Musclepharm Corp. v. White Winston Select Asset Fund Series Fund MP-18, LLC, 092019 MASUP, SUCV20190663BLS2

Docket Nº:SUCV20190663BLS2
Party Name:MUSCLEPHARM CORPORATION et al. v. WHITE WINSTON SELECT ASSET FUND SERIES FUND MP-18, LLC et al.
Case Date:September 20, 2019
Court:Superior Court of Massachusetts
 
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MUSCLEPHARM CORPORATION et al.

v.

WHITE WINSTON SELECT ASSET FUND SERIES FUND MP-18, LLC et al.

No. SUCV20190663BLS2

Superior Court of Massachusetts, Suffolk, Business Litigation Session

September 20, 2019

MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS’ MOTIONS TO DISMISS

Janet L. Sanders, Justice of the Superior Court

MusclePharm Corporation (MusclePharm) and its Board Chairman and CEO, Ryan Drexler, bring this action against White Winston Select Asset Fund Series Fund MP-18, LLC, White Winston Select Asset Fund, LLC (collectively, White Winston) as well as a company and certain individuals associated with White Winston. The plaintiffs allege that the defendants sought to coerce them into paying the defendants or buying back defendants’ MusclePharm stock by filing a groundless complaint in Nevada state court (the Nevada Action). The Complaint asserts claims for violation of G.L.c. 93A (Count I), tortious interference with contract (Count II), civil conspiracy (Count III), and abuse of process (Count IV). The defendants have moved to dismiss the Complaint pursuant to G.L.c. 231, § 59H, the anti-SLAPP statute, and Mass.R.Civ.P. 12(b)(6). For the reasons that follow, this Court concludes that the Motion to Dismiss is Allowed to the extent that it is brought pursuant to Rule 12(b)(6).

BACKGROUND

The following allegations are from the Complaint and taken as true for purposes of this motion. The Court also takes judicial notice of court records associated with the Nevada Action. See Jaroz v. Palmer, 436 Mass. 526, 530 (2002).

MusclePharm is a Nevada corporation that is headquartered in Burbank, California. It manufactures and markets sports nutritional products. Between 2015 and 2017, Drexler made three loans to MusclePharm totaling $18 million. The purpose of these loans was to provide MusclePharm with much needed liquidity. Seventeen million dollars of this debt was subject to two Convertible Secured Promissory Notes (the Convertible Notes) and one million dollars was subject to a Secured Demand Promissory Note (the Secured Note). The Convertible Notes were due to mature on November 8, 2017.

In September 2017, MusclePharm’s four-member Board of Directors formed a Special Committee to evaluate and negotiate options for refinancing the three notes. The Special Committee was comprised of the Board’s two independent directors. It retained Ladenburg Thalmann & Co. (Ladenburg) as its independent financial advisor and Ropes & Gray as its legal counsel.

The same month that the Board formed the Special Committee, defendant Amerop Holdings, Inc. (Amerop) a MusclePharm stockholder, expressed interest in making an equity investment in MusclePharm in an amount sufficient to retire the three notes. A member of the Special Committee informed Amerop’s principal, defendant Leonard Wessell, III, that it would be pleased to evaluate any proposal. During this same time period, however, the Special Committee was engaging in extensive negotiations with Drexler over the terms of a possible refinancing of the three notes.

In mid-October 2017, Amerop provided its proposal to the Special Committee, offering to purchase $18 million of MusclePharm stock on condition that MusclePharm replace senior management, including Drexler. The Special Committee asked Wessell to identify whom Amerop would bring on to manage the company and asked Amerop for evidence that it had the financial wherewithal to close the proposed transaction. Wessell did not comply with these requests. With the maturity date on the Convertible Notes fast approaching, the Special Committee broke off discussions with Amerop. Because of its negotiations with Drexler, however, MusclePharm was able to work out an agreement with Drexler to refinance all three notes, resulting in an Amended Note. The Amended Note gave Drexler the right to convert the debt into shares in MusclePharm. The Special Committee approved the refinancing.

Between January and June 2018, White Winston, at the direction of its principal, defendant Todd Enright, purchased all of Amerop’s MusclePharm stock. Amerop received cash and membership interests in White Winston in exchange for the sale. Because of this stock acquisition and the purchase of other MusclePharm stock not held by Amerop, White Winston became the owner of close to twenty percent of MusclePharm’s outstanding shares. According to the Complaint, White Winston together with the other defendants then "orchestrated an improper plan, including by use of judicial process, to obtain leverage over Drexler and the Company [MusclePharm], in an attempt to force plaintiffs to pay a ransom to defendants." ¶34 of Complaint. The "judicial process" to which the Complaint refers is the Nevada Action, White Winston Select Asset Fund Series Fund MusclePharm-18, LLC et al. v. MusclePharm Corporation et al., Case No. 18 OC 0020161B.

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