Energy Intelligence Grp., Inc. v. Cowen

ENERGY INTELLIGENCE GROUP, INC. and ENERGY INTELLIGENCE GROUP (UK) LIMITED, Plaintiffs, v. COWEN AND COMPANY, LLC, Defendant.

14 Civ. 3789 (NRB)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

July 15, 2016

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD UNITED STATES DISTRICT JUDGE

Plaintiffs Energy Intelligence Group, Inc. and Energy Intelligence Group (UK) Limited (collectively, "plaintiffs" or "EIG") bring this copyright infringement action against defendant Cowen and Company, LLC ("Cowen"), alleging Cowen's liability for the unauthorized internal email forwarding of EIG's copyrighted publications. Plaintiffs seek to hold Cowen liable for not only Cowen's own copyright infringement, but also the alleged infringing activities of Dahlman Rose & Company LLC ("Dahlman") undertaken prior to a transaction in which Dahlman was acquired by Cowen's parent company, which then assigned most of Dahlman's assets to Cowen (the "Cowen-Dahlman transaction").

Presently before the Court are cross-motions for partial summary judgment solely on the issue of successor liability. For the following reasons, we conclude that Cowen did not expressly assume liability for the instant copyright infringement claims, and that Cowen is not liable as Dahlman's successor under the de facto merger doctrine. Therefore, defendant's motion for partial summary judgment is granted, and plaintiffs' cross-motion is denied.

I. BACKGROUND¹

A. The Parties

Plaintiffs publish newsletters relating to the global energy industry. Cowen 56.1 ¶ 18. They sell subscriptions to bankers, investors, traders, and analysts with an interest in the oil and gas industries. EIG Mem. 1.

Dahlman was a boutique investment bank and broker-dealer specializing in the marine shipping and energy industries. Cowen 56.1 ¶ 1. Dahlman's analysts subscribed to over 70 research publications, including three EIG publications: Oil Daily,Petroleum Intelligence Weekly, and Natural Gas Week. Id. ¶ 20; EIG 56.1 at 6 n.2. Prior to the Cowen-Dahlman transaction, Dahlman was principally owned by REDS Management LLC ("REDS"), a wholly-owned subsidiary of the private equity firm Lovell Minnick Partners LLC ("Lovell Minnick"). Cowen 56.1 ¶ 2.

Cowen is a boutique investment bank and broker-dealer providing investment banking, research, and sales and trading services. Id. ¶¶ 35, 36. Its ultimate parent company is Cowen Group, Inc. ("Cowen Group"), a diversified financial services company. Id. ¶ 36. Both Cowen and Cowen Group are incorporated in Delaware. Id. ¶¶ 31, 33.

B. Dahlman's Pre-Transaction Conduct

Two exchanges with Dahlman are highlighted by EIG.

1. June 2012

On June 26, 2012, a Dahlman employee named Jessica Wung wrote to EIG Customer Service by email, requesting that the name and email address on Dahlman's Oil Daily subscription be changed to "Doug Garber" and "drco@drco.com." Ankrom Decl. Ex. 4, at 3. Gladys Infante, Account Services Coordinator at EIG, responded to Wung as follows:

Regarding your request to change the email address on your existing email subscription please be advised we are unable to honor your request as we can no longer accept generic email addresses. All email addresses must be an individual's address. Therefore, we cannot change the existing email address. In the past we haveallowed such addresses. However, going forward we will strictly enforce the policy.

Our copyright policy does not allow for generic emails. Additionally, our publications are licensed to individual subscribers for their sole use and are priced based on the number of recipients under each subscription. "One subscription cannot be shared by electronic means among multiple readers, and publications cannot be forwarded to individuals who have not paid for a subscription." We send each subscriber their respective publications directly to eliminate the need for one party to forward the publications to other subscribers. This type of generic email address allows for the practice of sharing these publications. As technology is advance [sic] with every passing day, we are better able to track this type of activity.

We can change the name on the account but we will need Mr. Garber's email address.

Id. at 2-3. Wung responded with a request to change the account to "Doug Garber" and "dgarber@drco.com," which Infante confirmed. Id. at 1-2. Later that day, Wung amended the request to "Ivan Suleiman" and "isuleiman@drco.com." Id. at 1.

2. September 2012

A similar episode occurred in September of 2012. On September 11, 2012, a Dahlman research associate named J.B. Lowe wrote to Infante, stating that he had not received Oil Daily, which had been "forwarded from Jessica [Wung] but she left the firm." Ordway Decl. Ex. 5, at 2. Infante responded that the Oil Daily subscription had been cancelled for non-payment, and that the subscriber of record was Ivan Suleiman, who, Lowe later noted, had also left Dahlman. Id. at 1. An EIG account manager named DerrickDent affirms that on September 14, he spoke with Lowe by telephone and "explained to Mr. Lowe that Dahlman Rose had a single-copy subscription for Oil Daily, and[,] therefore, that publication could not be copied and forwarded." Dent Decl. ¶ 5. On September 21, 2012, Dent sent an email to Lowe, Danielle Drew (Assistant Vice President for Corporate Services and Administration at Dahlman) and James Crandell (Managing Director and Head of Oilfield Services Research at Dahlman), stating in relevant part that:

Unfortunately, the license agreement only allows for one reader and the publication cannot be forwarded to others. . . .

. . . . A single-user subscription is intended solely for the designated named recipient and not anyone else or an entire organization or a group within it and is priced accordingly. Subscriptions cannot be shared by electronic means by forwarding or posting . . . . If access to one or more of our publications is required by others beyond the current subscription agreement, a multiple named user subscription license could be purchased. I would be happy to work with you on a subscription license that would meet your needs.

Dent Decl. Ex. A, at 1-2. Crandell responded that "I am the only one who reads it. Given I travel all the time it is easier to have my associate get it and fax/send me some relevant articles." Ordway Decl. Ex. 6, at 1. Separately, Drew responded that the Oil Daily was being forwarded from Lowe to Crandall "because he travels[;] however, I have let him know that can no longer happen and he will be responsible for receiving it directly." Dent Decl. Ex. A, at 1.

EIG alleges that, within minutes of assuring EIG that the Oil Daily subscription would not be shared beyond Crandell, Drew directed Dahlman's IT staff to auto-forward the subscription to Lowe. See Ankrom Decl. Ex. 7, at 10 ("There's a subscription, Oil Daily[,] that got all messed up and is now going to go to Crandell directly and needs to be forwarded to JB Lowe daily." (underlining added); id. at 2 ("[Oil Daily] is going to now come to you directly, rather than JB and it will be auto forwarded to who[m]ever needs to get it. . . .").

C. The Cowen-Dahlman Transaction

In 2012, Dahlman was experiencing serious financial difficulties.² Lovell Minnick made efforts to sell Dahlman in the summer of 2012, but these efforts were unsuccessful. Cowen 56.1 ¶ 7. Cowen Group concluded that its broker-dealer, Cowen, was operating a complementary business to that of Dahlman, and that an integration of the firms would allow for the exploitation ofsynergies without loss of revenue. Id. ¶¶ 50-51. On December 20, 2012, Cowen Group made an initial offer to acquire Dahlman. Id. ¶ 53. On January 11, 2013, Cowen Group, Dahlman, and REDS entered into an exclusivity agreement providing for 30 days of exclusive negotiations. Id. ¶ 54.

Starting in late December of 2012, Cowen Group conducted a due diligence review of Dahlman, with the principal goal of understanding Dahlman's assets and liabilities and the potential value of integrating the firms' businesses. Id. ¶¶ 55-56. The due diligence included a review of a wide variety of materials. Id. ¶ 61; see Littman Aff. Ex. 2. Cowen asserts that the due diligence confirmed that Dahlman was "imminently bankrupt," had negative equity, no book value, and high fixed costs. Cowen 56.1 ¶ 60; see Littman Aff. ¶ 17. EIG disputes this statement, pointing to evidence that Dahlman's net equity at this time was between $3.8 and $7.7 million. EIG 56.1 at 16-17. The parties also dispute whether Dahlman's subscription agreements with EIG were produced to Cowen Group or otherwise available to Cowen Group in the due diligence "data room." See Cowen 56.1 ¶¶ 62-63, 66; EIG 56.1 at 17-18, 21-22. It is undisputed, however, that Cowen Group requested information regarding "all significant suits, actions, [or] litigations . . . pending or threatened, affecting [Dahlman or REDS] or their business or operations," Littman Aff. Ex. 2 § 9.1, and that, in response, no mention was made of litigationrelating to EIG's publications, see Littman Aff. Ex. 3. Owen Littman, Cowen Group's General Counsel, affirms that "[t]o my knowledge, no one at Dahlman Rose communicated anything to anyone at Cowen Group concerning any potential claim or liability to EIG during due diligence." Littman Aff. ¶ 16. Similarly, Robert Brinberg, Dahlman's Chief Operating Officer and the "primary point of contact at Dahlman Rose for the due diligence," Binberg Aff. ¶ 2, affirms that during the negotiation and due diligence, he "never had any communications . . . with anyone at Cowen Group . . . regarding any potential lawsuit, liability, obligation, or contingency arising out of or related to Dahlman Rose's subscriptions to publications associated with Energy Intelligence Group" and that he "was not aware of any such potential lawsuit, liability, obligation, or contingency." Id. ¶ 4.³

The Cowen-Dahlman transaction proceeded in two steps. Cowen 56.1 ¶ 68. First, Cowen Group formed an indirect subsidiary called...