United States District Court, S.D. New York
OPINION AND ORDER
M. FURMAN, UNITED STATES DISTRICT JUDGE
diversity action, Plaintiff Empire Merchants, LLC
(“Empire”), a liquor distributor, seeks a
declaration that two of its former officers, Charles Merinoff
and Gregory Baird, are not entitled to indemnification or
advancement for their fees and costs in defending a lawsuit
that Empire filed against them in the Eastern District of New
York. (See Docket No. 8 (“Am. Compl.”)
at ¶¶ 37-48). Empire also brings a contract claim
against Merinoff and Baird, alleging that they breached a
forum selection clause in the parties' contract by filing
suit in Delaware rather than here. (See Id.
¶¶ 49-54). Now pending are cross-motions for
partial judgment on the pleadings, pursuant to Rule 12(c) of
the Federal Rules of Civil Procedure, regarding two
questions: whether Merinoff and Baird are entitled to
advancement of their fees and costs and whether Empire is
entitled to damages for breach of the parties' contract.
For the reasons that follow, Empire's motion is GRANTED,
and Defendants' motion is DENIED.
a Delaware limited liability company, distributes wine and
spirits in New York and is the exclusive distributor of
several well-known alcohol brands, including Johnnie Walker
and Smirnoff. (Am. Compl. ¶¶ 12-13). Defendant
Merinoff served on Empire's Board of Managers from its
formation in 2006 until November 9, 2015. (Id.
¶ 6). Defendant Baird was also a member of Empire's
Board of Managers, from January 1, 2012, to October 22, 2015.
(Docket No. 39 (“Mastro Decl.”), Ex. F
(“E.D.N.Y. Amended Complaint”), at ¶ 34).
matters, however, Baird and Merinoff had several roles in the
alcohol industry beyond their roles at Empire. Merinoff was
the Chief Executive Officer and Chairman of the Board of
Sunbelt Holding, Inc. and Sunbelt Beverage Company
(“Sunbelt”), which until 2016 owned Reliable
Churchill LLP (“Reliable Churchill”), a liquor
wholesaler in Maryland. (Am. Compl. ¶¶ 6, 14). In
2016, Merinoff also became the Co-Chairman of Breakthru
Beverage Group, which is now the ultimate parent entity of
Reliable Churchill. (Id. ¶ 6). For his part,
Baird was the Executive Vice President of Sales for Sunbelt,
through which he oversaw sales for Reliable Churchill until
he became Chief Operating Officer of Sunbelt in 2010.
(Id. ¶ 7). In 2016, Baird became President and
CEO of Breakthru Beverage Group. (Id. ¶ 7).
relationship between Empire and its Board members was and is
defined by the company's Limited Liability Company
Agreement (the “LLC Agreement”). Two provisions
of that Agreement are relevant here. First, Section 5.5,
titled “Liability of the Managers and Officers;
Indemnification” provides as follows:
The Company . . . shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each
Manager and each officer of the Company from and against any
and all claims, suits, losses, judgments, damages,
settlements, liabilities, fines, costs and expenses
(including, but not limited to, reasonable attorneys'
fees, litigation expenses and court costs)
(“Losses”) that may be made or imposed upon such
Person by reason of the fact that such Person is or was a
Manager or officer of the Company; provided, however, that no
indemnification shall be provided hereunder to any such
Person for any Losses arising out of such Person's breach
of his or her duty of loyalty (as such concept is interpreted
under the [Delaware General Corporation Law]), act of fraud,
bad faith or willful misconduct, or any action or transaction
from which such Person derived an improper personal benefit.
. . . The Company shall pay the expenses as incurred by the
Persons entitled to indemnification under this Section 5.5(b)
in defending a civil or criminal action, suit or proceeding,
upon receipt of a written undertaking by such Person to repay
such payment if it shall be determined that such Person is
not entitled to indemnification therefor as provided herein.
(Mastro Decl., Ex. A (“LLC Agreement”), at §
5.5(b)). Second, Section 12.6 provides that “any suit,
action or other legal proceeding arising out of” the
LLC Agreement “shall be brought” in this Court or
a New York State court in Manhattan, except that any legal
proceeding that, under Delaware law, “is required to be
brought in the Delaware Court of Chancery may only be brought
in the Delaware Court of Chancery.” (Id.
September 20, 2016, Empire filed a lawsuit in the Eastern
District of New York (the “E.D.N.Y. Action”)
against Reliable Churchill, Merinoff, Baird, and others. (Am.
Compl. ¶¶ 2, 20; Docket No. 45, Ex. 6
(“Original E.D.N.Y. Complaint”)). Empire alleged
that Merinoff, Baird, and the other defendants participated
in a long-term scheme to illegally smuggle wine and spirits
from Maryland to New York in order to avoid paying New
York's higher liquor excise tax and to undercut
Empire's exclusive distribution of certain brands of
liquor. (Original E.D.N.Y. Complaint ¶ 1). In the
Original E.D.N.Y. Complaint, Empire also alleged that Baird
and Merinoff breached their fiduciary duties as board members
of Empire by participating in the scheme. (See,
e.g., id. ¶¶ 84-85, 169). For
example, Empire specifically alleged that Merinoff and Baird
“both breached their fiduciary duties to Empire,
” as “both men sat on Empire's Board of
Managers and had knowledge that the bootlegging scheme was
affecting Empire's financial well-being.”
(Id. at ¶ 169; see also Id. ¶
December 9, 2016, Empire filed an amended complaint in the
E.D.N.Y. Action. Once again, Empire again alleged that
Merinoff and Baird furthered an illegal smuggling scheme in
their capacity as directors and officers of Sunbelt and
Reliable Churchill. (E.D.N.Y. Amended Complaint ¶¶
23, 99 n.108). The E.D.N.Y. Amended Complaint alleged that,
notwithstanding Merinoff's role as an Empire Board
member, “[b]ecause of the ownership structures of the
different relevant entities, Merinoff profited more when
Reliable Churchill made a sale, as opposed to when Empire
made a sale.” (Id. ¶ 23). It alleged also
that Merinoff ultimately intended to weaken Empire in order
to target it for acquisition by Breakthru Beverage Group.
(Id.). Empire's contentions regarding Baird were
sparser: It claimed that he knew of the smuggling operation,
initially by virtue of his role as Reliable Churchill's
President and, later, as Chief Operating Officer of Sunbelt.
(Id. ¶ 99 n.108). The E.D.N.Y. Amended
Complaint asserted claims against Merinoff and Baird for
tortious interference with contract (id.
¶¶ 301-08), deceptive trade practices in violation
of New York General Business Law Section 349 (id.
¶¶ 309-13), unfair competition (id.
¶¶ 314-21), unjust enrichment (id.
¶¶ 331-43), and civil conspiracy (id.
¶¶ 344-53). Notably, however, it did not include
any claims for breach of fiduciary duty against Merinoff and
Baird. (See, e.g., Docket No. 45, Ex. 4, ¶
October 26, 2016 - between the filing of the original
complaint and the amended complaint - Merinoff and Baird
demanded that Empire advance them funds to pay for their
defense in the E.D.N.Y. Action, which they characterized as a
suit “in connection with their positions as members of
[Empire's] Board.” (See Am. Compl., Ex. 3,
at 1). Not surprisingly, Empire promptly refused.
(See Am. Compl., Ex. 4, at 1 (“Surely, you are
not seriously advancing this request in good faith.”)).
Merinoff and Baird then filed suit in the Delaware Court of
Chancery, seeking to obtain advancement of the legal fees.
(Am. Compl., Ex. 5). On February 2, 2017, however, the
Delaware Court dismissed the case, finding that the
“clear and unambiguous language” of the LLC
Agreement's “forum selection provision”
required that the action to be brought in New York. (Mastro
Decl., Ex. C, at ¶¶ 11-12). Thereafter, Empire
commenced this action seeking a declaratory judgment that
Merinoff and Baird are not entitled to advancement or
indemnification. (Am. Compl. ¶ 1). Empire also seeks
“breach of contract damages” stemming from
Merinoff and Baird's violation of the forum selection
clause by filing suit in Delaware. (Id. ¶ 4).
Merinoff and Baird filed a counterclaim, demanding
advancement of their fees to defend the E.D.N.Y. Action.
(Docket No. 24, at ¶¶ 61-67).
standard of review for a motion for judgment on the pleadings
under Rule 12(c) is the same as that governing motions to
dismiss under Rule 12(b)(6). See, e.g., Patel v.
Contemporary Classics of Beverly Hills, 259 F.3d 123,
126 (2d Cir. 2001). That is, the plaintiff must plead facts
sufficient “to state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). A complaint that
offers only “labels and conclusions” or “a
formulaic recitation of the elements of a cause of action
will not do.” Id. at 555. If a plaintiff has
not “nudged [its] claims across the line from
conceivable to plausible, [those claims] must be
dismissed.” Id. at 570. In applying these
standards, however, a court must assume all of the
plaintiff's “factual allegations to be true and
draw all reasonable inferences in the plaintiff's
favor.” Harris v. Mills, 572 F.3d 66, 71 (2d
the Court looks to federal law for the applicable pleading
standards, it looks to Delaware for substantive law, as the
LLC Agreement expressly provides that it “shall be
governed by and construed in accordance with the laws of the
State of Delaware without regard to the conflicts of law
rules of said state.” (LLC Agreement § 12.5).
Under Delaware law, when a contract “is clear and
unambiguous, [courts] will give effect to the plain-meaning
of the contract's terms and provisions.” Osborn
ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159-60 (Del.
2010). A contract is unambiguous if it is “fairly or
reasonably susceptible to only one interpretation.”
BLGH Holdings LLC v. enXco LFG Holding, LLC, 41 A.3d
410, 414 (Del. 2012). Where the provisions of a contract
governing advancement are unambiguous, a court may resolve a
dispute about entitlement ...