United States District Court, S.D. New York
LE METIER BEAUTY INVESTMENT PARTNERS LLC, and UNATTAINABLE BEAUTY, LLC, Plaintiffs,
METIER TRIBECA, LLC, and RICHARD BLANCH, Defendants.
Vincent Roger Cappucci, Evan T. Raciti, ENTWISTLE & CAPPUCCI LLP, FOR LE METIER BEAUTY INVESTMENT PARTNERS LLC and UNATTAINABLE BEAUTY, LLC.
Richard Alan Roth, Jordan Michael Kam, THE ROTH LAW FIRM, PLLC., FOR METIER TRIBECA, LLC and RICHARD BLANCH.
OPINION & ORDER
JOHN F. KEENAN, District Judge.
Before the Court is a motion by Defendant Richard Blanch seeking to dismiss the complaint under rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, the motion is denied.
The following facts are taken from the allegations in the complaint and are accepted as true only for purposes of the motion to dismiss. Beginning around February 2012, Plaintiff Unattainable Beauty, LLC extended credit to Metier Tribeca ("Metier" or "the Company") in the aggregate principal amount of $1.85 million. (Compl. ¶ 16.) By the summer of 2012, however, the Company informed Unattainable Beauty that its line of credit was exhausted. As a result, beginning in August 2012, Plaintiffs Le Metier Beauty Investment Partners LLC ("Beauty Investment Partners") and Unattainable Beauty entered into a series of discussions with Metier concerning the possibility of their acquiring a membership interest in the Company in exchange for a further investment. (Id. ¶ 17.) Prior to these discussions, Beauty Investment Partners had no relationship with Metier. (Id. ¶ 16.)
As the then-CEO of Metier, Blanch interacted with Plaintiffs on behalf of the Company during these discussions. In his communications with Plaintiffs, Blanch allegedly stated that Metier had "$1.5MM in November orders" and "would ship $8.5 million by year-end 2012." (Id. ¶ 26-27.) Plaintiffs also assert that Blanch informed them that Metier's books and records were being "reconciled" and, as a result, the latest sales figures could not be provided to Plaintiffs for their review "until post investment." (Id. ¶ 27-28.) Finally, Blanch is also alleged to have guaranteed that any investment that Plaintiffs made in Metier would be used to fund growth and not to pay Company insiders or preexisting debt beyond a single scheduled exception. (Id. ¶ 18-19, 23.)
On October 31, 2012, Plaintiff Beauty Investment Partners entered into an LLC Company Membership Interest Purchase Agreement (the "Beauty Investment Partners Agreement") with Metier, pursuant to which it acquired a 10 percent interest in the Company in exchange for $1.8 million. (Id. ¶ 32.) That same day, Unattainable Beauty entered into a separate LLC Company Membership Interest Purchase Agreement (the "Unattainable Beauty Agreement" and, together with the Beauty Investment Partners Agreement, the "Purchase Agreements") by which it paid $2, 175, 070 to acquire a 14.53 percent interest in the Company. (Id. ¶ 32.) In addition, Beauty Investment Partners simultaneously acquired an additional 12 percent equity interest in Metier for $1.25 million from a third party-The Island Def Jam Music Group. (Id.; Def. Reply at 11.)
Section 1.6 of both Purchase Agreements included a representation that Metier would
"use the proceeds from the sale of the Membership Interests solely to fund the working capital requirements of the Company and/or to retire debt set forth in Exhibit 1.6, such debt not to exceed $350, 000. Such proceeds may not be used for any other purpose unless otherwise agreed to by buyer."
(Id. ¶ 20 (emphasis omitted).) Moreover, the Unattainable Beauty Agreement also contained a further representation that, "[u]nless scheduled in section 1.6 for retirement, no other existing debt shall be paid prior to its Maturity Date or December 31, 2013, whichever is later." (Id. ¶ 21.)
On July 3, 2013, Plaintiffs commenced this action when they filed a complaint asserting claims for securities fraud under section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and rule 10b-5 promulgated thereunder, common law fraud, and fraudulent inducement with respect to Blanch and Metier; violation of section 20(a) of the Exchange Act and breach of fiduciary duty against Blanch; and breach of contract against Metier. Plaintiffs' allegations include that, despite explicit representations by Blanch to the contrary, over 80 percent of Plaintiffs' investment was used to pay aged debt, back salary, and other prohibited expenses, including more than $250, 000 transferred to Blanch and other insiders at the Company within twenty-four hours of Plaintiffs' investment being made. (Id. ¶¶ 33-35.) Plaintiffs also allege that Blanch knew that actual sales numbers were significantly lower than what was represented to Plaintiffs and that, in any event, Metier had insufficient inventory to fill even those orders that had been placed. (Id. ¶ 27-30.)
On February 14, 2014, this case was automatically stayed as against Metier in accordance with section 362(a) of the Bankruptcy Code, following Metier's filing of a petition for relief in the U.S. Bankruptcy Court for the Southern District of New York. See 11 U.S.C. § 362(a)(1). On June 17, 2014, Plaintiffs sent a letter to this Court requesting consideration of Defendants' motion to dismiss with respect to Blanch alone. (ECF No. 27 at 9.) Blanch subsequently moved to extend the bankruptcy stay in order to preclude Plaintiffs from continuing the action against him individually.
On September 25, 2014, the Court denied Blanch's motion to extend the automatic stay, but granted a temporary stay of fourteen days to allow the parties to seek an extension of the stay from the bankruptcy court. The Court noted that, if further relief was not sought, it would proceed to consider the motion to dismiss with respect to Blanch alone. Although the bankruptcy action remains ...