HSM Holdings, LLC v. Mantu I.M. Mobile Ltd.
| Decision Date | 10 March 2021 |
| Docket Number | 20-cv-00967 (LJL) |
| Parties | HSM HOLDINGS, LLC Plaintiff, v. MANTU I.M. MOBILE LTD., BEEZZ COMMUNICATIONS SOLUTIONS LTD., ERAN BEN ELIEZER, JOSEPH CAYRE, GAVRIEL GEORGE NIRYAEV, DENIS JDANOV, ERAN HAMO, MICHAEL RASKANSKY, and BRAMS JACOB MOYAL, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff HSM Holdings, LLC ("HSM" or "Plaintiff") brings this action against Defendants Mantu I.M. Mobile Ltd. ("Mantu"), Beezz Communication Solutions, Ltd. ("Beezz"), Eran Ben Eliezer ("Eliezer"), Joseph Cayre ("Cayre"), Gavriel George Niryaev ("Niryaev"), Denis Jdanov ("Jdanov"), Eran Hamo ("Hamo"), Michael Raskansky ("Raskansky"), and Brams Jacob Moyal ("Moyal") (collectively, "Defendants"). HSM asserts claims sounding in tort and breach of contract in connection with a 2015 investment by HSM in Mantu.
Defendants move to dismiss the Complaint under Fed. R. Civ. P. 12(b)(2), for failure to allege personal jurisdiction, and under Fed. R. Civ. P. 9(b) and 12(b)(6), for failure to plead fraud with particularity and failure to state a claim for relief. For the following reasons, the Defendants' motion is granted.
HSM is a Delaware limited liability company with its principal place of business in Alameda County, California. Dkt. No. 68, ¶ 17. Mantu is an Israeli limited company with its principal place of business in Israel. Id. ¶ 18. It is a technology start-up company that, at the relevant time, was developing an encryption technology. Id. ¶ 4. Beezz is an Israeli company with its principal place of business in Israel. Id. ¶ 19. It is alleged to be an alter ego of Mantu. Id. ¶¶ 19, 44-46.
The individual defendants are officers, directors and/or shareholders of Mantu and, on information and belief, of Beezz. Id. ¶ 44. Eliezer is the co-CEO, founder, director, and major shareholder of Mantu and, on information and belief, also a director of Beezz. Id. ¶ 21. Niryaev is the co-CEO, founder, chairman of the board, and major shareholder of Mantu and, on information and belief, a director of Beezz. Id. ¶ 22. Jdanov, Hamo, and Raskansky are founders and major shareholders of Mantu and, on information and belief, of Beezz. Id. ¶¶ 23-25. Eliezer, Niryaev, Jdanov, Hamo, and Raskansky are all Israeli citizens who reside in Israel. Id. ¶¶ 21-25. Cayre, on information and belief, is a large shareholder of both Mantu and Beezz. Id. ¶ 20. He is also a director of Mantu and, on information and belief, of Beezz. Id. Moyal is a shareholder of Mantu and, on information and belief, of Beezz. Id. ¶ 26. Cayre and Moyal are both U.S. citizens who reside in New York. Id. ¶¶ 20, 26.
The complaint alleges a scheme perpetrated by the Defendants to defraud HSM of at least $3 million in connection with its investment in Mantu. Id. ¶ 1. The scheme allegedly began in 2015. Id. ¶ 2. Cayre, the patriarch of a family real estate business, reached out to HSM in California to invite HSM to join him in investing in Mantu, which he described as a promising technology venture. Id. ¶¶ 2-3. Cayre described Mantu's technology, a high-security, military-grade encrypted communicated platform, as a "game changer" that possessed "many many other features not available" from Mantu's competitors. Id. ¶ 4. With this technology, Cayre claimed, Mantu would be able to target major government and institutional buyers. Id. Cayre told HSM that both he and Moyal had already invested in Mantu, and that Cayre was responsible for mentoring the Mantu co-CEOs Eliezer and Niryaev. Id. ¶ 3.
Cayre thereafter introduced HSM to the Mantu leadership team, including Eliezer and Niryaev, at a meeting in California. Id. ¶ 5. Cayre, Eliezer, and Niryaev represented to HSM that Mantu had attracted the interest of international customers, including the government of Kazakhstan. Id.
In December 2015, HSM invested $4 million in Mantu in exchange for 4,414 shares (8 percent ownership) of Mantu. Id. ¶¶ 37, 45. Mantu's counsel prepared a share subscription agreement, Dkt. No. 71-1, Ex. A ("the Agreement"), which contained the following forum selection clause:
This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The parties agree that any action brought by either party under or in relation to this Agreement including, without limitation, to interpret or enforce any provision of this Agreement, shall be brought in, and each party agrees to and does hereby submit to the jurisdiction and venue of, any state or federal court located in the borough of Manhattan, New York City.1
Id. 3; see also Dkt. No. 68, ¶ 30, 37. The Agreement includes an acknowledgment that HSM "has sufficient knowledge and experience in financial matters so as to be capable of evaluating the merits and risks of purchasing the Shares." Dkt. No. 71-1 ¶ 1. It also includes an integration clause, pursuant to which HSM agrees that, except as set forth in the Agreement, it had "not received or relied upon any representations, warranties or assurances of or from the Company or any persons acting on its behalf concerning the investment in the Company." Id. ¶ 2. The Agreement was signed by Sam Hirbod for HSM and Eliezer and Niryaev in their capacities as Mantu co-CEOs. Id. 5, 6; see also Dkt. No. 68, ¶ 39. Cayre managed the logistics of wiring the $4 million payment. Dkt. No. 68, ¶ 7. HSM also signed a services agreement whereby it would earn a 20% cash commission on all Mantu sales to any customer identified by HSM up to the full amount of its $4 million investment. Id. ¶ 40.
Defendants later solicited HSM's investment in Beezz, which they pitched as a promising start-up focused on bringing a different technology to a different business segment with a different business plan. Id. ¶ 38. Defendants told HSM that the two were separate and distinct companies. Id. HSM did not invest in Beezz. Id. ¶ 39.
In early 2019, however, Cayre told HSM that "at least" $3 million of the funds that HSM had invested in Mantu had been used by Beezz. Id. ¶ 59. Around the same time, Eliezer told HSM that "no more than" $600,000 of the HSM's $4 million investment in Mantu had been used by Mantu. Id. ¶ 60. Eliezer also allegedly referred to Mantu as a "Ponzi" scheme. Id. ¶ 61. Hetold HSM that from the beginning, Mantu had not been the legitimate business venture described by Defendants, but was instead a sham used to take Plaintiff's investment and divert it to fund Beezz. Id. Cayre told HSM that HSM's investment had been used to finance Beezz because Beezz could not have secured financing on its own. Id. ¶ 62. On June 18, 2019, HSM sent an email to Cayre, Eliezer, Niryaev, and Moyal requesting that its investment be returned immediately. Id. ¶ 53. Eliezer then sent HSM two emails detailing projects that he claimed were in their "final stage" or scheduled to launch in the near future. Id. ¶¶ 55, 56.
HSM claims that the individual defendants leveraged their dual ownership in order to transfer HSM's investment from Mantu to Beezz. Id. ¶ 45. HSM contends that Mantu was established as a sham entity in order to facilitate this unagreed-upon transfer, which enriched Beezz and the individual defendants and deprived HSM of the benefits of its investment. Id. ¶¶ 54, 57.
HSM brings the following claims against Defendants: (1) conversion under California law; (2) fraud and deceit in violation of California law; (3) fraudulent concealment in violation of California law; (4) fraudulent inducement in violation of New York law; (5) fraudulent concealment in violation of New York law; (6) negligent misrepresentation in violation of California law; (7) negligent misrepresentation in violation of New York law; (8) unlawful business practices in violation of California law; (9) deceptive practices in violation of New York law; (10) breach of contract under California law; (11) breach of contract under New York law; (12) breach of fiduciary duty under California law; and (13) breach of fiduciary duty under New York law. Plaintiff also requests (14) declaratory judgment of alter ego status pursuant to California law; and (15) declaratory judgment of alter ego status pursuant to New York law. It further alleges (16) money had and received under California law; (17) remedy in quasi-contractunder New York law; and (18) voidable transfer under California law. Finally, it seeks (19) restitution for unjust enrichment.
HSM seeks repayment of $4 million with interest under California law or, at its option, a percentage ownership of Beezz similar to what it had purchased of Mantu.
Plaintiff first filed this action in the Superior Court of California County of Alameda. The action was removed to the U.S. District Court for the Northern District of California pursuant to 28 U.S.C §§ 1332, 1441, and 1446 in July 2019. Dkt. No. 1. Defendants Cayre and Moyal filed a motion to dismiss seeking transfer to the District of New York pursuant to 28 U.S.C. § 1404. Dkt. No. 12. The other Defendants had not yet been properly served and accordingly did not join in Cayre and Moyal's motion. Cayre and Moyal's § 1404 argument was premised on the forum selection clause in the Agreement, which they argued was mandatory and required that the case be transferred to New York. Id. The U.S. District Court for the Northern District of California granted the motion and transferred the case to this Court on February 5, 2020. Dkt. No. 40.
On May 8, 2020 Plaintiff filed its First Amended Complaint ("the Complaint") in this Court. Dkt. No. 68. On June 2, 2020, the Defendants—each of whom had been served—moved to dismiss the First Amended Complaint. Dkt. No. 69. Defendants move to dismiss on the basis of (1) lack of personal jurisdiction over the Israeli citizens and residents: Beezz, Eliezer, Niryaev, Jdanov, Hamo, and Raskansky, (2) forum non conveniens, and (3) failure to state a claim pursuant to Rules 8, 9(b), and 12(b)(6). Dkt. Nos. 69, 70.
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