OpenPeak, Inc. v. Gittleman (In re OpenPeak, Inc.)
| Decision Date | 14 December 2020 |
| Docket Number | Case No.: 16-28464 (SLM),Adv. No.: 17-01755 (SLM) |
| Parties | In Re: OPENPEAK, INC. CHARLES M. FORMAN, TRUSTEE Plaintiff(s) v. DANIEL GITTLEMAN, DAVID BARCLAY, CHRISTOPHER HILL, HOWARD KWON, JOHN SCULLEY, ALEX KOMOROSKE, JOACHIM GFOELLER, JR., J. TOMLISON HILL, III, JAMES ROBINSON, IV, AND MORTON TOPFER Defendant(s) |
| Court | U.S. Bankruptcy Court — District of New Jersey |
NOT FOR PUBLICATION
Hearing Date: August 29, 2018
Michael Holt, Esq.
FORMAN HOLT
66 Route 17 North
Paramus, NJ 07652
Joseph A. Caneco, Esq.
Mark E. Hall, Esq.
FOX ROTHSCHILD, LLP
49 Market Street
Morristown, NJ 07960
-and-
Jeffrey A. Tew, Esq.
Robert M. Stein, Esq.
RENNERT VOGEL MANDLER & RODRIGUEZ, P.A.
David Barclay, Howard Kwon and Christopher Hill
Richard Brosnick, Esq.
III, James Robinson, IV and Morton Topfer
Before this Court are two motions to dismiss the Amended Complaint ("Amended Complaint"),1 filed by Charles Forman as Chapter 7 Trustee ("Trustee") of the estate of OpenPeak, Inc. ("Debtor" or "OpenPeak"). The first motion to dismiss is brought by the Debtor's directors (the "Outside Director Defendants' Motion").2 The director defendants named in the Amended Complaint are John Sculley, Alex Komoroske, Joachim Gfoeller, Jr., J. Tomilson Hill, III, James Robinson, IV, and Morton Topfer (collectively, the "Outside Director Defendants"). The second motion to dismiss is brought by the officers of the Debtor (the "Officer Defendants' Motion").3 The officer defendants named in the Amended Complaint are Daniel Gittleman, David Barclay, Howard Kwon, and Christopher Hill (collectively, the "Officer Defendants"). The central issue to both the Outside Director Defendants' Motion and the Officer Defendants' Motion (collectively, the "Motions") is whether the Trustee provided, in the fifty-plus page Amended Complaint, a short and plain statement providing the Defendants with notice of the claims asserted against them and the basis thereof. If the Trustee has, then the Court must decide whether those claims have been adequately plead or are barred for lack of standing or collateral estoppel.
Having considered the Motions, the Trustee's oppositions, the Defendants' responses, oral argument, and the Parties' supplemental briefing on the issues raised at oral argument, and for the reasons set forth herein, the Court grants the Outside Director Defendants' Motion. The Court also grants the Officer Defendants' Motion in part and denies in part, allowing the Trustee to replead. The following constitutes the Court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference from the United States District Court for the District of New Jersey, dated July23, 1984 and amended September 18, 2012. This Adversary Proceeding arises under 11 U.S.C. §§ 544(b), 548(a)(1), 550(a) and seeks damages because of Defendants' purported breach of fiduciary duties, waste of corporate assets, unjust enrichment, and fraudulent transfers. The Court may not enter a final order on a state law claim "in the absence of consent or unless it implicates a claim filed in the bankruptcy case by the Defendants."4 If the parties consent, then the Court may enter a final order on these claims.5 The Officer Defendants expressly stated that they do not consent to entry of final orders by the Court, while the Outside Director Defendants preserved the right "to withhold their consent to entry of final orders or judgments from the Bankruptcy Court."6 Bankruptcy courts have the authority, however, to enter an order on a motion to dismiss.7 Furthermore, the Outside Director Defendants and Officer Defendants challenge the amended complaint on the grounds of lack of subject-matter jurisdiction—asking this Court to evaluate jurisdiction. The Officer Defendants concede that this Court can enter an order on the Officer Defendants' Motion. The parties seek this Court's decision regarding jurisdiction, which must be reviewed by this Court in the first instance. Therefore, while the parties may have stated otherwise, based upon the Defendants' request from this Court, the parties have consented to the Court's entry of a final order regarding the Motions. Venue of this Adversary Proceeding is proper pursuant to 28 U.S.C. § 1409(a) and (d).
The Officer Defendant Gittleman founded the Debtor in 2002. The Debtor initially focused on home and office automation, and IP (internet protocol) video conferencing. It later transitioned to the production of other hardware, including tablets. The Debtor's principal place of business was in Boca Raton, Florida. By 2012, the Debtor moved away from hardware, and solely focusedon developing software for its ADAM platform. ADAM was a program intended to allow an employee to securely access his or her company workspace on a personal mobile device. AT&T and Blackberry Corporation were among the Debtor's largest customers. However, funding for the Debtor's day-to-day business operations came from private capital raises. From 2011-2016, the Debtor raised over $120 million from private investors.
Officer Defendant Gittleman served as the Debtor's former Chief Executive Officer and Chairman of the Board. Officer Defendant C. Hill served as its President. Officer Defendant Barclay served as its Executive Vice President. Officer Defendant Kwon served as its Vice President and General Counsel. In addition, Gittleman, and Kwon also served on the Debtor's board of directors. The Outside Director Defendants were independent directors of the Debtor's board. All Defendants held equity in, and/or convertible debt of the Debtor.
According to the Amended Complaint, ADAM failed to meet customers' expectations because structural problems in the software program hindered its scalability. These issues resulted in only a very small percentage of licensed customers activating ADAM on their mobile devices. As a result, the Debtor was unable to generate meaningful revenue from the ADAM platform. As debts became due, revenue failed to meet projections. The Debtor then sought to sell itself to potential acquirers while also raising additional funding from existing investors. Sale efforts were unsuccessful, and investors began to make repayment demands.
On September 27, 2016, the Debtor commenced its case by filing a voluntary chapter 7 petition.8 On December 4, 2017, the Trustee commenced this Adversary Proceeding.9 The Parties entered two consent orders regarding the briefing schedule in the Adversary Proceeding.10 On March 6, 2018, the Trustee filed the Amended Complaint.11 The Amended Complaint sets forthallegations regarding the Defendants' purported mismanagement of the Debtor, which the Trustee asserts led to its subsequent failure and bankruptcy.
The Amended Complaint requests relief based on the assertion that certain employees recalled that the Officer Defendants were not interested in ADAM's long-term functionality. Instead, the Officer Defendants ignored employees' concerns related to ADAM.12 The Amended Complaint alleges that the Officer Defendants were "demo-driven." Meaning they only cared that the demo version worked well enough to show a potential customer that the Debtor could offer a certain feature.13 The Amended Complaint further alleges that the Officer Defendants misrepresented facts regarding the performance and product features of ADAM to potential business partners.14 The Amended Complaint also alleges that former employees recall that the Officer Defendants: (1) made promises to customers about the ADAM product that they knew the Debtor could not fulfill; and (2) knew that the ADAM product was poor quality and contained glitches based on the large number of complaints already received.15
The Amended Complaint describes alleged problems between the Debtor and AT&T, the Debtor's largest customer.16 The Amended Complaint describes—while quoting emails from AT&T executives to the Officer Defendants—that AT&T was dissatisfied with functionality and scalability of AT&T's version of ADAM, referred to as "Toggle."17 The Amended Complaint also alleges problems between the Debtor and Blackberry.18 The Amended Complaint further alleges that Blackberry notified the Debtor that it believed the Debtor violated its contract with Blackberry. According to the Amended Complaint, Blackberry was dissatisfied with malfunctions and defects in the software and Debtor's failure to resolve those issues.19 The Amended Complaint alleges that "during 2014 and 2015, as OpenPeak was raising millions of dollars, unbeknownst to investors, its major customers Blackberry and AT&T were very dissatisfied."20
As it pertains to Officer Defendant Gittleman, the Amended Complaint alleges that former employees described Officer Defendant Gittleman as a "stereotypical shady salesman," who "knew about the poor performance of OpenPeak's products because [an] employee had numerous conversations with Officer Defendant Gittleman about the problems."21 Furthermore, former employees recall that Officer Defendant Gittleman's focus was more on raising capital and making promises that were difficult to keep.22 The Amended Complaint alleges Gittleman spent the Debtor's money recklessly on himself and people close to him without any regard for the best interest of the Debtor.2...
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