Refco Inc. v. Cantor Fitzgerald, L.P. et al
Filing
101
OPINION AND ORDER: Accordingly, for all the foregoing reasons, RGL's motion for leave to file the Second Amended Complaint is granted with respect to the amendments that (1) identify parties whose names have changed, (2) remove allegations rega rding Cantor Casino, (3) concern Cantor Nevada's intent to pursue an initial public offering, (4) relate to the Surviving Transactions, (5) reassert claims related to the transfer of CIL's trading activity and the increased related-party f ees and (6) assert the following claims related to the undocumented transfer of the CIH Entities' assets and technology: (a) breach of fiduciary duty against Lutnick, Amaitis and Merkel, (b) aiding and abetting a breach of fiduciary duty against Cantor Nevada, (c) unjust enrichment against Cantor Nevada, Lutnick, Amaitis and Merkel and (d) waste against CIHLLC, Lutnick, Amaitis and Merkel. To the extent plaintiff is attempting to reassert the following claims related to the undocumented tra nsfers, the motion is denied: (1) breach of fiduciary duty against CIHLLC, (2) aiding and abetting a breach of fiduciary duty against all defendants except Cantor Nevada, (3) unjust enrichment against CIHLLC, CFS, CFLP, CIH, CILLC and CFGH and (4) co nversion as to all defendants. Plaintiff shall serve and file the Second Amended Complaint no later than July 27, 2015. (As further set forth in this Order.) (Signed by Magistrate Judge Henry B. Pitman on 7/6/2015) Copies Sent By Chambers. (kgo)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
REFCO GROUP LTD., LLC,
:
Plaintiff,
:
:
-againstCANTOR FITZGERALD, L.P., et al.,
13 Civ. 1654 (RA)(HBP)
OPINION
AND ORDER
:
Defendants.
:
-----------------------------------X
PITMAN, United States Magistrate Judge:
Refco Group Ltd., LLC ("RGL") commenced this derivative
action on behalf of nominal defendants, Cantor Index Holdings,
L.P. ("CIH"), Cantor Index LLC ("CILLC"), Cantor Fitzgerald Game
Holdings, LLC ("CFGH"), Cantor Index Limited ("CIL") and Cantor
Gaming Limited ("CGL"), as well as on its own behalf, alleging
that defendants engaged in self-interested transactions to siphon
assets away from the subsidiaries of nominal defendant CIH in
which RGL holds a 10% interest.
By notice of motion dated
December 10, 2014,1 RGL seeks leave to file a second amended
complaint.
For the reasons set forth below, RGL's motion is
granted in part and denied in part.
1
Pending resolution of RGL's request to file the documents
under seal and to file redacted versions on the Court's ECF
system, the moving papers have not been filed.
I.
Background
The facts underlying this action are set forth in
detail in the Memorandum Opinion and Order of the Honorable
Ronnie Abrams, United States District Judge, dated June 10, 2014,
familiarity with which is assumed.
Refco Grp. Ltd. v. Cantor
Fitzgerald, L.P., 13 Civ. 1654 (RA), 2014 WL 2610608 (S.D.N.Y.
June 10, 2014).
A.
The Parties'
Claims and Defenses2
RGL alleges that in 2002, it invested $8 million for a
ten percent interest in CIH, which was successful in the gaming
technology industry in the years following RGL's investment (Am.
Compl. ¶ 2).
RGL claims that "[d]espite the success of the CIH
Entities[3] . . . , the Defendants, with [Howard W.] Lutnick[4] at
the helm, determined to transfer the CIH Entities' businesses and
2
The description of the parties' claims and defenses is
derived from RGL's first Amended Complaint (Amended Complaint,
dated April 15, 2013, (Docket Item 25)("Am. Compl.")) and
defendants' Answer (Defendants' Answer and Affirmative Defenses
to Plaintiff's First Amended Complaint, dated July 18, 2014
(Docket Item 44) ("Answer")).
3
The CIH Entities include CIH, CIH's wholly-owned
subsidiaries (Hollywood Stock Exchange, LLC, CIL, CFGH and CILLC)
and CFGH's wholly-owned subsidiary CGL (Am. Compl. ¶ 28).
4
Defendant Lutnick is Chairman and CEO of both CILLC and
Cantor G&W (Nevada) L.P. ("Cantor Nevada") (Am. Compl. ¶ 86).
2
assets for no or only nominal compensation to the control of the
Cantor Nevada Entities[5], in which neither the CIH Entities nor
RGL held any ownership interest" (Am. Compl. ¶ 82).
The transfer
of those assets was allegedly the result of several transactions
including the following:
(1) a 2006 License Agreement,6 (2) an
Asset Purchase Agreement,7 (3) a 2011 License Agreement,8 (4) the
closure of Spreadfair, (5) a transfer of CIL's trading activity
and (6) an increase in related-party fees (collectively, the
"Challenged Transactions") (Am. Compl. ¶¶ 83-138, 192-96).
Judge
Abrams has previously found that the Amended Complaint states a
5
The Cantor Nevada Entities include "Cantor Nevada and its
direct and indirect parent and subsidiary entities" (Am. Compl.
¶ 35).
6
On February 7, 2006, CILLC and CFPH LLC, granted Cantor
Nevada a license to specific patents and patent applications held
by CILLC for consideration to "be determined within a reasonable
time" (Am. Compl. ¶¶ 83, 85 & Ex. B). Lutnick executed the
agreement (Am. Compl. ¶ 86).
7
On April 30, 2010, CIL sold its Financial Fixed Odds
("FFO") business, including all associated assets, goodwill and
records to defendant Cantor Gaming & Wagering Limited ("CGWL
(UK)"), Cantor Nevada's wholly-owned subsidiary, for £1.00 as
consideration (Am. Compl. ¶¶ 116-22 & Ex. D).
8
In June 2011, CILLC, Cantor Nevada and non-party Shuffle
Master, Inc. licensed certain CILLC gambling-related patents to
Shuffle Master but directed that royalties and fees derived from
those licenses be paid to Cantor Nevada, not CILLC, the licensor
(Am. Compl. ¶¶ 129-35 & Ex. E). Defendant Lee Amaitis, Executive
Managing Director of CILLC and CEO of Cantor Nevada, executed the
agreement (Am. Compl. ¶ 130). Amaitis has also served or is
serving as a director and/or employee of CIH, CIL, CGL and CGWL
(UK) (Am. Compl. ¶ 13).
3
claim with regard to three of the Challenged Transactions:
(1)
the 2006 License Agreement, (2) the Asset Purchase Agreement and
(3) the 2011 License Agreement (collectively, the "Surviving
Transactions").
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P.,
supra, 2014 WL 2610608 at *14.
RGL contends that each of these
transactions is "unfair, as a matter of price and process, to CIH
and its wholly-owned subsidiar[ies] . . . and constitute[s] a
breach of fiduciary duty, conversion and waste" (Am. Compl.
¶¶ 93, 124, 138).
Moreover, RGL argues that Cantor Nevada's
success is the result of its use of the CIH Entities' technology
(Am. Compl. ¶ 159).
According to RGL, the Challenged Transac-
tions resulted in the defendant companies' growth, the enrichment
of individual defendants and a decrease in value of the CIH
Entities, as well as a decrease in the value of RGL's partnership
interest in CIH (Am. Compl. ¶¶ 3, 218-19, 228, 231, 236, 241,
254-56).
Defendants deny RGL's claims and contend, among other
things, that CIH has not suffered or sustained any damages
(Answer, passim).
B.
Defendants' Motion to Dismiss
By notice of motion dated May 30, 2013, defendants
moved to dismiss RGL's Amended Complaint in its entirety (Docket
Item 20).
Judge Abrams granted the motion in part and denied it
4
in part.
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014
WL 2610608 at *44.
Although RGL alleged that defendants appro-
priated the CIH Entities' assets through all of the Challenged
Transactions, Judge Abrams concluded that
[b]ecause demand was futile with respect to certain of
the Challenged Transactions (namely, the 2006 License
Agreement, the Asset Purchase Agreement, and the 2011
License Agreement) but not others (namely, the closure
of Spreadfair, the transfer of CIL's trading activity
to CFE, and the increase in related-party fees paid by
CIL), only the former transactions[, the Surviving
Transactions,] may form the basis of RGL's claims.
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *13.
Judge Abrams also interpreted RGL's allegations that
defendants used "'the CIH Entities' intellectual property,
including technology and patents, for the benefit of the Cantor
Nevada Entities' as . . . describ[ing] the benefits that accrued
to Cantor Nevada as a result of the Challenged Transactions but
not [as constituting] an independent Challenged Transaction."
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *6 n.7.9
9
RGL
Surviving
alleges a
fiduciary
transfers
stealing,
Judge Abrams did not preclude RGL from
argues that its claims were not limited to the
Transactions and "that the Amended Complaint adequately
scheme to transfer assets in violation of Defendants'
and other duties to CIH, regardless of whether those
were documented in paper agreements, or occurred by
and that demand is excused as to such a scheme"
(continued...)
5
basing its claims, at least in part, on defendants' use of the
CIH entities' intellectual property to benefit Cantor Nevada, as
long as that benefit resulted from one of the Surviving Transactions.
Finally, Judge Abrams dismissed (1) defendants CIL,
CGWL (UK), CFE and CGL from the action,10 (2) four of RGL's
claims11 as to all defendants, (3) RGL's claim of aiding and
abetting a breach of fiduciary duty with respect to defendant
Stephen M. Merkel12 and (4) RGL's claim of unjust enrichment as
9
(...continued)
(Memorandum of Law in Support of Plaintiff's Motion for Leave to
File a Second Amended Complaint, dated December 10, 2014 ("Pl.'s
Mem."), at 10). Defendants on the other hand argue that RGL's
"generally alleged scheme [could not] serve as an independent
claim or basis sufficiently supporting each of the causes of
action" and "the only cognizable claims or grounds for RGL's
remaining causes of action were" those related to the Surviving
Transactions because plaintiff "fail[ed] to plead demand futility
with respect to [the other] transactions" (Defendants' Brief in
Opposition to Plaintiff's Motion for Leave to File a Second
Amended Complaint, dated January 23, 2015 ("Defs.' Opp."), at 6).
10
The remaining defendants are Lutnick, Stephen M. Merkel,
Amaitis, Cantor Nevada, Cantor Fitzgerald Securities ("CFS"),
Cantor Fitzgerald, L.P. ("CFLP"), Cantor Index Holdings Limited
Partnership LLC ("CIHLLC"), CIH, CILLC and CFGH.
11
Judge Abrams dismissed RGL's claim for breach of the
Limited Partnership Agreement by CIHLLC, claims of fraudulent
conveyance under both New York and Delaware law and a claim for
an accounting of the finances and activities of CIH and its
subsidiaries by CIHLLC. Refco Grp. Ltd. v. Cantor Fitzgerald,
L.P., supra, 2014 WL 2610608 at *44.
12
"Merkel served as a director and/or officer of one or more
(continued...)
6
to all defendants except Cantor Nevada, Lutnick, Merkel and
Amaitis.
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014
WL 2610608 at *44.
RGL's remaining claims with respect to the
Surviving Transactions are (1) breach of fiduciary duty brought
against CIHLLC, Lutnick, Merkel and Amaitis, (2) aiding and
abetting a breach of fiduciary duty against all defendants other
than CIHLLC and Merkel, (3) unjust enrichment against Cantor
Nevada, Lutnick, Merkel and Amaitis, (4) waste of assets against
CIHLLC, Lutnick, Merkel and Amaitis and (5) conversion13 against
Lutnick, Merkel, Amaitis, Cantor Nevada, CFS, CFLP, CIHLLC, CIH,
CILLC and CFGH.
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P.,
supra, 2014 WL 2610608 at *44.
C.
Plaintiff's Proposed Amendments
RGL served the instant motion on December 10, 2014 and
seeks (1) to add allegations regarding Cantor Nevada's name
12
(...continued)
of the CIH Entities, including [CIH]," as well as "Executive Vice
President, Chief Legal Officer, General Counsel and Secretary of
Cantor Nevada . . . [and] as the Executive Managing Director,
General Counsel, and Secretary of [CFLP]" (Am. Compl. ¶¶ 14, 33,
46).
13
This claim "survives only to the extent that Defendants
converted CIL's tangible assets through the Asset Purchase
Agreement or converted CILLC's patents through the 2006 License
Agreement or 2011 License Agreement." Refco Grp. Ltd. v. Cantor
Fitzgerald, L.P., supra, 2014 WL 2610608 at *39.
7
change to "CG Technology" and its stated intent to pursue an IPO
([Proposed] Verified Second Amended Complaint ("SAC") ¶¶ 4, 17,
22-23, 103, annexed as Exhibit A to Declaration of Geoffrey C.
Jarvis in Support of the Memorandum of Law in Support of Plaintiff's Motion for Leave to File a Second Amended Complaint
("Jarvis Decl.")), (2) to delete allegations concerning "Cantor
Casino" (Pl.'s Mem., at 1 n.5; see Am. Compl. ¶¶ 77-81) and (3)
to "conform[] the Amended Complaint to the Court's June 10, 2014
Opinion by removing parties over which the Court held that it
lacks jurisdiction and by deleting dismissed claims, other than
those claims which RGL preserves for appeal," as well as adding
"allegations regarding demand futility with respect to the
[Surviving Transactions]" (Pl.'s Mem., at 1 n.5, 19 & n.33).
RGL
also seeks
(1) to crystallize its allegations that Defendants have
misappropriated technology, intellectual property, and
other assets from [CIH], including by means not documented in written agreements; and (2) to allege newly
discovered facts that demonstrate the futility of a
pre-suit demand as to two of RGL's previously dismissed
allegations, which concerned the transfer of valuable
trading activity from, and the payment of exorbitant
related-party fees by, CIH subsidiaries
(Pl.'s Mem., at 1 (footnote omitted)).
RGL's modified and
additional allegations regarding the issue of pre-suit demand
largely concern Lutnick's interest in and potential liability for
8
the alleged transactions (SAC ¶¶ 16, 27, 34-35, 38-39, 129, 131,
190, 200, 204-20).
1.
Allegations Regarding the
Undocumented Transfer of Assets
and Technology from the CIH Entities
RGL seeks to allege, "on information and belief, [that]
significant technology transfers occurred without any documentation . . . by having CIH employees -- such as CIH Managing
Director Andrew Gar[r]ood[14] -- develop such technology for the
Cantor Nevada entities using the intellectual property he had
developed for CIH while he was employed there" (SAC ¶ 104).
According to RGL, these undocumented transfers resulted in the
misappropriation of the CIH Entities' intellectual property,
"allow[ing] Cantor Nevada to create mobile gaming and in-game
betting" (SAC ¶ 104).
RGL, citing statements made by Amaitis, seeks to allege
that Cantor15, seeing a prospective advantage in the mobile
gaming technology originating with CIL, contracted with manufac-
14
Garrood was CIL's Managing Director through at least 2009
and is the current Executive Director of Cantor Nevada's
subsidiary, CG Analytics, Inc., of which Lutnick is Chairman,
Amaitis is President, CEO and director and Merkel is Secretary
and Executive Managing Director (SAC ¶ 120 n.5).
15
Cantor includes CFS, CFLP and "all of their subsidiaries
and affiliates" (SAC ¶ 13).
9
turers to produce "500 eDeck, or electronic card deck, hand-held
devices" (SAC ¶ 114 (internal quotation marks omitted)).
RGL
alleges that Cantor Nevada appropriated the underlying technology
for the devices in 2005, without compensation or legal transfer,
from the CIH Entities in a transaction separate and apart from
the documented transactions of which RGL is aware (SAC ¶¶ 11415).
Citing statements by Garrood, RGL also seeks to add allega-
tions that the CIH Entities' technology for computing the odds of
sporting events was transferred to Cantor Nevada through an
undocumented transaction and used to develop the Midas software
underlying the Cantor Nevada Entities' "In-Running" betting
service (SAC ¶¶ 104, 116, 119, 127-28).
RGL claims these undocu-
mented transactions were only recently discovered and benefitted
defendants to RGL's detriment (SAC ¶¶ 129, 207-08).
RGL also seeks to add allegations supporting its
contention of demand futility, including (1) the amount of
Lutnick's ownership interest in Cantor Nevada and (2) Lutnick's
service as CEO of CILLC, Chairman of Cantor Nevada and Chairman
of CIL during the aforementioned transfers, which RGL contends
shows that Lutnick was interested in misappropriating the CIH
Entities' mobile gaming technology and Midas software and that he
benefitted from the transfers to the detriment of the CIH Entities (SAC ¶¶ 207-10).
10
2.
Allegations Regarding the Transfer
of CIL's Trading Business to CFE
RGL also seeks to add allegations that "[d]efendants
caused CIL to transfer out its valuable trading activities" (SAC
¶¶ 167-68, 173).
These activities allegedly involved CIL "acting
as 'an introducing broker' for trading in contracts for difference ('CFDs')" and a spread betting business, which earned CIL
over $8 million in revenue in 2010 (SAC ¶ 168).
RGL seeks to
allege that when the trading activity was transferred to CFE,
CFLP's wholly-owned subsidiary, Lutnick owned at least 10% of
CFLP, and, therefore, Lutnick benefitted from the CFD and spread
betting revenue to the detriment of CIL (SAC ¶¶ 16, 27, 131,
218).
Moreover, RGL alleges that Lutnick "faces a substantial
threat of liability on the basis of" the transfer of the trading
activity, making demand futile (SAC ¶ 220).
3.
Allegations Regarding the Increased
Related-Party Fees Paid by CIL to
CFE and Other Cantor Affiliates
Finally, RGL seeks to add allegations that the relatedparty fees paid by CIL to CFE and other Cantor affiliates unfairly increased, and that, based on additional allegations
concerning Lutnick's interest in and control of CFE and CFLP,
Lutnick benefitted from those fee increases.
11
RGL claims that
Lutnick potentially faces liability for these payments, thereby
making demand futile (SAC ¶¶ 16, 27, 131, 190, 219-20).
II.
Analysis
A.
Standards Applicable to a
Motion to Amend the Pleadings
The Court of Appeals has repeatedly noted that the
trial court has broad discretion in ruling on a motion to amend.
See, e.g., Arnold v. KPMG LLP, 334 F. App'x 349, 352 (2d Cir.
2009) (citation omitted); Gurary v. Winehouse, 235 F.3d 792, 801
(2d Cir. 2000); Local 802, Associated Musicians of Greater N.Y.
v. Parker Meridien Hotel, 145 F.3d 85, 89 (2d Cir. 1998); Guzman
v. Bevona, 90 F.3d 641, 649 (2d Cir. 1996).
The standards
applicable to a motion to amend the pleadings are well settled
and require only brief review.
1.
Standard Pursuant
to Federal Rule of
Civil Procedure 15(a)
In general, a motion to amend is governed by
Fed.R.Civ.P. 15(a), which provides "[t]he court should freely
give leave when justice so requires."
Fed.R.Civ.P. 15(a); Foman
v. Davis, 371 U.S. 178, 182 (1962); Kroshnyi v. U.S. Pack Courier
Servs., Inc., 771 F.3d 93, 109 (2d Cir. 2014); McCarthy v. Dun &
12
Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007).
"Nonethe-
less, the Court may deny leave if the amendment (1) has been
delayed unduly, (2) is sought for dilatory purposes or is made in
bad faith, (3) the opposing party would be prejudiced, or (4)
would be futile."
Lee v. Regal Cruises, Ltd., 916 F. Supp. 300,
303 (S.D.N.Y. 1996) (Kaplan, D.J.), aff'd, 116 F.3d 465 (2d Cir.
1997), citing, Foman v. Davis, supra, 371 U.S. at 182; see
Ruotolo v. City of N.Y., 514 F.3d 184, 191 (2d Cir. 2008); Laydon
v. Mizuho Bank, Ltd., 12 Civ. 3419 (GBD), 2015 WL 1515487 at *2
(S.D.N.Y. Mar. 31, 2015) (Daniels, D.J.).
2.
Standard Pursuant
to Federal Rule of
Civil Procedure 16(b)
"Although Rule 15(a) governs the amendment of pleadings, Rule 16(b) also may limit the ability of a party to amend a
pleading if the deadline specified in the scheduling order for
amendment of the pleadings has passed."
Kassner v. 2nd Ave.
Delicatessen Inc., 496 F.3d 229, 243 (2d Cir. 2007).
Where a
scheduling order addresses the issue of motions to amend, the
more lenient Rule 15(a) standard must be balanced against Rule
16(b)'s requirement that the scheduling order shall only be
modified for "good cause," which turns "on the diligence of the
moving party."
Grochowski v. Phoenix Constr., 318 F.3d 80, 86
13
(2d Cir. 2003), citing Parker v. Columbia Pictures Indus., 204
F.3d 326, 340 (2d Cir. 2000).
"The district court, in the
exercise of its discretion under Rule 16(b), also may consider
other relevant factors including, in particular, whether allowing
the amendment of the pleading at this stage of the litigation
will prejudice defendants."
Kassner v. 2nd Ave. Delicatessen
Inc., supra, 496 F.3d at 244; see Gorman v. Covidien Sales, LLC,
13 Civ. 6486 (KPF), 2014 WL 7404071 at *2 (S.D.N.Y. Dec. 31,
2014) (Failla, D.J.).
B.
Federal Rule of
Civil Procedure
15(a) Is Applicable
RGL argues that the standard under Fed.R.Civ.P. 15(a)
applies because it is not seeking leave to add new claims outside
of the time limit set by Judge Abrams; rather, it contends that
it "seeks to conform its pleading to the evidence[] and to make
plain that its claims encompass transfers of technology and other
assets regardless of whether such transfers occurred by means of
a particular contract or otherwise" (Pl.'s Mem., at 12 (footnote
omitted)).
Defendants contend that "the deadline for filing of
amended pleadings [w]as September 1, 2014" and that, pursuant to
Fed.R.Civ.P. 16(b), plaintiff must demonstrate good cause to
amend (Defs.' Opp., at 12-13).
14
Judge Abrams' Scheduling Order set the deadline to
assert "additional causes of action or defenses," without leave
of the Court, at September 1, 2014 (Case Management Plan and
Scheduling Order, date July 3, 2010 (Docket Item 42) ¶ 5).
filed the present motion on December 10, 2014.
RGL
As discussed in
more detail below, RGL, in large part, seeks to replead or
reassert claims based on transactions that were previously
dismissed and is not seeking to assert new, additional facts.
However, defendants argue that, because Fed.R.Civ.P. 16(b)(3)(A)
requires that a scheduling order include a deadline for amending
the pleadings, the deadline for asserting additional claims or
defenses must apply to all motions for leave to amend, whether or
not the movant seeks to add claims or defenses (Defs.' Opp., at
12).
That does not comport with the clear language of the
scheduling order, which only limits the time in which additional
claims could be asserted without seeking leave from the Court.
Although the September 1, 2014 deadline has passed, the more
stringent standards of Rule 16(b) are not applicable because RGL
does not seek to add any claims.
Accordingly, in determining whether RGL may amend its
complaint, the standard pursuant to Fed.R.Civ.P. 15(a) applies.16
16
Defendants do not contend that any of the claims dismissed
by Judge Abrams were dismissed with prejudice; therefore, I
(continued...)
15
C.
Application of Rule 15(a)
Defendants do not object to RGL's proposed amendments
"[t]o the extent RGL is seeking to file an amended pleading to
identify the proper parties due to name changes and [to] remove
allegations regarding Cantor Casino" (Defs.' Opp., at 11).
Moreover, defendants do not challenge RGL's proposed amendments
concerning Cantor Nevada's intent to pursue an IPO (see SAC ¶¶ 4,
17, 22-23, 103).
Finally, while defendants note that RGL's
proposed amendments "recite[] its interpretation of the Decision
with regard to Lutnick's interest in the Affiliated Transactions"
(Defs.' Opp., at 11, citing SAC ¶¶ 200-19), defendants do not
appear to object to these amendments to the extent they relate to
the Surviving Transactions.
However, as to the remaining amendments, defendants
argue that RGL should not be allowed to replead claims related to
transactions that were dismissed because the proposed amendments
will result in undue delay and prejudice, evince dilatory motive
or bad faith and are futile (Defs.' Opp., at 1-2).
16
(...continued)
decline to address that issue.
16
1.
Undue Delay
Defendants first argue that the motion should be denied
because RGL delayed seeking leave to amend.
Delay alone, in the absence of bad faith or prejudice,
is not sufficient reason for denying a motion to amend.
Ruotolo
v. City of N.Y., supra, 514 F.3d at 191; Rachman Bag Co. v.
Liberty Mut. Ins. Co., 46 F.3d 230, 234-35 (2d Cir. 1995); State
Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir.
1981); Middle Atl. Utils. Co. v. S.M.W. Dev. Co., 392 F.2d 380,
384 (2d Cir. 1968).
Thus, the court may "deny leave to amend
'where the motion is made after an inordinate delay, no satisfactory explanation is offered for the delay, and the amendment
would prejudice' other parties."
Grace v. Rosenstock, 228 F.3d
40, 53-54 (2d Cir. 2000) (emphasis added), quoting Cresswell v.
Sullivan & Cromwell, 922 F.2d 60, 72 (2d Cir. 1990); Bankers
Trust Co. v. Weinick, Sanders & Co., 92 Civ. 9127 (PNL)(MHD),
1993 WL 478124 at *7-*8 (S.D.N.Y. Nov. 12, 1993) (Dolinger,
M.J.); Bertrand v. Sava, 535 F. Supp. 1020, 1023 (S.D.N.Y. 1982)
(Carter, D.J.), rev'd on other grounds, 684 F.2d 204 (2d Cir.
1982); see also Commander Oil Corp. v. Barlo Equip. Corp., 215
F.3d 321, 333 (2d Cir. 2000) (permitting amendment of answer to
assert additional affirmative defense after a seven-year delay
17
does not constitute an abuse of discretion in the absence of
prejudice).
Defendants note the fact that RGL's motion comes "[s]ix
months after the Decision [on defendants' motion to dismiss]
narrowed RGL's claims to the Surviving Transactions[] and almost
three months after the deadline to amend its pleading expired"
and that "[a]t the time RGL filed its motion for leave, the
deadline for fact discovery was January 15, 2015" (Defs.' Opp.,
at 9, 16).
However, under the liberal standard of Rule 15(a), in
the absence of prejudice, leave to amend may be appropriately
granted at any stage of litigation.
See 6 Charles A. Wright,
Arthur R. Miller & Mary K. Kane, Federal Practice & Procedure
§ 1488 at 755-63 (3d ed. 2010) (noting that courts have granted
leave to amend at various stages including after discovery, after
a motion to dismiss has been granted and even after a judgment
has been entered).
Moreover, as RGL points out, the deadline for fact
discovery has been extended, with the consent of all parties, to
180 days after the resolution of both RGL's objections to my
November 24, 2014 Order17 (Docket Item 80) and the instant motion
17
By Order, dated November 24, 2014, I denied RGL's request
to compel discovery to the extent it sought documents related to
claims unrelated to the Surviving Transactions (Order, dated
November 24, 2014 (Docket Item 77)("Nov. 24, 2014 Order")).
18
(Plaintiff's Reply Memorandum in Further Support of Its Motion
for Leave to File a Second Amended Complaint, dated February 13,
2015 ("Pl.'s Reply"), at 3; see Docket Item 88).
In addition,
the delay here is not so long as to give rise to an inference of
prejudice.
See Khan v. McElroy, 13 Civ. 5043 (AJN)(JCF), 2014 WL
3945952 at *5 (S.D.N.Y. Aug. 7, 2014) (Francis, M.J.) ("Although
this motion comes close to the end of discovery, this in itself
is not enough to deny the motion."); see also Magnuson v. Newman,
10 Civ. 6211 (JMF), 2013 WL 5942338 at *2 (S.D.N.Y. Nov. 6, 2013)
(Furman, D.J.); Arkwright Mut. Ins. Co. v. Nat'l Union Fire Ins.
Co. of Pittsburgh, Pa., 90 Civ. 7811 (AGS), 1995 WL 3006 at *2
(S.D.N.Y. Jan. 4, 1995) (Francis, M.J.) ("[C]ourts have been most
hesitant to grant leave to amend when such motions are made on
the eve of trial and can result in unfair surprise."); Smith v.
City of N.Y., 611 F. Supp. 1080, 1093 (S.D.N.Y. 1985) (Haight,
D.J.) (where plaintiff seeks amendments "literally on the eve of
trial . . . plaintiff bears a heavy burden of persuasion to
explain and justify the delay.").
Delay is rarely fatal to a Rule 15 motion if it can be
explained.
See Foman v. Davis, supra, 371 U.S. at 182.
Defen-
dants argue that RGL has provided no "valid justification for its
delay in bringing its motion" (Defs.' Opp., at 1).
Although some
explanation must be provided to excuse a lenghty delay, see
19
Reisner v. Gen. Motors Corp., 511 F. Supp. 1167, 1172 (S.D.N.Y.
1981) (Goettel, D.J.), aff'd, 671 F.2d 91 (2d Cir. 1982), even
vague or "thin" reasons are sufficient in the absence of prejudice or bad faith.
Town of New Windsor v. Tesa Tuck, Inc., 919
F. Supp. 662, 677 (S.D.N.Y. 1996) (Parker, D.J.); Rachman Bag Co.
v. Liberty Mut. Ins. Co., supra, 46 F.3d at 235.
Here, RGL offers adequate reasons for its delay in
filing its motion for leave to amend.
It claims that "it has
only recently appeared that the proposed amendments would be
useful and proper," because (1) after September 1, 2014, RGL
learned that defendants planned to assert that RGL's claims were
limited to the Surviving Transactions, (2) in September 2014, RGL
learned, through statements made by defendants' counsel during a
meet and confer, that the undocumented transfer of CIH's technology may have been executed by Garrood separate and apart from the
Surviving Transactions and (3) the instant motion was served
within a month of defendants' production of the document purportedly indicating Lutnick's ownership interest in CFLP (Pl.'s Mem.,
at 14-15).
In response, defendants argue that (1) Judge Abrams'
decision gave notice to RGL its claims were limited to the
Surviving Transactions; (2) defendants "clearly informed" RGL
that they believed RGL was limited to the Surviving Transactions
"through their Initial Disclosures, their email communications,
20
and their meet and confers," (3) RGL has failed to support
adequately its claim that the alleged undocumented transfer of
CIH's intellectual property and the Midas software "only recently
came to light," (4) the only "new" evidence identified by RGL -the document concerning Lutnick's ownership interest -- does not
justify the delay and (5) at least as to its amended claims
regarding the undocumented transfer of assets and technology, RGL
concedes that it obtained that information from a subpoena issued
much earlier during its initial bankruptcy proceeding (Defs.'
Opp., at 1, 7-8, 9, 10, 14).
The correction of deficiencies in the complaint is a
legitimate reason for seeking to amend a pleading under the
liberal standard of Rule 15(a).
Luparello v. Inc. Vill. of
Garden City, 290 F. Supp. 2d 341, 344 (E.D.N.Y. 2003); Vulcan
Soc. of Westchester Cnty. v. Fire Dep't of White Plains, 82
F.R.D. 379, 386 (S.D.N.Y. 1979) (Sweet, D.J.).
Here, RGL seeks
to amend deficiencies in the Amended Complaint identified by
defendants' motion to dismiss and the parties' discovery disputes.
Even if RGL was made fully aware of those deficiencies by
Judge Abrams' decision and subsequent litigation, the six-month
delay in filing the instant motion is not so lengthy as to
warrant its denial, particularly in light of defendants' failure
to demonstrate prejudice.
Because delay alone is insufficient to
21
deny a motion to amend, and, as explained below, defendants have
not demonstrated undue prejudice or bad faith, RGL's delay in
seeking to replead its dismissed claims is not a sufficient basis
to deny RGL's motion.
2.
Prejudice
Defendants next argue that the motion should be denied
because they would be prejudiced by the proposed amendments.
To determine whether a party will be prejudiced by a
proposed amended pleading, courts "generally consider whether the
assertion of the new claim or defense would '(i) require the
opponent to expend significant additional resources to conduct
discovery and prepare for trial; (ii) significantly delay the
resolution of the dispute; or (iii) prevent the plaintiff from
bringing a timely action in another jurisdiction.'"
Monahan v.
New York City Dep't of Corrs., 214 F.3d 275, 284 (2d Cir. 2000),
quoting Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir.
1993).
Courts also consider the extent to which the new claims
are related to the existing ones and whether a party has had
prior notice of a proposed new claim.
See Monahan v. New York
City Dep't of Corrs., supra, 214 F.3d at 284; Hanlin v. Mitchelson, 794 F.2d 834, 841 (2d Cir. 1986); State Teachers Ret. Bd. v.
Fluor Corp., supra, 654 F.2d at 856.
22
Defendants contend that RGL's proposed amendments will
prejudice them because the amendments will necessitate broad
discovery, particularly the new allegations concerning the
undocumented transfer of assets and technology (Defs.' Opp., at
16-17).
As an example, defendants note that prior to the Nov.
24, 2014 Order limiting the scope of discovery, RGL sought "'All
Documents and Communications Concerning any transfer or licensing
of any Gaming-related Intellectual Property, tangible or intangible, from [CIH] to any entity outside of [CIH] during the Relevant Time Period'" (Defs.' Opp., at 17).
They argue that the
amendments will require them to "exp[e]nd significant resources
and incur substantial costs" (Defs.' Opp., at 17).
RGL argues
that the extension of the discovery period cures any potential
prejudice caused by the need for additional discovery (Pl.'s
Reply, at 3).
While the amendments may result in additional discovery, the need for new discovery, without more, does not constitute undue prejudice.
United States v. Cont'l Ill. Nat'l Bank &
Trust Co., 889 F.2d 1248, 1255 (2d Cir. 1989); S.S. Silberblatt,
Inc. v. E. Harlem Pilot Block Bldg. 1 Hous. Dev. Fund Co., 608
F.2d 28, 43 (2d Cir. 1979); Middle Atl. Utils. Co. v. S.M.W. Dev.
Corp., supra, 392 F.2d at 386; Fresh Del Monte Produce, Inc. v.
Del Monte Foods, Inc., 304 F.R.D. 170, 174 (S.D.N.Y. 2014)
23
(Gorenstein, M.J.); Town of New Windsor v. Tesa Tuck, Inc.,
supra, 919 F. Supp. at 679; St. Paul Fire & Marine Ins. Co. v.
Heath Fielding Ins. Broking Ltd., 91 Civ. 0748 (MJL), 1996 WL
19028 at *7 (S.D.N.Y. Jan. 17, 1996) (Lowe, D.J.).
Moreover, the
mere fact that an amendment will require a party to invest
additional resources in litigation is not a sufficient ground for
its denial.
Middle Atl. Utils. Co. v. S.M.W. Dev. Corp., supra,
392 F.2d at 386; see United States v. Int'l Bus. Machs. Corp., 66
F.R.D. 223, 231 (S.D.N.Y. 1975) (Edelstein, D.J.).
In addition, the prejudice that would flow from any
additional required discovery can generally be mitigated by
adjustments to the discovery schedule.
Middle Atl. Utils. Co. v.
S.M.W. Dev. Corp., supra, 392 F.2d at 386 ("The burden of further
discovery and motions is not a satisfactory basis to deny the
motion to amend.
Such procedural aspects can be regulated and
controlled by the trial court."); St. Paul Fire & Marine Ins. Co.
v. Heath Fielding Ins. Broking Ltd., supra, 1996 WL 19028 at *7;
Russell v. Hilton Int'l of Puerto Rico, Inc., 93 Civ. 2552 (KMW),
1995 WL 234886 at *1 (S.D.N.Y. Apr. 20, 1995) (Wood, D.J.); see
Bankers Trust Co. v. Weinick, Sanders & Co., supra, 1993 WL
478124 at *8.
Defendants have not demonstrated that the six
months remaining in the discovery period are insufficient to
address any additional discovery the amendments may require.
24
Thus, the fact that defendants will have to expend additional
resources to complete discovery is not a sufficient reason to
deny leave to amend on the grounds of prejudice.
3.
Dilatory Motive
or Bad Faith
While defendants do not explicitly claim that RGL made
its motion to amend in bad faith or with dilatory motive, they do
argue that RGL's motion (1) is a "tardy attempt at reconsideration of the Court's June 10, 2014 decision . . . which dismissed
the same claims it now seeks to resurrect," (2) is a "not-soveiled end-run" around my Nov. 24, 2014 Order and (3) includes
"purely speculative allegations and assumptions in an attempt to
get [more] discovery" (Defs.' Opp., at 1, 10 n.2, 21).
Defen-
dants argue that RGL's "willful ignorance" of the dismissal of
all of its claims that are not based on the Surviving Transactions and its "repeated and knowing mischaracterization[]" of the
defense as "'they simply stole the technology[] and never formally transferred anything'" are not valid justifications for
amendment (Defs.' Opp., at 11-12, 14).
RGL contends that Judge
Abrams did not limit its claims to those related to the Surviving
Transactions and that it seeks to amend the complaint "to make
clear that its claims encompass all means of improper transfers"
25
to correct defendants' misapprehension that its claims are more
limited (Pl.'s Mem., at 10, 15-16).
Although there may be some merit to defendants' argument that RGL's motion is motivated by the limitations placed on
the scope of its claims and related discovery, as discussed
above, the correction of deficiencies in the pleadings is a
sufficient and legitimate reason to amend, particularly in light
of the determination that there was no undue delay or prejudice.
To the extent that defendants claim RGL's motion is
made in bad faith or with dilatory motive, they have provided
insufficient evidence to support that objection.
4.
Futility
Finally, defendants argue that RGL's motion should be
denied because the amendments would be futile.
Defendants assert
that the proposed amendments are futile because (1) they are
time-barred, (2) they fail to plead demand futility with particularity and (3) the amendments concerning the undocumented transfers fail to state a claim upon which relief can be granted.
"Futility is a determination, as a matter of law, that
proposed amendments would fail to cure prior deficiencies or to
state a claim" pursuant to Fed.R.Civ.P. 12(b)(6).
Panther
Partners Inc. v. Ikanos Commc'ns, Inc., 681 F.3d 114, 119 (2d
26
Cir. 2012), citing Cortec Indus., Inc. v. Sum Holding L.P., 949
F.2d 42, 50 (2d Cir. 1991); Lucente v. Int'l Bus. Machs. Corp.,
310 F.3d 243, 258 (2d Cir. 2002); In re Francesca's Holdings
Corp. Sec. Litig., 13 Civ. 6882 (RJS), 13 Civ. 7804 (RJS), 2015
WL 1600464 at *24 (S.D.N.Y. Mar. 31, 2015) (Sullivan, D.J.);
Crichlow v. Fischer, 12 Civ. 7774 (NSR), 2015 WL 678725 at *2
(S.D.N.Y. Feb. 17, 2015) (Román, D.J.).
The party opposing the
amendment has the burden of demonstrating that a proposed amendment would be futile.
Allison v. Clos-ette Too, L.L.C., 14 Civ.
1618 (LAK)(JCF), 2015 WL 136102 at *2 (S.D.N.Y. Jan. 9, 2015)
(Francis, M.J.); Ferring B.V. v. Allergan, Inc., 4 F. Supp. 3d
612, 618 (S.D.N.Y. 2014) (Sweet, D.J.).
A proposed amendment may be denied as futile where the
proposed claim or defense has no "colorable merit."
Martin v.
Baruch Coll., 10 Civ. 3915 (DAB), 2011 WL 723565 at *4 (S.D.N.Y.
Feb. 18, 2011) (Batts, D.J.) (internal quotation marks and
citation omitted); see also Ryder Energy Distrib. Corp. v.
Merrill Lynch Commodities, Inc., 748 F.2d 774, 783 (2d Cir. 1984)
(if the movant has "colorable grounds for relief," justice
requires that leave to amend be granted in the absence of undue
delay, bad faith or prejudice (internal quotation marks and
citation omitted)).
The "'colorable grounds' requirement man-
dates that a district court may not deny a motion for leave to
27
amend a pleading [on futility grounds] when said pleading is
sufficient to withstand a motion to dismiss under Federal Rule of
Civil Procedure 12(b)(6)."
Children First Found., Inc. v.
Martinez, No. 1:04-CV-0927 (NPM), 2007 WL 4618524 at *5 (N.D.N.Y.
Dec. 27, 2007), citing in part Kassner v. 2nd Ave. Delicatessen,
Inc., supra, 496 F.3d at 244; see also Estate of Ratcliffe v.
Pradera Realty Co., 05 Civ. 10272 (JFK), 2007 WL 3084977 at *4
(S.D.N.Y. Oct. 19, 2007) (Keenan, D.J.).
In assessing the claimed futility of a proposed amended
pleading, the court must assume the truth of the factual allegations in the proposed amended pleading and must then determine
whether the plaintiff has alleged any facially plausible claims.
Panther Partners Inc. v. Ikanos Commc'ns, Inc., supra, 681 F.3d
at 119; Virgil v. Town of Gates, 455 F. App'x 36, 37 (2d Cir.
2012) (summary order); Smith v. NYCHA, 410 F. App'x 404, 405-06
(2d Cir. 2011) (summary order).
A claim is plausible when its
factual content "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a
defendant has acted unlawfully."
Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (citations omitted).
"Where a complaint pleads
facts that are merely consistent with a defendant's liability, it
28
stops short of the line between possibility and plausibility of
entitlement to relief."
Ashcroft v. Iqbal, supra, 556 U.S. at
696 (internal quotations omitted).
Accordingly, "where the well-
pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged -- but it
has not 'show[n]' -- 'that the pleader is entitled to relief.'"
Ashcroft v. Iqbal, supra, 556 U.S. at 679, quoting Fed.R.Civ.P.
8(a)(2).
a.
Adequacy of RGL's Claims Related to
the Undocumented Transfer of Assets
and Technology from the CIH Entities
Defendants claim that RGL's proposed amendments seeking
to assert claims related to a broad scheme of undocumented
transfers of assets and technology from the CIH Entities are
futile because the amendments (1) fail to state a claim, (2) fail
to adequately plead demand futility and (3) are time-barred
(Defs.' Opp., at 19-23, 24-25).
RGL argues that its proposed amendments are not futile
because defendants' have admitted the use of the CIH Entities'
technology but have denied that its transfer was accomplished by
the Surviving Transactions or any other documented transactions;
therefore, RGL reasons, the technology must have been obtained by
other means (Pl.'s Mem., at 3).
In addition, RGL bases these
29
claims, at least in part, on defendants' counsel's statement
allegedly made during a meet and confer that CIH's technology was
potentially transferred by Garrood outside of a formal, documented transaction, as well as various media-reported statements
by individuals associated with Cantor Nevada (Pl.'s Mem., at 3).
Defendants contend that the bases identified by RGL for its
proposed amendments concerning the undocumented transfers indicate that RGL's "purely speculative assumptions" are not based in
fact and that RGL fails to state a valid claim for breach of
fiduciary duty, aiding and abetting, unjust enrichment, waste or
conversion based upon the undocumented transfers (Defs.' Opp., at
21, 25; see also Pl.'s Mem., at 3).
Defendants contend that RGL
"generally alleges transfers of technology and use of technology,
however [it] provides no specificity regarding:
i) the nature or
character of any of the transfers; ii) when those transfers
occurred; iii) from what CIH entity any of the transfers occurred; iv) who authorized or participated in the transfer
decision; or v) what exactly was transferred or permitted to be
used" (Defs.' Opp., at 10, 21-22).
RGL, citing various allega-
tions from the proposed Second Amended Complaint, claims that the
proposed amendments are sufficiently detailed and state a claim
(Pl.'s Reply, at 10).
30
RGL's overarching claim regarding the undocumented
transfers is that the transfers of CIH's technology
may have, in some part, been carried out through the
documented transactions . . . [; however], on information and belief, significant technology transfers
occurred without any documentation . . . . by having
CIH employees -- such as CIH Managing Director Andrew
Gar[r]ood -- develop such technology for the Cantor
Nevada entities using the intellectual property he had
developed for CIH while he was employed there. Upon
information and belief, other similar undocumented
transactions resulted in the misappropriation of intellectual property belonging to the CIH Entities to allow
Cantor Nevada to create mobile gaming and in-game
betting
(SAC ¶ 104).
RGL's claims regarding the undocumented transfers
concern two of the CIH Entities' technologies:
(1) their mobile
gaming technology and (2) the technology underlying the Midas
software.
RGL alleges that, in 2003, CIL developed mobile
betting technology, "Cantor Mobile," and Cantor Nevada appropriated CILLC's mobile betting technology no later than early 2005
(SAC ¶¶ 62-63, 105).
RGL asserts that Cantor Nevada developed
wireless gaming for hand-held devices and then "contracted with
manufacturers to produce about 500 eDeck" devices, which "clearly
required Cantor Nevada to use the mobile technology that originated with CIL" (SAC ¶¶ 107, 114 (internal quotation marks
omitted)).
RGL cites statements allegedly made by Amaitis,
Lutnick and Joe Asher, the managing director of Cantor Nevada, to
support its claim "that Cantor Nevada appropriated the technology
31
underlying the hand-held gaming devices, which involve technology
different than the technology that was transferred pursuant to
the 2006 License Agreement or any other transactions as to which
documentation has been provided to Plaintiff, without any compensation to -- or even legal transfer from -- CIH Entities" (SAC
¶¶ 105-13, 115).
Second, RGL claims that "[u]pon information and belief,
Cantor Nevada's In-Running betting, which allows betting during
sporting events, was misappropriated from the CIH Entities" (SAC
¶ 116).
It alleges that Garrood began developing the Midas
software in 2007 while he was the Managing Director of CIL, a
position he held until at least 2009 (SAC ¶ 120, 125, 127).
RGL
asserts that the Midas software underlies Cantor Nevada's InRunning betting service (SAC ¶¶ 119, 125).
RGL claims that the
CIH Entities' intellectual property used to create the mobile
gaming technology and Midas software was "apparently" transferred
"without any recorded transaction" and was "unfair, as a matter
of price and process" (SAC ¶ 128).
i.
RGL's Claim of
Breach of Fiduciary Duty
RGL seeks to add a claim of a breach of fiduciary duty
against CIHLLC, Lutnick, Merkel and Amaitis based on the alleged
undocumented transfers (SAC ¶¶ 225-27).
32
RGL claims that they
owed a fiduciary duty to CIH and the other CIH Entities because
CIHLLC is the general partner of CIH and Lutnick, Amaitis and
Merkel were "officers and/or directors of one or more CIH Entities" (SAC ¶¶ 31, 33-35, 225-27).
Defendants argue that RGL
fails to sufficiently allege a claim of breach of fiduciary duty
based on the undocumented transfers because RGL does not allege
from whom the transfers were made, when the transfers occurred or
which defendants participated in the transfers (Defs.' Opp., at
25).
The standards for alleging breach of fiduciary duty are
thoroughly described in Judge Abrams' June 10, 2014 decision and
they are applied here.
Refco Grp. Ltd. v. Cantor Fitzgerald,
L.P., supra, 2014 WL 2610608 at *20-*22.
In general, a breach of
a fiduciary's duty of care requires a showing of "gross negligence" and a violation of the duty of loyalty requires proof of
"willful misconduct."
Refco Grp. Ltd. v. Cantor Fitzgerald,
L.P., supra, 2014 WL 2610608 at *20-*22.
33
Pursuant to Delaware law,18 a general partner, such as
CIHLLC, "owes a partnership fiduciary duties similar to duties
directors owe to a corporation," i.e., the duties of care and
loyalty.
Brinckerhoff v. Enbridge Energy Co., C.A. No. 5526-VCN,
2011 WL 4599654 at *7 (Del. Ch. Sept. 30, 2011); Stone ex rel.
AmSouth Bancorporporation v. Ritter, 911 A.2d 362, 370 (Del.
2006).
While the Amended and Restated Limited Partnership
Agreement setting forth the rights, powers and responsibilities
of the partners in CIH contains an exculpatory provision limiting
CIHLLC's liability as general partner, it expressly provides that
CIHLLC may be held liable for, among other things, acts or
omissions attributable to CIHLLC's "willful misconduct, gross
negligence or breach of duty" (SAC ¶¶ 56-58; Amended and Restated
Limited Partnership Agreement of Cantor Index Holdings, L.P.,
dated January 1, 2002, § 3.04(a), annexed as Exhibit A to SAC).
See Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *21.
18
In her June 10, 2014 decision, Judge Abrams applied
Delaware law in analyzing RGL's derivative claims. See Refco
Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at
*9. Here, too, "[t]he parties' briefs assume that [Delaware] law
controls, and such 'implied consent . . . is sufficient to
establish choice of law.'" Krumme v. WestPoint Stevens Inc., 238
F.3d 133, 138 (2d Cir. 2000), quoting Tehran-Berkeley Civil &
Envtl. Eng'rs v. Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239,
242 (2d Cir. 1989).
34
With regard to the duty of care, the duty owed is one
of due care in the fiduciary's decision-making process.
Refco
Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at
*20.
"Gross negligence is the standard for evaluating a breach
of the duty of care," Feeley v. NHAOCG, LLC, 62 A.3d 649, 664
(Del. Ch. 2012), and includes the "failure to act on an informed
basis" or "conduct that constitutes reckless indifference or
actions that are without the bounds of reason."
Sutherland v.
Sutherland, C.A. No. 2399-VCN, 2013 WL 2362263 at *11 (Del. Ch.
May 30, 2013) (internal quotation marks and citation omitted).
RGL makes no allegations concerning (1) the decisionmaking process underlying the alleged undocumented transfers, (2)
whether defendants were grossly negligent in their decisionmaking or (3) whether they "failed to act on an informed basis."
See Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *22; Sutherland v. Sutherland, supra, 2013 WL 2362263,
at *11.
Thus, the proposed amendments fail to state a claim for
breach of the duty of care by CIHLLC, Lutnick, Amaitis or Merkel.
The standard for evaluating a breach of the duty of
loyalty is "willful misconduct."
See Refco Grp. Ltd. v. Cantor
Fitzgerald, L.P., supra, 2014 WL 2610608 at *21, quoting Feeley
v. NHAOCG, LLC, supra, 62 A.3d at 664.
Willful misconduct may be
found "'where the fiduciary intentionally acts with a purpose
35
other than that of advancing the best interests of the corporation, . . . with the intent to violate applicable positive law,
or . . . fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties.'"
Stone ex rel.
AmSouth Bancorp v. Ritter, supra, 911 A.2d at 369, quoting In re
Walt Disney Co. Derivative Litig., 906 A.2d 27, 67 (Del. 2006).
RGL alleges that the undocumented transfers contributed
significantly to the growth of Cantor Nevada with no or nominal
consideration paid to CIL and that as of January 2010, approximately 75% of Cantor Nevada's revenue was derived from mobile
gaming, Cantor Nevada anticipated controlling 15% of sports
betting in Nevada by the end of 2010 and Cantor Nevada's annual
revenue was estimated to reach $20 million by 2012 (SAC ¶¶ 89-90,
207).
RGL asserts that during the time Cantor Nevada appropri-
ated the CIH Entities' mobile gaming technology and Midas software through the uncompensated, undocumented transfers, Lutnick
was CEO of CILLC and Chairman of both CIL and Cantor Nevada (SAC
¶¶ 128, 132, 207-09).
It is reasonable to infer that Lutnick
knew about the undocumented transactions, particularly in light
of his positions, and that he allowed these transactions to
36
proceed because they benefitted both himself and Cantor Nevada,
in which he held at least a 68.08% interest19 (SAC ¶¶ 207-10).
Moreover, RGL asserts that Amaitis, a director or
officer of CIHLLC, CIL and CILLC (including Executive Managing
Director of CILLC since 2004), owes a duty of loyalty to CIH, and
that he materially benefitted from the undocumented transactions
as Cantor Nevada's President from 2004 to January 2009, as Cantor
Nevada's CEO from January 2009 to present and as an owner of a
7.43% interest in Cantor Nevada (SAC ¶¶ 14, 21, 38-41, 45, 129,
227-29).
Similarly, RGL alleges that Merkel, as director or
officer of one or more of the CIH Entities, including CIL, and as
Executive Managing Director, General Counsel and Secretary of
CFLP, which exercises control over CIH's property, owes a duty of
loyalty to CIH, and that he materially benefitted as Cantor
Nevada's Executive Vice President, Chief Legal Officer, General
Counsel and Secretary, as well as through his 2.6% ownership
interest in Cantor Nevada (SAC ¶¶ 15, 21, 33, 38-41, 45, 129,
19
RGL pleads that Lutnick held a 69.17% interest in Cantor
Nevada at one point, but this appears to be in error (see SAC
¶¶ 208, 211). Rather, it appears Cantor Nevada was owned as
follows: Lutnick with 68.08%, Amaitis with 7.43%, Merkel with
2.6% and The Howard W. Lutnick Family Trust ("The Lutnick Family
Trust") with 21.89% (SAC ¶¶ 39, 129, 141, 143, 208, 211). RGL
alleges that Lutnick is the sole member of and controls The
Lutnick Family Trust (SAC ¶ 38).
37
227-29).20
Given their positions, it can be inferred from the
proposed amended complaint that both Amaitis and Merkel knew
about the undocumented transfers, failed to stop them and materially benefitted from them through their ties to Cantor Nevada.
Taken together, these allegations plausibly allege that Amaitis
and Merkel acted in conscious disregard of their duties of
loyalty to CIH in allowing the transfer of the CIH Entities'
mobile gaming technology and Midas software.
Finally, with regard to CIHLLC, RGL has not directly
linked CIHLLC to the undocumented transfers and, as Judge Abrams
previously noted, "the extent to which CIHLLC can be charged with
its agents' knowledge of these transactions is unclear."
Refco
Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at
*23.
Unlike RGL's claims regarding the Asset Purchase
Agreement,21 here, RGL has failed to plead plausible facts from
20
Judge
interest in
interest in
supra, 2014
Abrams previously noted that Merkel's 2.6% ownership
Cantor Nevada, while modest, is not offset by any
CIL. Refco Grp. Ltd. v. Cantor Fitzgerald, L.P.,
WL 2610608 at *26 n.25.
21
Judge Abrams determined that RGL adequately pleaded facts
from which CIHLLC's knowledge concerning the Asset Purchase
Agreement could be inferred because the Amended Complaint,
quoting CET's S-1/A, alleged that CFLP, itself, contributed CIL's
FFO business to Cantor Nevada through its control of the CIH
Entities' general partner CIHLLC, implying that CIHLLC was at
least aware of that specific transaction. See Refco Grp. Ltd. v.
Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at *23-*24.
38
which it may be inferred that CIHLLC acted, or failed to act,
knowingly.
Thus, RGL plausibly alleges that Lutnick, Amaitis and
Merkel engaged in willful misconduct, breaching their duties of
loyalty to CIH.
It has not plausibly alleged such a claim
against CIHLLC.
ii.
RGL's Claim of
Aiding and Abetting
RGL seeks to add a claim of aiding and abetting the
aforementioned breaches of fiduciary duty against all remaining
defendants except CIHLLC, namely CFLP, CFS, Cantor Nevada,
Lutnick, Amaitis and Merkel22 (SAC ¶¶ 235-44).
Defendants argue,
because RGL fails to allege a breach of fiduciary duty, it also
fails to state a claim for aiding and abetting a breach of
fiduciary duty (Defs.' Opp., at 25 & n.8).
The standard for alleging aiding and abetting a breach
of fiduciary duty is also thoroughly described in Judge Abrams'
June 10, 2014 decision as follows:
Under Delaware law, "one who knowingly participates in the breach of a fiduciary duty stands liable
with the primary wrongdoer for injuries resulting from
the breach or the recovery of profit wrongfully captured." In re USACafes, L.P. Litig., 600 A.2d at 55.
22
RGL only includes Merkel to preserve the claim for
appellate review (SAC at 55 n.9).
39
Thus, "'[t]he elements of a claim for aiding and abetting a breach of a fiduciary duty are: (1) the existence of a fiduciary relationship, (2) the fiduciary
breached its duty, (3) a defendant, who is not a fiduciary, knowingly participated in a breach, and (4)
damages to the plaintiff resulted from the concerted
action of the fiduciary and the non-fiduciary.'"
Gotham Partners, L.P. v. Hallwood Realty Partners,
L.P., 817 A.2d 160, 172 (Del. 2002) (quoting Fitzgerald
v. Cantor, No. CIV. A. 16297-NC, 1999 WL 182573, at *1
(Del. Ch. Mar. 25, 1999)).
Defendants' primary contention is that the complaint does not plausibly allege their knowing participation in any breach of duty. "Knowing participation
in a . . . fiduciary breach requires that the third
party act with the knowledge that the conduct advocated
or assisted constitutes such a breach." Malpiede v.
Townson, 780 A.2d 1075, 1097 (Del. 2001). "To plead
knowing participation adequately, [a plaintiff] must
allege facts that the [defendant] directly 'sought to
induce the breach of a fiduciary duty' or 'make factual
allegations from which knowing participation may be
inferred.'" In re BJ's Wholesale Club, Inc. S'holders
Litig., C.A. No. 6623-VCN, 2013 WL 396202, at *14 (Del.
Ch. Jan. 31, 2013) (quoting In re Telecommc'ns, Inc.
[S'holders] Litig., No. Civ. A 16470-NC, 2003 WL
21543427, at *2 (Del. Ch. July 7, 2003)). "Knowing
participation may be inferred where 'it appears that
the defendant may have used knowledge of the breach to
gain a bargaining advantage in the negotiations' or
'where the terms of the transaction are so egregious or
the magnitude of the side deals is so excessive as to
be inherently wrongful.'" Id. (quoting In re Telecommc'ns, Inc. S'holders Litig., 2003 WL 21543427, at
*2).
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *27 (footnote omitted).
Although RGL plausibly alleges a claim of breach of
fiduciary duty against Lutnick, Amaitis and Merkel, RGL fails to
allege any facts that suggest CFLP, CFS, Lutnick, Amaitis or
40
Merkel participated in the undocumented transactions; rather, as
discussed above, RGL merely plausibly alleges that Lutnick,
Amaitis and Merkel knew about the transactions and consciously
chose to make no effort to stop them.
Unlike RGL's claims for
aiding and abetting with respect to the 2006 License Agreement
and 2011 License Agreement, which survived defendants' motion to
dismiss, here, RGL does not plausibly plead that CFLP, CFS,
Lutnick, Amaitis or Merkel were knowing participants such that
their knowledge of the transactions rose "to the level of inducing, encouraging, advocating or assisting the underlying breach,
as is required for aiding-and-abetting liability."
Refco Grp.
Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at *29
(citations omitted).
However, RGL adequately pleads an aiding-
and-abetting claim against Cantor Nevada.
Because RGL plausibly
alleged that Lutnick, Amaitis and Merkel breached their duty of
loyalty to CIH for the undocumented transfers and that they
occupied high-level positions within CIL, CFLP and Cantor Nevada
at the time of the transactions, their knowledge can be imputed
to Cantor Nevada, which was an active participant in and beneficiary of the undocumented transactions.
Thus, RGL sufficiently alleges a claim of aiding and
abetting a breach of fiduciary duty related to the undocumented
41
transfers against Cantor Nevada.
It has not sufficiently alleged
such a claim against CFLP, CFS, Lutnick, Amaitis and Merkel.
iii.
RGL's Claim of
Unjust Enrichment
RGL also seeks to allege a claim of unjust enrichment
based on the undocumented transfers against all defendants.23
Defendants claim that RGL fails to allege that they were unjustly
enriched as a result of the undocumented transfers because RGL
fails to identify the nature or value of what was transferred or
the nature of the transfer itself, and, therefore, it fails to
plead adequately the enrichment of defendants, the loss to CIH or
the absence of justification for the transactions (Defs.' Opp.,
at 25).
"Unjust enrichment is 'the unjust retention of a benefit to the loss of another, or the retention of money
or property of another against the fundamental principles of justice or equity and good conscience.'" Nemec
v. Shrader, 991 A.2d 1120, 1130 (Del. 2010) (quoting
Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060,
1062 (Del. 1988)). "The elements of unjust enrichment
are: (1) an enrichment, (2) an impoverishment, (3) a
relation between the enrichment and impoverishment, (4)
the absence of justification, and (5) the absence of a
remedy provided by law." Id.
23
RGL includes defendants other than Cantor Nevada, Lutnick,
Amaitis and Merkel to preserve the claim for appellate review
(SAC at 56 n.10).
42
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *29.
RGL seeks to allege that Cantor Nevada's growth as the
result of the undocumented transfers was a material benefit that
enriched Cantor Nevada (SAC ¶¶ 104, 114-16, 207).
It claims
that, in 2006, Cantor Nevada obtained the first license to
manufacture, distribute and operate mobile gaming systems from
the Nevada Gaming Commission and, subsequently, contracted to
provide mobile gaming machines and In-Running betting services
developed from the CIH Entities' technology to casinos in Las
Vegas, Nevada (SAC ¶¶ 72-88).
It further alleges that by January
2010, approximately 75% of Cantor Nevada's revenue was derived
from mobile gaming and that, according to statements by Amaitis,
Cantor Nevada anticipated controlling 15% of sports betting in
Nevada by the end of 2010, with annual revenue estimated to reach
$20 million by 2012 (SAC ¶¶ 89-90).
RGL asserts that Cantor
Nevada's potential IPO will capitalize on its use of the CIH
Entities' technology and that the IPO will allegedly result in a
cash infusion of at least $100 million (SAC ¶¶ 92-103).
Finally,
RGL contends that Lutnick, Amaitis and Merkel benefitted from the
transaction because of their ownership interest and roles in
Cantor Nevada (SAC ¶¶ 129, 208).
The foregoing demonstrates that
RGL has plausibly pleaded that Cantor Nevada, Lutnick, Amaitis
43
and Merkel24 benefitted from the alleged undocumented transfer of
assets and technology from CIH.25
In addition, "'[i]mpoverishment' does not require that
the plaintiff seeking a restitutionary remedy suffer an actual
financial loss, as distinguished from being deprived of the
benefit unjustifiably conferred upon the defendant."
Shrader, 991 A.2d 1120, 1130 n.37 (Del. 2010).
Nemec v.
RGL seeks to
allege that it was not compensated for the transfer of technology
(SAC ¶ 115) and that, because neither RGL nor the CIH Entities,
in which RGL has an interest, benefitted from Cantor Nevada's
growth, RGL was impoverished (SAC ¶¶ 128-29, 207-08).
RGL
adequately pleads impoverishment because it was deprived of the
alleged benefit derived by Cantor Nevada, Lutnick, Amaitis and
Merkel from the undocumented transfers.
24
For the reasons stated by Judge Abrams in Refco Grp. Ltd.
v. Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at *31-*32, I
conclude that the alleged benefit derived by Lutnick, Amaitis and
Merkel due to their ownership of Cantor Nevada is not so
attenuated or speculative as to prevent reversing any unjust
retention of benefit should they be found liable individually.
25
To the extent RGL seeks to assert an unjust enrichment
claim based on the undocumented transfers against CIHLLC, CFS or
CFLP, as noted by Judge Abrams, RGL does not adequately plead
that they have a stake in Cantor Nevada. Refco Grp. Ltd. v.
Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at *30. Any
attempt to bring an unjust enrichment claim against CIH and its
wholly-owned subsidiaries, CIHLLC and CFGH, fails for the same
reason (see SAC ¶¶ 32-34).
44
Finally, RGL seeks to allege that Cantor Nevada,
Lutnick, Amaitis and Merkel were enriched by the undocumented
transfers without CIH's permission and without compensating the
CIH Entities (SAC ¶¶ 115, 246), adequately alleging that the
claimed enrichment was unjustified.
Accordingly, RGL sufficiently pleads a claim for unjust
enrichment related to the undocumented transfers of CIH's assets
and technology against Cantor Nevada, Lutnick, Amaitis and
Merkel.
It has failed to allege adequately such a claim against
CFS, CFLP, CIHLLC, CIH, CILLC and CFGH.
iv.
RGL's Claim of
Waste of Assets
RGL seeks to allege a claim of waste of assets against
CIHLLC, Lutnick, Amaitis and Merkel (SAC ¶¶ 250-54).
Defendants
argue that RGL fails to allege a claim of waste based on the
undocumented transfers because the circumstances of the undocumented transfers, particularly the consideration received, are
not alleged (Defs.' Opp., at 25).
"The test for corporate waste is a stringent one and
requires that the plaintiff plead facts showing that no person of
ordinary sound business judgment could view the benefits received
in the transaction as a fair exchange for the consideration paid
by the corporation."
In re Lear Corp. S'holder Litig., 967 A.2d
45
640, 656 (Del. Ch. 2008) (internal quotation marks and citation
omitted); Lewis v. Vogelstein, 699 A.2d 327, 336 (Del. Ch. 1997)
("[A] waste entails an exchange of corporate assets for consideration so disproportionately small as to lie beyond the range at
which any reasonable person might be willing to trade.
Most
often the claim is associated with a transfer of corporate assets
that serves no corporate purpose; or for which no consideration
at all is received."
(internal citation omitted)).
RGL claims that the CIH Entities received no compensation for the undocumented transfers of technology (SAC ¶ 115).
Because the alleged transfer of the CIH Entities' technology to
Cantor Nevada for no consideration was "in effect a gift," see
Lewis v. Vogelstein, supra, 699 A.2d at 336, plaintiff sufficiently pleads a claim of waste against CIHLLC, Lutnick, Amaitis
and Merkel.
v.
RGL's Claims
of Conversion
RGL seeks to assert a claim of conversion against all
defendants (SAC ¶¶ 260-64).
Defendants contend that RGL's claim
of conversion resulting from the undocumented transfers fails
because it does not sufficiently allege that the CIH Entities had
a right to the property (Defs.' Opp., at 25).
46
The elements of a conversion claim are "a) [plaintiff's] right to the property in question and b) . . . defendant['s] hold[ing] the property in contravention of that right."
Lorenzetti v. Hodges, 62 A.3d 1224 (Table), 2013 WL 592923 at *3
(Del. 2013) (citation omitted).
"An action for conversion has
traditionally applied to the wrongful exercise of dominion over
tangible goods.
Following a modern trend, Delaware courts have
tentatively expanded the doctrine of property to encompass some
intangible goods where the intangible property relations are
merged into a document."
Carlton Invs. v. TLC Beatrice Int'l
Holdings, Inc., Civ. A. No. 13950, 1995 WL 694397 at *16 (Del.
Ch. Nov. 21, 1995) (citations omitted); see also 4C, Inc. v.
Pouls, Civ. A. No. 11-00778 (JEI/KMW), 2014 WL 1047032 at *9 n.18
(D. Del. Mar. 5, 2014); Israel Discount Bank of N.Y. v. First
State Depository Co., Civ. A. No. 7237-VCP, 2013 WL 2326875 at
*21 n.211 (Del. Ch. May 29, 2013) (collecting cases).
To state a
claim of conversion, the plaintiff must allege "precisely what
property the defendant converted."
Touch of Italy Salumeria &
Pasticceria, LLC v. Bascio, Civ. A. No. 8602-VCG, 2014 WL 108895
at *7 (Del. Ch. Jan. 13, 2014); see also Israel Discount Bank of
N.Y. v. First State Depository Co., supra, 2013 WL 2326875 at *21
(requiring that conversion of "specific, identifiable, and
tangible property" be alleged to state a claim).
47
RGL fails to allege that it had any tangible interest
in the underlying technology because it does not claim any
interest that was "merged into a document."
Refco Grp. Ltd. v.
Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at *38 (noting
that property interests in proprietary information, such as
technology, may support a claim of conversion if that information
were "merged into a document" (citing Res. Ventures, Inc. v. Res.
Mgmt. Int'l Inc., 42 F. Supp. 2d 423, 439 (D. Del. 1999))).
Because RGL fails to identify the specific tangible
property converted by defendants, it has failed to plead adequately a claim of conversion against defendants.
vi.
Summary
Accordingly, if the claims are timely and RGL has
adequately pleaded demand futility, issues that are addressed in
the succeeding sections, RGL has adequately pleaded claims based
on the undocumented transfers for:
(1) breach of fiduciary duty
against Lutnick, Amaitis and Merkel; (2) aiding and abetting
against Cantor Nevada; (3) unjust enrichment against Cantor
Nevada, Lutnick, Amaitis and Merkel and (4) waste of assets
against CIHLLC, Lutnick, Amaitis and Merkel.
RGL has failed to
state claims related to the undocumented transfers for:
(1)
breach of fiduciary duty against CIHLLC; (2) aiding and abetting
48
against any defendant except Cantor Nevada; (3) unjust enrichment
against CIHLLC, CFS, CFLP, CIH, CILLC and CFGH and (4) conversion
against all defendants.
b.
RGL's Re-Pleading of Its Dismissed Claims
Relating to the Transfer of CIL's Trading
Activity, the Alleged Increased
Related-Party Fees Paid by CIL and the
Remaining Undocumented Transfer Claims
Defendants next argue that RGL's reassertion of its
dismissed claims relating to the transfer of CIL's trading
activity and the increase in related-party fees, as well as its
remaining claims related to the undocumented transfers, are
futile because (1) they are time-barred and (2) RGL does not
remedy the failure of its prior complaint to plead demand futility with particularity (Defs.' Opp., at 17-24).
i.
Timeliness of the
Proposed Amendments
Defendants first argue that RGL's remaining proposed
amendments are futile because they are time-barred.
RGL contends
that its claims are timely under Delaware's three-year statute of
limitations26 because (1) the claims relate back to the "original
adversary proceeding filed by RGL on December 6, 2012" and (2)
26
Del. Code Ann. tit. 10, § 8106.
49
the statute of limitations was tolled because defendants "actively concealed the relevant facts," citing In re Tyson Foods,
Inc. Consol. S'holder Litig., 919 A.2d 563, 585 (Del. Ch. 2007)
(Pl.'s Mem., at 22-23; Pl.'s Reply, at 8 & n.8).
Defendants
contend that RGL's "conclusory," "vague and unsupported" claims
of tolling are insufficient (Defs.' Opp., at 24).
Moreover, they
argue that to the extent RGL can "relate its claims back to the
original adversary pleading, its claims relating [to] the alleged
increase in related-party fees (which RGL alleges occurred in
2003-2006)" are still time-barred (Defs.' Opp., at 24).
Finally,
defendants argue that "RGL's failure to allege any facts suggesting the time frame of the alleged 'undocumented' transfers of
CIH's assets and technology make it impossible for this Court to
determine whether RGL's claims fall within the applicable statue
of limitations" (Defs.' Opp., at 23).
A.
Relation Back
RGL first argues that its claims relating to the
undocumented transfers, the transfer of CIL's trading activity
and the increase in related-party fees are timely because they
"relate back" to the original adversary proceeding filed on
December 6, 2012 (Pl.'s Mem., at 22-23; Pl.'s Reply, at 8 & n.8).
RGL contends that it is not seeking to add new claims; rather, it
50
seeks to "augment allegations set forth in the" original adversary proceeding (Pl.'s Reply, at 8; Pl.'s Mem., at 22-23).
Defendants do not challenge the applicability of the relation
back doctrine to RGL's proposed amendments; instead, they merely
argue that if RGL's claims do relate back, the claims relating to
the undocumented transfers are futile because RGL fails to allege
any facts regarding the time frame of those transfers to enable
the court to determine whether they are time-barred and the
claims relating to the increase in related-party fees, which
allegedly occurred from 2003 to 2006, are still time-barred
(Defs.' Opp., at 23-24).
The "relation back" doctrine, pursuant to Fed.R.Civ.P.
15(c)(2), provides that "[a]n amendment to a pleading relates
back to the date of the original pleading when . . . the amendment asserts a claim or defense that arose out of the conduct,
transaction, or occurrence set out -- or attempted to be set out
-- in the original pleading."
"For a newly added action to relate back, 'the basic
claim must have arisen out of the conduct set forth in
the original pleading . . . .'" Tho Dinh Tran, 281
F.3d at 36 (quoting Schiavone v. Fortune, 477 U.S. 21,
29, 106 S. Ct. 2379, 91 L.Ed.2d 18 (1986)). Under Rule
15, the "central inquiry is whether adequate notice of
the matters raised in the amended pleading has been
given to the opposing party within the statute of
limitations by the general fact situation alleged in
the original pleading." Stevelman, 174 F.3d at 86
(internal quotations and citation omitted). Where the
amended complaint does not allege a new claim but
51
renders prior allegations more definite and precise,
relation back occurs." Id. at 87.
Slayton v. Am. Express Co., 460 F.3d 215, 228 (2d Cir. 2006);
Stevelman v. Alias Research Inc., 174 F.3d 79, 87 (2d Cir. 1999)
("Where no new cause of action is alleged . . . [the Second
Circuit] liberally grants relation back under Rule 15(c).").
Defendants bear the burden of proving the futility of
amendment, and defendants do not take issue with RGL's contention
that the proposed amendments relate back to the original adversary proceeding.
Rather, defendants argue that the claims
related to the undocumented transfers fail to allege facts
sufficient to determine whether they are time-barred and that the
claims related to the increased related-party fees were untimely
when RGL brought the original adversary proceeding.
Because
defendants do not take issue with the relation back of the
proposed amendments concerning the transfer of CIL's trading
activity and do not argue that they were time-barred as of the
date the original adversary proceeding was commenced, those
claims are not futile.
B.
The Undocumented Transfers
Defendants contend that RGL has failed to allege any
facts regarding the timing of the undocumented transfers and,
therefore, it is impossible to determine whether RGL states
52
valid, timely claims related to the undocumented transfers
(Defs.' Opp., at 22-23).
Fed.R.Civ.P. 8 does not require that a
complaint allege when the events giving rise to the claim occurred, see Burrell v. State Farm & Cas. Co., 226 F. Supp. 2d
427, 440 (S.D.N.Y. 2002) (Koeltl, D.J.), "and while Fed.R.Civ.P.
9(f) provides that averments of time and place are material, that
Rule does not require specific allegations of place and time, but
merely states that when such specific allegations are made, they
are material" to determining whether a pleading is sufficient.
Kiewit Constructors, Inc. v. Franbilt, Inc., No. 07-CV-121A, 2007
WL 2461919 at *2 (W.D.N.Y. Aug. 24, 2007) (internal quotation
marks and citation omitted).
Nothing on the face of the proposed
amended complaint suggests that the claims concerning the undocumented transfers would have been time-barred as of the date of
the original adversary proceeding.
Accordingly, on the existing
record, there is no basis to conclude that the claims concerning
the undocumented transfers are time-barred and futile.
C.
Tolling and the
Increased Related-Party Fees
Finally, defendants argue that even if the claims
related to the alleged increase in related-party fees relate
back, they are time-barred now because they were time-barred when
they were first alleged on December 6, 2012 (Defs.' Opp., at 24).
53
RGL claims that the related-party fees increased as early as 2003
and as late as 2007 (SAC ¶¶ 187-88); therefore, unless the
statute of limitations for the related-party fee claims are
tolled, they are time-barred, and, therefore, futile.
Plaintiff argues that the three-year statute of limitations applicable to the related-party fees is tolled because
defendants "actively concealed facts . . . by failing to provide
relevant and timely information to RGL . . . and by failing to
comply diligently and completely with the Bankruptcy Court's Rule
2004 Orders," thereby preventing RGL from discovering information
concerning Lutnick's ownership interest in CFLP (Pl.'s Mem., at
22 n.49).
RGL claims it has attempted to obtain the "basic
financial information about CIH" through its Rule 2004 discovery
requests and subpoenas since March 1, 2007, but that (1) prior to
defendants' document production in 2012, it had no notice of the
transactions underlying its claims, including increased relatedparty fees, and (2) defendants first produced the document
purportedly showing Lutnick's ownership in CFLP less than a month
before the service of the instant motion in December 2014 (Pl.'s
Mem., at 5-6; 15; SAC ¶¶ 191-95; see FFO Reorg, dated April 28,
2010, annexed as Exhibit C to Jarvis Decl.).
Defendants argue
that RGL's arguments are "vague and unsupported" and "such
54
conclusory allegations are insufficient to establish that" it
actively concealed relevant facts from RGL (Defs.' Opp., at 24).
Although a plaintiff does not have to anticipate
affirmative defenses in its complaint, where the face of the
complaint itself alleges facts that support an affirmative
defense, such as by pleading facts that show the claim is timebarred, the complaint fails to state a claim pursuant to Rule
12(b)(6).
See SEC v. Bronson, 14 F. Supp. 3d 402, 407 (S.D.N.Y.
2014) (Karas, D.J.) (collecting cases); Levine v. AtriCure, Inc.,
594 F. Supp. 2d 471, 474-75 (S.D.N.Y. 2009) (Holwell, D.J.)
(noting that "a litigant may plead itself out of court by unintentionally alleging facts (taken as true) that establish an
affirmative defense").
Here, RGL alleges that the increased
related-party fees were charged no later than 2007 (SAC ¶¶ 18688), and, therefore, the complaint itself alleges facts that
demonstrate the claims concerning the increased related-party
fees would be time-barred even if deemed filed as of December 6,
2012.
"When a complaint asserts a claim that is, as here, on its
face barred by the statute of limitations, plaintiffs bear the
burden of pleading specific facts demonstrating that the statute
was tolled."
In re Coca-Cola Enters., Inc. S'holders Litig.,
C.A. No. 1927-CC, 2007 WL 3122370 at *6 (Del. Ch. Oct. 17, 2007)
(citation omitted), aff'd sub nom. Int'l Bhd. Teamsters v. Coca55
Cola Co., 954 A.2d 910 (Del. 2008); see also Barbara v. MarineMax, Inc., No. 12-CV-0368 (ARR), 2012 WL 6025604 at *10 (E.D.N.Y.
Dec. 4, 2012);
Puig v. Seminole Night Club, LLC, C.A. No. 5495-
VCN, 2011 WL 3275948 at *4 n.21 (Del. Ch. July 29, 2011); Smith
v. Mattia, C.A. No. 4498-VCN, 2010 WL 412030 at *5 (Del. Ch. Feb.
1, 2010); Gen. Video Corp. v. Kertesz, No. 1922-VCL, 2008 WL
509816 at *4 (Del. Ch. Feb. 25, 2008).
RGL relies on the doctrine of fraudulent concealment
under which the statute of limitations can be tolled "when a
defendant has fraudulently concealed from a plaintiff the facts
necessary to put him on notice of the truth"; in order for the
doctrine to apply, the "plaintiff must allege an affirmative act
of 'actual artifice' by the defendant that either prevented the
plaintiff from gaining knowledge of material facts or led the
plaintiff away from the truth."
In re Tyson Foods, Inc. Consol.
S'holder Litig., supra, 919 A.2d at 585 (citations omitted);
accord Barbara v. MarineMax, Inc., supra, 2012 WL 6025604 at *10.
Here, RGL alleges plausible facts sufficient to raise
an issue of fraudulent concealment.
In the proposed Second
Amended Complaint, RGL alleges that it "first learned of the
Affiliated Transactions," which it defines as including the
increased related-party fees, "as a result of the Rule 2004
document production that occurred in 2012 [and that p]rior to
56
such production, Plaintiff was not provided the necessary documents that could have reasonably placed Plaintiff on notice of
such conduct" (SAC ¶ 192).
It claims that "[u]pon information
and belief, Defendants hid these matters from Plaintiff or
otherwise improperly failed to disclose these matters to Plaintiff" (SAC ¶ 193).
RGL further alleges that, beginning, no later
than 2010 and continuing through 2012, it made numerous attempts
to obtain discovery, including seeking court intervention, and
that defendants withheld or refused to produce documents or
information that would have reasonably provided RGL with notice
of the increase in related-party fees that form the basis for its
proposed amendments (SAC ¶¶ 194-95).
These allegations plausibly
plead fraudulent concealment at least through 2012.
Accordingly, RGL adequately pleads facts to toll the
limitations period for its claims related to the increased
related-party fees until 2012.
Since these amendments relate
back to the original filing on December 6, 2012, RGL's proposed
amendments related to the increased related-party fees are not
futile.27
27
Without explanation, after arguing for tolling pursuant to
Delaware's doctrine of fraudulent concealment in its initial
Memorandum of Law, RGL appears to change course in its Reply,
arguing that the statute of limitations is tolled pursuant to the
New York doctrine of equitable tolling, citing Koch v. Christie's
Int'l PLC, 699 F.3d 141, 157 (2d Cir. 2012). The standards and
(continued...)
57
ii.
RGL's Allegations
of Demand Futility
RGL's claims related to the transfer of CIL's trading
activity to CFE and the increase in related-party fees were
previously dismissed for failure to plead demand futility adequately.
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014
WL 2610608 at *15, *18, *20.
RGL must also plead demand futility
with respect to its claims related to the undocumented transfers.
Because RGL is proceeding "doubly derivatively" as the
limited partner in CIH for injury to CIH's subsidiaries, the need
to make a demand will be excused as futile only if RGL has
pleaded facts for each Challenged Transaction that create a
reasonable doubt that CIHLLC, CIH's general partner, was disinterested and could have made an impartial business judgment as to
whether to bring the CIH Entities' claims.
See Refco Grp. Ltd.
v. Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at *13,
quoting Lambrecht v. O'Neal, 3 A.3d 277, 282, 285-86 (Del. 2010)
and Rales v. Blasband, 634 A.2d 927, 933-34 (Del. 1993).
27
A
(...continued)
effects of equitable tolling are different in New York and
Delaware. See Barbara v. MarineMax, Inc., supra, 2012 WL 6025604
at *8. However, because I conclude that the proposed amendments
are not barred pursuant to Delaware law, which both parties rely
upon in their initial briefs, and because neither party has
provided a choice of law analysis, I need not address whether New
York law applies or the timeliness of RGL's amendments pursuant
to New York's equitable tolling standard.
58
disabling interest exists when the general partner (1) stands on
both sides of the transaction, (2) materially benefits in a
manner not shared by other partners or (3) faces a substantial
threat of liability from the transaction.
Refco Grp. Ltd. v.
Cantor Fitzgerald, L.P., supra, 2014 WL 2610608 at *14 (citations
omitted).
RGL pleads that a demand on CIHLLC would have been
futile because "CIHLLC is controlled by Lutnick, Lutnick was
interested in each of the [Challenged] Transactions, and Lutnick
and CIHLLC face a substantial threat of liability for the [Challenged] Transactions" (SAC ¶ 200).
Judge Abrams noted that
"[d]emand will be excused for a particular Challenged Transaction
if CIHLLC is dominated by or beholden to Lutnick and Lutnick
received a material benefit from or faces a substantial threat of
liability for the transaction," as well as for any transaction
"for which CIHLLC faces a substantial threat of liability."
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *15.
Judge Abrams previously determined that "RGL has
adequately pled that Lutnick dominates CIHLLC for purposes of
demand futility."
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P.,
supra, 2014 WL 2610608 at *16.
Accordingly, in order to excuse
its failure to make a demand and to state a claim, RGL must
plausibly plead that, with regard to the undocumented transfers,
59
the transfer of CIL's trading activity and the increased relatedparty fees, Lutnick had a disabling interest in the transactions
or that the transactions expose Lutnick and CIHLLC to a substantial threat of liability.
In determining whether Lutnick was interested in the
transactions,
Lutnick is considered "interested" in a Challenged
Transaction if he stood on both sides of the transaction or personally received a material benefit. See
Orrnan, 794 A.2d at 25 n.50. Generally, the benefit
must have been "of such subjective material significance to [Lutnick] that it is reasonable to question
whether [he would have] objectively considered the
advisability of the challenged transaction to [CIH]."
Id. However, "whenever a[n] [individual] stands on
both sides of the challenged transaction he is deemed
interested and allegations of materiality have not been
required." Id.
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *17.
"[D]etermination of the sufficiency of allega-
tions of futility depends on the circumstances of the individual
case and is within the discretion of the district court."
Kaster
v. Modification Sys., Inc., 731 F.2d 1014, 1018 (2d Cir. 1984)
(citations omitted).
A.
Lutnick's Interest in
the Undocumented Transfers
With regard to the undocumented transfers of the CIH
Entities' technology and assets, defendants argue that RGL fails
60
to plead demand futility with the particularity required by
Fed.R.Civ.P. 23.1(b)(3).28
Defendants contend that RGL's claims
are based on "purely speculative allegations and assumptions" and
that "RGL's Second Amended Complaint is devoid of any factual
allegation[s] which identify when these alleged transactions took
place, the type or value of the alleged technology or assets
taken, or Lutnick's or anyone else's role in these transfers,"
thereby preventing a determination of whether Lutnick benefitted
or the extent of Lutnick's involvement in the transactions
(Defs.' Opp., at 21-22).
RGL contends that demand is excused
because Lutnick materially benefitted from the undocumented
transfers and stood on both sides of the transaction (Pl.'s Mem.,
at 20-21; Pl.'s Reply, at 4-6).
With regard to whether Lutnick materially benefitted,
RGL alleges that the undocumented transfers of the CIH Entities'
assets and technology to Cantor Nevada resulted in the rapid
growth of Cantor Nevada and ultimately benefitted Lutnick, who
held at least a 68.08% ownership interest in Cantor Nevada (SAC
28
Rule 23.1 requires that the plaintiff plead with
particularity all the information needed to determine whether
demand was excused pursuant to the applicable substantive state
law, which in this case is Delaware law. See Halebian v. Berv,
590 F.3d 195, 211 (2d Cir. 2009).
61
¶¶ 38-39, 92, 104, 115-16, 128-29).29
The proposed Second Amend-
ed Complaint includes numerous allegations of Cantor Nevada's
expansion of its mobile gaming technology and sports betting
services, particularly in Nevada and the United Kingdom from as
early as 2003 through 2012, which were developed using the CIH
Entities' assets and technologies (SAC ¶¶ 72-103).
RGL contends
that Cantor Nevada's growth included the development of eDeck
mobile gaming systems, which Amaitis allegedly admitted used
variations of CIL's algorithms, and the operation of its InRunning betting services in Nevada resorts and casinos, which
were services based on the CIH Entities' Midas software (SAC
¶¶ 82-88, 109, 111, 114, 117).
Moreover, RGL alleges that as of
January 2010, 75% of Cantor Nevada's revenue was from mobile
gaming, Amaitis anticipated that 15% of all Nevada sports betting
would originate with Cantor Nevada by the end of 2010 and Cantor
Nevada's revenue was predicted to rise to $20 million by 2012
(SAC ¶¶ 89, 90).
In addition, RGL contends that Cantor Nevada,
under its new name CG Technology, plans to pursue an initial
public offering that RGL expects will yield at least a $100
million cash infusion, in part from its mobile gaming technology
and betting services (SAC ¶ 103).
29
If The Lutnick Family Trust's 21.89% ownership interest is
attributable to its sole member, Lutnick, then Lutnick holds an
89.97% interest in Cantor Nevada (SAC ¶¶ 39, 129).
62
Thus, RGL alleges that the undocumented transfers
resulted in the growth and success of Cantor Nevada, that Lutnick, with at least a 68.08% ownership interest in Cantor Nevada,
benefitted from that growth and that RGL and the CIH Entities
received no compensation for the transfer and reaped no benefit
from the growth of Cantor Nevada.
Accordingly, RGL adequately
pleads that Lutnick materially benefitted from the undocumented
transfers to Cantor Nevada in which neither RGL, through its 10%
interest in CIH, nor the CIH Entities shared.
In addition, RGL also alleges that Lutnick controlled
Cantor Nevada, serving as Chairman of its Board of Directors
since 2004 and as CEO from 2004 to January 2009 (SAC ¶¶ 40-41,
44).
RGL contends that, at the same time, Lutnick also stood on
the CIH Entities' side of the transaction as follows.
RGL
contends that Lutnick held at least a 10% interest in CFLP, in
which he served as Chairman and CEO (SAC ¶¶ 16, 32-34, 44).
RGL
alleges that CFLP controlled CIH through CIHLP II, CIHLLC and CFS
because (1) CFLP was the sole member of CIHLP II, which held an
89% interest in CIH, (2) CIHLLC is the general partner of and
holds a 1% interest in CIH and (3) CFS is CIHLLC's sole member
and is controlled by CFLP, which is the sole member of CFLP CFS
Holdings, LLC, which is the general partner of CFLP CFS I Holdings, L.P., which is the general partner of CFS (SAC ¶¶ 11-13,
63
16, 32-34).
Thus, RGL contends that Lutnick, through his control
of CFLP, controls and has an interest in CIH, from whose whollyowned subsidiaries, CIL and CILLC, RGL alleges assets and technology were transferred through the undocumented transactions
without compensation (SAC ¶¶ 19, 30, 32-34, 44, 105, 207).
RGL
further alleges that Lutnick served as Chairman of CFS and CIL
and Chairman and CEO of CILLC (SAC ¶¶ 44, 209).
Accordingly, RGL
plausibly pleads that Lutnick stood on both sides of the transactions through his interest in and control of various CIH Entities
and Cantor Nevada, and, therefore, sufficiently pleads demand
futility.
Because I have determined that RGL has plausibly
pleaded that demand is excused as to the transfer of CIL's
trading activity based on Lutnick's domination of CIHLLC and his
own interests in the transaction, I need not reach the issue of
whether CIHLLC or Lutnick face a substantial threat of liability
for the undocumented transfers.
B.
Lutnick's Interest
in the Transfer of
CIL's Trading Activity
With respect to the transfer of CIL's trading activity,
Judge Abrams determined that RGL's Amended Complaint failed to
allege adequately that Lutnick received a material benefit from
64
the transfer because (1) "[t]he nature and value of this trading
activity [wa]s left unexplained," (2) "the complaint contain[ed]
no allegations concerning the extent of Lutnick's ownership
interest in CFE or its size relative to Lutnick's interest in
CIL," (3) while RGL alleges that "CFLP controls CFE through a
chain of general partners and managing members," they were "not
alleged to have substantial ownership interests in the limited
partnerships or limited liability companies they control" and (4)
"the size of Lutnick's ownership interest in CFLP [wa]s unclear."
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *18.
Moreover, Judge Abrams determined that RGL
failed to allege plausibly that Lutnick stood on both sides of
the transaction because while RGL alleged that "CIL 'management'
made the decision to transfer CIL's trading activity to CFE[,]
[i]t [wa]s not clear, however, whether Lutnick was a 'director'
or 'officer' of CIL, and there [wa]s no indication that he
participated in the decision."
Refco Grp. Ltd. v. Cantor Fitz-
gerald, L.P., supra, 2014 WL 2610608 at *18 (internal citations
omitted).
Defendants contend that the proposed amendments merely
include allegations of Lutnick's interest in CFLP and that they
fail to address the other deficiencies concerning RGL's pleading
of demand futility for the transaction (Defs.' Opp., at 17-18).
65
With regard to whether Lutnick materially benefitted
from the alleged transfer of CIL's trading activity to CFE, RGL
has failed to remedy the deficiencies cited by Judge Abrams.
RGL's allegations regarding Lutnick's interest in CFLP do appear
to address his interest in CFE, as well as CIL30.
RGL contends
that "any increase in revenues resulting from this trading
activity would have benefitted CFLP and, by extension, Lutnick,
to the detriment of CIL [and] Lutnick has the power to direct
CFE's decisions . . . .
[I]t is clear that Lutnick benefit[t]ed
from the transfer of trading activity and is not disinterested"
(SAC ¶ 218).
However, Lutnick only materially benefitted from
the transaction if the benefit to him by way of CFLP through its
control of CFE was greater than the detriment to him by way of
CFLP through its control of CIH whose subsidiary is CIL.31
See
30
CIH's general partner is CIHLLC, which also holds a 1%
limited partnership interest in CIH (SAC ¶¶ 31-32). CIHLP II LLC
and RGL hold 89% and 10% limited partnership interests in CIH,
respectively (SAC ¶¶ 31-32). CFS is the sole member of CIHLLC,
and CFS is controlled by CFLP (SAC ¶¶ 13, 32). CFLP is the sole
member of CIHLP II LLC (SAC ¶¶ 32, 34). CFLP, therefore,
controls CIH, of which CIL is a subsidiary (SAC ¶ 24).
31
RGL has still failed to allege that many of the general
partners and managing members of the limited partnerships and
limited liability companies in the chain of control between CFLP
and both CFE and CIL had substantial ownership interests in them.
See Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *18. However, RGL appears to attempt to allege that
CFLP owned 100% of CFE (meaning Lutnick had a 10% interest in
CFE) and that CFLP had, at most, a 90% interest in CIL (meaning
(continued...)
66
Refco Grp. Ltd. v. Cantor Fitzgerald, L.P., supra, 2014 WL
2610608 at *25 n.24.
Because RGL fails to allege the relative
sizes of Lutnick's interests in CIL and CFE, it has failed to
plead plausibly that Lutnick materially benefitted from the
transfer.
However, RGL has plausibly alleged that Lutnick stood
on both sides of the transaction and has, therefore, plausibly
pleaded demand futility with respect to the transfer of CIL's
trading activity.
RGL alleges that CIL's "management" trans-
ferred the trading activity to CFE and that Lutnick was Chairman
of CIL at the time the trading activity was transferred (SAC
¶¶ 16, 169).
Moreover, as described above, RGL alleges that
Lutnick had an interest in both CIL and CFE through CFLP and that
Lutnick had "the power to direct CFE's decisions" (SAC ¶ 218).
Thus, RGL has adequately alleged that Lutnick stood on both sides
of the transaction and participated in the decision to transfer
CIL's trading activity.
Because I have determined that RGL has plausibly
pleaded that demand is excused as to this transaction based on
31
(...continued)
Lutnick, at most, had a 9% interest in CIL). Nevertheless, even
if the value of the trading activity to CIL significantly exceeds
its value to CFE, Lutnick would not materially benefit from the
transfer. RGL has not pleaded any facts alleging the value of
the trading activity to CFE.
67
Lutnick's domination of CIHLLC and his own interests on both
sides of the transaction, I need not reach the issue of whether
CIHLLC or Lutnick face a substantial threat of liability for the
transfer of CIL's trading activity to CFE.
C.
Lutnick's Interest
in the Increase in
Related-Party Fees
With respect to the increased related-party fees, Judge
Abrams concluded that RGL's Amended Complaint failed to plausibly
plead Lutnick's interest in the increased related-party fees paid
by CIL to CFE and other Cantor affiliates because, like its
allegations regarding the transfer of CIL's trading activity, RGL
failed to show a material benefit to Lutnick or that "he stood on
both sides" of the transaction because it did "not describe the
extent of Lutnick's interest in CFE . . . or his participation in
the relevant decisions."
Refco Grp. Ltd. v. Cantor Fitzgerald,
L.P., supra, 2014 WL 2610608 at *18.
Defendants argue that RGL's
allegation that Lutnick held a 10% interest in CFLP is inadequate
to cure the deficiencies regarding demand futility for this
transaction (Defs.' Opp., at 17-18).
Here, too, RGL's allegations regarding Lutnick's
interests in CIL and CFE are insufficient, as described above.
68
RGL has failed to plead plausibly that Lutnick materially benefitted from the increase in related-party fees.
However, RGL argues that defendants, including Lutnick
through his 10% interest in and control of CFLP, "caused CIL . .
. to pay exorbitant sums to CFLP subsidiary CFE and other CFLP
affiliates through a series of related-party transactions and
agreements" (SAC ¶¶ 21, 186, 190, 219).
This is sufficient to
support an inference that Lutnick participated in the decision to
charge CIL increased related-party fees.
Because, as discussed
above, Lutnick had an interest in both CIL and CFE through CFLP
and "the power to direct CFE's decisions" (SAC ¶¶ 21, 218), he
stood on both sides of the transaction.
RGL has also plausibly
pleaded that Lutnick participated in the decision to increase the
related-party fees.
Accordingly, RGL has adequately alleged that demand is
excused as to the increase in related-party fees.
I need not
reach the issue of whether CIHLLC or Lutnick face a substantial
threat of liability for the increased related-party fees.
III.
Conclusion
Accordingly, for all the foregoing reasons, RGL's
motion for leave to file the Second Amended Complaint is granted
with respect to the amendments that (1) identify parties whose
69
names have changed, (2) remove allegations regarding Cantor
Casino, (3) concern Cantor Nevada's intent to pursue an initial
public offering, (4) relate to the Surviving Transactions, (5)
reassert claims related to the transfer of CIL's trading activity
and the increased related-party fees and (6) assert the following
claims related to the undocumented transfer of the CIH Entities'
assets and technology:
(a) breach of fiduciary duty against
Lutnick, Amaitis and Merkel, (b) aiding and abetting a breach of
fiduciary duty against Cantor Nevada, (c) unjust enrichment
against Cantor Nevada, Lutnick, Amaitis and Merkel and (d) waste
against CIHLLC, Lutnick, Amaitis and Merkel.
To the extent
plaintiff is attempting to reassert the following claims related
to the undocumented transfers, the motion is denied:
(1) breach
of fiduciary duty against CIHLLC, (2) aiding and abetting a
breach of fiduciary duty against all defendants except Cantor
Nevada, (3) unjust enrichment against CIHLLC, CFS, CFLP, CIH,
CILLC and CFGH and (4) conversion as to all defendants.
70
Plaintiff shall serve and file the Second Amended Complaint no
later than July 27, 2015.
Dated:
New York, New York
July 6, 2015
SO ORDERED
HENRY PI
United States Magistrate Judge
Copies transmitted to:
Geoffrey C. Jarvis, Esq.
Grant & Eisenhofer P.A.
29th Floor
485 Lexington Avenue
New York, New York 10017
Diane T. Zilka, Esq.
Grant & Eisenhofer, PA
Chase Manhattan Centre
1201 North Market Street
Wilmington, Delaware 19801
Nathan A. Cook, Esq.
Grant & Eisenhofer, PA
123 Justison Street
Wilmington, Delaware 19801
Francis X. Riley, III, Esq.
Ruth Rauls, Esq.
Ryan L. Diclemente, Esq.
Saul Ewing LLP
650 College Road East
Princeton, New Jersey 08540
71
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