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Berman v. Sugo LLC

June 12, 2008

MARK BERMAN, PLAINTIFF,
v.
SUGO LLC, ANDREW J. WEINSTEIN, AND ISIT LLC, DEFENDANTS.
SUGO LLC AND ANDREW J. WEINSTEIN, COUNTER-PLAINTIFFS,
v.
ERIC LEVEN, ADITYA VERMA, RIP ROAD LLC, AND RIP ROAD, INC., COUNTER-DEFENDANTS.



The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.

OPINION & ORDER

Counter-Defendants Eric Leven, Aditya Verma, Rip Road LLC, and Rip Road, Inc., move pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss each of the claims asserted against them in the Answer to Amended Complaint with Counterclaims and Third-Party Complaint dated September 25, 2007. For the reasons that follow, the motion to dismiss (Doc. No. 34) is granted in part and denied in part.

BACKGROUND

Plaintiff Mark Berman filed an action in this Court against Defendants Sugo LLC, Andrew Weinstein, and Isit LLC for breach of contract and fraudulent conveyance.*fn1 In their Answer to Amended Complaint with Counterclaims and Third-Party Complaint (the "Counterclaims"), Defendants Sugo LLC, Andrew Weinstein, and Isit LLC raised thirteen claims against Plaintiff Berman and Counter-Defendants Eric Leven, Aditya Verma, Rip Road LLC and Rip Road, Inc. The Counterclaims assert breach of fiduciary duty, aiding and abetting breach of fiduciary duty, misappropriation of corporate assets, tortious interference with contractual relationships, tortious interference with prospective business relations, conversion, breach of contract, unfair competition, and unjust enrichment. On October 30, 2007, Counter-Defendants moved to dismiss the Counterclaims.

I. The Parties

Counter-Plaintiff Andrew J. Weinstein ("Weinstein") is a citizen of the State of New York, residing in New York, New York. (Counterclaims ¶ 46.) Counter-Plaintiff Sugo LLC ("Sugo") is a limited liability company formed pursuant to the laws of the State of Connecticut and registered to do business in New York. (Id. ¶¶ 3, 47.) Isit, LLC, is also a Connecticut limited liability company registered to do business in New York, whose organizational papers identify Weinstein as the manager of Isit. (Id. ¶15.) Counter-Defendant Eric M. Leven ("Leven") is a citizen of the State of New York, residing in New York, New York. (Id. ¶ 48.) Plaintiff Mark Berman ("Plaintiff" or "Berman") is a citizen of the State of California, residing in San Francisco, California. (Id. ¶ 49.) Counter-Defendant Aditya Verma ("Verma") is a citizen of the State of New Jersey, residing in Hoboken, New Jersey. (Id. ¶ 50.) Counter-Defendant Rip Road, LLC, is a New York limited liability company formed by Leven and Plaintiff, and in which Plaintiff, Leven, and Verma were members. (Id. ¶ 51.) Counter-Defendant Rip Road, Inc., is a Delaware corporation with a principal place of business in New York and a successor in interest to Rip Road, LLC. (Id. ¶ 52.) Leven, Verma, and Plaintiff are officers and directors of Rip Road, Inc. (Id.) The Court has jurisdiction over this action based on diversity of citizenship, 28 U.S.C. § 1332(a), and over the Counterclaims based on the Court's supplemental jurisdiction, 28 U.S.C. § 1367.

II. Factual Allegations in the Counterclaims

The following facts are drawn from the allegations in the Counter-Plaintiffs' Counterclaims and assumed to be true for the purposes of this motion to dismiss. Cruz v. Beto, 405 U.S. 319, 322 (1972); Oteze Fowlkes v. Adamec, 432 F.3d 90, 95 (2d Cir. 2005). Sugo was formed as a Connecticut limited liability company in March 2005 by Weinstein and Leven, each of whom owned a 50% share in the company. (Id. ¶ 47, 55.) Although Weinstein has at all times been Sugo's named managing member, Leven assumed the titles and responsibilities of chief executive officer and president of Sugo. (Id. ¶ 56.) Sugo was to be a mobile marketing company that marketed goods and services to mobile telephone users via their cellular phones. (Id. ¶ 57.)

At the solicitation of Leven (id. ¶ 58), Plaintiff Berman invested $100,000 in Sugo, allegedly pursuant to a seed money agreement (id. ¶ 9). Leven told Weinstein that Plaintiff was providing money pursuant to such agreement, but Weinstein claims he never saw a signed copy and none was ever produced. (Id. ¶ 20.) Upon receipt of the seed money, Sugo entered into a commercial lease for premises located at 11 West 30th Street, Suite 4R, New York, New York. (Id. ¶ 12.) Sugo also entered into a contract of short duration with Cingular. (Id. ¶ 12.) Aditya Verma acted as a consultant to Sugo for a limited time. (Id. ¶ 59.)

In September 2005, Sugo entered into a joint venture agreement with Latin World Entertainment ("LWE") to develop and distribute media for the Hispanic market and expected to make considerable profits. (Id. ¶ 62.) The Counterclaims allege that shortly thereafter, Leven decided to dilute Weinstein's interest in Sugo, based upon a purported need to give Plaintiff Berman equity in Sugo. (Id. ¶ 63.) It is further alleged that when Weinstein refused to dilute his interest if Leven did not dilute his own, Leven began plotting with Plaintiff Berman to misappropriate the business opportunities of Sugo, and in particular the opportunities afforded by the joint venture with LWE in regard to the Hispanic market, as well as Sugo's opportunities with Univision, Cingular, Cingular Hispanic, and AOL. (Id. ¶ 64.)

After Weinstein refused to dilute his interest, Leven sought to dissolve Sugo, but Weinstein objected to dissolution. (Id. ¶ 65.) In October 2005, Leven abandoned his role and functions at Sugo and froze the cash assets of Sugo without the consent of Weinstein. (Id. ¶ 67.) No settlement or separation agreement was reached between Weinstein and Leven. (Id. ¶ 68.) Also in October 2005, Plaintiff Berman became aware of the management disputes at Sugo. (Id. ¶ 13.)

In September 2005, Leven and Plaintiff Berman formed Rip Road, LLC, and Rip Road, Inc. (collectively "Rip Road"), which purport to be in the same business as that in which Sugo operates. (Id. ¶¶ 60, 68.) Leven is the chief executive officer and president of Rip Road; Plaintiff Berman is the vice president of finance and strategy of Rip Road; and Verma joined Rip Road as the executive vice president/marketing of Rip Road. (Id. ¶ 61.) The Counterclaims allege that Leven and Plaintiff Berman misappropriated the business and business opportunities of Sugo through Rip Road. (Id. ¶ 68.) Neither Leven nor Plaintiff advised Weinstein or Sugo of the creation of Rip Road or that Rip Road sought to acquire and did acquire the business and business opportunities of Sugo. (Id. ¶ 72.) It is alleged that as a result of Plaintiff and Counter-Defendants' actions, Sugo has been "unable to pursue any business activities or continue existing business" (id. ¶ 69) and "has been destroyed as a functioning business entity" (id. ¶ 75).

The Counterclaims further allege that Leven owed a fiduciary duty to Sugo and Weinstein (id. ¶ 73) and violated such fiduciary duty by the above-described actions (id. ¶114). It is alleged that Verma, along with Plaintiff, aided and abetted Leven in the breach of his fiduciary duty to Sugo and Weinstein. (Id. ¶¶ 73-74.)

In November 2005, Weinstein formed Isit LLC ("Isit"), a Connecticut limited liability company registered to do business in New York. (Id. ¶ 15.) After November 24, 2005, Weinstein negotiated with other members of Isit in an attempt to provide services to Sugo and relieve Sugo of some of its financial burdens, including the commercial lease. (Id. ¶ 15.) Weinstein also sought to generate revenue for Sugo by servicing existing and prospective customers of Sugo and by having Isit take over Sugo's lease obligation. (Id. ¶ 15.)

The Counterclaims state that Sugo and Weinstein have suffered damages in an amount not yet ascertained but believed to be in excess of $10,000,000.00. (Id. ¶ 76.) Counter-Plaintiffs assert that these damages are "greatly in excess of any sum that Sugo might otherwise have owed to Plaintiff." (Id. ¶ 75.)

III. The "Operating Agreement"

Several of the claims asserted in the Counterclaims base the liability of Counter-Defendants, in particular Leven, on an alleged breach of an "Operating Agreement." (Counterclaims ¶¶ 93, 94, 96, 97, 100-02, 105-08, 110-112, 117-119.) While the Counterclaims do not set forth all the terms of the "Operating Agreement,"*fn2 they characterize particular provisions of the Operating Agreement that were allegedly breached as follows:

94. The Operating Agreement further provided that each member would pay to Sugo all revenue collected by the member which relates to Sugo's business. 100. The Operating Agreement further provided that no member may withdraw without the prior consent of the majority of the members, excluding such member, and that the consent may be granted or withheld at the other members' sole discretion. Moreover, the Operating Agreement provided that a member shall be deemed to have withdrawn from Sugo in violation of the Operating Agreement if such Member ceased devoting substantially all of his time and attention to the business of Sugo during normal business hours. 105. The Operating Agreement further provided that while a person owned an interest in Sugo and for twelve (12) months thereafter that person may not in any manner contact, solicit, service, make a sale to or accept a sale from a customer of Sugo, interfere with, divert or take away any customer of Sugo, render assistance to any competitor of Sugo to interfere with, divert or take any customer of Sugo or take any action which would materially adversely affect the business or contractual relationship between Sugo and any person. 110. The Operating Agreement contained an express prohibition against any member of Sugo making personal use of or disclosing confidential information or trade secrets of Sugo. (Counterclaims ¶¶ 94, 100, 105, 110.) The Counterclaims do not attach any documents purported to be the "Operating Agreement."

DISCUSSION

I. The Pleading Standard

On a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the district court's role is to determine whether the pleadings are legally sufficient. Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). "Federal Rule of Civil Procedure 8(a)(2) requires only 'a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to 'give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Bell Atlantic v. Twombly, 127 S.Ct. 1955, 1964 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 48 (1957)). The district court must generally accept the factual allegations of the pleadings ...


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