ALLIANCE SPORTS GROUP, LP, Plaintiff, v. WALTER R. TUCKER ENTERPRISES, LTD., d/b/a E-Z RED CO.; and MARK TUCKER, Defendants.
3:20-CV-95 (FJS/ML)
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK
May 16, 2022
SCULLIN, Senior Judge
BARCLAY DAMON LLP
Barclay Damon Tower
125 East Jefferson Street
Syracuse, New York 13202
Attorneys for Plaintiff
HAYNES AND BOONE, LLP
2323 Victory Avenue
Suite 700
Dallas, Texas 75219
Attorneys for Defendants
BOND, SCHOENECK & KING, PLLC
One Lincoln Center
Syracuse, New York 13202
Attorneys for Defendants
OF COUNSEL
JON P. DEVENDORF, ESQ.
JOHN JOSEPH PELLIGRA, ESQ.
JONATHAN D. PRESSMENT, ESQ.
RONALD WAYNE BREAUX, ESQ.
BENJAMIN G. GOODMAN, ESQ.
BRIAN J. BUTLER, ESQ.
SCULLIN, Senior Judge
MEMORANDUM-DECISION AND ORDER
I. BACKGROUND
Plaintiff Alliance Sports Group, LP (hereinafter referred to both as Plaintiff and “ASG“) alleges that Defendants committed fraud and fraudulent inducement against it in relation to a
Through a Stock Purchase Agreement, the Sellers sought to transfer two-thirds of BII‘s ownership to a third party. However, Section 6.10 of that agreement provides that the Sellers “shall have the exclusive right to, at Sellers’ sole cost and expense, take all actions with respect to” this lawsuit, filed by BII and its subsidiary, ASG, against Defendants. See Dkt. No. 79 (quoting Dkt. No. 75-2 at § 6.10). In its November 29, 2021 Memorandum-Decision and Order, the Court considered that provision and determined that ASG clearly intended to assign its rights in this litigation against Defendants to the Sellers. See Dkt. No. 79. Notwithstanding this conclusion, the Court found that, “[s]ince the Sellers owned 96% of BII, and BII – through BO[C] and BHC – owned Plaintiff ASG, then it follows that Plaintiff merely assigned those rights to itself, or, in other words, it retained them.” See id. at 8. Having determined that
II. DISCUSSION
“In this district, reconsideration of an order entered by the Court is appropriate upon a showing of ‘(1) an intervening change in controlling law, (2) the availability of new evidence not previously available, or (3) the need to correct a clear error of law or prevent manifest injustice.‘” Agee v. Mitchell, No. 9:19-CV-0057 (BKS/ATB), 2019 U.S. Dist. LEXIS 214930, *2 (Dec. 13, 2019) (quoting In re C-TC 9th Ave. P‘ship, 182 B.R. 1, 3 (N.D.N.Y. 1995)) (other citations omitted). Here, Defendants contend that the Court committed a “clear error of law” in finding that ASG retained certain rights that it assigned to the Sellers because the Sellers were separate legal entities from ASG. See Dkt. No. 79 at 8; Dkt. No. 82-2 at 5-7.
“‘It is essential to an assignment of a right that the [assignor] manifest an intention to transfer the right to another person without further action or manifestation of intention by the [assignor].‘” Fed. Treasury Enter. Sojuzplodoimport v. SPI Spirits Ltd., 726 F.3d 62, 74 (2d Cir. 2013) (quoting Restatement (Second) Contracts § 324). “‘An unequivocal and complete assignment extinguishes the assignor‘s rights against the obligor and leaves the assignor without standing to sue the obligor.‘” Phillips v. GM LLC (In re Motors Liquidation Co.), 689 F. App‘x 95, 96 (2d Cir. 2017) (summary order) (quoting Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank, Nat‘l Ass‘n, 731 F.2d 112, 125 (2d Cir. 1984)) (other citation omitted); see Clarex Ltd. v.Natixis Sec. Am. LLC, No. 12 Civ. 0722 (PAE), 2012 U.S. Dist. LEXIS 147485, *15-*17 (S.D.N.Y. Oct. 12, 2012); Amusement Indus. v. Stern, No. 07 Civ. 11586 (LAK) (GWG), 2011 U.S. Dist. LEXIS 150050, *18 (S.D.N.Y. Dec. 28, 2011). Even if an assignor and an assignee are all owned or managed by the same entity, an assignor cannot rely on this “ultimate ownership” as a basis to establish standing. See Clarex Ltd., 2012 U.S. Dist. LEXIS 147485, at *18. This is because “[c]orporate form matters.” Id. Where the assignor and assignee are “distinct legal entities,” their “separate nature cannot simply be ignored when inconvenient.” Id. “It is black-letter law that one corporation cannot assert an affiliate‘s legal rights.” Id. (collecting cases); accord 42-50 21st St. Realty LLC v. First Cent. Sav. Bank, No. 20-CV-5370 (RPK) (RLM), 2022 U.S. Dist. LEXIS 62429, *39 (E.D.N.Y. Apr. 4, 2022). “When a corporation ‘desires the legal benefits to be derived from organization of a[n] [affiliate] that will function separately and autonomously in the conduct of its own distinct business, the [corporation] must accept the legal consequences, including its inability later to treat the [affiliate] as its alter ego because of certain advantages that might thereby be gained.‘” 42-50 21st St. Realty LLC, 2022 U.S. Dist. LEXIS 62429, at *40 (quoting Nature‘s Plus Nordic A/S v. Nat. Organics, Inc., 980 F. Supp. 2d 400, 409 (E.D.N.Y. 2013) (quoting In re Beck Indus., Inc., 479 F.2d 410, 418 (2d Cir. 1973))). “In other words, a corporation cannot ‘have it both ways.‘” Id. (quotation omitted).
Neither party disputes that the Court properly considered the language in Section 6.10 to conclude that ASG assigned its rights in this matter to the Sellers. As the Court previously noted, ASG gave the Sellers the “exclusive right” to “take all actions” with respect to the litigation with Defendants, and the Sellers would be liable for the “sole cost and expense” of the litigation. See Dkt. No. 79 at 7-8 (quoting Dkt. No. 75-2 at § 6.10). Because this language is
After finding the “clear assignment to the Sellers,” the Court stated the following:
. . . Defendants fail to recognize that the Sellers are identified in the preamble as BII‘s owners. Since the Sellers owned 96% of BII, and BII – through BO[C] and BHC – owned Plaintiff ASG, then it follows that Plaintiff merely assigned those rights to itself, or, in other words, it retained them. Therefore, the Court finds that Plaintiff ASG retained its rights and liabilities in this litigation; and, as such, the Court denies Defendant[s‘] motion to dismiss for lack of subject-matter jurisdiction on this basis.
See id. at 8.
The Court finds that this latter finding - that “ASG retained its rights and liabilities in this litigation” - was a “clear error” of law. As the caselaw recited above makes apparent, when one entity assigns its rights to another, that assignment extinguishes the assignor‘s rights; and, consequently, the assignor does not have standing to pursue a claim for violation of those rights. The Court in this instance essentially applied the “ultimate ownership” rule that the Southern District rejected in Clarex when it found that ASG essentially “assigned those rights to itself[.]” See Clarex Ltd., 2012 U.S. Dist. LEXIS 147485, at *18. As the cases in this Circuit make clear, distinct legal entities are just that – distinct – and therefore one cannot obtain standing and assert claims on behalf of the other, no matter how “intertwined” the entities might be. Therefore, although the Sellers own 96% of the parent company that owns ASG‘s general and limited partners, the Court finds that they are each distinct legal entities from one another. Because ASG and the Sellers are distinct legal entities, the Court holds that ASG cannot assert the Sellers’ rights in this matter.
III. CONCLUSION
After carefully considering the entire file in this matter, the parties’ submissions, and the applicable law, and for the above-stated reasons, the Court hereby
ORDERS that Defendants’ motion for reconsideration of their motion to dismiss for lack of subject-matter jurisdiction, see Dkt. No. 82, is GRANTED; and the Court further
ORDERS that, pursuant to
IT IS SO ORDERED.
Dated: May 16, 2022
Syracuse, New York
Frederick J. Scullin, Jr.
Senior United States District Judge