Balance Point Divorce Funding, LLC v. Timothy D. Scrantom, Juridica Capital Mgmt. Ltd.

978 F.Supp.2d 341

BALANCE POINT DIVORCE FUNDING, LLC, Plaintiff,

v.Timothy D. SCRANTOM, Juridica Capital Management Limited, Juridica Capital Management (US) Inc., and Juridica Investments Limited, Defendants.

No. 13 Civ. 1049 PKC.

United States District Court, S.D. New York.

Oct. 21, 2013.

As Corrected Oct. 31, 2013.

Andriy Roman Pazuniak, Judith Ann Lockhart, Carter Ledyard & Milburn, LLP, John Henry Doyle, III, Pablo Quinones, Reed Smith, New York, NY, for Plaintiff.

Alexander William Bogdan, Susan Millington Campbell, Hughes Hubbard & Reed LLP, New York, NY, Robert Dean MacGill, Scott Elwin Murray, Barnes & Thornburg, Indianapolis, IN, Wayne Charles Kreuscher, Goldberg Segalla LLP, White Plains, NY, for Defendants.

MEMORANDUM AND ORDER

P. KEVIN CASTEL, District Judge.

Private entities, like Balance Point Divorce Funding, LLC (“Balance Point”), lend money to parties to a divorce proceeding to cover fees and expenses in exchange for an obligation to repay when the matter is resolved. Timothy D. Scrantom and Lila Masters, then married, were parties to a divorce proceeding in Montana in which Balance Point provided funding to Ms. Masters. As it happens, Mr. Scrantom had an affiliation, or so it is alleged, with a competing funding company and its affiliates, defendants Juridica Capital Management Limited, Juridica Capital Management (US) Inc., and Juridica Investments Limited (collectively, “Juridica”).

These facts are at the core of claims and counterclaims between Balance Point and Ms. Masters in a federal action in Montana, Balance Point Divorce Funding, LLC v. Masters, No. CV–12–40–BU–SEH (D.Mont.). They—and the existence of this action—are also at the heart of a suit by Mr. Scrantom against Balance Point in state court in Montana. Scrantom v. Waterman, No. DV–13–327A (Mont. 18th Jud. Dist. Ct., Gallatin Cnty.).

The action before this Court is brought by Balance Point against Mr. Scrantom and the Juridica companies asserting claims of tortious interference with contract, tortious interference with business relations, and misappropriation of trade secrets. Juridica moves to dismiss Balance Point's Second Amended Complaint (the “SAC”), pursuant to Rule 12(b)(6), Fed.R.Civ.P. (Docket # 34.) Mr. Scrantom moves to dismiss the SAC, also pursuant to Rule 12(b)(6), and, in the alternative to dismiss the claims against him under principles of abstention, or to transfer any remaining claims to the United States District Court for the District of Montana under 28 U.S.C. § 1404(a). (Docket # 31.)

For the reasons stated below, defendants' motions to dismiss are granted with respect to the tortious interference with business relations claim and denied with respect to all other claims. Mr. Scrantom's motion to dismiss under principles of abstention is denied, and his motion to transfer venue is denied without prejudice.

BACKGROUND

The following facts are taken from the SAC, and documents relied upon therein, and are assumed to be true for the purposeof deciding defendants' motions to dismiss. All reasonable inferences are drawn in favor of the plaintiff, See In re Elevator Antitrust Litig., 502 F.3d 47, 50–51 (2d Cir.2007) (per curiam).

Plaintiff Balance Point is a limited liability company that provides litigation funding and support to parties in divorce proceedings. (SAC ¶¶ 2, 13.) In or around May, 2011, Lila Masters contacted Balance Point in order to obtain financing to cover legal fees and expenses she would incur in connection with her divorce from defendant Mr. Scrantom. ( Id. ¶¶ 1, 3, 17.) In exchange for providing financing to cover the costs of a deposition, Ms. Masters agreed to assign Balance Point a 5% interest in her marital asset claims. ( Id. ¶ 18.) The following September, Masters and Balance Point amended their agreement. ( See id.) Under the terms of the amended agreement, Balance Point, in exchange for funding up to $310,435 of the costs of the divorce proceedings, would receive a 25% interest in Ms. Masters's claims and any settlement would be paid to her divorce attorneys. ( Id.) In addition, Ms. Masters signed confidentiality agreements in which she, and her divorce attorneys, agreed not to disclose the terms and conditions of any agreement she had with Balance Point. ( Id.) Balance Point considered the contents of its purchase agreements, which included its funding strategies, to be trade secrets. ( Id. ¶¶ 47, 71) Pursuant to the agreements, Balance Point provided Ms. Masters with more than $310,435 to finance her divorce proceedings. ( Id. ¶ 19.)

Mr. Scrantom is an actively licensed attorney and a prominent figure in the litigation funding industry, having co-founded three litigation funding companies, including defendant Juridica. ( Id. ¶¶ 8, 14.) At the time of the divorce proceedings, Mr. Scrantom owned equity in Juridica and served as its “strategic consultant.” ( Id. ¶¶ 3, 15.) In this role, he exerted control over Juridica, influenced its day-to-day operations and long-term business strategies, and, “at all relevant times,” represented to others that he was authorized to act on Juridica's behalf. ( Id. ¶ 15) Balance Point alleges that Mr. Scrantom considered Balance Point to be one of Juridica's competitors. ( Id. ¶¶ 22–23.)

In October, 2011, after learning that Ms. Masters had entered into a funding agreement with Balance Point, Mr. Scrantom stated that, because Balance Point was a competitor, its involvement in the divorce proceedings was improper since any settlement with Ms. Masters would include stock and other rights related to Juridica. ( Id. ¶¶ 22–23.) Mr. Scranton repeatedly told Ms. Masters and Balance Point that, if Balance Point continued to fund Ms. Masters, Juridica would initiate litigation against Balance Point. ( See id. ¶ 22.) Mr. Scrantom made many of the litigation threats using an email account affiliated with BlackRobe Capital Partners LLC (“BlackRobe”), a third-party litigation funding company based in New York City, and provided a New York City address in his email signature block. ( Id. ¶¶ 16, 22.) In addition to sending E-mails, Mr. Scrantom personally told Ms. Masters on December 8, 2011, during an encounter at LaGuardia Airport in New York, that Juridica would sue Balance Point unless Ms. Masters instructed her divorce attorneys to negotiate a settlement with Mr. Scrantom's divorce attorney. ( Id. ¶ 26.)

In April, 2012, Mr. Scranton and Ms. Masters began directly negotiating a divorce settlement without involvement from either Balance Point, or Ms. Masters's attorneys. ( See id. ¶ 38.) Under the terms of the settlement reached on April 18, 2012, Ms. Masters was to receive marital property worth at least $4,310,000, half of Mr. Scrantom's residual interests in Juridicacase investments, and 102,091 shares of Juridica Capital Management Limited stock. ( Id.)

After entering into the settlement, Mr. Scrantom began telling Ms. Masters that Balance Point was not acting in her interests and encouraged her to consider suing. ( Id. ¶¶ 36, 42.) In May 2012, Mr. Scrantom attempted to hire an attorney to render a legal opinion to Masters that her agreement with Balance Point was not enforceable. ( Id. ¶ 41.) Later, in May and June 2012, Mr. Scrantom, using his BlackRobe email account, sent Ms. Masters messages asking whether her attorney would “have a problem” suing and whether her attorney was “on board to start sending letters.” ( Id. ¶ 36.)

Under the terms of Ms. Masters's agreement with Balance Point, Ms. Masters was obligated to pay Balance Point a minimum of $1,077,750, exclusive of interest, representing 25% of the marital property that she would receive in the settlement. ( Id. ¶ 40.) Balance Point alleges that Mr. Scrantom convinced Masters that she would receive a more favorable divorce settlement if she breached her contracts with both Balance Point and her divorce attorneys. ( Id. ¶ 37.)

Subsequently, Ms. Masters breached her agreements with Balance Point. ( Id. ¶¶ 43–45, 48.) In June, 2012, Ms. Masters refused to pay Balance Point any amount of money that she owed and allowed Mr. Scrantom to send her payments directly, rather than having him send them to her attorney, which her agreements with Balance Point required. ( Id. ¶¶ 44, 48–49.) Ms. Masters also sent copies of her agreements to Mr. Scrantom at his New York location, in violation of her confidentiality agreements. ( Id. ¶ 45.) Consequently, Balance Point commenced litigation against Ms. Masters in the District of Montana. ( Id. ¶ 44.)

At the time of Mr. Scrantom's initial litigation threats, Balance Point was involved in negotiations with Asta Funding, Inc. (“Asta”) to receive an infusion of capital. ( Id. ¶ 28.) In order to secure capital, Balance Point was required to disclose any threats of litigation to prospective investors or equity funding partners, which it did. ( See id.) Balance Point alleges that, due to his involvement in the litigation funding field, Mr. Scrantom knew that Balance Point would be in frequent negotiations with prospective investors and that his threats of litigation on Juridica's behalf would hurt Balance Point's ability to obtain favorable funding terms. ( Id. ¶¶ 28, 35, 61.) Prior to Balance Point disclosing the litigation threats, Asta and Balance Point were close to finalizing an arrangement in which Asta would provide a $50 million line of credit and $1.5 million in operating capital. ( Id. ¶ 30.) Closing was set to take place in December, 2011. ( Id. ¶ 31.)

After Balance Point disclosed the threatened litigation, Asta declined to close and began renegotiating with Balance Point. ( Id.) Due in large part to the litigation threats, Asta altered the proposal and offered less favorable financing terms; Asta only offered Balance Point $1 million in operating capital and the ability to draw on $5 million tranches, and only if certain contingencies were met. ( See id. ¶¶ 30–32.) The revised deal closed in May, 2012, and cost Balance Point $95,000 in...