Diesenhouse v. Soc. Learning & Payments, Inc.
| Docket Number | 20-cv-7436 (LJL) |
| Decision Date | 03 August 2022 |
| Parties | JACALYN DIESENHOUSE, on behalf of herself and as Executrix of the Estate of John Stewart, RICKY J. EARLYWINE, WILLIAM GARTNER, HYMAN L. GLUCK REVOCABLE TRUST, MOHAMMED HAYAT, CAROL P. LEVAREK REVOCABLE TRUST, STEVEN LYONS, PHILIPPE MOUTOT, MARJORIE SUDROW, ROBERT J. WARDLE and BARRY WEINBAUM Plaintiffs, v. SOCIAL LEARNING AND PAYMENTS, INC., SOCIAL LEARNING AND PAYMENTS LABS, LLC and EDWARD MORAN. Defendants. |
| Court | U.S. District Court — Southern District of New York |
Defendants Social Learning and Payments, Inc. (“SLAP”) and Social Learning and Payments Labs, LLC (“SLAP Labs”) move, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss all claims against them in the amended complaint. Dkt. No. 40. Defendant Edward Moran (“Moran,” and collectively with SLAP and SLAP Labs, “Defendants”) also moves to dismiss all claims against him in the amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt. No. 42.
For purposes of ruling on Defendants' motions, the Court accepts the well-pleaded allegations of the amended complaint as true of Delaware, with its principal place of business in Windham New York. Id. ¶ 17. SLAP Labs operates as a holding company for the intellectual property of SLAP and like SLAP, is a limited liability company existing under the laws of the State of Delaware with its principal place of business in Windham, New York. Id. ¶¶ 18 26. Moran is the founder of SLAP and at all relevant times was its President and Chief Executive Officer; he is also the managing member of SLAP Labs. Id. ¶¶ 2, 19, 24. Moran resides in Windham, New York. Id. ¶ 19.
To fund SLAP, Moran solicited the plaintiffs in this action (“Plaintiffs”) to invest in the company. Id. ¶ 27. In the period from December 2013 to March 2016, each of the Plaintiffs invested in SLAP as part of a convertible debt offering. Id. ¶¶ 34-44. The promissory notes that Plaintiffs purchased accrued interest at the rate of 5% per annum. Id. ¶ 54. Those promissory notes also provided that Plaintiffs' debt would convert to equity upon a qualified financing of $500,000. Id. ¶ 45.
Plaintiffs allege that they were induced to purchase the notes by false representations by Moran. During the solicitation, Moran represented to each of the Plaintiffs that he had secured other available investors, including his brother-in-law, who owned a network of Toyota dealerships and who planned to become a regular customer of SLAP. Id. ¶ 28. Moran also said that his brother-in-law “would be able to bring in other dealerships as customers.” Id. Moran further represented to each of the Plaintiffs that former Deloitte partners were planning to invest in SLAP, that Jack Ma's Alibaba Group (“Alibaba”) was likely to invest, and that he had the American Automobile Association (“AAA”), AARP, the American Society of Plastic Surgeons, the Joslin Diabetes Center, and the American Diabetes Association lined up as customers. Id. ¶¶ 29-31. Throughout the solicitation, Moran also represented that Carol Levarek (Trustee of Plaintiff Carol P. Levarek Revocable Trust) and Plaintiff Barry Weinbaum would be made board members of SLAP. Id. ¶ 32.
None of these representations came to fruition. Neither Moran's brother-in-law, Alibaba, nor any Deloitte partners invested in SLAP, and neither the Toyota dealership nor any other car dealership became customers of SLAP. Id. ¶ 46. The AAA, AARP, the American Society of Plastic Surgeons, the Joselin Diabetes Center, and the American Diabetes Association also never became customers of SLAP. Id. Carol Levarek and Barry Weinbaum were never appointed board members. Id. ¶ 47.
In early 2016, SLAP amended Plaintiffs' notes so that they would automatically convert into equity on March 31, 2016, rather than converting into equity upon a qualified financing of $500,000 as they had previously provided. Id. ¶ 45. Plaintiffs accepted the amended notes in further reliance upon Moran's misstatements. Id. Around the same time, Moran also sent an electronic mail notice to each of the Plaintiffs, stating that because the intellectual property of SLAP was held by SLAP Labs, any investor in SLAP would also be assigned membership interests in SLAP Labs pari passu. Id. ¶ 33.
None of the Plaintiffs[1] have ever received share certificates, a capitalization table, any dividends, or any other evidence that the notes converted or that Plaintiffs were admitted as shareholders of SLAP. Id. ¶ 45. SLAP has also not made any payments of interest or principal towards any of the convertible promissory notes. Id. ¶ 55. In April 2016, Moran accepted fulltime employment with KPMG and “effectively abandoned his helm without notice.” Id. ¶ 48.
As of April 26, 2021, SLAP continued to maintain a website and Moran maintained his role as Chief Executive Officer (“CEO”); however, SLAP had apparently ceased operations and Moran had ceased communications with SLAP's investors, with the exception that Moran, through counsel, responded to Plaintiffs' demand for books and records in 2020, which Moran “effectively refused.” Id. ¶¶ 51-52. On September 10, 2020, SLAP, through counsel, sent notice of a special meeting to its stockholders to vote upon a purported plan of liquidation of SLAP. Id. ¶ 52.
Plaintiffs instituted this action by a complaint filed on September 10, 2020 (“Complaint”). Dkt. No. 1. On April 26, 2021, Plaintiffs filed their amended complaint. Dkt. No. 36. The amended complaint (“Amended Complaint”) asserts the following causes of action: (1) nonpayment of convertible promissory notes (against SLAP), id. ¶¶ 53-57; (2) breach of contract (against SLAP Labs), id. ¶¶ 58-62; (3) violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder (against Moran) id. ¶¶ 63-70; (4) fraud (against Moran), id. ¶¶ 71-77; (5) breach of fiduciary duty (against Moran) ¶¶ 78-82; (6) unjust enrichment (against Moran) id. ¶¶ 83-85; and (7) accounting (against SLAP) ¶¶ id. ¶¶ 87-92.
On June 14, 2021, the present motions to dismiss the Amended Complaint were filed. Dkt. Nos. 41, 43. On August 4, 2021, Plaintiffs filed oppositions to the motions, Dkt Nos. 5051, and, on October 15, 2021, Defendants replied, Dkt Nos. 62-63. On July 20, 2022, this Court ordered the parties to address two questions: (1) whether, because SLAP is alleged to be a Delaware corporation and Moran is an officer and director of that corporation, Delaware law should be applied to the fiduciary duty and accounting claims pursuant to the internal affairs doctrine; and (2) if so, how that affects the statute of limitations analysis on those claims. Dkt No. 65. The parties each submitted letter responses to this Order on July 28, 2022. Dkt Nos. 6668.
To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. “Determining whether a complaint states a plausible claim for relief will . . . be a contextspecific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. Put another way, the plausibility requirement “calls for enough fact to raise a reasonable expectation that discovery will reveal evidence [supporting the claim].” Twombly, 550 U.S. at 556; accord Matrixx v. Siracusano, 563 U.S. 27, 46 (2011). Although the Court must accept all the factual allegations of a complaint as true, it is “not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). The ultimate issue “is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” Walker v. Schult, 717 F.3d 119, 124 (2d Cir. 2013) (quoting Scheuer v. Rhodes, 416 U.S. 232, 235-36 (1974)); see also DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 113 (2d Cir. 2010) .
The Defendants move to dismiss all causes of action in the Amended Complaint. The Court addresses each cause of action in turn.
In their first cause of action, Plaintiffs allege that SLAP breached the terms of Plaintiffs' convertible promissory notes by failing to pay out interest or principal to Plaintiffs and that SLAP is in default under the convertible promissory notes (as a result of ceasing its operations).[2]Dkt. No. 36 ¶¶ 53-57. Accordingly, Plaintiffs claim that all principal and interest is due immediately. Id.
“Under New York law, a breach of contract claim requires proof of (1) an agreement, (2) adequate performance by the plaintiff (3) breach by the defendant, and (4) damages.”[3] Lamda Sols. Corp. v. HSBC Bank USA, N.A., 2021 WL 5772290, at *4 (S.D.N.Y. Dec. 6, 2021) (quoting Fischer & Mandell, LLP v. Citibank, N.A., 632 F.3d 793, 799 (2d Cir. 2011)). “[A] breach of contract claim will be dismissed where a plaintiff fails to allege ‘the essential terms of the parties' purported contract, including the specific provisions of the contract upon which liability is predicated.'” Fink v....
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