Goureau v. Lemonis

NICOLAS GOUREAU, and STEPHANIE MENKIN, individually and derivatively on behalf of GOOBERRY CORPORATION, Plaintiffs, v. MARCUS LEMONIS, ML RETAIL, LLC, MARCUS LEMONIS LLC, and MACHETE CORPORATION d/b/a MACHETE PRODUCTIONS, Defendants, and GOOBERRY CORPORATION, Nominal Defendant.

No. 1:20-cv-04691

United States District Court, S.D. New York

October 15, 2021

ORDER GRANTING IN PART MOTION TO RECONSIDER

MARY KAY VYSKOCIL, UNITED STATES DISTRICT JUDGE

Plaintiffs Nicolas Goureau and Stephanie Menkin move this Court under Local Rule 6.3 to reconsider its September 2, 2021 Opinion [ECF No. 77] in which the Court granted a Rule 12(b)(6) motion to dismiss Plaintiffs' Racketeer Influenced and Corrupt Organizations Act (“RICO”) and fraud claims, and declined to exercise supplemental jurisdiction over Plaintiffs' state-law claims (the “September 2 Opinion”). [Mot. to Reconsider; ECF No. 80]. A detailed recitation of the facts underlying this case are provided in the Court's September 2 Opinion. On August 17, 2020 Plaintiffs, individually and on behalf of Nominal Defendant Gooberry, sued Marcus Lemonis, ML Retail, LLC (“ML Retail”), Marcus Lemonis, LLC (“ML LLC”) (together, the “Defendants” or the “Lemonis Defendants”), and Machete Productions (“Machete”). [Amended Complaint, ECF No. 24]. Thereafter, the Lemonis Defendants moved to dismiss [ECF No 44], and filed a Memorandum of Law in Support. [Defs. Mem ECF No.45].

Plaintiffs opposed the Motion [Pls. Opp, ECF No. 52], and the Lemonis Defendants filed their reply [Defs. Reply, ECF No. 54].

While Plaintiffs' Amended Complaint predicated jurisdiction on federal question with respect to its RICO claims, the Amended Complaint did later make factual assertions that support diversity jurisdiction. As such, the Court finds that reconsideration is warranted. Notwithstanding the existence of diversity jurisdiction, Plaintiffs have failed to state a claim upon which relief can be granted, and the Court concludes that Plaintiffs' Amended Complaint must be dismissed in its entirety.

I. RECONSIDERATION IS WARRANTED

A. The Standard for a Motion to Reconsider

“A motion for reconsideration is an extraordinary remedy to be employed sparingly in the interests of finality and conservation of scarce judicial resources.” Drapkin v. Mafco Consol. Group, Inc., 818 F.Supp.2d 678, 695 (S.D.N.Y. 2011) (internal quotation marks and citation omitted). A court may grant the request where there is a need to correct a clear error. Id. at 696. In seeking reconsideration, Plaintiffs may not, however, “advance new facts, issues or arguments not previously presented to the Court, or reargue those issues already considered.” Hayles v. Advanced Travel Mgmt. Corp., 2004 U.S. Dist. LEXIS 865, 2004 WL 117597, at *1 (S.D.N.Y. Jan. 26, 2004).

B. Plaintiff Correctly Alleges that Certain Facts Were Overlooked

In seeking reconsideration, Plaintiffs argue, in part, that the Court overlooked Plaintiffs' allegation of diversity jurisdiction. See Mem. in Support of Reconsideration at 6. Plaintiffs' Amended Complaint states that “[t]his action arises under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961 et seq., and under the common law of the State of New York” and the “Court has [federal question] subject matter jurisdiction over the RICO claims pursuant to 18 U.S.C. § 1964 and 28 U.S.C. § 1331.” Am. Compl. ¶ 27. The Amended Complaint further states that this “Court has subject matter jurisdiction over the related New York state law claims, ” citing 28 U.S.C. § 1367-the statute that gives this Court the discretion to exercise supplemental jurisdiction over state law claims. Am. Compl. ¶ 27. Buried later in the Amended Complaint are allegations that the Plaintiffs and Defendants are citizens of different states, and that the amount in controversy exceeds $75, 000. As such, diversity jurisdiction pursuant to 28 U.S.C. § 1332 is proper. See Am. Compl. ¶ 28.

Plaintiffs also attempt to reargue the Court's prior decision with respect to their fraud and RICO claims. See Mem. in Support of Reconsideration at 7, 22. On careful review of Plaintiffs' motion, Plaintiffs do not identify any intervening change in controlling law or relevant facts this Court overlooked. Thus, the Court concludes that only the decision to decline to exercise jurisdiction over Plaintiffs' state-law claims warrants reconsideration. Since the Court declined to exercise supplemental jurisdiction over the state law claims, it did not analyze the sufficiency of those claims on Defendants' motion under Rule 12(b)(6). The Court now revisits the claims asserted in Plaintiffs' Amended Complaint, and the arguments made in the Parties' moving papers.^[1]

II. THE STATE LAW CLAIMS FAIL TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED LEGAL STANDARD

On a motion to dismiss, the Court must accept as true all factual statements alleged in the complaint and draw all reasonable inferences in favor of the non-moving party. Francis v. Kings Park Manor, Inc., 992 F.3d 67, 72 (2d Cir. 2021).

However, the court is not required to credit “mere conclusory statements” or “threadbare recitals of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

Defendants move this Court to dismiss under Federal Rule of Civil Procedure 12(b)(6) for non-compliance with Federal Rule of Civil Procedure 23.1. See Defs. Mem. at 11. Rule 23.1 governs derivative actions where, as here, a plaintiff brings claims on behalf of a nominal defendant corporation. Rule 23.1 imposes a pleading standard higher than the normal standard under Rule 12(b)(6), and “requires that a plaintiff in . . . a derivative action state with particularity . . . any effort by plaintiff to obtain the desired actions from the directors . . . and . . . the reasons for not obtaining the action or not making the effort.” Fed.R.Civ.P. 23.1(a)-(b)(3)(B). “This rule sets forth a ‘rule of pleading' as to ‘the specificity of facts alleged with regard to efforts made to urge a corporation's directors to bring the action in question,' which is referred to as ‘demand' on the corporation.” Canty v. Day, 13 F.Supp.3d 333, 341 (S.D.N.Y. 2014) (quoting Halebian v. Berv, 590 F.3d 195, 206 n.7 (2d Cir. 2009). Additionally, a derivative suit requires that a “complaint must be verified.” Fed.R.Civ.P. 23.1(b).

“The adequacy of a plaintiff's pre-suit demand efforts is determined by the relevant state substantive law.” Jiminian v. Seabrook, 760 Fed.Appx. 38, 41 (2d Cir. 2019) (citing Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 97 (1991)). Because it is undisputed that Gooberry is a New York corporation, New York law governs the adequacy of Plaintiffs' pre-suit demand. Id.; Canty 13 F.Supp.3d at 342.

DISCUSSION

The Court addresses first Plaintiffs' seven derivative claims made on behalf of the Nominal Defendant, Gooberry, and their “causes of action” for the appointment of a receiver, a preliminary injunction, and dissolution of the corporation. Then, the Court determines whether the Lemonis Defendants breached the implied covenant of good faith and fair dealing.

A. Plaintiffs Fail to Adequately Plead a Derivative Claim

Plaintiffs assert seven derivative claims on behalf of Nominal Defendant Gooberry: 1) a breach of fiduciary duty claim against Lemonis, Am. Compl. at 37; 2) an unjust enrichment claim against the Lemonis Defendants, Am. Compl. at 40; 3) a misappropriation of corporate assets claim against the Lemonis Defendants, Am. Compl. at 41; 4) a corporate mismanagement and waste claim against the Lemonis Defendants, Am. Compl. at 42; 5) a conversion claim against the Lemonis Defendants, Am. Compl. at 43; 6) an accounting claim against the Lemonis Defendants, Am. Compl. ¶ 54; and 7) the previously referenced RICO claim against all Defendants, Am. Compl. at 44.

“Because derivative actions inherently interfere with the managerial discretion of corporate boards, New York has ‘historically been reluctant to permit shareholder derivative suits, noting that the power of courts to direct the management of a corporation's affairs should be exercised with restraint.'” Jiminian, 760 Fed.Appx. at 41 (quoting Marx v. Akers, 88 N.Y.2d 189, 194, 666 N.E.2d 1034, 644 N.Y.S.2d 121 (1996)); see also Bansbach v. Zinn, 1 N.Y.3d 1, 8-9, 801 N.E.2d 395, 769 N.Y.S.2d 175 (2003). In deference to the discretion of corporate boards, as a general rule, a Court should not entertain an action by a shareholder purporting to act on behalf of a corporation in the absence of an allegation that the corporation has been asked to act and has declined to do so. See Jiminian, 760 Fed.Appx. at 41. “As a general matter, equity courts established as a precondition for the [derivative] suit that the shareholder demonstrate that the corporation itself had refused to proceed after suitable demand, unless excused by extraordinary conditions.” Id. (emphasis and alterations in original) (quoting Scalisi v. Fund Asset Mgmt., L.P., 380 F.3d 133, 138 (2d Cir. 2004)); see also Bansbach, 1 N.Y.3d at 8-9.

Alternatively, a shareholder plaintiff may prosecute a claim on behalf of a corporation if it would have been futile to ask the corporation to act. Bansbach, 1 N.Y.3d at 8-9.

“To plead demand futility under New York law, a complaint must allege with particularity that (1) a majority of the directors are interested in the transaction, or (2) the directors failed to inform themselves to a degree reasonably necessary about the transaction, or (3) the directors failed to exercise their business judgment in approving the transaction.” Jiminian, 760 Fed.Appx. at 42 (internal quotation marks and citations omitted). “In other words, plaintiffs' allegations must support their assertion that a majority of the board was...