Saveene Corp. v. Remo

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

-- -----------------------------------------------------------X

:

SAVEENE CORP., :

Plaintiff, :

: 21 Civ. 399 (LGS)

-against- :

: OPINION AND ORDER

ERNEST B. REMO, AMERICAN :

DIVERSIFIED HOLDINGS CORP., ACTION :

STOCK TRANSFER CORP. AND OTC :

MARKETS GROUP INC., :

Defendants. :

------------------------------------------------------------ X

LORNA G. SCHOFIELD, District Judge:

Plaintiff Saveene Corp. filed suit against Defendants Ernest B. Remo, American

Diversified Holdings Corp. (“ADHC”), Action Stock Transfer Corp. (“AST”) and OTC Markets

Group Inc. (“OTC”) alleging that Remo stole the identity of ADHC, and that the other defendants

facilitated the theft. Defendants AST and OTC move to dismiss the Complaint pursuant to Federal

Rule of Civil Procedure 12(b)(6). For the reasons stated below, the motions are granted.

I. BACKGROUND

The following facts are taken from the Complaint and are assumed to be true for

purposes of this motion. See R.M. Bacon, LLC v. Saint-Gobain Performance Plastics Corp., 959

F.3d 509, 512 (2d Cir. 2020).

A. Stock Purchase Agreement

On or about June 6, 2019, then-CEO Remo agreed to sell his controlling interest in

ADHC to Plaintiff pursuant to a stock purchase agreement. Pursuant to that agreement, Remo

assumed a number of obligations regarding the transition of ADHC’s strategy and management

as a result of the sale, including the resignation of existing management. On or about June 6,

2019, Remo’s controlling interest in ADHC was transferred to Plaintiff through ADHC’s stock

transfer agent, AST, and Remo resigned as CEO. Plaintiff controlled ADHC without

interference until the spring of 2020. At the time of the sale, ADHC was incorporated in Nevada

and traded on OTC.

B. Dissolution of ADHC and Creation of ADHC Wyoming

On April 27, 2020, Remo formed a new company in Wyoming called American

Diversified Holdings Corporation (“ADHC Wyoming”). The Wyoming State filing did not

indicate that the entity previously existed or had relocated or “merged out.” On or about April

28, 2020, Remo dissolved ADHC in Nevada. According to the Complaint, in Nevada, “any third

party may dissolve an entity without proof of control or being an officer or Director . . . so long

as a small filing fee is paid and proper paper work is filed.” That same day, Remo contacted

Plaintiff to inquire about the status of ADHC and expressed interest in liquidating his shares.

Plaintiff reminded Remo that his sale of a controlling block of shares had closed with no

recourse or survival clauses.

C. Plaintiff’s Efforts to Regain Control of ADHC and OTC Filings

Following the dissolution of ADHC, on or about July 3, 2020, Plaintiff demanded that

Remo immediately cease and desist from interfering with ADHC and reinstate ADHC in

Nevada. Plaintiff made efforts to resolve the matter for several months thereafter prior to

bringing this action. Plaintiff also sought assistance from AST, but AST did not respond to

emails or telephone calls from ADHC. The Complaint alleges that AST accepted payment from

Remo for an outstanding bill of ADHC, acknowledged Remo’s interest in ADHC and granted

Remo access with OTC as “The ADHC A Nevada Co.”

On or about September 10, 2020, Plaintiff caused ADHC to file a Form 8-K reporting

that Remo had hijacked the company, and that management was trying to resolve the matter

2

through legal or regulatory means. In December 2020, Remo made a number of filings for

ADHC on OTC that he signed as CEO of ADHC. On or about December 10, 2020, Remo

caused three quarterly reports to be filed with OTC. The reports did not reference Plaintiff’s

interest in ADHC and asserted that ADHC had redomiciled in Wyoming. An attorney, Morgan

Petitti, submitted an opinion letter on December 15, 2020, certifying the reports as true and

accurate. Plaintiff objected through an email on December 21, 2020, which included OTC.

Remo caused the filing of a quarterly report on December 14 and two amended quarterly reports

on December 22, 2020. These reports similarly claimed that ADHC had relocated and did not

reference Plaintiff’s interest. Petitti submitted a second opinion letter to OTC confirming the

truth and accuracy of the quarterly reports. On or about December 24, 2020, Plaintiff notified

OTC of Remo’s actions and had not received a response at the time of the Complaint’s filing.

Plaintiff filed this action on January 15, 2021. The Complaint asserts thirteen causes of

action, including the following against movants AST and OTC: (i) Tortious Interference, (ii)

Breach of Fiduciary Duty and (iii) Negligence.

II. STANDARD

On a motion to dismiss, a court accepts as true all well-pleaded factual allegations and

draws all reasonable inferences in favor of the non-moving party, Montero v. City of Yonkers,

N.Y., 890 F.3d 386, 391 (2d Cir. 2018), but gives “no effect to legal conclusions couched as

factual allegations.” Stadnick v. Vivint Solar, Inc., 861 F.3d 31, 35 (2d Cir. 2017). To withstand

a motion to dismiss, a pleading “must contain sufficient factual matter, accepted as true, to ‘state

a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Threadbare recitals of the

elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at

3

678. “To survive dismissal, the plaintiff must provide the grounds upon which his claim rests

through factual allegations sufficient ‘to raise a right to relief above the speculative level.’” ATSI

Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly, 550 U.S.

at 555).

III. DISCUSSION

A. OTC’s Immunity Pursuant to the CDA

Accepting as true all of the allegations in the Complaint and drawing all reasonable

inferences in favor of Plaintiff, the Complaint fails to state claims against OTC because OTC is

immune from such claims under the Communications Decency Act of 1996 (“CDA”). Under the

CDA, “[n]o provider or user of an interactive computer service shall be treated as the publisher

or speaker of any information provided by another information content provider.” 47 U.S.C. §

230(c)(1). To qualify for immunity under the statute, the following three requirements must be

met: (1) the defendant must be “‘a provider or user of an interactive computer service’”; (2) “‘the

claim is based on information provided by another information content provider’” and (3) “‘the

claim would treat the defendant as the publisher or speaker of that information.’” Herrick v.

Grindr LLC, 765 Fed. App’x 586, 589 (2d Cir. 2019) (quoting Fed. Trade Comm’n v. LeadClick

Media, LLC, 838 F.3d 158, 173 (2d Cir. 2016)). Section 230(c)(1) is generally construed

broadly in favor of immunity. Force v. Facebook, Inc., 934 F.3d 53, 64 (2d Cir. 2019).

Though “[p]reemption under the Communications Decency Act is an affirmative defense,

. . . it can still support a motion to dismiss if the statute’s barrier to suit is evident from the face

of the complaint.” Ricci v. Teamsters Union Loc. 456, 781 F.3d 25, 28 (2d Cir. 2015) (internal

quotation marks omitted); accord Facebook, Inc., 934 F.3d at 63 n.15. The Complaint’s claims

against OTC focus on the allegation that OTC “permitted Remo to disseminate false

4

information” and “failed to properly investigate Remo and his fraudulent actions.” Because

Plaintiff’s claims against OTC implicate OTC’s publication of information in its capacity as an

online trading platform, its potential immunity under the CDA is directly at issue and apparent

from the face of the Complaint.

OTC satisfies all three requirements necessary to establish its immunity under the CDA.

First, the Complaint alleges that OTC lists and provides an online trading platform for various

stocks, including ADHC, and that OTC disseminates information on listed companies.

Consequently, it is apparent from the face of the Complaint that OTC is an interactive computer

service provider within the meaning of Section 230. See also Fed. R. Evid. 201 (permitting a

court to take judicial notice of a fact that is generally known and can be determined from a

source that cannot be reasonably questioned). The term “interactive computer service” is defined

as “any information service, system, or access software provider that provides or enables

computer access by multiple users to a computer server, including specifically a server or system

that provides access to the Internet and such systems operated or services offered by libraries or

educational institutions.” 47 U.S.C. § 230(f)(2). This definition has been construed broadly,

Ricci, 781 F.3d at 28, and “[c]ourts typically have held that internet service providers, website

exchange systems, online message boards, and search engines fall within this definition.”

LeadClick Media, LLC, 838 F.3d at 174.

Second, the Complaint’s claims against OTC are based on information provided by

another information content provider, namely Remo on behalf of ADHC. Plaintiff argues that

the CDA was not intended to protect a trading platform such as OTC because OTC is not a

“passive platform” as it “reviews and investigates” information published on its platform. This

argument is unpersuasive. Although an internet service provider is not entitled to immunity

5

under the CDA if it is also an “information content provider” that “is responsible, in whole or in

part, for the creation or development of information provided,” LeadClick Media, LLC, 838 F.3d

at 174 (quoting 47 U.S.C. § 230(f)), “a defendant will not be considered to have developed third-

party content unless the defendant directly and ‘materially’ contributed to what made the content

itself ‘unlawful.’” Facebook, Inc., 934 F.3d at 68 (quoting LeadClick Media, 838 F.3d at 174).

Because the Complaint does not allege that OTC assisted in the development of or contributed to

the quarterly reports Remo published on behalf of ADHC, OTC is not an “information content

provider” barred from immunity under the CDA.

Third, Plaintiff’s claims treat OTC as a “publisher or speaker” of information. Section

230 “‘bars ‘lawsuits seeking to hold a service provider liable for its exercise of a publisher’s

traditional editorial functions—such as deciding whether to publish, withdraw, postpone or alter

content.’” LeadClick Media, 838 F.3d at 174 (internal quotation marks omitted). Plaintiff’s

claims are based on OTC’s dissemination of alleged false information and failure to remove and

investigate such information. These actions fall squarely within OTC’s discretion as a

“publisher” of information on the Disclosure Service and are barred by the CDA. Id.

Because the claims against OTC are dismissed based on its immunity under the CDA,

this Opinion does not address whether the Complaint fails to state a claim against OTC.

B. Breach of Fiduciary Duty Claim Against AST

The Complaint alleges that AST breached its fiduciary duty to Plaintiff by “recognizing

Remo as an officer of ADHC and recognizing ADHC Wyoming as an affiliate of ADHC.” This

claim is dismissed because the Complaint fails to plead facts sufficient to establish that AST

owed Plaintiff a fiduciary duty.

6

The elements of a claim of breach of fiduciary obligation under New York law1 are: (1)

the existence of a fiduciary duty; (2) knowing breach of that duty; and (3) resulting damages.

Johnson v. Nextel Commc'ns, Inc., 660 F.3d 131, 138 (2d Cir. 2011) (internal citation omitted)

(applying New York law); accord Appel v. Schoeman Updike Kaufman Stern & Ascher L.L.P,

No. 14 Civ. 2065, 2015 WL 13654007 at *15 (S.D.N.Y. Mar. 26, 2015). A fiduciary

relationship is established “between two persons when one of them is under a duty to act for or to

give advice for the benefit of another upon matters within the scope of the relation.” EBI I, Inc. v.

Goldman, Sachs & Co., 832 N.E.2d 26, 31 (N.Y. 2005) (internal citation and quotation omitted);

accord Lynch v. Nat'l Prescription Adm'rs, Inc., 795 Fed. App’x 68, 69 (2d Cir. 2020) (summary

order). “Put differently, a fiduciary relation exists when confidence is reposed on one side and

there is a resulting superiority and influence over the other.” Eurycleia Partners, LP v. Seward

& Kissel, LLP, 910 N.E.2d 976, 980 (N.Y. 2009) (internal quotations omitted); see also

Sergeants Benevolent Ass'n Annuity Fund v. Renck, 796 N.Y.S.2d 77, 79 (1st Dep't 2005)

(relying on another's superior expertise or knowledge will establish a fiduciary relationship);

accord Appel, 2015 WL 13654007 at *15. “Reliance, de facto control, and dominance are

essential elements of a fiduciary relationship.” Lynch, 795 Fed. App’x at 69. Such a relationship

is fact specific and is grounded in a higher level of trust than is normally present between those

involved in an arm's-length business transaction. Sergeants Benevolent Ass'n Annuity Fund, 796

N.Y.S.2d at 79.

1 AST generally cited New York State law in its Memorandum of Law. Plaintiff did not cite any

law and did not dispute the application of New York law to its common law claims. Where the

parties agree to the application of a particular state’s law, that law applies. See Arch Ins. Co. v.

Precision Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009) (applying New York law where the parties’

memoranda of law assume that New York law governed the issues), accord N.Y. Marine & Gen.

Ins. Co. v. Travelers Prop. Cas. Co. of Am., 485 F. Supp. 3d 398, 404 n.5 (S.D.N.Y. 2020).

7

Plaintiff’s breach of fiduciary duty claim rests on allegations that (1) AST had an ongoing

business relationship with ADHC and (2) AST implicitly recognized Remo’s resignation from

ADHC and Plaintiff’s subsequent acquisition of Remo’s shares and appointment of officers.

Although “a claim alleging the existence of a fiduciary duty usually is not subject to dismissal

under Rule 12(b)(6)” due to the fact-specific nature of such a claim, Abercrombie v. Andrew

College, 438 F. Supp. 2d 243, 274 (S.D.N.Y. 2006), accord Monterey Bay Mil. Housing, LLC v.

Ambac Assurance Corp., No. 19 Civ. 9193, 2021 WL 1226984, at *19 (S.D.N.Y. Mar. 31, 2021),

“[c]ourts do not hesitate to dismiss a claim . . . where the complaint alleges nothing more than an

ordinary business relationship, or no relationship at all.” PetEdge, Inc. v. Garg, 234 F. Supp. 3d

477, 500 n.11 (S.D.N.Y. 2017). AST’s purported fiduciary duty to Plaintiff cannot be based on

AST’s relationship with ADHC. As to Plaintiff’s relationship with AST, the extent of AST’s

interactions with Plaintiff, as alleged in the Complaint, are that AST transferred the shares from

Remo to Plaintiff and, months after conducting the transfer, refused to respond to Plaintiff when

it contacted AST about Remo’s efforts to regain control of ADHC. Even accepting these

allegations as true and drawing all reasonable inferences in favor of Plaintiff, these facts are

insufficient to establish a fiduciary duty. Rather, the allegations indicate that AST’s transfer of

stock to Plaintiff was nothing more than an arm’s-length business transaction that does not

establish a fiduciary duty “[a]bsent extraordinary circumstances.” In re Mid-Island Hosp., Inc.,

276 F.3d 123, 130 (2d Cir. 2002); Ramiro v. Aviles, 380 F. Supp. 3d 221, 304 (S.D.N.Y. 2019);

see also Big Apple Consulting USA, Inc. v. Belmont Partners, LLC, 873 N.Y.S.2d 232 (Sup. Ct.

2008) (finding no factual or legal basis for establishing a fiduciary duty on the part of the transfer

agent, analogizing it to the role of a broker in an arm’s-length transaction between sophisticated

parties); Edwards & Hanly v. Wells Fargo Sec. Clearance Corp., 602 F.2d 478, 484 (2d Cir.

8

1979) (“[A] transfer agent, and similarly a clearing agent, is generally under no fiduciary duty to

the owners of securities that pass through its hands.”). The Complaint fails to allege any facts

indicating that Plaintiff’s relationship possessed any of the “essential elements” that give rise to a

fiduciary relationship. See Lynch, 795 Fed. App’x at 69.

C. Negligence Claim Against AST

The Complaint alleges that AST owed a duty to Plaintiff to perform properly services for

ADHC, and that AST breached that duty by “negligently, carelessly or recklessly perform[ing]

its obligations by among other acts recognizing Remo as an officer of ADHC and recognizing

ADHC Wyoming as an affiliate of ADHC.” This claim is dismissed as the Complaint does not

allege facts sufficient to establish that AST owed Plaintiff a duty of care.

To recover on a claim for negligence under New York law, a plaintiff must show that (1)

the defendant owed the plaintiff a duty of care; (2) the defendant breached that duty; and (3) the

plaintiff suffered damage as a proximate result of that breach. Badilla v. Midwest Air Traffic

Control Serv., Inc., 8 F. 4th 105, 131 (2d Cir. 2021) (construing New York law).

The Complaint’s allegations that a duty exists rests on allegations that “AST was hired to

perform services for ADHC” and that “[p]ursuant to the parties’ agreements and applicable

codes, rules and/or standards in the industry AST owed a duty to Saveene and ADHC to properly

perform services for ADHC.” Notwithstanding the Complaint’s allegation that the parties’

agreements establish a duty of care, Plaintiff argues in its Opposition that AST’s duty to Plaintiff

does not arise from AST’s agreement with ADHC, but rather, “its participation in the transfer of

Remo’s stock to Plaintiff, AST’s recognition of Remos’s Resignation, AST’s recognition of

Plaintiff’s acquisition and Plaintiff’s appointed officers of ADHC.” Plaintiff cannot amend its

Complaint in briefing in opposition to a motion to dismiss. Maldonado v. Town of Greenburgh,

9

460 F. Supp. 3d 382, 398 n.12 (S.D.N.Y. 2020). Even if these allegations were in the Complaint,

the facts are insufficient to establish that AST owed Plaintiff a duty of care. First, Plaintiff

cannot establish a duty of care owed to Plaintiff based on AST’s relationship with ADHC.

“‘Absent a duty running directly to the injured person there can be no liability in damages,

however careless the conduct or foreseeable the harm.” R.M. Bacon, LLC v. Saint-Gobain

Performance Plastics Corp., 959 F.3d 509, 516 (2d Cir. 2020) (applying New York law) (quoting

532 Madison Ave. Gourmet Foods, Inc. v. Finlandia Center, Inc., 750 N.E.2d 1097, 1101 (N.Y.

2001)). Second, AST’s role as stock transfer agent and alleged recognition of Plaintiff’s interest

in ADHC do not give rise to a duty of care to Plaintiff. There are no facts in the Complaint

indicating that AST’s facilitation of the stock transfer was anything more than an arm’s-length

business relationship, which, in general, does not create a duty of care between parties. See OTG

Brands, LLC v. Walgreen Co., No. 13 Civ. 09066, 2015 WL 1499559 at *10 (S.D.N.Y. Mar. 31,

2015) (applying New York law); Blatt v. Touchstone Television Products, LLC, 943 N.Y.S.2d

108, 109 (4th Dep’t 2012).

D. Tortious Interference with Business Relations Claim Against AST

The Complaint alleges that AST tortiously interfered with Plaintiff’s business relations

with ADHC and its shareholders and investors by “recognizing Remo as an officer and

recognizing ADHC Wyoming as an affiliate of ADHC.” This claim is dismissed as the

Complaint does not sufficiently allege facts to show that AST intentionally interfered with

Plaintiff’s relationships with ADHC and its shareholders and investors.

To state a claim for tortious interference with prospective economic advantage under

New York law, “the plaintiff must allege that (1) it had a business relationship with a third party;

(2) the defendant knew of that relationship and intentionally interfered with it; (3) the defendant

10

acted solely out of malice, or used dishonest, unfair, or improper means; and (4) the defendant’s

interference caused injury to the relationship.” Kirch v. Liberty Media Corp., 449 F.3d 388, 400

(2d Cir. 2006) (applying New York law) (internal quotation marks omitted); accord Tera Grp.,

Inc. v. Citigroup, Inc., No. 17 Civ. 4302, 2019 WL 3457242, at *22 (S.D.N.Y. July 30, 2019)

(applying New York law). Such claims are subject to a “more culpable conduct standard” that

requires that interference “was accomplished by wrongful means or where the offending party

acted for the sole purpose of harming the other party.” 106 N. Broadway, LLC v. Lawrence, 137

N.Y.S.3d 148, 157 (2d Dep’t 2020) (internal citation omitted). “‘Wrongful means’ include

physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some

degrees of economic pressure.” Id. (quoting Guard–Life Corp. v. Parker Hardware Mfg. Corp.,

406 N.E.2d 445, 449 (N.Y. 1980)). “‘The implication is that, as a general rule, the defendant's

conduct must amount to a crime or an independent tort.’” Id. (quoting Carvel Corp. v. Noonan,

818 N.Y.S.2d 1100, 1103 (N.Y. 2004)). “This tort is a difficult one to sustain, with requirements

more demanding than those for interference with [the] performance of an existing contract.”

Tera Grp., Inc., 2019 WL 3457242, at *22 (alteration in original).

The Complaint does not allege facts showing that AST intentionally interfered with any

of Plaintiff’s business relationships. The allegations do not support a reasonable inference that

AST’s conduct amounted to a crime or independent tort (as discussed above), nor does the

Complaint allege facts showing that AST acted for the sole purpose of harming Plaintiff.

IV. LEAVE TO AMEND

Plaintiff seeks leave to amend its Complaint in the event any motion to dismiss is

granted. Leave to amend should be freely given “when justice so requires.” Fed. R. Civ. P.

15(a). However, “where the plaintiff is unable to demonstrate that he would be able to amend his

11

complaint in a manner which would survive dismissal, opportunity to replead is rightfully

denied.” Hayden v. Cnty. Of Nassau, 180 F.3d 42, 53 (2d Cir. 1999); accord Dominguez v. Taco

Bell Corp., No. 19 Civ. 10172, 2020 WL 3263258, at *6 (S.D.N.Y. June 17, 2020).

Plaintiff is denied leave to replead any claims against OTC as they would not survive a

motion to dismiss because of OTC’s immunity described above. Although the Court doubts that

sufficient claims can be pleaded against AST, if Plaintiff believes otherwise, by October 28,

2021, it may file a letter seeking leave to replead claims against AST, describing how it would

overcome the deficiencies described in this Opinion and appending a proposed Amended

Complaint, marked to show changes to the Complaint.

V. CONCLUSION

For the foregoing reasons, OTC’s and AST’s motions to dismiss are GRANTED, and

OTC is dismissed from the case. Plaintiff may seek leave to replead claims against AST by

October 28, 2021, as described above. If Plaintiff does not do so or leave is denied, then AST

will be dismissed from the case.

The Clerk of Court is respectfully directed to close the motions at Docket Nos. 61 and 63.

Dated: October 14, 2021

New York, New York

UNITED STATES DISTRICT JUDGE

12