RAL Capital Ltd. v CheckM8, Inc.

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RAL Capital Ltd. v CheckM8, Inc. 2017 NY Slip Op 32000(U) September 21, 2017 Supreme Court, New York County Docket Number: 650775/2016 Judge: Eileen Bransten Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 1] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 SUPREJVIE COURT OF THE STATE OF NEvV YORK COUNTYOFNE\VYORK: IAS PART THREE -----------------------------------------------------------------)( RAL CAPITAL LIJ\1ITED, YUJI TAKASHIJ\.1A, HUXLEY INVESTJ\.1ENT HOLDING LTD, DORON NEVO, MICHAEL HAERTFELDER, TAKESHI Y_A!v1A!v10TO, ELAN CONSULTING GROUP, EDOUARD COHEN-TANNOUDJI, JOEL BLOCH, HEATHGROVE LUv1ITED, YGAL SEBBAN, LIONEL SAYAG, FREDERIC FURCAJG, A YAL SHENHAV, BKL INVESTMENTS LIMITED, STEFFEN GUTJVIANN, FRANCK ASSERAF, CISSY YEUNG P1aintiffs, Index No. 650775/2016 1"fotfon Seq. No. 001 !\-lotion Date 3/22/2017 UECISION AND ORDER -v- CHECKl\/18, INC., DANA GHA VAJ\tH, SPOTIBLE, INC, Defendants. -----------------------------------------------------------------)(_ BRANSTEN, J. I~_ this action, Plaintiffs, eighteen minority shareholders in Defendant Checkl\18, Inc. ("Checkfvf8" or the '"Company"), bling breach of fiduciary duty, declaratory judgment, fraud, aiding and abetting breach of fiduciary duty, conversion, and unjust enrichment claims against Check.l\118, Spotib1e, Inc. ("Spotible")~ and Dana Ghavami ("Ghavami'') arising out of Checkl\/I8~s merger with Spotible. Pursuant to the tenns of the merger agreement, CheckJ\t18 canceHed all shares belonging to minority shareholders holding less than ten percent (lO~li)) of the Company and paid the minority shareholders $0.0375 per share. Plaintiffs al.lege the amount Checkl\/18 paid to "cash out" the minority shareholders 2 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 2] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd et al v" CheckJ\18, Inc. et al 1.ndex No. 650775/2016 Page 2 of24 was inadequate. Defendants Checkl'v18, Ghavaini, and Spotible now jointly seek dismissal of the Verified Complaint pursuant to CPLR 321 l(a)(l) and (7). I. This action arises out of a merger transaction whereby CheckJ'vI8 merged wlth Spotibk. Both Checki\18 and Spotible are Delaware corporations \Vith principal places of business in New York. Checkl\rf8 was founded in 2000 and was engaged primarily in the husirn~ss ofinternet advertising. CompL ~140. In exchange for a subscription fee, Check!vI8 offered internet website owners access to its prop1ietary soft\vare-based system for online advertisement and yield ma11agen1ent, advertisement delivery, inventory management, and rich media management and services. Id. 1[1[ 40A2. Ghavarni was CheckM8's chief executive officer~ director, and majority sharehoideL On August 31, 2015, Spotih1e was incorporated to facilitate Checl<lv18's reorganization. Ghavami Affid. 4[ 3. Spotibie was incorporated by Ghavami and Ghavami \.Vas the chief executive officer, director, and sole shareholder of Spotible. CompL ir 3. Plaintiffs are eighteen investors who purchased and/or acquired shares in Chec.k.Jv18 and collectively held approximately 1837% equity in the Company as of the date of the vote for the merger transaction. Id. ir 44. Plaintiffs allege G·havami engaged in self-dealing by diluting Plaintiffs' shares in the Company and effectuating the merger, which divested Plaintiffs of their interests in the Company for inadequate compensation. 3 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 3] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v, Checkivf8, Inc. et al. lndex No. 650775/2016 Page 3 of24 Plaintiffs allege Ghavami violated Plaintiffs' rights to protection against dilution of equity in the Company by issuing more shares of the Company to other investors, without providing notice to Plaintiffs that they had a right or opportunity to purchase such shares. CompL ii 45. Nforeover, Ghavami allegedly failed to disclose the details and terms of the proposed share redemptions arising frorn a Company share repurchase program. Id. ii 59. According to the Verified Complaint~ Ghavami purchased some of these shares for himself for suspect consideration. Id. Plaintiffs further allege Defendants engaged in a scherne to divest minority shareholders of their interests in Checkl\.18 for inadequate compensation. Ghavanli obtained an •'Irrevocable Proxy and Power of Attorney" from all or some of the Plaintiffs to implement his alleged scheme. The irrevocable proxy provided, inter alia, that Ghavami was the shareholder's proxy and attorney-in-fact and authorized Ghavami to vote in the proxy holder's capacity at all Company meetings. Compl. ~[ 48. According to the Verified Cornpfaint, Ghavami improperly and fraudulently used these irrevocable proxies to vote the Plaintiffs' shares in favor of a merger transaction between CheckrYf8 and Spotible. Ghavami, on behalf of Checkrv18i sent a letter and Notice of Special l\.foeting of Shareholders, dated September 1, 2015, to Plaintiffs informing them of an anticipated 4 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 4] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al v. CheckM8, Inc. et al. Index No, 650775/2016 Page 4 of24 merger with Spotible and calling for a special meeting of the shareholders to be held on September 30, 2015 (the "Special Meeting"), id.~- 54. The letter stated a considerable percentage of shareholders so1d their interests in the Company as of 2015, and a supennajority of the remaining shareholders (greater than 2/3 of the Company) were in favor of exiting by way of the announced reorganization and merger. The letter further provided the Board derived a valuation of the Company of $909,000 by applying a multiple of l .5x to the Company's last dosed earnings before interest, taxes, depreciation and amortization ("EBITDA "). In addition, the Notice stated the Company sought to cash out minority shareholders holding less than ten percent ( 10%i) of the aggregate issued and outstanding equity of CheckM8 by paying such minority shareholders $0.0375 per share. Id. ~ 55. After receiving the letter and Notice, Plaintiffs requested information and documents from Ghavami and CheckM8 to make an informed decision regarding the rnerits of the propose merger. Id. if 56. Hmvever, Ghavarni and CheckNI8 failed and/or refused to famish such documents and information despite due demand. To date, the only information provided by Ghavam.1 or Checkl\18 is a list of shareholders containing partial infon11ation and the Company,s Ammal Reports. Id. ~l 58" On September 30, 20 l 5, the Special Jv1eeting was held and the shareholders voted to approve the proposed 111erger between Checl<lv18 and Spotible. At the Special Meeting, Ghavami used at least one of the proxies obtained from Piaintifis to vote in favor of the merger transaction. Id. iI 50. The merger was effectuated on October 27) 20 i 5. 5 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 5] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. Check/1.18, inc. et al. Index No. 650775/2016 Page 5 of24 Plaintiffs commenced this action by Summons and Verified Complaint, asserting six causes of action for breach of fiduciary, declaratory judgment, fraud, aiding and abetting breach of fiduciary duty, conversion and unjust enrichment. Presently before the Court is Defendants, motion to dis1niss the Verified Complaint, pursuant to CPLR 3 211 (a)( l) and (7). II. On a motion to dismiss a complaint for failure to state a cause of action pursuant to CPLR 3211 (a)(7), the complaint must be constmed in a light most favorable to the plaintiffs, all factual allegations must he accepted as hue and all inferences which reasonably fimv therefrom must be resolved in favor of the plaintiff r.Jndenvriters Ins. Co. V, See Allianz Landmark Ins. Co,, 13 A.D3d 172, 174 (1st Dep't 2004). "We . . . detennine only whether the facts as alleged fit within ru1y cognizable legal theory.~' Leon v. Aiartinez, 84 N.Y.2d 83, 87-88 (1994). This Court must deny a motion to dismiss~ "'if frmn the pleadings' four comers factual allegations are discerned which taken together manifest any cause of action cognizable at law." 511 rV 232nd Owners Corp. v. Jennifer Realty Co., 98 N,Y.2d 144, 152 (2002) (internal quotation marks and citations omitted). However, on a CPLR 32ll(a)(l) motion, "[i]t is well settled that bare legal conclusions and factual claims, which are either inherently incredible or flatly contradicted by documentary evidence ... are not presumed to be tme on a motion to dismiss for legal insufficiency." O'Donnell, Fox & Gartner v. R-2000 Corp.~ 198 A.D2d 154, 154 (1st 6 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 6] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. C'h.eckAf8, Inc. et al. Index No. 650775/2016 Page 6 of24 Dep't 1993). The Comi is not required to accept factual allegations that are contradicted by documentary evidence or legal conclusions that are unsupported in the face of undisputed facts. See Zanett Lombardier, Ltd. v, Afaslow, 29 A.D.3d 495, 495 (1st Dep't 2006) (citing Robinson v. Robinson, 303 A.D.2d 234, 235 (1st Dep't 2003)), Ultimately, under CPLR 3211 (a)(l ), "dismissal is warranted only ff the documentary evidence submitted conclusively establishes a defense to the asserted clai.tns as a matter of law.'' Leon, 84 N.Y.2d at 88. Defendants now move to dismiss the Verified Complaint pursuant to CPLR 3211 (a)( l) and (7). New York choice-of-law mks provide substantive issues of coqmrate governance are governed by the law of the state in which the corporation is chartered. See Hart v. Gen. lvfotors Corp., 517 N.Y.S.2d 490, 492 (1st Dep't 1987), Iv. denied, 70 N.Y.2d 608 (1987). The "internal affairs doctrine" recognizes that the state of incorporation has an interest superior to that of other states in regulating the directors' conduct of the internal affairs of its own corporations. See id. at 494. Here~ both Checkl\18 and Spotible are incorporated in Delmvare and therefore Delavmre law applies. 7 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 7] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. CheckM8, Jne, et aL Index No. 650775/2016 Page 7 of24 A. Defendants argue the claims against Checkl'vrn should be disrnissed because all rights, obligations, and liabilities belonging to Checkl'v18 were trnnsfen-ed to Spotible as of October 27, 2015, the date the merger was effected. Pursuant to Ddm.vare General Corporation La\v ("DGCV') § 259, all constituent corporations cease to exist when any merger becomes effective. Plaintiffs have not proffored auy evidence of Checkl\.18's continued existence, nor provided any rationale for maintaining the cause of action against CheckM8. Therefore, Defendants' rnotion to dismiss the claims against C:heckM8 is granted. B. Plainti:ffa ai1ege Ghavami breached his fiduciary duty by merging the Company with S_potibk: and cashing out the Plaintiffs' interests in the Company for inadequate compensation, Furthermore, Plaintiffs allege Ghavami breached his fiduciary duty by diluting Plaintiffs' equity in the Company, withholding the release of Company technology unti] after the merger was effectuated, withholding dividend distributions, and misappropriating corporate fonds. Ghavami argues the merger satisfies the "entire fairness" test under Delaware 1aw and Plaintiffs' additional aHegations of breach of fiduciary duty are contradicted by documentary evidence. Breach of fiduciary duty claims require "(l) that a fiduciary duty existed and (2) that the Defendant breached that duty." Beard Research, Inc. v. Kates, 8 A.3d 573, 601 8 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 8] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RA.L Capital Ltd. et al. v. CheckAI8, Inc. et al. Index No. 650775/2016 Page 8 of24 (DeL Ch. 2010). Directors owe fiduciary duties ofloyalty and due care to the corporation and its shareholders" See lvii!ls Acquisition Coo v. J.Uacmillan, inc., 559 A.2d 1261, 1280 (DeL 1989)0 In addition~ a shareholder owes a fiduciary duty to other shareholders if it owns a rnajority interest in the Company or exercises control over the business affairs of the Company. Kahn v. Lynch Commc 'n s:ys., Inc., 638 A.2d 1110; 1113 (DeL 1994). The duty of care requires a person "use that amount of care which ordinarily careful and prudent [persons] would use in similar circurnstances and consider all material information reasonably available in making business decisions." In re rValt Disney Co. Deriv. Litig,, 907 A.2d 693, 749 (Del. ClL 2005), aff'd, 906 A.2d 27 (DeL 2006) (internal citations and quotation marks omitted). The duty ofloyalty provides "the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholder~ generally,)' Id at 75L A. director or controlling shareholder's loyalty can be called into question by showing the director \Vas interested in the transaction. See In re Orchard Enter., Inc. Stockholder Litig., 88 A.3d 1, 33 (DeL Ch. 2014)0 1. The Aferger with Spotible \Vhere a company insider stands on both sides of the challenged transaction or a rnajority shareholder is the proponent of a cash out merger, the "entire fairness" test is apphed. See Weinberger v. UOP, Inc., 457 Ao2d 701, 710 (DeL 1983); Kahn v. Lynch 9 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 9] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. Checklv/8, Inc. et al. Commc 'ns Sys., 63 8 A.2d 11 I 0, 1115 (Del. 1994). Index No. 650775/2016 Page 9 of24 The entire fairness test is not a bifurcated one; fair dealing and fair price must both be pled. Weinberger, 457 A.2d at 711. At the pleading stage, the Plaintiffs must make factual allegations that the merger was effectuated without fair dealing or fair price, See 1'.1onroe Cnry. Emp. Retire. S'.vs. v. Carlson, No. CJV.A. 4587~CC, 2010 vVL 2376890, at *2 (DeL Ch. June 7, 2010). Plaintiffs allege Ghavami stood on both sides of the merger, as director, chief executive officer, and majority shareholder of the Company and Spotible. Thus, the "entire fairness" test '~.rould apply and Defendants bear the burden of showing the transaction was entirely fair to Plaintiffs, See Weinberger, 457 A2d at 703. a. Fair Dealing The fair dealing prong of the "entire fairness" test concerns the process of the merger, i.e., timing, structure, disclosure of infonnation to directors and shareholders, and how approvals were obtained. See Weinberger, 457 A2d at 711. Here, Plaintiffs have sufficiently alleged a lack of fair dealing and Defendants have not provided evidence of fair process to rebut the allegations. PlaintiffS allege Ghavami failed to disclose his position as chief executive officer, director, and sole shareholder at Spotible. Directors and majority shareholders owe a duty to minority shareholders to disclose infonnation, within their kl10\vledge, which might assist the minority in taking a position on the proposed merger. See Kahn v. Household Acquisition Corp., 591 A,2d 166, 171 (DeL 1991 ), 10 of 25 In order to show fair dealing, [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 10] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. CheckM8, Inc, et aL Index No. 650775/2016 Page 10 of24 Defendants have the burden of establishing they completely disclosed all material facts relevant to the transaction. FVeinberger~ 457 A.2d at 703. Here, Defendants do not argue Ghavami ever disclosed his position with Spotible. Furthermore, where the transaction is approved by a special committee of disinterested directors or an informed vote of a majority of the minority shareholders, the burden of proving the transaction vvas unfair shifts to the plaintiffs. See Kahn v. Lynch Com me 'n ,))is., Inc., 63 8 A.2d 111 O~ 1116 (Del. 1994). Here, Checkiv18 did not create a special committee of directors to review and approve the proposed merger. See Corn pl. ii 69. CheckM8 a1so did not conduct a minority shareholder vote. The proposed merger was approved by the shareholders at the Special l\!Ieeting. However, Ghavami, the controlling shareholder, was entitled to participate and voted in favor ofthe merger. Thus, the merger was not approved by an inforrned majority of minority shareholders. Therefore, Plaintiffs sufficiently plead an absence of fair dealing and Defendants fail to rebut this allegation. b. Ii'air Price The fair price prong of the "entire fairness" test relates to financial and economic considerations of the proposed merger. See Weinberger, 457 A.2d at 711. In detennining fair price, the Company's "market value, asset value, dividends, earning prospects, the nature of the enteYprise and any other facts which were known or which could be ascertained as of the date of merger and which throw any light on future prospects of the 11 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 11] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. Check1H8, .Inc. et al. Index No. 650775/2016 Page 11 of 24 merged corporation ... must be considered." Id. at 713, A fair price "means a price that is one that a reasonable seller, under all of the circumstances, would regard as within a range of fair value; one that such a seller could reasonably accept." Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1134, 1143 (DeL Ch" 1994), ajf'd, 663 A.2d 1156 (Del. 1995). Plaintiffa allege the compensation they received for their interests in the Company was woefu11y inadequate, Plaintiffs rely on a valuation fonnula propounded by the Company in a 2006 private placement memorandum, which calculated the Company's value by multiplying the revenue frorn the previous year by six, Pls.' Brief in Opp. at 10. In 2014, the Company had $3,125,000 in revenue. According to .Plaintiffs' calculations, the value of the Company at the time of the merger should have been $18,750,000 instead of $909,000. In addition, Plaintiffs contend Ghavami rejected two offers to acquire CheckT\118 1n 2011 and 2012 for $30,000,000 and $20,000,000. Lumpe Affid. ir 35. Tlms, Plaintiffs have sufficiently alleged the compensation they received was unfair and the burden shifts to the Defendants to show the price was fair. As an initial matter, Defendants contest the alleged offers to acquire Checkl"\18 ever existed and assert there were no other offers to purchase Checki"\18 at the time of the merger, Defendants argue the _pdce paid per share to the rnlrmrity shareholders was fair based on the 2011 Share Repurchase Program and the acquisition price for two of Checki\18' s competitors. In 2011, Check1\-18 initiated a Share Repurchase Program to address shareholder demands to have Chec1G\18 buy back their shares. Ghavami Affid. ,-: 13, Ex, D 12 of 25 ii 62. The [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 12] INDEX NO. 650775/2016 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. Checklvf8, Inc. et al, Index No. 650775/2016 Page 12 of24 Share Repurchase Program valued shares based upon a lx multiple applied to EBlTDA, See id., Ex. D ~ 63. Nine shareholders, representing nearly 25(%} of the then existing equity in the Company, and including CheckM!rs largest and most sophisticated investors SoftBank and Sumitmno Corporation, elected to participate in the Share Repurchase Prograrn. See id., Ex. D 4) 64. Defendants note the price per share at issue here is greater than the price per share received under the Share Repurchase Program. Defendants also conte-rtd the acquisition oftvvo of Check..l\118 's competitors, Republic Project and PointRoll, supp011s their argument that Plaintiffs vvere paid a fair price. Republic Project, a platform for bands and music labels to sell pre-orders of new music to fans, was acquired for $1.4 million in 2013. Ghavami Reply Affid. ~ 11, Ex. D. PointRoH, ChecklVI8's closest '"direct competitor," was acquired for $20 million in November 2015. Id. 4j 11, Ex. C. Furthermore, Defendants argue the acquisition ofChecklVI8's competitors exhibited underlying trends in the marketplace, as the competitors suffered from the same market forces CheckJ\118 faced. Specifically, Defendants note Republic Prqject was sold one year after receiving $1 million in Series A funding due to a dramatic shift in the company's trajectory, In addition, PointRoll, a larger and more robust company than Checklv18, was sold for 20%1 of what the company was previously sold for in 2005 and laid off nearly 100 employees after the acquisition, Defendants argue these difficulties evince the decline in business that motivated Check.fv'f8's reorganjzation, 13 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 13] INDEX NO. 650775/2016 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. CheckAf8, Inc. et al Index No. 650775/2016 Page 13 of24 However, Defendants do not meet their burden of showing the price was fair. The sole support for Defendants argument is Ghavami's self-serving staternents in his reply affidavit J\1oreover, a fair price is defined as the price which a reasonable person would accept A fair price is not limited to one specific value but encompasses a range of values. See Cinerama, 663 A.2d at 1143. The evidence Defendants proffor provides a stmting . . point to valuate the Cmnpm1y. However, there is no conclusive evidence that the merger price reflected the Company's value at the time of the merger because Defendants never obtained an independent appraisal of the Cmnpany. CompL if 700 Therefore, Defendants' motion to dismiss Plaintiffs' breach of fiduciary duty claim arising frorn the merger is denied. 2. Other Alleged Breaches ofFiduciary Duzv Piaintiffa further allege Ghavami breached the duty ofloyalty by diluting Plaintiffs' interest in the Company, withholding the release of Company technology until after the merger '~'as effectuated, withholding dividend distributions in 2013, and misappropriating Company funds. a. Dilution ofPlaintiffs' Interests in the Company Plaintiffs allege Ghavami violated Pfaintiffs' right to protection against dilution of their equity in the Company by issuing additional shares without providing Plaintiffs the opportunity to purchase snch shares. CompL iii! 45-46. Under Delaware law, shareholders 14 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 14] INDEX NO. 650775/2016 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. Checldvl8, Inc. et al Index No. 650775/2016 Page 14 of24 do not inherently have anti-dilution or preemptive rights, unless expressly granted to such stockholders in the certificate ofincorporntion. See DGCL § 102(b)(3); Benihana of Tokyo, Inc. v. Benihana, Inc., 891A.2d150, 172 (DeL Ch. 2005), aff'd, 906 A.2d 114 (Del. 2006). Ghavami contends Plaintiff.Ii fail to allege breach of fiduciary duty because Plaintiffs never had anti-dilution rights or preemptive rights. Defendants attach the Articles of Incorporation and Shareholder Purchase Agreements. See Ghavami Affid. irir 33-38, Exs. A & I. Under CPLR 321 l(a)(l), Certificates of Incorporation and Shareholder Agreements may be documentary evidence if their contents are unambiguous. See Fillman v. Axel, 63 A.D.2d 876, 876 (1st Dep't 1978) (relying upon Certificate of Incorporation in CPLR 321 l(a)(l) motion); see also Taussig v. Clipper Grp,, LP., 13 A,D.3d 166, 167 (1st Dep't 2004) (finding inteq;retation of unambiguous agreement is issue oflaw for the court), lv. denied, 13 A.D.3d 166 (2005), Neither the A1iic1es of Incorporation nor the Shareholder Agreements provide the shareholders with anti-dilution or preemptive rights. Therefore, Plaintiffs' claim for breach of fiduciary duty based on Plaintiffs' anti-dilution rights is dismissed. b. Delayed Release qfNevv Technology Plaintiffs also allege Checkfv18 had developed new products prior to the merger yet intentionally delayed the release of those products until after the merger had taken effect. Specifically, Plaintiffs refor to a nevv service called "l\facstro.' 9 15 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 15] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd et al. v. CheckA18, Inc, et al Index No. 650775/2016 Page 15 of24 Defendants argue Plaintiff..~' allegation is contradicted by documentary evidence, which establishes L\..faestm \Vas announced prior to the merger. In support of the CPLR 32 Il(a)(l) argument, Defendants provide a screenshot of what is purported to be the Checkl\18 website in August 2014 that shows the words ••IV1AESTRO - COlVIING THIS FALL" Ghavami A ffid, Ex. J, In addition, Defendants provide the CheckM8 2014 Annual Report, \vhich Defendants argue shows Check1v'I8's software was losing customers, Ghavami Affid, Ex. K. However, neither docurnent unambiguously and conclusively contradicts Plaintiffs' allegations to merit dismissal pursuant to CPLR 3211 (a)( 1). See Stern v, Ardachev, 133 A.D3d 502, 502 (1st Dep't 2015). Nevertheless, tl1e Comi finds Plaintiffs' allegation regarding Checkl\.18's new technology is relevant to the entire fairness analysis of the merger, rather tlian an independent claim fix breach of fiduciary duty. Thus, Plaintiffs' claim for breach of fiduciary duty based on Defendants' withholding new technology is disrnissed. c. Unpaid Dividends and 1vHsappropriation o_/Funds In 2014, the Company offered shareholders the option to receive a 2013 share dividend or a respective share repurchase, Compl. ,-r 47. Plaintiffs allege Defendants failed to pay dividends to shareholders in 2013. Defendants provide the checks and wire transfer confirmations for various arnounts paid to Plaintiffs Bloch, Asserat: Nevo, Gutmaun, Haertfelder, Takashima, llAL Capital Limited, Sayag, and Cohen-Tannoudji for the 2013 dividend. Ghavami Affid. Ex. P. This evidence clearly contradicts Plaintiffs' allegation 16 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 16] INDEX NO. 650775/2016 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd et aL v, Check1\18, Inc. et al. Indt~x No, 650775/2016 Page 16 of24 that the Company withheld dividends in 2013. See Goshen v, lo.1ut. Life Ins. Co. of NY,, 98 N.Y2d 314, 326 (2002), Therefore, Plaintiffs' claim based on Defendants failure to pay dividends in 2013 is dismissed as to Plaintiffs Bloch, Asseraf, Nevo, Gutmann, Haertfe1der, Takashima, RA.L Capital Limited, Sayag, and Cohen-Tannoudji, Finally, Plaintiffs allege Ghavami misappropriated Company fonds over the past several years. See CompL ~· 84. PlaintiffS argue Ghavami never accounted for millions of dollars of net profit the Company that were missing. Here, Plaintiffs' allegations that Ghavarni misappropriated fonds are conclusory and unsubstantiated by alleged facts, See Steinberg v, Cart:;v, 285 A,D. 1131, 1131 (1st Dep't 1955) {dismissing conclusory allegations of breaches of fiduciary duty). Therefore, PlaintiftS fafl to aHege an independent dai:m for breach of fiduciary duty based on misappropriation of Company funds and this claim is dismissed. Plaintiffs allege Spotible aided and abetted Ghavami's self-dealing scheme against the Plaintiffs. To plead a claim for aiding and abetting breach of fiduciary duty, the party must allege {l) breach of fiduciary duty, (2) knm.ving pmiicipation in the breach, and (3) damages. See Afalpiede v, To1Amson, 780 A,2d 1075, 1096 (DeL 2001), Plaintiffs allege Spotible la:10\ving]y paiiicipated in Ghavami's alleged scheme by virtue of the fact Spotible was completely controlled by GhavamL Ghavami is Spotible's 17 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 17] NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v, Checklvl8, Inc. et al, sole officer and director. INDEX NO. 650775/2016 Ghavami .Affid, ~ 3. Index No. 650775/2016 Page 17of24 As such, it is evident Spotible had k11owledge of the alleged breach, ·nere~ the issue is whether Plaintiffa allege Spotible actively participated in the breach. Plaintiffs allege '"Spotible rendered substantial assistance in order to effoctuate Ghavami's self-dealing plan to consurnmate the subject merger transaction." Compl. ~f 102. Other than this conclusory statement, Plaintiffs do not allege any acts frorn \Vhich a claim for aiding and abetting breaches of fiduciary duty could be statecL See Jn re Santa Fe Pac. C01p. S'holder Litig., 669 A.2d 59, 72 (DeL l995). Therefore, the motion to disn:i.iss the aiding and abetting breach of fiduciary claim against Spotible is granted. D, Next, Plaintiffs allege entitlement to a declaratory judgment that the merger was the product of unfair dealing and is null and void, Pursuant to CPLR 3001, the Court "may render a declaratory judgment having the effect of a final judgrnent as to the rights and other legal relations of the parties to a justiciable controversy whether or not fmiher relief is or could be claimed." Here, Plaintiffs' cause of action for declaratory judgment is duplicative of the daim fr>r breach of fiduciary duty, Plaintiffs seek a declaration that the merger is null and void because 1t \.vas effected by Ghavami's breach of fiduciary duty. Therefore, Defendants' motion to dismiss the claim for declaratory judgrnent is granted, See Wildenstein v. 511 & 18 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 18] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd et al. v. CheckA18, Inc et al. Index No. 650775/2016 Page 18 of24 Co, Inc., 97 A.D.3d 488, 491 (1st Dep't 2012) (dismissing claims for declaratory judgment that duplicate breach of contxact claim). Yet, the Court finds dismissal of Plaintiffs' request for rescission and rescissory damages to be premature on a :motion to dismiss. See Crescent1~Vach 1 Partners, LP. v. Turner, 846 A.2d 963, 991 (Del. Ch, 2000) (declining to address motion to dismiss rescission claim because the -.determination of relief is beyond the scope of this motion and premature without an established evidentiary record'} Plaintiff" state a claim for breach of fiduciary duty and thus may seek rescission or rescissory damages as relief. See lfleinberger v. UOP, Inc., 457 A.2d 701, 714 (Del. 1983) (finding elements of rescissory damages may he considered in entire fairness test), Plaintiffs allege Ghavami engaged in a fraudulent scheme to induce the Plaintiffs and other shareholders to approve the merger behveen Checkf\18 and Spotibleo Under Delaware common law, to plead a claim for fi:aud, plaintiffs must allege '\1) the defondant falsely represented or ornitted facts that the defendant had a duty to disclose; (2) the defendant knew or believed that the representation \Vas false or made the representation with a reckless indifference to the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting; (4) the plaintiff acted in justifiable reliance on the 19 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 19] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 1?...4L Capital Ltd. et al. v. CheckM8, inc. et al. representation; and (5) the plaintiff was injured by its reliance." Index No. 650775/2016 Page 19of24 Dev· Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 958 (Del. 2005). 1 Where a cause of action is based upon fraud, CPLR 3016(b) provides "the circumstances constituting the wrong shall be stated in detail." See CPLR 3016(b). 2 The pleading requiren1ents of CPLR 3016(b) are a matter of procedure, governed by the law of the forum. Westdeutsche Landesbank Girozentrale v. Lears:y, 284 A.D.2d 251, 252 (1st Dep't 2001). Plaintiffs must plead facts sufficient for the fact-finder to make a reasonable inference of fi"aud. See Pludeman v, N Leasing Sys,, bic., 10 N.Y3d 486, 493 (2008). Defendants argue Plaintiffs fail to allege any representations Ghavami made with adequate particularity. Plaintiffs allege Ghavami made false representations about the merger, the valuation of the Company, and the purpose of the proxies~ and fraudulently concealed his conflict of interest The Court acknmvledges Ne\v York law does not appear to be in confiict with Delaware law. To plead fraud in Ne\v York, Plaintiffs must show (1) a representation of material fact~ (2) the falsity of that representation, (3) knowledge by the party who made the representation that it was false \.Yhen made, (4) justifiable reliance by the Plaintiff: and (5) resulting ]njury. Pope v. Saget, 29 A.DJd 437, 44 i (1st Dep,t 2006). 2 See also Trenwick Am. Litig. Tr. v. Ernst & Ye)ung, LLP., 906 A2d 168~ 207 (Del. Ch. 2006) (Court of Chancery Rule 9(b) requires pmiicularized fact pleading for fraud claims). 20 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 20] INDEX NO. 650775/2016 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. Check.A18, Inc. et al. Index No. 650775/2016 Page 20 of24 1. Common Law Frrmd Plaintiffs allege Ghavami ••misrepresented" (1) "the inuinsic value ofthe company," (2) "the value of the Company to be l .5x its last closed EBITDA}" (3) the "business position and status of the Company," and (4) the "legitimate business pmpose for the proposed :merger transaction." Compl. 81! 93. H.o\vever, Plaintiffs do not reference the specific statements Ghavami made, the dates those representations were made, or to whom the representations were made. Instead, Plaintiffs offer conclusory allegations that Ghavami "misrepresented'' the status of the Company and the tme nature of the merger transaction. See Callas v. Eisenberg, 192 A.D.2d 349, 350 Cl st Dep't 1993) (dismissing conclusory allegations of fraud). Similarly, Plaintiffs fail to allege any representations Ghavami a11egedly made regarding the purpose of the proxies. Thus, Plaintiffs fail to allege Ghavami' s representations concerning the merger and purpose of the proxies with sufficient particularity, 2. Fraudulent Concealment Plaintiffs also allege Ghavami failed to disclose that he stood on both sides of the merger transaction. A fraud claim "'may occur through deliberate concealment of mate1ial facts} or by silence in the face of a duty to speak" Stephenson v. Capano Dev.. Inc., 462 A.2d 1069~ 1074 (DeL 1983), \N11ere a fiduciary duty exists, the dedarant's failure to disclose facts which are necessary to prevent other statements from being misleading may constitute actual fraud. See id. Under Delaware lmv, directors have a fiduciary duty to 21 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 21] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd et al" v. Check1\f8, Inc. et al. Index No. 650775/2016 Page 21 of24 fully and fairly disclose all material facts that would have a significant effect upon a stockholder vote." Stroud v. Grace, 606 A.2d 75, 85 (DeL 1992). Therefore, Plaintiffs sufficiently allege Ghava.mi had a duty to disclose material infonnation and failed to do so. Neve1ihe]ess, Plaintiffs fail to plead justifiable reliance. To plead justifiable reliance, Plaintiffs must show they believed a fact to be true and justifiably took action based on that belief. See Stephenson, 462 A.2d at 1074; see also 1Vabatkhorian v. Nabatkhorian, 127 A.. D3d l 043, l 044 (2d Dep't 2015) (holding plaintiff must show a "change of position'~ to plead reliance). Here, Plaintiffs do not allege they voted in favor of the merger. Nor do Plaintiffs allege they would have voted against the merger~ but Ghavami' s misrepresentations induced them to alter their posWons. In fact, Plaintiffs do not allege they took any action based on G11avarni's statements or omissions. 3 Therefore, Plaintiffs' fraud claim against Ghavami is dismissed. See H-Af WeJ.?.ford LLC v. Encorp, Inc., 832 A.2d l29, 142-43 (Del. Ch. 2003) (dismissing fraud clairn for failure to aHege justifiable reliance). 3 The only Plaintiff who allegedly voted in favor of the merger was Yuji Takashirna. Yet Takashima executed an irrevocable proxy in Jv1arch 2010 that authorized Crhavami to vote for Takashima at shareholder meetings" Ghavami exercised that pmver and voted Takashima's shares in favor of the merger. Thus~ Plaintiffs cannot allege Ghavamfs failure to disclose caused Takashima to vote in favor of the merger, 22 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 22] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. CheckM8, Inc. et al, Index No. 650775/2016 Page 22 of24 Plaintiffs allege they have legal ownership over the assets and property of the Cornpany, which Defendants improperly took from them. A claim for conversion requires (1) plaintiff held a property interest in the stock; (2) plaintiff had a right to possession of the stock; and (3) defendant converted plaintiffs stock. See Arnold v. SocYf(Jr Sav, Bancorp, Inc., 678 A.2d 533, 536 (DeL 1996) (internal quotation rnarks omitted). '"A stockholder's shares are converted by any act of control or dominion without the stocklwlder's authmity or consent, and in disregard, violation, or denial of his rights as a stockholder of the company." Id. Under Delaware law, it is presumed that a merger results in the exercise of dominion and control over the stockholder's shares. See id, However, if the merger is given legal effect, the transfer is not a derogation of Plaintiff..~' lights because "[a] stockholder simply has no right to shares in a disappearing corporation after an effective merger.~' id In Arnold V. Society for sm:'ings Bancorp, Inc,, plaintiff shareholder argued defendants wrongfully exercised control over his shares by vvay of a .merger. Specifically, plaintiff argued defendants failed to disclose a p1ior bid for the defendant corporation's subsidiary and thus rendered the merger void. See id. at 535. The Delaware Supreme Court found the defendants complied with all the express statutory requirements for the merger and dismissed plaintiffs conversion claim. ld. at 536~37. In 23 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 23] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al v. CheckM8, Inc. et al. Index No. 650775/2016 Page 23 of24 doing so, the Court rejected plaintiffs argument that a merger \vhich does not comply with the law constitutes conversion, See id. rL6, Here, Plaintiffs do not allege Defendants failed to meet any of the express statutory requirernents for the merger. Instead, Plaintiffs allege the transaction \Vas void due to Ghavami 's alleged breach of fiduciary duties and fraud. These dairn.s arise from common law and are not based on violations of the statutory requirements. See id. at 53 7 (finding judicially imposed fiduciary duty of disclosure applies as a corollary to statutory requirements), Therefore, Plaintiff~' claim t()r conversion is dismissed. Finally, Plaintiffs allege the Defondants were emiched at Plaintiffs' expense by acquiring Plaintiffs' interests in the Company for inadequate compensation, Ur~iust enrichrnent requires the plaintiff demonstrate: "( 1) an enrichment, (2) an impoverislunent, (3) a relation between the enrichment and impoverishment, (4) the absence of justification, and (5) the absence of a remedy provided by law!' Nemec v, Shrader, 991 A.2d 1120~ 1130 (Del. 2010). Here, Plaintiffs' claim for unjust enrichment restates the allegation that Plaintiffs' did not receive a fair price for their shares in the Company and seeks to obtain the same relief as the breach of fiduciary duty claim against Ghavami. Dismissal is warranted where the elements of proof and possible recoveries are the same. See Frank v" Elgamal, No. CIV.A 6120-VCN, 2014 VVL 957550, at *31-32 (Del. Ch, l\far. 10, 2014) (dismissing 24 of 25 [*FILED: NEW YORK COUNTY CLERK 09/21/2017 04:18 PM 24] NYSCEF DOC. NO. 73 INDEX NO. 650775/2016 RECEIVED NYSCEF: 09/21/2017 RAL Capital Ltd. et al. v. Check!H8, Inc. et al. Index No. 650775/2016 Page 24 of24 unjust enrichment claim as duplicative of breach of fiduciary duty claim), Therefore, the clain1 for uqjust enrichment is dismissed. IV. Conclusion ACCORDINGLY, it is hereby ORDERED, Defendants' motion to dismiss the Verified Complaint is DENIED IN PART as to Plaintiffs' claim for breach of fiduciary duty arising from Checkiv18's merger with Spotible; it is further ORDERED Defendants' motion to dismiss is GRANTED IN P/\.RT as to Plaintiffs' clairns for declaratory judgment, fraud, conversion, unjust enrichment, and breach of fiduciary duty arising frornthe dilution of Plaintiffs' interests in the Company, the delayed release of new technology, non-pa:y111ent of dividends, and misappropriation of Company fonds. This constitutes the decision and order of the Court Dated: New York, New York September'.) 1 , 2017 ~· ENTER: 25 of 25

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