SLI Holdings, Inc. v Adler

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SLI Holdings, Inc. v Adler 2018 NY Slip Op 30747(U) April 26, 2018 Supreme Court, New York County Docket Number: 655147/2016 Judge: O. Peter Sherwood 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 04/27/2018 12:14 PM 1] NYSCEF DOC. NO. 68 INDEX NO. 655147/2016 RECEIVED NYSCEF: 04/27/2018 SUPREME COURT OF THE ST ATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 49 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X SLI HOLDINGS, INC., DECISION AND ORDER Plaintiff, Index No.: 655147/2016 -againstMotion Sequence Nos.: 003-004 KEVIN ADLER AND BRIAN LESSIG, Defendants. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - x KEVIN ADLER AND BRIAN LESSIG, Crossclaim Plaintiffs, -against- SOUTHPORT LANE MANAGEMENT, LLC AND SOUTHPORT LANE, LP, Crossclaim Defendants. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - x SOUTHPORT LANE MANAGEMENT, LLC AND SOlJTHPOl{T LANE, LP, Plaintiffs, Index No.: 155915/2016 -against- Motion Sequence No.: 004 KEVIN ADLER AND BRIAN LESSIG, Defendants. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - x 0. PETER SHER\VOOD, J.: In Southport Lane J1anagement LLC v Adler, Index No.: 15591512016 ("SLM"'), l\.fotion Sequence Number 004, plaintiffs move a second time for an order staying arbitration (see NYSCEF Doc. No. 37). ln Sll lloldings, Inc., 1 Adler, Index No.: 655147/2016 ("SU"), Motion Sequence Number 004, plaintiff seeks the same relief (see NYSCFr Doc. No. 48) 1• In Motion Sequence Number 003. SLJ seeks to strike defondants' amended answer. defenses and ' I lnkss otherwise indicaled, citations to !he record arc to NYSCEF in the SU case. Page 1 of S 2 of 6 [*FILED: NEW YORK COUNTY CLERK 04/27/2018 12:14 PM 2] NYSCEF DOC. NO. 68 INDEX NO. 655147/2016 RECEIVED NYSCEF: 04/27/2018 2 ce>unterc!airns or in the alternative, dismissing the counterclaims asserted by defendant Adler (NYSCEf- Doc. No. 33). All three motions arc consolidated for decision. The genesis of these cases lies in the employment relationship bel\vcen SLM and detcndants, Adler and I ,cssig, begun in 2011. At the time of employment, both defendants entered into employment agreements (dated February 21, 20 I l) which contain broad indemnification and arbitration clauscs.J The agreements also set the terms of compensation which included base salary and perfonnance based cash bonuses and equity (NYSCEF Doc. Nos. ). According to the SLM complaint. Adler and Lessig terminated their employment on Fcbrucu·y 8. 20 l 3 and May 31, 2013 respectively. Each signed a Separation Agreement as of December 19, 2013 (NYSCEF Doc. No. 3 7 ). SUvt signed on behalf of itsel1~ ''its parents, subsidiaries, and all affiliated ... entities, and each of their successors and assigns'' (NYSCEF Doc. No. 37). On December 20, 2013, each signed a separate Purchase Agreement (''PA") selllng his equity in SLM, its parent, Southport Lane. LP C'SLLP") (together "the Entities" and Premium Win Acquisitions. LLC ("PWA") (NYSCEF Doc. No. 43, pp. 28-42). Insofar as is relevant on these motions, the Purchase Agreement provided consideration to each defendant in the amount of $2,000,000 plus "Additional Consideration [payable] in either case or equity securities·· at a later date. Tn the PA, SLM and SLLP made certain representations and warrantys, including that (2) the Entities have secured all required consents to enter into this Agreement; (3) the Entities have all the required power and authority to enter into this Agreement and to caffy out their obligations under this Agreement; (4) this Agreement docs not and will not violate any statute ... [or.I agreement ... to which the Entities are subject; (5) the Entities ... have the financial abilitie::; to meet their respective obligations under this Agreement; (6) this Agreement is a legal. binding obligation of the Entities ... ". 2 The rnunterclai111s, all of which relate to contracts between SLl'v1 and defondants. are for '"Indemnification'' "Severance" and "Pavmems Due" ' ' Thcs~ pr~visions ar~ quoted and discussed in Justice Singh 's Decision and Order denying SLM 's motion to .stay thr arh1tratwn 0f claims made by Adler and Lessig_ (see NYSCEF Doc. No. 22 in the SLM case). Page 2 of 5 3 of 6 · [*FILED: NEW YORK COUNTY CLERK 04/27/2018 12:14 PM 3] NYSCEF DOC. NO. 68 INDEX NO. 655147/2016 RECEIVED NYSCEF: 04/27/2018 The Entities also represented that defendants had not seen the books and records nor been provided any information regarding the operation or financial condition of the Entities (id,~ 2[bl). With respect to arbitration, the PA provided at 'fi 14: '·if any dispute shall rise between Seller and the Entities, whether arising from, or related to this Agreement. or otherwise, each of Seller and the Entities agree to be bound by the Arbitration Agreement contained finl the Employment Agreement'' The Employment Agreements, Termination Agreements and PA are all signed on behalf of SI ,~11 and SLLP by Alexander I3urns, various capacities as Director or Chairman. The SLM complaint was ft led on July 15, 2016. It alleged breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud and conspiracy to commit fraud. It also alleged violation of New York Debtor and Creditor Lmv §§ 273, 276, 276-a and 278 against defendants. In an amended complaint filed on September 27, 2016 in the SLM case, plaintiffs excised the fraudulent conveyance claims (see NYSCEF Doc. No. 4 in SLM). The SLI complaint was filed a day later. on September 28, 2016 "seeking a judgment pursuant to ... New York Debtor and Creditor Law § 270 et seq . ... to avoid and recover the value of ... transfers made to defendants' (NYSCEF Doc. No. I). The complaint alleges violation of Debtor and Creditor Law §§ 27~, 274, 275, 276, 276-a and 278 against both defondants and seeks recovery of the same sums alleged in the original SLM complaint. It seeks to recover $2. 781,964.23 against Adler and $2,554,085.95 against Lessig, the same amount claimed in the SLM case. Defendants' eighth anirmative defense alleges that this dispute is subject to arbitration (NYSCEF Doc. No. 22, p.4 ). On November 1, 2016 the defendants served demands for arbitration pursuant to the Employment Agreements and Separation Agreements. Thercatler, SLM and SLLP moved to stay arbitration in the SLM case. In a Decision and Order dated April 14, 2017, Justice Singh denied the motion (id.). The SU case \vas randomly assigned to this cow1 hccause p1aintiff failed to disdose on the Request for Judicial Intervention that the case is related to the SLM casc. 4 In a Decision and Order dated April 19. ?OJ 7 in the SLI case, this court granted plaintiff's motions to dismiss defendants' counterclaims and to stay arbitration based on plaintiff's claim that "Counsel insists the cases are not ndated except "in a colloquia! sense'". Tr. p. 26. The complaint in the SLM case shows otherwise (sec Tr. P. 30). Page 3 ofS 4 of 6 [*FILED: NEW YORK COUNTY CLERK 04/27/2018 12:14 PM 4] NYSCEF DOC. NO. 68 INDEX NO. 655147/2016 RECEIVED NYSCEF: 04/27/2018 SLI was not a party lo or otherwise in privity with the parties to the contracts as at issue (NYSCEF Doc. Nos. 26 and 27). It now appears that SU,,1 and SU were afilliates at least as of the time of the alleged fraudulent conveyances (see Tr. 20). Plaintiffs now claim that SLI is not subject to the arbitration clause of the Employment Agreements because at the time those agreements were signed in 201 I, SLI did not exist (Tr. 19). At the time of the motion, plaintiff did not disclose that SLM and SLI were aHiliates and that the assertion that SU \Vas not bound by the arbitration provision of the employment and separation agreements was not based on a claim that SLI, SI ,J\"1 and SLLP were not affiliated but instead that SLI did not exist at the time those agreements were signed. These important facts cast an entirely different light on the claims plaintiff advanced when it sought to stay arbitration of the controversy. For this reason, the court will not apply the law of the case doctrine to stay defendants' second demand for arbitration filed \vith JAMS on or about October 3 l, 2017. The fact that SLJ was created after the employment agreements were signed docs not insulate SU from the obligation to arbitrate because under the tcn11s of the Separation Agreements, SLM and SLLP intended to bind not only themselves. but also their affiliates and ·'their successors and assigns .. (NYSCEF Doc. No. 34 in SLM). Thus, SLM and SLLP agreed that the Separation Agreements would bind present and future affiliates (here SLI). l\i1orcovcr, it appears that SU existed and was an affiliate of SLM and SI ,LP at the time the allegedly fraudulent conversions were made. SU may be bound by the terms of the PA including the express warrantys given therein. Accordingly, plaintiffs' motion to stay arbitration in the SU case (motion sequence number 004) is DFNIED. Motion sequence number 003, which is also based on the claim thal SU did not exist at the time SLM and SLLP signed the PA, is DENIED for the same reasons. Likewise. the Second Motion to Stay in the SLM case is DENIED. Any \vaiver of arbitration must be clear and unequivocal (see In re Wonderworks Constrn Corp. v RL /Joiner, Inc .. 1008 NY Slip Op. 32457, Sup. Ct New York Cty 2008, Goodman, JSC). The mere preservation of claims by defendants in the SLI case is not evidence of a clear waiver of the right to arbitration. That defendants sought consistently to assert their claims in an arbitration proceeding is amply demonstrated by their assertion of claims for arbitration in pleadings filed on November 2, 2016, August 31, 2017 and September 2 L 20 I 7, as well as in a Demand for Arbitration served on defendants on or about October 27, 2017 (NYSCEF Doc. Nos. 4, 28 and 29). Page 4 of 5 5 of 6 ~~/ JJ-YY; [*FILED: NEW YORK COUNTY CLERK 04/27/2018 12:14 PM 5] NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 04/27/2018 This constitutes the decision and order of the court. DATED: INDEX NO. 655147/2016 April 26, 2018 Page 5 of 5 6 of 6

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