Capital Stack, LLC v. Raharney Capital, LLC

• Decision Date: 26 December 2018
• Docket Number: Index No. 652807/2015
• Citation: 2018 NY Slip Op 33389 (U)
• Parties: CAPITAL STACK, LLC, Plaintiff, v. RAHARNEY CAPITAL, LLC and SEAN MURRAY, Defendants. SEAN MURRAY and RAHARNEY CAPITAL, LLC, Third-Party Plaintiffs, v. CAPITAL STACK, LLC, a New York limited liability company, or CAPITAL STACK, LLC, a Nevada limited Liability company, DAVID RUBIN a/k/a DAVID RUBINOV and EPRODIGY FINANCIAL, LLC, Third-Party Defendants.
• Court: New York Supreme Court

2018 NY Slip Op 33389(U)

CAPITAL STACK, LLC, Plaintiff, v. RAHARNEY CAPITAL, LLC and SEAN MURRAY, Defendants.

SEAN MURRAY and RAHARNEY CAPITAL, LLC, Third-Party Plaintiffs, v. CAPITAL STACK, LLC, a New York limited liability company,

or CAPITAL STACK, LLC,

a Nevada limited Liability company,

DAVID RUBIN a/k/a DAVID RUBINOV

and EPRODIGY FINANCIAL, LLC, Third-Party Defendants.

Index No. 652807/2015

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 3

RECEIVED: December 27, 2018

December 26, 2018

NYSCEF DOC. NO. 278

Motion Sequence Nos. 007 and 008

DECISION AND ORDER

EILEEN BRANSTEN, J.S.C.:

In motion sequence 007, plaintiff Capital Stack, LLC (Capital Stack) moves for summary judgment on its causes of action for breach of fiduciary duty, tortious interference with prospective economic relations, and declaratory judgment against defendants Raharney Capital, LLC (Raharney) and its principal Sean Murray (Murray) (collectively, Defendants).

In addition, motion sequence 007 seeks dismissal of Defendants' causes of action for fraudulent misrepresentation, fraudulent concealment and unjust enrichment, which Defendants assert as third-party plaintiffs, against Capital Stack, David Rubin, a/k/a David Rubinov (Rubin), and eProdigy Financial, LLC (eProdigy).¹

In motion sequence 008, Defendants contend that Capital Stack has failed to make out prima facie showings on its claims and seek summary judgment, dismissing all of Capital Stack's causes of action.

The motions are consolidated for disposition.

I. BACKGROUND

In September 2012, Capital Stack and Raharney formed Daily Funder, LLC ( hereinafter "Daily Funder"), a Delaware limited liability company. See Amended Verified Complaint (hereinafter AVC) ¶ 8; Amended Verified Answer (hereinafter "AVA") ¶ 8; Boxer Affirm. Exs A, B. Capital Stack and Raharney are 50% owners and the only members of Daily Funder. See Plaintiff's Rule 19-A Statement, ¶ 21.

Daily Funder was formed to operate a trade magazine and website devoted to the "merchant cash advance and alternate lending industry". See id., ¶¶ 19, 25. Its revenue is derived from its sale of advertisements on its website and in its print magazine. Id. at ¶ 43.

The term "merchant cash advance" describes a type of alternative financing for small businesses, in which they sell their receivables at a discount to a funder, rather than obtaining a loan from a bank or commercial lender. See id. at ¶ 5.²

Raharney created a website in 2010 named Merchant Processing Resource (MPR), which used the domain name merchantprocessingresource.com. See id. at ¶18. In late 2014, Raharney rebranded this website, naming it deBanked.com, and forwarded MPR users to the new website. See id. at ¶ 69.

In October 2014, Raharney filed a petition to dissolve Daily Funder in New York State Supreme Court, New York County. See id. at ¶ 73; see also Boxer Affirm., Ex. 10 (Notice of Petition for Dissolution and Verified Petition, dated October 28, 2014, in Raharney Capital, LLC v. Capital Stack, LLC [Index No. 160175/2014]). In November 2014, Justice Schlesinger of this court entered a decision and order, dismissing Raharney's petition on the ground that New York courts lack subject matter jurisdiction over claims for dissolution of foreign limited liability companies. See id. at ¶ 75; see also Boxer Affirm., Ex. 11. Raharney appealed. The First Department affirmed Justice Schlesinger's decision on February 25, 2016. See id. at ¶ 76; see also Matter of Raharney Capital, LLC v. Capital Stack, LLC, 138 AD3d 83 (1st Dept 2016).

In August 2016, Defendants commenced a second dissolution proceeding in Delaware Chancery Court. See Basso Affirm., exhibit I (verified petition for dissolution e-filed Aug 8, 2016). This second proceeding has been stayed pending resolution of this action. See Matter of Daily Funder, LLC, 2017 WL 349269 (Del Ch, Jan 23, 2017, No. 12637-VCMR) (trial order).

Capital Stack alleges that, after dismissal of the New York dissolution proceeding, Murray, as Raharney's sole member, took steps to benefit deBanked at Daily Funder's expense, and to compete against Daily Funder. See id. at ¶ 71. Murray is alleged to have begun turning his back on Daily Funder in November 2014, by resigning as Daily Funder's magazine's editor on the day after Raharney's New York petition for dissolution was dismissed. See id. at ¶ 83.

Capital Stack further asserts, among other things, that Murray took control of Daily Funder's administrative functions, changed computer passwords to prevent Rubin from accessing those functions, stopped copying Rubin on communications, and changed the number of Daily Funder's telephone, to which only Murray now has access and which he has not answered since the end of 2014. See id. at ¶¶ 77, 79.

Capital Stack alleges that Defendants diverted advertisers away from Daily Funder and to deBanked, caused Daily Funder to make an improper distribution of $30,000 to each of its members in June 2015, and tortuously interfered with Capital Stack's business partners. See id. at ¶¶ 100-115, 123, 128-134.

Capital Stack asserts that Defendants ignored its request for information needed to continue publication of Daily Funder's magazine and that Daily Funder has not published a single edition of the print magazine since the November 2014 dismissal of Raharney's New York dissolution petition. See id. at ¶ 87-88. Raharney also began publishing a magazine under the deBanked name in March 2015, only months after Murray resigned as editor of Daily Funder's magazine. See id. at ¶ 90.

II. Pleadings

In its AVC, Capital Stack asserts seven causes of action against Defendants: (1) breach of fiduciary duty; (2) unfair competition; (3) conversion; (4) libel per se; (5) tortious interference with economic relations; (6) unjust enrichment; and (7) declaratory judgment. Defendants answered, generally denying Capital Stack's allegations and asserting 10 affirmative defenses in their AVA.

Defendants commenced a subsequent action in this court, captioned Murray v Capital Stack, LLC (Index No. 653740/2015). In their verified complaint, e-filed November 11, 2015, Murray and Raharney, as plaintiffs, asserted 6 causes of action against Capital Stack, Rubin and eProdigy, for: (1) breach of fiduciary duty, against Capital Stack; (2) breach of fiduciary duty, against Rubin; (3) fraudulent misrepresentation, against Rubin; (4) fraudulent concealment, against Rubin; (5) fraudulent misrepresentation, against eProdigy; and (6) unjust enrichment, against Rubin and Capital Stack.

In their verified answer in this second action, e-filed on December 7, 2015, defendants Capital Stack, Rubin and eProdigy generally denied the allegations of the verified complaint and assert 8 affirmative defenses.

Counsel for the parties entered a stipulation, which was "so ordered" by the court and e-filed on March 25, 2016, to consolidate the second action with the first and to amend the caption to reflect the consolidation (NYSCEF Doc. No. 18).

III. Discussion

A movant seeking summary judgment "has the burden to establish a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. If the moving party fails to meet this initial burden, summary judgment must be denied regardless of the sufficiency of the opposing papers". Voss v. Netherlands Ins. Co., 22 N.Y.3d 728, 734 (2014).

To prevail, the movant must produce evidentiary proof in admissible form sufficient to warrant granting summary judgment in its favor. See GTF Mktg. v Colonial Aluminum Sales, 66 N.Y.2d 965, 967 (1985). Once the movant makes its showing, the burden shifts to the opposing party, to submit proof in admissible form sufficient to show a question of fact exists, requiring trial. See Kosson v. Algaze, 84 N.Y.2d 1019, 1020 (1995).

In deciding the motion, the court must view evidence in the light most favorable to the nonmovant. See Prine v. Santee, 21 N.Y.3d 923, 925 (2013). Party affidavits and other proof must be examined carefully "because summary judgment is a drastic remedy and should not be granted where there is any doubt as to the existence of a triable issue". See Rotuba Extruders v Ceppos, 46 N.Y.2d 223, 231 (1978). Still, "only the existence of a bona fide issue raised by evidentiary facts and not one based on conclusory or irrelevant allegations will suffice to defeat summary judgment". See id.

A. Capital Stack's Motion for Summary Judgment (Motion Seq. No. 007)

Capital Stack seeks summary judgment on its causes of action for breach of fiduciary duty, tortious interference with prospective economic relations and declaratory judgment.

1. Breach of Fiduciary Duty

Plaintiff alleges that Defendants breached their fiduciary duty to Daily Funder by launching deBanked as a rival business, usurping valuable business opportunities rightfully belonging to Daily Funder, diverting subscribers, readers and online visitors from Daily Funder's website, online forum and magazine to deBanked, dismissing Daily Funder's contractors, removing advertisers from its website and magazine, blocking new advertisers on Daily Funder's website, and preventing continued publication of its magazine.

Capital Stack also alleges that, after Raharney failed in its effort to dissolve Daily Funder, Defendants further breached their fiduciary duties by interfering with the rights of Capital Stack and Rubin to participate in Daily Funder's management by unilaterally locking them out from all corporate operations, denying them access to Daily Funder's telephone, email account, server, bank account and other facilities, issuing improper distributions and unauthorized payments to Raharney and Murray, and moving Daily Funder's business and equipment to another location. See AVC, ¶¶ 123-128; see also Plaintiffs' 19-A ¶¶ 77-127. Defendants are also alleged to have unilaterally diverted business from Daily Funder to a new venture deBanked. See also Plaintiffs' 19-A ¶¶...