STSG, LLC v. Intralytix, Inc. et al

Filing 37

MEMORANDUM AND ORDER: denying without prejudice 17 Motion to Dismiss. For the foregoing reasons, defendants' motion to dismiss is denied without prejudice. The Clerk of Court is respectfully directed to terminate the motion at Docket Number 17. SO ORDERED. (Signed by Judge Naomi Reice Buchwald on 3/19/2019) (ama)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------X
STSG, LLC,
Plaintiff,
- against MEMORANDUM AND ORDER
INTRALYTIX, INC., LESAFFRE YEAST
CORPORATION, and JOHN J. WOLOSZYN,

18 Civ. 5569 (NRB)

Defendants.
--------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

Plaintiff
Intralytix,

STSG

Inc.

brings

this

(“Intralytix”),

action

against

Lesaffre

Yeast

(“Lesaffre”) 1, and John. J. Woloszyn (“Woloszyn”).

defendants
Corporation

The Complaint

asserts the following claims: (1) breach of contract (against
Intralytix), (2) breach of the implied covenant of good faith and
fair dealing (against Intralytix), (3) fraud (against Woloszyn and
Intralytix),

(4)

unjust

enrichment

(against

Intralytix),

(5)

tortious interference with a contract (against Lesaffre), (6)
conspiracy to defraud (against all defendants), (7) aiding and
abetting fraud (against Lesaffre), and (8) specific performance
(against Intralytix).

1
We accept defendants’ invitation to treat the Complaint’s
references to “Lesaffre” as if they are referring to LYC Holdings, Inc., in
anticipation of a possible substitution of parties.
Defendants’ Motion to
Dismiss, ECF No. 18 at 7.

Presently before the Court is defendants’ motion to dismiss
the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).
At

oral

argument,

defendants

retreated

from

their

litigation

posture and conceded that plaintiff has enforceable rights of
access and inspection under the agreements governing the 2003 loan
by plaintiff to Intralytix.

Mar. 7, 2019 Hr’g Tr. 21:4–18.

Defendants’ breach of their obligation to provide access and
inspection is not, and cannot be, without consequence.

While we

have no way of knowing what the precise impact on this litigation
would have been had plaintiff been afforded its now acknowledged
rights, it is reasonable to assume that it would have – at a
minimum – reduced the reliance on information and belief pleading
within the Complaint. 2

Because exercise of plaintiff’s access and

inspection rights under the credit agreement will foreseeably
alter the universe of allegations plaintiff can plead pursuant to
Rule 11, a ruling on defendants’ motion to dismiss would be
premature.

Thus, the motion is denied without prejudice to re-

filing once plaintiff has exercised its access and inspection
rights under the contract and after the resolution of any motion
by plaintiff for leave to file an amended complaint.

2
In their briefing, defendants chide plaintiff for making
allegations on information and belief. ECF No. 18 at 23. The inherent tension
between this argument and defendants’ concession at oral argument is not lost
on the Court.

2

However, defendants’ argument that plaintiff’s suit is barred
by issue preclusion is not impacted by Intralytix’s frustration of
plaintiff’s aforementioned contractual rights, and we therefore
resolve it here.
barred

by

judgement.

issue

Defendants assert that the present action is
preclusion

because

of

the

State Court Decision, ECF No. 19-1.

2011

state

court

It is not.

Issue

preclusion “refers to the effect of a prior judgment in foreclosing
successive litigation of an issue of fact or law actually litigated
and resolved in a valid court determination essential to the prior
judgment, whether or not the issue arises on the same or a
different claim.”
(2001).

Under

New Hampshire v. Maine, 532 U.S. 742, 748–49
New

York

law,

issue

preclusion

will

prevent

relitigation of an issue if the issue “has necessarily been decided
in the prior action and is decisive of the present action.”
Kosakow v. New Rochelle Radiology Associates, P.C., 274 F.3d 706,
730 (2d Cir. 2001) (internal citations and quotations omitted).
“Deciding whether and how prior litigation has preclusive effect
is usually the bailiwick of the second court”

Wyly v. Weiss, 697

F.3d 131, 140 (2d Cir. 2012) (emphasis in original) (internal
citations and quotations omitted).
At the time of the state court decision, plaintiff had yet to
exercise any of its rights under the credit agreement unrelated to
collection of the principal debt.

Indeed, the first paragraph of

the state court decision makes clear that “the central issue” of
3

that case was “whether the terms of a Subordination Agreement
between Spencer Trask and the senior lender, Ecolab Inc. ... bar
an action to collect on the note.”
19-1 at 3.

State Court Decision, ECF No.

The state court decision focused its analysis on

whether plaintiff’s delivery of a check for the remaining balance
of the Ecolabs loan constituted payment in full of Intralytix’s
debt to MeyerFlyer.

Id. at 6.

That issue is not “decisive of the

present action,” but rather is inapposite to the present attempt
to enforce plaintiff’s various non-collection rights under the
credit agreement.

Kosakow, 274 F.3d at 730 (2d Cir. 2001).

Additionally, the state court decision predates, inter alia: the
2014 transfer of the senior debt to Highflyer, LLC (“Highflyer”);
Intralytix’s 2017 equity agreement with Lesaffre; and allegations
of violation of plaintiff’s Section 4.1(e) 3, 5.4 4, and 7 5 rights
related to the Lesaffre agreement. A claim premised on these facts
is not precluded by the state court decision because these “facts

3
“Intralytix will furnish to STSG: notice of the occurrence of any
discussions (including the proposed terms of any discussions) relating to the
issuance of New Securities ... by Intralytix, promptly after the occurrence of
any discussions, and of any actual issuance of equity immediately before
issuance.” ECF No. 7-2, ¶ 4.1(e).
4
“Intralytix will not borrow any money or issue any bonds, debentures
or other debt securities or otherwise become obligated on any interest-bearing
indebtedness or indebtedness for borrowed money ... [u]nless otherwise agreed
in writing by STSG in its sole discretion ... .” ECF No. 7-2, ¶ 5.4.
5
“[I]n the event Intralytix engages in the private sale of its equity
securities ... STSG shall have the right, in its sole discretion, to participate
in such Private Equity Round by converting the Loan and any accrued interest
into the securities being offered in the Private Equity Round ... .” ECF No.
7-2, ¶ 7.1.

4

were not before the Court and therefore the specific issues they
raise were never litigated or decided."

Alali v. DeBara, No. 07-

CV-2916(CS), 2008 WL 4700431, at *4 (S.D.N.Y. Oct. 24, 2008)

And

though issue preclusion applies to an issue "even if the

issue

recurs in the context of a different claim," issue preclusion still
requires that the "claims asserted in the subsequent action were,
or could have been, raised in the prior action."
Grp.,

Inc. v. Lucky Brand Dungarees,

Cir. 2015).
preclusion

Inc.,

Marcel Fashions

779 F.3d 102, 108

(2d

Thus, plaintiff is not barred on the basis of issue
from

bringing

this

action

for

any

of

the

claims

asserted.
For the foregoing reasons, defendants' motion to dismiss is
denied w1 thout

prejudice.

The

Clerk

of

Court

is

respectfully

directed to terminate the motion at Docket Number 17.

SO ORDERED.

Dated:

New York, New York
March I....J.., 2019

£

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NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

5