Dixie v Scheer 2025 NY Slip Op 30167(U) January 11, 2025 Supreme Court, New York County Docket Number: Index No. 654690/2022 Judge: Andrea Masley Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [FILED: NEW YORK COUNTY CLERK 01/13/2025 12:50 P~ INDEX NO. 654690/2022 NYSCEF DOC. NO. 53 RECEIVED NYSCEF: 01/11/2025
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 48 ----------------------------------------------------------------------------------- X
DINO DIXIE, on his own behalf and INDEX NO. 654690/2022 derivatively as a member of NEW AMSTERDAM DISTRIBUTORS, LLC and TERRIODIOL OHIO LLC, MOTION DATE N/A
Plaintiffs, MOTION SEQ. NO. 001
- V - DECISION+ ORDER ON JEFFREY SCHEER and BOND and SCHOENECK & MOTION KING, PLLC,
Defendants 1 .
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HON. ANDREA MASLEY:
The following e-filed documents, listed by NYSCEF document number (Motion 001) 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20,21, 22,23,24,25,26,27,28,29, 30, 31, 32, 33, 35,36, 37, 38, 39,40, 41,42,44,45,46 were read on this motion to/for DISMISSAL
In motion sequence number 001, defendants Jeffrey Scheer, Esq. and Bond,
Schoeneck & King, PLLC (BSK) move pursuant to CPLR 3211 (a) (1 ), (3), (5), and (7) to
dismiss the complaint.
Background
Unless indicated otherwise, the following facts are taken from the complaint and,
for the purposes of this motion, are accepted as true.
Plaintiff Dino Dixie brings this action individually and derivatively on behalf of
New Amsterdam Distributors, LLC (NAO) and Terriodiol Ohio LLC (TO). Dixie alleges
1 Robert Daina and Acreage Holdings, Inc. (Acreage) were originally named as
defendants. (See NYSCEF 1, Complaint.) Dixie, Daina, and Acreage entered into a settlement agreement and the action was discontinued as to those defendants. (NYSCEF 6, Stipulation of Discontinuance.) 654690/2022 DIXIE, DINO vs. DAINO, ROBERT JET AL Page 1 of 16 Motion No. 001
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that he was a founding member of NAO, which through NYCI Holding, LLC (NYCI)
owned a 50% interest in nonparty NYCANNA LLC. (NYSCEF 1, Complaint ,m 2, 20, 28.) NAO is the sole shareholder of NYCI. (Id. ,i 28.) Dixie's ownership interest in NAO
is 13%. (Id. ,i 2.)
In May 2015, NAO and nonparty EPMMNY, LLC discussed the formation of a
partnership to jointly pursue a medical cannabis license. 2 (Id. ,i 9.) NAO retained
defendants Sheer and BSK to provide legal services, including the formation of
NYCANNA for the purpose of pursuing the license. (Id. ,i 10.) Upon NYCANNA's
formation, Scheer and BSK "simultaneously became attorneys for NAO, NYCI, and
NYCANNA." (Id.)
On November 20, 2016, Scheer sent NAD's principals notice that NYCANNA
was merging with nonparty NY Medicinal Research and Caring, LLC (NYMRC) to assist
with financing. (Id. ,i 13.) NYMRC was owned by nonparty High Street Capital Partners
(High Street). (Id.) High Street is Acreage's predecessor. 3 This merger allegedly
diluted Dixie's equity interest as it substantially divested NAD's members of their
ownership interests. (Id. ,i 14.) Specifically, Dixie alleges that Scheer and BSK
conspired with the incoming investors, including NYMRC, NYCI, and Acreage, to divest
NAO of its interest in NYCANNA. (Id.)
2 In November 2018, EPMMNY commenced an action against, amongst others, NAO and its members. (EPMMNY LLC v NYCANNA LLC, et al., Index No. 655480/2018 (Masley, J.). In that action, EPMMNY alleges that it has a 25% non-dilutable equity and management right in New York Canna Inc. (restructured as NYCANNA) and the defendants in that action are depriving EPMMNY of that interest. 3 "High Street officially changed its name to Acreage Holdings, Inc. on November
14, 2018." (NYSCEF 1, Complaint ,i 28.) 654690/2022 DIXIE, DINO vs. DAINO, ROBERT JET AL Page 2 of 16 Motion No. 001
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In May 2017, the New York State Department of Health awarded a medical
marijuana license to NY CAN NA. (Id. ,i 16.) Thereafter, Scheer introduced Dixie to
Dai no, who had an existing relationship with Scheer. (Id. ,i 17.) At Scheer's
recommendation, Daina became a member and manager of NAO despite not having
experience in the industry. (Id.) Dixie alleges he was sidelined as Scheer and Dai no
essentially took over NAO. (Id. ,i 19.)
"In May 2018, NYCI sold its fifty percent interest in NYCANNA to High Street."
(Id. ,i 20.) Dixie alleges that Scheer structured the transaction so that High
Street/Acreage acquired all of NYCANNA's equity. (Id.) NAD's officers, including Dixie
were removed as NYCANNA's management, leaving it a mere shell company. (Id.)
This transaction came about after Daina met with representatives from High Street.
After this meeting, Daina informed Dixie "that there was going to be a $2 million cash
call, and that if he did not meet the call by investing the necessary cash, his percentage
ownership in NYCANNA would be reduced." (Id. ,i 22.) Daina then presented an
alternative to the cash call - selling NYCANNA to High Street/Acreage Holdings. (Id. ,i
23.) "Daina said that the transaction needed to be approved by the NYCANNA
shareholders within 8 hours" and represented that the value of the "transaction would be
approximately $40 million based on the stock valuation." (Id.) The consideration for the
sale of NYCl's interest in NYCANNA to High Street/Acreage was cash and stock in
Acreage. (Id. ,i 20 [NYCI sold its in interest "in exchange for cash and class D units of
High Street"].)
Dixie alleges that Scheer violated his fiduciary duty to the NAO members by
falsely advising that the transaction was favorable to NYCANNA, NYCI and NAO, and
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immediate approval was necessary, depriving them "of the opportunity to conduct a
proper due diligence investigation of the proposed transaction." (Id. ,I 25.) Dixie and
the other NAO members approved the transaction based upon Daina and Scheer's
representations. (Id.)
On September 25, 2018, High Street/Acreage announced it would go public in
Canada by performing a reverse takeover of a publicly traded entity, nonparty Applied
Inventions Management Corp. (Id. ,I 27.) "As a part of the transaction, a 6-month
lockup period governed High Street/Acreage shares." (Id.) On November 15, 2018,
High Street/Acreage went public, starting the lockup period. (Id. ,I 28.) The lockup
period had three phases, "ending on May 15, 2019, as follows: (a) First 2 months (until
January 15, 2019): all Acreage shares were to be locked up; (b) Next 2 months
(January 15, 2019 to March 14, 2019): 5% of Acreage shares could be transferred; and
(c) Next 2 months (March 15, 2019 to May 14, 2019): Another 15% of Acreage shares
could be transferred." (Id. ,I 34.) Scheer estimated Acreage's stock "would be worth
about $24 per share during the course of this redemption period." (Id. ,I 35.) However,
right before the first tranche of stock was eligible for release, Scheer informed the NAO
members that their shares were not going to be released, blaming such on the failure by
some NAO members to sign additional necessary paperwork. (Id. ,I 36.) Those
members signed the additional documents but delays still occurred. (Id. ,I,I 37-38.)
On March 25, 2019, NYCl's board of managers held a special meeting to
authorize the transfer of 20% of Acreage's shares from NYCI to NAO. (Id. ,I 39.) They
also "authorized the transfer of all Acreage shares due to Daina (through an entity) from
NYCI to the entity's name." (Id.) After further delay, on April 16, 2019, Scheer emailed
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Acreage, seeking transfer of the Acreage shares to the NAO members. (Id. ,I 39.)
Acreage responded that "more than a letter was needed before a transfer of shares
could be approved." (Id. ,I 43.) On April 25, 2019, Scheer sent an email to NYCl's
board of managers "stating that the initial NYCI authorization to transfer shares did not
meet Acreage's requirements, and that that the NYCI Board of Directors needed to
specifically approve the distribution directly from NYCI to the NAO members." (Id. ,I 44.)
Dixie alleges further delay in the transfer, which caused him to miss the opportunity to
sell his shares during an Acreage stock rally in April 2019. (Id. ,I,I 45-48.) The stock
reached a high of $24.13 per share, but it was not until September 2019 that Dixie
received 50% of his shares; the stock value at that point was around $2 a share. (Id. ,I,I
48, 50.) "Only in March 2022 did Dixie receive the balance of his stock transfer at
barely over penny stock value." (Id. ,I 55.)
Dixie alleges that Scheer engaged in similar conduct with respect to a venture in
Ohio. Dixie alleges that he was also a founding member of TO which was formed in
2018 to apply for a medical marijuana license in Ohio. (Id. ,I 57.) Scheer once again
brought in Daina to run TO. (Id.) Dixie alleges that, without his knowledge, Daina
arranged a sale of TO's pending license to another company for $20 million. (Id. ,I 59.)
The deal fell through. (Id.) TO entered into a new deal with another company, and
again, Dixie's was not made aware of the proposed transaction for approximately a
year. 4 (Id. ,I 60.) It is alleged that Scheer drafted all the documents related to this
transaction. (Id.)
4 It is unclear to the court whether this transaction closed as the complaint is silent. 654690/2022 DIXIE, DINO vs. DAINO, ROBERT JET AL Page 5 of 16 Motion No. 001
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Dixie asserts claims for breach of fiduciary duty, a derivative claim on behalf of
NAO pursuant to Business Corporation Law (BCL) § 626 for legal malpractice, breach
the implied covenant of good faith and fair dealing, unjust enrichment, and fraud against
Sheer and BSK as well as a derivative claim on behalf of TO pursuant to BCL § 626 for
breach of fiduciary duty and negligence against Scheer.
Discussion
Breach of Fiduciary Duty
Dixie alleges that Scheer and BSK owed a fiduciary duty to Dixie and NAD's
other members and breached that duty by (1) "failing to diligently pursue the necessary
process for transferring Acreage shares from NYCI to Dixie and other individual
members of NAO once the NYCI Board of Managers authorized it" and (2) giving
"erroneous tax advice regarding the purported tax consequences of transferring the
Acreage stock into their own individual names." (NYSCEF 1, Complaint ,m 65-66.) Scheer and BSK assert that this cause of action is time barred as any claim in
connection with the alleged delay in the transfer of Acreage stock accrued on May 15,
2019. There is a dispute whether the three- or six-year statute of limitations applies.
"New York law does not provide a single statute of limitations for breach of fiduciary duty claims. Rather, the choice of the applicable limitations period depends on the substantive remedy that the plaintiff seeks. Where the remedy sought is purely monetary in nature, courts construe the suit as alleging "injury to property" within the meaning of CPLR 214 (4), which has a three-year limitations period. Where, however, the relief sought is equitable in nature, the six-year limitations period of CPLR 213 (1) applies. Moreover, where an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213 (8)." (IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 139 [2009] [citations omitted].)
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Dixie asserts that the six-year limitations period applies, because his claim for
unjust enrichment is equitable. However, the only relief sought in the complaint is
monetary. (See NYSCEF 1, Complaint at 23.) Dixie argues that he will be seeking
disgorgement of profits and legal fees as the result of the breach, but he has not
amended his complaint to include such relief. A three-year statute of limitations applies
where a plaintiff "seeks purely monetary relief, not equitable relief for which an award of
monetary damages would not be adequate." (VA Mgt., LP v Estate of Valvani, 192
AD3d 615, 615 [1st Dept 2021 ]. ) Where a plaintiff uses "the term 'disgorgement'
instead of other equally applicable terms such as repayment, recoupment, refund, or
reimbursement," it "should not be permitted to distort the nature of the claim so as to
expand the applicable limitations period from three years to six." (Access Point Med.,
LLC v Mandell, 106 AD3d 40, 44 [1st Dept 2013]; see also VA Mgt., LP, 192 AD3d at
615 [stating that "[p]laintiff's characterization of that relief as 'disgorgement' of
[defendant's] compensation does not convert it into a claim for equitable relief to which
the six-year statute of limitations would apply" (citations omitted)].)
Also unavailing is Dixie's assertion that the breach of fiduciary claim is rooted in
fraud. The breach of fiduciary duty claim is based on two alleged actions - "failing to
diligently pursue the necessary process for transferring the Acreage shares" and giving
"erroneous tax advice." (NYSCEF 1, Complaint ,m 65-66.) Although Dixie argues in his opposition brief that Scheer and BSK induced Dixie to authorize and sign off on the
mergers without informing him of the terms or conditions of such, that conduct is not
alleged in connection with the breach of fiduciary duty claim. The conduct that is
alleged involves "allegedly impaired professional judgment;" this claim as plead is not
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essentially a fraud claim. (See Access Point Med., LLC, 106 AD3d at 44 [citation
omitted].) Nevertheless, despite alleging a separate cause of action for fraud, the
complaint is devoid of any allegation that Dixie "justifiably relied on any
misrepresentation." (VA Mgt., LP, 192 AD3d at 616 [citation omitted] [declining to apply
the six-year limitations period where plaintiff failed to allege justifiable reliance]; see also
Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 421 [1996] [stating elements of
fraud cause of action are "a misrepresentation or a material omission of fact which was
false and known to be false by defendant, made for the purpose of inducing the other
party to rely upon it, justifiable reliance of the other party on the misrepresentation or
material omission, and injury" (citations omitted)].) Thus, the three-year statute of
limitations applies.
"On a motion to dismiss a cause of action pursuant to CPLR 3211 (a) (5) on the
ground that it is barred by the statute of limitations, a defendant bears the initial burden
of establishing, prima facie, that the time in which to sue has expired. To meet its
burden, the defendant must establish, inter alia, when the plaintiff's cause of action
accrued." (Lebedev v Blavatnik, 144 AD3d 24, 28 [1st Dept 2016] [internal quotation
marks and citations omitted].) "A breach of fiduciary duty claim accrues where the
fiduciary openly repudiates his or her obligation-i.e., once damages are sustained."
(Id. at 28 [citation omitted].) "To determine timeliness, [the court] consider[s] whether
plaintiff's complaint must, as a matter of law, be read to allege damages suffered so
early as to render the claim time-barred." (IDT Corp., 12 NY3d at 140.)
Dixie alleges that he and the other NAO members were damaged as a result of
the delay in the transfer of the Acreage stock. (NYSCEF 1, Complaint ,i 67.) Scheer
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and BSK assert any alleged damages were incurred on May 15, 2019, the end of the
lockup period and date Dixie received his shares of the Acreage stock. In the
complaint, Dixie alleges that, by September 2019, only 50% of the Acreage stock had
been released to him and remaining 50% was released in March 2022. (Id. ,m 50, 55.) He alleges that Scheer's delay caused Dixie to miss the opportunity to sell the Acreage
stock while it was at a high at the end of April 2019, but he also alleges that, when his
shares were finally released to him in September 2019 and March 2022, they were
worth around $2 and "barely over penny stock value," respectively. (Id. ,m 48, 50, 55.) Thus, based on the allegations in the complaint, Dixie first sustained damages when he
did not have his shares once the lockup period ended on May 15, 2019.
This is not a situation where the continuing wrong doctrine applies. "Where there is a
series of continuing wrongs, the continuing wrong doctrine tolls the limitation period until
the date of the commission of the last wrongful act. (Palmeri v Willkie Farr & Gallagher
LLP, 156 AD3d 564, 568 [1st Dept 2017] [citations omitted].) "The doctrine 'may only
be predicated on continuing unlawful acts and not on the continuing effects of earlier
unlawful conduct. The distinction is between a single wrong that has continuing effects
and a series of independent, distinct wrongs."' (Henry v Bank of Am., 147 AD3d 599,
601 [1st Dept 2017] [citations omitted].) Here, there is one alleged tortious act-
Scheer's delay in transferring the stock to Dixie - which first occurred at the end of the
lockup on May 15, 2019. "The doctrine is inapplicable where there is one tortious act
complained of since the cause of action accrues in those cases at the time that the
wrongful act first injured plaintiff and it does not change as a result of 'continuing
consequential damages."' (Id. [citations omitted].) Although the single alleged action of
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delay may have caused a continuing increase in damages, the continuing wrong
doctrine does not apply. (Id. at 601-602 ["where a plaintiff asserts a single breach-with
damages increasing as the breach continued-the continuing wrong theory does not
apply" (citations omitted)].) The claim to the extent it is based on defendants' alleged
failure "to diligently pursue the necessary process for transferring Acreage shares from
NYCI to Dixie and other individual members of NAO once the NYCI Board of Managers
authorized it" is dismissed. (NYSCEF 1, Complaint ,i 65)
Scheer and BSK do not address the timeliness of this claim to the extent it is
based on their alleged "erroneous tax advice regarding the purported tax consequences
of transferring the Acreage stock into their own individual names." (NYSCEF 1,
Complaint ,i 66.) Thus, the claim to the extent it is based on this alleged conduct is
sustained.
Legal Malpractice Claim Derivatively on Behalf of NAO (BCL § 626)
In support of NAD's legal malpractice claim, Dixie alleges that Scheer and BSK
"deviated from the minimum standard of care expected of an attorney or law firm ... and
are ... liable for legal malpractice and professional negligence in that, among other
things, they improperly exercised favoritism, bias and conflict of interest in favor of
defendant Daina with regard to the structuring of legal transactions involving NAO, NYCI
and Acreage." (NYSCEF 1, Complaint ,i 70.)
Scheer and BSK assert that Dixie fails to sufficiently allege that he made a
demand on NAD's managers as required for a derivative claim. They further assert that
the documentary evidence shows the transaction with Acreage was negotiated by
NAD's managers and the managers approved proceeding with the transaction. Finally,
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they argue that Dixie fails to allege how NAO was damaged; rather, Dixie alleges that
he was damaged.
Demand
Dixie alleges that he
"has requested of the various members of the Board of Directors of NAO that these legal malpractice claims should be brought by NAO against Scheer and BS&K, but the Board members have refused to take such action. Two Board members, constituting a voting majority of the Board, have made it clear to Plaintiff that they would not support litigation to resolve these claims. Any further efforts or demands that the NAO Board of Directors bring these claims would clearly be futile." (Id. ,i 70.)
Scheer and BSK argue that this allegation lacks the required particularity. In
response, Dixie submits an affidavit to supplement the complaint. (Ackerman v
305 E. 40th Owners Corp., 189 AD2d 665, 666 [1st Dept 1993] [holding that "a
court may consider affidavit facts as a supplement to the complaint"].) Dixie
avers that
"I spoke to John Vavalo, the original founding member of NAO and to Dominic Falcone, together the majority owners of NAO, on numerous occasions, urging them to bring a lawsuit against Scheer, BS&K and others on behalf of NAO. Early on they were very supportive of the lawsuit. However, when it came time to actually file a complaint, after months of discussions, they said that they opposed such a lawsuit because, even though our claims were meritorious, they believed that any such litigation might be detrimental to other matters in which Scheer and BS&K were involved. After a substantial number of these conversations with them proved to be fruitless, I realized that it was futile to continue to try to persuade them that it was in NAD's best interests to file a complaint against these Defendants on behalf of NAO and its members." (NYSCEF 35, Dixie aff ,i 43.)
"Business Corporation Law§ 626 (c) provides that in a shareholders' derivative suit, 'the complaint shall set forth with particularity the efforts of the plaintiff to secure the initiation of such action by the board or the reasons for not making such effort.' In New York, to overcome a motion to dismiss for failure to plead demand futility, a plaintiff must have alleged 'with particularity that (1) a majority of the directors are interested in the 654690/2022 DIXIE, DINO vs. DAINO, ROBERT J ET AL Page 11 of 16 Motion No. 001
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transaction, or (2) the directors failed to inform themselves to a degree reasonably necessary about the transaction, or (3) the directors failed to exercise their business judgment in approving the transaction."' ( Goldstein v Bass, 138 AD3d 556, 556-557 [1st Dept 2016], quoting Marx v Akers, 88 NY2d 189, 198 [1996] [emphasis added].)
Although Dixie's affidavit is not the most detailed, he does identify "who made the
demands," to "which Board members they were made", 5 "the content of the demands"
and "why the Board refused to take action." (Tomczak v Trepel, 283 AD2d 229, 230
[1st Dept 2001 ]. ) This is sufficient to plead demand futility.
Legal Malpractice
"A viable claim for legal malpractice requires that a complaint allege the
negligence of the attorney; that the negligence was the proximate cause of the
loss sustained; and actual damages." (Russo v Rozenholc, 130 AD3d 492, 496-
497 [1st Dept 2015] [internal quotation marks and citations omitted].) "A plaintiff
asserting a derivative claim seeks to recover for injury to the business entity."
(Yudell v Gilbert, 99 AD3d 108, 113 [1st Dept 2012].)
Here, the complaint is devoid of any allegations that defendants'
negligence was the proximate cause of any loss sustained by NAO. Further,
Dixie alleges that he was damaged by the malpractice and not NAO. Both are
fatal. This claim is dismissed without prejudice with leave to replead within 20
days of the date of this decision or waived.
5 Scheer and BSK argue that Dixie identifies Vavalo and Falcone only as majority
owners not board members. However, the minutes of the Special Meeting of NAD's Board Members identify Vavalo and Falcone as members of the Board. (NYSCEF 39, NAD's Board Minutes.) 654690/2022 DIXIE, DINO vs. DAINO, ROBERT JET AL Page 12 of 16 Motion No. 001
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Breach the Implied Covenant of Good Faith and Fair Dealing
"No implied covenant of good faith and fair dealing arises in the absence
of a contract." (King Penguin Opportunity Fund Ill, LLC v Spectrum Group Mgt.
LLC, 187 AD3d 688, 690 [1st Dept 2020] [citations omitted].) Dixie fails to allege
that the existence of a contract between himself, Scheer, and BSK. This claim is
dismissed.
Unjust Enrichment
To state a claim for unjust enrichment, a plaintiff must allege "that (1) the other
party was enriched, (2) at that party's expense, and (3) that it is against equity and good
conscience to permit the other party to retain what is sought to be recovered." (Georgia
Malone & Co., Inc. v Rieder, 19 NY3d 511, 516 [2012] [internal quotation marks and
citations omitted].) Dixie's sole allegation is "[a]s a result of the tortious acts complained
of herein, defendants were unjustly enriched .... " (NYSCEF 1, Complaint ,i 82.) In his
affidavit, Dixie avers that Scheer made $600,000 from Acreage and hundreds of
thousands from the Ohio transaction and that Scheer and BSK received millions in
attorneys' fees. (NYSCEF 35, Dixie aff ,i 40.) However, Dixie fails to allege how receipt
of any monies was unjust and that it would be against equity for defendants to retain
such payments. Further, this claim is plead as individual and not derivative, and Dixie
fails to allege how paying Scheer and BSK fees 6 was at Dixie's expense. This claim is
6 The court notes that the retainer agreement is between NAO and BSK. (NYSCEF 9, Retainer Agreement.) There are no allegations that Dixie personally made any fee payments. 654690/2022 DIXIE, DINO vs. DAINO, ROBERT JET AL Page 13 of 16 Motion No. 001
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Fraud
"To state a claim for fraud, a plaintiff must allege misrepresentation or
concealment of a material fact, falsity, scienter by the wrongdoer, justifiable reliance on
the deception, and resulting injury." (Zanett Lombardier, Ltd. v Maslow, 29 AD3d 495,
495 [1st Dept 2006] [citation omitted].) Pursuant to CPLR 3016 (b), such claim must be
plead with particularity. As previously stated, the complaint is devoid of any allegation
that Dixie justifiably relied on any misrepresentation by Scheer and/or BSK. This claim
is dismissed without prejudice to replead within 20 days of the date of this order or
waived.
Breach of Fiduciary Duty and Negligence derivatively on behalf of TO (BCL § 626)
Scheer and BSK move to dismiss this claim on the ground that Dixie cannot bring
a derivative claim on behalf of TO because he is not a member of TO. Dixie does not
dispute this; rather, he avers that he is a member of nonparty Terradiol Management,
LLC (TM), which is the sole member of TO. (NYSCEF 35, Dixie aff ,-I,J 30, 44.)
"[W]here the parent controls the subsidiary, a shareholder may bring a 'double'
derivative action 'not only for wrongs inflicted directly on the corporation in which he
holds stock, but for wrongs done to that corporation's subsidiaries which make indirect,
but nonetheless real, impact upon the parent corporation and its stockholders."' (Matter
of Pokoik v 575 Realties, Inc., 143 AD3d 487,489 [1st Dept 2016] [citations omitted].)
A double derivative action "may be maintained '[w]here a stockholder controls a
subsidiary [such that] ... there is no independence between the parent stockholder and
the subsidiary, [and] it cannot be expected that the controlling stockholder will authorize
a suit on behalf of the subsidiary against itself for harm to the subsidiary."' (Simon v
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French-American Surgery Ctr., Inc., 2018 NY Slip Op 32184[U], *17 [Sup Ct, NY County
2018], quoting Pessin v Chris-Craft Indus., 181 AD2d 66, 72 [1st Dept 1992]; see also
Millerv Suky, 2018 NY Slip Op 31374[U], *12 [Sup Ct, NY County 2018].) Dixie has
sufficiently supplemented the complaint to allege he is a member of TM, which in turn
controls TO as the sole member. He also sufficiently alleges that he went to Vavalo and
Falcone, the majority members of TM, to demand TM bring a lawsuit against Scheer on
behalf of TO to no avail. (NYSCEF 35, Dixie aff ,i 44.) Thus, this claim is sustained.
Accordingly, it is
ORDERED that the defendant's motion to dismiss is granted with respect to the
claims for breach of fiduciary duty to the extent it is based on defendants' alleged failure
to diligently transfer the Acreage shares, breach the implied covenant of good faith and
fair dealing, unjust enrichment, and fraud, as well as the derivative claim on behalf of
NAO pursuant to BCL § 626 for legal malpractice and is otherwise denied; and it is
further
ORDERED that these claims are dismissed; and it is further
ORDERED that plaintiff is granted leave to serve and file an amended complaint
repleading the claims for fraud in compliance with CPLR 3016 (b) and the derivative
claim on behalf of NAO pursuant to BCL § 626 for legal malpractice; and it is further
ORDERED that the amended complaint shall be served and filed within 20 days
of the date of this decision and order; and it is further
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ORDERED that, if plaintiff fails to serve and file an amended complaint in
conformity with the deadline set forth herein, leave to replead shall be deemed denied
and those causes of action shall be dismissed.
1/11/2025 DATE ANDREA MASLEY, J.S.C.
~ CHECK ONE: CASE DISPOSED NON-FINAL DISPOSITION
GRANTED □ DENIED GRANTED IN PART □ OTHER APPLICATION: SETTLE ORDER SUBMIT ORDER
CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT □ REFERENCE
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