Court Opinion

ID: 9959915
Source: CourtListenerOpinion
Date Created: 2024-04-12 20:12:11.203157+00
Date Added: 2024-06-11T08:19:00.411772
License: Public Domain

Khan v Mediamorph, Inc.
               2024 NY Slip Op 31201(U)
                      April 7, 2024
           Supreme Court, New York County
        Docket Number: Index No. 656125/2019
                  Judge: Andrea Masley
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                       publication.
                                                                                                                         INDEX NO. 656125/2019
  NYSCEF DOC. NO. 132                                                                                              RECEIVED NYSCEF: 04/07/2024

            SUPREME COURT OF THE STATE OF NEW YORK
            COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 48
            ----------------------------------------------------------------------------------- X

                IMTIAZ KHAN, BRUCE MEYERS, WINDSOR STREET                                            INDEX NO.         656125/2019
                CAPITAL, L.P. F/K/A MEYERS ASSOCIATES, L.P.,
                FATOS MUCHA, CHASSMAN BLECH 2013 TRUST,
                SPRING CHARITABLE REMAINDER TRUST, MICHAEL                                           MOTION DATE
                STONE, ROBERT SEGUSO, WARIS IRREVOCABLE
                TRUST, JEFFREY BAUM, FARHAN SHARAFF,                                                 MOTION SEQ. NO.      004 005
                BARBARA MISHAN, NAUSIKA AHMETI MUCHA,

                                                          Plaintiffs,                                  DECISION+ ORDER ON
                                                                                                             MOTION
                                                - V -

                MEDIAMORPH, INC., ROBERT GARDOS, MICHAEL
                HUSEBY, MICHAEL SID, KENT JARVI, SHAHID KHAN,
                JONATHANLERNER,NOMIBERGMAN,ROBERT
                TOMS, ROBERT GREENE, STEWART TILL, BARRY
                BAKER, SMEDVIG CAPITAL LTD (AS NOMINEE FOR
                SMEDVIG CAPITAL FUND X LP)

                                                          Defendants.
            ----------------------------------------------------------------------------------- X

            HON. ANDREA MASLEY:

            The following e-filed documents, listed by NYSCEF document number (Motion 004) 80, 81, 82, 100,
            102,104,105,106,107,113,127,129,130
            were read on this motion to/for                                                          DISMISS

            The following e-filed documents, listed by NYSCEF document number (Motion 005) 83, 84, 85, 86, 87,
            88, 89, 90, 101, 103, 108, 109, 110, 111, 114, 128
            were read on this motion to/for                                                         DISMISSAL

                      This action arises form a merger transaction involving defendant Mediamorph,

            Inc. (MMI), whose common stock plaintiffs owned. 1 In motion sequence 004,

            defendants MMI, Robert Gardos, Michael Huseby, Michael Sid, Kent Jarvi, Shahid

            Khan, Jonathan Lerner, Nomi Bergman, Robert Toms, Robert Greene, Stewart Till, and

            1The background of this action is set forth in this court's decision on the movants'
            previous motions to dismiss. (NYSCEF Doc. No. [NYSCEF] 67, Decision and Order at
            2-8 [mot. seq. nos. 001, 002].)
                656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC.                                                            Page 1 of 9
                Motion No. 004 005

                                                                            1 of 9
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                                                                                                    INDEX NO. 656125/2019
  NYSCEF DOC. NO. 132                                                                         RECEIVED NYSCEF: 04/07/2024

            Barry Baker (collectively, MMI Defendants) move to dismiss the amended complaint

            pursuant to CPLR 3211 (a)(7). In motion sequence 005, defendant Smedvig Capital Ltd.

            (Smedvig) moves to dismiss the amended complaint pursuant to CPLR 3211(a)(1) and

            (7). Movants are the only remaining defendants in this action. 2

                      The court previously dismissed the breach of fiduciary duty and aiding and

            abetting breach of fiduciary duty claims with leave to replead "in compliance with CPLR

            3016(b)." (NYSCEF 67, Decision and Order at 25 [mot. seq. nos. 001, 002].) 3 Plaintiffs

            filed an amended complaint, in which they allege claims for (1) breach of fiduciary duty

            against the MMI Defendants, (2) aiding and abetting breach of fiduciary duty against

            Smedvig, and (3) unjust enrichment against all defendants and seek a declaratory

           judgment. (NYSCEF 70, Amended Complaint [AC]                  ,m 85-113.   4
                                                                                          )

            2
              The court dismissed defendants Whip Networks, Inc., TV Time, Inc., and Whip Media
            Group. (NYSCEF 96, Decision and Order at 1 [mot. seq. no. 003].)
            3
              The court dismissed the third cause of action (breach of contract) with leave to replead
            as to certain defendants. (NYSCEF 67, Decision and Order at 24-25 [mot seq. nos.
            001, 002].) Plaintiffs did not replead. The court dismissed the fourth (conversion), fifth
            (tortious interference), and seventh (accounting) causes of action with prejudice. (Id.)
            4
              Plaintiffs fail to submit "a red-line copy [of the amended complaint] identifying all
            modifications or additions." (Part 48 Procedure 11.) Upon review of the amended
            complaint, the following changes have been made: (1) plaintiffs added              ,m
                                                                                               66-75, 91 and
            106; (2) plaintiffs amended ,i 88 (d), which corresponds to ,i 78 (d) of the initial
            complaint, to add "in violation of their fiduciary duties, including" (i.e., "[t]he defendants
            breached these fiduciary duties in multiple respects, including ... (d) approving
            interested director transactions in violation of their fiduciary duties, including without
            undertaking proper steps to comply with required procedures for such transactions or
            protecting the interests of the plaintiffs" [emphasis added]); and (3) plaintiffs attach
            select pages of the Information Statement, dated October 18, 2019, pertaining to the
            merger and Proposed Resolutions of the Board of Directors of MM I, dated October 11,
            2019, as exhibits. (See NYSCEF 70, AC.)
                656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC.                                       Page 2 of 9
                Motion No. 004 005

                                                                2 of 9
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                                                                                            INDEX NO. 656125/2019
  NYSCEF DOC. NO. 132                                                               RECEIVED NYSCEF: 04/07/2024

            Discussion

                   "A cause of action may be dismissed under CPLR 3211 (a)(1) only where the

            documentary evidence utterly refutes [the] plaintiff's factual allegations, conclusively

            establishing a defense as a matter of law." (Art and Fashion Group Corp. v Cyclops

            Prod., Inc., 120 AD3d 436,438 [1st Dept 2014] [internal quotation marks and citation

            omitted].)

                   On a motion to dismiss pursuant to CPLR 3211 (a)(7), the court must "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." (Leon v Martinez, 84 NY2d 83, 87-88 [1994].) "[B]are legal

            conclusions, as well as factual claims which are either inherently incredible or flatly

            contradicted by documentary evidence" cannot survive a motion to dismiss. (Summit

            Solomon & Feldesman v Lacher, 212 AD2d 487, 487 [1st Dept 1995] [citation omitted].)

            "Where a cause of action ... is based upon misrepresentation, fraud, mistake, wilful

            default, breach of trust or undue influence, the circumstances constituting the wrong

            shall be stated in detail." (CPLR § 3016 [b].)

                   "New York choice-of-law rules provide that substantive issues such as issues of

            corporate governance, including the threshold demand issue, are governed by the law

            of the state in which the corporation is chartered." (Lerner v Prince, 119 AD3d 122, 128

            [1st Dept 2014] [citations omitted].) New York's choice-of-law rules impose New York

            law over matters of procedure. (Id. at 127.) The parties agree that Delaware law

            applies to the substantive issues here.

             656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC.                                  Page 3 of 9
             Motion No. 004 005

                                                             3 of 9
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                                                                                               INDEX NO. 656125/2019
  NYSCEF DOC. NO. 132                                                                  RECEIVED NYSCEF: 04/07/2024

            Breach of Fiduciary Duty Claim Against MMI Defendants

                   The court previously dismissed the breach of fiduciary duty claim because

            plaintiffs "failed to sufficiently allege facts to support the fiduciary duty claims against

            MMI ... or the MMI Directors." (NYSCEF 67, Decision and Order at 15 [mot. seq. nos.

            001, 002].) The court explained:

                   "Plaintiffs' allegations are either conclusory or sound in breach of contract.
                   The complaint includes allegations of the defendants' failures such as:
                   failing to protect common shareholders interest, favoring personal interest
                   and funneling profits from the sale transaction, failing to comply with
                   required procedures to approve directors or the merger, golden parachute
                   payments to directors, failing to maximize shareholder value, depriving
                   common shareholders of voting rights, and failing to follow the special
                   committee's recommendation to pay the common stockholders at least
                   $4.5 million. However, these allegations are absent any detail as to the
                   common questions of who, what, when, where, and how. The complaint
                   contains blanket allegations about defendants without sufficient detail.

                   For example, plaintiffs do not allege the directors were on both sides of
                   the merger transaction and engaged in self-dealing. Without those
                   allegations, plaintiffs must allege and identify how the directors received a
                   benefit so material that it makes it improbable they could independently
                   perform their duties. Allegations [that] the directors received a $4.5 million
                   golden parachute payout, without identifying what amount each director
                   was paid or how that payment is material is insufficient to allege they were
                   interested in the transaction. Simply stating the defendants failed to
                   maximize value for the shareholders does not meet the pleading standard.

                   The breach of fiduciary duty claim is dismissed with leave to replead due
                   to inadequate pleading to allege MMl's board's breach of its duties." (Id.
                   at 15-16 [citations omitted].)

                   The MMI Defendants argue that the breach of fiduciary duty claim, as repleaded

            in the amended complaint, must be dismissed because plaintiffs added no new factual

            a Ilegations.

                   In the newly added paragraphs, plaintiffs, for the most part, merely reiterate the

            allegations already included in the initial complaint, which this court found insufficient to

             656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC.                                     Page 4 of 9
             Motion No. 004 005

                                                             4 of 9
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                                                                                            INDEX NO. 656125/2019
  NYSCEF DOC. NO. 132                                                               RECEIVED NYSCEF: 04/07/2024

            state a breach of fiduciary duty claim. (Compare NYSCEF 2, Complaint        ,m 21-29, 78
            [h], with NYSCEF 70, AC       ,m 68, 91.) The minimal new factual allegations regarding
            director defendants Shahid Khan and Greene are woefully insufficient "to allege and

            identify how the directors received a benefit so material that it makes it improbable they

            could independently perform their duties." (NYSCEF 67, Decision and Order at 16 [mot.

            seq. nos. 001, 002] [citations omitted].) Specifically, the new factual allegations include

            allegations that Shahid Khan "held Company Common Stock and Company Options"

            (NYSCEF 70, AC ,i 68 [b]) and that Greene "was an affiliate of LGI Ventures B.B ....

            [which] held preferred stock in MMI and also had warrants to purchase additional

            Company stock." (Id. ,i 68 [e].) Plaintiffs also allege that defendant Gardos, MMl's

            former CEO, would receive a material benefit, i.e., "a management incentive bonus in

            connection with the closing of the merger of $2.7 million." (Id. ,i,i 21, 71; see Orman v

            Cullman, 794 A2d 5, 30-31 [Del Ch 2002] [finding that a director "cannot be considered

            independent and disinterested" where the director would receive a $3.3 million benefit

            as the result of a merger].) However this allegation evidences that only one director, not

            a majority of them, was self-interested. ( See Miramar Firefighters Pension Fund, 2013

            WL 4033905, *3 ["For a duty of loyalty claim to survive a motion to dismiss, the

            complaint must state facts that reasonably support the inference that a majority of the

            directors (1) were self-interested or not independent or (2) acted in bad faith" (citations

            omitted)].)

                   Finally, the Information Statement and Proposed Resolutions of the Board of

            Directors of MMI, which are attached to the amended complaint, largely reiterate the

            factual allegations about the MMI directors that were already included in the initial

             656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC.                                  Page 5 of 9
             Motion No. 004 005

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                                                                                             INDEX NO. 656125/2019
  NYSCEF DOC. NO. 132                                                                RECEIVED NYSCEF: 04/07/2024

            complaint, and thus, are insufficient to cure the complaint's deficiencies. (See NYSCEF

            70, AC at ex. A, B [Information Statement at 29-30; Proposed Resolution at 2-3].)

            Accordingly, this claim again fails because plaintiffs have not alleged facts to support

            MMI board's breach of its fiduciary duties. This claim is dismissed.

            Aiding and Abetting Breach of Fiduciary Duty Claim Against Smedvig

                   As the underlying breach of fiduciary duty is dismissed, this claim cannot be

            sustained.

            Unjust Enrichment against all Defendants

                   Defendants previously moved to dismiss the unjust enrichment claim as

            duplicative of the breach of contract and breach of fiduciary duty claims. As the court

            dismissed the breach of contract and breach of fiduciary duty claims, the unjust

            enrichment claim was sustained. (NYSCEF 67, Decision and Order at 23-24 [mot. seq.

            nos. 001, 002] [citations omitted].)

                   Defendants now argue that this claim fails because (i) plaintiffs fail to allege lack

            of justification and (ii) the Certificate of Incorporation governed the distribution of merger

            consideration. In their approximately two-page opposition brief, plaintiffs fail to address

            these arguments. Plaintiffs' bare reference to their opposition brief pertaining to

            defendants' previous motions to dismiss is unavailing as the opposition brief does not

            address these newly raised arguments. (See NYSCEF 54 & 55, Plaintiffs Opp MOL

            [mot. seq. nos. 001, 002].) Accordingly, the unjust enrichment claim is dismissed. ( See

            e.g. Butler v City of NY, 202 AD3d 471, 472 [1st Dept 2022] [dismissing a false

            imprisonment claim where plaintiff "failed to oppose defendants' motion to dismiss on

            untimeliness grounds"].)

             656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC.                                   Page 6 of 9
             Motion No. 004 005

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  NYSCEF DOC. NO. 132                                                                   RECEIVED NYSCEF: 04/07/2024

                   Nevertheless, plaintiffs have not sufficiently stated a claim for unjust enrichment.

            "The elements of unjust enrichment are: (1) an enrichment, (2) an impoverishment, (3) a

            relation between the enrichment and the impoverishment, (4) the absence of

           justification, and (5) the absence of a remedy provided by law." (Windsor I, LLC v

            CWCapital Asset Mgt. LLC, 238 A3d 863, 875 [Del 2020] [internal quotation marks and

            citation omitted].) "[U]njust enrichment requires an absence of justification for the

            transfer that enriches one party and impoverishes the other. That requirement usually

            entails some type of wrongdoing or mistake at the time of the transfer." (Terr. of the

            U.S. Virgin Is. v Goldman, Sachs & Co., 937 A2d 760, 796, n 161 [Del Ch 2007].) Here,

            plaintiffs fail to sufficiently allege that defendants' actions were without justification.

            Declaratory Judgment

                   Finally, plaintiffs seek a declaration that the release contained in the Letter of

            Transmittal (LOT) is void and unenforceable to the extent signed. Defendants

            previously argued that any claims made by plaintiffs who signed the LOTs must be

            dismissed because the LOTs were part of the Merger Agreement and unambiguous.

            The MMI Defendants maintained that the unambiguous language of the LOTs released

            them from certain claims. This court held that it could not "determine the enforceability

            of the LOTs as a matter of law" because "a factual issue exists as to whether the signed

            LOT was part of the bargained for exchange of the merger consideration." (NYSCEF

            67, Decision and Order at 9-10 [mot. seq. nos. 001, 002].) Accordingly, the court

            sustained the declaratory judgment claim. (Id. at 24.)

                   Defendants now argue that because the amended complaint fails to state any

            viable causes of action irrespective of whether LOTs are enforceable, the issue of

             656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC.                                      Page 7 of 9
             Motion No. 004 005

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  NYSCEF DOC. NO. 132                                                               RECEIVED NYSCEF: 04/07/2024

            LOTs' enforceability is moot, and thus any declaratory judgment on this issue would

            serve no useful purpose. Plaintiffs fail to oppose this newly raised argument in its

            current opposition brief. Plaintiffs' opposition brief addressing defendants' previous

            motions to dismiss does not address this new argument. (See NYSCEF 54 & 55,

            Plaintiffs Opp MOL [mot. seq. nos. 001, 002].) Accordingly, the declaratory judgment

            claim is dismissed. (Butler, 202 AD3d at 472.)

                   Nevertheless, "[a]s a matter of discretion, the Court may refuse to grant

            declaratory relief where such a remedy would serve no useful purpose. Such is the

            case either where declaratory relief will not terminate the uncertainty or controversy

            giving rise to the proceedings, or where another available remedy would be more

            effective." (Phillips Petroleum Co. v Arco Alaska, Inc., 1985 Del. Ch. LEXIS 414, at *14-

            15 [Ch May 15, 1985, No. 7177].) The court agrees with defendants that, with the

            dismissal of the other claims, a declaration as to the enforceability of the LOTs serves

            no useful purpose here as plaintiffs have failed to state claims for breach of fiduciary

            duty, aiding and abetting in such breach, and unjust enrichment irrespective of whether

            the LOTs are enforceable.

                   The court has considered the balance of the parties' arguments and finds that

            they do not affect the outcome.

                   Accordingly, it is

                   ORDERED that Mediamorph, Inc., Robert Gardos, Michael Huseby, Michael Sid,

            Kent Jarvi, Shahid Khan, Jonathan Lerner, Nomi Bergman, Robert Toms, Robert

            Greene, Stewart Till, and Barry Baker's motion to dismiss (seq. no. 004) is granted and

            the amended complaint is dismissed in its entirety as against these defendants, with

             656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC.                                 Page 8 of 9
             Motion No. 004 005

                                                             8 of 9
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  NYSCEF DOC. NO. 132                                                                           RECEIVED NYSCEF: 04/07/2024

            costs and disbursements to the defendants as taxed by the Clerk of the Court, and the

            Clerk is directed to enter judgment accordingly in favor of the defendants; and it is

            further

                      ORDERED that Smedvig Capital Ltd.'s motion to dismiss (seq. no. 005) is

            granted and the amended complaint is dismissed in its entirety as against this

            defendant, with costs and disbursements to the defendant as taxed by the Clerk of the

            Court, and the Clerk is directed to enter judgment accordingly in favor of the defendant.

                      4/7/2024
                       DATE                                                         ANDREA MASLEY, J.S.C.

                                                                        ~
             CHECK ONE:                   CASE DISPOSED                     NON-FINAL DISPOSITION

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

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

             656125/2019 KHAN, IMTIAZ vs. MEDIAMORPH, INC.                                            Page 9 of 9
             Motion No. 004 005

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