3:20-cv-00095
N.D.N.Y.May 16, 2022Background:
- Plaintiff Alliance Sports Group, LP (ASG) sued defendants for fraud/fraudulent inducement arising from a prior settlement.
- A Stock Purchase Agreement granted the Sellers the "exclusive right" to "take all actions" in the litigation and to bear the "sole cost and expense" (Section 6.10).
- The Sellers are individuals/entities owning 96% of Bollinger Industries, Inc. (BII); BII wholly owns BOC and BHC, which in turn own ASG.
- The Court initially found ASG had assigned its litigation rights to the Sellers but concluded ASG effectively retained those rights because the Sellers owned BII (and thus controlled ASG) and denied dismissal for lack of jurisdiction.
- Defendants moved for reconsideration claiming that assignment extinguished ASG's rights and thus ASG lacked standing; the Court agreed that treating distinct entities as the same was legal error.
- The Court granted reconsideration, held ASG lacks standing due to a clear assignment to the Sellers, and gave ASG 20 days to file a third-amended complaint substituting the Sellers under Rule 17(a)(3) or face dismissal for lack of subject-matter jurisdiction.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ASG retained standing after assigning litigation rights to the Sellers | Assignment did not deprive ASG of standing because the Sellers effectively owned BII and thus ASG (ultimate ownership) | Assignment was unequivocal; an assignor loses rights and cannot sue on assignee's claims; corporate separateness matters | Court held assignment extinguished ASG's rights; ASG lacks standing (prior statement retaining rights was clear error) |
| Proper remedy for naming the real party in interest | ASG should remain or be allowed to proceed | Defendants sought dismissal for lack of jurisdiction | Court allowed 20 days to amend and substitute the Sellers under Fed. R. Civ. P. 17(a)(3); otherwise will dismiss for lack of jurisdiction |
Key Cases Cited
- Fed. Treasury Enter. Sojuzplodoimport v. SPI Spirits Ltd., 726 F.3d 62 (2d Cir. 2013) (assignment requires manifest intent to transfer without further action)
- Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank, Nat'l Ass'n, 731 F.2d 112 (2d Cir. 1984) (unequivocal assignment extinguishes assignor's rights; assignor lacks standing)
- Phillips v. GM LLC (In re Motors Liquidation Co.), [citation="689 F. App'x 95"] (2d Cir. 2017) (assignments can defeat the assignor's standing to sue)
- In re Beck Indus., Inc., 479 F.2d 410 (2d Cir. 1973) (corporate separateness must be respected; cannot have benefits of separate affiliates and later ignore separateness)
- Nature's Plus Nordic A/S v. Nat. Organics, Inc., 980 F. Supp. 2d 400 (E.D.N.Y. 2013) (a corporation cannot later treat an affiliate as its alter ego to gain advantages)