Opinion
651076/2010.
Decided on March 30, 2011.
Joseph DiBenedetto, Esq., Michael J. Friedman, Esq. and Christopher Paolella, Esq. of Winston Strawn LLP, New York, New York, Attorneys for Plaintiffs.
William Savitt, Esq and Michael Garber, Esq., of Wachtell, Lipton, Rosen Katz, New York, New York, Attorneys for the Lions Gate defendants; Andrew J, Rossman, Esq. and David Mader, Esq., of Quinn Emanuel Urquhart Sullivan, LLP, New York, New York, Attorneys for the MHR defendants; and Richard J. Schulman, Esq., of Duval Stachenfeld, LLp and Daniel Roy Young, Esq., of the Edgar Law Firm, LLC, Kansas City, Missouri, Attorneys for defendants John Kornitzer and Kornitzer Capital Management.
For purposes of this decision, Motion Sequence Numbers 001-003 and 006 are consolidated for disposition.
In this corporate takeover dispute, plaintiffs, Carl C. Icahn, Icahn Partners, L.P. and other related investment entities (collectively the Icahn Group or Icahn) allege that defendant, Lions Gate Entertainment Corporation (Lions Gate), breached a ten-day Standstill Agreement entered into between plaintiffs and Lions Gate on July 10, 2010. Icahn also claims that Mark Rachesky and entities with which he is affiliated (Rachesky) and John C. Kornitzer and his affiliated company (Kornitzer), facilitated the breach of contract and tortiously interfered with the contract and with prospective business relationships. Litigation challenging the actions of the Lions Gate Board of Directors (the Board) were commenced in New York and British Columbia, Canada. The British Columbia trial court has rendered a final judgment. An appeal from the judgment is under submission in the Court of Appeal for British Columbia.
This matter is before the court on motions to dismiss the complaint based on the doctrines of res judicata, collateral estoppel and comity and for failure to state a cause of action pursuant to CPLR 3211 (a) (7) and other grounds.
For the reasons that follow, defendants' motions to dismiss the complaint are granted in their entirety and the complaint is dismissed.
BACKGROUND
A.Pre-Suit Background
For purposes of this motion to dismiss, the factual allegations are taken from the complaint and are presumed to be true except as to those allegations that are informed by findings of the British Columbia court to which comity or res judicata apply.
The action concerns the lawfulness of the actions of a corporate board of directors to thwart a hostile takeover bid. Carl C. Icahn is a self-made billionaire and activist investor. Icahn Partners L.P. is a limited liability company governed by the laws of Delaware. Plaintiffs are a group of investors who together own the largest block of shares of defendant Lions Gate, a leading motion picture and television studio that produces critically acclaimed hits such as the Oscar-winning Precious and the Emmy-winning series "Mad Men." The company was founded in Vancouver and was incorporated under the laws of British Columbia, Canada. Lions Gate is headquartered in Santa Monica, California and is publicly traded on the New York Stock Exchange. Complaint. (Compl.¶ 4).
Rachesky is the co-founder and president of MHR Fund Management LLC (MHR). From 1990 to 1996, he worked at Icahn Holding Corporation as senior investment officer, sole managing director and acting chief investment advisor. MHR manages various private funds that invest primarily in distressed and undervalued middle-market companies. MHR began investing in Lions Gate in June 2004.
Kornitzer Capital Management Inc. (KCM), is an investment advisor for private and institutional clients, including pension funds, corporations and foundations. Its offices are located in Kansas. Kornitzer is the chairman and CEO of KCM.
On February 11, 2010, Icahn contacted Michael Burns (Burns), vice-chairman of the Lions Gate Board of Directors, regarding the possibility of having a number of assignees of the Icahn Group added to the Board. He also informed Burns that the Icahn Group was seeking to increase its interest in Lions Gate. In March 2010, the Icahn Group began the first of two tender offers aimed at increasing its ownership share and representation on the Board. (Compl.¶ 6). Among the alleged reasons the Icahn Group gave for increasing its holdings in Lions Gate was its dissatisfaction with how the company was being operated. In particular, Icahn believed that the company's management, with the acquiescence of the directors, was pursuing a misguided and destructive business strategy that was diminishing shareholder value. The Icahn Group determined that the best way to protect its interests in the company was to acquire common shares and conduct a proxy contest to elect its nominees in replacement of the current directors at the next annual meeting of shareholders. The Board rejected Icahn's initial advance. Eventually, fifteen (15) per cent of Lions Gate was tendered, bringing Ichan's total ownership stake to approximately 38 per cent.
On July 9, 2010, Icahn and Lions Gate signed a two-page Standstill Agreement where the parties would consider potential compromise transactions during a ten-day period in lieu of a continued battle for ownership. Under the terms of the Standstill Agreement, Lions Gate was permitted to enter into certain types of transactions related to their stock under a limited set of circumstances. Lions Gate was required to refrain from entering into transactions involving five (5) per cent or more of its stock. The Standstill Agreement also obligated the parties to work together toward certain acquisition opportunities for a ten-day period ending at midnight on July 19, 2010.
Prior to expiration of the Standstill Agreement, meetings were scheduled for the Special Committee of the Lions Gate Board and the Lions Gate Board on the morning of July 20, 2010 to discuss and approve a debt-to-equity swap. Rachesky who was a director, excused himself from that meeting. On July 20, 1010, Lions Gate entered into a de-leveraging transaction (the Exchange) with KCM. The parties exchanged approximately $100 million worth of senior debt into convertible notes redeemable at a price below the then-current market price. The new notes were identical to the existing notes except that the existing notes had an extended maturity date. KCM then sold the notes to Rachesky and MHR. Allegedly Kornitzer did not know Rachesky prior to this transaction. Rachesky and MHR immediately converted the notes into 16,236,306 common shares of Lions Gate in a transaction that triggered a dilution in Icahn's stake, causing his ownership interest to fall from 37.9 % to 33.5%. Rachesky and MHR now are the beneficial owners of approximately 28.9% of Lions Gate's outstanding common shares. The Icahn Group, however, remains the largest shareholder.
Prior to the Exchange, Lions Gate had been carrying a heavy debt load about which industry analysts had expressed concern. As a result of the Exchange, approximately $100 million of near-term debt was eliminated from Lions Gate's balance sheet. Moody's and Standard and Poor's reacted favorably to the debt load decrease. Moody's, for example, changed its ratings outlook from "stable" to "positive." Investors also recognized the beneficial effects of the resulting de-leveraging as reflected in an immediate increase in the price of Lions Gate shares on the New York Stock Exchange.
On July 20, 2010, Icahn launched its second tender offer to acquire all outstanding shares of Lions Gate common stock at a price of $6.50 per share. The Lions Gate Board recommended that shareholders not tender their stock because, in its view, the offer price undervalued the company.
B.Past and Current Litigation
1. The Oppression Proceeding in British Columbia
In Canada, each province and the federal government has enacted their own corporate statutes. Federal law, the Canada Business Corporations Act (CBCA), enacted initially in 1975, has been imitated closely by a majority of Canadian provinces. Under the CBCA, a board director owes a duty to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances as well as a duty to act honestly and in good faith with a view to the best interests of the corporation. The Supreme Court of Canada found that courts should apply a "business judgment rule" when assessing whether there has been a breach of duty.
Section 241 of the CBCA contains an "oppression" remedy for shareholders. The statute gives the courts broad equitable jurisdiction to enforce not just what is legal, but also what is fair to shareholders ( see Re BCE Inc., [2008] 3 SCR 560 [SCC]) . The intent of the statute is to provide shareholders a forum for bringing an oppression application whenever the alleged oppressive or unfairly prejudicial conduct adversely affects their reasonable expectations as shareholders. The courts have discretion to grant relief, including the power to restrain the conduct complained of, to regulate the corporation by amending its Articles of Incorporation, to order financial compensation for an aggrieved party, and to amend shareholder agreements ( see Section 243 [3]). The court may even order a corporation to "wind down."
On July 23, 2010, Icahn commenced a statutory "oppression" proceeding challenging the July 20 transactions in the Supreme Court of British Columbia (BC court) pursuant to Section 227 of the British Columbia Business Corporations Act (BCBCA). An oppression hearing provides a remedy to a shareholder who can show that a corporation or its directors have unfairly violated the shareholder's reasonable expectations. The concept of reasonable expectations is objective and contextual, and may differ from actual expectations. The petition sought an order declaring that the Lions Gate officers and the Board have exercised their powers in a manner that is oppressive to petitioners as shareholders. Petitioners also sought an order declaring that the Exchange transaction was unfairly prejudicial to them. Icahn requested an order rescinding the July 20 transactions or in the alternative directing that the shares issued as a result of the conversion be converted into a separate class of non-voting common shares. He also sought consequential damages.
The oppression claim was premised on an alleged violation of Icahn's expectation that Lions Gate would not enter into the July 20 transactions ( see Amended Petition, exhibit E, ¶¶ 16, 21). Icahn contended that the Board acted contrary to the Standstill Agreement in negotiating the terms of the July 20 transactions prior to July 20. Icahn further alleged that approval of the July 20 transactions was a breach of the Board's fiduciary duties. Icahn alleged that as a result of the violation of his expectations, the Icahn Group's Lions Gate holdings were improperly diluted, thus eliminating their chances of winning a proxy fight, and ensuring that the current crop of directors would not be removed from their offices through a shareholder vote.
On July 26, 2010, the Ichan Group filed an amended petition in the British Columbia court ( see Icahn Partners L.P. v Lions Gate Entertainment Corp. et seq., Case No. S105258). It alleged that the July 20 Refinancing Exchange Agreement between Lions Gate and KCM to exchange convertible notes of the company's wholly-owned subsidiary, Lions Gate Entertainment Inc. (LGEI), was also oppressive to them. Plaintiffs sought orders (1) declaring that Lions Gate is oppressing its shareholders; (2) prohibiting MHR from transferring or voting new shares; (3) prohibiting Lions Gate from issuing any securities; (4) rescinding the July 20 transactions; and (5) compensating them for their injuries. Justice Savage of the BC court heard oral argument and reviewed the evidence from October 12, 2010 through October 15, 2010. On November 1, 2010, Justice Savage issued a 70-page opinion (the BC Decision or BC Op.) dismissing Icahn's claims and awarding costs to Lions Gate.
As an initial matter, the BC court determined that Icahn lacked standing to bring a statutory oppression claim. In examining the circumstances leading to the Exchange (which the court refers to as "the Impugned Transactions"), the BC court found that the Board was wary of Icahn because, in the Board's reasonably held view, he lacked knowledge of the media business and he has a history of destroying shareholder value once he obtained control of a company or board representation (BC Op. ¶ 236).
Following Re BCE Inc. ([2008] 3 SCR 560 [SCC]), the BC court utilized a two-part test to determine whether a claimant is entitled to relief under the oppression theory:
(1) does the evidence support the reasonable expectation asserted by the claimant;
(2) does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression," "unfair prejudice" or "unfair disregard" of a relevant interest ( Id. ¶ 68)
Considering the totality of the circumstances, the BC court found that "the actions of Lions Gate were neither oppressive, nor unfairly prejudicial" (BC Opinion [Op.] ¶ 283). Specifically, Justice Savage found that,
"[I]t was within the reasonable expectation of the parties that [Lions Gate's] share issuance power could be exercised after the term of the Standstill Agreement, and negotiations involving exercising that power could occur during its term, so long as they involved less than 5% of the common shares of Lions Gate."
(BC Op. ¶ 213). Justice Savage stated:
" What distinguishes the Icahn Group from any other shareholder is that they are engaged in a takeover bid. As to the shareholding, the Icahn Group has the same number of shares as it did before the Impugned Transactions. The Icahn Group's shareholding was diluted in the same way as other shareholders' interests were, including those of MHR and Kornitzer Capital. Icahn's real complaint is that Kornitzer Capital sold its notes to MHR. It has no right to complain of this. The oppression remedy protects the reasonable expectations of shareholders, rather than a shareholder's subjective wishes. In cases where the complaining shareholder is also bidding for control of a corporation, courts distinguish between a shareholder's complaint qua shareholder and a shareholder's complaint qua bidder. The oppression remedy controls the former but not the latter."
( Id. ¶¶ 178-179 [internal citations omitted]).
Justice Savage also found that the Icahn Group had failed to prove its claim that the negotiations during the standstill period were actually for a transaction involving at least 5% of outstanding shares and that references by the Lions Gate directors during the standstill period to a transaction involving less than 5% of outstanding shares were "artifice." ( id ¶ 84 ["[i]n my view the characterization of this being an artifice has not been made out."). The BC court thus found that the timing of the Impugned Transactions and the negotiations that led up to them were contemplated by the Standstill Agreement ( id. ¶ 213).
As well, the BC court found that the Board was not in breach of its fiduciary duties. "[N]othing from th[e] evidence suggests that the Lions Gate Board were seeking to entrench themselves as asserted by the Ichan Group." Justice Savage found that the Board "act[ed] within its legal rights in the best interest of the company, based on [its] reasonably held view" when it approved the July 20 transactions ( id. at ¶ 241), and concluded that the Board's decision was entitled to the protection of the business judgment rule ( id. at ¶¶ 276, 281-283).
An appeal to the Court of Appeal for British Columbia was filed by plaintiffs. The appeal was argued on March 24, 2011.
2. The Present Action
On July 26, 2010, plaintiffs filed this action in New York County Supreme Court. The complaint alleges three causes of action. Count I alleges breach of contract against Lions Gate. Count II and Count III alleges tortious interference with the Icahn Group's contractual rights and prospective business relations against Rachesky and Kornitzer. The complaint alleges that, in violation of the Standstill Agreement, defendants engaged in a sham transaction to protect their personal interests at the expense of Lions Gate. The complaint also alleges that Lions Gate violated New York Stock Exchange Rules requiring shareholder approval when any company issues common stock totaling more than one per cent to a board director. Plaintiffs are seeking compensatory and punitive damages, and a preliminary and permanent injunction enjoining all defendants from voting their shares in any election or shareholder vote.
There are four motions to dismiss before the court. In Motion Sequence 001, the Rachesky defendants moved to dismiss Counts II and III of the Complaint, pursuant to CPLR 3211 (a)(7), for failure to state a cause of action for either tortious interference with a contract or tortious interference with a business relationship. Subsequently, in Motion Sequence 002, the Kornitzer defendants moved to dismiss Counts II and III of the Complaint, (i) pursuant to CPLR 3211 (a) (7), and (ii) upon res judicata, collateral estoppel or judicial comity grounds, pursuant to CPLR 3211 (a) (5), based upon the BC Decision. In Motion Sequence 003, the Lions Gate defendants moved to dismiss Counts I, II and III of the Complaint, (I) pursuant to CPLR 3211(a) (7), and alternatively, (ii) pursuant to CPLR 3211 (a) (5), upon the grounds of res judicata, collateral estoppel or comity. In Motion Sequence 006, the Rachesky defendants move to the dismiss Counts II and III of the Complaint, upon the same jurisdictional and failure to state a claim grounds. Alternatively, the Rachesky defendants move for an order entering summary judgment on Counts II and III in their favor.
In response, Icahn argues that while the BC action and the New York action arise from the same set of facts, he could not have stated his common-law contract claim in the statutory oppression petition. Icahn also argues that the BC standing determination is not preclusive because the opinion was not a judgment on the merits.
3. The United States District Court Action
On October 28, 2010, Lions Gate filed suit in the United States District Court for the Southern District of New York against Icahn, Brett Icahn (his son), and various investment vehicles that Icahn controls ( see Lions Gate Entertainment Corp. V Carl C. Icahn, et al, No. 10-CV-8169). Lions Gate had proposed a merger with Metro-Goldwyn-Mayer Studios Inc. (MGM). MGM has one of the industry's largest film libraries. It also produces the lucrative James Bond films. The complaint accuses Icahn of double-dealing by publicly opposing a merger between Lions Gate and MGM, and at the same time, delaying the merger until Icahn had enough shares in both companies to maximize his profits. The lawsuit alleges that Icahn misled Lions Gate shareholders and failed to disclose material facts during his tender offers. Icahn filed a motion to dismiss the complaint and oral argument on the motion was scheduled for December 6, 2010.
DISCUSSION
A.Motion to Dismiss Standard
On a motion to dismiss under CPLR 3211, the pleadings are to be afforded a liberal construction, the facts as alleged in the complaint are presumed to be true, and all reasonable inferences must be drawn in favor of plaintiffs ( see EBC I, Inc. v Goldman Sachs Co. , 5 NY3d 11 ; Leon v Martinez, 84 NY2d 83). Dismissal is proper only when it appears that a plaintiff can prove no set of facts which would entitle her to relief ( see Rovello v Orofino Realty Co., 40 NY2d 633).
In order to avoid dismissal of the complaint, plaintiffs, as the non-moving parties, must provide more than bare assertions of legal conclusions and a formulaic recitation of the elements of a cause of action ( see O'Donnell, Fox Gartner, P.C. v R-2000 Corp., 198 AD2d 154 [1st Dept 1993]). Although a complaint need not contain detailed factual allegations, the factual allegations must be enough to raise a right to relief above the speculative level.
B. Motion to Dismiss Under CPLR 3211 (a) (5): Preclusive Effect of the BC Court Judgment
Initially, the court must address (1) whether the judgment rendered by the BC court should be recognized, and (2) if so, the extent of the preclusive effect that should be allotted to the judgment. Directing the court's attention to the BC Decision defendants argue that the complaint must be dismissed on grounds of comity, res judicata and collateral estoppel.
1. Judicial Comity
Recognition of a foreign judgment involves a determination by an American court
that the judgment is valid and binding on the parties with respect to the subject matter, claims and issues involved in the action ( see Restatement [Second] of Conflicts of Law § 99 Introductory Note, at 302 [1971]). While courts in the United States are under no duty to recognize judgments of other countries, our courts give effect to those judgments based on well-established principles of comity ( see Greschler v Greschler, 51 NY2d 368).
The New York Court of Appeals has defined comity in the following terms:
"Comity is not a rule of law, but it is a rule of practice, convenience and expediency. It is something more than mere courtesy, which implies only deference to the opinion of others, since it has a substantial value in securing uniformity of decision, and discouraging repeated litigation of the same question."
( Johnston v Compaqnie Generale Transatlantique, 242 NY 381 [1926] [internal citation omitted]).
The United States Supreme Court laid out these principles over a century ago. The court held that if the foreign forum provides a full and fair opportunity to litigate the issues before a court of competent jurisdiction, under a system of procedural fairness analogous to the principles governing United States courts, and there is no showing of prejudice or fraud in the foreign forum, then "the merits of the case should not, in an action brought in this country . . . be tried afresh . . . upon the mere assertion of [a] party that the judgment was erroneous in law or fact" ( Hilton v Guyot, 159 US 113, 202-203). To find comity, it also is essential that the foreign proceeding not offend laws or public policy of the forum jurisdiction, or violate the rights of its citizens ( Cunard S.S. Co. v Salen Reefer Servs. AB, 773 F2d 452, 457 [2d Cir 1985]).
"Comity, in the legal sense, is neither a matter of absolute obligation on the one hand, nor of mere courtesy and good will upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws" ( Hilton v Guyot, 159 US 113, 163-164 [1895]).
New York courts have long maintained a policy of giving preclusive effect to foreign county judgments ( see Dunstan v Higgins, 138 NY 70). The policy is founded upon the desire to put an end to litigation and to encourage uniform enforcement of private rights wherever derived. However, there are certain conditions under which a foreign country judgment should be accorded less deference. Recognition may be denied where the rendering court lacked jurisdiction, the judgment was procured by fraud, or if the judgment violates the public policy of New York ( see Greschler, 51 NY2d 368). No such allegations have been made in this case.
In deciding whether to dismiss Icahn's action in deference to the BC court proceeding, this court must consider whether the BC court proceeding comports with notions of fairness and due process. While the foreign oppression proceeding need not be identical to a New York action, it must abide by standards of fundamental fairness ( see e.g. Lindner Fund. Inc, Inc. v Polly Peck Intl. P.L.C., 143 BR 807, 810 [Bankr SD NY 1992]).
Significantly, the foreign jurisdiction involved here is Canada. Courts in New York have held that arguments of procedural unfairness should be construed narrowly "when the alien jurisdiction is, like Canada, a sister common law jurisdiction with procedures akin to our own" ( Clarkson Co. v Shaheen, 544 F2d 624, 630 [2d Cir 1976]; DeYoung v Beddome, 707 F Supp 132, 135 [SD NY 1989][securities case holding that Canadian law would afford plaintiff substantive rights similar to those in the United States]; see also Cornfeld v Investors Overseas Servs., Ltd., 471 F Supp 1256, 1259-1261 (SD NY 1979], affd 614 F2d 1286 [2d Cir 1979] [dismissing indemnity action on basis of comity extended to liquidation proceedings in Canada]).
Plaintiffs have expressed concern over the adequacy of relief available to them in Canada. The concern is not well founded. In DeYoung v Beddome, 707 F Supp 132 (SDNY 1989), Judge Mukasey surveyed the remedies available to shareholders under the CBCA and its provincial counterparts. He noted that shareholder oppression claims have been broadly defined to include any conduct by directors containing some element of unfairness. In addition, Canadian law afforded plaintiffs substantive rights similar to those available in the United States, with comparable standards of proof ( see id. at 136). He concluded that Canadian law provides causes of action that are the same in all significant aspects as those available under United States law. He also observed that the shareholder plaintiffs in that case could have sought relief in Canadian courts and had that avenue still available to them provided that Canadian principles of collateral estoppel did not bar such a suit ( id. at 137).
Canadian law provides a statutory mechanism that enables shareholders to bring claims in an equitable and systematic manner. The procedures adopted by the Supreme Court in British Columbia, and by the Court of Appeal appear fully protective of shareholder rights. The British Columbia courts have a statutory mechanism to determine shareholders' rights when they are unfairly treated or "oppressed." Thus, in the oppression proceeding, the BC court carefully reviewed whether the actions of defendants were unfair or prejudicial to the Icahn Group and determined they were not. Under these circumstances, comity should be respected. Accordingly, extending comity to the Canadian proceeding is appropriate (id.).
2. Res Judicata
Defendants assert that the doctrine of res judicata bars plaintiffs from litigating the New York action as a matter of law because the Icahn Group could have raised their breach of contract and tortuous interference claims in the BC court proceeding. "The doctrine of res judicata, or claim preclusion, is designed to relieve parties of the cost and
vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication." ( Ins. Co. of State of Pa. v HSBC Bank USA , 10 NY3d 32 , 38). The underlying rationale of res judicata "is that a party who has been given a full and fair opportunity to litigate a claim should not be allowed to do so again". ( In re Hunter, 4 NY3d 260, 269). "Under the doctrine of res judicata, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter." ( In re Estate of Hunter, 4 NY3d at 269). The doctrine applies "not only to claims actually litigated but also to claims that could have been raised in the prior litigation"( id.). As a general rule, "once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different relief" ( O'Brien v City of Syracuse, 54 NY2d 353, 357 ; see also Fifty CPW Tenants Corp. v Epstein , 16 AD3d 292, 293 [1st Dept 2005] ["A claim will be barred by the prior adjudication of a different claim arising out of the same factual grouping even if the claims involve materially different elements of proof and even if the claims would call for different measures of liability or different kinds of relief"]).
Res judicata, however, is unavailable to bar a claim that could not have been brought in a prior proceeding. "[S]howing that the applicable procedural rules did not permit assertion of the claim in question in the first action . . . suffices to show that the claim is not barred in the second action"( Pike v Freeman, 266 F3d 78, 91 [2d Cir 2001]).The burden of proof required to establish the conclusive effect of a prior judgment in another jurisdiction is upon the party asserting it ( Watts v Swiss Bank Corp., 27 NY2d 270, 275). A defendant seeking dismissal of a complaint on res judicata grounds bears the burden of persuasion on two issues: (1) she must demonstrate that the prior decision upon which she bases her res judicata claim was a decision on the merits; and (2) she must establish that the earlier litigation was based on the same claims.
In evaluating the facts presented in this matter, the court concludes that plaintiffs' claims must be dismissed on res judicata grounds because: (1) there was an adjudication based on the merits in the Canadian action and therefore Icahn is incorrect in arguing that Justice Savage decided the case solely on standing; (2) that action involved the same parties and the same operative facts; and (3) plaintiffs asserted their claims based on the same series of transactions, namely, the Exchange. Additionally, Icahn could have raised other claims in the BC oppression proceeding.
Justice Savage also examined whether Lions Gate's conduct related to the Exchange violated Icahn's reasonable expectations as a shareholder, and concluded that its conduct did not (see BC Op. ¶ 284).
Icahn's claim that the common-law breach of contract cause of action could not be heard before the BC court is unpersuasive. Although the common law claims would have to be commenced by notice, rather than by petition, the fact that the claims would be commenced by different processes posed no obstacle to their consolidation and coordination. The shareholder oppression remedy under the CBCA and provincial corporate statutes has been defined quite broadly by Canadian courts to encompass any conduct by corporate directors involving some element of unfairness. In fact, all corporate statutes that provide for oppression remedies also provide for corporate derivative actions brought by shareholders with the consent of the court for wrongs done to a corporation ( see DeYoung, 707 F Supp at 137). Defendants cite to a number of Canadian cases reflecting an action for oppression and breach of contract claim ( see e.g. Goodyear v H.A.B.I.T., 2008 BSCS 167 [ordering that oppression claim be heard with breach of contract and fraudulent misrepresentation claims]; Suri v Radio India Broad., Inc., [2008] B.C.J. No. 1966 [BSCS] [hearing claims for oppression, breach of contract and defamation]; Furry Creek Timber Corp. v Land Ventures Ltd., 1992 CarswellBC 389 [BSCS] [converting oppression petition into an action]). In addition, Icahn fails to identify any procedural rule in British Columbia that would have prevented him from asserting the claims now before this court. Thus, the BC court could have centralized all claims and converted the oppression proceeding into an action. Having failed to bring additional claims as part of the BC court proceeding, plaintiffs are barred from bringing those claims here ( see Parker v Blauvelt Volunteer Fire Co., 93 NY2d 343).
3. Collateral Estoppel
In the alternative, defendants argue that plaintiffs are collaterally estopped from bringing this action. They contend that the parties, underlying facts, legal issues and relief sought in plaintiffs' action before this court are substantially similar to the prior action before the BC court. The court, however, will not address the applicability of collateral estoppel based upon its comity and res judicata ruling.
C.Motion to Dismiss Under CPLR 3211 (a) (7): Failure to State a Cause of Action 1. Breach of Contract: The Lions Gate Defendants
Under New York law, to establish a breach of contract, a plaintiff must plead the following elements:(i) the existence of a contract; (ii) breach by the other party; and (iii) damages suffered as a result of the breach. In pleading these elements, a plaintiff must identify what provisions of the contract were breached as a result of the acts at issue. The principal function of pleadings under the CPLR is to give the adverse party sufficient information of the claims asserted so as to enable that party to prepare for trial.
At the heart of plaintiffs' claims is whether a debt-to-equity swap that occurred on July 20, 2010 breached a ten-day Standstill Agreement entered into between plaintiffs and Lions Gate on July 9, 2010. The complaint alleges that Lions Gate, in collusion with the other defendants, breached the Standstill Agreement (a) by negotiating for the exchange and conversion of all of the notes held by KCM in violation of the Standstill Agreement's safe-harbor permitting the issuance of 5% of outstanding common shares and (b) by arranging a series of transactions that were all part of a single transaction designed to result in the issuance of new shares to MHR, in violation of the Standstill Agreement's clause prohibiting the issuance of any shares to a director of the company (Compl.¶ 112).
The Standstill Agreement forbade the parties from "enga[ging] in active negotiations for any transaction that would involve the issuance or agreement to issue common stock (or securities or instruments convertible into common stock) of Lions Gate in excess of 5% of Lions Gate's currently outstanding common stock (other than any acquisition opportunity that Icahn and Lions Gate are working on together as contemplated above." (Compl. ¶ 113). Plaintiffs contend that "Lions Gate . . . breached the above promises by encouraging, arranging, approving, planning and/or negotiating all three steps of the [Exchange] during the Standstill Period." (Compl. ¶ 114).
While Icahn may have properly pleaded a valid prima facie breach of contract claim, the failure to allege this cause of action at the BC oppression hearing is fatal to this claim on res judicata grounds. Both actions arise from the same nucleus of operative facts. They involve analyzing the same documents and the same parties. The major difference between the breach of contract claim and the oppression hearing is the reliance on different legal theories. This is insufficient to establish that allegations regarding the breach of the Standstill Agreement was not before the BC court ( O'Brien, 54 NY2d 357).Unavoidably, the court is drawn to the findings of the BC court, findings which cannot be relitigated here. In the course of its ruling, the BC court made a series of detailed factual findings that undercut Icahn's breach of contract claim. The evidence in the BC action demonstrates that the Standstill Agreement was a contract of limited scope and duration. It was a truce entered into by the parties in the midst of Icahn's on-going efforts to gain control of Lions Gate. That court also found that Lions Gate had limited its discussions with KCM during the standstill period to 4.9% and that "the characterization of this [limitation] being an artifice has not been made out" (BC Op ¶ 84). Additionally, the BC court found that both the timing of the Impugned Transactions and the negotiations that led up to them, were contemplated by the Standstill Agreement ( see BC Op ¶¶ 209, 213). Justice Savage rejected Icahn's claim that the Board "orchestrated" the Exchange in violation of the Standstill Agreement (BC Op. ¶ 265). Under the terms of the Standstill Agreement, Lions Gate could and did exercise its share issuance power in a legal manner. Thus, the evidence before the BC court establishes that the Lions Gate Board of Directors complied with the terms of the Standstill Agreement. A judgment for Icahn in the present action for breach of contract would invalidate the judgment of the BC court, which was premised on a finding of no breach of the Standstill Agreement (BC Op. ¶ 284). Accordingly, the judgment entered against the Icahn Group in the BC action has a preclusive effect and therefore the first cause of action for breach of contract is dismissed pursuant to CPLR 3211(a)(5).
2. Tortious Interference with a Contract
Count II alleges that Kornitzer and Rachesky tortiously interfered with the Standstill Agreement. To prove this claim, Icahn must show: (1) the existence of a valid contract between plaintiffs and Lions Gate; (2) defendant's knowledge of this contract; (3) that defendants intentionally induced Lions Gate to breach or otherwise render performance impossible; (4) the actual breach of the contract; and (5) damages caused by the breach of the contract ( Lama Holding Co. v Smith Barney, 88 NY2d 413, 424); Kronos, Inc. v AVX Corp., 81 NY2d 90). For purposes of this motion, the court will assume that plaintiff has adequately pleaded the first two elements.
In NBT Bancorp v Fleet/Norstar Fin. Group ( 87 NY2d 614, 620), the New York Court of Appeals stated "[e]ver since tortious interference with contractual relations made its first cautious appearance in the New York Reports . . . our Court has repeatedly linked availability of the remedy with a breach of contract." The Icahn Group alleges that the Standstill Agreement was a valid and enforceable agreement and that Rachesky and Kornitzer tortiously interfered with Icahn's rights under the Standstill Agreement by inducing or causing its breach. As discussed above, Justice Savage held both the timing of the Exchange and the negotiations that led up to them were contemplated by the Standstill Agreement (BC Op ¶¶ 209, 213). In face of these findings, Icahn can prove no set of facts showing an actual breach of the Standstill Agreement. The Second Cause of Action must be dismissed pursuant to CPLR 3211(a)(5) and 3211(a)(7).
3. Tortious Interference with a Business Relationship
Count III of the complaint alleges tortious interference with prospective business relationships. This cause of action is asserted against all defendants. To establish a claim based on tortious interference with existing business relations, plaintiff must show: (1) the existence of a business relationship or its expectancy with a third-party; (2) defendant's interference with the relationship; (3) that defendant acted with the sole purpose of harming plaintiff or used dishonest, unfair or improper means; and (4) that plaintiff sustained damages ( see Carvel v Noonan , 3 NY3d 182 , 190; NBT Bancorp Inc. v Fleet/Norstar Financial Group, Inc., 87 NY2d 614; Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183). The wrongful conduct described in the third element of the claim "must amount to a crime or an independent tort. Conduct that is not criminal or tortious will generally be lawful' and thus insufficiently culpable' to create liability for interference with prospective contracts or other non-binding economic relations" ( Carvel Corp., 3 NY3d at 190).
"Tortious interference with business relations' applies to those situations where the third party would have entered into or extended a contractual relationship with the plaintiff but for the intentional and wrongful acts of the defendant." ( Newsday, Inc. v Fantastic Mind, Inc., 237 AD2d 497 [2d Dept 1997]; see also M.J. K. Co. v Matthew Bender Co., 220 AD2d 488, 490 [2d Dept 1995]; WFB Telecom. v NYNEX Corp., 188 AD2d 257 [1st Dept 1992]). "In such an action [t]he motive for the interference must be solely malicious, and the plaintiff has the burden of proving this fact." ( Newsday, Inc. v Fantastic Mind, Inc., 237 AD2d 497).
Icahn's tortious interference claim stands at odds with prevailing law. Without establishing the element of a reasonable and valid business expectation, none of the other elements can be established. The complaint alleges a longing to acquire shares of Lions Gate through a series of hostile tender offers and a plan to replace existing directors with directors selected by Icahn. According to the complaint, all this "[was] part and parcel of an expectant business relationship with Lions Gate shareholders" (Compl. ¶ 122). Thus, the complaint alleges a mere hope of establishing a business relationship in an environment that was already strife-filled and tenuous ( see also BC Op ¶¶ 231-241). Even if Icahn had alleged facts to support the first element, the existence of a business relationship or its expectancy, the complaint still fails on the second element, intentional interference by use of dishonest or improper means. Defendants did not engage in the use of wrongful or unlawful means to secure a competitive advantage over plaintiffs, and did not act for the sole purpose of inflicting intentional harm on plaintiffs ( see Butler v Delaware Otsego Corp., 218 AD2d 357 [3rd Dept 1996]). Nor have plaintiffs alleged that defendants were motivated solely by malice. At most, the plaintiffs have alleged that defendants' actions were financially motivated, which is not sufficient ( see Newsday, supra, at 498; Creative Foods Corp. v Chef Francisco, 92 AD2d 462 [1st Dept 1983]). Therefore, the Third Cause of Action for tortious interference with a business relationship is dismissed for failure to state a cause of action and pursuant to CPLR 3211(a)(5). This cause of action is also barred by res judicata and is dismissed pursuant to CPLR 3211(a)(5) as well.
CONCLUSION
Having reviewed the allegations in this well pleaded complaint in light of the detailed findings of the Supreme Court of British Columbia, Canada, the court has determined to grant defendants' motion sequence numbers 001, 002, 003 and 006. The complaint will be dismissed.
Accordingly, it is hereby
ORDERED that the complaint is dismissed in its entirety; and it is further
ORDERED that the Clerk of the Court is to enter judgment with costs to be taxed against plaintiffs.