Loughlin v. Goord

• Decision Date: 01 September 2021
• Docket Number: 20-cv-6357 (LJL)
• Parties: Suzanne LOUGHLIN, et al., Plaintiffs, v. Glenn GOORD, Defendant.
• Court: U.S. District Court — Southern District of New York

558 F.Supp.3d 126

Suzanne LOUGHLIN, et al., Plaintiffs,

v.Glenn GOORD, Defendant.

20-cv-6357 (LJL)

United States District Court, S.D. New York.

Signed September 1, 2021

John J.D. McFerrin-Clancy, New York, NY, Robert Clifford Boneberg, Maplewood, NJ, for Plaintiffs.

Keith Martin Fleischman, Fleischman Bonner & Rocco LLP, New York, NY, for Defendant.

OPINION AND ORDER

LEWIS J. LIMAN, United States District Judge:

Defendant Glenn Goord moves, pursuant to Federal Rule of Civil Procedure 12(b)(2) and 12(b)(6), to dismiss the claim against him for lack of personal jurisdiction and failure to state a claim. For the following reasons, the motion is granted, and the Amended Complaint is dismissed, pursuant to Rule 12(b)(6), for failure to state a claim.

BACKGROUND

Plaintiffs Suzanne Loughlin, Harry Rhulen, and James Satterfield (collectively "Plaintiffs") bring claims for breach of fiduciary duty and libel against Glenn Goord ("Defendant"), a director of Rekor Systems, Inc. ("Rekor" or the "Company"), a Delaware corporation. Dkt. No. 10 ("Amended Complaint" or "Am. Compl.") ¶ 1, 10, 70-74, 76-91.¹ In inflammatory rhetoric, Plaintiffs allege that, as a director of Rekor, Goord participated in a campaign of retaliation against the Plaintiffs, leading to his breach of fiduciary duty to Plaintiffs and his commission of libel against them. Id. ¶¶ 40-42, 77-85. The retaliation campaign allegedly began after Rhulen made a whistleblower complaint to the Rekor board concerning Robert Berman who is Rekor's Executive Chairman, Chief Executive Officer, and largest and controlling shareholder. Id. ¶¶ 1, 12-14, 38-41.

Goord is a "long-time friend and colleague of Berman" whom Berman recruited to join the Rekor board in 2017, id. ¶¶ 15-16, and who was elected to the Rekor board at an annual meeting held in New York City in 2019, id. ¶¶ 24-28. Goord now serves as Chair of the Rekor Compensation Committee and as a member of the Rekor Audit Committee. Id. ¶ 23. Plaintiffs allege that Goord has maintained a summer residence in New York State for more than 40 years, id. ¶¶ 17-19, and that it is his "practice ... to spend every Summer at his New York State residence," id. ¶ 19. There is no dispute that Goord was personally served while he was at his residence in New York State. See Dkt. No. 26, Transcript of August 13, 2021 Hearing ("Hr'g Tr."), at 4:2-3.

Plaintiffs’ involvement with Rekor began in 2016 when Berman approached Plaintiffs about the possibility of Rekor acquiring the entities of which Plaintiffs were majority owners, Firestorm Solutions LLC and Firestorm Franchising LLC (together, "Firestorm"). Am. Compl. ¶¶ 31-32. On January 25, 2017, Rekor acquired Firestorm, as memorialized in a Membership Interest Purchase Agreement ("Purchase Agreement") pursuant to which Firestorm became a wholly owned subsidiary of Rekor. Id. ¶¶ 33-34. Under the Purchase Agreement, each Plaintiff was compensated for his or her respective interests in Firestorm in four different ways: by a cash payment, by Rekor shares, by warrants for Rekor shares, and by promissory notes. Id. ¶ 35. Also pursuant to the Purchase Agreement, on January 25, 2017, each Plaintiff entered into an employment agreement with Rekor or a subsidiary of Rekor: Rhulen was employed as President of Rekor; Loughlin was employed as General Counsel and Chief Administrative Officer of Rekor; and Satterfield continued to serve as President and Chief Executive Officer of Firestorm. Id. ¶¶ 36-37.

Plaintiffs allege that retaliation began after Rhulen made an unspecified "whistleblower complaint to the [Rekor] Board concerning Berman," after which "Berman decided to punish [Rhulen] as well as [Loughlin and Satterfield] by a campaign of retaliation" because "Berman believed that they were aligned against him given their collective association at Firestorm and because [Loughlin and Rhulen] are siblings." Id. ¶¶ 38-39. Plaintiffs allege that "Berman and the [Rekor] Board, including Goord ..., decided to use Rekor as their agent" in retaliating against Plaintiffs "and used Rekor's corporate assets for Berman's personal agenda to effectuate" the retaliation. Id. ¶ 40. Plaintiffs allege that Goord "aided and abetted" Berman in his retaliation against Plaintiffs, that he "acquiesced to various aspects" of the retaliation, and that "[a]t minimum, Goord knew that Berman was engaging in [retaliation] for personal reasons and with improper motive yet he did not use his authority as a member of the [Rekor] Board to stop him." Id. ¶ 41.

Plaintiffs allege that the retaliation campaign encompassed several different incidents. For example, in 2018, Goord and the other members of the Rekor board approved the decision to remove Rhulen from his position of President of Rekor and appoint him instead as an Executive Vice President of Firestorm. Id. ¶¶ 43-45. Plaintiffs allege the decision was "not made for performance-based reasons, but for personal reasons." Id. ¶ 44.

Rekor also did not pay Loughlin and Satterfield for services rendered and decided to close Firestorm. Specifically, in December 2018, each of the Plaintiffs resigned from their respective positions with Rekor and Firestorm, but Loughlin and Satterfield subsequently entered into a consulting agreement with Firestorm whereby they could "continue to contribute to Rekor's success without having to deal with the hostile work environment created by Berman." Id. ¶ 46-47. After Loughlin and Satterfield rendered services under the consulting agreement in January and February 2019, however, Berman "directed Firestorm not to pay" certain invoices for those services, "motivated, in whole or in part, by Berman's animus toward the Plaintiffs" as part of his retaliation. Id. ¶ 53; see also id. ¶¶ 46-52. Around the same time, and "[s]ubsequent to December 2018," the Rekor board "decided to close Firestorm as a business," id. ¶ 54, and "in or about May 2019, Rekor terminated all franchise agreements between Firestorm and [its] franchisees," id. ¶ 55.

In July 2019, Satterfield attempted to exercise the warrants he possessed in Rekor, and Loughlin attempted to transfer her warrants. Id. ¶¶ 56-57. The same month, "Berman, in consultation with Goord and others, decided that Rekor would not honor" those attempts, also out of animus and in retaliation. Id. ¶ 58. Goord "supported Berman's decision" not to honor the warrants, and "knew or should have known that there was no legitimate good faith basis to refuse to honor the Warrants and that the decision to do so was made in bad faith." Id. ¶ 59. In August 2020, each of the Plaintiffs attempted to exercise their warrants in Rekor, id. ¶ 61, but "Rekor also failed to honor" those attempts, id. ¶ 62.

On August 19, 2019, Rekor commenced an action against Plaintiffs ("Rekor Action"), which has been consolidated with this case. Id. ¶ 63; Rekor Sys., Inc. v. Loughlin , No. 19-cv-7767 (S.D.N.Y. Aug. 19, 2019). In the Rekor Action, Rekor brings claims against the Plaintiffs in this action, alleging, among other things, that the Purchase Agreement was fraudulently induced by the Plaintiffs who allegedly made misrepresentations and omissions concerning Firestorm's franchise business and prospects. See Rekor Sys., Inc. v. Loughlin , 2020 WL 6898271, at *2 (S.D.N.Y. Nov. 23, 2020). In the Rekor Action, Rekor seeks rescission of the Purchase Agreement which would entail rescission of Rhulen, Satterfield, and Loughlin's warrants. See id. , at *3 ; Am. Compl. ¶¶ 67-68. Among other relief requested in the Rekor Action is a declaration that the warrants are void. Rekor Sys. , No. 19-cv-7767, Dkt. No. 1, Complaint, ¶ 181; id. , Dkt. No. 64, Second Amended Complaint, ¶ 202.

In their answer in the Rekor Action, Rhulen, Satterfield, and Loughlin assert twenty counterclaims alleging that (1) Rekor breached the employment agreement with Rhulen by demoting him in retaliation for his whistleblower complaint about Berman; (2) Rekor breached the warrants by stating it was Rekor's position that the Purchase Agreement and transactions consummated thereunder were subject to recission and by not honoring Loughlin and Satterfield's attempts to exercise or transfer the warrants; (3) Rekor anticipatorily breached the warrants issued to Rhulen; (4) Rekor's directors breached fiduciary duties owed to Rhulen, Satterfield, and Loughlin as shareholders and warrant holders by not honoring the attempts to exercise the warrants; (5) Rekor anticipatorily breached the promissory notes; and (6) Rekor engaged in libel. Id. , Dkt. No. 71, Answer, ¶¶ 343-418. They allege that the Rekor board, "including Goord, approved the commencement" of the Rekor Action at a 2019 Rekor board meeting, Am. Compl. ¶ 64, and that the action was commenced "in bad faith and improper motive" in furtherance of Berman's retaliation, id. ¶ 65.

Though the Amended Complaint describes several incidents allegedly related to the overall retaliation campaign against them, Plaintiffs at oral argument narrowed their claim of breach of fiduciary duty to a single decision—the decision not to honor Plaintiffs’ warrants. See Hr'g Tr., at 29:17-30:2. Plaintiffs allege that, as a member of the board, Goord owed fiduciary duties to them "as a result of their status as shareholders and warrant holders of Rekor." Am. Compl. ¶ 70. Goord's actions "improperly favored the interests of Rekor Board members Berman, [James] McCarthy, and [Richard] Nathan, the controlling shareholders, by preventing the active dilution of their ownership percentages by Plaintiffs’ exercise of their Warrants." Id. ¶ 71. Plaintiffs allege that, by these actions, Goord "acted in bad faith and with an improper motive and has breached his fiduciary duties to the Plaintiffs by using Rekor as the instrument of Berman's desire to enact revenge for [Rhulen's whistleblower complaint]." Id. ¶ 72.

Plaintiffs also bring a claim for libel in connection with an August 14, 2019 Form 10-Q (the "Form 10-Q" or "10-Q") filed with the Securities and Exchange...