Loughlin v. de Bary

212 A.D.3d 557

183 N.Y.S.3d 366

Suzzane LOUGHLIN et al., Plaintiffs–Appellants,

v.Paul DE BARY, Defendant–Respondent.

17186-, 17187

Index No. 155590/20

Case Nos. 2022-01948, 2022-04110

Supreme Court, Appellate Division, First Department, New York.

Entered January 26, 2023

Clarick Gueron Reisbaum LLP, New York (Emily Reisbaum of counsel), for appellants.

Fleischman Bonner & Rocco LLP, White Plains (James P. Bonner of counsel), for respondent.

Friedman, J.P., Moulton, Kennedy, Pitt–Burke, JJ.

Order, Supreme Court, New York County (James D'Auguste, J.), entered on or about October 14, 2021, which granted defendant's CPLR 3211(a)(7) motion to dismiss the amended complaint, and order, same court and Justice, entered on or about February 4, 2022, which corrected a typographical error in the October 14, 2021 order, unanimously affirmed, without costs.

The motion court correctly determined that plaintiffs did not state a claim for breach of a fiduciary duty owed to them as shareholders in nonparty Rekor Systems, Inc., as they have not adequately alleged injuries incurred in such capacity (see Chester County Employees’ Retirement Fund v. New Residential Inv. Corp., 2016 WL 5865004, *7, 2016 Del. Ch LEXIS 153, *20 [Oct. 7, 2016, No. 11058-VCMR], affd 186 A.3d 798, 2018 WL 2146483 [Del. 2018] ). Defendant's alleged failure to honor the warrants did not harm them as shareholders (see Loughlin v. Goord, 558 F.Supp.3d 126, 143–144 [S.D. N.Y.2021], affd 2022 WL 9575656, 2022 U.S. App LEXIS 28662 [2d Cir, Oct. 17, 2022, No. 21–2460–cv] ). Plaintiffs aver that the claim also arises from the other retaliatory conduct alleged in the amended complaint, but their argument is belied by their pleading where, on the breach of fiduciary duty claim, they seek "$2,546,046.87, together with interest thereon," which the motion court found to be the exact value of the warrants, a matter they do not adequately address on appeal (see also Loughlin v. Harada, 2022 WL 610672, *2, 2022 U.S. Dist LEXIS 34410 [D Del, Feb. 28, 2022, No. 20–1055–LPS] [noting that the plaintiffs, in this action, "limited their harm to ‘the exact amount of warrants’ "]).

Even if we were to construe the claim as arising from the additional alleged retaliatory conduct, we would still find that dismissal of the claim is warranted, as plaintiffs do not allege how such conduct harmed them as shareholders. Any resultant harm from the alleged demotion of plaintiff Harry Rhulen and nonpayment of invoices of nonparty CrisisRisk LLC (formed by plaintiffs) was harm caused to them as parties to the relevant contracts, i.e., the employment agreements and the CrisisRisk LLC/nonparty Firestorm entities contract—not as Rekor shareholders, and thus is not a proper basis for a breach of fiduciary duty claim (see Nemec v. Shrader, 991 A.2d 1120, 1129 [Del. 2010] ; Batkin v. Softbank Holdings, Inc., 270 A.D.2d 177, 178, 706 N.Y.S.2d 85 [1st Dept. 2000] ). Nor do plaintiffs show how Rekor's commencement of a federal action can constitute a breach of fiduciary duty towards them as shareholders, where such action, even as they describe it, was commenced to vindicate Rekor's interests in connection with the Firestorm acquisition.

Dismissal of the libel claim was also proper, as the statement at issue is protected by a common interest qualified privilege and the pleading lacks adequate allegations of actual or common-law malice to overcome such privilege (see Loughlin v. Goord, 558 F.Supp.3d at 152–155 ). The statement falls well within the category of "communication[s] made by one person to another upon a subject in which both have an interest" ( Liberman v. Gelstein, 80 N.Y.2d 429, 437, 590 N.Y.S.2d 857, 605 N.E.2d 344 [1992] [internal quotation marks omitted]). Rekor, its board and investors share a common interest in knowing the number of common shares outstanding at the time of the Securities and Exchange Commission (SEC) 10–Q filing and the number of shares that could potentially be obtained through the exercise of warrants, including plaintiffs’, information that bears on the value of Rekor common stock (see Loughlin v. Goord, 558 F.Supp.3d at 153 ; see also 17 CFR 229.202 [c]).

Plaintiffs’ arguments that the privilege does not apply are unavailing. They purport to substantiate their claim that the 10–Q filing in which the statement appeared was "disseminated to the public at large – well beyond those sharing a common interest," with inapposite case law (see Sheridan v....