Preview
FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016
NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018
SUPREME COURT OF NEW YORK
COUNTY OF KINGS
____________ _________---------------------------------------------X
ADAM JOSEPH, individually and as a Member of Index No. 510914/2016
Legs Media, LLC and Milk Agency, LLC,
Assigned to:
Plaintiff, Hon. Francois A. Rivera
Return Date: June 15, 2018
-against-
Motion Sequence No. 008
MAZDACK RASSI, individually and as a Member of
Legs Media, LLC and Milk Agency, LLC; MOISHE
MANA, individually and as a Member of Legs Media,
LLC and Milk Agency, LLC; EREZ SHTERNLICHT,
individually and as a Member of Legs Media, LLC
and Milk Agency, LLC; MILK STUDIOS, LLC;
LEGS MEDIA, LLC; MILK AGENCY, LLC; MILK
MAKEUP, LLC; MILK MAKEUP HOLDINGS, LLC;
MILK MAKEUP MANAGEMENT, LLC; and
SCOTT SASSA,
Defendants.
------------------------------------------------------------------X
DEFENDANTS'
MEMORANDUM OF LAW IN
SUPPORT OF MOTION TO BIFURCATE
MORITT HOCK & HAMROFF LLP
Attorneys for Defendants
400 Garden City Plaza
Garden City, NY 11530
(516) 873-2000
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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ....................................................................................................
1
STATEMENT OF FACTS AND PROCEDURAL 2
HISTORY......................................................
A. Background.........................................................................................................................2
B. The Complaint ....................................................................................................................
3
Defendants'
C. Answer ............................................................................................................
4
D. Discovery ............................................................................................................................
5
ARGUMENT...................................................................................................................................
. .. .. ......... . ..6
THE COURT SI4OULD BIFURCATE PRE-TRIAL DISCOVERY
AND TRIAL OF THIS ACTION CONCERNING LIABILITY AND DAMAGES..................... 6
A. Standard For Bifurcation.....................................................................................................
. ........
........6
B. Bifurcation Will Promote the Efficient and Orderly Resolution of this Action .................
7
CONCLUSION.............................................................................................................................
. ........... . ....12
1
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TABLE OF AUTHORITIES
Page
Cases
Helie, v. McDermott, Will 4 Emery,
18 Misc. 3d 673, 684, 852 N.Y.S.2d 701, 708. ..........................................................................
11
Bankers Trust Co. v. Hogan,
196 A.D.2d 469, 601 N.Y.S.2d 469 (1st Dep't 1993) ..................................................................
7
Don Buchwald & Assocs. v. Marber Rich,
305 A.D. 2d 338, 338, 761 N.Y.S.2d 617, 618 (1st Dep't 2003).......................................
....6,8,11
6, 8,
...,6,8, 11
Duke Media Sales v. Jakel Corp.,
215 A.D.2d 237, 237, 626 N.Y.S.2d 195, 196 (1st Dep't 1995)..................................................
.......
....... ....77
Equities Holding Co.v. Kiam,
90 A.D.2d 759, 759, 456 N.Y.S.2d 60, t61 (1st Dep'tr / .. 12
1982).........................................................
Imaging Int'l v. Hell Graphic Sys., Inc.,
2006 N.Y. Misc. LEXIS 9411, 2006 N.Y. Slip Op 30688(U) (Sup. Ct. N.Y. Cty. 2006)..........8
Jackson v. Monteflore Med. Ctr.,
109 A.D.3d 762, 763, 971 N.Y.S.2d 528, 530 (1st Dept. 2013)..................................................
. ........
.............
...........
.... 6
Kahn v. Rodman,
91 A.D.2d 910, 911, 457 N.Y.S.2d 480, 481 (Ist Dep't „,......12
1983)............................................................................
.....,......
LSY International, Inc. v. Kerzner,
140 A.D.2d 256, 528 N.Y.S.2d 561 (1st Dep't 1988)...................................................................
...,..........,. 12
„....,..........
9th
Norton Co. v. C-TC Ave. Partnership,
198 A.D.2d 696, 603 N.Y.S.2d 364 (3d Dep't 1993)...................................................................
7
..................................................................
..........................................,.......................
Peak v. Northway Travel Trailers, Inc.,
260 A.D.2d 840, 688 N.Y.S.2d 738 (3d Dep't 1999)...................................................................
7
Plainview Water Dist. v. Exxon Mobil Corp.,
66 A.D.3d 754, 755, 888 N.Y.S.2d 521, 523 (2d Dep't,. 2009)..........................................................,...............
6
....................
Raiport v. Gowanda Elecs. Corp.,
190 Misc. 2d 353, 355, 739 N.Y.S.2d 811, 812 (Sup. Ct. Cattaraugus Cty. 2001)................
....,...........
„,.............
7, 8
Schreier v. Mascola,
81 A.D.2d 909, 909, 439 N.Y.S.2d 197, 197 (2d Dep't 1981)......................................................
12
11
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Wolther v. Samuel,
110 A.D.2d 506, 50.7,487 N.Y.S.2d 45, 46 (1st Dep't 1985).......................................................
12
Statutes
CPLR § 603................................................................................................................................
............... .1,6
1, 6
CPLR § 3108 11
................................................................................................................................
111
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PRELIMINARY STATEMENT
Defendants respectfully submit this Memorandum of Law in support of their motion,
pursuant to New York Civil Practice Law and Rules ("CPLR") § 603, to bifurcate pre-trial
and the trial of certain complicated damages issues relating to the valuation (the
discovery
Issues"
"Valuation Issues") of Milk Makeup, LLC, Milk Makeup Holdings, LLC, Milk Makeup
Makeup"
Management, LLC (collectively, "Milk Makeup").
As is set forth in greater detail below, discovery relating to the Valuation Issues will be
extraordinarily complicated, will require the engagement of numerous valuation and investment
banking experts to testify about the valuation of Milk Makeup and market surveys of comparable
companies, and inay entail third-party discovery which will be disruptive of Milk Makeup's
business relationships with its suppliers and customers. It is also estimated that trial of the
Valuation Issues concerning Milk Makeup will add at least two weeks to the time required to try
this case, which will impose an extreme burden upon the Court and any potential jurors.
The proofs relating to the Valuation Issues are entirely separate and distinct from those
relating to the proof of liability on Plaintiffs other damage claims, and the need to take discovery
relating to the Valuation Issues will be wholly unnecessary unless Plaintiff first proves he is
somehow an owner of Milk Makeup or entitled to damages equal to an ownership interest in its .
business.
Accordingly, this Court should enter an Order staying discovery and bifurcating the trial
of the issue of damages relating to Plaintiffs First Cause of Action (for misappropriation of the
Milk Makeup corporate opportunity), Third Cause of Action (for misappropriation of the Milk
Makeup concept) and Sixth Cause of Action (for civil conspiracy to steal the Milk Makeup
concept), until after Plaintiff first proves liability on these claims, and for such other relief as
may be deemed just and equitable. .
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STATEMENT OF FACTS AND PROCEDURAL HISTORY
A. .Background
Plaintiff alleges that Milk Studios, LLC is a photography rental studio owned by
(" Mana"
Defendants Mazdack Rassi ("Rassi"), Moishe Mana ("Mana") and Erez Shternlicht
("Shternlicht"), and that in 2003 he joined a casting company called House Casting, which is also
owned by Defendants Rassi, Mana and Shternlicht. (A copy of the Complaint is annexed to the
accompanying Affirmation of Stephen J. Ginsberg, Esq. (the "Ginsberg Aff.") as Ex. "A", ¶¶ 7,
27).'
18 & 27). Plaintiff then alleges that after working for House Casting for approximately six
years, in 2008 he started a production company with Rassi, Mana and Shternlicht called Legs
(" Media"
Media, LLC ("Legs Media") / which is owned 25% byv each of them (id., ¶¶
II9, 39, 45, 70 & 73).
("
Plaintiff alleges that in 2013, Rassi, Mana and Shternlicht formed Milk Agency, LLC ("Milk
Agency"
Agency"), a marketing and advertising company, and granted Plaintiff a 25% interest in that
entity (id., ¶¶ 94-99).
. .
Plaintiff alleges that during a meeting he attended in January 2012 with Rassi and
Georgie Greville (a Legs Media employee), Rassi brought up an idea to form a cosmetics
company (id., ¶ 110). Plaintiff then alleges that Ms. Greville developed a slide deck for Rassi
describing her view of the concept (id., ¶¶ 113-118). Plaintiff does not allege that he assisted
Ms. Greville with the development of the slide deck, or that he was in any way involved with the
creation of it.
Plaintiff alleges that in June 2014 -- 2.5 years later --Rassi told Plaintiff
approximately
that he, Shternlicht and Mana were going to create a makeup company; form an entity; and
contribute $200,000 each to that entity in seed investment (id.,¶ 124). Plaintiff alleges that when
he asked Rassi to invest, Rassi said no (id.).
1
Whenever applicable, the factsare taken from Plaintiffs Complaint herein forpurpose of thismotion only.
2
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Plaintiff alleges that in February 2015, Defendant Scott Sassa ("Sassa"), a former media
executive with the Hearst Corporation, was asked by Rassi and Shternlicht to create and
implement a plan for consolidating Legs Media and Milk Agency into one entity called Milk
Media with the goal of raising capital from outside investors (id., ¶¶ 139, 165, 166, 171, 179,
201). Although an investor did express interest in making a significant investment in Milk
Media, that transaction ultimately fell through (id, ¶¶ 201, 209, 212, 221). Legs Media and Milk.
Agency were never consolidated.
B. The Complaint
On or about June 27, 2016, Plaintiff commenced this action by filing a Summons with
Notice (Ginsberg Aff., ¶12). In response, Defendants filed a motion to dismiss, which was
denied, and Plaintiff filed a Complaint dated October 31, 2016 (Ginsberg Aff., Ex. "A").
After Plaintiff filed his Complaint, Defendants filed a motion to dismiss (Ginsberg Aff.,
"Decision"
¶l3). The Court issued a Decision & Order (the "Decision") dated January 10, 2018 dismissing
the Fourth Cause of Action for unjust enrichment, Fifth Cause of Action for conversion, and
Sixth Cause of Action for misappropriation of a trade secret, and denying the remaining portion
Defendants'
of motion to dismiss. (A true and correct copy of the Decision is annexed to the
Ginsberg Aff. as Ex. "B"). A summary of the remaining causes of action contained in the
Complaint is set forth below.
In his First Cause of Action, Plaintiff alleges that Defendants Rassi, Mana and Shternlicht
are liable for breaching their fiduciary duties by: (1) requiring Legs Media and Milk Agency to
perform work on other Milk branded entities for free or at substantial discounts; (2) instructing
Legs Media's employee (Georgie Greville) to stop performing her duties for Legs Media; (3)
diverting resources of Legs Media and Milk Agency to other entities; and (4) misappropriating
the Milk Makeup concept (Ginsberg Aff., Ex. "A", First Cause of Action).
3
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Plaintiffs Second Cause of Action alleges that Rassi, Mana and Shternlicht wasted the
corporate assets of Legs Media and Milk Agency by taking over large portions of Legs Media's
office space for their other Milk branded entities, directing Legs Media and Milk Agency
employees to work on other Milk branded entities for free or at substantially reduced fees, and
Legs Media to write off fees for other Milk branded entities (id., Second Cause of
forcing
Action).
Plaintiffs Third Cause of Action alleges that Rassi, Mana and Shternlicht
misappropriated the Milk Makeup concept from Legs Media, and his Sixth Cause of Action
alleges that Rassi, Mana, Shternlicht, along with Defendant Scott Sassa ("Sassa"), conspired
together to steal the value of Legs Media and Milk Agency (i.e., the Milk Makeup concept) (id.,
Third and Sixth Causes of Action).
Plaintiffs Seventh Cause of Action seeks a declaration that Plaintiff is an equal owner of
the equity of Milk Makeup with Rassi, Mana and Shternlicht and his Eighth Cause of Action
seeks a declaration that Legs Media and Milk Agency collectively own all intellectual property
rights to use the Milk brand name for media purposes (id., Seventh and Eighth Causes of
Action).
Importantly, only the fourth subpart of Plaintiffs First Cause of Action and Plaintiffs
Third and Sixth Causes of Action seek damages based upon the valuation of Milk Makeup.
Defendants'
C. Answer
"Answer"
On March 5, 2018, Defendants filed their Verified Answer (the "Answer"). (A true and
Defendants'
correct copy of Answer is annexed to the Ginsberg Aff. as Ex. "C"). In it,
Defendants deny.the material allegations alleged by Plaintiff in his Complaint, and raise a variety
of affirmative defenses, including (without limitation) that: (i) Plaintiff accepted and/or ratified
the formation and operation of Milk Makeup by Rassi, Mana and Shternlicht (Fifth Affirmative
4
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Plaintiff did not have a tangible expectation in Milk Makeup (Fourteenth
Defense); (ii)
Affirmative Defense); and the development, manufacturing, marketing, distribution and
(iii)
sales of cosmetic-related products is not consistent with Legs Media's or Milk Agency's line of
business and is not essential to their business (Sixteenth Affirmative Defense).
D. Discovery
On March 9, 2018, counsel for the parties appeared for a Preliminary Conference, at
which time the Court entered a Preliminary Conference Order. (A true and correct copy of the
Conference Order annexed to the Ginsberg Aff. as Ex. "D"). The Preliminary
Preliminary
Conference Order directs the parties to, among other things, serve their document demands by
April 6, 2018 and produce responsive documents by.August 3, 2018. (Id.).
As of the date of the filing of this motion, Plaintiff has not served his document demands.
Rather, Plaintiff skipped over party discovery, and served non-party subpoenas on Milk
Makeup's customers seeking substantial financial disclosure to determine the valuation of Milk
Makeup. (Copies of the Subpoenas Duces Tecum served upon Sephora USA, Inc. and Urban
"E"
Outfitters, Inc. are annexed to the Ginsberg Aff. as Exs. and "F", respectively).
As demonstrated below, it would be substantially more efficient for both the parties and
the Court to first determine whether Plaintiff is an owner of Milk Makeup or entitled to damages
equal to such ownership interest, before allowing Plaintiff to obtain a comprehensive accounting
of the valuation of Milk Makeup and conducting a trial addressing the Valuation Issue. Not only
is the valuation of Milk Makeup a distinct issue in this case, but if Plaintiff is unable to prove
liability on his misappropriation and conspiracy claims, then the parties and the Court would
avoid the expenditure of considerable resources determining the Valuation Issue.
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ARGUMENT
THE COURT SHOULD BIFURCATE PRE-TRIAL DISCOVERY AND
TRIAL OF THIS ACTION CONCERNING LIABILITY AND DAMAGES
A. Standard For Bifurcation
CPLR 603 provides that "[in] furtherance of convenience or to avoid prejudice the
§
court may order a severance of claims, or may order a separate trial of any claim, or of any
others."
separate issue. The court may order the trial of any claim or issue prior to trial of the
The decision of "severing various issues of liability and damages, rests within the
court."
discretion of the trial Plainview Water Dist. v. Exxon Mobil Corp., 66 A.D.3d 754,
755, 888 N.Y.S.2d 521, 523 (2d Dep't., 2009); see also Jackson v. Montefiore Med. Ctr., 109
("
A.D.3d 762, 763, 971 N.Y.S.2d 528, 530 (1st Dept. 2013) ("The court properly found that
bifurcation was warranted, as the questions of liability and damages are distinct . . . and
plaintiffs injuries are not probative in determining how the accident occurred."); Don
Buchwald & Assocs. v. Marber Rich, 305 A.D. 2d 338, 338, 761 N.Y.S.2d 617, 618 (1st Dep't
2003).
Bifurcation should be used to facilitate the speedy and unprejudiced disposition of
cases. Raiport v. Gowanda Elecs. Corp., 190 Misc. 2d 353, 355, 739 N.Y.S.2d 811, 812 (Sup.
Ct. Cattaraugus Cty. 2001). While bifurcation is traditionally used in the personal injury
context, bifurcation of liability and damages can be used in a wide variety of cases in order to
promote efficiency. See, e.g., Duke Media Sales v. Jakel Corp., 215 A.D.2d 237, 237, 626
N.Y.S.2d 195, 196 (1st Dep't 1995) (finding that severance was appropriate where disposition
of tortious interference claim had no impact on breach of contract claim); Bankers Trust Co.
v. Hogan, 196 A.D.2d 469, 601 N.Y.S.2d 469 (1st Dep't 1993) (bifurcating defendant's claim
for vacation pay from saving incentive plan because of the different legal and factual issues);
6
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.
Peak v. Travel Trailers, Inc., 260 A.D.2d 840, 688 N.Y.S.2d 738 (3d Dep't 1999)
Northway
damages from liability involving breach of contract, breach of implied and
(bifurcating
9"'
express warranties and fraudulent misrepresentation); Norton Co. v. C-TC Ave.
Partnership, 198 A.D.2d 696, 603 N.Y.S.2d 364 (3d Dep't 1993) (bifurcating defendant's
counterclaim for damages from a mortgage foreclosure action); Raiport, 190 Misc. 2d
money
353, 739 N.Y.S.2d 811; Imaging Int'l v. Hell Graphic Sys., Inc., 2006 N.Y. Misc. LEXIS
9411, 2006 N.Y. Slip Op 30688(U) (Sup. Ct. N.Y. Cty. 2006) (bifurcating liability and
damages in a fraud case).
Not only are Courts granted the discretion to bifurcate trials, but they may also
bifurcate trial as to certain issues and stay discovery as to those particular issues. For
example, in Don Buchwald & Assocs. v. Marber-Rich, the First Department affirmed the
lower court's decision to bifurcate discovery on liability and damages, "since the primary
inquiries relevant to establishing liability on plaintiffs breach of fiduciary duty and related
claims are distinct from the question of whether .plaintiff
plaintiff was injured by any proven
degree."
misconduct and, if so, to what 305 A.D.2d at 338-339, 761 N.Y.S.2d at 619.
Similarly, in Raiport v. Gowanda Elecs. Corp., the Court bifurcated both trial and discovery
in a negligence case, because "the discovery [of damages] has little or no bearing on the
action."
elements of the causes of 190 Misc. 2d at 355, 739 N.Y.S.2d at 812-13.
B. Bifurcation Will Promote the Efficient and Orderly Resolution of this Action
Although Plaintiff alleges in his Complaint that Defendants breached their fiduciary
duties by misappropriating the Milk Makeup concept and/or corporate opportunity, wasted the
corporate assets of Legs Media and Milk Agency and conspired to steal the Milk Makeup
concept, Defendants strenuously contest these allegations.
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Defendants intend to demonstrate, once discovery is completed, that an accounting into
the specific inter-company transactions between Legs Media and Milk Agency, on the one hand,
and other Milk related entities, on the other, reflects that Legs Media and Milk Agency owe
significant funds to the other Milk related entities for, among other things, loans, free rent and
discounted services. Moreover, Plaintiff was fully made aware of, and ratified and approved, all
inter-company transactions between Legs. Media and Milk Agency and the other Milk related
entities.
Defendants further intend to prove in this case, after discovery is completed, that Milk
Makeup was not conceived of or developed by Plaintiff, Legs Media or Milk Agency; that a
cosmetics company is not consistent with or in the line of business of either a production
company (Legs Media) or marketing company (Milk Agency); and that there was no tangible
expectation that Plaintiff, Legs Media or Milk Agency would become an owner of Milk Makeup.
Lastly, Defendants will demonstrate, through discovery and after a trial,that Plaintiff was
the Managing Member of Legs Media and a minority owner of Milk Agency, Plaintiffs
management initiatives during 2015 and 2016 led to the demise of Legs Media, and it was only
in the aftermath of that demise and two years after the formation of Milk Makeup, that Plaintiff
first claimed that Defendants breached their fiduciary duties by not including Plaintiff in the
ownership structure of Milk Makeup and that Legs Media and Milk Agency are owed funds from
the other Milk related entities.
These issues, which are fairly straight-forward and simple to resolve, will be at the front
and center of this case. By contrast, a damages analysis for the First, Third and Sixth Causes of
Action will focus solely on a detailed accounting of the valuation of Milk Makeup. This
valuation analysis, completely unrelated to other issues in this case, will require the parties to
8
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undertake a full-blown financial investigation into the valuation of Milk Makeup through the
exchange of confidential financial information reflecting the revenues, sales, expenses,
highly
growth rates, profits, liabilities, debts, cash flows, market comparisons, and other financial
information of Milk Makeup, contained in tens of thousands of documents (including financial
statements, tax returns, bank statements, general ledgers, sales information, and information
concerning liabilities,expenses and debts). The parties will then need to retain expert witnesses
to prepare expert reports; conduct numerous depositions of parties, non-parties and possibly
expert witnesses; and then allocate approximately two weeks for a trial solely concerning the
valuation of Milk Makeup.
Bifurcatirig the damages issues on Plaintiffs First, Third and Sixth Causes of Action
(which requires the valuation of Milk Makeup) from the rest of the case is substantially more
efficient and will result in a significantly more orderly process of resolving this action, rather
than requiring the parties to exchange discovery, conduct depositions, and try all of the issues
together with the Milk Makeup valuation issue, which would be unruly, more complicated, and
much more expensive. If it is determined that the Defendants are not liable for breach of
fiduciary duty, conspiracy or misappropriation, then the financial accounting and valuation of
Milk Makeup becomes moot, and the parties and the Court avoid the expenditure of substantial
resources performing an accounting and valuation of Milk Makeup. Moreover, since the
Valuation Issues do not overlap with the remaining issues involved in the case, virtually none of
the documents exchanged or witnesses called to testify will be duplicative in the event pre-trial
discovery and trial stages of this matter are bifurcated.
Courts generally bifurcate liability and damages, in cases such as this, where the issues
are discrete and to do so promotes the efficient and orderly resolution of a matter. Thus, in Helie
9
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v. McDermott, Will & Emery, the Court sua sponte directed a separate trial on the issue of
whether plaintiff had an attorney-client relationship with defendants before it would address
malpractice damages. In rendering its decision, the Court held that "if no attorney-client
relationship existed during the operative period of time, then defendants would not need to
damages."
obtain discovery [] as to the elements of plaintiffs injury and 18 Misc. 3d 673,
684, 852 N.Y.S.2d 701, 708.
Similarly, in Don Buchwald
Preview
FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 SUPREME COURT OF NEW YORK COUNTY OF KINGS ____________ _________---------------------------------------------X ADAM JOSEPH, individually and as a Member of Index No. 510914/2016 Legs Media, LLC and Milk Agency, LLC, Assigned to: Plaintiff, Hon. Francois A. Rivera Return Date: June 15, 2018 -against- Motion Sequence No. 008 MAZDACK RASSI, individually and as a Member of Legs Media, LLC and Milk Agency, LLC; MOISHE MANA, individually and as a Member of Legs Media, LLC and Milk Agency, LLC; EREZ SHTERNLICHT, individually and as a Member of Legs Media, LLC and Milk Agency, LLC; MILK STUDIOS, LLC; LEGS MEDIA, LLC; MILK AGENCY, LLC; MILK MAKEUP, LLC; MILK MAKEUP HOLDINGS, LLC; MILK MAKEUP MANAGEMENT, LLC; and SCOTT SASSA, Defendants. ------------------------------------------------------------------X DEFENDANTS' MEMORANDUM OF LAW IN SUPPORT OF MOTION TO BIFURCATE MORITT HOCK & HAMROFF LLP Attorneys for Defendants 400 Garden City Plaza Garden City, NY 11530 (516) 873-2000 1 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 TABLE OF CONTENTS Page PRELIMINARY STATEMENT .................................................................................................... 1 STATEMENT OF FACTS AND PROCEDURAL 2 HISTORY...................................................... A. Background.........................................................................................................................2 B. The Complaint .................................................................................................................... 3 Defendants' C. Answer ............................................................................................................ 4 D. Discovery ............................................................................................................................ 5 ARGUMENT................................................................................................................................... . .. .. ......... . ..6 THE COURT SI4OULD BIFURCATE PRE-TRIAL DISCOVERY AND TRIAL OF THIS ACTION CONCERNING LIABILITY AND DAMAGES..................... 6 A. Standard For Bifurcation..................................................................................................... . ........ ........6 B. Bifurcation Will Promote the Efficient and Orderly Resolution of this Action ................. 7 CONCLUSION............................................................................................................................. . ........... . ....12 1 2 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 TABLE OF AUTHORITIES Page Cases Helie, v. McDermott, Will 4 Emery, 18 Misc. 3d 673, 684, 852 N.Y.S.2d 701, 708. .......................................................................... 11 Bankers Trust Co. v. Hogan, 196 A.D.2d 469, 601 N.Y.S.2d 469 (1st Dep't 1993) .................................................................. 7 Don Buchwald & Assocs. v. Marber Rich, 305 A.D. 2d 338, 338, 761 N.Y.S.2d 617, 618 (1st Dep't 2003)....................................... ....6,8,11 6, 8, ...,6,8, 11 Duke Media Sales v. Jakel Corp., 215 A.D.2d 237, 237, 626 N.Y.S.2d 195, 196 (1st Dep't 1995).................................................. ....... ....... ....77 Equities Holding Co.v. Kiam, 90 A.D.2d 759, 759, 456 N.Y.S.2d 60, t61 (1st Dep'tr / .. 12 1982)......................................................... Imaging Int'l v. Hell Graphic Sys., Inc., 2006 N.Y. Misc. LEXIS 9411, 2006 N.Y. Slip Op 30688(U) (Sup. Ct. N.Y. Cty. 2006)..........8 Jackson v. Monteflore Med. Ctr., 109 A.D.3d 762, 763, 971 N.Y.S.2d 528, 530 (1st Dept. 2013).................................................. . ........ ............. ........... .... 6 Kahn v. Rodman, 91 A.D.2d 910, 911, 457 N.Y.S.2d 480, 481 (Ist Dep't „,......12 1983)............................................................................ .....,...... LSY International, Inc. v. Kerzner, 140 A.D.2d 256, 528 N.Y.S.2d 561 (1st Dep't 1988)................................................................... ...,..........,. 12 „....,.......... 9th Norton Co. v. C-TC Ave. Partnership, 198 A.D.2d 696, 603 N.Y.S.2d 364 (3d Dep't 1993)................................................................... 7 .................................................................. ..........................................,....................... Peak v. Northway Travel Trailers, Inc., 260 A.D.2d 840, 688 N.Y.S.2d 738 (3d Dep't 1999)................................................................... 7 Plainview Water Dist. v. Exxon Mobil Corp., 66 A.D.3d 754, 755, 888 N.Y.S.2d 521, 523 (2d Dep't,. 2009)..........................................................,............... 6 .................... Raiport v. Gowanda Elecs. Corp., 190 Misc. 2d 353, 355, 739 N.Y.S.2d 811, 812 (Sup. Ct. Cattaraugus Cty. 2001)................ ....,........... „,............. 7, 8 Schreier v. Mascola, 81 A.D.2d 909, 909, 439 N.Y.S.2d 197, 197 (2d Dep't 1981)...................................................... 12 11 3 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 Wolther v. Samuel, 110 A.D.2d 506, 50.7,487 N.Y.S.2d 45, 46 (1st Dep't 1985)....................................................... 12 Statutes CPLR § 603................................................................................................................................ ............... .1,6 1, 6 CPLR § 3108 11 ................................................................................................................................ 111 4 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 PRELIMINARY STATEMENT Defendants respectfully submit this Memorandum of Law in support of their motion, pursuant to New York Civil Practice Law and Rules ("CPLR") § 603, to bifurcate pre-trial and the trial of certain complicated damages issues relating to the valuation (the discovery Issues" "Valuation Issues") of Milk Makeup, LLC, Milk Makeup Holdings, LLC, Milk Makeup Makeup" Management, LLC (collectively, "Milk Makeup"). As is set forth in greater detail below, discovery relating to the Valuation Issues will be extraordinarily complicated, will require the engagement of numerous valuation and investment banking experts to testify about the valuation of Milk Makeup and market surveys of comparable companies, and inay entail third-party discovery which will be disruptive of Milk Makeup's business relationships with its suppliers and customers. It is also estimated that trial of the Valuation Issues concerning Milk Makeup will add at least two weeks to the time required to try this case, which will impose an extreme burden upon the Court and any potential jurors. The proofs relating to the Valuation Issues are entirely separate and distinct from those relating to the proof of liability on Plaintiffs other damage claims, and the need to take discovery relating to the Valuation Issues will be wholly unnecessary unless Plaintiff first proves he is somehow an owner of Milk Makeup or entitled to damages equal to an ownership interest in its . business. Accordingly, this Court should enter an Order staying discovery and bifurcating the trial of the issue of damages relating to Plaintiffs First Cause of Action (for misappropriation of the Milk Makeup corporate opportunity), Third Cause of Action (for misappropriation of the Milk Makeup concept) and Sixth Cause of Action (for civil conspiracy to steal the Milk Makeup concept), until after Plaintiff first proves liability on these claims, and for such other relief as may be deemed just and equitable. . 1 5 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 STATEMENT OF FACTS AND PROCEDURAL HISTORY A. .Background Plaintiff alleges that Milk Studios, LLC is a photography rental studio owned by (" Mana" Defendants Mazdack Rassi ("Rassi"), Moishe Mana ("Mana") and Erez Shternlicht ("Shternlicht"), and that in 2003 he joined a casting company called House Casting, which is also owned by Defendants Rassi, Mana and Shternlicht. (A copy of the Complaint is annexed to the accompanying Affirmation of Stephen J. Ginsberg, Esq. (the "Ginsberg Aff.") as Ex. "A", ¶¶ 7, 27).' 18 & 27). Plaintiff then alleges that after working for House Casting for approximately six years, in 2008 he started a production company with Rassi, Mana and Shternlicht called Legs (" Media" Media, LLC ("Legs Media") / which is owned 25% byv each of them (id., ¶¶ II9, 39, 45, 70 & 73). (" Plaintiff alleges that in 2013, Rassi, Mana and Shternlicht formed Milk Agency, LLC ("Milk Agency" Agency"), a marketing and advertising company, and granted Plaintiff a 25% interest in that entity (id., ¶¶ 94-99). . . Plaintiff alleges that during a meeting he attended in January 2012 with Rassi and Georgie Greville (a Legs Media employee), Rassi brought up an idea to form a cosmetics company (id., ¶ 110). Plaintiff then alleges that Ms. Greville developed a slide deck for Rassi describing her view of the concept (id., ¶¶ 113-118). Plaintiff does not allege that he assisted Ms. Greville with the development of the slide deck, or that he was in any way involved with the creation of it. Plaintiff alleges that in June 2014 -- 2.5 years later --Rassi told Plaintiff approximately that he, Shternlicht and Mana were going to create a makeup company; form an entity; and contribute $200,000 each to that entity in seed investment (id.,¶ 124). Plaintiff alleges that when he asked Rassi to invest, Rassi said no (id.). 1 Whenever applicable, the factsare taken from Plaintiffs Complaint herein forpurpose of thismotion only. 2 6 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 Plaintiff alleges that in February 2015, Defendant Scott Sassa ("Sassa"), a former media executive with the Hearst Corporation, was asked by Rassi and Shternlicht to create and implement a plan for consolidating Legs Media and Milk Agency into one entity called Milk Media with the goal of raising capital from outside investors (id., ¶¶ 139, 165, 166, 171, 179, 201). Although an investor did express interest in making a significant investment in Milk Media, that transaction ultimately fell through (id, ¶¶ 201, 209, 212, 221). Legs Media and Milk. Agency were never consolidated. B. The Complaint On or about June 27, 2016, Plaintiff commenced this action by filing a Summons with Notice (Ginsberg Aff., ¶12). In response, Defendants filed a motion to dismiss, which was denied, and Plaintiff filed a Complaint dated October 31, 2016 (Ginsberg Aff., Ex. "A"). After Plaintiff filed his Complaint, Defendants filed a motion to dismiss (Ginsberg Aff., "Decision" ¶l3). The Court issued a Decision & Order (the "Decision") dated January 10, 2018 dismissing the Fourth Cause of Action for unjust enrichment, Fifth Cause of Action for conversion, and Sixth Cause of Action for misappropriation of a trade secret, and denying the remaining portion Defendants' of motion to dismiss. (A true and correct copy of the Decision is annexed to the Ginsberg Aff. as Ex. "B"). A summary of the remaining causes of action contained in the Complaint is set forth below. In his First Cause of Action, Plaintiff alleges that Defendants Rassi, Mana and Shternlicht are liable for breaching their fiduciary duties by: (1) requiring Legs Media and Milk Agency to perform work on other Milk branded entities for free or at substantial discounts; (2) instructing Legs Media's employee (Georgie Greville) to stop performing her duties for Legs Media; (3) diverting resources of Legs Media and Milk Agency to other entities; and (4) misappropriating the Milk Makeup concept (Ginsberg Aff., Ex. "A", First Cause of Action). 3 7 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 Plaintiffs Second Cause of Action alleges that Rassi, Mana and Shternlicht wasted the corporate assets of Legs Media and Milk Agency by taking over large portions of Legs Media's office space for their other Milk branded entities, directing Legs Media and Milk Agency employees to work on other Milk branded entities for free or at substantially reduced fees, and Legs Media to write off fees for other Milk branded entities (id., Second Cause of forcing Action). Plaintiffs Third Cause of Action alleges that Rassi, Mana and Shternlicht misappropriated the Milk Makeup concept from Legs Media, and his Sixth Cause of Action alleges that Rassi, Mana, Shternlicht, along with Defendant Scott Sassa ("Sassa"), conspired together to steal the value of Legs Media and Milk Agency (i.e., the Milk Makeup concept) (id., Third and Sixth Causes of Action). Plaintiffs Seventh Cause of Action seeks a declaration that Plaintiff is an equal owner of the equity of Milk Makeup with Rassi, Mana and Shternlicht and his Eighth Cause of Action seeks a declaration that Legs Media and Milk Agency collectively own all intellectual property rights to use the Milk brand name for media purposes (id., Seventh and Eighth Causes of Action). Importantly, only the fourth subpart of Plaintiffs First Cause of Action and Plaintiffs Third and Sixth Causes of Action seek damages based upon the valuation of Milk Makeup. Defendants' C. Answer "Answer" On March 5, 2018, Defendants filed their Verified Answer (the "Answer"). (A true and Defendants' correct copy of Answer is annexed to the Ginsberg Aff. as Ex. "C"). In it, Defendants deny.the material allegations alleged by Plaintiff in his Complaint, and raise a variety of affirmative defenses, including (without limitation) that: (i) Plaintiff accepted and/or ratified the formation and operation of Milk Makeup by Rassi, Mana and Shternlicht (Fifth Affirmative 4 8 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 Plaintiff did not have a tangible expectation in Milk Makeup (Fourteenth Defense); (ii) Affirmative Defense); and the development, manufacturing, marketing, distribution and (iii) sales of cosmetic-related products is not consistent with Legs Media's or Milk Agency's line of business and is not essential to their business (Sixteenth Affirmative Defense). D. Discovery On March 9, 2018, counsel for the parties appeared for a Preliminary Conference, at which time the Court entered a Preliminary Conference Order. (A true and correct copy of the Conference Order annexed to the Ginsberg Aff. as Ex. "D"). The Preliminary Preliminary Conference Order directs the parties to, among other things, serve their document demands by April 6, 2018 and produce responsive documents by.August 3, 2018. (Id.). As of the date of the filing of this motion, Plaintiff has not served his document demands. Rather, Plaintiff skipped over party discovery, and served non-party subpoenas on Milk Makeup's customers seeking substantial financial disclosure to determine the valuation of Milk Makeup. (Copies of the Subpoenas Duces Tecum served upon Sephora USA, Inc. and Urban "E" Outfitters, Inc. are annexed to the Ginsberg Aff. as Exs. and "F", respectively). As demonstrated below, it would be substantially more efficient for both the parties and the Court to first determine whether Plaintiff is an owner of Milk Makeup or entitled to damages equal to such ownership interest, before allowing Plaintiff to obtain a comprehensive accounting of the valuation of Milk Makeup and conducting a trial addressing the Valuation Issue. Not only is the valuation of Milk Makeup a distinct issue in this case, but if Plaintiff is unable to prove liability on his misappropriation and conspiracy claims, then the parties and the Court would avoid the expenditure of considerable resources determining the Valuation Issue. 5 9 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 ARGUMENT THE COURT SHOULD BIFURCATE PRE-TRIAL DISCOVERY AND TRIAL OF THIS ACTION CONCERNING LIABILITY AND DAMAGES A. Standard For Bifurcation CPLR 603 provides that "[in] furtherance of convenience or to avoid prejudice the § court may order a severance of claims, or may order a separate trial of any claim, or of any others." separate issue. The court may order the trial of any claim or issue prior to trial of the The decision of "severing various issues of liability and damages, rests within the court." discretion of the trial Plainview Water Dist. v. Exxon Mobil Corp., 66 A.D.3d 754, 755, 888 N.Y.S.2d 521, 523 (2d Dep't., 2009); see also Jackson v. Montefiore Med. Ctr., 109 (" A.D.3d 762, 763, 971 N.Y.S.2d 528, 530 (1st Dept. 2013) ("The court properly found that bifurcation was warranted, as the questions of liability and damages are distinct . . . and plaintiffs injuries are not probative in determining how the accident occurred."); Don Buchwald & Assocs. v. Marber Rich, 305 A.D. 2d 338, 338, 761 N.Y.S.2d 617, 618 (1st Dep't 2003). Bifurcation should be used to facilitate the speedy and unprejudiced disposition of cases. Raiport v. Gowanda Elecs. Corp., 190 Misc. 2d 353, 355, 739 N.Y.S.2d 811, 812 (Sup. Ct. Cattaraugus Cty. 2001). While bifurcation is traditionally used in the personal injury context, bifurcation of liability and damages can be used in a wide variety of cases in order to promote efficiency. See, e.g., Duke Media Sales v. Jakel Corp., 215 A.D.2d 237, 237, 626 N.Y.S.2d 195, 196 (1st Dep't 1995) (finding that severance was appropriate where disposition of tortious interference claim had no impact on breach of contract claim); Bankers Trust Co. v. Hogan, 196 A.D.2d 469, 601 N.Y.S.2d 469 (1st Dep't 1993) (bifurcating defendant's claim for vacation pay from saving incentive plan because of the different legal and factual issues); 6 10 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 . Peak v. Travel Trailers, Inc., 260 A.D.2d 840, 688 N.Y.S.2d 738 (3d Dep't 1999) Northway damages from liability involving breach of contract, breach of implied and (bifurcating 9"' express warranties and fraudulent misrepresentation); Norton Co. v. C-TC Ave. Partnership, 198 A.D.2d 696, 603 N.Y.S.2d 364 (3d Dep't 1993) (bifurcating defendant's counterclaim for damages from a mortgage foreclosure action); Raiport, 190 Misc. 2d money 353, 739 N.Y.S.2d 811; Imaging Int'l v. Hell Graphic Sys., Inc., 2006 N.Y. Misc. LEXIS 9411, 2006 N.Y. Slip Op 30688(U) (Sup. Ct. N.Y. Cty. 2006) (bifurcating liability and damages in a fraud case). Not only are Courts granted the discretion to bifurcate trials, but they may also bifurcate trial as to certain issues and stay discovery as to those particular issues. For example, in Don Buchwald & Assocs. v. Marber-Rich, the First Department affirmed the lower court's decision to bifurcate discovery on liability and damages, "since the primary inquiries relevant to establishing liability on plaintiffs breach of fiduciary duty and related claims are distinct from the question of whether .plaintiff plaintiff was injured by any proven degree." misconduct and, if so, to what 305 A.D.2d at 338-339, 761 N.Y.S.2d at 619. Similarly, in Raiport v. Gowanda Elecs. Corp., the Court bifurcated both trial and discovery in a negligence case, because "the discovery [of damages] has little or no bearing on the action." elements of the causes of 190 Misc. 2d at 355, 739 N.Y.S.2d at 812-13. B. Bifurcation Will Promote the Efficient and Orderly Resolution of this Action Although Plaintiff alleges in his Complaint that Defendants breached their fiduciary duties by misappropriating the Milk Makeup concept and/or corporate opportunity, wasted the corporate assets of Legs Media and Milk Agency and conspired to steal the Milk Makeup concept, Defendants strenuously contest these allegations. 7 11 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 Defendants intend to demonstrate, once discovery is completed, that an accounting into the specific inter-company transactions between Legs Media and Milk Agency, on the one hand, and other Milk related entities, on the other, reflects that Legs Media and Milk Agency owe significant funds to the other Milk related entities for, among other things, loans, free rent and discounted services. Moreover, Plaintiff was fully made aware of, and ratified and approved, all inter-company transactions between Legs. Media and Milk Agency and the other Milk related entities. Defendants further intend to prove in this case, after discovery is completed, that Milk Makeup was not conceived of or developed by Plaintiff, Legs Media or Milk Agency; that a cosmetics company is not consistent with or in the line of business of either a production company (Legs Media) or marketing company (Milk Agency); and that there was no tangible expectation that Plaintiff, Legs Media or Milk Agency would become an owner of Milk Makeup. Lastly, Defendants will demonstrate, through discovery and after a trial,that Plaintiff was the Managing Member of Legs Media and a minority owner of Milk Agency, Plaintiffs management initiatives during 2015 and 2016 led to the demise of Legs Media, and it was only in the aftermath of that demise and two years after the formation of Milk Makeup, that Plaintiff first claimed that Defendants breached their fiduciary duties by not including Plaintiff in the ownership structure of Milk Makeup and that Legs Media and Milk Agency are owed funds from the other Milk related entities. These issues, which are fairly straight-forward and simple to resolve, will be at the front and center of this case. By contrast, a damages analysis for the First, Third and Sixth Causes of Action will focus solely on a detailed accounting of the valuation of Milk Makeup. This valuation analysis, completely unrelated to other issues in this case, will require the parties to 8 12 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 undertake a full-blown financial investigation into the valuation of Milk Makeup through the exchange of confidential financial information reflecting the revenues, sales, expenses, highly growth rates, profits, liabilities, debts, cash flows, market comparisons, and other financial information of Milk Makeup, contained in tens of thousands of documents (including financial statements, tax returns, bank statements, general ledgers, sales information, and information concerning liabilities,expenses and debts). The parties will then need to retain expert witnesses to prepare expert reports; conduct numerous depositions of parties, non-parties and possibly expert witnesses; and then allocate approximately two weeks for a trial solely concerning the valuation of Milk Makeup. Bifurcatirig the damages issues on Plaintiffs First, Third and Sixth Causes of Action (which requires the valuation of Milk Makeup) from the rest of the case is substantially more efficient and will result in a significantly more orderly process of resolving this action, rather than requiring the parties to exchange discovery, conduct depositions, and try all of the issues together with the Milk Makeup valuation issue, which would be unruly, more complicated, and much more expensive. If it is determined that the Defendants are not liable for breach of fiduciary duty, conspiracy or misappropriation, then the financial accounting and valuation of Milk Makeup becomes moot, and the parties and the Court avoid the expenditure of substantial resources performing an accounting and valuation of Milk Makeup. Moreover, since the Valuation Issues do not overlap with the remaining issues involved in the case, virtually none of the documents exchanged or witnesses called to testify will be duplicative in the event pre-trial discovery and trial stages of this matter are bifurcated. Courts generally bifurcate liability and damages, in cases such as this, where the issues are discrete and to do so promotes the efficient and orderly resolution of a matter. Thus, in Helie 9 13 of 16 FILED: KINGS COUNTY CLERK 05/24/2018 01:50 PM INDEX NO. 510914/2016 NYSCEF DOC. NO. 167 RECEIVED NYSCEF: 05/24/2018 v. McDermott, Will & Emery, the Court sua sponte directed a separate trial on the issue of whether plaintiff had an attorney-client relationship with defendants before it would address malpractice damages. In rendering its decision, the Court held that "if no attorney-client relationship existed during the operative period of time, then defendants would not need to damages." obtain discovery [] as to the elements of plaintiffs injury and 18 Misc. 3d 673, 684, 852 N.Y.S.2d 701, 708. Similarly, in Don Buchwald