aspire v cm - umg mtd reply brief (final) 232797648 10 (2)
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SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK
ASPIRE MUSIC GROUP, LLC, Index No. 652029/2017
Plaintiff, Hon. Barry R. Ostrager
- against -
CASH MONEY RECORDS, INC., BRYAN Motion Sequence No. 004"BABY"
WILLIAMS, RONALD "SLIM"
WILLIAMS, YOUNG MONEYENTERTAINMENT LLC, UMGRECORDINGS, INC., and REPUBLIC
RECORDS INC.,
Defendants.
REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF DEFENDANTUMG RECORDINGS, INC.'S MOTION TO DISMISS THE AMENDED COMPLAINT
June 20, 2018
SIDLEY AUSTIN LLP
John G. Hutchinson
Benjamin F. BurryRobert M. Garsson
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
Rollin A. Ransom
555 West Fifth Street, Suite 4000
Los Angeles, California 90013
Telephone: (213) 896-6000
Facsimile: (213) 896-6600
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TABLEOFCONTENTS
Page
PRELIMINARY STATEMENT .....................................................................................................1
ARGUMENT...................................................................................................................................2D~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I. LEGAL STANDARD..............................................................................................2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
A. Louisiana Law Governs the Alter Ego Analysis..........................................2
B. Alter Ego Liability is Disfavored and Motions to Dismiss are
Routinely Granted to Address the Threat that such Claims Pose to
the Corporate Form......................................................................................4
II. PLAINTIFF FAILS TO PLEAD A LEGALLY VIABLE THEORY OF
"ALTER EGO"LIABILITY AND THEREFORE ITS CLAIMS
AGAINST UNIVERSAL MUST BE DISMISSED................................................5
A. Plaintiff's Improper"Two-Step"
Veil-Piercing Theory is Not
Saved by Its Untimely, Revised Claim that Aspire Contracted with
the Non-Party JV..........................................................................................5
B. The Law Does Not Permit Aspire to Use Alter Ego Liability to
Evade the Limitations on Its Contract Rights in the Aspire/YME
Agreement....................................................................................................7
C. Aspire's Reliance on Limited Contract Rights Held by a Third-
Party that has Never Been an Owner, Officer, or Director of Cash
Money Fails to Satisfy as a Matter of Law the Domination
Required for Alter Ego Liability..................................................................9
D. Aspire Fails to Plead the Kind of Fraud or Malfeasance Necessaryto Hold Universal Liable as an Alter Ego..................................................14
CONCLUSION..............................................................................................................................16
..11
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TABLE OF AUTHORITIES
Page(s)
Cases
A.V.E.L.A., Inc. v. Estate of Marilyn Monroe, LLC,
131 F. Supp. 3d 196 (S.D.N.Y. 2015)........................................................................................3
Andejo Corp. v. S. St. Seaport Ltd. P'ship,
40 A.D.3d 407 (1st Dep't 2007)................................................................................................4................................................................................................
Andretti Sports Mktg. Louisiana, LLC v. Nola Motorsports Host Comm., Inc.,
147 F. Supp. 3d 537 (E.D. La. 2015).......................................................................................11.......................................................................................11
Aymond v. Citizens Progressive Bank,
50,825 (La. App. 2 Cir. 9/16/16), 206 So. 3d 330.....................................................................6.....................................................................
Bd. of Managers of 325 Fifth Ave. Condo. v. Cont'l Residential Holdings LLC,
149 A.D.3d 472 (1st Dep't 2017)..............................................................................................5..............................................................................................5
Brackley & Voelkel Const., Inc. v. 3421 Causeway, Ltd.,
98-134 (La. App. 5 Cir. 5/27/98), 712 So. 2d 716.....................................................................6.....................................................................
Brown v. Benton Creosoting Co.,
147 So. 2d 89 (La. Ct. App. 1962).....................................................................................10, 11
Camp Dresser & McKee Inc. v. Benetech, LLC,
2011 WL 1100499 (E.D. La. Mar. 22, 2011) ..........................................................................14 I
Cornwall Mgmt. Ltd. v. Kambolin,
140 A.D.3d 507 (1st Dep't 2016)............................................................................................14............................................................................................
Cornwall Mgmt. Ltd v. Kambolin,
2015 WL 2090371 (N.Y. Sup. Ct. Apr. 29, 2015) (Singh, J.)...........................................12,...........................................12, 13
Deutsche Bank, AG v. Vik,
142 A.D.3d 829 (1st Dep't 2016)..............................................................................................3..............................................................................................3
E. Concrete Materials, Inc. v. DeRosa Tennis Contractors, Inc.,
139 A.D.3d 510 (1st Dep't 2016)............................................................................................11............................................................................................11
E. Hampton Union Free Sch. Dist. v. Sandpebble Builders, Inc.,
16 N.Y.3d~ ~ 775 (2011)..............................................................................................................14~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
E. Hampton Union Free Sch. Dist. v. Sandpebble Builders, Inc.,
66 A.D.3d 122 (2d Dep't 2009), aff'd, 16 N.Y.3d 775 (2011)..................................................5..................................................5
...111
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................................................................................................
............................................................................................1
.......................................................................
Ferro Fabricators, Inc. v. 1807-1811 Park Ave. Dev. Corp.,
127 A.D.3d 479 (1st Dep't 2015)..............................................................................................4..............................................................................................
Fletcher v. Atex, Inc.,
68 F.3d 1451 (2d Cir. 1995).......................................................................................................2
Harrogate House Ltd. v. Jovine,
2 A.D.3d 108 (1st Dep't 2003)..................................................................................................4..................................................................................................
Helmsley v. Cohen,
56 A.D.2d 519 (1st Dep't 1977)................................................................................................6
Herzog v. Town of Thompson,
216 A.D. 2d 801 (3d Dep't 1995)............................................................................................15
Joyner v. Liprie,
44,852 (La. App. 2 Cir. 1/29/10), 33 So. 3d 242.......................................................................6
Korea Commercial Bank of New York v. Ianos,
236 A.D.2d 249 (1st Dep't 1997)............................................................................................12............................................................................................1
Lantau Holdings, Ltd. v. Orient Equal Intern. Grp.,
2017 N.Y. Slip Op. 30464(U), 2017 WL 914636
(N.Y. Sup. Ct. Mar. 8, 2017) (Singh, J.)..................................................................................14
Lore v. New York Racing Ass'n. Inc.,
819 N.Y.S.2d 210 (N.Y. Sup. Ct. 2006)....................................................................................3....................................................................................3
Nat'l Gear & Piston, Inc. v. Cummins Power Sys., LLC,
975 F. Supp. 2d 392 (S.D.N.Y. 2013)........................................................................................3
New Orleans Jazz & Heritage Found., Inc. v. Kirksey,
2009-1433 (La. App. 4 Cir. 5/26/10), 40 So. 3d 394.................................................................4.................................................................
Nussli US, LLC v. Nola Motorsports Host Comm., Inc.,
2016 WL 4063823 (E.D. La. July 29, 2016) ...........................................................................11
Ragto, Inc. v. Schneiderman,
69 A.D.2d 815 (2d Dep't 1979)...............................................................................................15...............................................................................................15
Serio v. Ardra Ins. Co.,
304 A.D.2d 362 (1st Dep't 2003)..............................................................................................3..............................................................................................3
Skanska USA Bldg. Inc. v. Atl. Yards B2 Owner, LLC,
146 A.D.3d 1 (1st Dep't 2016), aff'd, 31 N.Y.3d 1002 (2018)...........................................4,...........................................4, 15
Taberna Preferred Funding II, Ltd. v. Advance Realty Grp. LLC,
5 N.Y.S.3d 330, 2014 WL 4974959 (N.Y. Sup. Ct. 2014)........................................................3.1V
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.................................................................................................
Time Equities, Inc. v. Naeringsbygg 1 Norge III AS,
50 Misc. 3d 1221(A), 2016 WL 730411 (N.Y. Sup. Ct. 2016) .................................................4
TNS Holdings, Inc. v. MKI Sec. Corp.,
92 N.Y.2d~ ~ 335 (1998)................................................................................................................4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Trans Int'l Corp. v. Clear View Techs., Ltd.,,I.td..,
278 A.D.2d 1 (1st Dep't 2000) ................................................................................................12
Triemer v. Bobsan Corp.,
70 F. Supp. 21 375 (S.D.N.Y. 1999)..........................................................................................5
Withers v. Timber Products, Inc.,
574 So. 21 1291 (La. App. 3d Cir. 1991) ..........................................................................10, 11
Young Money Entm't LLC v. Cash Money Records, Inc.,
15-5166, Div. A-15 (La. Civ. Dist. Ct., Orleans Parish) ...........................................................3
Statutes
LA. CODE CIV. PROC. ANN. art. 737.................................................................................................6
LA. CODE CIV. PROC. ANN. art. 2817...............................................................................................6...............................................................................................
Other Authorities
S ed. ..............................................................1Ownership, BLACK LAW DICTIONARY (10th 2014)
V
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PRELIMINARY STATEMENT
Faced with dismissal, Aspire uses its opposition brief(" Opposition"
or "Opp.") to once
again revise its story. (See Br. 1-2 (recounting Aspire s shifting theory of liability in its first
three complaints).) Remarkably, Aspire claims that only now, a year and a half after filing its
first complaint and nine years after entering into the Agreement, it has learned that its contract
partner was never YME, but instead, a joint venture (the "JointVenture"
or "JV") comprised of
Dwayne Carter a/k/a "LilWayne"
and Cash Money. (Opp. 13.) Aspire's attempt to amend its
pleading through its Opposition is both improper and legally irrelevant, as there are multiple
legal grounds compelling the dismissal of Aspire's claims against Universal.
First, Aspire improperly attempts to use "alterego"
claims to evade the limits of its own
contract rights with the JV. Aspire expressly agreed that the JV and Cash Money would
separately contract with Universal for distribution of Drake's albums, and the Agreement put no
contractual limitations on what the JV or Cash Money could agree to in that regard. The law
does not allow Aspire to use alter ego liability to give itself contract rights that it previously
agreed and expressly understood it would not have.
Separately, Aspire s effort to extend alter ego liability outside of the shareholder/director
context violates both Louisiana and New York law, and its invocation of "equitableownership"
has no application here. To allege completedomination"
over Cash Money, Aspire merely
claims that Cash Money's financial mismanagement propelled Universal and Cash Money to
' Capitalized terms not defined herein have the meanings in Universal's opening brief ("Br."), and "Ex. A" refers tothe Aspire/YME Agreement attached to the Affidavit of John G. Hutchinson. (See NYSCEF Nos. 61, 62.)~ Aspire has the temerity to tell this Court that "the distinction between the two entities... was not clear to Aspireuntil Young Money's [May 22, 2018] Answer to the Amended Complaint" in which YME clarified that it is aDelaware LLC, and not itself a joint venture. (Opp. 13-14 n.9.) But YME stated exactly the same thing in its firstanswer filed a year ago on June 27, 2017. (NYSCEF No. 29 tt 13 (answering that YME "is a limited liabilitycompany organized and existing under the laws of Delaware" and "this answering defendant YME is a joint venturerwith Cash Money"
).) For clarity, this Reply Brief treats "the JV" as Aspire's counterparty in the Agreement.
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enter into amended contracts providing for Universal to take greater responsibility in producing
and marketing albums by one JV artist (Drake) to ensure they were brought to market, and Cash
Money paid Universal a higher distribution fee in exchange. Aspire's attempt to turn sensible
arm's length commercial contracts between sophisticated parties into a basis to impose alter ego
liability is legally impermissible under both Louisiana or New York law.
Likewise, Aspire has failed to allege any fraud or misconduct by Universal against
Aspire, although such allegations are the sine qua non of alter ego liability. Indeed, Aspire
cannot even allege that Cash Money's agreements with Universal breached any obligation that
Cash Money or the JV owed to Aspire, let alone constituted the kind of fraud required to impose
alter ego liability. For all of these reasons, Aspire's claims against Universal must be dismissed.
ARGUMENT
L LEGAL STANDARD
A. Louisiana Law Governs the Alter Ego Analysis.
Louisiana law governs Aspire's alter ego claim against Universal. Under New York
choice of law principles, the general rule is that "[t]he law of the state of incorporation
determines when the corporate form will be disregarded and liability will be imposed on
shareholders."Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995). Here, Cash Money is
incorporated in Louisiana (AC ¶ 18), so Louisiana law presumptively governs Aspire's claim
seeking to pierce Cash Money's corporate veil. Louisiana's interest is significant because
Aspire's misguided theory would, first, impose individual liability on the partners of a Louisiana
joint venture, and then cast aside the corporate veil of a Louisiana corporation to impose liability
on a party that has never been an owner, officer, or director of that corporation, a result that is
roundly held to be contrary to Louisiana law. (See Part II.C, infra.)
Aspire fails to rebut the presumption that Louisiana law governs the alter ego analysis.
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,819
(See Opp. 11 n.7.) The two cases that Aspire cites are inapposite, because both involved a
choice of law analysis between New York and a foreign country to which the corporation had no
discernible connection other than as a place of incorporation. See Serio v. Ardra Ins. Co., 304
A.D.2d 362 (1st Dep't 2003) (Bermuda); Deutsche Bank, AG v. Vik, 142 A.D.3d 829 (1st Dep't
2016) (Turks and Caicos). Here, Louisiana is not merely Cash Money's state of incorporation,
but the relationship between Lil Wayne and Cash Money is also centered in Louisiana. Aspire
ignores the fact that the JV agreements are governed by Louisiana law and provide that
Louisiana is the exclusive forum for resolution of disputes thereunder.3thereunder. Indeed, Lil Wayne and
Cash Money's recent dispute concerning the JV was adjudicated in a Louisiana state court,
applying Louisianalaw.4law. In all events, the overwhelming majority of New York courts simply
apply the law of the state of incorporation to alter ego claims. See, e.g., Nat'l Gear & Piston,
Inc. v. Cummins Power Sys., LLC, 975 F. Supp. 2d 392, 401 (S.D.N.Y. 2013) (applying the law
of the state of incorporation to alter ego claim, explaining that, under New York law, "choice-of-
law analysis is straightforward"); A.V.E.L.A., Inc. v. Estate of.of Marilyn Monroe, LLC, 131 F.
Supp. 3d 196, 218 (S.D.N.Y. 2015) (same). This is true even where the transaction bears a
significant relationship to New York. See Taberna Preferred Funding II, Ltd. v. Advance Realty
Grp. LLC, 5 N.Y.S.3d 330, 2014 WL 4974959, at *10, *15 (N.Y. Sup. Ct. 2014) (applying
Delaware law to alter ego claim because the entity in question was a Delaware LLC, even though
New York law governed plaintiff's related claims). Louisiana law must therefore govern the
outcome of Aspire's motion.
3 See accompanying Affirmation of Cynthia S. Arato and exhibits A and B attached thereto. The JV's governingdocuments are properly considered on Universal's motion to dismiss, as Aspire now attempts to allege alter ego
liability with respect to the JV and places in issue whether the JV is in fact governed by Louisiana or New York law.
See, e.g., Opp. 11 n.7; Lore v. New York Racing Ass'n. Inc., 819 N.Y.S.2d 210 (N.Y. Sup. Ct. 2006) ("In("assessing
the legal sufficiency of a claim, the Court may consider . . . documents that are integral to the plaintiff's claims, evenif not explicitly incorporated by reference.").4
Young Money Entm't LLC v. Cash Money Records, Inc., 15-5166,,15-5166, Div. A-15 (La. Civ. Dist. Ct., Orleans Parish).
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B. Alter Ego Liability is Disfavored and Motions to Dismiss are RoutinelyGranted to Address the Threat that such Claims Pose to the Corporate
Form.
Under Louisiana law, alter ego liability is a "radical remedy only employed in
exceptionalcircumstances"
that can be imposed only against a corporation's directors and
shareholders. New Orleans Jazz & Heritage Found., Inc. v. Kirksey, 2009-1433 (La. App. 4 Cir.
5/26/10), 40 So. 3d 394, 407. New York law is in accord: piercing the corporate veil is an
"extraordinarymeasure,"
Harrogate House Ltd. v. Jovine, 2 A.D.3d 108, 108 (1st Dep't 2003),
that is "narrowlyconstrued"
under New York law, Skanska USA Bldg. Inc. v. Atl. Yards B2
Owner, LLC, 146 A.D.3d 1, 12 (1st Dep't 2016), aff'd, 31 N.Y.3d 1002 (2018), and "[t]hose
seeking to pierce a corporate veil of course bear a heavyburden."
TNS Holdings, Inc. v. MKI
Sec. Corp., 92 N.Y.2d 335, 339 (1998). Thus, to survive a motion to dismiss, plaintiff must
plead particularized facts setting forth a legal basis to establish alter ego liability. The First
Department has dismissed alter ego claims on a motion to dismiss where the plaintiff fails to
allege particularized facts that warrant piercing the corporate veil. See, e.g., Ferro Fabricators,
Inc. v. 1807-1811 Park Ave. Dev. Corp., 127 A.D.3d 479, 480 (1st Dep't 2015) (affirming
dismissal on motion to dismiss because plaintiff "fails to plead any particularized facts"); Andejo
Corp. v. S. St. Seaport Ltd. P'ship, 40 A.D.3d 407, 407 (1st Dep't 2007) plaintiffs("
failed to
allege particularized facts to warrant piercing the corporate veil.").
In its Opposition, ignoring Louisiana law and mistakenly arguing only New York law,
Plaintiff makes the surprising claim that "because alter ego requires a highly fact-specific
inquiry,"courts should
"disfavor[]"a motion to dismiss an alter ego claim. Plaintiff fails to cite
a single case referring to dismissal of alter ego claims as disfavored, and for good reason - in
reality, it is the alter ego remedy itselfthat is"disfavored."
See Time Equities, Inc. v.
Naeringsbygg 1 Norge III AS, 50 Misc. 3d 1221(A), 2016 WL 730411, at *3-5 (N.Y. Sup. Ct.
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burden"
2016) ("New("
York law disfavors disregard of the corporateform,"
and those seeking this remedy
bear a "heavy burden"); Triemer v. Bobsan Corp., 70 F. Supp. 2d 375, 377 (S.D.N.Y. 1999)
("("Disregard of the corporate form is highly disfavored under New York law.").
For this reason, when Plaintiff argues alter ego is "a highly fact-specificinquiry"
it
actually reinforces the propriety of dismissal here. (Opp. 10, citing 9 E. 38th St. Assocs., L.P. v.
George Feher Assocs., Inc., 226 A.D.2d 167, 168 (1st Dep't 1996) (to plead veil-piercing a claim
must be "sufficiently particularized").)particularized"
Fact-specific inquiry can occur only if plaintiff pleads
particularized facts setting forth alter ego liability. Where, as here, plaintiff fails to do so and
what it pleads demonstrates the legal insufficiency of its claims, courts do not hesitate to dismiss
alter ego claims. See Bd. of Managers of 325 Fifth Ave. Condo. v. Cont'l Residential Holdings
LLC, 149 A.D.3d 472, 475 (1st Dep't 2017)("Plaintiffs'
contention that it was improper to
dismiss their alter ego claims without giving them an opportunity to conduct discovery is
unavailing."); E. Hampton Union Free Sch. Dist. v. Sandpebble Builders, Inc., 66 A.D.3d 122,
128-29 (2d Dep't 2009), aff'd, 16 N.Y.3d 775 (2011) (veil-piercing claims are decided on a
motion to dismiss because "[t]he policy inherent in allowing individuals to conduct business in
the corporate form so as to shield themselves from personal liability would be seriously
threatened were we to allow an insufficient cause of action to survive").
II. PLAINTIFF FAILS TO PLEAD A LEGALLY VIABLE THEORY OF "ALTEREGO" LIABILITY AND THEREFORE ITS CLAIMS AGAINST UNIVERSAL
MUST BE DISMISSED.
A. Plaintiff's Improper "Two-Step"Veil-Piercing Theory is Not Saved by Its
Untimely, Revised Claim that Aspire Contracted with the Non-Party JV.
In its Amended Complaint, Aspire focuses on Cash Money and never alleges that
Universal is the alter ego of YME, the Delaware LLC that Aspire alleges is the counterparty to
the Agreement. (AC ¶¶ 32, 73.) This is a separate and independent ground to dismiss Aspire's
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claim because New York and Delaware law do not permit Aspire to pierce YME's corporate veil
simply by alleging Cash Money is "managingpartner"
of YME. (See Br. 11-12.)
Even if the Court permits Aspire's shifting argument that the JV, not YME, is its real
counterparty, Aspire alleges only that Universal is the alter ego of yet another entity, Cash
Money, one of the alleged JV partners. However, to hold Universal liable for any breach of the
Agreement, Aspire must plead that Universal is the alter ego of the JV. Aspire fails to posit any
such allegation, which alone requires dismissal of its claims against Universal.5Universal.
Aspire's newfound JV theory also fails because Aspire fails to name the JV as a
defendant in this Action, and does not (and cannot) allege that the JV is insolvent. Under
Louisiana law, a joint venture is governed by partnership law, Joyner v. Liprie, 44,852 (La. App.
2 Cir. 1/29/10), 33 So. 3d 242, 251, and to bring a claim against a partner (i.e., Cash Money),
plaintiff must join the partnership to the action and show the partnership is insolvent. See LA.
CODE CIV. PROC. ANN. art. 737 ("The("
partners of an existing partnership may not be sued on a
partnership obligation unless the partnership is joined as a defendant."); LA. CODE CIV. PROC.
ANN. art. 2817 ("A partnership as principal obligor is primarily liable for its debts."); Brackley &
Voelkel Const., Inc. v. 3421 Causeway, Ltd., 98-134 (La. App. 5 Cir. 5/27/98), 712 So. 2d 716,
719 ("[A] partnership creditor must first exhaust his rights against the partnership before he
proceeds against the individual partners."); Aymond v. Citizens Progressive Bank, 50,825 (La.
App. 2 Cir. 9/16/16), 206 So. 3d 330, 336 (individual partners not liable for partnership debts as
"there was no evidentiary showing by the plaintiffs that the partnerships were insolvent").6 ).
5 Nor does Aspire save itself from dismissal by now claiming that it could have direct claims against Cash Moneybecause the "Agreement contains multiple provisions directly binding Cash Money separately from the YME JointVenture." (Opp. 15.) First, the Agreement is not directly binding on Cash Money because Cash Money is not a
party to it. (see Ex. A at 1, 51). Second, Aspire only claims two provisions impose direct obligations on Cash
Money, and does not claim either provision was breached, let alone has any relevance to this Action. (Opp. 15.)6 New York is similar. Helmsley v. Cohen, 56 A.D.2d 519, 519-20 (1st Dep't 1977) ("absent an allegation that the
partnership is insolvent or otherwise unable to pay its obligations, no action lies against the partners individually").individually"
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distributor"
("
B. The Law Does Not Permit Aspire to Use Alter Ego Liability to Evade the
Limitations on Its Contract Rights in the Aspire/YME Agreement.
Separately, Aspire's alter ego claim against Universal is independently precluded as a
matter of law by the Agreement. The law does not permit Aspire to use alleged "alterego"
liability to evade the limitations of its own contractual rights with the JV, and here, Aspire
expressly agreed that Cash Money and the JV, not Aspire, would contract with Universal as the
distributor of Drake's albums, and placed no contractual limitations on any such agreement.
Aspire entered into the Agreement with the JV specifically contemplating that the JV
would separately contract with a distributor for the distribution of Drake's albums. (See, e.g.,
Article 6A of the Agreement, discussed infra, repeatedly deferring to YME's terms with "YME's
distributor").) In fact, Aspire knew that the JV's distributor at the time was Universal. (See, e.g.,
Ex. A § 6A.01 ("'NetProfits'
shall mean Gross Revenue received by YME from U.M.R.G [sic]
less Deductions.") (emphasis added); § 10.11 ("Artist's solo recordings Delivered hereunder
shall be distributed through Universal").)Universal"
Tellingly, Aspire did sign a direct distribution
agreement with a different Universal affiliate, solely for certain Drake recordings in Canada.
(See, e.g., Ex. A § 8.07(a) (referencing the separate "distribution agreement between Universal
Music Canada, Inc. . . . and [Aspire] . . . for the music performances of [Drake] dated November
2, 2009").) Aspire could have negotiated a similar direct distribution deal with Universal for the
rights to Drake albums in the Aspire/YME Agreement. Instead, Aspire signed with the JV under
an agreement whereby the JV granted Aspire an extremely generous one-third interest in its Net
Profits, provided that Aspire would also be subject to whatever distribution deal the JV elected to
enter into, in its sole discretion, with Universal or some other distribution company. (Ex. A §
9.02 ("YME and any Person authorized by YME has the unlimited and exclusive rights . . . to
manufacture and/or distributeRecords"
under the Agreement) (emphasis added).)
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Money'
Aspire also expressly agreed it would be subject to the full range of costs and expenses
assessed against the JV by the JV's distributor, including (i) a "distribution and label services fee
. . . equal to the . . . [fee] charged to YME by itsdistributor"
(Ex. A § 6A.02(a)(1)(A)(ii)); (ii)
"all other distribution company charges as would apply to YME'sRecords"
(id. §
6A.02(a)(1)(A)(v)); (iii) "chargebacks by YME's distributor for the actual advertising costs paid
by YME'sdistributor"
(id. § 6A.03(b)(4)); and (iv) "[a]ll costs of manufacturing Records,
pursuant to YME's distributor's custom manufacturingprice"
(id. § 6A.03(b)(6)). Under the
Agreement, Aspire and the JV both take shares of the "NetProfit."
(Ex. A § 6A.01.) Aspire did
not negotiate with the JV any limitations on the foregoing pass-through expenses and costs, let
alone negotiate with Universal what distribution fee Universal could charge Cash Money.
Instead, Aspire agreed it would be subject to the same rates applied to the JV by its distributor -
whatever they may be. Now, nearly a decade later Aspire improperly raises a baseless alter ego
argument to effectively obtain veto rights over what agreements Cash Money is permitted to
make with its distributor. Aspire knew that Cash Money had contracted directly with Universal
and Aspire never bargained for the right to have any say over the terms of those agreements, nor
the ability to second-guess any amendments thereto.
Aspire cannot now argue that the five contracts signed between 2015 and 2017 give
Universal the complete domination over Cash Money required for alter ego liability. (See Opp.
4-7 & Opp. Exs. A-E.) These newly raised contracts have nothing to do with Cash Money's
corporate form, management, or ownership. Instead, they are straightforward, commercial
contracts that allocate certain responsibilities incident to Universal's role and responsibility as a
distributor of Drake's albums. To the extent that Cash Money's alleged financial
mismanagement required Universal take on a greater role in producing and marketingDrake'
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albums to ensure they were brought to market, and Universal required a higher distribution fee in
exchange, that is a commercial decision Cash Money had every right to make and Aspire has no
right to challenge.
Finally, Aspire attempts to brush aside binding precedent that rejects alter ego liability
against a third party whose identity and role were known at the time of contracting (see Br. 13-
15), claiming that the plaintiffs in those cases were "onnotice"
of the alter ego nature of the
relationship (Opp. 17). Aspire is simply wrong. None of the cases mentions a"notice"
concept
for alter ego liability, and there is no basis for it. Aspire claims it could not have known "that
Universal might be an alter ego of CashMoney"
because Universal does not"sign[]"
contracts
on behalf of Cash Money and was not its"affiliate,"
(Opp. 17), but these facts merely highlight
reasons why Universal is in fact not the alter ego of Cash Money. In all events, Aspire has the
law backwards. Aspire asserts that "Aspire has not made any allegation that it was tricked into
signing a contract with Cash Money rather thanUniversal."
(Opp. 17.) But that is exactly the
point. Aspire was not tricked. It was aware of the role that Universal, as the JV's distributor,
would have under the Agreement and made the informed choice to leave the wide range of costs
imposed by the distributor (supra, p.8) to the discretion of the JV, provided that whatever rates
the JV obtained for itself also apply to Aspire. As the cases cited in the Opening Brief make
clear (Br. 13-15), the law does not permit Aspire to use alter ego liability to undo this bargain.
C. Aspire's Reliance on Limited Contract Rights Held by a Third-Party that
has Never Been an Owner, Officer, or Director of Cash Money Fails to
Satisfy as a Matter of Law the Domination Required for Alter Ego Liability.
Separately, Aspire's attempt to establish alter ego liability also fails because its
allegations of "domination andcontrol"
arise not out of any purported ownership interest or
director or officer position held by Universal in Cash Money- as is required under the law - but
solely from the exercise of contract rights negotiated between Universal and Cash Money.
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Louisiana law strictly prohibits the imposition of alter ego liability upon anyone that has
never been an officer, director, or shareholder of a Louisiana corporation. (See Br. 16-17
(collecting cases).) In its Opposition, Aspire wrongly claims otherwise, contending that
Louisiana law permits "finding alter ego liability even in the absence of an
owner/shareholder/officer/director relationship where the defendant exercises control over the
company such that it is, in effect, the company'sowner."
(Opp. 19 n.12.) In putative support,
Aspire cites just two cases, Withers v. Timber Products, Inc., 574 So. 2d 1291 (La. App. 3d Cir.
1991), and Brown v. Benton Creosoting Co., 147 So. 2d 89 (La. Ct. App. 1962). (See Opp. 19
n.12.) In fact, neither case supports Aspire's argument. Both are insurance cases where the sole
director, who held the entire financial interest in the corporation, tried to use sham ownership to
avoid liability for workers compensation claims by injured employees.
In Withers, defendant formed the corporation and was "the sole stockholder andofficer."
574 So. 2d at 1295. When there were injuries at the mill, defendant tried to avoid liability by
claiming that he had transferred 100% of the corporation's stock to his friend, a judgment-proof
"two time felonyoffender"
who "had never been to the mill site, had never met or talked to the
millsuperintendent,"
and knew nothing about the business. Id. The record "established that
[defendant] had authority to sign Timber Products checks, but [the felon] did not"; there was "no
evidence of the alleged transfer [of ownership] from [defendant] to [the felon]"; and the trial
judge had found that the alleged transfer of stock was "nothing more than a sham transfer in an
attempt by Makar to avoid exposure for worker's compensationliability."
Id. at 1295-96.
Needless to say, imposing alter ego liability against an owner pretending not to be an owner has
no applicability to this case.7
7 In Brown, defendant had "exclusive votingprivileges" for all company stock; all stock was pledged to defendant;
none of the nominal owners "was ever consulted about the operation of the business"; and the nominal 50% owner
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Moreover, at least two Louisiana courts have rejected the very argument Aspire advances
here, and held that Withers and other prior cases do not permit alter ego liability to be imposed
on a person or entity that has never been a shareholder or officer of the company whose veil the
plaintiff seeks to pierce. See Andretti Sports Mktg. Louisiana, LLC v. Nola Motorsports Host
Comm., Inc., 147 F. Supp. 3d 537, 563 (E.D. La. 2015) (neither Withers nor the other "cases
cited by [plaintiff] support[s] its contention that the alter ego doctrine may be applied to an
individual or entity who, as the facts here present, has never been a shareholder or officer of the
company whose veil the plaintiff seeks to pierce. The Court will not extend the alter ego doctrine
beyond its application in Louisiana courts."); Nussli US, LLC v. Nola Motorsports Host Comm.,
Inc., 2016 WL 4063823, at *17 (E.D. La. July 29, 2016) (similarly rejecting Withers and holding
that because plaintiff "does not now allege that any of the [defendants] were officers, directors,
members, or shareholders of NMHC . . . the Court concludes that [plaintiff] has failed to plead
sufficient facts to demonstrate that the alter ego doctrine may be applied").applied"
Even though New York law does not apply, courts in the First Department also refuse to
impose alter ego liability on a non-owner, non-officer or non-director, based solely on that third-
party's contract rights. (See Br. 18-20 (collecting cases).) As noted, the First Department has
never adopted the "equitableownership"
concept that Aspire invokes for alter ego liability, and
has not permitted an alter ego claim to survive against someone, or some entity, that has never
held an ownership interest or been director or officer for the corporation at issue. (Br. 18 & n.6);
see, e.g., E. Concrete Materials, Inc. v. DeRosa Tennis Contractors, Inc., 139 A.D.3d 510, 512
("(1st Dep't 2016) ("Insofar as plaintiffs claim against DeRosa Sports is based on alter ego
"did not consider that he had an interest in it." 147 So. 2d at 93. Universal does not allege, nor could it, thatUniversal holds all rights to Cash Money stock or ability to vote Cash Money's shares; that Universal has controlledall Cash Money operations without ever consulting the Williams Brothers; or that the Williams Brothers do notconsider themselves the owners of Cash Money.
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liability . . . the claim should be dismissed. DeRosa Sports is not even a shareholder of DeRosa
Tennis."). In its Opposition, Aspire claims there is one exception, Trans Int'l Corp. v. Clear
View Techs., Ltd., 278 A.D.2d 1 (1st Dep't 2000), but Aspire's characterization of that case is
wrong. (Opp. 18). In Trans International, the First Department indeed found that "plaintiff has
stated a claim for piercing the corporate veil and holding the individual defendants personally
liable for Clear View's debts on thatbasis,"
but plaintiff in that case plainly alleged that each
individual defendant "is and at all relevant times, was an officer, director and shareholder of
ClearView."
278 A.D.2d at 2; Compl. ¶¶ 3-5, No. 602471l99 (N.Y. Sup. Ct.) (emphasis added).
In any event, Aspire misrepresents the concept of "equitableownership" - or more
accurately, it makes no discernible effort to explain or define the concept other than to imply that
whatever contract rights were agreed-upon between Universal and Cash Money are sufficient to
meet this definition. In the alter ego context, equitable ownership refers to a beneficial interest
in, or legal right to the financial interest of, a corporation; it does not encompass commercial
contract rights.8 The only trial court decision within the First Department cited by Aspire also
supports Universal. (See Opp. 18-19 (citing Cornwall Mgmt. Ltd v. Kambolin, 2015 WL
2090371 (N.Y. Sup. Ct. Apr. 29, 2015) (Singh, J.).) First, in Cornwall, plaintiffs pled, in detail,
a massive fraud by three defendants, involving numerous shell companies, so deliberate and
pervasive that it was unclear which co-conspirator was the legal"owner"
or"director"
of some
of the companies involved. The"ringleader"
of the fraud claimed he could not be personally
liable because, even though he owned the company that took theinvestors'
money and ultimately
8 The equitable owner of a corporation may also be a shareholder, such as in Trans International, where defendantswere each an alleged "officer, director and shareholder of Clear View" (Trans Int'l Corp., Compl.,Compl. ¶¶ 3-5), and theFirst Department found that "plaintiff alleged that the individual defendants are Clear View's equitable owners,"
278 A.D.2d at 1; see also Korea Commercial Bank of New York v. Ianos, 236 A.D.2d 249, 250 (1st Dep't 1997)(defendant obtained "equitable ownership of the property of the corporation" upon becoming its sole shareholder);Ownership, BLACK'S LAW DICTIONARY (10th ed. 2014) (defining "equitable ownership" as a "beneficiary's interestin trust property").
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alleged"
paid the proceeds to himself, during the fraud he had transferred the funds through shell
companies he now claimed were solely owned by one of his co-conspirators. Cornwall, 2015
WL 2090371, at *7. The court's holding that he could not evade personal liability is supportable
for a number of reasons, including that he signed "a personalguarantee"
pledging to repay
plaintiffs their money. Id. at *5. The Cornwall decision is completely distinguishable because,
unlike the defendant in that case, Universal is not alleged, nor could it be, to have guaranteed
payments to Aspire, or to have dissolved Cash Money, liquidated its assets, and distributed the
proceeds to itself.
Moreover, while Aspire is correct that, in its 2015 decision, the lower court in Cornwall
did also appear to view "equitableownership"
as a basis for liability "even if [defendant] were
not an owner or director of all or some of the corporatedefendants,"
id. at *5, *8, that decision
has effectively been overruled. Justice Singh simply followed his prior decisions in the case
denying a similar motion to dismiss by other co-conspirators who, similarly, may have had
ownership in only some companies used to defraud plaintiffs. See, e.g., id. at *9 ("[i]n deciding
two prior motions to dismiss on some of the same grounds, the court has already determined that
the alter ego/veil piercing claim is properly and sufficiently alleged"). Critically, after the 2015
Cornwall decision cited by Aspire, the First Department unanimously reversed Justice Singh's
prior 2014 Cornwall decision, effectively rejecting Aspire's claim that alter ego liability may be
imposed on persons or entities that have never been a shareholder or director of a corporation.
The First Department held that the trial court should have granted the co-conspirator's motion to
dismiss because imposing alter ego liability for actions "after relinquishing his interest in [the
company]"ran afoul of First Department precedent, which permitted such claims where "unlike
here,"defendants were "the owners of the entity whose veil the plaintiff sought to
pierce."
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Cornwall Mgmt. Ltd. v. Kambolin, 140 A.D.3d 507, 507 (1st Dep't 2016). Indeed, Justice Singh
thereafter summarily dismissed alter ego claims, like Aspire's, against non-owners/directors. See
Lantau Holdings, Ltd. v. Orient Equal Intern. Grp., 2017 N.Y. Slip Op. 30464(U), 2017 WL
914636, at *18 (N.Y. Sup. Ct. Mar. 8, 2017) (Singh, J.) ("Here("
it is undisputed that Haitong is
not the owner of the Defendant Borrowers who signed the loan documents. Therefore, plaintiff
has not adequately pled a jurisdictional basis for alter ego liability.").
In sum, the law does not support Aspire's effort to fashion so-called "equitable
ownership"as an independent basis to impose alter ego liability against Universal, which has
never been an officer, director, or shareholder of Cash Money.
D. Aspire Fails to Plead the Kind of Fraud or Malfeasance Necessary to Hold
Universal Liable as an Alter Ego.
Finally, Aspire fails to allege fraud or misconduct by Universal against Aspire; indeed,
and dispositively, Aspire does not (and cannot) even allege that any contract between Universal
and Cash Money constitutes breach of any duty owed by Cash Money or the JV to Aspire.
As explained, the Louisiana analysis is straightforward. (Br. 21 n.8.) Aspire does not
allege fraud by Universal, and thus bears the "heavy burden of proving that the shareholders
disregarded the corporate entity to such an extent that it became indistinguishable from
themselves."Camp Dresser & McKee Inc. v. Benetech, LLC, 2011 WL 1100499, at *2 (E.D. La.
Mar. 22, 2011). Aspire cannot possibly satisfy this standard as, among other reasons, this would
only establish alter ego liability against its shareholders, the Williams Brothers - not Universal.
Although Louisiana law applies, Plaintiff also fails to satisfy the New York requirement
that Aspire plead that Universal used complete domination over Cash Money to commit a fraud
or similar wrong against Aspire that resulted in Aspire's injury. New York law is clear that
breach of contract or even "badfaith"
is insufficient. E. Hampton Union Free Sch. Dist. v.
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veil"
Sandpebble Builders, Inc., 16 N.Y.3d 775, 776 (2011) plaintiff("
must do more than merely
allege that the individual engaged in improper acts or acted in 'badfaith'
while representing the
corporation"); Skanska USA Bldg. Inc., 146 A.D.3d at 12 ("a simple breach of contract, without
more, does not constitute a fraud or wrong warranting the piercing of the corporate veil").
The purported"scheme"
alleged by Aspire is nonsensical. Aspire insists that Universal
sought to injure Aspire simply by improving its own contract rights against Cash Money (see,
e.g., Opp. 23), but it is undisputed that Universal does not pay Aspire or owe it any duties; YME
(or the JV)does.9does. While Universal benefits from a higher distribution fee, Universal's benefit is
vis-à-vis Cash Money. Aspire was, and is, free to negotiate whatever contract terms it wants.
Indeed, Aspire concedes that Universal had nothing to do with the negotiation or signing of the
Agreement. (Opp. 17.) There is no inherent reason that Aspire's payments from the JV must
mirror Cash Money's payments from Universal. Aspire is a downstream player that apparently
elected to have its share of Net Profits be subject to the costs and expenses (including
distribution fee) that the JV's distributor assessed against the JV. Aspire cannot now complain
that Universal should be precluded from negotiating the best distribution rate for its services
merely because, for reasons outside Universal's control, that happens to have an indirect effect
on Aspire's share of profits under the Agreement. In any event, Aspire's misguided arguments
to the contrary in no way support imposition of alter ego liabilityhere.10
9 Aspire complains that under the recent amendments, "Universal undertook to pay millions of dollars in advances toDrake 'on Cash Money's behalf."' (Opp. 6.) But, if anything, Universal's funding made it easier for both Drakeand Cash Money to pay Aspire whatever money they might owe. Universal is not alleged to have prevented Cash
Money or anyone else from paying Aspire.' All of Aspire's claims should be dismissed with prejudice because leave to replead would be futile. See Ragto,Inc. v. Schneiderman, 69 A.D.2d 815, 816 (2d Dep't 1979) (affirming dismissal with prejudice where "there is noreason to believe that [plaintiff] could buttress its pleadings with facts sufficient to make out a prima facie case").
Here, all of Aspire's claims are facially defective because they rely on a perverse and unsupportable theory of alterego liability, and there are no facts that can be alleged to save them. See, e.g., Herzog v. Town of Thompson, 216A.D. 2d 801, 802-03 (3d Dep't 1995) ("if the complaint fails to state a cause of action as a matter of law and noamount of discovery can salvage the claim, it must be dismissed and no discovery is warranted").
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CONCLUSION
For the foregoing reasons, Universal's Motion to Dismiss the Amended Complaint
should be granted in its entirety and with prejudice.
Dated: New York, New York Respectfully submitted,
June 20, 2018
SIDLEY AUSTIN LLP
By: /s/ John G. Hutchinson
John G. Hutchinson
Benjamin F. BurryRobert M. Garsson
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
Rollin A. Ransom
555 West Fifth Street, Suite 4000
Los Angeles, California 90013
Telephone: (213) 896-6000
Facsimile: (213) 896-6600
Counsel for UMG Recordings, Inc.
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