Matter of Mojtahedi v. Craddock

2024 NY Slip Op 33452(U)

• Court: New York Supreme Court, New York County
• Decided: October 1, 2024
• Docket: Index No. 157677/2024
• Status: Unpublished

Opinion

Matter of Mojtahedi v Craddock 2024 NY Slip Op 33452(U) October 1, 2024 Supreme Court, New York County Docket Number: Index No. 157677/2024 Judge: Lyle E. Frank 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. 157677/2024 NYSCEF DOC. NO. 33 RECEIVED NYSCEF: 10/01/2024

SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HON. LYLE E. FRANK PART 11M Justice ----------------------------------------------------------------- ----------------X INDEX NO. 157677/2024 IN THE MATTER OF THE APPLICATION OF MICHAEL MOJTAHEDI MOTION DATE 09/16/2024

Plaintiff, MOTION SEQ. NO. 002

- V - DECISION + ORDER ON CHRISTOPHER CRADDOCK, MOTION Defendant. ------------------------------------------------------------------- --------------X

The following e-filed documents, listed by NYSCEF document number (Motion 002) 16, 17, 18, 19, 20, 21,22,23,24,25,26,27,28,29,30,31,32 were read on this motion to/for DISMISS

Upon the foregoing documents, defendant's motion to dismiss is denied.

Background

This motion arises out of a books and records petition involving a Delaware corporation,

RocketStar, Inc. ("the Company"). Plaintiff alleges that Defendant Craddock, former President

and CEO of the Company, is unlawfully refusing to provide books, records, and other documents

to the Company or its directors and shareholders. There was a Board meeting resulting in a

Resolution passed on August 15, 2024, that removed Defendant from his position as CEO and

demanded that the Company's books, records, and other documents and property in Defendant's

possession be turned over. Defendant then allegedly sent an email purporting to abolish the

entire Board of Directors and removed all Company employees' card key access to the

Company's office building. In response, Plaintiff Mojtahedi, in his capacity as CEO of the

Company, filed an emergency Article 78 Special Proceeding pursuant to CPLR § 7804(a) on

August 20, 2024.

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In response to the Article 78 Proceeding, Defendant filed the present motion to dismiss

on September 16, 2024, pursuant to CPLR § 321 l(a)(2). Defendant argues that the Court does

not have subject matter jurisdiction over the matter and cites to a forum selection clause in the

Company's Articles oflncorporation. Plaintiff responded, arguing that the forum selection clause

as written allows for the Company to consent in writing to New York jurisdiction. Plaintiff also

alleges further facts regarding a few bank records that Plaintiff has been so far able to obtain and

their implications regarding Defendant's use of the Company's funds. The parties do not dispute

that Delaware law applies to the underlying books and records request.

Standard of Review

A party may move for a judgment from the court dismissing causes of action asserted

against them on the grounds that the court does not have jurisdiction over the subject matter of

the cause of action. CPLR § 321 l(a)(2). Generally, under the grant of authority from Article VI,

§ 7 of the NY Constitution, the Supreme Court "is competent to entertain all causes of action

unless its jurisdiction has been specifically proscribed." Sohn v. Calderon, 78 N.Y.2d 755, 766

(1991).

Discussion

Ultimately, the question of whether this Court has jurisdiction over the underlying

petition turns on the enforceability and interpretation of the forum selection clause in the

Certificate oflncorporation. For the reasons given below, the forum selection clause as a matter

of plain reading does not bar the underlying petition on jurisdictional grounds.

Defendant first argues that only the Delaware Court of Chancery can hear a request for

the books and records of a Delaware corporation, citing to 8 Del. C. § 220. Related to this

argument, Defendant argues that under the Internal Affairs Doctrine, Delaware has exclusive

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jurisdiction to regulate its internal affairs including requests for books and records. Older cases

in New York and elsewhere often applied the Internal Affairs Doctrine and would dismiss a

books and records case on jurisdictional grounds. See, e.g., Nothiger v. Corroon & Reynolds

Corp., 266 AD. 299, 300 (1st Dept. 1943). But Defendant's argument that a New York court

cannot hear a books and records request of any Delaware corporation under the Internal Affairs

Doctrine ("IAD") fails for two reasons.

First, Plaintiff argues that the underlying controversy is not limited to the internal affairs

of the Company, on the grounds that there is an alleged theft of outside investor's money

motivating the request for books and records. The interest of these outsiders does tend towards

defeating the solely internal nature of the underlying controversy. But more importantly,

Defendant's IAD argument fails because it does not consider developments in New York and

elsewhere regarding the application of the IAD and relevant choice of law principles.

In Broida v. Bancroft, the Second Department considered the IAD in light of subsequent

holdings from the United States Supreme Court as well as New York courts and held that "a suit

which concerns the internal affairs of a foreign corporation should be entertained unless the same

factors that would lead to dismissal under forum non conveniens principles suggest that New

York is an inconvenient forum and that litigation in another forum would better accord with the

legitimate interests of the litigants and the public." Broida v. Bancroft, 103 AD .2d 88, 91 (2nd

Dept. 1984). The First Department, although declining to extend the powers of a New York court

over a foreign corporation to the extent of judicial dissolution of said entity, has agreed with the

Second Department as to the basic premise of Broida. Matter ofRaharney Capital, LLC v.

Capital Stack LLC, 138 AD.3d 83, 87 (1st Dept. 2016). In fact, the First Department has stated

plainly that regardless of if a corporation is incorporated in Delaware, "that does not divest New

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York of its interest in adjudicating this matter" and that Delaware Code provisions purporting to

grant exclusive jurisdiction over Delaware corporate matters to the Court of Chancery "does not

divest the New York courts of jurisdiction over such controversies." Sachs v. Adeli, 26 A.D.3d

52, 55 (1st Dept. 2005). Furthermore, when, as is the case here, the only nexus with Delaware is

the fact that a company is incorporated there, "[t]here is no reason to believe that Delaware

would be a more convenient forum than New York." Broida, at 93.

The fact that the parties agree that Delaware law applies to the books and records request

likewise does not defeat this Court's jurisdiction over the issue, as the Court of Appeals recently

stated that once another jurisdiction's laws govern a matter, New York courts have "significant

flexibility and discretion in deciding whether to take notice of that foreign law and apply it to the

case at hand." Eccles v. Shamrock Cap. Advisors, LLC, 2024 N.Y. Lexis 690, 1 (2024). This

Court is capable of applying Delaware law to the question of requests to books and records of the

Company. Therefore, the fact that the Company is a Delaware corporation does not in and of

itself mean that this Court lacks subject matter jurisdiction over the books and records petition.

In accordance with the New York Constitution and binding case law as stated above, this Court

will lack subject matter jurisdiction over the underlying books and records petition if it has been

specifically proscribed.

Defendant then argues that jurisdiction is so specifically proscribed by a relevant forum

selection clause. But here a plain reading of the Certificate of Incorporation accords with

Plaintiffs argument, not Defendant's. Article 12 of the Certification of Incorporation reads

"[u]nless the Corporation consents in writing to the selection of an alternative forum, the Court

of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder

(including a beneficial owner)" to bring various actions on behalf of the Company and against

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directors and other employees of the Company. Defendant argues in his papers that this Article

requires the Company to amend the articles of incorporation in order to bring an action in New

York, and Plaintiff argues that a majority of the Board of Directors, or alternatively the current

CEO, may consent in writing to bring suit on behalf of the Company in New York.

Defendant's argument flies in the face of the plain language of the Certificate of

Incorporation. Defendant cites to 8 Del. C. § 242, titled "Amendment of certificate of

incorporation after receipt of payment for stock; nonstock corporations" as authority for his

contention that the Board of Directors must adopt a resolution, call for a special meeting and

conduct a vote in order to "approve the amendment to the Certificate of Incorporation." This

contention would be correct, if the Plaintiff was attempting to amend the Certificate of

Incorporation to include a different forum selection clause. Instead, the Plaintiff is attempting to

bring the underlying suit in a New York court pursuant to the forum selection clause as it is

currently written. Statues and case law that are relevant to the procedure surrounding amending a

certificate of incorporation are simply irrelevant to an attempt to enforce a forum selection clause

according to the terms stated on its face. The issue therefore is whether the Company has validly

consented in writing, according to Article 12 of the Company's Certificate oflncorporation, to

bringing the underlying petition in New York.

Plaintiff argues that the original petition itself is a written consent to New York

jurisdiction and they also present sworn affidavits from two current directors (Mitchel W.

Simpler and Steven Sorensen) attesting to their consent to the filing of the underlying petition.

Defendant argues that the Board of Directors "never issued a written resolution" and that the

sworn affidavits from the directors do not satisfy the consent in writing requirement because

"neither individual is a party to this action" and because "the petition has no language alleging

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that the Board of Directors gave consent for New York" to have jurisdiction. Defendant is

incorrect in his assertion that the petition has no language alleging Board support for the New

York forum. On the second page of the petition, Paragraph 1, the petition states that "this

proceeding is not surprisingly brought with the support of the Board of Directors of the

Company and the Company itself" Therefore, the issue is who can act for the Company in this

scenario and what is required for a valid writing.

In the original petition, as well as by later e-mails and sworn affidavits, both members of

the board directors and the CEO of the Company have purported to consent in writing to New

York jurisdiction pursuant to the Certificate of Incorporation. It is axiomatic that a corporation

"acts" through its directors and officers. Under Delaware Corporate law, the board of directors

can act only through a quorum at a meeting or by unanimous written consent. In re P3 Health

Grp. Holdings, LLC, 2022 Del. Ch. LEXIS 311, *87 (Del. Ch. Oct. 31, 2022). The unanimity

requirement is present even when one of the directors has a "disabling self-interest." Id.

But the Board is not the only entity that can act in this matter. The Company's Amended

and Restated Bylaws state in § 4.3 that the CEO "shall execute bonds, mortgages, and other

contracts on behalf of the Corporation." The CEO of the Company is authorized to contract on

behalf of the Company, and therefore logically would be able to consent to jurisdiction on behalf

of the Company pursuant to the Certificate of Incorporation. Delaware courts have considered

forum selection clauses to be an extension of the corporation's ability to "contract" regarding

jurisdiction. Seokah, Inc. v. Lard-PT, LLC, 2021 Del. Ch. LEXIS 62, *26 (Del. Ch. March 30,

2021); see also Nat'l Indus. Group (Holding) v. Carlyle Inv. Mgmt., 67 A.3d 373,383 (Del.

2013). Although there does not appear to be clear guidance in Delaware law as to precisely how

a corporation can consent to a forum pursuant to a forum selection clause's valid waiver

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provision, written consent from the CEO under these circumstances is likely sufficient. By

bringing the underlying petition in a New York court and stating directly in Paragraph 16 that

"[t]his Court has subject matter jurisdiction over this dispute", the CEO on behalf of the

Company has clearly given written consent to another forum pursuant to the Certificate of

Incorporation.

In sum, the fact that the Company is a Delaware corporation and that the parties agree

that Delaware law applies to the controversy does not remove subject matter jurisdiction from

this Court, nor does it mean that this Court does not have the capability and discretion to apply

Delaware law. Therefore, this Court would only lack subject matter jurisdiction over the

underlying controversy if it was specifically proscribed. The Delaware forum selection clause in

the Company's Certification oflncorporation does not remove subject matter jurisdiction from

New York courts, because on its face the clause permits the Company to consent in writing to

another forum. The CEO, under his ability to act on behalf of the Company in contractual

matters, has the authority to consent in writing to another forum as forum provision clauses are

considered part of a corporation's contracting power. Because the current CEO of the Company

consented to New York jurisdiction in writing, this Court has jurisdiction over the original

petition.

As a final matter, Plaintiff brings the underlying action as an Article 78 proceeding.

Article 78 proceedings are available for review of a corporation's discretional actions because

"the authority of corporations and their directors to act is derived directly from franchises issued

by the State." Levandusky v. One Fifth Ave. Apartment Corp., 75 N.Y.2d 530, 543 (1990). While

CPLR § 321 l(f) extends the time to serve a pleading, this provision "is inapplicable in a

summary proceeding" and instead CPLR § 404(a) applies to Article 78 proceedings. Chickery v.

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Prestige Catering, 2021 N.Y. Misc. LEXIS 1965, *3 (2nd Dept. 2021). Under CPLR § 404(a),

"the court may permit the respondent to answer, upon such terms as may be just." Here, the

Defendant will have five days to respond from the service of the order with notice of entry.

For the reasons given above, the defendant's motion to dismiss for lack of subject matter

jurisdiction is denied. The Court has considered the defendant's other arguments and found them

unavailing. Accordingly, it is hereby

ADJUDGED that defendant's motion to dismiss is denied; and it is further

ORDERED that defendant has five days from service of this Decision and Order with

notice of entry to answer.

10/1/2024

8 DATE LYLE E. FRANK, J.S.C.

~ CHECK ONE: CASE DISPOSED NON-FINAL DISPOSITION

GRANTED 0 DENIED GRANTED IN PART □ OTHER APPLICATION: SETTLE ORDER SUBMIT ORDER

CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT □ REFERENCE

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