Cypress Holdings, III, L.P. v. Sport-BLX, Inc. et al

Filing 246

ORDER with respect to 244 Letter Motion to Seal. The Salerno and Cypress parties shall respond by March 14, 2025. Counsel shall review the Court's Individual Rules regarding sealing, which direct that redacted documents be filed both publicly with proposed redactions and under seal with highlighting showing redactions. So Ordered. (Signed by Judge Lorna G. Schofield on 3/7/2025) (tg)

Wylie Stcklow, Esq-

a

Camegie Hall Tower

WYLIE STECKTOW PLLC
r ,{wYills }'{)R l-}'tr RFSl-{lf li5.{-ili

152 West 57h St,8t Flmr
NewYork, New York 10019
Phone: [phone]

Fu:Q12)2024952
[e-mail]

The Salerno and Cypress parties shall respond by

6,202514, 2025. Counsel shall review the Court's
MarchMarch

BY ECF

Individual Rules regarding sealing, which direct that

The Honorable Loma G. Schofielcl
redacted documents be filed both publicly with
U.S. Distuict Corul for the Southem District of New York proposed redactions and under seal with
500 Pearl Stleet

highlighting showing redactions. So Ordered.
Dated: March 7, 2025
Re: Sport-BLX,Inc. v. Michae.l Salenrc ond Cvpress Holdirrgs,III, L.P',New York, New York
No. 1 :22-cv-081 I (LGS);
Related case Cvpress Holdirtgs,III, L-P- v' Hall,No. 1:22-cv-1243 (LGS)

New York, New York 10007

Dear Judge Schofield:

We represent Sport-BLX, Inc. ("Sport-BLX"), individually and derivatively on behalf of
its stockholdeis, i1the above-referenced action, and, as relevant here, Defendants Sport-BLX,
Sport-BLX Secruities,Inc. ('SporlBLX Secruities"), Clinton Gto.rp,Inc- ("Clinton Group"), and
Go.g" Hall (collectively, the "Sporl-BLX Pafiies"), in related case l:22-cv-1243 (LGS).

hyslant to Section m(AXl) of Your Honor's Individual Rules and Procedues, I briefly

write today to request a pre-rnotion conference in anticipation of bringing a motion pursuant to
Federal Rule of Civil Procedure R. 1l(b) against Michael Salemo, Clypress Holdings, Itr, L.P.
(the "salemo/Cypress parties') and those parties' counsel, the Law Offices of Alexander M'
Dgdelson, $eeking the imposition of sanctiols and an award of attomeys' fees-

The parlies recently subrnitted consolidated suuurary judgrnent urotions addlessing the
clainrs a1d iisles i1both cases. On December 4 ,2}24,the Sporl-BLX Parties filed a detailed Local
R11e 56.1 Statement (Dkt. 20S) and, with the Court's pernission, eighty-five Exhibits, including
ag{io recordings of many of the central events at issue in both matters. Briefing was corupleted
on Febnrary 5,-2025,witl the Salemo/Clypress Parties' iiling of Reply subruissions. (Dkt- 242-)

(Dkts. 216 &,218)" the Salemo/Cypress Parties'ntade
11 their Opposition
-factual subnissions
contentions aud denials that have no evidentiary support 34g! are
several rnaterial,
ilarggably controverled by competent record evidence, as frrther discussed below. hr response,
on J*anr.rary 27, 2025, dre 3pofi-blX Parties served on Plaintifts a cletailed Zl-day Rule l1 safe
har.bor letier acldlessing five of those false factual contentions. (Exh. A). The Salemo/Clypress
Reply submissions uraintainecl the baseless facftlal contentions acl<lressecl in the safe harbor letter,
agd tnacle new argurnents alcl fachral contentions that lack any evidentiary strpport. On Fetrnrary

4 ancl agaiu on Febnrary 12,2025, (Exh. B) ttre Sport-BLX Parties served on Plaintiffs drafl

versiom of their contenplated rnotion addressing specific, rursrtpported, false facftral contentions
and denials,

Hon. Lorna G. Schofield
October 8,2024
Page 2

On March 4, 2025, the SalemolCypress Parlies respolded, conceding that one of the
contentions addressed fur the attached dlaft motion is indefensible and stating that they are "willing
to withdraw" it. (Exh. C.) However, they assert that having made "a thorough review of the
specific allegations of false representationsi'presentedbelow, they "view the reurainder of [those]
allegations to be without uterit."
Leeol ilnd Ollter Grotnds for tlte l\[otiorr
Where factual conteutions and denials prcsented to the Court are inargrrably not supported
by evidence, as here, a submission violates Rule I lft). "The standard for higgering the award of
fees under Rule l1 is objective umeasonableness and is not based on the subjective beliefs of the
person making the statement-" Stor Mark Mgntl., Irtc. v. Koorr Chur Hirrg Kee Sot; <9 Sauce
Factory, Ltd.,682 F.3d 170, 177 (2d, Cir.2012) (hterual quotation marks omitted). Wherc facftral
contentions are "utterly lackilg in support," sanctions are warr-anted. Sn'eetEasv, Inr. v Chefiok,
752 F3d 298,307 (2d Cir 2014).
The Sport-BLX Par-ties anticipate moving on urany rursupported contentions (see, Exh. B)
and in accordance with yoru Honor's Rule III(A)(I) camot review each here. Below are two
examples.

First, il their Opposition Memo of Law the Salerno/CJpress Parties represent that "Clpress
learned of [a] nrccess fee paid to Clinton Group rather than Sport-BLX for the Orix ftansaction"
in or after April 2020 "from the 2020 10-K" that was published on April 20. 2020. [Dkt. 2I8 at
12.] This unsupported, knowingly false facfual contention is the sole remaining basis on which
the Clryress/Salerno Parties arpJue that their Rule l0-b5 flaud claim should not be disurissed as
rurtimely.
However, Salemo is heard on the audio-recorded statement he made on November
2019

Mr. Hall

:07:06
to 2:08:06). The 8-K to which the Corut can heal Salemo refer at the November 26. 2019 board
meeting specifies, rurder the bold header "Transaction Fee to Clinton Group," that Clintot Group
received "a success fee . . . equal to 15% of the Cash Cousideration for its work on the Orix
Transaction" - i.e., the allegedly "divefied" fee of which the Salemo/Cypress Parties claim
ignorance nntil April 2020. (Dn. 226-l [Steeklow Exh. 61-4,].) Defendants suburitted no
evidence at all that conceivably supports their assertion.
Second, the Cypress/Salerno 56.1 parties represent to tlrc Court that "salemo did agree to
disclose [Clpress'] beneficialownership informationinDecembet20Ig." [Dkt.219, at]124,28,
31, 34, and 76.] This is the crucial material fact on the claim against Mr. Salerno for his breach of
the fiduciary duty of loyalty. The Cypress/Salerno Memo of Law likewise represents to the Court
that Cypress apgeed to disclose that infornation "directly to Sport-BLX in December 2019." [Dk1.
218 at l1.l

2

Hon. Loma G. Schofield
October 8,2024
Page 3

Salerno' s audio -recorded

l7

226-3
2A2t that

The Cotut can heal Salemo state inJ

at 16:00-

insist in 202I that

can

Id. The
agfee

owners of Clryress dilectly to the conpany in December of 2019" in the face of tlus patently
dispositive evidence is fi:ivolous under Rrrle 1l and should be sanctioned.

h plain English, the Salemo/Cypress Parlies submissions rely on patent falsehoods that
ale disposilively disproven by atrdio recordings rnade by Salerno. The violations of Rule ll are
patent a1d eppegious. None ale aurbiguous. None could possibly have been made by any attomey

who conducted a reasonable inquiry. Ttre Secord Circuit has repeatedly eurphasized that Rule I I
"explicitly aud ruraurbiguously imposes an affinnative duty on each attomey to conduct a
reasonatrle inqury into the viability of a pleading before it is signed." AJ Energv- LLC v Woori
Bonk,829 Fed Appx -533, 535 [2d Cir 2020] citng Gutiert'e: v. Fox, l4l F,3d 425, 427 (2d Cb.
I998) (quotation urarks omitted).

kr light of the above and of the firtlier evidentiary showings made in the attached draft
motion, the Sporl-BLX Parties respectftllly request that the Corut schedule a pre-rnotion
conference on March lT, 2025 to cliscuss their anticipated motion seeking the imposition of
sanctions, and an award of attomeys' fees, against the Salemo/Cypress Parties and their counsel-

Respectftllly submitted,

/s/
Jon Avins

3