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

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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 

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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the now superseded original complaint (the Original Complaint; NYSCEF Doc.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) by the 

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 

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Reference is made to an Investment Agreement, dated as of August 4, 2021 (the Agreement; 

NYSCEF Doc. No. 7), by and between S3 Partners, LLC (S3) and Fidessa Corporation (Fidessa) 

pursuant to which Fidessa agreed to provide approximately $40 million of funding to S3 in two 

traunches. In this lawsuit, S3 claims that Fidessa failed to provide the second traunch of 

financing in the amount of approximately $6,250,000 asserting causes of action sounding in 

breach of contract, specific performance, breach of the implied covenant of good faith and fair 

dealing, and a declaratory judgment to determine the parties' rights and obligations under the 

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 knew that they were false and 

only asserted them to hurt Fidessa' s reputation. To wit, among other things, Fidessa had already 

claimed that it had not provided the second traunch of funding to S3 because it had claimed that 

S3 had breached the Agreement and as a showing of its ability to make the second traunch 

funding, Fidessa offered to place the $6.25 million in escrow. In fact, Fidessa alleges that it was 

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 discussed below, 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 Fidessa has not funded the second traunch 

contemplated by the Agreement because it lacks the financial wherewithal to do so, S3 asserts 

the same four causes of action. 

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Subsequently, Fidessa filed a motion (Mtn. Seq. No. 4) seeking dismissal of the AC pursuant to 

CPLR 321 l(a)(7) for failure to state a cause of action (and without asserting that any allegations 

in the AC must be struck as irrelevant or prejudicial) 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 or prejudicial material from a pleading will be denied if the 

allegations are relevant to a cause of action" (New York City Health and Hasps. 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 of NY, CPLR C3024:4 

["[W]e may conclude that 'unnecessarily' means 'irrelevant' .... Generally speaking, if the item 

would be admissible at the trial under the evidentiary rules of relevancy, its inclusion in the 

pleading, whether or not it constitutes ideal pleading, should not ordinarily justify a motion to 

strike under CPLR 3024[b ]"]). 

22 NYCRR Section 130-1. l(a) authorizes the award of "costs in the form ofreimbursement for 

actual expenses reasonably incurred and reasonable attorney's fees, resulting from frivolous 

conduct." Under subsection (c) of that Rule, "conduct is frivolous if: 

(1) it is completely without merit in law and cannot be supported by a reasonable 

argument for an extension, modification or reversal of existing law; 

(2) it is undertaken primarily to delay or prolong the resolution of the litigation, or 

to harass or maliciously injure another; or 

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(3) it asserts material factual statements that are false. 

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Frivolous conduct shall include the making of a frivolous motion for costs or 

sanctions under this section. In determining whether the conduct undertaken was 

frivolous, the court shall consider, among other issues the circumstances under 

which the conduct took place, including the time available for investigating the 

legal or factual basis of the conduct, and whether or not the conduct was 

continued when its lack of legal or factual basis was apparent, should have been 

apparent, or was brought to the attention of counsel or the party." 

In its moving papers (NYSCEF Doc No. 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 of CPLR 3024(b), Fidessa's motion to 

strike is nonetheless denied. S3 amended the Original Complaint as of right pursuant to CPLR 

Section 3025(a) during the pendency of this 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 of NY, CPLR 3024:7). To be clear, the 

record before the Court with respect to the allegations in the Original Complaint to which 

Fidessa objects does not w amount to the kind of frivolous conduct warranting sanction because 

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 complaint in the case" (id., quoting 

Halmar Distribs. v Approved Mfg. Corp., 49 AD2d 841, 841 [1st Dept 1975]). Should however 

S3 reassert those allegations or other allegedly baseless allegations, Fidessa may renew its 

motion. Thus, the motion is denied without prejudice. 

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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 complaint pursuant 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 

every possible favorable inference, and determine only whether the facts as alleged fit within any 

cognizable legal theory"' (Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v 

Matthew Bender & Co. , Inc., 37 NY3d 169, 175, rearg denied,. 37 NY3d 1020 [2021], quoting 

Leon v Martinez, 84 NY2d 83, 87-88 [1994]). "Modem pleading rules are designed to focus 

attention on whether the pleader has a cause of action rather than on whether he 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 if the plaintiff fails to assert facts in 

support of an element of the claim, or if the factual allegations and inferences to be drawn from 

them do not allow for an enforceable right of recovery" (Himmelstein, 27 NY3d at 175 [internal 

quotation marks and citation omitted]). "Statements in a pleading shall be sufficiently particular 

to give the court and parties notice of the transactions, occurrences, or series of transactions or 

occurrences, intended to be proved and the material elements of each cause of action or defense" 

(CPLR 3013). 

In its moving papers, and relying principally on Avalon Constr. Corp. v Kirch Holding Co. (256 

NY 137, 141 [1931]) which affirmed the Second Department's affirmance of a judgment of 

Special Term after trial, that "a breach of contract 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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relieved of its repayment obligation, Fidessa argues that the breach of contract cause of action 

(first cause of action) must be 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 of the litigation. The plain language of the Agreement which must govern its 

construction (see R/S Assocs. v New York Job 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 Investor has agreed to subscribe for Shares and 

the Company has agreed to issue Shares on the terms and subject to the conditions of the 

Agreement" (Agreement, Recitals [affirmation of Alexander B. 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 of the Agreement appears to provide for an up to $40 

million investment from Fidessa in 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 ... of the 

Company ... , (ii) the Redeemable Shares, and (iii) the Warrants" (id. ,J2.1.28 [emphasis added]). 

Fidessa also received the right to appoint two "Investor Directors" to S3' s Board of Managers 

(id. ,i 9.1 et seq.) and agreed to invest the second tranche of up to $6.25 million at any time in the 

two years following "Completion" (i.e., closing of the Agreement) "upon written request by 

[S3]," in exchange for the Redeemable Shares (id. ,i 3.3). 

653132/2023 S3 PARTNERS, LLC vs. FIDESSA CORPORATION 

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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 it received that amount, S3 would have 

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 of the AC 

asserts that Fidessa' s breach 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. v National Union Fire Ins. Co. of Pittsburgh, PA, 168 AD3d 505, 

506-07 [1st Dept 2019]). This may be correct. Dismissal at this time is premature. 

Fidessa is also not entitled to dismissal of S3' s cause of action sounding in breach of the implied 

covenant of good faith and fair dealing (second cause of action) at this stage of the litigation. As 

alleged, it is not duplicative of its breach of contract claim (AEA Middle Mkt. Debt Funding LLC 

v Marblegate Asset Mgt., LLC, 214 AD3d 111, 133 [1st Dept 2023]). Here, S3 alleges that 

Fidessa breached the implied covenant of good faith and fair dealing by demanding that S3 meet 

extra-contractual reporting duties, interfering with S3 's auditors and delaying completion of their 

audit, and then refusing to "accept" the audit (citing AC, ,i 62 [NYSCEF Doc No. 60]; cf id., 

,i,i 43-47). This is different and separate from the alleged breach by Fidessa in failing to fund the 

$6.25 million second traunch. 

Fidessa is also not entitled to dismissal of S3' s cause of action for specific performance (third 

cause of action). S3 may not have an adequate remedy at law and it would be error to deprive S3 

of its right to allege inconsistent or contradictory causes of action at the pleading stage 

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particularly where 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 of the declaratory judgment (fourth cause 

of action) because S3 must be 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 of this case (Kevin Spence & Sons, Inc. v Boar's Head 

Provisions Co., 5 AD3d 352, 353-54 [1st Dept 2004]; Hyde Park Landing, 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 of rights between the parties' and 'cannot be 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 it by setting forth 

additional or subsequent transactions or occurrences, at any time by leave of court 

or by stipulation of all parties. Leave shall be freely given upon such terms as may 

be just including the granting of costs and continuances. Any motion to amend or 

supplement pleadings shall be accompanied by 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 of prejudice or surprise so long as the proposed amendment is not palpably 

insufficient as a matter of law"' ( Olam Corp. v Thayer, 202 I WL 408232, 2021 NY Slip Op 

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30345[U], *2 [Sup Ct, NY County 2021], quoting Mashinsky v Drescher, 188 AD3d 465,465 

[1st Dept 2000] [emphasis in original]). In other words, "[a] proposed amended complaint that 

would be subject to dismissal as a matter of law is, by definition, 'palpably insufficient or clearly 

devoid of merit' and thus should not be permitted under CPLR 3025" (Olam Corp., 2021 NY 

Slip Op 30345[U], *3-4 [emphasis in original]). Simply put, Fidessa is not correct that the 

proposed Second Amended and Supplemental Complaint (the SAC) is palpably insufficient or 

utterly devoid of merit 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 of Fidessa'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 of A.J. Monaco, Esq. in support 

[NYSCEF Doc No. 82]). In addition, paragraphs 70 and 89 of the 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 must be granted. 

The Court has considered Fidessa' s remaining arguments and finds them unavailing. 

Accordingly, it is hereby 

ORDERED that defendant Fidessa' s motion to strike, pursuant to CPLR 3024(b ), and for 

reimbursement of costs and fees, pursuant to 22 NYCRR Section 130-1.1, is denied; and it is 

further 

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ORDERED that defendant Fidessa's motion to dismiss plaintiff S3's AC is denied; and it is 

further 

ORDERED that plaintiff S3's motion for leave to amend the amended complaint is granted, and 

that the SAC shall be deemed served upon service of a copy of the decision and order with notice 

of entry thereof; and it is further 

ORDERED that defendant Fidessa shall serve an answer to the SAC or otherwise respond 

thereto within 20 days from the date of said service; and it is further 

ORDERED that counsel are directed to appear for a preliminary conference in Room 238 of this 

Court, at 60 Centre Street, on April 15, 2024, at 11: 30am. 

4/8/2024 

DATE 

CHECK ONE: 

APPLICATION: 

CHECK IF APPROPRIATE: 

~ CASE DISPOSED 

GRANTED □ DENIED 

SETTLE ORDER 

INCLUDES TRANSFER/REASSIGN 

653132/2023 S3 PARTNERS, LLC vs. FIDESSA CORPORATION 

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ANDREW BORROK, J.S.C. 

NON-FINAL DISPOSITION 

GRANTED IN PART 

SUBMIT ORDER 

FIDUCIARY APPOINTMENT 

□ OTHER 

□ REFERENCE 

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