Vogel v. Boris

STEPHEN A. VOGEL, Plaintiff, v. DAVID BORIS and MARSHALL KIEV, Defendants.

20 Civ. 9301 (VM)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

April 28, 2021

DECISION AND ORDER

VICTOR MARRERO, United States District Judge.

Plaintiff Stephen A. Vogel ("Vogel") commenced this action on November 5, 2020, bringing one count each of breach of contract and imposition of a constructive trust against defendants David Boris ("Boris") and Marshall Kiev ("Kiev," and together with Boris, "Defendants"). (See "Complaint," Dkt. No. 1.)

Now before the Court is Defendants' premotion letter regarding dismissal of the Complaint, which the Court construes as a motion to dismiss¹ pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6). (See "Letter Motion," Dkt. No. 18.) For the reasons set forth below, the Letter Motion is DENIED in its entirety.

I. BACKGROUND

A. FACTS²

This case arises from a dispute among three business partners, culminating in one -- Vogel -- suing the other two -- Boris and Kiev. At the center of their dispute is a "special purpose acquisition company," or "SPAC," a company used by investors for the purpose of participating in private equity transactions. SPACs do not themselves conduct any commercial operations but rather obtain capital from investors, typically through an initial public offering ("IPO"), and in turn use that capital to engage in corporate acquisitions.

The first step of the typical SPAC process, according to Vogel, is for those managing the SPAC to create a company to control it, usually a limited liability company, referred to as the "sponsor." The sponsor receives a percentage of the shares raised in the IPO as a fee and puts the shares asidein escrow or trust pending consummation of a potential merger. Once a successful merger has occurred, the sponsor will distribute the shares to the SPAC's managers and/or members based on certain contractual triggers such as, for example, termination of a lockout period or the reaching of a particular share price.

Boris founded the SPAC at issue here, Forum Merger Corporation ("FMC I"), on December 1, 2014. In 2016, Kiev joined FMC I. Later in 2016, Vogel, Boris, and Kiev together formed Forum Capital Management, LLC ("Forum Capital") as a sponsor to manage FMC I. Vogel, Boris, and Kiev were the managers of Forum Capital, and Vogel, Boris, Danielle Boris 2010 Trust, Jamie Boris 2010 Trust, MK 2016 Trust, and AJPM, LLC were its members.

The Amended and Restated Limited Liability Company Operating Agreement of Forum Capital (the "Operating Agreement," Complaint, Ex. A, Dkt. No. 1-1) governed both Forum Capital itself and the rights and obligations of its managers and members. It superseded a prior agreement and was signed on or about July 31, 2017. Vogel alleges that the Operating Agreement was negotiated among him, Boris, and Kiev, with the assistance of an experienced lawyer familiar with SPACs.

The Operating Agreement memorialized what Vogel alleges was the parties' intent to "commit their time and energy to FMC I and, if FMC I proved successful, to work together again on future SPAC investments." (Complaint ¶ 31.) In relevant part, Section 7.02, titled "Business Opportunities; Limitation on Other Activities," provides:

(b) . . . [E]xcept as otherwise approved by all Managers, other than FMC and its Subsidiaries, no Manager or Member may, directly or indirectly, (i) perform any services on behalf of any other special purpose acquisition company, other than Pacific Special Acquisition Corp. or related entities or (ii) invest in any other special purpose acquisition company or public shell company other than as a passive investor.

(Operating Agreement § 7.02(b), "Section 7.02(b).") Section 7.02(b), Vogel argues, expressly prohibited the managers and members of Forum Capital -- including Kiev and Boris -- from creating, investing in, or performing services for any other SPACs without the other managers' approval. Vogel insists that all three managers are "sophisticated financial professionals," and their agreement to "bind[] their business activities together" was carefully negotiated to contain two limited exceptions. (Complaint ¶¶ 33-35.) Under the Operating Agreement, the parties were permitted (1) to perform services for Pacific Special Acquisition Corp., an already existing SPAC; and (2) to participate in SPAC investments as "passive investors." (Id. ¶¶ 36-37.) With the exception of these twolimited circumstances, the parties were bound to not form other SPACs without each other's consent.

Until May 2018, the SPAC worked according to plan. FMC I merged with ConvergeOne Holdings, Inc. ("ConvergeOne") on February 22, 2018, and the control and management of FMC I then passed to ConvergeOne's shareholders. Accordingly, Forum Capital could be dissolved under Section 11.01(b),³ which provided that Forum Capital "shall be dissolved and its affairs wound up upon: . . . [either] [t]he sale, disposition or distribution of all securities and assets held by the Company"⁴ or "[t]he election to dissolve the Company made in writing by all the Members." (Operating Agreement §§ 11.01 (b), (d).)

Vogel contends that, because he never provided written consent for dissolution, the Operating Agreement never terminated. He further argues that, even if the Operating Agreement did terminate, by its express terms Section 7.02(b) survived termination.

In support of his argument that Section 7.02(b) was still in force, Vogel claims that Kiev's attorney confirmed viaemail in December 2017 that Section 7.02(b) required unanimous consent for Forum Capital's members to provide services to future SPACs. Vogel also contends that in January 2018, he reached out to Boris and Kiev about pursuing a second SPAC investment. Vogel alleges that, at a related February 2018 meeting between Kiev and Vogel, Kiev "specifically stated" that Section 7.02(b) still required approval by Forum Capital's managers and members before any party could form another SPAC. (Complaint ¶ 51.) Vogel further alleges that Kiev then confirmed this understanding with his attorney.

Vogel continued to pursue the idea of a second SPAC with Kiev and Boris, but alleges that Boris was unresponsive. Ultimately, in March 2018, Boris told Kiev that he did intend to form another SPAC but only with Kiev, not Vogel. To obtain Vogel's consent, Kiev and Boris discussed giving Vogel financial consideration in exchange, but, according to Vogel, they ultimately decided against it.

Nevertheless, because Kiev and Boris allegedly understood that they could not squeeze Vogel out without his consent, Vogel claims that they had an attorney prepare a draft plan of dissolution and liquidation for Forum Capital (the "Draft Plan of Dissolution"), which included a provision under which Vogel would agree to waive his consent rights under Section 7.02(b). On April 18, 2018, counsel for Borisand Kiev sent the Draft Plan of Dissolution, claiming to Vogel that it was "customary" to dissolve Forum Capital and FMC I "since they distributed and liquidated their securities and assets." (Complaint ¶ 66.) On May 10, 2018, Vogel indicated that he did not accept the terms of the Draft Plan of Dissolution as written and proposed certain revisions. Without accepting the revised terms, on May 25, 2018, counsel for Boris and Kiev wrote to Vogel's counsel indicating that Forum Capital and FMC I had been dissolved and wound up.

By then, according to Vogel, Section 7.02(b) had already been breached. Vogel alleges that on May 4, 2018, a few days before he rejected the Draft Plan of Dissolution, Boris and Kiev created another SPAC, Forum Merger II Corporation ("FMC II"), without Vogel's consent. Sometime prior to that, and also without Vogel's consent, Kiev and Boris formed a sponsor for FMC II called Forum Investors II LLC ("Forum Investors II"), of which both Kiev and Boris are managers or members. Consistent with its goals, on August 7, 2018, FMC II closed a $250 million IPO. The prospectus indicated that following the IPO, Boris and Kiev, as officers and directors, were entitled to 21.7% of FMC II's outstanding common stock.

On June 12, 2020, FMC II announced it would merge with an entity called Ittella International, LLC ("Ittella") to form a new entity called Tattooed Chef, Inc. ("TattooedChef"). Vogel alleges that after that merger was consummated, Forum Investors II was dissolved and the interests it held were distributed. Accordingly, Defendants each received the economic value of their investment.

Vogel alleges that as a result of Defendants' breach, he "has been damaged in an amount no less than the value of any equity ownership held by Defendants' [sic] in either or both FMC II, Forum Investors II, Itella, and/or Tattooed Chef." (Complaint ¶ 96.) He also argues that he is entitled to the reasonable fees and costs associated with enforcing his rights under the Operating Agreement. (Id. ¶ 97 (citing Operating Agreement § 12.07).)

For his part, Vogel acknowledges that he was approached on May 8, 2018 by third parties inviting him to participate in another SPAC investment with Twelve Seas Investment Corp. According to Vogel, his only option was to pursue this new opportunity, which he did beginning in June 2018.

B. PARTIES' ARGUMENTS

Consistent with the Court's Individual Practices, Defendants notified Vogel of perceived deficiencies in the Complaint by letter dated January 19, 2021. (See "Premotion Letter," Dkt. No. 12.) Defendants argue that the Complaint should be dismissed for four reasons. First, the Operating Agreement was intended to govern a single deal, only "whilethe current deal was ongoing," and Vogel's efforts to "free-ride" on his former partners' later business transactions fails as a matter of law. (Id. at 1-2.) Second, Defendants contend that Vogel's interpretation of the Operating Agreement is "absurd and unenforceable" because it serves no "legitimate business interest" and "lacks reasonable scope and duration." (Id. at 2.)...