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Casville Investments, Ltd. v. Kates

United States District Court, Second Circuit

July 8, 2013

CASVILLE INVESTMENTS, LTD., et al., Plaintiffs,
v.
JASON KATES, et al., Defendants.

OPINION AND ORDER

RONNIE ABRAMS, District Judge.

Plaintiffs Casville Investments, Ltd., MBC Investment SA and Watkins International, Ltd. (collectively, "Plaintiffs") bring this action on behalf of themselves and derivatively on behalf of Argo Digital Solutions, Inc. ("Argo")[1] against Defendants Jason Kates, Richard Sullivan, David Loppert, World Capital Markets, Inc. ("World Capital"), Solutions, Inc. ("Solutions"), RVUE Holdings, Inc. ("RVUE") and John Does 1-20 (collectively, "Defendants"). Defendants now move to dismiss or, in the alternative, to transfer this action pursuant to Rules 12(b)(2) and (3) of the Federal Rules of Civil Procedure. For the following reasons, Defendants' motions to dismiss are denied but the motions to transfer are granted. This case shall be transferred to the United States District Court for the Southern District of Florida.

I. Background[2]

Plaintiffs are shareholders and investors in Argo, a now defunct technology company. Casville Investments, Ltd. is a corporation organized under the laws of the British Overseas Territory of Gibraltar and maintains its principal office there. (Compl. ¶ 8.) MBC Investments, SA is a corporation organized under the laws of Switzerland and maintains its principal office there. (Id. ¶ 9.) Watkins International, Ltd. is a corporation organized under the laws of the Republic of Panama and maintains its principal office there. (Id. 10.) Argo was a corporation organized under the laws of Delaware and maintained its principal office in Fort Lauderdale, Florida. (Id. ¶ 11.)

Defendants were officers, directors or agents of Argo and are currently officers and directors of RVUE. RVUE is a corporation organized under the laws of Nevada and maintains its principal place of business in Fort Lauderdale, Florida. (Id. ¶ 12.) Kates was the CEO, President and a director of Argo and subsequently served as the CEO, President and Chairman of RVUE. (Id. ¶ 13.) Kates resides in Fort Lauderdale, Florida. (Id.) Sullivan was the Chairman of the Board of Directors and a financial consultant to Argo and subsequently served as a director of RVUE for a period of time in 2010. (Id. ¶ 14.) Sullivan also is the founder, director, CEO, President and majority shareholder of World Capital, as well as the founder, President, Secretary, Chairman and controlling shareholder of Solutions. (Id. ¶ 14.) He resides in West Palm Beach, Florida. (Id.) World Capital is a corporation organized under the laws of Florida and maintains its principal place of business in West Palm Beach, Florida. (Id. ¶ 16.) Solutions is a corporation organized under the laws of Delaware and maintains its principal place of business in West Palm Beach, Florida. (Id. ¶ 17.) World Capital and Solutions were hired by Argo to assist it with selling its assets. (See id. ¶ 43.) Loppert was the Senior Vice President of Finance for Argo and subsequently served as the CFO, Secretary and Treasurer of RVUE. (Id. 15.) He resides in Palm Beach Gardens, Florida.[3] (Id.)

According to Plaintiffs, beginning in or around early December 2008, Argo Defendants allegedly "devised and carried out [a] common plan and scheme to transfer all, or substantially all, assets of Argo [] to a debt-free shell company which [they] controlled, " which would leave Argo with only liabilities. (Id. ¶ 47.) In furtherance of this plan, in or about March 2009, Argo Defendants "induced" Argo shareholders to approve, inter alia, "a vague plan to take the company public." (Id. ¶ 51.) Plaintiffs claim that the valuations and projections included in the March 2009 offering materials "diverged enormously from the actual financial condition" of the company and contained false statements regarding actions taken by the company. (Id. in 53-54.)

Also during December 2008, Plaintiffs allege that Argo Defendants "solicited [Argo] shareholders to approve an increase in the number of authorized shares of the [c]ompany from 25, 000, 000 to 250, 000, 000 shares." (Id. ¶ 57.) As a result, between December 31, 2008 and December 1, 2009, Kates' shares increased from 4 million to 60 million, Sullivan, World Capital and Solutions' shares increased from zero to 61 million, and Loppert's shares increased from zero to 5.5 million. (Id. ¶ 61.) Argo Defendants' share ownership collectively increased from 18% to 80%, while Plaintiffs' share ownership dropped from approximately 12% to less than 2%. (Id. ¶ 63.) Plaintiffs allege that Argo Defendants did not pay for the newly acquired shares. (Id. ¶ 62.)

In or around October 2009, Argo Defendants began informing shareholders that Argo would "spin-out... its largest and most valuable asset and business, the rVue Software, into rVue Inc, an entity that has no prior business encumbrances." (Id. ¶ 64.) They asserted that shares of rVue, Inc. would be distributed pro rata to Argo shareholders and then rVue, Inc. would become public through a reverse merger with a public shell company. (Id.) Subsequently, in or around March 2010, Plaintiffs allege that Argo Defendants "used their unlawfully acquired majority interest share in [Argo]" to approve the plan to "sell" all of the shares of rVue, Inc. and all other Argo assets to a public shell company. (Id. ¶ 67.) In exchange, Argo would receive shares in the shell company. (Id.) Plaintiffs refer to this transaction as the "Fraudulent Conveyance." (Id. ¶ 11.) In a March 23, 2010 letter to shareholders, Argo Defendants disclosed that the Fraudulent Conveyance had been approved by consent and without a shareholder meeting. (Id. ¶ 68.) Also on March 23, 2010, they disseminated a Private Placement Memorandum ("PPM") "as part of their solicitation of Argo [] shareholders and other potential investors to invest in the public shell company." (Id. ¶ 69.) "The PPM stated, among other things, that the transfer of all of Argo['s] [] assets would be accomplished by the reverse merger of rVue, Inc. into the public shell and [Argo] would be left to liquidate without operating assets." (Id. 70.) In exchange, RVUE, the new public company, would "transfer its previously worthless shares to [Argo] to be held in a liquidating trust, " which would be locked up for one year pursuant to an agreement with Argo. (Id.) The PPM also allegedly stated that RVUE would have the same management as Argo. (Id.)

According to Plaintiffs, to effectuate the sale of rVue, Inc. to RVUE, certain contracts were entered into by and between Defendants.[4] (Pls. Opp'n 5.) On May 13, 2010, Argo, rVue, Inc. and RVUE entered into an asset purchase agreement pursuant to which RVUE acquired all of the stock and business of rVue, Inc., as well as any and all assets related to the rVue, Inc. business from Argo (the "Asset Purchase Agreement" or "Agreement").[5] (Martin Kaplan Decl., Jan. 22, 2013, Ex. B.) Also on that date, both Kates and Loppert executed employment agreements with RVUE, (id. at Ex. D), and a stock purchase agreement was entered into between RVUE and the former owner of the shell company, (id. at Ex. E). A form lock-up agreement was attached to RVUE's Form 8-K filed with the SEC on May 19, 2010. (Id. at Ex. C.)

Plaintiffs allege that Kates told Argo shareholders that they would receive 202, 266 shares from the Fraudulent Conveyance consideration, which was 1.6% of the consideration received by Argo. (Compl. 76.) "Years after the Fraudulent Conveyance and months after the extended termination date of the Lock-Up period, " however, Plaintiffs "have not received any portion of the Fraudulent Conveyance Consideration due after payment of [Argo's] outstanding debt." (Id. ¶ 82.) According to Plaintiffs, Defendants obtained nearly three million shares of RVUE, which they sold as "free trading shares, " despite them actually being restricted, for a "substantial and wrongful profit." (Id. ¶¶ 3, 78-79.)

Plaintiffs commenced this action on September 14, 2012 asserting claims of breach of fiduciary duty, fraudulent conveyance, breach of contract and unjust enrichment. On November 19, 2013, Argo Defendants filed a motion to dismiss or transfer this action pursuant to Federal Rules of Civil Procedure 12(b)(2) and (3).[6] (Dkt. No. 10.) On December 21, 2012, RVUE filed a motion to dismiss or transfer this action pursuant to Federal Rules of Civil Procedure 12(b)(2) and (3) and 9(b).[7] (Dkt. No. 44.) For the following reasons, Defendants' motions to dismiss are denied but their motions to transfer are granted.

II. Standard of Review

The legal standard for a motion to dismiss for improper venue is the same as a motion to dismiss for lack of personal jurisdiction. See Gulf Ins. Co. v. Glasbrenner , 417 F.3d 353, 355 (2d Cir. 2005). When a defendant challenges either the jurisdiction or venue of the court, the plaintiff bears the burden of showing that both are proper. Distefano v. Carozzi N. Am., Inc. , 286 F.3d 81, 84 (2d Cir. 2001); Savoy Senior Hous. Corp. v. TRBC Ministries , 401 B.R. 589, 596 (S.D.N.Y. 2009). Courts may rely on materials outside the pleadings when ruling on such motions. Gulf Ins. Co. , 417 F.3d at 355; Distefano , 286 F.3d at 84. "If the court chooses to rely on pleadings and affidavits" and not conduct an evidentiary hearing, "the plaintiff need only make a prima facie showing" of jurisdiction or venue. Gulf Ins. Co. , 417 F.3d at 355. The court must credit the plaintiff's factual averments as true, Metro. Life Ins. Co. v. Robertson-Ceco Corp. , 84 F.3d 560, 567 (2d Cir. 1996); Boehner v. Heise , 410 F.Supp.2d 228, 240 (S.D.N.Y. 2006), ...


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