Khan v. Mediamorph, Inc.

2024 NY Slip Op 31201(U)

• Court: New York Supreme Court, New York County
• Decided: April 7, 2024
• Status: Unpublished

Opinion

Khan v Mediamorph, Inc. 2024 NY Slip Op 31201(U) April 7, 2024 Supreme Court, New York County Docket Number: Index No. 656125/2019 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. INDEX NO. 656125/2019 NYSCEF DOC. NO. 132 RECEIVED NYSCEF: 04/07/2024

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 48 ----------------------------------------------------------------------------------- X

IMTIAZ KHAN, BRUCE MEYERS, WINDSOR STREET INDEX NO. 656125/2019 CAPITAL, L.P. F/K/A MEYERS ASSOCIATES, L.P., FATOS MUCHA, CHASSMAN BLECH 2013 TRUST, SPRING CHARITABLE REMAINDER TRUST, MICHAEL MOTION DATE STONE, ROBERT SEGUSO, WARIS IRREVOCABLE TRUST, JEFFREY BAUM, FARHAN SHARAFF, MOTION SEQ. NO. 004 005 BARBARA MISHAN, NAUSIKA AHMETI MUCHA,

Plaintiffs, DECISION+ ORDER ON MOTION - V -

MEDIAMORPH, INC., ROBERT GARDOS, MICHAEL HUSEBY, MICHAEL SID, KENT JARVI, SHAHID KHAN, JONATHANLERNER,NOMIBERGMAN,ROBERT TOMS, ROBERT GREENE, STEWART TILL, BARRY BAKER, SMEDVIG CAPITAL LTD (AS NOMINEE FOR SMEDVIG CAPITAL FUND X LP)

Defendants. ----------------------------------------------------------------------------------- X

HON. ANDREA MASLEY:

The following e-filed documents, listed by NYSCEF document number (Motion 004) 80, 81, 82, 100, 102,104,105,106,107,113,127,129,130 were read on this motion to/for DISMISS

The following e-filed documents, listed by NYSCEF document number (Motion 005) 83, 84, 85, 86, 87, 88, 89, 90, 101, 103, 108, 109, 110, 111, 114, 128 were read on this motion to/for DISMISSAL

This action arises form a merger transaction involving defendant Mediamorph,

Inc. (MMI), whose common stock plaintiffs owned. 1 In motion sequence 004,

defendants MMI, Robert Gardos, Michael Huseby, Michael Sid, Kent Jarvi, Shahid

Khan, Jonathan Lerner, Nomi Bergman, Robert Toms, Robert Greene, Stewart Till, and

1The background of this action is set forth in this court's decision on the movants' previous motions to dismiss. (NYSCEF Doc. No. [NYSCEF] 67, Decision and Order at 2-8 [mot. seq. nos. 001, 002].) 656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC. Page 1 of 9 Motion No. 004 005

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Barry Baker (collectively, MMI Defendants) move to dismiss the amended complaint

pursuant to CPLR 3211 (a)(7). In motion sequence 005, defendant Smedvig Capital Ltd.

(Smedvig) moves to dismiss the amended complaint pursuant to CPLR 3211(a)(1) and

(7). Movants are the only remaining defendants in this action. 2

The court previously dismissed the breach of fiduciary duty and aiding and

abetting breach of fiduciary duty claims with leave to replead "in compliance with CPLR

3016(b)." (NYSCEF 67, Decision and Order at 25 [mot. seq. nos. 001, 002].) 3 Plaintiffs

filed an amended complaint, in which they allege claims for (1) breach of fiduciary duty

against the MMI Defendants, (2) aiding and abetting breach of fiduciary duty against

Smedvig, and (3) unjust enrichment against all defendants and seek a declaratory

judgment. (NYSCEF 70, Amended Complaint [AC] ,m 85-113. 4 )

2 The court dismissed defendants Whip Networks, Inc., TV Time, Inc., and Whip Media Group. (NYSCEF 96, Decision and Order at 1 [mot. seq. no. 003].) 3 The court dismissed the third cause of action (breach of contract) with leave to replead as to certain defendants. (NYSCEF 67, Decision and Order at 24-25 [mot seq. nos. 001, 002].) Plaintiffs did not replead. The court dismissed the fourth (conversion), fifth (tortious interference), and seventh (accounting) causes of action with prejudice. (Id.) 4 Plaintiffs fail to submit "a red-line copy [of the amended complaint] identifying all modifications or additions." (Part 48 Procedure 11.) Upon review of the amended complaint, the following changes have been made: (1) plaintiffs added ,m 66-75, 91 and 106; (2) plaintiffs amended ,i 88 (d), which corresponds to ,i 78 (d) of the initial complaint, to add "in violation of their fiduciary duties, including" (i.e., "[t]he defendants breached these fiduciary duties in multiple respects, including ... (d) approving interested director transactions in violation of their fiduciary duties, including without undertaking proper steps to comply with required procedures for such transactions or protecting the interests of the plaintiffs" [emphasis added]); and (3) plaintiffs attach select pages of the Information Statement, dated October 18, 2019, pertaining to the merger and Proposed Resolutions of the Board of Directors of MM I, dated October 11, 2019, as exhibits. (See NYSCEF 70, AC.) 656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC. Page 2 of 9 Motion No. 004 005

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Discussion

"A cause of action may be dismissed under CPLR 3211 (a)(1) only where the

documentary evidence utterly refutes [the] plaintiff's factual allegations, conclusively

establishing a defense as a matter of law." (Art and Fashion Group Corp. v Cyclops

Prod., Inc., 120 AD3d 436,438 [1st Dept 2014] [internal quotation marks and citation

omitted].)

On a motion to dismiss pursuant to CPLR 3211 (a)(7), the court must "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." (Leon v Martinez, 84 NY2d 83, 87-88 [1994].) "[B]are legal

conclusions, as well as factual claims which are either inherently incredible or flatly

contradicted by documentary evidence" cannot survive a motion to dismiss. (Summit

Solomon & Feldesman v Lacher, 212 AD2d 487, 487 [1st Dept 1995] [citation omitted].)

"Where a cause of action ... is based upon misrepresentation, fraud, mistake, wilful

default, breach of trust or undue influence, the circumstances constituting the wrong

shall be stated in detail." (CPLR § 3016 [b].)

"New York choice-of-law rules provide that substantive issues such as issues of

corporate governance, including the threshold demand issue, are governed by the law

of the state in which the corporation is chartered." (Lerner v Prince, 119 AD3d 122, 128

[1st Dept 2014] [citations omitted].) New York's choice-of-law rules impose New York

law over matters of procedure. (Id. at 127.) The parties agree that Delaware law

applies to the substantive issues here.

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Breach of Fiduciary Duty Claim Against MMI Defendants

The court previously dismissed the breach of fiduciary duty claim because

plaintiffs "failed to sufficiently allege facts to support the fiduciary duty claims against

MMI ... or the MMI Directors." (NYSCEF 67, Decision and Order at 15 [mot. seq. nos.

001, 002].) The court explained:

"Plaintiffs' allegations are either conclusory or sound in breach of contract. The complaint includes allegations of the defendants' failures such as: failing to protect common shareholders interest, favoring personal interest and funneling profits from the sale transaction, failing to comply with required procedures to approve directors or the merger, golden parachute payments to directors, failing to maximize shareholder value, depriving common shareholders of voting rights, and failing to follow the special committee's recommendation to pay the common stockholders at least $4.5 million. However, these allegations are absent any detail as to the common questions of who, what, when, where, and how. The complaint contains blanket allegations about defendants without sufficient detail.

For example, plaintiffs do not allege the directors were on both sides of the merger transaction and engaged in self-dealing. Without those allegations, plaintiffs must allege and identify how the directors received a benefit so material that it makes it improbable they could independently perform their duties. Allegations [that] the directors received a $4.5 million golden parachute payout, without identifying what amount each director was paid or how that payment is material is insufficient to allege they were interested in the transaction. Simply stating the defendants failed to maximize value for the shareholders does not meet the pleading standard.

The breach of fiduciary duty claim is dismissed with leave to replead due to inadequate pleading to allege MMl's board's breach of its duties." (Id. at 15-16 [citations omitted].)

The MMI Defendants argue that the breach of fiduciary duty claim, as repleaded

in the amended complaint, must be dismissed because plaintiffs added no new factual

a Ilegations.

In the newly added paragraphs, plaintiffs, for the most part, merely reiterate the

allegations already included in the initial complaint, which this court found insufficient to

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state a breach of fiduciary duty claim. (Compare NYSCEF 2, Complaint ,m 21-29, 78 [h], with NYSCEF 70, AC ,m 68, 91.) The minimal new factual allegations regarding director defendants Shahid Khan and Greene are woefully insufficient "to allege and

identify how the directors received a benefit so material that it makes it improbable they

could independently perform their duties." (NYSCEF 67, Decision and Order at 16 [mot.

seq. nos. 001, 002] [citations omitted].) Specifically, the new factual allegations include

allegations that Shahid Khan "held Company Common Stock and Company Options"

(NYSCEF 70, AC ,i 68 [b]) and that Greene "was an affiliate of LGI Ventures B.B ....

[which] held preferred stock in MMI and also had warrants to purchase additional

Company stock." (Id. ,i 68 [e].) Plaintiffs also allege that defendant Gardos, MMl's

former CEO, would receive a material benefit, i.e., "a management incentive bonus in

connection with the closing of the merger of $2.7 million." (Id. ,i,i 21, 71; see Orman v

Cullman, 794 A2d 5, 30-31 [Del Ch 2002] [finding that a director "cannot be considered

independent and disinterested" where the director would receive a $3.3 million benefit

as the result of a merger].) However this allegation evidences that only one director, not

a majority of them, was self-interested. ( See Miramar Firefighters Pension Fund, 2013

WL 4033905, *3 ["For a duty of loyalty claim to survive a motion to dismiss, the

complaint must state facts that reasonably support the inference that a majority of the

directors (1) were self-interested or not independent or (2) acted in bad faith" (citations

omitted)].)

Finally, the Information Statement and Proposed Resolutions of the Board of

Directors of MMI, which are attached to the amended complaint, largely reiterate the

factual allegations about the MMI directors that were already included in the initial

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complaint, and thus, are insufficient to cure the complaint's deficiencies. (See NYSCEF

70, AC at ex. A, B [Information Statement at 29-30; Proposed Resolution at 2-3].)

Accordingly, this claim again fails because plaintiffs have not alleged facts to support

MMI board's breach of its fiduciary duties. This claim is dismissed.

Aiding and Abetting Breach of Fiduciary Duty Claim Against Smedvig

As the underlying breach of fiduciary duty is dismissed, this claim cannot be

sustained.

Unjust Enrichment against all Defendants

Defendants previously moved to dismiss the unjust enrichment claim as

duplicative of the breach of contract and breach of fiduciary duty claims. As the court

dismissed the breach of contract and breach of fiduciary duty claims, the unjust

enrichment claim was sustained. (NYSCEF 67, Decision and Order at 23-24 [mot. seq.

nos. 001, 002] [citations omitted].)

Defendants now argue that this claim fails because (i) plaintiffs fail to allege lack

of justification and (ii) the Certificate of Incorporation governed the distribution of merger

consideration. In their approximately two-page opposition brief, plaintiffs fail to address

these arguments. Plaintiffs' bare reference to their opposition brief pertaining to

defendants' previous motions to dismiss is unavailing as the opposition brief does not

address these newly raised arguments. (See NYSCEF 54 & 55, Plaintiffs Opp MOL

[mot. seq. nos. 001, 002].) Accordingly, the unjust enrichment claim is dismissed. ( See

e.g. Butler v City of NY, 202 AD3d 471, 472 [1st Dept 2022] [dismissing a false

imprisonment claim where plaintiff "failed to oppose defendants' motion to dismiss on

untimeliness grounds"].)

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Nevertheless, plaintiffs have not sufficiently stated a claim for unjust enrichment.

"The elements of unjust enrichment are: (1) an enrichment, (2) an impoverishment, (3) a

relation between the enrichment and the impoverishment, (4) the absence of

justification, and (5) the absence of a remedy provided by law." (Windsor I, LLC v

CWCapital Asset Mgt. LLC, 238 A3d 863, 875 [Del 2020] [internal quotation marks and

citation omitted].) "[U]njust enrichment requires an absence of justification for the

transfer that enriches one party and impoverishes the other. That requirement usually

entails some type of wrongdoing or mistake at the time of the transfer." (Terr. of the

U.S. Virgin Is. v Goldman, Sachs & Co., 937 A2d 760, 796, n 161 [Del Ch 2007].) Here,

plaintiffs fail to sufficiently allege that defendants' actions were without justification.

Declaratory Judgment

Finally, plaintiffs seek a declaration that the release contained in the Letter of

Transmittal (LOT) is void and unenforceable to the extent signed. Defendants

previously argued that any claims made by plaintiffs who signed the LOTs must be

dismissed because the LOTs were part of the Merger Agreement and unambiguous.

The MMI Defendants maintained that the unambiguous language of the LOTs released

them from certain claims. This court held that it could not "determine the enforceability

of the LOTs as a matter of law" because "a factual issue exists as to whether the signed

LOT was part of the bargained for exchange of the merger consideration." (NYSCEF

67, Decision and Order at 9-10 [mot. seq. nos. 001, 002].) Accordingly, the court

sustained the declaratory judgment claim. (Id. at 24.)

Defendants now argue that because the amended complaint fails to state any

viable causes of action irrespective of whether LOTs are enforceable, the issue of

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LOTs' enforceability is moot, and thus any declaratory judgment on this issue would

serve no useful purpose. Plaintiffs fail to oppose this newly raised argument in its

current opposition brief. Plaintiffs' opposition brief addressing defendants' previous

motions to dismiss does not address this new argument. (See NYSCEF 54 & 55,

Plaintiffs Opp MOL [mot. seq. nos. 001, 002].) Accordingly, the declaratory judgment

claim is dismissed. (Butler, 202 AD3d at 472.)

Nevertheless, "[a]s a matter of discretion, the Court may refuse to grant

declaratory relief where such a remedy would serve no useful purpose. Such is the

case either where declaratory relief will not terminate the uncertainty or controversy

giving rise to the proceedings, or where another available remedy would be more

effective." (Phillips Petroleum Co. v Arco Alaska, Inc., 1985 Del. Ch. LEXIS 414, at *14-

15 [Ch May 15, 1985, No. 7177].) The court agrees with defendants that, with the

dismissal of the other claims, a declaration as to the enforceability of the LOTs serves

no useful purpose here as plaintiffs have failed to state claims for breach of fiduciary

duty, aiding and abetting in such breach, and unjust enrichment irrespective of whether

the LOTs are enforceable.

The court has considered the balance of the parties' arguments and finds that

they do not affect the outcome.

Accordingly, it is

ORDERED that Mediamorph, Inc., Robert Gardos, Michael Huseby, Michael Sid,

Kent Jarvi, Shahid Khan, Jonathan Lerner, Nomi Bergman, Robert Toms, Robert

Greene, Stewart Till, and Barry Baker's motion to dismiss (seq. no. 004) is granted and

the amended complaint is dismissed in its entirety as against these defendants, with

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costs and disbursements to the defendants as taxed by the Clerk of the Court, and the

Clerk is directed to enter judgment accordingly in favor of the defendants; and it is

further

ORDERED that Smedvig Capital Ltd.'s motion to dismiss (seq. no. 005) is

granted and the amended complaint is dismissed in its entirety as against this

defendant, with costs and disbursements to the defendant as taxed by the Clerk of the

Court, and the Clerk is directed to enter judgment accordingly in favor of the defendant.

4/7/2024 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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