### S3 Partners, LLC v Fidessa Corp. 2024 NY Slip Op 31199(U) April 8, 2024 Supreme Court, New York County Docket Number: Index No. 653132/2023 Judge: Andrew Borrok 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.NYSCEF DOC. NO. 113


### SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 

### 53

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S3 PARTNERS, LLC

- V - FIDESSA CORPORATION, Plaintiff, INDEX NO.
MOTION DATE INDEX NO. 653132/2023 RECEIVED NYSCEF: 04/08/2024

653132/2023 07/27/2023, 09/21/2023, 12/20/2023 MOTION SEQ. NO. 001 004 006 Defendant. DECISION+ ORDER ON MOTION

-----------------------------------------------------------------------------------X HON. ANDREW BORROK: The following e-filed documents, listed by NYSCEF document number (Motion 001) 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15,24,30,33,47,48,49,50,51,52,53,54,55,57,58, 64,65,66 were read on this motion to/for MISCELLANEOUS The following e-filed documents, listed by NYSCEF document number (Motion 004) 35, 36, 37, 38, 56, 59, 60, 61, 62, 63, 67, 68, 69, 70, 71 were read on this motion to/for DISMISSAL The following e-filed documents, listed by NYSCEF document number (Motion 006) 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 97 were read on this motion to/for LEAVE TO FILE Upon the foregoing documents, the motion (Mtn. Seq. No. 001) seeking to strike allegations in the now superseded original complaint (the Original Complaint; NYSCEF Doc. No. 1) bythe amended complaint (the AC; NYSCEF Doc. No. 28) and for costs in having to bring the motion is denied. The motion (Mtn. Seq. No. 004) seeking to dismiss the AC is denied. The motion (Mtn. Seq. No. 006) seeking to amend the AC is granted.
THE RELEVANT FACTS

653132/2023 S3 PARTNERS, LLC vs. FIDESSA CORPORATION Motion No. 001 004 006
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### [* 1]NYSCEF DOC. NO. 113 INDEX NO. 653132/2023 RECEIVED NYSCEF: 04/08/2024
Reference is made to an InvestmentAgreement, dated as ofAugust 4, 2021 (the Agreement; NYSCEF Doc. No. 7), by andbetween S3 Partners, LLC (S3) and Fidessa Corporation (Fidessa) pursuant to which Fidessa agreed to provide approximately $40 million offunding to S3 in two traunches. In this lawsuit, S3 claims that Fidessa failed to provide the second traunch of financing in the amount ofapproximately $6,250,000 asserting causes ofaction sounding in breach ofcontract, specific performance, breach ofthe implied covenant ofgood faith and fair dealing, and a declaratoryjudgmentto determine the parties' rights and obligations underthe Agreement. As relevant, in the Original Complaint, S3 alleged that Fidessa and ION Group lacked the financial ability to provide $6.25 million in financing to S3. Fidessa claims that these allegations were frivolous and that the attorney's representing S3 knewthat they were false and only asserted them to hurtFidessa's reputation. To wit, among otherthings, Fidessa had already claimed that ithadnot provided the second traunch offunding to S3 because ithad claimed that S3 hadbreached the Agreement and as a showing ofits ability to make the second traunch funding, Fidessa offered to place the $6.25 million in escrow. In fact, Fidessa alleges that itwas only after S3 made a motion (Mtn. Seq. No. 001) to strike the offending allegations that S3 filed the Amended Complaint (AC; NYSCEF Doc. No. 28) removing these allegations. As such, and as discussedbelow, Fidessa has moved for costs and fees associated with having to bring the motion pursuant to 22 NYCRR Section 130-1.1.
In the AC, and without the offending allegations that Fidessahas not funded the second traunch contemplatedbythe Agreementbecause it lacks the financial wherewithal to do so, S3 asserts the same four causes ofaction.

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### [* 2]NYSCEF DOC. NO. 113 INDEX NO. 653132/2023 RECEIVED NYSCEF: 04/08/2024 Subsequently, Fidessa filed a motion (Mtn. Seq. No. 4) seeking dismissal ofthe AC pursuant to CPLR 321 l(a)(7) for failure to state a cause ofaction (and without asserting that any allegations in the AC mustbe struck as irrelevant orprejudicial) and S3 opposes that motion and otherwise moved (Mtn. Seq. No. 006) seeking leave to file an amendment to its AC. Fidessa opposes that motion. Discussion I. Fidessa's Motion (Mtn. Seq. No. 001) Seeking Sanctions is Denied CPLR 3024(b) provides that "[a] party may move to strike any scandalous or prejudicial matter unnecessarily inserted in a pleading." In applying this rule, the Appellate Division has stated that "[a] motion to strike scandalous orprejudicial material from a pleading will be denied ifthe allegations are relevant to a cause ofaction" (New York CityHealth andHasps. Corp. v St. Barnabas Community Health Plan, 22 AD3d 391, 391 [1st Dept 2005] [citations omitted], cited by Patrick M. Connors, Prac Commentaries, McKinney's Cons Laws ofNY, CPLR C3024:4 ["[W]e may conclude that 'unnecessarily' means 'irrelevant'.... Generally speaking, ifthe item wouldbe admissible at the trial underthe evidentiaryrules ofrelevancy, its inclusion in the pleading, whether ornotit constitutes ideal pleading, should not ordinarilyjustify a motion to strike under CPLR 3024[b]"]).
22 NYCRR Section 130-1.l(a) authorizes the award of"costs in the form ofreimbursementfor actual expenses reasonably incurred and reasonable attorney's fees, resulting from frivolous conduct." Under subsection (c) ofthatRule, "conduct is frivolous if: (1) it is completelywithout merit in law and cannotbe supportedby a reasonable argument for an extension, modification orreversal ofexisting law; (2) it is undertaken primarily to delay orprolong the resolution ofthe litigation, or to harass or maliciously injure another; or 653132/2023 S3 PARTNERS, LLC vs. FIDESSA CORPORATION Motion No. 001 004 006

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### [* 3]NYSCEF DOC. NO. 113 (3) it asserts material factual statements that are false. INDEX NO. 653132/2023 RECEIVED NYSCEF: 04/08/2024

Frivolous conduct shall include the making ofa frivolous motion for costs or sanctions underthis section. In determining whetherthe conductundertaken was frivolous, the court shall consider, among otherissues the circumstances under which the conduct tookplace, including the time available for investigating the legal or factual basis ofthe conduct, andwhether ornotthe conductwas continued when its lack oflegal or factual basis was apparent, should have been apparent, orwas broughtto the attention ofcounsel orthe party."

In its movingpapers (NYSCEF DocNo. 14, at 13), Fidessa identifies four discrete allegations that S3 made in the Original Complaint, in 

### ,i,i 2, 6, and 11, which it asserts are false, unnecessary to the Original Complaint, and damaging to its reputation. Assuming without deciding that such "unnecessary" allegations would fall within the ambit ofCPLR 3024(b), Fidessa's motion to strike is nonetheless denied. S3 amended the Original Complaint as ofright pursuantto CPLR Section 3025(a) during the pendency ofthis motion and removed the offending allegations. Inasmuch as "'the amendment cure[d] the defect, the motion should be deemed to abate"' (Cassissi v Yee, 46 Misc3d 552,555 [Sup Ct, Westchester County 2014], quoting David D. Siegel, Prac Commentaries, McKinney's Cons Laws ofNY, CPLR 3024:7). To be clear, the record before the Courtwith respect to the allegations in the Original Complaintto which Fidessa objects does not

# w amount to the kind offrivolous conductwarranting sanctionbecause S3 abandoned those allegations (22 NYCRR § 130-1.1[c]) when it filed the AC which AC "supersede[d] the original complaint and [become] the only complaintin the case" (id., quoting HalmarDistribs. vApprovedMfg. Corp., 49 AD2d 841, 841 [1st Dept 1975]). Shouldhowever S3 reassert those allegations or other allegedly baseless allegations, Fidessa mayrenew its motion. Thus, the motion is denied without prejudice.

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### [* 4]INDEX NO. 653132/2023 NYSCEF DOC. NO. 113 RECEIVED NYSCEF: 04/08/2024
II. Fidessa's Motion (Mtn. Seq. No. 004) is denied "On a motion to dismiss a complaintpursuant to CPLR 3211, we must liberally construe the pleading and 'accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of everypossible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory"' ( Himmelstein, McConnell, Gribben, Donoghue 

### & Joseph, LLPv Matthew Bender 

### & Co. ,Inc., 37 NY3d 169, 175, reargdenied,. 37 NY3d 1020 [2021], quoting Leon vMartinez, 84 NY2d 83, 87-88 [1994]). "Modempleadingrules are designed to focus attention on whether the pleaderhas a cause ofaction rather than on whetherhe has properly stated one" ( Rovella v Orofino Realty Co., Inc. ,40 NY2d 633, 636 [1976] [internal quotation marks and citations omitted]).
"Dismissal under CPLR 321 l(a)(7) is [only] warranted ifthe plaintifffails to assert facts in support ofan element ofthe claim, or ifthe factual allegations and inferences to be drawn from them do not allow for an enforceable right ofrecovery" (Himmelstein, 27 NY3d at 175 [internal quotation marks and citation omitted]). "Statements in apleading shall be sufficientlyparticular to give the court andparties notice ofthe transactions, occurrences, or series oftransactions or occurrences, intended to be proved and the material elements ofeach cause ofaction or defense" (CPLR 3013).
In its moving papers, and relying principally onAvalon Constr. Corp. v Kirch Holding Co. (256 NY 137, 141 [1931]) which affirmed the Second Department's affirmance ofajudgment of Special Term after trial, that "abreach ofcontract to make a loan, standing by itself, involves no legal damage" (emphasis added), reasoning that the borrower, being denied the loan, is also

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### [* 5]NYSCEF DOC. NO. 113 INDEX NO. 653132/2023 RECEIVED NYSCEF: 04/08/2024
relieved ofits repayment obligation, Fidessa argues that the breach ofcontract cause ofaction (first cause ofaction) mustbe dismissed because the $6.25 million second traunch funding is a loan, not an investment, such that there are no direct or consequential damages. The argument fails at this stage ofthe litigation. The plain language ofthe Agreement which must govern its construction (seeR/SAssocs. vNew YorkJob Dev. Auth., 98 NY2d 29, 32 [2002] ["when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms"] [internal quotation marks and citations omitted]) appears to be at odds with this interpretation such that dismissal at this stage is not appropriate. For clarity, the fact that the Agreement provides that "[t]he ION Investorhas agreed to subscribe for Shares and the Companyhas agreed to issue Shares on the terms and subject to the conditions ofthe Agreement" (Agreement, Recitals [affirmation ofAlexanderB. Lees, Esq., ex A [NYSCEF Doc No. 37]) does not on its face mean that the $6.25 million second traunch funding was a loan requiring dismissal. Indeed, the substance ofthe Agreement appears to provide for an up to $40 million investment from Fidessain exchange for a substantial share in S3 's equity and control of its business. More specifically, Fidessa paid the first tranche of$33.75 million, defined as the "Subscription Amount," to S3 in exchange for S3's issuance of"(i)the Ordinary Shares... ofthe Company..., (ii) the Redeemable Shares, and (iii) the Warrants" (id. ,J2.1.28 [emphasis added]). Fidessa also received the rightto appoint two "InvestorDirectors" to S3's Board ofManagers (id. ,i 9.1 etseq.) and agreed to invest the second tranche ofup to $6.25 million at any time in the two years following "Completion" (i.e., closing ofthe Agreement) "upon written requestby [S3]," in exchange for the Redeemable Shares (id. ,i 3.3).

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### [* 6]NYSCEF DOC. NO. 113 INDEX NO. 653132/2023 RECEIVED NYSCEF: 04/08/2024
For clarity, S3's assertion that it is due $6.25 million in direct damages for Fidessa's breach of contract claim does not appear to be correct because had itreceived that amount, S3 wouldhave been required to issue the Redeemable Shares for Fidessa's later redemption with interest (id., 

### ,i,i 3.3, 7.5-7.9). Consequential damages however are another matter. Paragraph 46 ofthe AC asserts thatFidessa'sbreach allegedly impaired operations and caused additional costs in securing replacement funding which costs were the foreseeable consequences ofFidessa's alleged breach and were allegedly within the parties' contemplation at the time they entered the Agreement (D.K. Prop., Inc. vNational Union Fire Ins. Co. of Pittsburgh, PA, 168 AD3d 505, 506-07 [1st Dept 2019]). This maybe correct. Dismissal at this time is premature.
Fidessais also not entitled to dismissal ofS3's cause ofaction sounding in breach ofthe implied covenant ofgood faith and fair dealing (second cause ofaction) at this stage ofthe litigation. As alleged, it is not duplicative ofits breach ofcontract claim (AEA MiddleMkt. DebtFundingLLC vMarblegateAssetMgt., LLC, 214 AD3d 111, 133 [1st Dept 2023]). Here, S3 alleges that Fidessabreachedthe implied covenant ofgood faith and fair dealing by demanding that S3 meet extra-contractual reporting duties, interfering with S3 's auditors and delaying completion oftheir audit, and then refusing to "accept" the audit (citing AC, 

### ,i 62 [NYSCEF Doc No. 60]; cfid., 

### ,i,i 43-47). This is different and separate from the alleged breachbyFidessa in failing to fund the $6.25 million second traunch.
Fidessais also not entitled to dismissal ofS3's cause ofaction for specific performance (third cause ofaction). S3 maynothave an adequate remedy at law and itwould be error to deprive S3 ofits right to allege inconsistent or contradictory causes ofaction at the pleading stage

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### [* 7]NYSCEF DOC. NO. 113 INDEX NO. 653132/2023 RECEIVED NYSCEF: 04/08/2024 particularlywhere Fidessa argues that S3 has not suffered consequential recoverable damages (see Levy v Franklin Natl. Bank, 52 AD2d 769, 769 [1st Dept 1976]). Finally, Fidessa is not entitled to dismissal at this stage ofthe declaratoryjudgment (fourth cause ofaction) because S3 mustbe permitted to argue in the alternative and S3 is entitled to a declaration from this Court as to whether there are reciprocal enforceable obligations under the agreement under the circumstances ofthis case (Kevin Spence & Sons, Inc. v Boar'sHead Provisions Co., 5 AD3d 352, 353-54 [1st Dept 2004]; Hyde ParkLanding, Ltd. v Town of Hyde Park, 130 AD3d 730, 731 [2d Dept 2015], quoting Matter of Morgenthau v Erlbaum, 59 NY2d 143, 148 [1983] ["declaratory relief 'is not an extraordinary remedy,' as it 'only provides a declaration ofrights between the parties' and 'cannotbe executed upon so as to compel a party to perform an act"']). Accordingly, the motion to dismiss the AC is denied.
III. S3's motion (Mtn. Seq. No. 006) seeking leave to amend the AC is granted CPLR 3025(b) provides: "[a] party may amend his or her pleading, or supplement itby setting forth additional or subsequent transactions or occurrences, at any time byleave ofcourt orby stipulation ofall parties. Leave shall be freely given upon such terms as may bejustincluding the granting ofcosts and continuances. Any motion to amend or supplementpleadings shall be accompaniedby the proposed amended or supplemental pleading clearly showing the changes or additions to be made to the pleading."
The Appellate Division has been clear"'[l]eave to amend pleadings should be freely granted in the absence ofprejudice or surprise so long as the proposed amendment is notpalpably insufficientas a matter of law"' (Olam Corp. v Thayer, 202I WL 408232, 2021 NY Slip Op 653132/2023 S3 PARTNERS, LLC vs. FIDESSA CORPORATION Motion No. 001 004 006

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### [* 8]NYSCEF DOC. NO. 113 INDEX NO. 653132/2023 RECEIVED NYSCEF: 04/08/2024 30345[U], *2 [Sup Ct, NY County 2021], quoting 

### Mashinsky vDrescher, 188 AD3d465,465 [1st Dept 2000] [emphasis in original]). In otherwords, "[a] proposed amended complaint that would be subject to dismissal 

### as a matter of law is, by definition, 'palpably insufficient or clearly devoid ofmerit' and thus should notbe permitted under CPLR 3025" 

### (Olam Corp., 2021 NY Slip Op 30345[U], *3-4 [emphasis in original]). Simplyput, Fidessais not correct that the proposed SecondAmended and Supplemental Complaint (the SAC) is palpably insufficient or utterly devoid ofmerit as a matter oflaw. The additional allegations in the SAC, including the December 30, 2022 e-mail from Kunal Gullapalli, are relevant and bolster S3's allegations as to nature ofFidessa's second tranche investment
- 

### i.e., that Fidessa viewed it as an investment and not a loan (ex D [NYSCEF Doc No. 86] to affirmation ofA.J. Monaco, Esq. in support [NYSCEF Doc No. 82]). In addition, paragraphs 70 and 89 ofthe SAC include more detailed allegations regarding the harm Fidessa's alleged breach caused to S3 's operations and the ensuing efforts and expenditures incurred obtain replacement financing in August 2023. Thus, the motion mustbe granted.
The Court has considered Fidessa's remaining arguments and finds them unavailing. Accordingly, it is hereby
ORDERED that defendantFidessa's motion to strike, pursuantto CPLR 3024(b), and for reimbursement ofcosts and fees, pursuant to 22 NYCRR Section 130-1.1, is denied; and it is further

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### [* 9]NYSCEF DOC. NO. 113 INDEX NO. 653132/2023 RECEIVED NYSCEF: 04/08/2024
ORDERED that defendant Fidessa's motionto dismiss plaintiffS3'sAC is denied; and it is further
ORDERED thatplaintiffS3'smotion for leave to amend the amended complaintis granted, and that the SAC shall be deemed servedupon service ofa copy ofthe decision and order withnotice ofentrythereof; anditis further
ORDERED that defendant Fidessa shall serve an answerto the SAC orotherwise respond thereto within 20 days from the date ofsaid service; and it is further
ORDERED that counsel are directedto appear for apreliminary conference in Room 238 ofthis Court, at 60 Centre Street, onApril 15, 2024, at 11:30am.

4/8/2024

DATE CHECK ONE: APPLICATION: CHECKIF APPROPRIATE:

# ~ CASE DISPOSED GRANTED**□** DENIED SETTLE ORDER INCLUDES TRANSFER/REASSIGN

653132/2023 S3 PARTNERS, LLC vs. FIDESSA CORPORATION Motion No. 001 004 006
10 of 10 ANDREW BORROK, J.S.C. NON-FINAL DISPOSITION GRANTED IN PART SUBMIT ORDER FIDUCIARY APPOINTMENT

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