RocketFuel Blockchain Company v. Ellenoff Grossman & Schole LLP

Filing 38

MEMORANDUM OPINION AND ORDER re: 33 MOTION to Dismiss Second Amended Complaint. filed by Ellenoff Grossman & Schole LLP. For the following reasons, EGS'motion to dismiss is GRANTED in part and DENIED in part. For the foregoin g reasons, Rocketfuel's claims against EGS for breach of contract, breach of fiduciary duty, and declaratory judgment and all claims by RBI are dismissed. Rocketfuel's legal malpractice claim against EGS, however, survives. Therefore, t he stay on discovery that the Court ordered on April 23, 2021, see Dkt. 19, is hereby LIFTED. A pretrial conference is scheduled for Friday, January 21, 2022, at 3:30 p.m.. The conference shall be conducted by telephone, and the parties should dial in to the teleconference at: 888-363-4749 // Access Code 3121171# // Security Code 1764. The parties are ordered to submit a joint letter of no more than five pages and proposed Case Management Plan in accordance with the Courts order at Docket 6 n ot later than January 13, 2022.The Clerk of Court is respectfully directed to close the open motion at Docket 33.SO ORDERED. ( Telephone Conference set for 1/21/2022 at 03:30 PM before Judge Valerie E. Caproni.) (Signed by Judge Valerie E. Caproni on 1/7/2022) (tg)

Case 1:21-cv-01764-VEC Document 38 Filed 01/07/22 Page 1 of 16

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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ROCKETFUEL BLOCKCHAIN COMPANY and :
:
ROCKETFUEL BLOCKCHAIN, INC.,
:
:
Plaintiffs,
:
:
-against:
:
ELLENOFF GROSSMAN & SCHOLE LLP,
:
Defendant. :
-------------------------------------------------------------- X

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
DATE FILED: 1/7/22
21-CV-1764 (VEC)
MEMORANDUM
OPINION AND ORDER

VALERIE CAPRONI, United States District Judge:
Defendant Ellenoff Grossman & Schole LLP (“EGS”), a law firm, represented Plaintiff
RocketFuel Blockchain Company (“Rocketfuel”) in a reverse acquisition transaction in which
B4MC Gold Mines, Inc. (“B4MC”), a shell company later renamed Rocketfuel Blockchain, Inc.
(“RBI”, the other Plaintiff in this case), acquired Rocketfuel in exchange for a controlling
interest in RBI common stock. RocketFuel alleges that EGS was retained in part to conduct due
diligence of Rocketfuel’s assets, including five patent applications that had been assigned to
Rocketfuel by one of its co-founders, Joseph Page (“Page”), all of which Rocketfuel and RBI
later learned were legally deficient. Although Plaintiffs have sued Page in Nevada, in this action,
they lay fault with EGS. EGS, in turn, has moved to dismiss. For the following reasons, EGS’
motion to dismiss is GRANTED in part and DENIED in part.
BACKGROUND
On January 8, 2018, Joseph Page (“Page”), Rocketfuel’s co-founder and treasurer; Gert
Funk (“Funk”), Rocketfuel’s co-founder and president; and Bennett Yankowitz (“Yankowitz”),
president of B4MC (later RBI) executed a letter of intent (“LOI”) for a reverse merger, in which

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Page and Funk would form Rocketfuel and Page would transfer his patent applications directly to
Rocketfuel. See generally Touitou Decl., Dkt. 34-3, Ex. 3 (LOI); Second Amended Complaint
(“SAC”), Dkt. 27 ¶¶ 7–8, 21. In the reverse merger, Rocketfuel shareholders would exchange
their shares in Rocketfuel for 75 percent of the total common stock of B4MC, leaving Rocketfuel
a wholly-owned subsidiary of B4MC-turned-RBI. Ex. 3 at 2. In exchange for the assignment of
his patent applications, Page would receive over 5 million shares of RBI stock. SAC ¶¶ 21–22.
Funk, on behalf of Rocketfuel, retained EGS to represent Rocketfuel in the reverse
merger transaction. The firm’s Engagement Agreement was dated March 2, 2018. SAC ¶¶ 13–
14; see generally SAC, Ex. A (Engagement Agreement).
The transaction closed on June 27, 2018, at which point Rocketfuel became a whollyowned subsidiary of RBI. SAC ¶¶ 17–18. Page left Rocketfuel in May 2019, after which
Plaintiffs allegedly learned that the patent applications he had assigned to Rocketfuel were
legally deficient. Id. ¶¶ 9, 23–24, 31–34. Plaintiffs brought this lawsuit on March 2, 2021, see
Compl., Dkt. 1, and filed a SAC on June 18, 2021. See generally SAC, Dkt. 27. They now
contend that EGS committed legal malpractice, id. ¶¶ 104–108; breached the terms of the
retainer agreement, id. ¶¶ 109–112; and breached a fiduciary duty that it owed to Plaintiffs, id. ¶¶
113–119. Additionally, Plaintiffs seek a declaratory judgment that EGS cannot use a separate
settlement agreement as a defense to any claims in this action. Id. ¶¶ 120–154. EGS, in turn, has
moved to dismiss. See Not. of Mot., Dkt. 33. EGS asserts that Plaintiffs’ claims are barred by
the in pari delicto doctrine; that Count I fails to state a legal malpractice claim; that Counts II
and III are duplicative of the deficient claim in Count I; and that Counts IV through VI, seeking
declaratory relief, fail to satisfy the case or controversy requirement. Def. Mem., Dkt. 35 at 11. 1

1

The parties dispute whether the exhibits EGS submitted in support of its motion to dismiss can be
considered by the Court. Pls. Opp., Dkt. 36 at 1 n.1; Def. Reply, Dkt. 37 at 3 n.4. EGS’ exhibits include public

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DISCUSSION
I.

Legal Standard
To survive EGS’ motion to dismiss under Federal Rule of Civil Procedure 12(b)(6),

Plaintiffs’ “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In general, “a complaint does not need to
contain detailed or elaborate factual allegations, but only allegations sufficient to raise an
entitlement to relief above the speculative level.” Keiler v. Harlequin Enters. Ltd., 751 F.3d 64,
70 (2d Cir. 2014) (citation omitted). The Court accepts all factual allegations in the complaint as
true and draws all reasonable inferences in the light most favorable to the plaintiff. See Gibbons
v. Malone, 703 F.3d 595, 599 (2d Cir. 2013).
II.

The In Pari Delicto Doctrine Does Not Bar Plaintiffs’ Claims
The common law doctrine of in pari delicto precludes claims when a dispute is “between

two wrongdoers.” Kirschner v. KPMG LLP, 15 N.Y.3d 446, 464 (2010). 2 EGS argues that,

SEC filings, public documents from the Nevada action, and documents pertaining to the nature of EGS’ agreement
with Plaintiffs, such as the parties’ Engagement Agreement, which is also an exhibit to the SAC. See generally
Touitou Decl., Dkt. 34. It is proper for the Court to consider these exhibits. Key Items, Inc. v. Ultima Diamonds,
Inc., No. 09-CV-3729, 2010 WL 3291582, at *4 (S.D.N.Y. Aug. 17, 2010) (a “court may consider matters outside
the pleading for the purposes of adjudicating a motion to dismiss if those documents are ‘integral’ to a plaintiff’s
claims”) (internal quotation marks and citation omitted); ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98
(2d Cir. 2007) (a court “may consider any written instrument attached to the complaint, statements or documents
incorporated into the complaint by reference, legally required public disclosure documents filed with the SEC, and
documents possessed by or known to the plaintiff and upon which it relied in bringing the suit”) (citing Rothman v.
Gregor, 220 F.3d 81, 88 (2d Cir. 2000)).
2

The parties dispute whether New York or Nevada law governs this issue. See Def. Mem. at 12 n.38; Pls.
Opp. at 9–10; Def. Reply at 1 n.2. New York’s choice of law rules require the Court to apply New York law to
affirmative defenses to claims that are proceeding under New York law. See, e.g., Granite Partners, L.P. v. Bear,
Stearns & Co. Inc., 17 F. Supp. 2d 275, 306 n.16 (S.D.N.Y. 1998) (holding New York law applied to the affirmative
defense of in pari delicto because New York law applied to the substantive claim). The case to which Defendant
cites for the proposition that imputation is governed by the law of incorporation — here, Nevada — answered the
question of whether federal common law preempted state imputation law and not whether state choice-of-law rules
defer to the law of the place of incorporation. O’Melveny & Myers v. F.D.I.C., 512 U.S. 79, 84–85 (1994).
Regardless, because New York and Nevada share the same approach to the in pari delicto defense, see In re Amerco

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because Page was an agent of Rocketfuel, his knowledge of and wrongdoing with respect to the
deficient patent applications was imputed to the company under basic agency law, and, therefore,
EGS and Rocketfuel are in equipoise as wrongdoers, necessitating dismissal of the case. Def.
Mem. at 12–13. But the very precedent to which EGS cites demonstrates that in pari delicto
cannot apply when “the corporation is actually the agent’s intended victim.” Kirschner, 15
N.Y.3d at 466 (citation omitted). This concept — the adverse interest doctrine — precludes
imputation of an agent’s knowledge or actions to a principal when the agent’s actions were
wholly adverse to the principal. Id. at 466–67.
Based on the allegations in the SAC, which the Court accepts as true for the purposes of a
motion to dismiss, see Gibbons, 703 F.3d at 599, the adverse interest doctrine applies here. The
SAC alleges that no one other than Page knew that the patent applications were legally deficient.
SAC ¶¶ 9, 28, 32, 34–35, 48(e)–(f). Under Plaintiffs’ version of the facts, Page intended to
defraud Rocketfuel. Pls. Opp. at 12–14. New York law therefore precludes attributing Page’s
knowledge to Rocketfuel (and, derivatively, to RBI). See Kirschner, 15 N.Y.3d at 464; Conway
v. Marcum & Kliegman LLP, 176 A.D.3d 477, 477 (1st Dep’t 2019) (“We find that plaintiffs
raised issues of fact as to the adverse nature of their interests vis-à-vis those of their agents, the
funds’ investment managers, that preclude summary dismissal of the complaint on the ground of
the in pari delicto defense.”); Center v. Hampton Affiliates, Inc., 66 N.Y.2d 782, 784 (1985)
(“when an agent is engaged in a scheme to defraud his principal, either for his own benefit or
that of a third person, the presumption that knowledge held by the agent was disclosed to the
principal fails because he cannot be presumed to have disclosed that which would expose and
defeat his fraudulent purpose”).

Deriv. Litig., 127 Nev. 196, 214–25 (2011) (following Kirschner, 15 N.Y.3d at 464), this choice-of-law dispute has
no effect on the outcome of the Court’s analysis.

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EGS cherry-picks quotes to suggest that fraudulent acts of agents are presumed imputed
to the corporation, see Def. Reply, Dkt. 37 at 2 (quoting Kirschner, 15 N.Y.3d at 465–66),
conveniently ignoring the barrage of case-law declining imputation when the acts of fraud are
made against that corporation. This is not a matter of an “innocent insider exception to the in
pari delicto doctrine” where those who employ wrongdoing agents can claim to have turned a
blind eye, id. at 2 (citing Kirschner, 15 N.Y.3d at 476–77); instead, Plaintiffs contend they
themselves are the victims. 3
EGS argues that Plaintiffs benefitted from Page’s actions as their agent, and that the
adverse interest doctrine cannot apply when the principal benefits from the agent’s actions,
therefore precluding its application here. Def. Mem. at 14–15. In support, EGS asserts that
Page’s assignment of his patent applications constituted a benefit because it allowed the merger
to proceed; according to EGS, if the fraudulent conduct “enables the business to survive” (here,
by way of the merger), then the adverse interest test is not met. Id. at 14 (quoting Kirschner, 15
N.Y.3d at 468). First, “the mere continuation of a corporate entity does not per se constitute a
benefit that precludes application of the adverse interest exception,” and the Court should not
“[rely] on speculation about the benefits to be derived from the continued existence of an entity.”
Conway, 176 A.D.3d at 477–78. Further, “an ongoing fraud and a continued corporate existence
may harm a corporate entity.” Id. at 478. But more important, the parties dispute whether
Page’s alleged fraud contributed at all to the survival of the business. See Pls. Opp. at 14. 4

3

EGS notes that Page has asserted in a counterclaim that he filed in the Nevada action that he informed
Rocketfuel’s president that the patent applications had been abandoned. Def. Mem. at 1–2, 9. This is a question of
fact that has not been proven, and, at the motion-to-dismiss stage, the Court must accept the allegations in Plaintiffs’
pleadings as true. Gibbons, 703 F.3d at 599.
4

EGS’ argument that the patent applications were critical to the survival of the business serves to undermine
its later argument that the patent applications were so unimportant to the merger that they had no due diligence
obligation to examine them. Def. Mem. at 15–16, 19–20.

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Plaintiffs allege that the June 2018 merger would have occurred regardless of Page’s assignment
of the patent applications. Without the patent applications, the merger would simply have
proceeded without Page, and Page would not have been given millions of shares of RBI stock in
exchange for the patent applications. Id. at 14, 16–17. The Court agrees with Plaintiffs that this
cannot be resolved on a motion to dismiss. Even if Rocketfuel or RBI stood to benefit, such a
fact-based issue cannot be decided on the pleadings. Republic of Iraq v. ABB AG, 768 F.3d 145,
162 (2d Cir. 2014) (collecting cases holding that in pari delicto should only be applied on the
pleadings if the outcome is plain).
The Court declines to speculate whether EGS is at greater fault than Page. See Pls. Opp.
at 10–12; Def. Reply at 2–3. Based on the allegations in the Complaint, Page’s actions cannot be
imputed to Plaintiffs; thus, in pari delicto does not apply.
III.

Rocketfuel Has Properly Stated a Legal Malpractice Claim, but RBI Has Not
EGS next argues that Plaintiffs fail to state a claim for legal malpractice under New York

law. In New York, legal malpractice requires a showing that: (1) the attorney was negligent; (2)
the negligence was the proximate cause of the plaintiff’s injury; and (3) the plaintiff suffered
actual damages. Collins v. Felder, 785 F. App’x 8, 10 (2d Cir. 2019) (citations omitted). EGS
argues that Plaintiffs have failed adequately to allege any element of a malpractice claim. The
Court finds that Rocketfuel has stated a claim for legal malpractice but that RBI lacks standing to
make such a claim.

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A. Rocketfuel Has Adequately Alleged Negligence By EGS, but RBI Does Not
Have Standing
1. Rocketfuel Has Adequately Alleged That EGS Breached a Duty to
Investigate the Patents
EGS contends that it cannot be negligent for failing to disclose information that
Rocketfuel knew. It bases its argument primarily on the fact that Rocketfuel’s Audited Financial
Statements from June 28, 2018 stated that the patent applications had no value. Def. Mem. at
15–16 (citing Touitou Decl., Dkt. 34-7, Ex. 7, F-10) (“No value was ascribed to the intellectual
property rights since no patents have been issued and there can be no assurance that any patents
will be issued”). EGS conflates the applications’ monetary value at the time of assignment and
their legal validity, which is the basis for the malpractice claim. Pls. Opp. at 17. Plaintiffs’
allegations are not that EGS’ due diligence failed to detect that the potential patents were
financially valueless but rather that its due diligence failed to detect that the patent applications
had been abandoned and were legally deficient. SAC ¶¶ 33–34.
EGS also argues that the patents were not within the purview of the Engagement
Agreement, which made no express mention of them, see generally Ex. A, and that Rocketfuel
had informed EGS that the patents were “not critical to the business”, which EGS contends
eliminates the possibility that any due diligence failure on its part could be negligent. Def. Mem.
at 15–16 (citing Touitou Decl., Dkt. 34-4, Ex. 4).
There is no dispute that EGS asked Rocketfuel directly about the importance of the
patents, and Rocketfuel responded, in full:
The patents are not critical to the business. With no patents at all, RocketFuel
will be first to develop and first to market — there is no competition today. After
a few years, competition will be discouraged from entry into this area because of
our patent portfolio. But today, the patent position is not critical and RocketFuel
will be able to proceed identically as if they did not have any patents.

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Ex. 4 at 4. As a whole the statement is ambiguous. While the first and last sentences suggest
that Rocketfuel did not view the patents as immediately critical to its business, the balance of the
statement clearly indicated that Rocketfuel saw its patent portfolio as having future value.
In terms of whether the patents were within the purview of the engagement, Plaintiffs
rely entirely on one sentence in the Engagement Agreement that required EGS to “supervise and
manage all necessary due diligence” in order to effectuate the merger. Pls. Opp. at 16 (quoting
Ex. A at 1). Persuasive to the argument that this language was all-encompassing is the fact that,
in another section of that agreement, intellectual property work was expressly excluded from the
scope of EGS’ retention post-acquisition. Id. at 16 n.14; Ex. A at 1. Even more persuasive is the
fact that, prior to the merger, EGS actually investigated and discovered failures to transfer the
deficient patent applications. SAC ¶¶ 62–78, 94–95; Pls. Opp. at 5–6. That supports the
inference that EGS itself saw the patents as being within the scope of its pre-merger due
diligence.
Plaintiffs’ SAC survives this attack. They have plausibly alleged that part of EGS’ due
diligence obligation was to evaluate the validity of the patents. See SAC ¶¶ 10, 12, 15–16, 27,
29, 61–72. While EGS may be able to provide proof in discovery that investigation of the
validity of the patents was not part of its required due diligence, that is not a basis to dismiss for
failure to state a claim.
2.

RBI Does Not Have Standing To Assert a Legal Malpractice Claim

EGS argues that RBI has no standing to assert a legal malpractice claim, because it was
not a party to the Engagement Agreement and, in fact, was on the opposite side of the merger
transaction. Def. Mem. at 16–18, 17 n.40. Plaintiffs argue that RBI (at the time, B4MC) was a
party to the Engagement Agreement because the agreement covered Rocketfuel “and its

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affiliates.” Pls. Opp. at 17–18 (citing Ex. A at 1). As EGS points out, however, RBI was not an
affiliate of Rocketfuel at the time the Engagement Agreement was executed. Def. Reply at 7.
On the other hand, the Engagement Agreement clearly contemplated work for RBI postacquisition. Ex. A at 1–2.
Although EGS was retained to work for both companies eventually, pre-merger it was
retained to represent Rocketfuel to, inter alia, conduct due diligence. Because EGS owed RBI
no duty of care, RBI does not have standing to assert a legal malpractice claim arising from
EGS’s pre-merger due diligence. A company on the other side of a merger transaction has no
attorney-client relationship with the other company’s attorneys. Learning Annex, L.P. v. Blank
Rome LLP, 106 A.D.3d 663, 633–34 (1st Dep’t 2013) (affirming dismissal of complaint for lack
of attorney-client relationship or privity relationship with company on other side of merger
transaction) (citations omitted).
Plaintiffs argue that the near-privity doctrine creates the necessary relationship between
EGS and RBI to confer standing. Pls. Opp. at 18. The near-privity doctrine creates liability
between attorneys and non-clients when (1) the attorney knows his statement will be used for a
particular purpose; (2) a known party relies on the statement in furtherance of that purpose; and
(3) the attorney engages in some conduct that links the attorney to the relying third-party and
evinces his understanding that the third party will be relying on the attorney’s statement.
Prudential Ins. Co. of Am. v. Dewey, Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377, 384
(1992) (citing Credit Alliance Corp. v. Andersen & Co., 65 N.Y.2d 536, 551 (1985)). This sort
of situation generally arises in the context of attorney representations to third-parties when those
representations are for use by the third-party in a way that benefits the attorney’s client, as
distinct from an attorney’s representations to a counterparty of his client (however friendly the

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counterparty may be). Id. at 385 (holding privity as a third-party beneficiary existed when
opinion letter from law firm was for plaintiff third-party’s use).
Although RBI was a friendly counterparty, it was not in privity with EGS and the “near
privity” doctrine is simply not applicable. Therefore, RBI’s legal malpractice claim is dismissed
for lack of standing.
B. Rocketfuel Has Adequately Alleged Proximate Cause
EGS next argues that Rocketfuel 5 has failed to allege adequately proximate cause. Def.
Mem. at 18–20. To allege a legal malpractice claim in New York, “the plaintiff must
demonstrate that ‘but for’ the attorney’s negligence, plaintiff would have prevailed in the matter
in question” — or, as applied here, that Rocketfuel would not have given Page the millions of
shares he received. Knox v. Aronson, Mayefsky & Sloan, LLP, 168 A.D.3d 70, 75 (1st Dep’t
2018) (citation omitted). Most of EGS’ argument relies on the fact that, in the related lawsuit in
Nevada against Page, Rocketfuel alleges that Page’s misrepresentations were the proximate
cause of Rocketfuel and RBI’s damages. Id. But it is well-settled that more than one offending
party can be a but-for cause of injury, Comi v. Breslin & Breslin, 257 A.D.2d 754, 756 (3d Dep’t
1999), and, despite EGS’ assertions, see Def. Mem. at 18–19, nothing in Rocketfuel’s Nevada
lawsuit negates the possibility that EGS was also a but-for cause of Rocketfuel’s injury. Comi,
257 A.D.2d at 756 (“it is plausible that defendants’ and the [fraudulent actors’] actions and/or
omissions, together, may have contributed to plaintiff’s alleged single injury”) (citation omitted).
Rocketfuel sufficiently alleges in its SAC that, had EGS informed it of the deficiencies in the
patents, the merger would not have gone forward in the exact manner that it did, and that without

5

Because the Court has dismissed the legal malpractice claim by RBI, the rest of this section refers only to
Rocketfuel.

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EGS’ affirmative disclosure to Rocketfuel of those deficiencies, Rocketfuel would not have
uncovered them through other means. Pls. Opp. at 2–3; SAC ¶¶ 25–26, 34–37, 48(e)–(f), 58–61,
84–86, 91–92, 94–95. 6
EGS also argues that because the acquisition arrangement was a “done deal” before EGS
was retained, Rocketfuel cannot sufficiently allege that it “relied on EGS to vet information that
they previously investigated in reaching their pre-merger deal.” Def. Mem. at 19. Relying on
the exchange between Rocketfuel and EGS regarding whether the patents were critical and on
the argument that Page’s knowledge of the state of the applications was imputed to Rocketfuel,
EGS also contends that Rocketfuel knew “that the viability of the patent applications was
tenuous.” Id. As part of its “done deal” argument, EGS proffers that Page assigned his patents
to Rocketfuel in January 2018, pursuant to the LOI, and argues that assignment removed the
patents from the purview of EGS’ due diligence review. Id. at 19–20. But a non-binding LOI is
not a merger; Rocketfuel retained EGS to effectuate the merger and to conduct a thorough
review of everything involved, including the pre-merger, non-binding agreement. EGS could not
have prevented the January assignment from occurring, as it was not hired until March; but it
could plausibly have prevented the merger from closing in June 2018 predicated in part on a
belief that Rocketfuel held valid assignments of the patent applications.
C. Actual Damages
EGS next argues that Rocketfuel has failed to plead actual damages resulting from EGS’
alleged negligence. Def. Mem. at 20–23. The standard for pleading actual damages in a legal
malpractice claim in New York is “merely whether or not the complaint sets forth allegations
from which damages can properly be inferred.” Gottlieb, Rackman & Reisman, P.C. v. ZenColor

6

The Court notes, however, that it is a bit of stretch to say that EGS was retained to investigate Page “for
possible fraud,” Pls. Opp. at 22, even if assessing the patent applications fell within EGS’ due diligence obligation.

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Corp., 13-CV-5715, 2015 WL 4206982, at *5 (S.D.N.Y. July 10, 2015) (citation omitted). There
is no need for Rocketfuel’s damages to be computed precisely at this stage. Under this standard,
the Court finds Rocketfuel has properly pled actual damages resulting from EGS’ alleged
negligence.
Rocketfuel has alleged that Page received RBI shares that he would not otherwise have
received, valued at $9 per share at the time of the reverse merger. SAC ¶¶ 22, 92. According to
Rocketfuel, this amounts to actual damages, because it suffered the loss of the shares Page
gained without receiving anything of value in return as consideration. Pls. Opp. at 23–24.
EGS’ argument focuses on Rocketfuel’s valuation of the shares and financial statements
that purportedly undermine that valuation. Def. Mem. at 20–23. Because RBI (at the time,
B4MC) “was a shell company with no assets and no liabilities,” EGS argues Page could not have
obtained any value when he received the RBI shares. Id. at 20–21 (citations omitted).
Moreover, the fact that Rocketfuel “assigned no value to the five patent applications assigned to
the company” meant that it could not be damaged by the transaction. Id. at 21–23. EGS also
argues that Rocketfuel’s $9 per share valuation should be disregarded because “the proper
measure of damages is based at the time of the merger.” Id. at 22–23 (citation omitted). Finally,
EGS argues Page neither received nor conveyed anything of value. Id. at 23.
Rocketfuel’s asserted valuation of RBI’s shares is based on quoted share prices at “the
time of the closing of the merger in June 2018,” Pls. Opp. at 23, and EGS asserts such a price
cannot capture the true market value of an asset-less shell company, see Def. Mem. at 23; Def.
Reply at 9. The Court “need not wade into the thick of the parties’ dispute at this juncture.”
Barack v. Seward & Kissel, LLP, 16-CV-9664, 2017 WL 4023141, at *6 (S.D.N.Y. Sept. 12,
2017) (citation omitted). Rocketfuel is pleading specific damages with respect to an exchange

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for shares that it alleges would not have occurred had it known of the deficient patent
applications. 7 EGS suggests that Rocketfuel is alleging “lost profits on a start-up venture, which
are too speculative to sustain a claim,” as opposed to the direct loss of the value of shares. Def.
Reply at 9 (citation omitted). But Rocketfuel has not alleged lost profits but lost value; based on
the value of RBI shares at the time of the transaction. While Rocketfuel may not ultimately be
able to prove the shares were each worth $9 at the time, that possibility does not render the
alleged damages conclusory. See, e.g., Barack, 2017 WL 4023141, at *6 (finding damages
adequately pled where plaintiff sought lost value damages in legal malpractice case). Rocketfuel
does not contest that the patent applications were not assigned value in financial audits or that
RBI, as a startup, was a financially risky venture. Pls. Opp. at 23–24. Instead, Rocketfuel pleads
damages from the transfer of shares that it asserts it otherwise would not have transferred. Id. at
24. That is enough to meet the pleading standard.
In short, Rocketfuel has adequately alleged all of the elements of a legal malpractice
claim against EGS.
IV.

Duplicative Claims
EGS argues that, should the legal malpractice claim survive, Plaintiffs’ breach of contract

and breach of fiduciary duty claims should be dismissed as duplicative of the legal malpractice
claim. Def. Mem. at 23–24. New York law requires dismissal of claims that are “premised on
the same facts” and that “seek relief identical to that sought in a legal malpractice cause of
action” because they are “redundant.” MIG, Inc. v. Paul, Weiss, Rifkind, Wharton & Garrison,

7

Damages allegations are found to be conclusory in legal malpractice claims when plaintiffs allege that they
incurred generalized “additional legal fees” or “damages and expense” without providing any specifics. Katsoris v.
Bodnar & Milone, LLP, 186 A.D.3d 1504, 1506 (2020) (citation omitted).

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L.L.P., 701 F. Supp. 2d 518, 532 (S.D.N.Y. 2010), aff’d, 410 F. App’x 408 (2d Cir. 2011)
(citation omitted). 8
Rocketfuel’s legal malpractice claim alleges damages from EGS’ failure to exercise the
applicable standard of care during due diligence. SAC ¶¶ 104–108. Its breach of contract claim
seeks recovery of fees paid to EGS because it failed to conduct adequate due diligence, id. ¶¶
109–112, and its breach of fiduciary duty claim seeks unspecified damages because EGS failed
to apprise Rocketfuel of the “facts as to the status of the patent applications”, id. ¶¶ 113–119.
Rocketfuel points to case-law in which a breach of contract claim was permitted to proceed when
the attorney made “a promise to perform” and then did not perform, Reidy v. Martin, 77 A.D.3d
903, 903 (2d Dep’t 2010), and in which a breach of fiduciary duty claim was permitted to
proceed when the attorney allegedly participated in or committed a wrongdoing against his
client, Neogenix Oncology, Inc. v. Gordon, 133 F. Supp. 3d 539, 558–59 (E.D.N.Y. 2015). Pls.
Opp. at 24. Those examples are obviously distinguishable from the facts alleged here.
In its breach of contract claim, Rocketfuel alleges exactly the same conduct as it does in
its legal malpractice claim — namely, that EGS failed to perform properly the due diligence
required by its contract with Rocketfuel. Def. Reply at 10. Rocketfuel’s breach of fiduciary
duty claim also arises from the same facts and alleges the same damages as the legal malpractice
claim, which typically indicates it is a duplicative claim. Id. Even alleging in passing that EGS’
actions may have been “intentional” does not distinguish the breach of fiduciary duty claim from
the legal malpractice claim. Rocketfuel does not allege breach of the duty of loyalty based on
collusion; the breach of the duty of loyalty is based entirely on the same actions as underlie the

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Because the Court has determined that RBI has no standing to pursue a legal malpractice claim, RBI’s
breach of contract and breach of fiduciary duty claims are necessarily not duplicative. But because these two claims
pertain to EGS’ work for Rocketfuel pre-merger, EGS was still not working for RBI, so RBI continues to lack
standing as to these claims. Learning Annex, L.P., 106 A.D.3d at 633–34.

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legal malpractice claim. Neogenix Oncology, Inc., 133 F. Supp. 3d at 558–59. Therefore,
Rocketfuel’s breach of contract and breach of fiduciary duty claims are dismissed as duplicative.
V.

Plaintiffs’ Declaratory Judgment Claims Do Not Present a Case or Controversy
Finally, EGS argues that Plaintiffs’ three claims for declaratory relief with respect to

potential affirmative defenses do not present a case or controversy. Def. Mem. at 24–25. The
declaratory relief sought pertains to the legal effect vel non of a general release contained in a
settlement agreement through which the parties settled an earlier dispute regarding unpaid legal
fees. SAC ¶¶ 120–54. The Court is persuaded that Rocketfuel is not entitled to declaratory
relief. The Declaratory Judgment Act, 28 U.S.C. §§ 2201 et seq., is not intended “to test the
validity of an affirmative defense that a plaintiff anticipates the defendant will assert.” Velvet
Underground v. Andy Warhol Found. for the Visual Arts, Inc., 890 F. Supp. 2d 398, 407
(S.D.N.Y. 2012) (citations omitted). Unless and until a defense is actually asserted, there is no
justiciable question because there is no concrete controversy to resolve. Because EGS has not
yet asserted the release as an affirmative defense (and may never do so), Plaintiffs are seeking an
impermissible advisory opinion. Id. (citations omitted). 9 The parties will have an opportunity to
litigate the legal import of the release in question should EGS assert it as an affirmative defense.
If EGS does not assert the release as an affirmative defense, the defense will be waived. Either
way, Plaintiffs’ requests for declaratory judgments are dismissed.
CONCLUSION
For the foregoing reasons, Rocketfuel’s claims against EGS for breach of contract, breach
of fiduciary duty, and declaratory judgment and all claims by RBI are dismissed. Rocketfuel’s

9

The factors elucidated by the Second Circuit, to which Plaintiffs cite, regarding when to grant declaratory
relief still require the presence of an “actual controversy.” Pls. Opp. at 25 (citing Dow Jones & Co., Inc. v. Harrods
Ltd., 346 F.3d 357, 359–60 (2d Cir. 2003)).

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legal malpractice claim against EGS, however, survives. Therefore, the stay on discovery that
the Court ordered on April 23, 2021, see Dkt. 19, is hereby LIFTED. A pretrial conference is
scheduled for Friday, January 21, 2022, at 3:30 p.m.. The conference shall be conducted by
telephone, and the parties should dial in to the teleconference at: 888-363-4749 // Access Code
3121171# // Security Code 1764. The parties are ordered to submit a joint letter of no more than
five pages and proposed Case Management Plan in accordance with the Court’s order at Docket
6 not later than January 13, 2022.
The Clerk of Court is respectfully directed to close the open motion at Docket 33.
SO ORDERED.
_
________________________
_
________________________
CAPRONI
R
VALERIE CAPRONI
United States District Judge

Date: January 7, 2022
New York, New York

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