset-sale agreement and Castle LLC’s failure to pay on the promissory note. Id. at *6–7. As such, collateral estoppel preventeds Castle LLC from relitigating the issue of whether it failed to make timely payments on the promissory note. Id. at *7 (citing Ryan v. New York Tel. Co., 62 N.Y.2d 494, 500 (N.Y. 1984)). Therefore, the Court reasoned that the defendants did not breach the restrictive covenant as a matter of law because Castle LLC failed to fulfill its obligation on the note. Id. Thus, the court dismissed the seventh cause of action. Id.

Breach of Consulting Agreement

For the tenth cause of action, Castle LLC alleged that Castaldi breached the consulting agreement by failing to seek business opportunities for Castle LLC and “to assist it in

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preparation of formal bids, quotations, and proposals. Id. However, the Court had previously found that Castle LLC “breached the consulting agreement and awarded Castaldi damages” back in January 2020. Id. Thus, Castle LLC was collaterally estopped from relitigating the issue, and the Court dismissed the tenth cause of action. Id.

Tortious Interference with a Contract

“The sixth, eighth, and ninth causes of action [were] for tortious interference with contract.” Id. For the sixth cause of action, Castle LLC alleged that “Castle Inc. interfered with Castle LLC’s use and enjoyment of a premises it leased from Wolf Properties Associates, L.P. (“Wolf Properties”), causing Wolf Properties to breach the lease.” Id. “Tortious interference with a contract requires a valid contract between the plaintiff and a third party, the defendant’s knowledge of that contract, the defendant’s intentional procurement of the third party’s breach without justification, actual breach of the contract, and damages resulting therefrom.” Id. (citing Lama Holding v. Smith Barney, 88 N.Y.2d 413, 424 (N.Y. 1996)). The Court reasoned that because Castle LLC did not allege that Castle Inc. intentionally induced Wolf to breach without justification, the cause of action should be dismissed. Id. at *8.

For the eighth cause of action, Castle LLC alleged that a competing construction company induced the Castaldis to breach the restrictive covenant in the asset-sale agreement (§ 11.04) by enabling the Castaldis to compete with Castle LLC. Id. However, because the Court had already determined that Defendants did not breach the restrictive covenant, there could be no cause of action for tortious interference. Id. Thus, the court dismissed the eighth cause of action. Id.

For the ninth cause of action, Castle LLC alleged that Castle Inc. was prevented from completing the work-in-progress because the Castaldis “allowed Castle Inc.’s insurance to lapse,” breaching “§ 2.04 of the asset-sale agreement.” Id. The Court stated that only strangers “can be liable for tortious interference with a contract,” id. (citing Ashby v. ALM Media, LLC, 110 A.D.3d 459 (N.Y. App. Div. 2013)), and that the Castaldis were not strangers to the contract, id. Further, the record did not show that the Castaldis maliciously tried “to impair Castle LLC’s business for their personal profit.” Id. (citing Joan Hansen & Co. v. Everlast World’s Boxing Headquarters Corp., 296 A.D.2d 103, 109–10 (N.Y. 2003)). Thus, the Court dismissed the ninth cause of action. Id.

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Shoreham Hills, LLC v. Sagaponack Dream House, LLC

2020 WL 1127071 (N.Y. Sup. Ct. 2020)

Benjamin J. Kazenoff

Staff Member

Plaintiffs Shoreham Hills, LLC (“Shoreham”), and Clinton Heights I, LLC (“Clinton”), commenced an action against Defendants MP Saganock LLC (“MP”), DH Sagaponack, LLC (“DH”), and Sagaponack Dream House, LLC (“SDH”) on July 18, 2019. See generally Compl. (NYSECF No. 1). Plaintiffs alleged claims for breach of contract, breach of fiduciary duty, fraudulent concealment, and for an accounting. See Shoreham Hills, LLC v. Sagaponack Dream House, LLC, No. 613802-19, 2020 WL 1127071, at *2 (N.Y. Sup. Ct. 2020). Defendants “moved to dismiss the complaint, inter alia, as time-barred, and . . . [P]laintiffs cross moved for discovery and to disqualify . . . [D]efendants’ attorney.” Id. On March 4, 2020, the Court granted motion to dismiss and denied Plaintiffs’ cross motion for discovery and to disqualify Defendants’ attorney. Id. at *2–4. In January 2007, the parties formed the defendant company SDH “to purchase and develop 30 parcels of land located in Sagaponack, New York.” Id. at *2. On March 9, 2007, the parties executed an operating agreement and appointed MP as the administrative member. Id. Under the agreement, the administrative member was required to distribute available cash to members at least once per quarter and within 30 business days after a parcel sale, refinance, or “other disposition.” Id. “On April 4, 2008, SDH sold one parcel for $3.55 million and distributed $2 million from the proceeds of the sale to its members.” Id. Plaintiffs sued on July 18, 2019, “alleging that they never received their 20% distribution from the proceeds of the sale and . . . had no knowledge of the distribution until 2018.” Id. Breach of Contract

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The Court dismissed the breach of contract claim as time barred, holding that the defendants’ silence or failure to disclose wrongdoing was “insufficient to toll the statute of limitations.” Id. (citing De Sole v. Knoedler Gallery, LLC, 974 F Supp 2d 274, 319 (S.D.N.Y. 2013)). New York’s six-year statute of limitations governs breach of contract claims, “which accrues at the time of a breach.” Id. (citing Ely-Kruishank Co. v. Bank of Montreal, 81 NY2d 399, 402 (N.Y. 1993)). Even if an injured party is unaware of the breach, the statutory period of limitations accrues from when the breach has arisen. Id. “[M]ere ignorance and lack of discovery of the wrong is not sufficient to toll the statute of limitations.” Id. Here, the alleged breach occurred in 2008, over ten years prior to this action. Id. Plaintiffs contended that under the doctrine of equitable tolling, the statute of limitations did not begin tolling in 2008 “because the defendants fraudulently concealed the 2008 distribution from them.” Id. However, for the equitable tolling doctrine to in New York, “a plaintiff must establish that the defendant took subsequent and specific actions after the initial wrongdoing, and that those subsequent actions by the defendant somehow prevented the plaintiff from timely bringing suit.” Id. (citing De Sole, 137 F Supp 3d at 422). Here, Plaintiffs failed to establish that equitable tolling was triggered by the defendants’ conduct after the alleged initial breach, and merely asserted conclusory allegations of fraudulent concealment. Id. Breach of Fiduciary Duty and Fraudulent Concealment The Court also dismissed the breach of fiduciary duty claim as time barred and “duplicative of the breach-of-contract-claim.” Id. at *2. A claim for breach of fiduciary duty accrues from the date of the alleged breach, and under CPLR 214(4), a three-year statute of limitations applies in cases where plaintiffs only sue for monetary damages. Id. (citing Ciccone v. Hersh, 530 F Supp 2d 574, 579 (S.D.N.Y. 2008)). Here, MP was the only defendant that had a fiduciary relationship with Plaintiffs at the time of the alleged breach in 2008. Id. at *3. In 2012, MP transferred its interest in SDH to DH, making DH the new administrative member. Id. “[T]he fiduciary relationship between the plaintiffs and MP ended in 2012,” over three years prior to this action. Id.

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Thus, the Court dismissed the breach of fiduciary claim as time barred and duplicative. Id. Plaintiffs’ also failed to establish that the alleged fraudulent concealment, a tort claim, caused a “separate and distinct” injury from their breach of contract claim. Id. (citing Fisher v. Big Squeeze (NY), Inc., 349 F Supp 2d 483, 489 (E.D.N.Y. 2004)). Accordingly, the court dismissed the alleged fraud as incidental to the breach of contract claim. Id. Accounting The Court dismissed the claim for an accounting as time barred as well. Id. A claim for an accounting “accrues when the duty to pay arises,” and under CPLR 213, a six-year statute of limitations applies. Id. (citing Matter of Fischer, 308 B.R. 631, 655 (Bankr. E.D.N.Y. 2004)). “Here, the duty to pay arose in 2008, when the parcel was sold and the distributions were made, over ten years prior to this action. Id. Thus, the claim for an accounting was “dismissed as time-barred.” Id. Conflict of Interest The Court also denied Plaintiffs’ cross motion to disqualify Defendants’ attorney because Plaintiffs failed to establish the existence of a conflict of interest. Id at *2. To disqualify an attorney because of a conflict of interest, a party must demonstrate “(1) the existence of a prior attorney-client relationship between the moving party and opposing counsel, (2) that the matters involved in both representations are substantially related, and (3) that the interests of the present client and the former client are materially adverse.” Id. (citing TekniPlex, Inc. v. Meyner & Landis, 89 NY2d 123, 131 (N.Y. 1996)). Here, Defendants’ attorney, John Simoni, represented an entity owned by the principal of Shoreham, Roboco, LLC (“Roboco”), in several separate matters, including a matter before the same court. Id. (citing Roboco, LLC v. ABCC Drilling LLC and Roland White (Index No. 607530/2015)). However, Plaintiffs failed to demonstrate that “Mr. Simoni’s representation of SDH, MP, and

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DH [were] substantially related to his representation of Roboco,” and the Court found that the issues in Roboco LLC were “completely unrelated to the issues in this action.” Id. Thus, Plaintiffs’ cross motion was denied. Id. Discovery Finally, the Court denied Plaintiffs’ cross motion for discovery because Plaintiffs “failed to meet their burden of establishing that facts essential to justify opposition to the motion exist under CPLR 3211(d).” Id. at *3. The evidence revealed that the wire transfer of the distribution at issue was sent to Shoreham and Clinton respectively on May 6, 2008. Id. If the plaintiffs did not receive the distribution, “then discovery as to who [the payments] went to would not revive the plaintiffs’ time-barred claims.” Id. Thus, the plaintiffs’ cross motion for discovery was denied. Id. at *4.

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New Media Holding Company LLC, VG Managing Corp. v. East West United Bank SA

67 Misc. 3d 1204(A) (N.Y. Sup. Ct. 2020).

Matthew Kipnis

Staff Member

Plaintiffs New Media Holding Company LLC (“New Media Holding LLC”) and VG Managing Member Corp (“VG”) brought an action alleging tortious interference and breach of prior agreements by Defendant, East-West United Bank SA. See New Media Holding LLC v. East United Bank SA, No. 652495/2019, 2020 WL 1679242, at *1–3 (N.Y. Sup. Ct. 2020). Plaintiff New Media was involved in a $75,000,000credit agreement in which East West acted as the facility on behalf of each finance party. Id. at *1–2. Prior to this litigation, East-West commenced arbitration proceedings against several parties including Plaintiff New Media. Id. at *3. Plaintiffs filed their original complaint on April 29, 2019, alleging that East-West exploited its credibility as a financial institution in an attempt to aid its Russian parent company, Sistema Massmedia, in obtaining ownership of Plaintiff New Media’s valuable “Library” “for far less than its true value.” Id. Then on May 3, 2019, Plaintiffs Amended their Complaint alleging breach of contract, breach of legal obligations under Luxembourg law, tortious interference with both business relations and prospective business relations, and abuse of process. Id. East-West moved to dismiss for forum non conveniens on June 10, 2019. Id. On April 6, 2020, the Court granted East-West’s motion. Id. at *1.

Neither of the Plaintiffs were New York corporations. Id. at *1–2. New Media Holding is a Delaware LLC., and VG is a Connecticut LLC. Id. at *2. Both Plaintiffs are headquartered in Greenwich, Connecticut. Id. However, the credit agreement itself was repayable in United States currency and the transactions ran through New York. Id. The parties had agreed that New York law would not govern their disputes. Id. Further, the agreements stipulated that disputes arising from the credit agreement were to be dealt with in arbitration in London instead of in New York courts. Id. The case focused on “New Media Group’s ownership of the Library, one of the largest and most valuable” collections of Russian-language television and movie media libraries in the industry. Id. In March 2014, Plaintiffs and Sistema were engaged in negotiations for a possible “merger and joint business venture” that resulted in all parties signing non-disclosure agreements in April 2014. Id. at *2. These talks ended six months later, but

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negotiations began again in October 2017. Id. The objective was to leverage the Library to create a “Netflix” catered to the Russian-speaking market through a joint venture. Id. Around January 2018, New Media and Sistema then entered into a second non-disclosure agreement, but Sistema cancelled the negotiations again shortly after. Id. On December 29, 2017, New Media Holding LLC asked East-West to postpone a roughly $3 million scheduled payment that was originally due on December 31, 2017. Id. On January 15, 2018, “East-West accelerated the outstanding amount due under the loan” in response. Id.

Plaintiffs argued that the action should not be dismissed for forum non conveniens because there were substantial ties to New York in the facts of this case, that East-West would not suffer hardship from litigating in New York, and that “there would be little burden” on New York courts in applying foreign laws. Id. at *4. Those claimed ties ranged from the fact that “the Library is maintained in New York and governed by a license agreement that is governed by” New York law to the fact that “East-West issued draws under the Credit Agreement from New York banks and New Media Group repaid the loan from a bank in New York.” Id. Further, Plaintiffs alleged both that they negotiated the relevant agreements in New York and that “key witnesses and documentation are located in New York.” Id. In contrast, East-West argued that there were insufficient New York connections to warrant use of New York courts. Id. They argued that “none of the parties to this action reside in New York and nearly all the witnesses and evidence are located overseas.” Id. Moreover, they argued that New York courts would be substantially burdened because “this case will require application of laws from at least three foreign jurisdictions,” that “alternative forums are available in either England or Luxembourg,” and that any injuries would have been felt in Delaware or Connecticut, rather than New York. Id. at *4.

Under CPLR § 327, in order for a defendant to prevail on a motion for forum non conveniens, the defendant must show that it would be “in the interest of substantial justice” for the action to “be heard in another forum.” Id. (citation omitted). Factors include (1) “the burden on New York courts,” (2) “the unavailability of an alternative forum in which the plaintiff may bring suit,” (3) the “potential hardship to the defendant,” (4) “whether the transaction at issue arose primarily in a foreign jurisdiction,” and (5) where the parties reside. Id. (citing Islamic Republic of Iran v. Pahlavi, 62 N.Y.2d 474, 479 (N.Y. 1984)). Further, the standard is such that the plaintiff’s forum decision should be left alone except when the

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balance of burden “is strongly in favor of a substantial nexus between New York and the action is lacking.” Id.

First, the Court weighed the facts to determine the residency of the parties, and found that Plaintiffs were not residents of New York and that “East-West is certainly a Luxembourg entity.” Id. at *5. Second, the Court found that there was not a substantial nexus to New York. Id. The Court rejected Plaintiffs’ arguments and noted that the only connection here was that East-West allegedly used “certain loan documents” negotiated and funded in New York as tools to obtain control of the Library, which was also located in New York. Id. But since the alleged events of this escapade spanned multiple countries, this connection alone was an insufficient nexus to New York, especially given the possible “inability to bring witnesses and documents across the globe to New York.” Id.

Third, the Court found that there would be a burden on New York courts that weighed in favor of granting the motion. Id. at *5–6. The Court found that between the international law violations alleged in the complaint and the“at least three to four interlocking agreements at issue,” the Court would be tasked with applying the laws of “England, Luxembourg, the Cayman Islands, and Switzerland.” Id. at *5. Further, the Court found that “in the Credit Agreement, i.e., the document that bears the closest relationship to East-West,” Plaintiffs voluntarily contracted for English law and arbitration to apply to even “non-contractual obligations” between the parties. Id. Accordingly, the Court found that Plaintiffs had no reasonable expectation of being able to seek New York courts or New York law to litigate their claims. Id. at *6.

Fourth, the Court agreed with East-West that the potential burden of requiring “East-West, a foreign defendant, and its Russian parent, Sistema,” to litigate in New York warranted dismissal. Id. Fifth, the Court found that it could not overlook the likely burden East-West would face because most of its evidence and witnesses were located in Europe. Id. at *6–7.

Lastly, the Court found that England and Luxembourg would be a suitable alternative forum for this dispute. Id. at *7. Accordingly, the Court granted the motion because the balancing of factors relevant to a forum non conveniens analysis all signaled that a dismissal was appropriate here, and reiterated that “[u]ltimately, and most significantly, this case simply d-id= not have a substantial nexus to New York.” Id. at *7–8.

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Sands Bros. Venture Capital II, LLC v. Huff

50565/2020, 2020 WL 2516723 (N.Y. Sup. Ct. 2020)

Gabriella Lumerman

Staff Member

On November 30, 2012, Sands Brothers Venture Capital, LLC, Sands Brothers Venture Capital III LLC, Sands Brothers Venture Capital IV, LLC, and Genesis Merchant Partners LP (“Plaintiffs”) commenced an action against Anthony Huff, Sheri Huff, Thomas Bean, Big Red, LLC, Steven Pence, Greggory Skaggs, Ronald Heineman, O2HR, LLC, Oxygen Unlimited, LLC, River Falls Investment LLC, River Falls Financial Services, LLC, Accredited Investor Resources, LLC, WA Huff, LLC, River Falls, Holdings, LLC, Continental Transfer & Trust Company (“Defendants”). Sands Bros. Venture Capital II, LLC v. Huff, 50565/2020, 2020 WL 2516723, at *1, 3 (N.Y. Sup. Ct. 2020) (citing NYSECF No. 175). Plaintiffs brought eights causes of action: (1) “fraud”; (2) “aiding and abetting fraud”; (3) “aiding and abetting fraudulent conveyance”; (4) conspiracy to fraudulently convey”; (5) “aiding and abetting breach of fiduciary duty”; (6) “aiding and abetting conversion”; (7) “equitable restitution”; and (8) “unjust enrichment.” Id. at *3. On May 1, 2020, the Court dismissed Mr. Pence’s motion to dismiss for lack of personal jurisdiction and his motion for summary judgment. Id. at *5.

In their Complaint, Plaintiffs claimed that “O2HR, LLC (‘O2HR’), a company that provided outsourced management of payroll tax, and insurance obligations for client companies,” issued promissory notes (“Notes”) to Plaintiffs between 2008 and 2009. Id. at *2 (citing NYSECF No. 226, ¶¶ 26–30). However, O2HR became insolvent and defaulted on some of those Notes. Id. (citing NYSECF No. 226, ¶¶ 37–41). Plaintiffs sued Mr. Huff, claiming he committed a $58 million fraud scheme, causing O2HR to become insolvent. Id. at *1, 2 (citing NYSECF No. 226, ¶¶ 1–4, 35). Plaintiffs argued that Defendants diverted money from O2HR “to entities controlled by Mr. Huff, including River Falls Investments, LLC, River Falls Financial Services, LLC, River

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Falls Holdings, LLC (River Falls Investments, LLC, River Falls Financial Services, LLC, and River Falls Holdings, LLC, collectively, the River Falls Entities), SDH Realty LLC, among others (the River Falls Entities and SDH Realty LLC, collectively, the Huff-Controlled Entities).” Id. at *2 (citing NYSECF No. 226, ¶¶ 1–4, 35). In addition, Plaintiffs claimed that “approximately $10 million was moved from O2HR and channeled into 15,657,410 shares of common stock of General Employment Enterprises, Inc. (‘GEE’), a publicly traded company,” and that “ approximately $44 million was routed through Defendants River Falls Investments and River Falls Financial Services.” Id. (citing NYSECF No. 226, ¶¶ 49–50).

Plaintiffs then argued that Mr. Pence, “former Lieutenant Governor and U.S. Attorney of the Commonwealth of Kentucky,” was involved in Mr. Huff’s fraud scheme by “aiding and abetting the cover up of O2HR derived assets.” Id. (citing NYSECF No. 226, ¶ 14). Plaintiffs claimed “that while the Notes and underlying loan agreements were acquired, Mr. Pence held meetings with Plaintiffs’ representatives and ‘touted the safety and benefits’ of the Notes.” Id. (citing NYSECF No. 226, ¶ 32). In addition, once O2HR was deemed insolvent, “Mr. Huff allegedly transferred approximately $8 million to River Falls Financial Services, which was then transferred to Accredited Investor Services, Inc. (AIR).” Id. (citing NYSECF No. 226, ¶¶ 53–54). Then, AIR tried to give a $3.14 million loan to Mr. Pence through two Notes. Id. (citing NYSECF No. 226, ¶¶ 55–57). Mr. Pence personally made the Notes and paid no interest. Id. (citing NYSECF No. 226, ¶¶ 55–57). “Mr. Pence then used the loan from AIR to buy 9,737,415 shares of GEE.” Id. (citing NYSECF No. 226, ¶ 59). On July 1, 2009, Mr. Pence became Chairman of GEE. Id. (citing NYSECF No. 226, ¶ 62).

Next, Plaintiffs claimed that Mr. Pence transferred his interest in PSQ, LLC to Gregory Skaggs “in exchange for PSQ’s agreement to take over the debts Mr. Pence personally owed to AIR.” Id. (citing NYSECF No. 226, ¶ 64). Mr. Pence was also allegedly “involved in concealing the transfer of O2HR’s derived assets into a $2,300,000 certificate of deposite,” which was “to be credited to GEE.” Id. at *2–3 (citing NYSECF No. 226, ¶ 113).

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Finally, “Mr. Pence allegedly assisted in concealing the true nature of the $2,300,000 transfers and induced GEE’s auditor to issue an unqualified audit letter,” and ultimately signed “GEE’s Form 10-K while knowing the statements therein were false and misleading.” Id. at *3 (citing NYSECF No. 226, ¶¶ 114–20).

Mr. Pence filed a motion to dismiss for lack of personal jurisdiction. Id. “Under New York’s CPLR § 302(a)(1), a court may exercise personal jurisdiction over a party where its activities are purposeful and there is a substantial relationship between the transaction and the claim asserted, even if only one transaction takes place in New York.” Id. (citing Fischbarg v. Doucet, 9 N.Y.3d 375, 380 (2007); Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 (1988)).

The Court dismissed Mr. Pence’s motion and held that it could exercise personal jurisdiction under CPLR § 302. Id. The Court held that Plaintiffs successfully stated that Defendants “travelled to Manhattan and held substantive meetings with the Plaintiffs’ representatives where they touted the safety and benefits of the Notes” Id. (citing NYSECF No. 226, ¶¶ 32–33). Moreover, the Court found that Mr. Pence “purposely availed himself of the privilege of conducting business in New York by travelling to attend New York meetings with Mr. Huff.” Id.

In addition to his motion to dismiss for lack of personal jurisdiction, Mr. Pence moved for summary judgment pursuant to CPLR § 3212(b). Id. On such a motion, the moving party “must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact.” Id. (quoting Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 (1986) (citing Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853 (1985))). “Only once [a prima facie] showing is made, does the burden shift to the opposing party to produce evidence in admissible form sufficient to establish the existence of a triable issue of fact.” Id. at *3–4 (citing Zuckerman v. New York, 49 N.Y.2d 557, 562 (1980)).

The Court rejected Mr. Huff’s motion for summary judgment has to the fraud claim because he failed to meet his

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prima facie burden of showing that there was no genuine dispute concerning material facts, given that one of his statements “could constitute a material misrepresentation about an existing fact, which is actionable,” and the fact that his claims that he “cannot recall” or that he “dispute[d] the contents of the alleged conversation . . . merely creates a factual issue.” Id. at *4–5. The Court also dismissed Mr. Pence’s motion as to the other seven causes of action because Mr. Pence failed to address the claims in the motion. Id. at *5.

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Wey v. NASDAQ, Inc.

651684/2018, 2020 WL 742548 (N.Y. Sup. Ct. 2020)

Mary T. Michalos

Staff Member

Plaintiffs Benjamin Wey and New York Global Group (“NYG”) commenced an action against NASDAQ, the NASDAQ Stock Market, and Adena Friedman, Robert Greifeld, Michael Splinter, Nelson Griggs, Edward Knight, Arnold Golub, William Slattery, Michael Emen, Alan Rowland, Keely Moxley, Robert McCooey, and Andrew Hall (collectively, “Defendants”) in New York County on April 9, 2018. See Wey v. NASDAQ, Inc., 651684/2018, 2020 WL 742548, at *3 (N.Y. Sup. Ct. 2020). The complaint asserted state law claims for: (1) malicious prosecution; (2) tortious interference with prospective economic advantage; and (3) tortious interference with contract based upon the Defendants’ allegedly wrongful cooperation with government officials in the investigation of Mr. Wey and his company, NYG. Id. On April 18, 2019, the Defendants moved the action to federal court. Id. Plaintiffs moved to remand. Id. On March 25, 2019, Judge Keenan of the Southern District of New York granted Plaintiffs’ motion. Id. On February 11, 2020, the Court granted the Defendants’ motion to dismiss pursuant to CPLR 3211(a)(7), without prejudice. Id. at *1.

Mr. Wey co-founded and served as the Chief Executive Officer of NYG, a consulting company that advises foreign investors in international capital markets, including the NASDAQ Stock Market. Id. Mr. Wey’s work in the industry was purportedly “highly sought-after.” Id. His success was attributed to his maintained relationships with high-ranking members of NASDAQ. Id. at *2. In 2010, the Securities and Exchange Commission (“SEC”) launched an investigation into several NASDAQ Stock Market listings, which included companies tangled with NYG. Id. Plaintiffs alleged that Mr. Wey became an “easy target” for NASDAQ to deflect blame after news publications printed their own investigations on these “Chinese

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scams” mentioning Mr. Wey. Id. Defendants allegedly made false statements about Mr. Wey regarding the investigation to the SEC, FBI and United States Attorney’s Office for the Southern District of New York. Id. As a result, in 2012, the FBI raided Mr. Wey’s home and office for evidence of wrongdoing. Id. at *3. In 2015, Mr. Wey was charged with fraud and malfeasance in a civil enforcement proceeding. Id. However, in 2017, Judge Alison Nathan of the Southern District of New York held that the search of Mr. Wey’s home and office violated the Fourth Amendment and, therefore, all evidence obtained was blocked. See id. (citing United States v. Wey, 256 F. Supp. 3d 355 (S.D.N.Y. 2017)). Consequently, the actions against Mr. Wey were voluntarily dismissed. Id. Plaintiffs based the action on the idea that Defendants’ “fabricated rule violations and outright lies to federal authorities” subjected Mr. Wey to an FBI raid, investigation, legal action and negative media coverage that left Mr. Wey’s reputation and business, NYG, irreparably damaged. Id.

On February 11, 2020, the Court granted Defendants’ motion to dismiss the complaint for failure to state a claim pursuant to CPLR § 3211(a)(7), finding that Plaintiffs’ three claims did not meet the legal elements of each cause of action. See id. at *1. First, the Court found the Complaint failed to state a claim for malicious prosecution. See id. at *4. A claim for malicious prosecution has four elements: “‘(1) commencement or continuation of a criminal proceeding by the defendant against the plaintiff; (2) the termination of the proceeding in favor of the plaintiff; (3) the absence of probable cause for the criminal proceeding; and (4) actual malice.’” Id. (quoting Mendez v. City of N.Y., 137 A.D.3d 468, 470 (N.Y. App. Div. 2016)). However, it is a complete defense to a cause of action for malicious prosecution that there was “probable cause to believe that a crime [was] committed.” Id. (citing Batten v. City of N.Y., 133 A.D.3d 803, 806 (N.Y. App. Div. 2015)). Because Plaintiffs “fail[ed] to adequately allege that the U.S. Attorney lacked probable cause” to indict Mr. Wey, Plaintiffs could not establish that Mr. Wey’s criminal proceeding was actually “terminated in his favor.” Id. The Court reasoned that the suppression of evidence did not

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indicate Mr. Wey’s innocence, nor did the government’s voluntary dismissal of its action against him. See id.

Next, the Court dismissed the “claim of tortious interference with prospective economic advantage” because the allegations of Defendant’s selfish motivations did not directly interfere with future business relationships between the Plaintiffs and third party. d. at *5. A plaintiff must plead that the defendant directly interfered with a third party and that the defendant either employed wrongful means or acted for the “sole purpose” of inflicting intentional harm on plaintiff. Id. (citation omitted). The Court reasoned that mere reasonable inferences that Defendants acted to destroy Plaintiffs’ business with a third party, such as a Chinese company NYGG Asia, knowing the existence and importance of a business relationship between the Plaintiffs and third party, were insufficient. Id.

The Court also dismissed Plaintiffs’ tortious interference with contract claims because none of Plaintiffs’ allegations suggested that the Defendants targeted the Plaintiffs’ relationship with NYGG Asia or acted with intent to damage that contractual relationship. See id. Tortious interference occurs when the defendant knowingly and intentionally damages the plaintiff's contractual relationship with a third party, causing economic harm absent justification. See id. (citing Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 424 (1996)). The Court reasoned that the Defendants did not intentionally target the Plaintiffs’ contractual relationships and no specific agreement between the Plaintiffs and NYGG Asia was identified as having been breached. See id. The Court indicated that, at most, the Plaintiffs alleged a claim of wrongful conduct when the Defendants deflected negative publicity to Mr. Wey. See id. Thus, as a matter of law, this claim failed.

The Court then held that Plaintiffs’ state law claims were not preempted by federal law. See id. at *6–7. The Court found Congress intended federal securities law to “preempt state law claims based on a [self-regulatory organization]’s duties under the [Securities] Exchange Act” of 1934. Id. at *6. NASDAQ, a self-regulatory organization (“SRO”) and a registered national

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securities exchange, is subject to disciplinary action by the SEC in the event of a violation of its own rules or the Exchange Act. See id. Although Congress allows individuals aggrieved by SEC orders affecting the discipline of an SRO to “obtain review” in a circuit court, pursuant to 15 U.S.C. §§ 78s(b)(1), (c), and 78y(a)(1), it did not sanction a “private right of action under the [Exchange] Act to challenge a SRO’s failure to follow its own rules.” Id. (citing Desiderio v. NASD, 191 F.3d 198, 207–08 (2d Cir. 1999)). At this stage of the proceedings, the Court did not declare invalid the official act of NASDAQ since NASDAQ had used the same standards when applying the rules to the Plaintiff’s as it would have to others. See id. at *7.

The Court further found Defendants were not entitled to absolute SRO immunity because NASDAQ was performing functions delegated to it by the SEC. See id. at *7; see also id. (citing D’Alessio v. New York Stock Exchange, Inc., 258 F.3d 93, 105 (2d Cir. 2001)). SROs have long been recognized by federal courts “as immune from claims concerning regulatory reports and internal investigations because” many of these claims arise out of its administrative and oversight role. Id.. at *8. Absolute immunity is afforded when the SRO is functioning as a quasi-governmental authority. Id. at *9 (citing DL Capital Group v. NASDAQ, 409 F.3d 93, 99 (2d Cir. 2005)). The Court reasoned that claims that do not involve any exchange conduct that could be characterized as regulatory do not implicate the SRO’s need for immunity. See id. (citing City of Providence v. Bats Global Mkts., Inc., 878 F.3d 36, 47 (2d Cir. 2017)). The Court held that NASDAQ was not entitled to absolute immunity from suit based on the misconduct alleged. Id. at *8–11. The Court reiterated that the alleged singling out of Mr. Wey and false statements to the SEC and FBI by NASDAQ was outside of its regulatory function and, thus, not immune. See id.

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In the Matter of Uxin Limited Securities Litigation v. XXX

650427/2019, 2020 WL 1146636 (N.Y. Sup. Ct. 2020)

Jessica Mingrino

Staff Member

Uxin Limited (“Uxin”), China’s largest used car e-commerce platform, and several named executives, directors, and underwriters are currently subject to a putative securities class action suit brought on behalf of purchasers of Uxin stock who relied on their allegedly false offering documents. See In the Matter of Uxin Limited Securities Litigation v. XXX, 650427/2019, 2020 WL 1146636 (N.Y. Sup. Ct. 2020). Plaintiffs accused Uxin of violating Sections 11, 12, and 15 of the Securities Act of 1933 (the “Securities Act”), alleging the registration statement and prospectus accompanying their June 27, 2018 initial public offering (IPO) were “materially incomplete and misleading” and contained falsified reports of sales, assets, and liabilities. In Re Uxin Limited, 2020 WL1146636 at *1. The defendant filed a motion to dismiss the allegations on September 10, 2019. See Not. of Mot. to Dismiss (NYSECF No. 71). On March 9, 2020, the Court granted the motion in part and denied it in part. See Id. at *11.

Uxin operates under a bipartite business model. In Re Uxin Limited, 2020 WL 1146636, at *2. Uxin Auction (2B) is primarily targeted toward other businesses, assisting car dealerships with vehicle sourcing, turnover, and sales transactions. Id. Uxin Used Car (2C) services consumers by offering car recommendations, financing, and other purchasing assistance, including vehicle appraisal. Id. The company draws its profit from fees for loan and transaction facilitation services associated with both segments. Id. According to its IPO, Uxin sold 25 million American Depository Shares (ADS) of its business, each representing three shares of its Class A common stock. Id. at *3. Each ADS sold for $9, amounting to $205.1 million in initial net proceeds. Id. Less than two months later, however, Uxin announced a previously unanticipated change to its business model: it would stop providing ancillary services and inspections to customers through its 2B model, resulting in material changes to its value. Id. at *3–4. Following the announcement of this change, Uxin’s share price fell $0.60 and closed at $4.50 per ADS, half its IPO price. Amended Compl. ¶10 (NYSECF No. 83). Additionally, in April of 2019, J Capital Research USA LLC (“J Capital”), a short seller, released a report on Uxin claiming the company “grossly inflated its

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revenues, transaction volumes, car values, and inventories, and understated its debt load” in its offering documents. In Re Uxin Limited, 2020 WL 1146636, at *5–7. The material changes in Uxin’s business model and its resulting market position, coupled with J Capital’s allegations of their fabricated financial statements, prompted Plaintiffs to sue Uxin. Id. at *6–7. The complaint accused Uxin of violating the Securities Act, which protects investors by imposing “strict liability for material misstatements contained in registered securities offerings.” Compl. ¶¶ 1; In Re Uxin Limited, 2020 WL 1146636, at *7 (internal citations omitted). It also accused Uxin of breaching an independent affirmative duty to provide adequate disclosures regarding “known adverse conditions, trends, risk, and uncertainties” pertaining to their business. In Re Uxin Limited, 2020 WL 1146636, at *11–12 (internal citations omitted). Defendants moved to dismiss, arguing that the Plaintiffs’ claims should be subject to a heightened pleading standard and that the complaint failed to state a claim under §11 and §12(a)(2) of the Securities Act and 17 CFR 229.303, concerning Uxin’s business change and its financial documents. Id. at *7–11. Uxin asserted that an elevated pleading standard applied pursuant to CPLR 3016(b), which requires a detailed explanation of circumstances surrounding wrongdoing when a claim is based on alleged misrepresentations. Id. at *7. However, the Court held that CPLR 3016(b) did not apply because Plaintiffs’ claims are based on a breach of duty created by the Securities Act. Id. The defendant’s state of mind is immaterial to negligence-based claims, as the court need only inquire whether Uxin breached its duty to act truthfully surrounding its IPO. Id. Since the Complaint met the requirements of ordinary notice pleading, the Court denied the relevant portion of the motion to dismiss. Id. Defendants also argued that the complaint failed to state a claim under the Securities Act with respect to the change in their 2B business model because those changes were not known to the company at the time the offering documents were filed. Id. at *7–9. The Court explained that “whether a statement is materially false or misleading is viewed at the time such statement is made—not retroactively, in hindsight.” Id. at *7 (citing Matter of Netshoes Sec. Litig., 64 Misc. 3d 926 (N.Y. Sup. Ct. 2019)). The court emphasized the Complaint did not allege that the impending changes to Uxin’s business were known or should have been known at the time of the IPO. Id. at *7–9. Additionally, the court found Item 303’s requirement to disclose known trends that may materially impact the security does not apply to business strategy

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decisions, and that even if it did, “[s]ecurities laws do not impose a duty on corporate officials to be clairvoyant.” Id. at *9 (quoting Shemian v. Research in Motion Ltd., No. 11 Civ. 4068(RJS), 2013 WL 1285779, at *21 (S.D.N.Y. Mar. 29, 2013)). Uxin also openly cited the potential “fail[ure] to provide a differentiated and superior customer experience” as a risk factor that could materially affect their business in its Prospectus. Id. at *2, 7–9. The court clarified that registration documents do not promise to maintain a security’s current policies, and opinions within offering documents are not actionable unless false and subjectively believed when created. Id. at *9–10 (citing Waterford Twp. Police & Fire Retirement Sys. v. Regional Mgt Corp., 2016 WL 1261135. at *9 (S.D.N.Y. March 30, 2016)) . The court thus dismissed all claims based in the change to Uxin’s B2 business without prejudice. Id. Lastly, Uxin moved to dismiss all claims that were based on J Capital’s report, arguing that short-seller reports are inherently unreliable because of their writers’ incentive to exaggerate negative aspects of securities covered. Id. at *10–11. Uxin also “vigorously refuted” J Capitol’s accusations by submitting a detailed response report to the court. Id. at *27. However, the accusations were sufficient to survive a motion to dismiss, as credibility is a question of fact to be explored during discovery. Id. The court accepted the Plaintiffs’ allegations as true in accordance with standard procedures and found that the complaint did state a claim under Sections 11 and 12(a)(2) of The Securities Act with respect to Uxin’s financial documents. Id.

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Matter of Sundial Growers Inc. Sec. Litig.

655178/2019, 2020 WL 2543817 (N.Y. Sup. Ct. 2020)

Gabriel V. Niculescu

Staff Member

On September 9, 2019, plaintiff Trisha Peters commenced a class action [this case summary uses “plaintiff” and “plaintiffs” interchangeably when referring to the claims brought by the class representatives] against Sundial Growers, Inc. (“Sundial”), some of its executive officers and directors (the “Individual Defendants”), and a group of banks (the “Underwriters”). See generally Compl. (NYSECF No. 1). On October 23, 2019, the action was consolidated with two other similar actions, the Clarke and Hoeller actions. See Consolidation Order (NYSECF No. 14). The amended complaint stated three causes of action, alleging that the defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. Amended Compl. ¶¶ 76–106 (NYSECF No. 18). The complaint also alleged that Sundial’s Registration Statement did not comply with Item 303 of SEC Regulation S-K, 17 C.F.R. 929.303 and with Item 105 of SEC Regulation S-K, 17 CFR. 5229.105. Matter of Sundial Growers, Inc. Sec. Litig., 655178/2019, 2020 WL 2543817, at *2 (N.Y. Sup. Ct. 2020). On December 16, 2019, all defendants moved to dismiss the amended complaint under CPLR 3211(a)(1),(5),(7), and (8)[except for one Plaintiff]. Id. at *1. On May 15, 2020, the court granted the motion to dismiss in its entirety. Id. at *6.

Sundial is a Canadian corporation that produces cannabis. Id. at *1. It filed its initial public offering (“IPO”) on August 1, 2019, when it sold 11 million shares of common stock for $13 per share, making about $143 million in gross proceeds. Id. at *2. The Individual Defendants signed the Registration Statement that was filed with the SEC for the IPO, while the Underwriters “were all enlisted to solicit Sundial investors in the IPO.” Id. Plaintiffs purchased common stock in connection with the IPO. Id. After about three months from the date of the IPO, Sundial’s common stock shares plummeted to a price of $3.51 per share, resulting in Plaintiffs’ complaint. Id. Plaintiffs alleged that the statements from the Offering Documents were misleading because, in essence, the cannabis was not of a premium, high-quality. Id. at *3–4. Moreover, Plaintiffs alleged that, contrary to its representations, Sundial “maintained materially deficient manufacturing and quality control processes which had led to the production and distribution of . . . adulterated cannabis products.” Id. at *4. Last, Plaintiffs alleged that these deficiencies are proven by the fact that

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Zenabis, “an important customer of Sundial” refused more than half-a-ton of cannabis because it was “adulterated with mold, bits of rubber gloves, and other non-cannabis materials, such as jewelry.” Id. at *5.

As an initial matter, the Court found that Plaintiffs had established personal jurisdiction over Defendants. Id. at *3. The Court held that Plaintiffs met their minimal burden under CPLR 3211(a)(8) by alleging that Sundial had a designated agent for service based in New York, that the Underwriters “drafted the Registration Statement in New York,” that the allegedly false statements were made in New York, and that the investors were solicited in New York. Id. Accordingly, the Court proceeded to the merits of the case. Id.

To obtain relief under Section 11 of the Securities Act, a plaintiff needs to show that it acquired a security and that “part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” Id. (quoting 15 U.S.C. § 77k). Section 12(a)(2) applies a similar standard against ‘“a person who offers or sells a security . . . by means of a prospectus or oral communication.”’ Id. (quoting 15 U.S.C. § 77l(a)(2)). Here, the court found that Plaintiff failed to identify an actionable statement under the Securities Act for the following three reasons. Id. at *5.

First, the court found that the statements used in Sundial’s Registration Statement, such as “high quality” and “premium,” merely constituted corporate puffery and expressions of optimism, which “are not actionable under the securities laws.” Id. (citing Netshoes Sec. Litig. v. XXX, 64 Misc. 3d 926, 932 (N.Y. Sup. Ct. 2019). Puffery consists of “statements that are too general to cause a reasonable investor to rely upon them.” Id. (quoting In re Gen. Elec. Sec. Litig., No. 19CV1013 (DLC), 2020 WL 2306434, at *7 (S.D.N.Y May 7, 2020)). According to the court, the terms “high quality” and “premium” were not specific enough to be objectively verifiable. Id. Likewise, the company used forward-looking language in its Registration Statement, such as “we believe,” “we intend,” and “will result,” which denoted “statements concerning a company's business potential [that] are inactionable as a matter of law.” Id. (citing Netshoes Sec. Litig., 64 Misc. 3d at 938).

Second, the Court noted that the statements at issue were accompanied by “adequate cautionary language, and not stated as guarantees.” Id. (quoting Nadoff v. Duane Reade, Inc., 107 F.

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App’x 250, 252 (2d Cir. 2004)). Sundial included a “robust 35-page risk disclosure section [in its] Offering Documents,” outlining the inherent risks involved in the cannabis production business and cautioning potential investors about past events that caused the business to suffer losses and their potential risk to occur again in the future. Id. at *5–6. Based on these findings, the Court held that Plaintiffs’ causes of action under Section 11 and Section 12(a)(2) of the Securities Act were refuted by the terms of “the Prospectus itself.” Id. at *6. The Court also dismissed Section 15 because a violation of that section cannot occur unless a court first finds a person liable under Section 11 or 12, which the court failed to do. Id.

Finally, the Court found that Plaintiffs failed to allege a violation of Items 303 and 105 because the Offering Documents included a “lengthy discussion of many risks inherent in investing in Sundial common stock, including the risks that plaintiff contends materialized.” Id.

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Truetox Laboratories, LLC v. Healthfirst PHSP, Inc.

655111/2019, 2020 WL 4556907 (N.Y. Sup. Ct. 2020)

Brennan O’Gorman

Staff Member

Plaintiff Truetox Laboratories, Inc. (“Truetox”) commenced an action against Defendant Healthfirst PHSP, Inc. (“Healthfirst”) in New York County on September 5, 2019, “alleging claims for: (i) breach of contract, (ii) breach of the covenant of good faith and fair dealing, (iii) violation of NY Insurance Law § 3224-a, (iv) a declaratory judgement, (v) violation of General Business Law § 340, and (vi) tortious interference with business relationships.” See Truetox Lab’ys, LLC v. Healthfirst PHSP, Inc. 655111/2019, 2020 WL 4556907, at *2 (N.Y. Sup. Ct. 2020) (citing Compl. (NYSECF No. 2)). The Defendants filed a motion to dismiss all but the breach of contract and the Insurance Law § 3224-a claims. (NYSECF No. 12). On August 6, 2020, the court denied the motion to dismiss “with respect to the cause of action for breach of implied covenant of good faith and fair dealing” and dismissed the claims for declaratory judgment, violation of General Business Law § 340, and tortious interference with business relations. Truetox, 2020 WL 4556907, at *4.

Truetox is “a licensed clinical toxicology laboratory” that is in the business of providing drug-testing services. Id. at *1. The Defendants—Healthfirst PHSP, Inc., Healthfirst Health Plan, Inc., and Healthfirst Insurance Company, Inc.'s—provide health insurance benefits to more than 1.2 million of its members in the downstate New York region. Id. On March 1, 2016, the parties entered into a Healthfirst Participating Provider Agreement wherein Healthfirst “agreed to reimburse Truetox for the provision of drug testing services.” Id. The Agreement terms set forth a time period for Healthfirst to repay claims once received—requiring electronic claims be paid within 30 days and paper claims be paid within 45 days—as per to NY Insurance Law § 3224-a . Id. Additionally, it provided that compensation was to be subject to

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the Provider Manual’s billing requirements, which required that rejected claims be returned with the reasons for rejection and allowed Truetox to resubmit particular claims subject to specified time frames. Id.

Healthfirst fulfilled its contractual obligation by paying for all of Truetox’s submitted claims in 2016 and 2017. Id. In August of 2018, however, Healthfirst hired Verscend Technologies LLC to audit Truetox, giving rise to subsequent payment disputes. Id. Truetox alleges that this “audit imposed onerous demands for the timely production” various documents and that this burden resulted in lost business. Id. at *2. Additionally, Truetox alleges that Healthfirst defaulted on submitted claim payments from August 1, 2018 to June 10, 2019, totaling at $681,126.84, and that its many attempts to resolve these payment disputes were “frustrated by Defendants’ shell-game with respect to its reasons for non-payment of claim reimbursements.” Id. (citing NYSECF No. 2 ¶¶ 55-56). Healthfirst claims payment was denied from October 2018 to July 2019 because: “(i) Truetox’s services were not medically necessary, (ii) one of Truetox’s providers was under investigation, (iii) Truetox was under investigation for submitting claims for nonexistent patients, and (iv) Truetox improperly billed for presumptive and definitive testing of samples.” Id. Truetox asserts that any additional claims submitted after June 10, 2019 have yet to be paid. Id.

When reviewing a motion to dismiss, the “facts as alleged in the complaint are accepted as true.” Id. (citing Leon v. Martinez, 84 N.Y.2d 83, 87 (1994)). Under CPLR § 3211(a)(1), the court may grant a motion to dismiss a cause of action when “the evidence conclusively establishes a defense to the claims as a matter of law.” Id. Under CPLR § 3211(a)(7), a motion to dismiss “requires the court to assess whether the proponent of the pleading has a cause of action rather than whether he has stated one.” Id. Here, the Court denied Healthfirst’s motion to dismiss the second cause of action for breach of the covenant of good faith and fair dealing because it was not duplicative of the breach of contract claim. Id. at *3. The Court found that Truetox sufficiently made out a claim by alleging that Healthfirst imposed an onerous audit

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and provided inconsistent reasons for their denial of payment as a “pretext[ ] to avoid payments to which [Truetox] was entitled.” Id.

The Court also dismissed Healthfirst’s fourth cause of action for declaratory judgment as being “duplicative of the breach of contract claim, which would ultimately resolve the parties’ dispute over payment for [Truetox’s] services under the Agreement.” Id. (citing Apple Records, Inc. v. Capitol Records, Inc., 529 N.Y.S.2d 279 (1988)). The Court also noted that the claim was not ripe for review because Truetox had not yet contested the Agreement’s termination at a hearing following a letter sent by Healthfirst to terminate the Agreement without cause effective April 6, 2020. Id.

The Court also dismissed the fifth cause of action for a violation of General Business Law § 340 because Truetox failed to “(1) identify a relevant product market, (2) describe the nature and effect of the purported conspiracy," and “(3) allege how the economic impact of that conspiracy is to restrain trade in the market in question,” as required to state a claim under this law. Id. (citing Creative Trading Co. v. Larkin-Phuznick-Larkin, Inc., 523 N.Y.S.2d 102 (1988)). The Court found that Truetox’s purported “market of clinical laboratory services within the Healthfirst network” was too narrow, underinclusive, and failed to account for any interchangeable “services that could be secured outside of the Defendant’s existing network.” Id. at *4. Even if Truetox had identified a relevant product market, the Court found Truetox failed to “adequately allege the requisite element of conspiracy to make out this claim. Id. In this regard, the court noted that the Complaint only contained conclusory allegations that Truetox was involved in a conspiracy and/or that this conspiracy resulted in a restraint of trade.” Id. Although Truetox identified two alleged co-conspirators “who helped to shrink the number of clinical laboratory service providers in [Healthfirst’s] network,” Truetox did not provide any evidence or factual basis as to “when the conspiracy allegedly arose and/or how these parties worked together to withhold payment from [Truetox] with the aim of eliminating competition.” Id. The Court also noted that Truetox “fail[ed] to allege how the purported conspiracy resulted in a

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restraint of trade across the relevant market as opposed to an individual loss” due to Healthfirst’s non-payment. Id.

Finally, the Court granted the motion to dismiss the sixth cause of action because Truetox failed to adequately allege either of the two types of tortious interference claims: tortious interference with contract or “tortious interference with existing or prospective economic/business/contractual relations.” Id. at *4. The Court reasoned that Truetox’s allegations that Healthfirst had knowledge of its business relationship with Argus and acted “intentionally in initiating the audit for the sole purpose of harass[ment]” did not “give rise to an interference that the audits either constituted culpable conduct by [Healthfirst], or that the audits were used for the sole purpose of harming [Truetox’s] business relations with Argus, especially when [Healthfirst] had an absolute right to demand medical records for inspection pursuant to the Agreement.” Id. The Court also noted that there was no tortious interference with contract due to the fact that that Truetox and Argus’s Agreement lacked an expiration date. Thus, the Agreement was “terminable at will and liability for interference with these types of contracts falls within a claim for interference with prospective contractual relations.” Id. (citing Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 191-192 (1980); American Preferred Prescription, Inc. v. Health Mgmt., 678 N.Y.S.2d 1 (1998)).

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In re Netshoes Securities Litigation v. XXX

157435/2018, 2020 WL 2893433 (N.Y. Sup. Ct. 2020).

Gabriel Rahme

Staff Member

Plaintiff Netshoes Securities Litigation (“Netshoes Securities”) commenced a class action against Brazilian-based online retailer, Netshoes Limited (“XXX”), in New York County on October 9, 2018. See generally Compl. (NYSECF No. 1). The complaint alleged claims for violation of §§11, 12(a)(2), and 15 of the Securities Act of 1933. Compl. ¶¶50–68. The court previously dismissed the action with leave to replead, finding that the Plaintiff’s pleadings failed to state a claim under §§11 and 12(a)(2) of the 1933 Securities Act. See Decision and Order on Motion (NYSECF No. 79). Plaintiff filed a Second Amended Complaint (SAC) on September 9, 2019, and alleged claims for violation of §§11, 12(a)(2), and 15 of the Securities Act of 1933 (the 1933 Act). See SAC ¶¶87–105 (NYSECF No. 86). On October 7, 2019, Defendants moved to dismiss for failure to a state a claim under §§11, 12(a)(2), and 15 of the 1933 Act, Item 303, and that a heightened pleading standard applied under CPLR §3016. See Notice of Motion (NYSECF No. 93). Defendants further argued that the bespeaks caution doctrine applied, that Plaintiff’s claims were time-barred, and the claims lacked loss causation. Id. On June 2, 2020, the court denied Defendants’ motion to dismiss. See In re Netshoes v. XXX, 157435/2018, 2020 WL 2893433 (N.Y. Sup. Ct. 2020).

XXX is a Brazilian-based online retailer that launched its IPO in the United States securities markets on April 12, 2017. See SAC ¶¶ 1, 4. Although a startup that had not yet turned a profit, XXX successfully issued 8,250,000 shares of common stock at $18.00 per share by pitching investors a high margin strategy. SAC ¶¶ 5–6. Before its IPO, XXX began a Business-to-Business (“B2B”) operation with Midway Labs USA LLC (“Midway”). See SAC ¶ 7. Midway provided XXX exclusive rights to distribution and to sell over-the-counter nutritional products and supplements

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in Brazil. Id. Rights of return accompanied XXX’s B2B sales in Brazil. See SAC ¶ 9. Plaintiff based its action on the argument that XXX materially misrepresented its financial statements because XXX improperly recognized its B2B sales as revenue, which is improper as rights of return allegedly accompanied the sales. See In re Netshoes, 157435/2018, 2020 WL 2893433, at *1. Plaintiff further alleged that XXX was aware of the right to return because it had negotiated the rights of return with customers. Id.

A motion to dismiss under Sections 11 and 12(a)(2) of the 1933 Act is defeated if a plaintiff alleges either: “‘(1) a material representation; (2) a material omission in contravention of an affirmative legal disclosure obligation; or (3) a material omission of information that is necessary to prevent existing disclosures from being misleading.’” Id. at *4 (quoting In re AmTrust Financial Services, Inc. Sec. Litig, 2019 WL 4257110 (S.D.N.Y. 2019)). On a second motion to dismiss, courts must “‘construe the complaint liberally, accepting as true the facts alleged, and according to plaintiff the benefit of every possible inference’” Id. at *6 (quoting Plaza Ph2001 LLC v. Plaza Residential Owner LP. 98 A.D.3d 89, 99 (N.Y. App. Div. 2012)).

Plaintiffs must comply with the higher pleading standard under CPLR §3016 only if the 1933 Securities Act claim is brought alongside a 1934 Exchange Act fraud claim. See In re Netshoes, 157435/2018, 2020 WL 2893433, at *5. Here, the court found that a heightened pleading standard did not apply because the Plaintiff did not allege fraud, and the case was a negligence case at heart. Id. at *4. Even if the heightened pleading standard applied, the court found that the Plaintiff’s pleadings satisfied it. Id. at *6. The court found that plaintiffs had sufficiently alleged a materially false or misleading contemporaneous statement. Id. Accepting the allegations as true, the court found XXX to have made misrepresentations concerning its B2B revenue and its compliance with IAS 18, as XXX could not truthfully have held those beliefs concerning its revenue since XXX’s customers held a right of return. Id. at *7.

Similarly, the court found Plaintiff to have alleged an actionable material omission because the B2B revenue was used to

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quell investors’ fears over XXX’s unprofitability. Id. at *8–9. The court declined to dismiss the Plaintiff’s claim due to the absence of loss causation as loss causation is not an element of Section 11 or Section 12. Id. at *9.

To state a claim under Section 15 of the 1933 Act, “a plaintiff must allege (i) a primary violation by a controlled person and (ii) control by the defendant of the primary violator.” Id. at *10. (citing In re Refco, 503 F Supp 2d 611, 637 (S.D.N.Y. 2007)). Here, the court was satisfied at this stage of the pleadings with Plaintiff’s allegations that “the individual defendants reviewed, contributed to and signed the offering documents and the individual defendants were controlling persons.” In re Netshoes, 157435/2018, 2020 WL 2893433, at *10 (citations omitted).

For a statement to qualify for protection under the bespeaks caution doctrine, the statement must be based on accurate present statements of fact. Id. at *8. Here, the court, accepting the alleged facts as true, found the bespeaks caution doctrine inapplicable because the forward-looking statements XXX made regarding its B2B revenue were misleading when the statements were made. Id.

To state a claim under Item 303, a plaintiff must allege a failure to disclose a material fact. See id. at *9. For a fact to be material under Item 303, a reasonable investor would have found the absence of the fact to have altered the total assortment of information available. Id. Here, the court found that Plaintiff successfully alleged that XXX should have disclosed its B2B trends, as the trends would have revealed to a reasonable investor a material adverse impact on XXX’s business. Id.

A claim is timely under Section 11 and 12(a)(2), when the claim is brought “‘within one year after the discovery of the untrue statement or the omission, or after such a discovery should have been made by the exercise of reasonable diligence.’” Id. at 9-10 (quoting 15 U.S.C. §77m). Here, the court was satisfied that Plaintiff’s claims were timely. Id. at 10. The court was unconvinced with Defendants’ argument that the statute of limitations began to run after XXX released its quarterly results on May 15, 2017. Id. The court doubted that the release of the

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quarterly results was sufficient to give Plaintiff notice of the untrue statement. Id.

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Stairway Legacy Assets, L.P. v. McKenna, Long & Aldridge, LLP

650415/2020, 2020 WL 3578455 (N.Y. Sup. Ct. 2020)

Kristin Russo

Staff Member

Petitioners Stairway Legacy Assets, L.P. (“Stairway”) seek to confirm a Final Award on Remand granted from an arbitration panel on or about February 13, 2019 against Respondents, McKenna, Long & Aldridge, LLP n/k/a (“Dentons”). See generally Pet. (NYSECF No. 1) . Petitioners seek this confirmation because Respondents have not yet reimbursed Stairway, nor have Respondents compensated Stairway pursuant to their attorneys’ fees and costs as required by the Final Award on Remand. See id. Respondents allege that (i) the petition is untimely, (ii) Stairways’ failure to object to the final award forfeited the rights to recover its fees and costs, (iii) should be dismissed for lack of jurisdiction and (iv) the fees awarded were unreasonable. See Mem. (NYSECF No. 30). On July 1, 2020, the court held that (i) the petition was timely, (ii) Stairways’ failure to object to the final award did not forfeit their rights to recover, (iii) jurisdiction was proper and (iv) the fees awarded were not unreasonable. Stairway Legacy Assets L.P. v. McKenna, Long & Aldridge, LLP, 650415/2020 WL 3578455 (N.Y. Sup. Ct. 2020).

In another related arbitration (First Arbitration), Stairway and non-party Ironshore Specialty Insurance Company (“Ironshore”) received the First Award on February 24, 2017 against Dentons and Edios, LLC (Dentons and Eidos are jointly the Respondents) See Pet. ¶ 2 (NYSECF No. 1). After nineteen days of evidentiary hearings and exhaustive testimony, the Panel issued a First Award entitling Stairway to “$63,311,293.58 in damages as of that date, plus 65% of Stairway’s” attorneys’ fees and costs incurred during the First Arbitration. See Mem. (NYSECF No. 3). Further, “the Panel did not fix the precise amount of the fees.” Pet. ¶ 4 (NYSECF No. 1).

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On March 22, 2017, Dentons filed a Petition to Vacate the First Award, along with Eidos cross motion to join the Petition and to Vacate the Award. See Stairway, 2020 WL 3578455, at *3 (citing McKenna, Long & Aldridge, LLP v. Ironshore Specialty Insurance Co., No. 651497/2017 (N.Y. Sup. Ct. Mar. 22, 2017)). On September 6, 2017, Ironshore filed a cross motion to confirm the First Award and opposed Dentons’ First Petition and Eidos’ Cross Motion. Id. at *3 (citing Mckenna, 2017 No. 651497). Stairway also filed opposition papers in opposition to Dentons’ Petition and Eidos’ Cross Motion, and sought confirmation of the First Award. See Id. (citing Mckenna, 2017 No. 651497). On November 28, 2017, the court denied Dentons’ Petition and the following cross motions. See id. (citing Mckenna, 2017 No. 651497). The court granted Ironshore’s cross motions and granted Stairway’s request to confirm the First Award. See Id. (citing Mckenna, 2017 No. 651497).

On April 9, 2018, as per the court’s instruction, Stairway filed a motion to fix its attorneys’ fees and costs pursuant to the First Award. See Id. (citing McKenna, 2017 No. 651497). After oral arguments in regard to Eidos opposition, the “court remanded the parties back to the Panel to fix the amount of attorneys’ fees and costs pursuant to the First Award.” Id.

On May 15, 2018, the “court memorialized its ruling confirming the First Award” and entered judgment on June 18, 2018 (June 2018 Judgment) with an amended judgment (Amended Judgment) that held Stairway was to be awarded (a) $35,776,381.09, plus a post-judgment interest of $7,889.72 per day from Eidos; (b) Stairway to be awarded $709,976.06, plus a post-judgment interest of $156.60 per day from Dentos; (c) Ironshore to be awarded “$13,747,270.72, plus post-judgment interest at the statutory rate of 9%” from Eidos; and (d) Ironshore to be awarded $7,785,040.04 plus post-judgment interest at the statutory rate of 9%. Ex. E. (NYSECF No. 8).

On August 31, 2018, Stairway requested that the International Centre for Dispute Resolution (ICDR) reinstate the

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Panel to fix the amount of attorneys’ fees pursuant to the First Award. See Stairway, 2020 WL 3578455, at *4–5 (citing McKenna, 2017 No. 651497). The Panel was then reinstated in October 2018. See id. at *5. On November 7, 2018, Dentons submitted a letter to the ICDR claiming the Panel lacked jurisdiction based on the functus officio rule. See id. This led to the First Order, on November 27, 2018, stating that the Panel did have jurisdiction to fix the attorneys’ fees and costs. See id.

After submitting their positions on legal fees, the Panel issued a Second Order on Remand on January 10, 2019, fixing the total amount of legal fees and expenses Stairway incurred. See Ex. A. (NYSECF No. 4). On February 12, 2019, the Panel issued the Final Award on Remand. See Id. This Final Award incorporated the Second Order and the fixed amount of attorneys’ fees and costs in the amount of $1,731,160.27. See id. On January 17, 2020, Stairway filed a Petition to confirm the Final Award. Stairway, 2020 WL 3578455, at *7.

First, the court held that Stairway’s petition was timely under New York Law. Id. at *7. CPLR §7510 states that, “[t]he court shall confirm an award upon application of a party made within one year after its delivery, unless the award is vacated or modified upon a ground specified in section 7511” (CPLR § 7510). The court explicitly remanded the First Award back to the panel to determine the precise amounts of attorneys’ fees due. Id. at *8. “While the second order that fixed the fees was issued on January 10, 2019, for the purposes of CPLR § 7510, the Remand Arbitration did not become “final” until the Final Award on Remand was issued in February of 2019.” Id. Therefore, “the time period to confirm the Final Award on Remand did not run until February of 2020.” Id. at *9.

Second, the court held that Respondents' argument that Stairway forfeited its right to recover attorneys’ fees because it did not timely object to the Panel’s First Award has no merit. Id. at *10. Stairway had no basis to object to the First Award because the only thing the First Award did not set forth was “the actual dollar amount of the legal fees to which Stairway” was entitled. Id. at *11. Further, the Panel sufficiently determined the appropriateness

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of the legal fees after having conducted nineteen days of evidentiary hearings and reviewed all facts relevant to the litigation. Id. at *11.

Third, the court held that the Panel did have jurisdiction to issue the Final Award on Remand. See id. at *12. Respondents incorrectly relied on the functus officio rule. See id. “This Court has stated over one hundred years ago,” that, once the arbitrators “have made and delivered their award, they become functus officio, their power . . . end[s].” Id. at *12 (quoting Flannery v. Sahagian, 134 N.Y. 85, 87–88 (N.Y. 1892). That rule was rejected by both New York courts and the United States Congress in the Federal Arbitration Act. Id. at *12 (citing American International Specialty Lines Insurance Company v. Allied Capital Corporation, et. al. 35 N.Y.3d 64 (N.Y. 2020). Here, the Supreme Court remanded the matter back to the Panel to determine the exact amount of legal fees. Id. The Panel therefore had jurisdiction to issue the Final Award on Remand. Id.

Finally, the court held that Stairway’s attorneys’ fees and costs awarded are reasonable. Id. at *13. The Panel determined the amount based on consideration of “all facts relevant to the litigation… including the hotly-contested nature of virtually every issue raised, the number of counsel involved, the complexity of the issues, and the lengthy hearing.” Id. at *7 (quoting Ex. A at 3). Moreover, the court recognized its limited role in arbitration under CPLR article 75. Id. at *6. The court refused to second guess the Panel’s findings. Id. at *7.

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Sonenshine Partners LLC v. Duravant LLC

657208/2019, 2020 LEXIS 2310 (N.Y. Sup. Ct. 2020)

Vincent R. Scala

Staff Member

Plaintiff Sonenshine Partners LLC (“SP”) commenced an action against Defendant Duravant LLC (Duravant) in New York County on December 5, 2019. See generally Compl. The complaint alleged claims for breach of contract, quantum meruit, and unjust enrichment. Compl. ¶¶ 62–75. On January 17, 2020, Duravant moved to dismiss the complaint because “a defense is founded upon documentary evidence” and “the pleading fails to state a cause of action.” See NY CPLR 3211(a)(1) and (a)(7). On April 21, 2020, the Court denied Duravant’s motion with respect to SP’s breach of contract claim but granted the motion with respect to the quantum meruit and unjust enrichment claims. Sonenshine Partners LLC v. Duravant LLC, 657208/2019, 2020 LEXIS 2310, at *18 (N.Y. Sup. Ct. 2020).

SP is a “global boutique investment bank” that “had access to a non-public, potentially lucrative deal involving the purchase of all or a portion of” M. J. Maillis Group (“Maillis”). Compl. ¶¶ 2. Allegedly, SP had a close relationship with the board and senior management of Maillis. Id. SP offered the Maillis opportunity to Duravant. Id. In May 2018, SP and Duravant entered a written agreement (“NDA”), which stated that SP would coordinate a meeting between Duravant and Maillis to discuss the opportunity. Compl. ¶¶ 3. The parties agreed that in consideration for arranging the meeting, Duravant “will use commercially reasonable best efforts to ensure that SP is offered the opportunity to be engaged as Duravant’s financial advisor . . . on customary and market terms and conditions to be negotiated at the appropriate time.” Compl. ¶¶ 2. Allegedly, SP provided Duravant with “non-public information and access” and provided various investment banking services over the next several months.” Compl. ¶¶ 4. Throughout this time, the deal considered the purchase of Maillis in its entirety or the sole acquisition of Wulftec International (“Wulftec”), a

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substantial subsidiary of Maillis. Id. By December 2018, Duravant purchased Wulftec for $250 million without notifying SP, despite the Plaintiff recently performing analyses regarding this potential scenario. Compl. ¶¶ 5, 49–51. SP alleges entitlement to a one percent fee of the sale price ($2.5 million), plus reimbursement for expenses. Compl. ¶¶ 52–59.

To establish a claim for breach of contract, a plaintiff must allege “the existence of a contract, the plaintiff’s performance thereunder, the defendant’s breach thereof, and resulting damages.” Sonenshine Partners LLC, 2020 LEXIS 2310, at *8 (quotation omitted). SP argued the NDA was a binding agreement that was violated by Duravant after not retaining the financial advisor for the Wulftec acquisition. Id. at *8. Meanwhile, Duravant argued the NDA was an unenforceable “agreement to agree.” Id. The Court determined “the answer lies between these two poles.” Id. Consequently, the agreement was not an unconditional obligation because if the parties intended this result, the NDA would have “required” SP to be retained, rather than a promise to use “best efforts” in offering SP the engagement. Id. at *8–9. While there was no unconditional obligation, Duravant’s promise to use commercially reasonable best efforts was more than an unenforceable “agreement to agree.” Id. The Court further held the NDA’s reliance on “customary market terms and conditions,” rather than specific terms, did not make the agreement unacceptably indefinite. Id. at *10 (citation omitted). Ultimately, the Court found that SP adequately pleaded its contract claim because the Plaintiff alleged (1) Duravant had control to retain SP, (2) Duravant accepted SP’s introduction to the Maillis opportunity and encouraged follow-on work, (3) Duravant proceeded with the transaction without ensuring SP’s opportunity to be retained, and (4) the NDA proposed the terms of retention with reference to identified commercial practice and trade usage. Id. at *10–11.

Next, the Court considered SP’s quantum meruit and unjust enrichment claims. Id. at *11. In New York, “a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi-contract for events arising out of the same transaction.” Id. (quotation omitted). Although

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plaintiffs can plead quantum meruit and unjust enrichment claims “in the alternative when there is a dispute as to the existence of an enforceable contract,” there was “no question” an express contract governed the subject matter here. Id. at *11 (citation omitted). Since SP’s quantum meruit and unjust enrichment claims relied on the same facts and sought the same damages as the Plaintiff’s breach of contract claim, the Court partially granted Duravant’s motion. Id. at *11 (citation omitted).

Moreover, the Statute of Frauds barred SP’s quantum meruit and unjust enrichment claims. Id. at *12. Notably, “a contract to pay compensation for services rendered in negotiating . . . the purchase . . . of a business” is void unless the agreement is in writing. Id. (quotation omitted). Specifically, “negotiating” covers “procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction.” Id. As previously noted, the NDA was not an agreement that entitled SP to be retained as Duravant’s financial advisor for the prospective transaction but rather an opportunity to be retained, subject to further negotiations. Id. at *12. Therefore, to the extent that SP’s quantum meruit and unjust enrichment claims sought recovery for services not in the NDA, the Statute of Frauds barred such claims. Id. Importantly, the Statute of Frauds does not bar quantum meruit and unjust enrichment claims when “services are performed . . . to determine whether to negotiate, rather than in furtherance of negotiation.” Id. at *13 (citation omitted). Here, SP sought compensation for services that nearly all pertained to the furtherance of Duravant’s negotiations, which are barred by the Statute of Frauds. Id. at *14.

The Court also rejected SP’s argument that the quasi-contract claim was outside the scope of the Statute of Frauds because one of its principal partners is a New York State attorney. Id. at *16. Under the Statute of Frauds, there is an exception for contracts to pay attorneys. Id. at *17 (citation omitted). However, SP’s principal partner was not a party to any of the underlying transactions, but rather was acting on behalf of his company. Id. at *17. Therefore, this exception applies to attorneys, not entities that employ or are owned by attorneys. Id. Lastly, the Court rejected

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SP’s argument that the NDA was a “qualifying writing” that satisfied the Statute of Frauds. Id. While the NDA set standards for compensation, the agreement was missing “the most fundamental element”–Duravant’s definitive employment of SP. Id. at *18.

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Advanced Alternative Media, Inc. v. Hindlin

655916/2018, 2020 WL 4754601 (N.Y. Sup. Ct. 2020)

Michelle G. Scanlon

Staff Member

Plaintiff Advanced Alternative Media, Inc. (“AAM”) commenced an action against Jacob Kasher Hindlin alleging breach of contract, in New York County on November 28, 2018. See generally Compl. (NYSECF No. 1). On January 16, 2019, Hindlin moved to dismiss the complaint pursuant to CPLR §§ 3211 (a)(1) and (7). See Notice of Mot. to Dismiss (NYSECF No. 13). Additionally, Hindlin moved pursuant to CPLR § 602 to consolidate this case with another action, Jacob Kasher Hindlin v. Prescription Songs LLC, et al. Id. On August 14, 2020, the court denied both of Hindlin’s motions. See Advanced Alternative Media, Inc. v. Hindlin, 655916/2018, 2020 WL 4754601 (N.Y. Sup. Ct. 2020).

AAM is a corporation organized and existing under the laws of New York who “represents world-class talent and their businesses, including artists, songwriters, producers, mixers, and engineers.” Compl. ¶ 2 (NYSECF No. 1). On December 3, 2009, AAM and Hindlin entered into the Management Agreement at issue. Id. Under Section 2 of the Management Agreement, AAM was to advise and counsel Hindlin in all aspects of his career in the entertainment industry. Id. ¶ 11. Hindlin agreed to pay a “‘Commission’ to [AAM] by paying fifteen percent (15%) of all ‘Gross Monies’ [] earned and/or actually received by or on behalf of [Hindlin] or for credited to [Hindlin’s] account derived from [Hindlin’s] activities in the entertainment industry.” Id. ¶ 12. On June 9, 2017, the Management Agreement was terminated and thus, the Term of the agreement was from December 3, 2009 through June 9, 2017. Id. ¶ 15. AAM brought this action because they allege that Hindlin breached the Management Agreement by failing to pay “Commissions” in the amount equal to fifteen percent of all monies earned or received by Hindlin during the Term period. Id. ¶¶ 16, 31. Furthermore, AAM alleges that they are entitled to 50% of the equity interest since Hindlin asked AAM to manage his subsidiary business in violation of Section 2 of the

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Management Agreement. Id. ¶¶ 19, 32. Lastly, AAM alleges that Hindlin owes AAM for the sale of Hindlin’s interests as a writer and publisher of certain musical compositions to nonparty Prescription Songs LLC (“Prescription”) on July 23, 2028 (Sale). Advanced Alternative Media, 2020 WL 4754601, at *1.

In order for a court to rule on a motion to dismiss pursuant to CPLR § 3211(a)(7), it must “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inferences, and determine only whether the facts as alleged fit within any cognizable theory.” Id. (citing Leon v. Martinez, 84 N.Y.2d 83, 87-88 (N.Y. 1994)). Furthermore, “factual allegations, ‘that consist of bare legal conclusions, as well as factual claims which are either inherently incredible or flatly contradicted by documentary evidence’ cannot survive a motion to dismiss.” Id. (citing Summit Solomon & Feldesman v. Lacher, 212 A.D.2d 487, 487 (N.Y. App. Div. 1995)); see CPLR § 3211(a)(1). Here, the court denied Hindlin’s motion to dismiss by finding that AAM alleged all four elements of the breach of contract claim. Id. The court set out the four elements of a breach of contract claim, which are “formation of a contract between the parties, performance by the plaintiff, the defendant’s failure to perform, and resulting damage.” Id. (citing Flomenbaum v. New York Univ., 71 A.D.3d 80, 91 (N.Y. App. Div. 2009)).

First, the court found that AAM alleged the first two elements of a breach of contract claim since the parties entered into a contract, the Management Agreement, on December 3, 2009, and AAM alleged that they have performed all of their obligations set forth in the Management Agreement. Id. The court found that Hindlin breached the Management Agreement when he failed to pay AAM a percentage of the money he obtained when he sold his interests in musical compositions to Prescription. Id. at *2. The court found that the Management Agreement was “as a whole and by its plain terms unambiguous and sweeping.” Id. After reviewing Section 3 of the Management Agreement, the court reviewed the phrase “Gross Monies or Other Consideration.” Id. at *2. The court found that since the term “Gross Monies” was defined to include the term “Gross Monies or Other Consideration,” that this was meant to be expansive. Id. Additionally, the court noted that the parties repeatedly used the words “include” and “and/or”

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throughout the contract and intended to give AAM universal reach. Id. at *3. Thus, the consideration that Hindlin received for the Sale from Prescription was “within the ambit of the terms ‘Gross Monies or Other Consideration,’” or “Gross Monies.” Id. Finally, the court found that because AAM claimed various amounts of damages arising from Hindlin’s breach that AAM alleged the fourth element of resulting damages. Id.

Lastly, Hindlin’s request to consolidate this action with Jacob Kasher Hindlin v. Prescription Songs LLC, et al., was denied. Id. A court should find consolidation to be inappropriate when “a party will be both a plaintiff and a defendant in the consolidated action.” Id. (citing Bass v. France, 70 A.D.2d 849, 849-850 (N.Y. App. Div. 1979)). The court held that consolidation would be inappropriate since Hindlin is a defendant in this action and a plaintiff in Jacob Kasher Hindlin v. Prescription Songs LLC, et al. Id.

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Condor Capital Corp. v. Cals Investors, LLC

650034/2019, 2020 WL 1188356 (N.Y. Sup. Ct. 2020)

Matthew Seymour

Staff Member

Plaintiff Condor Capital Corp. (“Condor Capital”) initiated an action for breach of contract against defendant Cals Investors, LLC et al. (“CALS”) that was dismissed for failing to sufficiently state a cause of action. See Condor Capital Corp. v. Cals Investors, LLC, 650034/2019, 2020 WL 1188356 at *3 (N.Y. Sup. Ct. 2020). Condor Capital appealed that separate decision and initiated this action on the same day. Id. Plaintiff’s filed its first amended complaint (“FAC”) on May 30, 2019, and Defendants moved for a motion to dismiss this case on June 19, 2019. See First Amended Complaint (NYSECF No. 14); Mem. in Supp. of CALS Mot. to Dismiss (NYSECF No. 17). On March 11, 2020, the court granted CALS’s motion to dismiss. See Condor Capital Corp., 2020 WL 1188356 at *8.

Condor Capital, an underwriter of subprime loans, entered a portfolio purchase agreement (“PPA”) with CALS, where Condor Capital sold an auto loans portfolio to CALS in exchange for a purchase price consisting of a payment at closing and additional payment if the underlying loans were sufficiently performed (“Earnout Payments”). Id. at *1. The FAC claims that CALS failed to make correct Earnout Payments and that it failed to provide any calculation on how it reached its amounts. Id. at *2. Following a class action settlement where parties involved in this action were named as defendants, CALS deducted $5,700,000 from the PPA, as it believed it was entitled to do, to pay settlement costs. Id. Condor Capital objected to the deduction and initiated this action for breach of contract because it believed Defendants should not have reduced its portfolio payout. Id.

Defendants then moved for a motion to dismiss the claims in Plaintiff’s first amended complaint for (1) lack of standing and failure to state a claim, (2) breach of contract, (3) breach of the covenant of good faith and fair dealing, (4) negligence, and (5) malpractice. Id. at *3–7. The court handled all of these issues in turn and first found that Defendants’ challenge to the adequacy of Plaintiff’s standing was moot. Id. at *3. Both parties contested the service of summons and complaint, but at oral arguments, defense counsel agreed to accept service on their client’s behalf, making this issue moot. Id.

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Second, the court found that Condor Capital failed to plead a cause of action for breach of contract because CALS properly calculated its Earnout Payments and forgiveness of loan deficiencies. Id. at *4–5. Under the plain language of the PPA in question, it was unambiguous that CALS actions were permissible from the terms of the agreement. Id. Additionally, there was no provision in the PPA that required CALS to produce evidence or accounting pertaining to its deduction from the Net Costs Collected. Id. Third, the court dismissed the claim for breach of the covenant of good faith and fair dealing because the damages would be duplicative to the breach of contract claims. Id. at *5.

Fourth, the court dismissed Condor Capital’s negligence claims against CALS and First Associates, LLC for separate reasons. Id. at *6. As to CALS, the claims were dismissed because Condor Capital failed to establish that CALS had a duty to exercise reasonable care in servicing the portfolio that was independent of the PPA, so a breach of contract claim would be sufficient and duplicative here. Id. As to First Associates, the court dismissed the claim because Plaintiff failed to establish that they owed a duty of care to it, and Plaintiff stated in its first amended complaint that First Associates were merely agents of CALS. Id. at *6–7

Lastly, the court dismissed Condor Capital’s malpractice claim against First Associates because they were not “professionals” as has been defined by New York case law. Id. at *7. The court typically maintains causes of action for professional malpractice for cases involving “doctors, attorneys, engineers, architects, and accountants.” Id. (citing Chase Scientific Research Inc. v. NIA Group, Inc., 96 N.Y.2d 20, 29 (2001)). Here, First Associates’ personnel are “loan service agents” that are not the same type of profession that would be liable for malpractice. Id.

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Stone Source, LLC, v. Hubbard

(No. 657224/2019), 2020 WL 1864632 (N.Y. Sup. Ct. 2020)

Mary Kate Sherwood

Staff Member

Plaintiff Stone Source, LLC (“Stone Source”) commenced this action against its former employee, Jennifer Hubbard (“Hubbard”), and Soho Studio LLC a/k/a TileBar (“TileBar”) on December 5, 2019. See Compl. (NYSECF No. 1). Stone Source alleged two causes of action: (i) Hubbard’s breach of the Non-Compete and Non-Disclosure clauses of her employment agreement, and (ii) tortious interference with contract by TileBar. See Compl. ¶¶ 114, 116, 117. Stone Source sought a permanent injunction to prevent Hubbard from “(a) competing with it for nine months, (b) engaging in other contractually prohibited activities for one year, and (c) to refrain from [sic] disclosing confidential information.” Stone Source also sought compensatory damages from TileBar. See Comp. ¶¶ 114, 117. On January 13, 2020, Hubbard and TileBar filed a notice of motion to dismiss the complaint. See Notice of Motion to Dismiss Complaint (NYSECF No. 20). On April 13, 2020, the court granted the defendants’ motion to dismiss the first cause of action for a permanent injunction as it related to the enforcement of the Non-Compete Clause, but denied it as it related to the enforcement of the Non-Disclosure Clause. The court also granted the defendants’ motion to dismiss the second cause of action regarding tortious interference. See Stone Source, LLC v. Hubbard, 657224/2019, 2020 WL 1864632 at *5–6 (N.Y. Sup. Ct. 2020).

Stone Source, LLC “obtains, distributes, and sells porcelain tile and natural stone, primarily through an international network of suppliers, architects, and designers.” Stone Source, 2020 WL 1864632 at *1. When she began working at Stone Source, Hubbard signed an employment agreement that contained several restrictive covenants; Stone Source alleged that Hubbard breached these covenants when she left Stone Source and began working for a competitor, TileBar. Id. Stone Source also alleged that TileBar tortiously interfered with its employment contracts with Hubbard and Matthew Waas, another former Stone Source employee, who left to work at TileBar on August 30, 2019. Id. Waas was not a party to this action. Id.

The two clauses at issue in Hubbard’s employment agreement were the “Non-Disclosure Clause,” which stated that Hubbard was prohibited, both during and after her employment

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with Stone Source, from disclosing certain confidential information, and the “Non-Compete Clause,” which stated that Stone Source could prohibit Hubbard’s employment with any competing business by electing to pay her salary for up to a year after she left Stone Source. Id. at *1–2. Waas’s employment agreement contained only a Non-Disclosure Clause. Id. at *3.

Hubbard worked at Stone Source from November 16, 2015 to October 11, 2019, on which date she gave her two weeks’ notice and informed Stone Source she would be leaving to work at TileBar. Id. at *1, 3. On October 24, 2019, Stone Source made Hubbard a new offer of employment that matched the salary TileBar was offering to her and reminded her of the Non-Compete Clause she had signed. Id. at *3. On October 25, Hubbard advised Stone Source that she was going to reject their offer and work at TileBar instead. Id. On October 28, Stone Source advised Hubbard that it intended to exercise the Non-Compete Clause by paying her salary for “up to one year, or such earlier time, if any, as the Company in writing may notify you” and reminded her that her November 2015 employment agreement precluded her, “during the period of payment of [her] base salary, from working for a Stone Source competitor, including Soho Studio (a/k/a TileBar).” Id.

Additionally, Stone Source received an email chain dated October 29–30, 2019, between Waas (now an “Executive VP” at TileBar) and Piergiorgio Mazzetta at Laminam, a stone supplier. Id. In these emails, Waas encouraged Laminam to use materials for a TileBar project for which Stone Source had already “placed a pre-order.” Id. Mazzetta replied, “Matt, here we have a very large and serious problem,” asserted that “that material is exclusive to Stonesource,” and noted that he had originally thought Waas had been referring to “a new project and not something that was already in the books for Stonesource.” Id. Mazzetta concluded, “[T]his is a project that we can’t seriously pursue in my opinion.” Id.

In its first cause of action, Stone Source sought to permanently enjoin Hubbard from “any further breach” of her employment agreement; defendants argued that the agreement was unenforceable. Id. at *4. A restrictive covenant such as a non-compete clause or a non-disclosure clause will be valid only if it is “reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee.” Id. (quoting BDO Seidman v Hirshberg, 93 NY2d 382, 389 (1999)).

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Here, the court granted the defendants’ motion to dismiss the permanent injunction as it related to the Non-Compete Clause. Id. at *5. The court held that the “critical issue which torpedoes the Non-Compete Clause” was that the geographic scope it covered—“throughout the United States and Canada”—was “unreasonable and unenforceable,” since “all of the United States and Canada” was beyond the geographical area that Hubbard covered while she was employed by Stone Source. Id. The court concluded that “Stone Source can pay Ms. Hubbard to prevent her from doing a job closely approximating the job she was doing, but they cannot use a garden leave provision to stop her from doing every job.” Id.

The court, however, denied the defendants’ motion to dismiss the permanent injunction as it related to the Non-Disclosure Clause. Id. The court found that Stone Source had adequately pled a breach of the Non-Disclosure Clause, taking as true, “as the court must on a motion to dismiss,” Stone Source’s allegations that “as part of the TileBar team, Ms. Hubbard will inevitably deal with ‘key Stone Source confidential relationships’ and that while employed at TileBar, she either has used, or will use and disclose Stone Source’s confidential information.” Id. The court also noted that, “[t]o the extent that the Defendants assert that Ms. Hubbard has not yet disclosed any of Stone Source’s confidential information, the Court of Appeals has held that restrictive covenants are enforceable as necessary to prevent the disclosure or use of trade secrets or confidential customer information.” Id. (citing Reed, Roberts Assoc., Inc. v Strauman, 40 NY2d 303, 308 (1976)).

To establish its second cause of action, the tortious interference claim against TileBar, Stone Source had to “show the existence of its valid contract with a third party, defendant’s knowledge of that contract, defendant’s intentional and improper procuring of a breach, and damages.” Id. at *5 (quoting AREP Fifty- Seventh, LLC v PMGP Assoc., L.P., 115 AD3d 402, 402 (N.Y. App. Div. 2014)). Here, the court granted the defendants’ motion to dismiss the tortious interference claim, agreeing that the claim should be dismissed because Stone Source did not “allege any damages, whether in the form of lost clients or otherwise.” Id. at *6. The court reasoned that the email chain between Waas and Mazzetta did not demonstrate that Stone Source “lost any business as a result of such contact,” since Mazzetta “actually declined to pursue a project with Mr. Waas and TileBar in favor of maintaining exclusivity with Stone Source.” Id.

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FGP 1, LLC v. Dubrovsky

650479/2016, 2020 WL 1530751 (N.Y. Sup. Ct. 2020)

Eric H. Silverstein

Staff Member

Plaintiffs FGP 1, LLC (“FGP”) and Serhii Yefimtsev (collectively, the “Plaintiffs”) originally brought this action against Defendant Luiza Dubrovsky in New York County on January 29, 2016, alleging breach of contract, conversion, and seeking a declaratory judgment. See Compl. (NYSECF No. 1). Following over two years of litigation, Plaintiffs filed an amended complaint on March 25, 2019, adding causes of action against M Investment Capital, LLC (“MIC”), Mark Shvartsburd, Natalia Pirogova, Vladislav Sirota, and Jonathan S. Stewart (collectively, the “Defendants”). See Am. Compl. (NYSECF No. 130). The amended complaint seeks, among other remedies, a declaration that an Assignment Agreement dated June 17, 2015 (the “FGP Assignment”), under which Defendant Dubrovsky assigned FGP a 49% beneficial interest in a company known as 172 Madison NP Holding, LLC (“172 Holding”), is a valid and enforceable contract. Am. Compl. ¶¶ 1, 113. Defendants MIC and Mark Shvartsburd (collectively, the “MIC Parties”) subsequently filed counterclaims and crossclaims seeking, among others, a declaration that the FGP Assignment is unenforceable, and that a competing assignment agreement between MIC and Defendant Dubrovsky dated November 2, 2015 (the “MIC Assignment”) assigned to MIC parties a 100% interest or, alternatively, a 51% interest, in 172 Holding. Countercl. and Cross-cl. ¶ 45-55 (NYSECF No. 146). On May 13, 2019, Plaintiffs, the MIC Parties, and Defendant Pirogova filed individual Notices Of Motion to Dismiss. See Notice of Mot. to Dismiss (Dkt. Nos. 169, 176, 184). On June 7, 2019, Defendant Stewart also filed a Notice of Motion to Dismiss. See Notice of Mot. to Dismiss (NYSECF No. 235). The court granted the motions in part on March 31, 2020. See FGP 1, LLC v. Dubrovsky, 650479/2016, 2020 WL 1530751 (N.Y. Sup. Ct. 2020).

FGP is a New York limited liability company with a principal place of business in New York City. Am. Compl. ¶ 14. Serhiii Yefimtsev owns a 99% membership interest in FGP. Am. Compl. ¶ 15. Seeking to acquire an interest in real estate located at 172-174 Madison Avenue in Manhattan, Plaintiffs entered into the FGP Assignment with Luiza Dubrovsky, the alleged owner of an interest in 172 Holding, on June 17, 2015, under which FGP was to acquire a 49% beneficial interest in 172 Holding in exchange for

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$2 million in cash and $19.78 million in assets. FGP, 2020 WL 1530751 at *1. Defendant Stewart, a licensed attorney, “represented Dubrovsky in connection with” the FGP Assignment. Id. The agreement provided one week for identification of the assets, and a two-year timeframe for Dubrovsky to accept their transfer. Id. Failure to effectuate transfer within the two-year period “due to no fault or breach” by FGP would terminate its obligation to transfer the asset. Id. Dubrovsky subsequently executed a written acknowledgement that the required assets had been designated, and on July 9, 2015, the FGP Assignment went into effect. Id. at *2. In exchange for the written acknowledgment, “Yefimtsev allegedly loaned Dubrovsky six watches valued at $2 million.” Id. Yefimtsev alleges that he has yet to regain possession of the watches. Id. Five months later, Stewart, acting on behalf of Dubrovsky, sent FGP a letter purporting to terminate the FGP assignment for FGP’s failure to meet its obligations. Id. at *4. Dubrovsky, again represented by Stewart, then entered into the MIC Assignment, under which she once again agreed to transfer a 49% membership interest in 172 Holding, this time to MIC. Id. at *4-5. It was later discovered that Dubrovsky’s alleged interest in 172 Holding was not her own, but was in fact held as Defendant Pirogova’s “agent and nominee.” Am. Compl. ¶ 43.

The Court first addressed the respective rights of FGP and MIC under their agreements with Dubrovsky. FGP, 2020 WL 1530751 at *3. Because MIC is “neither a party, an assignee nor an intended third-party beneficiary” to the FGP Assignment, they lacked standing to challenge the enforceability of the contract. Id. at *3 (quoting Decolator, Cohen & DiPrisco, LLP v. Lysaght, Lysaght & Kramer, P.C., 304 AD 2d 86, 90 (N.Y. App. Div. 2003)). MIC, not in existence at the time of the FGP Assignment, “was unknown to FGP and was not mentioned” in the agreement. Id. Additionally, the Court found that the MIC Parties’ Motion to Dismiss would fail even if they had standing to challenge the FGP Assignment because the essential elements of the contract were agreed upon, performance had begun, and the subsequent agreement as to the specific assets was to be transferred. Id. at 4. Finally, it was determined that whether FGP or Dubrovsky breached their FGP Assignment was irrelevant “because the MIC Parties’ argument was predicated on unenforceability, not breach.” Id. Because the MIC Parties’ lacked standing to challenge the enforceability of the FGP Assignment, the Court granted FGP’s Motion to Dismiss MCI Parties’ first counterclaim and denied the MIC Parties’ Motion to Dismiss.

Turning to Defendant Pirogova’s Motion to Dismiss, the Court found that Pirogova did not have standing to challenge the

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enforceability of the FGP Assignment or the MIC Assignment under the Decolator doctrine as neither a party nor a beneficiary of either agreement. See id. at *5. Additionally, the Court found Pirogova’s argument that both FGP and MIC failed to comply with notice requirements required by 172 Holding’s operating agreement unpersuasive. Id. Citing Fortune Limousine Service, Inc. v. Nextel Communications, the court found that “strict compliance with contractual notice provisions need not be enforced” unless the adversary party is prejudiced, or actual notice is not received, neither of which applied to Pirogova. See id; 304 AD 2d at 90. Pirogova’s claim that MIC lacked the capacity to contract due to its date and state of formation was also found to be without merit. FGP, 2020 WL 1530751 at *5. The contract was executed after MIC was formed, and there is no restriction on a foreign company’s ability to enter into an enforceable contract in New York. Id.

Finally, the Court evaluated claims against Defendant Stewart, Dubrovsky’s Attorney, for allegedly aiding and abetting a breach of fiduciary duty and conversion. Id. To be liable for aiding and abetting a breach of fiduciary duty, Stewart would need to have “knowingly induced or participated in the breach” and the resulting damages by providing “substantial assistance” to Dubrovsky. Id. at *5 (quoting Global Minerals & Metals Corp. v. Holme, 35 AD 3d 91, 101 (N.Y. App. Div. 2006)). “Substantial assistance exists where (1) a defendant affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables the fraud to proceed, and (2) the actions of the aider/abettor proximately caused the harm on which the primary liability is predicated.” Stanfield Offshore Leveraged Assets, Ltd. v Metropolitan Life Ins. Co., 64 AD 3d 472, 476 (N.Y. App. Div. 2009). The Court found that Stewart’s representation of Dubrovsky in the negotiation of both assignment agreements was sufficient to state a claim that he may have rendered “substantial assistance to Dubrovsky in breaching her fiduciary duties.” FGP, 2020 WL 1530751 at *6. However, Stewart was not alleged to have provided Dubrovsky with substantial assistance in the alleged conversion of the watches, and in the absence of allegations that Stewart intended to defraud Plaintiffs, the claim of aiding and abetting conversion was insufficiently plead. Id. Accordingly, the Court denied Stewarts Motion to Dismiss Plaintiff’s claim of aiding and abetting breach of fiduciary duty but granted the motion with regard to the claim of aiding and abetting conversion. Id.

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Antonini v. Petito

652070/2010, 2020 WL 2526976 (N.Y. Sup. Ct. 2020)

Sabrina Soffer

Staff Member

Plaintiff Vittorio Antonini commenced an action against long time business partner Orazio Petito on November 19, 2010. See Antonini v. Petito, 652070/2010, 2020 WL 2526976 (N.Y. Sup. Ct. 2020). Plaintiff moved, pursuant to CPLR 4404(a) “for judgment overturning the jury verdict in certain respects” and pursuant to CPLR 5519 for a stay of the judgment that was rendered in favor of defendant . Id. Plaintiff also seeks a monetary award of $1,489,000 in damages that the jury did not award him. See Antonini, 2020 WL 2526976 at *1. The jury, after a four-day trial, returned a verdict dismissing plaintiff’s breach of fiduciary duty claim, and awarded defendant damages in the amount $260,000 for unjust enrichment and $3,300 for interest arising out of plaintiffs failure to pay the promissory note on a timely basis. Id. This Court denied the motion on May 15, 2020 but vacated the judgment in favor of the defendant. Defendant is awarded only $3,300; however he could be awarded offset damages, in the amount of $260,000, if plaintiff is awarded any monetary judgment in the future. Id. at *6.

Vittorio Anonini and Orazio Petito went into business together over ten years ago to purchase buildings in Brooklyn, renovate them and rent them out. See Testimony of Antonini (NYSECF No. 222). Their company was called Bridgeview at Broadway LLC (the “Company”), each contributed $285,000 and held 1/3 ownership interest. Antonini, 2020 WL 2526976 at *1. On September 13, 2006 the parties purchased two adjacent buildings at 146-150 Broadway in Brooklyn with a loan that had interest payments of $26,000 per month. Id. In July 2009, defendant failed to make the mortgage payment for 13 months and to prevent foreclosure, plaintiff paid off the mortgage totaling $330,000. Id. A settlement agreement (the “Settlement”) was entered into, where plaintiff acquired his additional interest in the Company by signing a conditional promissory note to defendant

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for $165,000. Id. See also Settlement (NYSECF No. 175). This note was made payable “upon the transfer of plaintiff’s interest in the Company, a refinancing of the Company's mortgage if sufficient proceeds were raised, and a transfer or refinancing regarding another property where the parties had been co-owners.” Id. On October 8, 2010 pursuant to a forfeiture notice of defendant’s shares in the Company, plaintiff became 100% owner of the Company. Id. at *2. Plaintiff filed a complaint on November 19, 2010 of which the Appellate Division granted summary judgment on his first two causes of action; a declaratory judgment that defendant’s membership in the Company was terminated due to forfeiture and that plaintiff had the authority to remove defendant as managing member because of defendant’s unexcused failure to make mortgage payments for thirteen months. See Compl. (NYSECF No. 1). On January 21, 2011 in his answer defendant asserted counter claims for (1) breach of fiduciary duty; (2) breach of the contract's implied covenant of good faith and fair dealing for which he sought return of his investment in the Company; and (3) fraud for which he sought $165,000 plus interest. See Answer (NYSECF No. 2). Plaintiff proceeded with the balance of the action for damages against defendant for breach of fiduciary duty, misrepresentation, interference with contractual relations, and breach of the implied covenant of good faith and fair dealing. Antonini, 2020 WL 2526976 at *2. After a four-day trial the jury returned a verdict denying plaintiff’s claims and awarding defendant damages in the amount of $260,000 for unjust enrichment and $3,300 for interest arising out of plaintiff's failure to pay the promissory note on a timely basis. Id.

First the court justified the sua sponte addition of an unjust enrichment claim for defendant. The court included an unjust enrichment claim based on evidence presented at trial but conceded that the addition was untimely, and defendant was only entitled to offset damages. Antonini, 2020 WL 2526976 at *3. Since defendant was no longer a party to the Agreement pursuant to the Appellate Division’s affirmance of termination of defendant’s LLC membership, his counterclaims grounded in contract had no standing. Id. at *2. However, after the 13-month hiatus of defendant not paying the mortgage, he made four payments starting in January 2011 ($165,000), which was after the October 2010 Notice of Forfeiture and before the Appellate

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Division held the forfeiture valid, thereby defendant not being part of the business any longer paid plaintiff monetary sums. Id. at *2. Plaintiff never objected to the jury instructions that included questions of plaintiff being unjustly enriched by defendant’s payment, but in this motion objects to the addition of the claim because defendant never amended the pleadings to include this unjust enrichment claim. Id. at *3. Conforming the pleadings to the proof under CPLR 3025(c) is a matter within the court’s discretion. Murray v City of New York, 43 N.Y. 2d 400, 405 (N.Y. 1977), reargument denied, 45 N.Y.2d 966 (N.Y.1978). The test is “whether plaintiff was prejudiced by the amendment.” Loomis v Civetta Corinno Constr. Corp., 54 N.Y.2d 18, 23, reargument denied, 55 N.Y.2d 801 (N.Y.1981). “Where no prejudice is shown, the amendment may be allowed ‘during or even after trial.’” Murray, 43 N.Y.2d at 405. Plaintiff failed to identify any discovery that was precluded and that would help prove he was not unjustly enriched. See Antonini, 2020 WL 2526976 at *3. Defendant has always sought return of his investment in the Company since he filed an answer and a claim for breach of contract can in the alternative be unjust enrichment. Id. However, the unjust enrichment claim accrued in either October 2010 or June 2012. See Antonini v. Petito, 96 A.D.3d 446 (N.Y. App. Div. 2012). Unjust enrichment has a six-year statute of limitations meaning that the claim had expired by the time it was added in April 2019. (CPLR 213(1)).

Second the court justified the interest payment of $3,300 on the promissory note, as being a part of defendants third counterclaim. See Answer ¶253 (NYSECF No. 2) While plaintiff is correct that defendant never produced documentary evidence in support of the promissory note, the jury found defendant’s testimony credible and there was no authority for the claim that the testimony must be corroborated. See Antonini, 2020 WL 2526976 at *4. Additionally, defendant walked the jury through the interest-calculation and they also found it to be credible. Id. The court concluded that plaintiff cannot claim that if he had more time, he would have produced evidence that he paid, because plaintiff was well aware before defendant’s cross examination and before the final charge that defendant was always seeking interest. Id.

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Lastly, the Court explained why the jury verdict should not be set aside. In ruling on a CPLR 4404(a) a court must decide as a matter of law that a jury verdict is not supported by legally sufficient evidence, which requires a “harsher and more basic assessment of the jury verdict.” Fantazia Intl. v. CPl Furs, NY, Inc., 20 Misc. 3d 1113 (N.Y. Sup. Ct. 2008) . It is necessary for the court to conclude that there is “no valid line of reasoning and permissible inferences which could possibly lead rational persons to the conclusion reached by the jury on the basis of evidence presented at trial.” Id. While plaintiff insisted that defendant was lying, the jury found defendant credible and that was their job alone. See Antonini, 2020 WL 2526976 at *5. It is the same in the case of the damages plaintiff believes he is owed from defendants breach of fiduciary duty, the jury could have found that there was a breach and that plaintiff’s evidence for his damages were speculative, that plaintiff was not readily damaged or that plaintiff was not credible. Id. at *6. The jury’s calculations of damages were based on fact and plaintiff had no right to challenge them. Id. Additionally, the jury found that plaintiff breached the contract first by defendant's testimony that plaintiff failed to cooperate in the building renovation and day-to-day duties. Id. The jury also found that plaintiff violated the Settlement by failing to pay interest on the note. Id. The court denied plaintiff's motion to set aside the jury's verdict.

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GMX Technologies, LLC v. Pegasus Capital Advisors, L.P.

654056/2019, 2020 WL 4604808 (N.Y. Sup. Ct. 2020)

Albert Stancil

Staff Member

Defendants Pegasus Capital Advisors, L.P. (“Pegasus”) and The Leiber Group, Inc. (“Leiber”) initiated a motion to dismiss the Plaintiff GMX Technologies, LLC’s complaint (“GMX”). The complaint asserted claims of breach of contract, with the Plaintiff seeking monetary damages, a declaratory judgment, and a permanent injunctive relief. Compl. ¶ 51 (NYSECF No. 1). The Defendants requested a dismissal of the complaint for failure to state a claim. Id. On August 10, 2020, the Court granted the Defendants’ motion to dismiss, with the second, third, fourth, and fifth causes of action dismissed completely, and the first cause dismissed partially. See GMX Technologies, LLC v. Pegasus Capital Advisors, L.P, 654056/2019, 2020 WL 4604808 (N.Y. Sup. Ct. 2020).

GMX is a Delaware corporation, owned by Arnold Simon, which primarily develops and distributes organic, nontoxic agricultural products Compl. ¶ 3. Pegasus, a Delaware company, is a private asset management firm specializing in providing capital to grow and strengthen middle-market companies... including its ‘portfolio company’, Leiber” (id. ¶ 6). Hoping to use Simon’s expertise in the recovery of the struggling Leiber handbag brand, Pegasus lent $8 million to Satz in a cross-investment agreement (id. ¶¶ 7, 15-18). The relationship soon deteriorated, and Simon sued both Leiber and one of Pegasus' funds (Prior Action) (id. ¶ 19). As a result of the settlement agreement, Leiber received a minority equity interest of 12.5% in GMX (Membership Interest) (id. ¶¶ 22, 25). The settlement is memorialized in three executed agreements all dated February 24, 2016: (1) a release agreement (Release); (2) a security purchase agreement (Purchase Agreement); and (3) the Second Amended and Restated Operating Agreement of KGS Agro Group, LLC (SOA) (id. ¶ 24; see also Release (NYSECF No. 20); Purchase Agreement (NYSECF No. 21); SOA (Dkt. No. 22). According to the SOA, Leiber was able to exercise a put option regarding its Membership Interest. On June 26, 2019, Leiber issued written notice that it was seeking $8 million by July 15, 2019, thus exercising the Put Option ( Id. ¶ 49). On July 15, 2019, GMX informed Leiber that its attempt to exercise the Put Option was invalid due to Section 3 6.07 of the

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SOA and Section 18-607 of the Limited Liability Company Act of Delaware (Delaware Act) ( Id. ¶ 51).

In reviewing a motion to dimiss pursuant to CPLR 3211 (a) (7), the court determines “whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail”. GMX Technologies, 2020 WL4604808, at *3. For a defendant to obtain a motion to dismiss from the court, they must submit documentary evidence that conclusively establishes a defense to the asserted claims as a matter of law. Id.

The first cause of action was a declaratory judgment regarding the put option with GMX seeking a declaration that (1) Sections 6.07 of the SOA and 18-607 of the Delaware Act prohibits the exercise of the Put Option; (2) Leiber's Exercise of the Put Option is a Material Breach of the SOA; (3) GMX is not in material breach of the SOA because exercising the Put Option is improper; (4) Leiber is not entitled to exercise the remedies contained in Section 10.11(b)(ii) of the SOA; and (5) Leiber's notice to use the Put Option is untimely, and under Delaware law the payment date of July 15, 2019 is not reasonable Compl. ¶ 56. Regarding the first declaration, the Court held that this portion of the declaratory judgment should move forward because both parties proposed two reasonable interpretations of this provision so the Court cannot make any findings as a matter of law on this motion. GMX Technologies, 2020 WL4604808, at *5. The second portion of the declaratory judgment was dismissed because under Section 5.06, Leiber was within his right to exercise the Put Option and Section 6.07 impedes GMX, not Leiber. Id. For the same reason, the Court dismissed the third segment of GMX's claim, finding that Leiber's contract right is improper. Id. The fourth portion is dismissed without prejudice because Leiber did not exercised any of the remedies contained in Section 10.11 (b) (ii) so there is no justifiable controversy, involving a “present, rather than hypothetical, contingent or remote, prejudice to plaintiffs.” Id. (citing ( Touro Coll. v Novus Univ. Corp., 146 AD3d 679, 680 [N.Y. App. Div. 2017]). Lastly, the fifth portion was dismissed because the Put Notice was delivered within 60 days of the anniversary date and the Put Closing Date less than 30 days later, making neither untimely nor unreasonable. Id. at *6.

Next, the Court dismissed the second cause of action, breach of contract, for the reasons stated above. Id. The third cause of action alleged that an injunction is necessary because, if Leiber is sanctioned to utilize the Put Option, there is a possibility that

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defendants will try to exercise the remedies included under Section 10.11 of the SOA and effectively take possession of GMX. X Compl. ¶¶ 64, 66. The Court dismissed this cause of action because it was conjectural and could not support a claim for a permanent injunction. GMX Technologies, 2020 WL4604808, at *6. (see Family-Friendly Media, Inc. v Recorder Tel. Network, 74 A.D.3d 738, 739-740 (N.Y. App. Div. 2010)). The allegations in the fourth claim show that the alleged “interference was neither wrongful nor motivated solely by malice, as opposed to its normal economic interest”. Id. at *7. (citing Advanced Global Tech., LLC v Sirius Satellite Radio, Inc., 44 A.D.3d 317, 318 [N.Y. App. Div. 2007]). The Court dismissed the claim because GMX failed to present facts that defendants used any illegal methods or acted with the sole purpose of harming GMX. Id.

Finally, the Court dismissed the fifth claim because a cause of action for promissory estoppel is invalid when there is an existing contract or TOA. Id. at *7. The TOA provides that Pegasus “will use commercially reasonable efforts to raise sufficient capital through a newly-created special purpose vehicle to provide a loan or other financing to the Company in the amount of up to $5 million.” TOA at 1 (NYSECF No. 15). Here, the TOA memorializes the commitment to invest $5 million and GMX entered the TOA, knowing that it would only be valid if Pegasus fulfilled its promise to invest up to $5 million. GMX Technologies, 2020 WL4604808, at *7. The parties entered into a written agreement committing to the $5 million investment which was not dependent on effectuating the TOA. Id.

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Allergan Fin., LLC v. Pfizer Inc.

651237/2019, 2020 WL 1878109 (N.Y. Sup. Ct. 2020)

Bill Turnbull

Staff Member

Plaintiff Allergan Fin., LLC (“Allergen”) filed an action for indemnification and related claims against Pfizer Inc. in New York County on February 29, 2019. See generally Compl. (NYSECF No. 1). These claims arise out of an asset purchase agreement (“APA”) in which Actavis Elizabeth, LLC (“Actavis”) acquired from King Pharmaceuticals, Inc. (“King”) the prescription opioid Kadian®. Compl. ¶ 1, (NYSECF No. 1). Allergan and Pfizer are the successors to the APA rights and obligations of Activis and King, respectively. Id. at ¶¶ 2–3). Allergen previously filed this as a third-party complaint in the Northern District of Ohio, where the case was dismissed for improper venue due to a forum selection clause in the asset purchase agreement. In re Nat'l Prescription Opiate Litig., 440 F. Supp. 3d 773, 783 (N.D. Ohio 2020). The complaint by Allergen asserts five causes of action: “(1) breach of contract, (2) contractual indemnification, (3) declaratory judgment, i.e., that Allergan is entitled to indemnification and reimbursement, (4) equitable indemnification, and (5) contribution.” The defendant subsequently moved to dismiss each cause of action. The court granted the motion to dismiss with respect the fourth cause of action requesting equitable indemnification, with leave to replead, and denied dismissal of all other causes of action. Compl. (NYSECF No. 1)

Allergen has been named in over 1000 lawsuits brought against manufacturers of prescription drugs alleging that the manufacturers engaged in deceptive marketing tactics which in turn caused an opioid addiction crisis. See Allergan Fin., LLC v. Pfizer Inc., 651237/2019, 2020 WL 1878109 (N.Y. Sup. Ct. 2020). The lawsuits against Allergen primarily allege that that the company engaged in the “ improper marketing and sale of Kadian®.” Id. at *2. This conduct is alleged to have occurred before the signing of the 2009 APA, but defendants deny any right to indemnification on the basis that these allegations do not involve any pre-2009 conduct. Id.

Here, Pfizer argues that “Allergan's Complaint is premature because Allergan has not yet been liable for any pre- or post-closing conduct and it is entirely speculative whether Allergan ever will be held liable and, if so, what the basis of that liability

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would be.” Id. Thus far, all costs for these lawsuits have been costs and legal fees for its defense. Id. Allergen has requested reimbursement for these costs and has been denied. Id. at 2–3. Pfizer argues that since the APA refers to reimbursement of an “indemnified party,” Allergen “is not entitled to its costs and expenses unless and until it is ‘adjudicated in the underlying opioid cases’ that Allergan is liable for pre-closing conduct.” Id. at *3 (citing Def. Supp. Memo., pp.11–12).

The Court emphasized the importance of contractual indemnification depending on the specific language of the contract at issue. See id. It is a “well-settled rule[] of contractual interpretation . . .” that contracts should be construed so as to give full meaning and effect to all material provisions and that courts should not interpret a contract to render a portion of the contract meaningless. See id. (citing Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 323 (2007)). The court states that Section 12.02 of the APA addresses both defense and indemnification and provides for both. Id. at *3–4. According to section 12.02(a), King agreed to indemnify Activis and its successors for, “the use by [King] or its Affiliates of the [Kadian®] Marketing Materials prior to the [December 2008] Closing.” Id. at *2 (citing Compl. ¶ 4 (NYSECF No. 1)). They also agreed to indemnify any third-party claims “incurred in connection with, arising out of, or resulting from the ownership and operation of the Purchased Assets [including Kadian®] or the conduct of the Business prior to the [December 2008] Closing.” Id. at 3–4 (citing NYSECF No. 2, §12.02). King further agreed to reimburse Activis “on a quarterly basis” for the “reasonable and verifiable costs and expenses, including fees and disbursements of counsel” incurred “in connection with any claim.” Id. (citing Comp. ¶ 5 (NYSECF No. 1)). The agreement also included a right of refund if it is found King is not required to indemnify Activis. The court noted that “[s]ales and marketing of Kadian® prior to December 2008 was conducted by Pfizer, King and its predecessors and the APA makes clear that they “remain solely responsible for” such Pre-Closing Conduct.” Id. at *5 (citing APA, § 3.02 (NYSECF No. 1); Compl., ¶¶ 25-26, 28 (NYSECF No. 2)). The Court states that Pfizer's “indemnified party” claim is at odds with other parts of the APA. Id. The term “Indemnified Party” is defined in Section 12.02(c) and does not require an adverse determination as a precondition to the right to receive indemnification. Id. The fact that Section 12.02(e) entitles Allergen to receive reimbursement on a quarterly basis and allows for a refund in the event that defendants are eventually held not responsible for indemnification is at odds with the idea that defendants are not required to provide defense costs until after liability is adjudicated. Id. The same could be said for Section

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12.02(d)(i) of the APA, which gives Pfizer the ability to “assume the defense of any third-party claim.” Id .

The court rejected the Defendant’s reliance on the precedent of Dresser-Rand Co. v. Ingersoll Rand Co. See id . The aforementioned case’s analysis was grounded in the Federal Declaratory Judgment Act, which is not applicable in this scenario. See id . Furthermore, New York state courts do not follow the Second Circuit’s approach to ripeness for declaratory judgments. Id . Lastly, the contract in Dresser-Rand did not include a provision providing for a refund in the case that indemnification is ultimately not found to be required. Id . The equitable indemnification claim was dismissed because the “obligations the Defendants undertook with respect to Kadian were expressly defined in the APA.” Id . at *6. A contract like this “generally precludes recovery in quasi contract for losses arising from the same subject matter.” Id . The Court dismissed this cause of action with leave to allow Allergen to replead the claim on a non-contractual basis. Id .

Lastly, the Court held that the contribution claim was not premature. See id. In doing so, the court rejected the precedent of Petrucci v. City of New York . Id . The First department held in Petrucci that “it was error to dismiss the defendant municipality's cross claim . . . as untimely because claims for contribution do not accrue for limitations purposes until the party seeking contribution has made payment to the injured party.” Id . (citing Petrucci v. City of NY , 167 A.D.2d 29, 32 (N.Y. App. Div. 1991)). Following this precedent, defendant claimed “that the contribution claim should be dismissed because no finding of responsibility has been made in the Opioid Lawsuits.” Id . The Court distinguished Petrucci because it “addresses an issue of limitations on an action, it does not address the question of when an action for contribution may be commenced.” Id . The court cited other cases where Courts allowed claims for contribution to go forward on the basis of liability. See id . The court found this particularly compelling in this case. Id.

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Misty Cleaning Serv. Inc. v. Independent Group Home, Inc.

50032(U)/2020, 2020 WL 217727 (N.Y. Sup. Ct. 2020)

Connor Winship

Staff Member

Plaintiff Misty Cleaning Services, Inc. (“Misty”) commenced an action against its former client, Independent Group Home Living Program, Inc. (“Independent”) in Suffolk County Supreme Court on October 11, 2016. See Compl. (NYSECF No. 1). Misty asserted two causes of action: a claim for breach of contract and a claim for liquidated damages in the form of attorney fees. See Misty Cleaning Serv. Inc. v. Independent Group Home, Inc. , 50032(U)/2020, 2020 WL 217727, at *4 (N.Y. Sup. Ct. 2020). ‘Independent counterclaimed for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and attorney’s fees.” See Answer with Counter-Claims (NYSECF No. 8) Following close of discovery, Independent filed a motion for summary judgment on August 23, 2019 and Misty filed its own motion for summary judgment on August 24, 2019. See Notice of Motion (NYSECF No. 28); Notice of Motion (NYSECF No. 52). Independent moved for summary judgment “on its first counterclaim for breach of contract, for a judgment declaring that it abided by the notice and termination provision of the parties’ agreement, and for judgment declaring the liquidated-damages clause of the agreement unenforceable.” See Misty Cleaning Serv. Inc., 2020 WL 217727, at *4 (N.Y. Sup. Ct. 2020). Misty sought to have judgment on its two original claims for breach of contract and recovery of attorney’s fees. Id. On January 13, 2020 the court denied Independent’s motion for summary judgment and granted in part Misty’s motion for summary judgment on the first cause of action regarding the issue of liability for breach of contract, while denying summary judgement its liquidated damages claim, alternative claim of expectation damages for the full term of the contract, and claim for attorney’s fees. See Id. at *2.

Misty is a full-service cleaning company that operates in Nassau and Suffolk Counties. Id. Independent is a not-for-profit corporation that provides services to people with intellectual

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disabilities. Id. Included in their services are community-based residential homes and day-program services. Id. On November 2, 2015, both parties entered into an agreement for Misty to perform cleaning services for five of Independent’s buildings and day-program facilities. Id. Section 4.2 of the contract laid out the procedure to terminate the contract in the event of non-performance by Misty. Id. In order to terminate the agreement the client, Independent was required to give thirty-day notice of insufficient performance or non-performance and allow Misty the opportunity to cure the defective performance to Independent’s satisfaction. Id. Section 4.4 of the contract outlined the requirements for sufficient notice as notice “deposited, postpaid and certified with United States Postal Service or a recognized common parcel courier providing express, receipted delivery” and delivered to the provided postal address for Misty. Id. at *3. Finally, Section 4.3 stated, in the event that Independent terminated the agreement for any reason other than non-performance, that Independent agreed to pay liquidated damages. Id. at *2.

On February 19, 2016 Misty’s president met with Independent to discuss changes in its cleaning schedule. Id at *3. The purpose of the meeting and change in schedule was to remedy the subpar cleaning and unsanitary conditions reported to Independent by its staffers. Id. After this meeting, the changes to the schedule and cleaning routine were emailed to Misty’s president on February 22, 2016, with further complaints. Id. In addition, Independent used this email to put Misty on notice that Independent planned to terminate the contract if the insufficient performance was not cured. Id. Misty and Independent met again on or about Memorial Day weekend of that year, where Misty was again informed that, if the insufficiencies were not cured, Independent would terminate the contract. Id. On, July 6, 2016, Independent sent a letter to Misty terminating the contract, effective September 1, 2016, for the majority of its properties and on August 1, 2016, for a specific building located at 221 North Sunrise Service Road, Manorville, New York. Id. at *3‑4. Misty filed suit on October 11, 2016, claiming Independent breached the contract because their February 22 email did not conform to the notice of non-performance requirement necessary to terminate the contract pursuant to Section 4.4 of the contract. Id. at *4.

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When addressing Misty’s first cause of action for breach of contract, the court found “when a contract contains a condition-precedent-type notice provision, strict compliance will be required.” Id. at *5. The court found that Section 4.2 of the agreement was a condition-precedent-type notice provision, and thus there must be strict compliance with serving the notice required and outlined in Section 4.4. Id. Because “the language is clearly conditional and sets forth the consequences of a failure to strictly comply therewith, i.e., the termination will be ineffective[,]” Independent’s termination via email was ineffective because it did not comply with the Section 4.4 requirements of notice. Id. Thus, the court found for Misty and granted its summary judgment motion for liability on its breach of contract claim. Id. at *6.

When the court considered Misty’s claim for liquidated damages, the court found that Independent expressed in multiple communications with Misty that it was terminating the agreement because of Misty’s “non-performance and failure to cure.” Id. Due to alleged non-performance being the reason for the termination of the contract, the liquidated damages clause outlined in Section 4.3 was inapplicable and the court did not need to reach the question of its enforceability. Id. Alternatively, Misty argued that its expectation damages should reflect the amount due to Misty upon completion of the entire contract. Id. The court found that “when a contract permits a party to terminate upon notice and that party fails to provide the required notice, contract damages are limited to the notice period.” Id. On Misty’s second cause of action for attorney’s fees, the court found that the determination on the issue of attorney’s fees was premature until the ultimate issue of whom the prevailing party was determined at trial. Id. at *5-6.

When the court addressed Independent’s summary judgment claim they found that its first counterclaim for breach of contract claim due to alleged non-performance was a triable issue of fact. Id. While Independent claimed that Misty failed to sufficiently perform, Misty argued that the conditions of the buildings were beyond their control, leaving a question of fact that required a jury. Id. As previously mentioned, the court found that Independent did not comply with the strict adherence requirement of the condition-precedent-type notice. Id. Due to Independent’s

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use of email to notify Misty of its non-performance, the court found that Independent did not abide by the notice and termination provisions of the party’s agreements. Id. Finally, the court found that this non-compliance meant the liquidated-damages clause of the agreement was inapplicable. Id.

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