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John Swann Holding Corp. v. Simmons

United States District Court, S.D. New York

October 16, 2014

JOHN SWANN HOLDING CORP., derivatively, on behalf of CLUBCREATE, INC., Plaintiff,
v.
COREY SIMMONS, CURTLAND FIELDS, ANNETTE STRICKLAND, and CLUBCREATE, INC., Defendants

For John Swann Holding Corp., derivatively on behalf of Clubcreate, Inc., Plaintiff: Brett Thomas Perala, John Jacob Rosenberg, Matthew H. Giger, Rosenberg & Giger, P.C., New York, NY.

Corey Simmons, Defendant, Pro se.

For Curtland Fields, Defendant: Frank Joseph Crupi, PRO HAC VICE, Tucci, Hot, Crupi & Stanziola, P.C., Long Branch, NJ.

For Annette Strickland Defendant: Harold Bernard Woolfalk, LEAD ATTORNEY, H.B. Woolfalk & Associates, P.C., Scarsdale, N.Y. USA; Jonathan Steven Sanoff, New York, N.Y. USA.

Page 305

MEMORANDUM AND ORDER

ANALISA TORRES, United States District Judge.

In this diversity action, Plaintiff, John Swann Holding Corp., derivatively on behalf of ClubCreate, Inc. (" CCI" ), alleges that Defendants, Corey Simmons, Curtland Fields, and Annette Strickland, breached their fiduciary duty to CCI's stockholders. Plaintiff also asserts claims for conversion and unjust enrichment against Simmons. Defendants move pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the fiduciary duty claims as to all Defendants, except for any bad faith or duty of loyalty claims asserted against Simmons relating to the

Page 306

alleged misuse of corporate assets.[1] For the following reasons, Defendants' motion is DENIED.[2]

BACKGROUND

The following facts are taken from the amended complaint (the " complaint" ) and are accepted as true for the purposes of this motion. See ATSI Commc'ns, Inc, v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).

CCI is a corporation organized under the laws of Delaware with its principal place of business in Union City, New Jersey. Am. Comp. ¶ 7, ECF No. 18. CCI's website provides a " platform through which the website's users, with the authorization of rights holders in musical content can mix, " produce' and otherwise manipulate musical sounds to create new and original works." Id.¶ 11.

Simmons is the co-founder, CEO, and chairman of the board of directors (the " Board" ) of CCI. Id. ¶ 4. Fields was a member of CCI's Board from approximately May 30, 2007 to September 17, 2013. Id. ¶ ¶ 5, 12. Strickland was a member of CCI's Board from approximately May 30, 2007 to December 2013. Id. ¶ ¶ 6, 12.

John Swann Holding Corp., a Canadian corporation, is owned by John Swann. Id. ¶ ¶ 3, 14-15. John Swann's son, Craig Swann, is the owner of Crash!Media, a software development company that entered into a licensing agreement with CCI in June 2007. Id. In connection with this agreement, Craig Swann was elected to the Board of CCI. Id. ¶ 16.

Plaintiff is the owner of 20,000 shares of common stock in CCI, which comprises 1% of the outstanding equity. Id. ¶ ¶ 20-22. Plaintiff purchased the shares for $275,000 pursuant to a Common Stock Purchase Agreement (the " Swann Agreement" ) on February 20, 2008. Id. The Swann Agreement was CCI's " first significant financial investment" and " the only third party investment advanced" in 2008 or 2009. Id. ¶ ¶ 20-21, 25. The Swann Agreement provided that CCI would pay a portion of its net revenues to Plaintiff. Id. ¶ 23. Because CCI failed to repay any portion of Plaintiff s investment within one year, CCI was contractually required to increase Plaintiffs equity holding in CCI from 1% to 2%. I ...


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