Gibson, Dunn & Crutcher LLP, New York City (Orin Snyder, Laura Kathryn O'Boyle, Matthew Benjamin) for plaintiffs Sean Rad et al. Wachtell, Lipton, Rosen & Katz, New York City (Marc Wolinsky, Nathanial D. Cullerton, Paul Vizcarrondo, Jr., Carrie M. Reilly) for defendants IAC/Interactive Corp et al.
Gibson, Dunn & Crutcher LLP, New York City (Orin Snyder, Laura Kathryn O'Boyle, Matthew Benjamin) for plaintiffs Sean Rad et al. Wachtell, Lipton, Rosen & Katz, New York City (Marc Wolinsky, Nathanial D. Cullerton, Paul Vizcarrondo, Jr., Carrie M. Reilly) for defendants IAC/Interactive Corp et al. Saliann Scarpulla, J.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 63, 70, 71, 72, 73, 95, 99, 100, 101, 102, 103, 104, 105, 106, 107 were read on this motion to/for DISMISS.
Upon the foregoing documents, it is
In this action for, inter alia, breach of contract, defendants IAC/InterActiveCorp ("IAC") and Match Group, Inc. ("Match") (together "Defendants") move pursuant to CPLR § 3211(a) (1), (5) and (7), CPLR 3016(b), CPLR 7511(a), CPLR 7601, and 9 U.S.C. § 12 to dismiss the complaint of plaintiffs Sean Rad ("Rad"), Paul Cafardo ("Cafardo"), Gareth Johnson ("Johnson"), Alexa Mateen ("A. Mateen"), Justin Mateen ("J. Mateen"), and Ryan Ogle ("Ogle") (collectively "Plaintiffs").
Rad co-founded Tinder, a mobile dating app, in 2012 with J. Mateen and Jonathan Badeen. Rad began working at Hatch Labs, a start-up incubator which was a joint venture between IAC and Xtreme Labs, in February 2012. The complaint alleges that Hatch Labs permitted Rad to pursue his dating app idea, originally called "MatchBox," as a side project with limited Hatch Labs resources. Rad proposed founder-friendly ownership terms for MatchBox that would result in the founders owning a substantial majority of MatchBox while Hatch Labs would be a minority owner. IAC and Hatch Labs allegedly agreed to Rad's proposal. MatchBox was subsequently renamed Tinder and was officially released on iPhone in September 2012 and on Android in July 2013.
Jonathan Badeen was originally named as a plaintiff in the complaint. However, on August 31, 2018, Badeen, along with James Kim, Joshua Metz and Rosette Pambakian, filed a "Notice of Partial Discontinuance Without Prejudice" and the case caption was subsequently amended.
Rad served as Tinder's CEO at various times from February 2012 to September 2017 and J. Mateen was Tinder's Chief Marketing Officer from February 2012 to September 2014 and an advisor from September 2014 to 2017. The other plaintiffs are early Tinder employees. Plaintiffs allege that after Tinder's explosive growth, IAC "reneged" on the original founder-friendly deal and insisted that Hatch Labs own all of Tinder's equity. When Tinder, Inc. was formally incorporated in March 2013, Plaintiffs received zero equity in the company and instead received dilutable "stock appreciation rights." As per the complaint, by March 2014, Plaintiffs' hard work resulted in over 15 million registered Tinder users.
Cafardo was an engineer at Tinder from April 2013 to June 2017; Johnson was Lead Designer at Tinder from February 2014 to June 2017; A. Mateen worked in a variety of roles, including Tinder's Head of U.S. Expansion, from May 2012 to May 2015; and Ogle was Tinder's Chief Technology Officer from August 2012 to June 2017.
Plaintiffs allege that IAC misled Xtreme Labs into undervaluing Tinder and IAC was therefore able to acquire complete ownership of Tinder by buying out Xtreme Labs' minority stake in Hatch Labs at a discount. In 2014, after Defendants had complete ownership of the company, Plaintiffs negotiated new contracts to protect their rights and compensate them for building Tinder. The four primary agreements (the "Agreements") that embodied the new deal for Tinder optionholders were: 1) the Tinder, Inc. Restated 2014 Equity Incentive Plan; 2) the Tinder, Inc. 2014 Equity Settlement Plan (the "Settlement Plan"); 3) a Funding and Governance Agreement between Tinder, IAC, and Rad; and for each of the Tinder Plaintiffs; and 4) a Tinder, Inc. Restated 2014 Equity Incentive Plan Restated Stock Option Agreement. As is relevant here, the Agreements granted Tinder employees stock options.
The Settlement Plan stated that its purpose was "to provide certain [employees] who have been granted Options subject to a Stock Option Plan with certain liquidity provisions relating to their Options." The Settlement Plan gave Plaintiffs the right to hold their Tinder options into the future or cash them in on specific dates, called "Scheduled Puts," on May 15, 2017, November 15, 2018, May 15, 2020, and May 15, 2021. It also gave Tinder the discretion to grant additional, unscheduled opportunities for optionholders to exercise their vested options, called "Discretionary Puts."
Under the Settlement Plan, if IAC or its affiliates merged with or acquired Tinder, then [Tinder] shall institute a Discretionary Put with respect to which all Plan Beneficiaries will be deemed Holders. All outstanding Options that are not exercised in such Discretionary Put shall be converted into options in the successor entity Notwithstanding the foregoing, if the IAC Acquisition does not result in any meaningful change in the operating structure or integration of the business into any of IAC's other businesses, no Discretionary Put shall be triggered and these arrangements shall remain unchanged.
The Settlement Plan further stated that it would terminate in the event of a Tinder public offering or when IAC and its affiliates own less than a majority of Tinder's outstanding equity. Schedule A of the Settlement Plan described the valuation process by which Tinder would be valued for either a Scheduled or Discretionary Put (a "Qualifying Valuation Process") in order to determine Plaintiffs' compensation. According to Schedule A, a Qualifying Valuation Process entailed Tinder selecting one or two "nationally recognized financial firms ("Qualified Banks") to provide their independent determinations of the 'Public Company Trading Price.'" Further,
The 'Public Company Trading Price' shall be a Qualified Bank's best estimate of the price at which a Share would trade if the Shares were then trading in the United States on a major exchange, treating the Company as widely traded with a significant public float.
Each Qualified Bank shall also provide in-person opportunities for each of IAC and management of [Tinder] to discuss their perspectives of [Tinder's] business and prospects.
After the final Public Company Trading Price has been determined by the Qualified Bank(s), the Put Price will be calculated. The "Put Price" will equal (i) the Public Company Trading Price if there is only one Qualified Bank, and (ii) the average of the two Public Company Trading Prices determined by the Qualified Banks if there are two Qualified Banks.
Scheduled Puts and Discretionary Puts triggered by an IAC Acquisition shall involve two Qualified Banks.
Rad, Tinder and IAC entered into the Tinder, Inc. Restated 2014 Equity Incentive Plan Restated Stock Option Agreement ("Rad's Option Agreement") on July 28, 2014. Rad's Option Agreement provided that he was an "express third party beneficiary" of the Settlement Plan. This agreement further stated that
for so long as the Settlement Plan is in effect pursuant to its terms, matters relating to the exercise, transfer and settlement of the Options, and any other matters governed by the Settlement Plan, shall be controlled by the Settlement Plan.
Rad's Option Agreement also stipulated that "in connection with an IAC Acquisition [Rad's] Options shall be treated as contemplated in the Settlement Plan."
Under, section 10 (d)(iii) of Rad's Option Agreement, Rad had the same rights as IAC under the second paragraph of Section 2 "Determination of Public Company Trading Price" of Schedule A of the Settlement Plan In addition, the Company shall make available to [Rad] on a timely basis such information (referenced in such second paragraph) as is provided to the Qualified Banks, as well as reasonable access to management of the Company to discuss such information.
Each of the other Tinder Plaintiffs entered into one or more stock option agreements with the company and IAC (the "Tinder Plaintiffs' Option Agreements") which were substantially the same in relevant part. Among other things, the Tinder Plaintiffs' Option Agreements deemed each Plaintiff an "express third party beneficiary" of the Settlement Plan and noted that matters relating to Plaintiffs' Tinder options were to be governed by the Settlement Plan.
The complaint states that in late 2014, despite Rad's record of achieving forty million registered users in the span of two years, Rad was informed by Match's then-CEO, Sam Yagan, that Defendants no longer wanted Rad to serve as Tinder's CEO because he did not have sufficient experience. Rad agreed to serve as CEO until Defendants found a replacement. Plaintiffs allege that, during the five months that it took for Defendants to find a replacement, Tinder continued to grow and launched a successful paid subscription option that allowed unlimited swiping.
In March 2015, Defendants hired Chris Payne ("Payne") as Tinder's new CEO. Rad took the new title of "President," and remained on Tinder's Board of Directors. Payne was then terminated in August 2015 and Defendants asked Rad to resume his role as CEO.
Plaintiffs allege that, in 2015, Rad asked Defendants to allow Tinder's vested optionholders to participate in a secondary sale of some of their options to outside investors and Defendants agreed. As per the complaint, the Tinder founders solicited offers from outside investors and several offered to purchase options at valuations of Tinder of $3 billion and up. According to Plaintiffs, Defendants subsequently refused to allow a secondary sale and instead offered to buy back options directly from Tinder optionholders with one proviso: "[e]ither Match would offer all optionholders — including Rad and Mateen — the opportunity to sell their options at a valuation of $1.75 billion, or Match would offer all employees — except Rad and Mateen — the same opportunity at a $3 billion valuation. Rad and Mateen decided not to sell their options and Defendants allowed all of the other vested optionholders to exercise their options at the $3 billion valuation.
Match held an initial public offering ("IPO") for its stock on November 19, 2015. Plaintiffs allege that Tinder was the most important company in Match's portfolio and that it played a significant role in Match's IPO. In mid-2016, Rad proposed to Greg Blatt ("Blatt"), Match's Chairman and CEO, that Tinder institute a Discretionary Put. Blatt agreed but allegedly refused to follow the valuation procedure prescribed in the Settlement Plan. Instead, Blatt determined Tinder's value by averaging the valuations in outside financial analyst reports chosen by Blatt and assigned Tinder a valuation of $1.6 billion for the Discretionary Put. Rad believed that Blatt's valuations was extremely low and told Tinder employees that he was not exercising his options via the Discretionary Put and that they should exercise their options.
As alleged in the complaint, Defendants acted to undermine the May 2017 Scheduled Put because, if Tinder was undervalued, it would cost Defendants less to compensate the Tinder optionholders. On December 8, 2016, Defendants removed Rad as Tinder CEO and installed Blatt as "interim" CEO. Defendants also added at least two other Match and IAC executives into Tinder's operations. Plaintiffs allege that these management changes were made to enable Defendants to control the valuation process.
Plaintiffs state that in early 2017, Blatt tried to circumvent the Agreements by suggesting that, rather than following the Qualifying Valuation Process, Tinder should be valued at $1.8 billion. Because Defendants had agreed to value Tinder at $3 billion in 2015, and the company was projecting that it would achieve 2017 revenue of approximately $350 million (600% higher than its 2015 revenue), Rad rejected Blatt's proposal and required Tinder to follow the valuation procedure outlined in the Settlement Plan.
According to Plaintiffs, from April 2017 to July 2017, Defendants: 1) "knowingly and willfully created false, misleading, and incomplete information about Tinder's financial performance and projected growth;" 2) suppressed accurate financial information and threatened to fire Tinder employees "if they attempted to tell the truth or otherwise interfere with Defendants' scheme" to undervalue the company. Plaintiffs allege that Defendants manipulated Tinder's projected 2018 revenue by assigning only limited incremental revenue boosts to upcoming new products and features such as Tinder Gold and Short Message Service ("SMS") authentication. In addition, Defendants allegedly inflated Tinder's expenses in several areas including its marketing budget.
On July 13, 2017, Defendants valued Tinder at $3 billion based on an average of bank valuations which, in turn, relied on financial information provided by Defendants. Plaintiffs allege that Defendants knew that this valuation was false, not only because it was based on Defendants' sham information, but also because Tinder was in the midst of "explosive user and revenue growth" and thus would clearly be valued at a higher amount than Defendants themselves had suggested two years prior.
The banks were not required to independently verify the information provided by Defendants.
Some of the Plaintiffs who left Tinder before the 2017 Scheduled Put were contractually obligated to exercise their options at Defendants' allegedly false $3 billion valuation. Other Plaintiffs retained the contractual right to keep their options until one of the three remaining Scheduled Puts in 2018, 2020 and 2021.
The complaint states that a few hours after finalizing the $3 billion valuation, Defendants merged Tinder into Match and the latter's Board of Directors unanimously voted to dissolve Tinder and transfer its assets to Match. On July 13, 2017 at 9:00 p.m., Match filed a Certificate of Ownership and Merger with the Delaware Secretary of State.
Plaintiffs allege that Defendants' merger of Tinder into Match caused no meaningful change to Tinder's operating structure or assets. Match was Tinder's sole stockholder both before and after the merger and Tinder continued to have its own CEO post-merger. As a result of the merger, Plaintiffs Tinder options were converted into Match options based on Defendants' $3 billion valuation. Plaintiffs allege that they received substantially less Match options in the conversion than their Tinder options were worth. Next Defendants terminated the Agreements and eliminated the future Scheduled Puts.
Two weeks post-merger, Defendants announced that Blatt would soon leave his positions as the CEO of Match and Tinder. Also, on September 14, 2017, Match terminated Rad's Tinder employment. Plaintiffs allege that following the valuation and merger, Defendants made public statements about Tinder, praising its financial performance and contradicting their private misrepresentations during the valuation process.
In their complaint, filed on August 14, 2018 Plaintiffs allege causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, interference with contracts, and interference with prospective economic advantage.
Defendants now move to dismiss the complaint, arguing that Plaintiffs' claims are barred by the statute of limitations, are barred as a matter of law by equitable defenses, and otherwise fail to state any cause of action. I address each of these grounds below.
Statute of Limitations
On a motion to dismiss on statute of limitations grounds, "the moving defendant must establish, prima facie, that the time in which to commence the action has expired. The burden then shifts to the plaintiff to raise an issue of fact as to whether the statute of limitations is tolled or is otherwise inapplicable." Yang v. Oceanside Union Free School Dist., 90 AD3d 649, 649 (2d Dept. 2011) (citations omitted).
Defendants argue that the Qualifying Valuation Process constituted an expert appraisal and that, under CPLR 7601 and the FAA, expert appraisals receive the same treatment as arbitration awards. Defendants posit that this case is "over the value of Tinder as of a certain date" and that if Plaintiffs were dissatisfied with the valuation process, their "exclusive remedy" was a motion to vacate the appraisal. Defendants conclude that, because arbitration awards must be challenged within 90 days pursuant to CPLR 7511, Plaintiffs' causes of action are barred, as more than 90 days have elapsed between the banks' valuation determination and the filing of this lawsuit.
In opposition, Plaintiffs claim that Defendants have mischaracterized their allegations as a challenge to a valuation process when, in fact, their causes of action are premised on Defendants' breach of contract and alleged improper interference with the Qualified Valuation Process. Plaintiffs state that they are not seeking to confirm an appraisal award or asking the court to order the parties to submit to an appraisal, and consequently, CPLR 7601 is not germane to this suit. And, by extension, the FAA is also not relevant.
In addition, Plaintiffs argue that CPLR 7601 is discretionary, thus even if it were applicable, it would not require Plaintiffs to seek resolution through a special proceeding.
CPLR 7601 is narrow in scope. The statute states that
A special proceeding may be commenced to specifically enforce an agreement that a question of valuation, appraisal or other issue or controversy be determined by a person named or to be selected. The court may enforce such an agreement as if it were an arbitration agreement, in which case the proceeding shall be conducted as if brought under article seventy-five of this chapter.
In determining whether the Qualifying Valuation Process constituted an "expert appraisal," rendering it akin to an arbitration, I am mindful of the well-established rule that parties may not be compelled to arbitrate their disputes absent evidence establishing the parties' "clear, explicit and unequivocal" agreement to arbitrate. Matter of Waldron (Goddess), 61 NY2d 181, 183-184 (1984) (citations omitted). Moreover, "the threshold for clarity of agreement to arbitrate is greater than with respect to other contractual terms." Id. at 186 (internal quotations and citation omitted). And, "although no particular wording is required to constitute a valid, binding arbitration agreement, nor even the inclusion of the words 'arbitrate' or 'arbitrator' the language used must be clear and unambiguous." Lovisa Const. Co., Inc. v. Suffolk County, 108 AD2d 791, 792 (2d Dept. 1985) (internal citations omitted). Here, the Agreements do not expressly refer to arbitration or an arbitration-like procedure. The Settlement Plan does not involve a "binding" procedure or contain instructions as to how to proceed in the event of a dispute regarding valuation. Also, the Settlement Plan does not restrict Plaintiffs' ability to file a lawsuit in any way. Finally, appraisal clauses that courts have deemed arbitral in nature differ significantly from the Settlement Plan provision.
For example, the appraisal process at issue in Penn Central Corp. v. Consolidated Rail Corp., in which the Court of Appeals held that challenges to an appraiser's valuations should be treated the same as challenges to arbitration awards, provided that
each side would select an appraiser with designated qualifications, that the third appraiser would be chosen by the first two and that a 'decision of two-thirds of the panel would
control.' In addition both sides would 'have an opportunity formally to present their positions to the panel' which in turn would 'make such independent investigation as it deemed necessary" prior to rendering its decision.'Penn Central Corp. v. Consolidated Rail Corp., 56 NY2d 120, 125, 130 (1982).
The other cases cited by Defendants also fail to support their argument. Questrom v. Federated Dept. Stores, Inc., 41 F.Supp.2d 294 (S.D.NY 1999), unlike here, involved a plaintiff's challenge to an appraisal agreement. The employment agreement in Questrom specified that plaintiff could object to defendant's choice of third-party selected for valuation. Id. at 307. In contrast, in the case before me it was Plaintiffs who could choose the third-party valuator, so the process set out in the Settlement Agreement did not contain a right to object or method to resolve disputes. Further, Questrom did not address the statute of limitations for appraisals. Another case cited by Defendants, Jacobson v. Fireman's Fund Ins. Co., 111 F.3d 261 (2d Cir. 1997), is also inapposite. In Jacobson, the plaintiff refused to participate in a contractually mandated appraisal process and the state court ordered that plaintiff must comply with court-supervised appraisal. Id. at 263. Then the appraiser issued determinations, defendants paid losses in accordance with the decisions, and the parties entered into a settlement. Id. Subsequently, the plaintiff in Jacobson, rather than appeal, filed a new suit in federal court seeking to void the appraisal. Id. at 263-64. The Second Circuit held that plaintiff's lawsuit was barred on res judicata grounds because there was a final disposition on the merits in state court which was not appealed within Article 75's 90-day statute of limitations. Id. at 265-68. The present case, unlike Jacobson, does not involve a court-supervised appraisal or a request to void an appraisal and Jacobson's holdings are simply not applicable.
In contrast, the Settlement Plan states that "[t]he Company will select one or two nationally recognized financial firms." The Settlement Plan provided that only Tinder would choose valuation firms and did not permit IAC and Tinder to each retain its own bank for the valuation. Further, the Penn Central appraisal process was formal and closely followed an arbitration format. The Settlement Plan's valuation process does not follow that formal, arbitration-like format. And, the Settlement Plan does not state that the banks' valuations would control or require the chosen banks to conduct an independent investigation of the information supplied.
I agree with Plaintiffs that because they do not seek to confirm an appraisal award or seek an order that the parties must submit to an appraisal, this action falls outside of the purview of CPLR 7601. Additionally, CPLR 7601 explicitly notes, and New York courts have held, that the statute's language is permissive, not mandatory. See NY CPLR 7601; U.S. Bank Nat'l Ass'n v. BFPRU I, LLC, 230 F.Supp.3d 253, 265 n.3 (S.D.NY 2017). Thus, Plaintiffs would not have been required to proceed via special proceeding even if CPLR 7601 applied.
Defendants' reliance on the FAA is similarly misplaced. Defendants contend that "dispute resolution procedures that would be governed by Article 76 of the CPLR qualify as 'arbitrations' under the FAA" and because Article 76 pertains to the Settlement Plan, the plan also falls under the FAA. However, because I find that Article 76 does not apply to Plaintiffs' claims, the FAA is also inapplicable.
The cases cited by Defendants in support of its argument that the FAA applies are distinguishable because the clauses/contracts at issue in those cases describe procedures for resolving disputes. Here, the Qualifying Valuation Process is not a dispute resolution mechanism and instead establishes a procedure to determine prices "applicable to a liquidity opportunity available under [the] Plan." At bottom, I find that the Agreements are not agreements to arbitrate and the FAA and CPLR Article 75 do not apply. As a result, Defendants cannot avail themselves of the statute of limitations found in those statutes and I deny Defendants' motion to dismiss based on statute of limitations grounds.
See, e.g., Seed Holdings, Inc. v. Jiffy Int'l AS, 5 F.Supp.3d 565, 576-77 (S.D.NY 2014) ("crucial inquiry is whether the parties have agreed to submit a dispute that has arisen between them for final and binding determination by a third-party") (emphasis added).
In another case relied on by Defendants, Bakes v. Certain Underwriters at Lloyds of London Issuing Certificate No. 0510135, 707 F.3d 140 (2d Cir. 2013), the parties entered into an insurance contract that provided for a benefit payment to plaintiff if he became "Permanently Totally Disabled." Id. at 142. Under the contract, each party had the right to have plaintiff examined by a doctor of its choice to determine whether he was totally disabled and if the parties' doctors disagreed, those two doctors would jointly name a third doctor to make the determination which would then be "final and binding." Id. The Second Circuit concluded that "federal common law provides the definition of 'arbitration' under the FAA" and that the third-doctor clause was an arbitration clause under the FAA. Id. at 143-144. Again, the Qualifying Valuation Process, unlike the third doctor determination process in Bakes, is simply not a mechanism for dispute resolution.
Ratification and Acquiescence
Defendants next contend that Rad's claims must be dismissed pursuant to the equitable doctrines of ratification and acquiescence. They argue that Rad benefitted from his decision to exercise all of his outstanding options and sell his stock and cannot now complain about the amount of cash that he received. Plaintiffs counter that Rad cannot have acquiesced to Defendants' breach because he lacked full knowledge of the circumstances and extent of Defendants' fraud in connection with the valuation process. In addition, Plaintiffs state that ratification defenses are fact intensive and cannot be decided on a motion to dismiss when key facts are in dispute.
Delaware law applies here because a "Governing Law" provision in the Settlement Agreement stated that the plan "shall be governed by, and construed in accordance with, the internal laws of the State of Delaware." Under Delaware law, whether a defense of acquiescence applies is a "highly fact-specific inquiry." Calesa Associates, L.P. v. American Capital Ltd., 2016 WL 770251, at *15 (Del. Ch. Feb. 29, 2016) (court, on a motion to dismiss, declined to conduct acquiescence inquiry "without the aid of a developed record").
A plaintiff acquiesced to defendant's act if plaintiff
has full knowledge of his rights and the material facts and (1) remains inactive for a considerable time; or (2) freely does what amounts to recognition of the complained of act; or (3) acts in a manner inconsistent with the subsequent repudiation, which leads the other party to believe the act has been approved.Klaassen v. Allegro Development Corp., 106 A.3d 1035, 1047 (Del. 2014) (citations omitted). The complaint's allegations, which I must accept as true on this motion, are that Defendants falsified financial data and concealed information in connection with the valuation. Thus, Defendants cannot establish as a matter of law at this time that Plaintiffs had "full knowledge" and their claims are not dismissible on the grounds of ratification and/or acquiescence.
Defendants cite Brunetti v. Musallam, No. 601769/01, 2003 WL 25780837 (NY Sup. Feb. 14, 2003) in support of their position but that case is inapplicable as it is a New York case, and Delaware law applies here. Nevertheless, it is distinguishable because in Brunetti, the plaintiff was told what he was giving up and signed two different agreements ratifying his decision in order to obtain an outside investment in the company. 2003 WL 25780837 at p.7-8. In this case, the complaint alleges that Rad was not given full information and did not approve of the merger that converted his Tinder options.
Failure To State a Cause of Action
Defendants argue that New York law requires dismissal of Plaintiffs' claims because there is no "proof of fraud or mistake or malfeasance" which is required in order to overturn an appraisal. As stated above, Plaintiffs' causes of action are based in contract and tort, and do not simply seek to set aside the valuation. Accordingly, I address the sufficiency of Plaintiffs' claims as pled.
A. Breach of Contract Cause of Action
Under Delaware law, the elements of a breach of contract claim are: (1) a contractual obligation; (2) the defendant's breach of that obligation; and (3) damages to plaintiff as a result of the breach. H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 144 (Del. Ch. 2003). Plaintiffs' breach of contract allegations fall into 4 categories: (i) information rights breaches; (ii) breaches in connection with the May 2017 Scheduled Put; (iii) breaches stemming from the Tinder-Match Merger; and (iv) breaches based on the termination of the Agreements.
(i) Information Rights Breaches
Plaintiffs allege that Defendants breached Rad's Funding and Governance Agreement, section 4 (a), by failing to provide Rad with the financial information specified in the Agreement, including unaudited balance sheets and unaudited income statements. Defendants aver that Plaintiffs' information-rights breach of contract claims fail because Plaintiffs do not allege that Rad requested the information and that, in any event,
In the complaint, Plaintiffs allege that they are all intended third-party beneficiaries of Rad's Funding and Governance Agreement. I note that, in their motion to dismiss, Defendants do not dispute Plaintiffs third-party beneficiary standing to assert a claim for breach of Rad's Funding and Governance Agreement.
Rad received balance sheets. However, there is no provision in Rad's Funding and Governance Agreement which requires Rad to first make a formal request before receiving information. Further, on this motion to dismiss I must accept as true Plaintiffs' allegations that Defendants failed comply with the Agreements' requirements of providing information when they instead deliberately produced false financial information to both Rad and the banks.
(ii) Breaches In Connection With The May 2017 Scheduled Put
Plaintiffs allege that Defendants breached the Settlement Plan and the Plaintiffs' Stock Option Plans by undermining the independent determination of Tinder's valuation in connection with the May 2017 Scheduled Put. As part of their alleged interference with the valuation process, and in violation of the Settlement Plan, Defendants withheld and refused to provide requested diligence information and limited and interfered with access to Tinder executives and employees. Plaintiffs allege that Defendants also breached the Settlement Plain by: 1) failing to provide all Settlement Plan beneficiaries with a Put Price Notice with details about calculations in connection with the May 2017 Scheduled Put; and 2) depriving Plaintiffs of a ten-business day period in which to exercise their vested Tinder options.
Defendants contend that the breach of contract claim based on failure to receive notice of the put price and provision of ten-day window fails as a matter of law because notice was provided and Plaintiffs exercised their options. Plaintiffs argue, however, that the notice that was given was deficient.. Because the documentary evidence submitted by Defendants does not "conclusively establish a defense to the asserted claims as a matter of law'" dismissal at this stage of the proceedings is not warranted. Leon v. Martinez, 84 NY2d 83, 87-88 (1994).
(iii) Breaches Stemming From The Tinder-Match Merger
According to Plaintiffs, Defendants' actions concerning the July 13, 2017 Tinder-Match merger breached the Settlement Plan because Defendants claimed that a merger extinguished the Settlement Plan arrangement despite the fact that no meaningful change in Tinder's asset ownership or control transpired; or alternatively, if the merger did result in meaningful change to Tinder, Defendants nevertheless breached the Settlement Plan by failing to institute a Discretionary Put as required by section 6. Additionally, the merger allegedly breached Rad's Funding and Governance Agreement by failing to "institute a compliant Qualifying Valuation Process."
Defendants argue that the Plaintiffs who left Tinder prior to the date on which the value of the options was established, or July 13, 2017 may not assert a breach of contract claim based upon the merger. Specifically, Defendants argue that Ogle, Cafardo and Johnson cannot assert merger-related breach of contract claims because they were required, under the Settlement Agreement, to exercise their options at the July 2017 valuation. As a result, Ogle, Cafardo and Johnson were no longer optionholders at the time of the merger. Defendants' claim that the July 2017 valuation was "on or promptly following" the May 15, 2017 Scheduled Put, while Plaintiffs claim that, because the valuation was not done in May 2017, or even in June 2017, the "next" Put following the June 2017 termination of Ogle, Cafardo and Johnson was November 15, 2018.
Plaintiffs concede that the Plaintiffs who left Tinder prior to the first 2017 Scheduled Put — A. Mateen and J. Mateen — were "contractually required to exercise their options at Defendants' illegitimate $3 billion valuation." I therefore grant dismissal of the merger-related breach of contract claims brought by A. Mateen and J. Mateen.
Next, Plaintiffs assert that because Plaintiffs Ogle, Cafardo and Johnson left Tinder in June 2017, after the May 15, 2017 Scheduled Put date, they were not required to exercise their options until the November 15, 2018 put date. The Settlement Plan defines Scheduled Put Dates as "[o]n or promptly following each of May 15, 2017, November 15, 2018, May 15, 2020 and May 15, 2021." The Settlement Plan also states that "[u]pon termination of [option] Holder's service with the Company for any reason, vested Options shall remain outstanding and shall be exercised by Holder in the next Qualifying Put."
According to the complaint, the improperly cancelled future scheduled puts constituted a breach of the Agreements and deprived Rad, Ogle, Cafardo and Johnson of the chance to participate in Tinder's long-term growth.
The issue of whether or not the July 2017 valuation was "on or promptly following" the May 15, 2017 Scheduled Put date, thereby precluding Ogle, Cafardo and Johnson from asserting merger-related breach claims, cannot be determined on this pre-answer motion to dismiss. I therefore deny Defendants' motion to dismiss this claim as to those Plaintiffs. As to Rad, Defendants state that he acquiesced in and ratified the merger by accepting its benefits. For the reasons stated above, I deny Defendants' motion to dismiss on the basis of acquiescence/ratification.
(iv) Breaches Based On The Termination Of The Agreements
The final category of breach of contract allegations state that, as a result of the Tinder-Match merger, Defendants breached the Settlement Plan, the Stock Option Plans and Rad's Funding and Governance Agreement by improperly terminating the Agreements. Defendants do not address the sufficiency of these allegations in their motion to dismiss. In sum, except as stated above, Plaintiffs have adequately plead claims for breach of contract.
As Plaintiffs point out, Defendants also did not address the breach allegations that Defendants undermined the "independent" determination of Tinder's value.
B. Unjust Enrichment Cause of Action
"Where the parties executed a valid and enforceable written contract governing a particular subject matter, recovery on theory of unjust enrichment for events arising out of that subject matter is ordinarily precluded." IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 NY3d 132, 142 (2009); see also Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 891 (Del. Ch. 2009) (where a "complaint alleges an express, enforceable contract that controls the parties' relationship a claim for unjust enrichment will be dismissed.") (internal quotation marks and citation omitted)).
Here, the gravamen of Plaintiffs' claims arise from Defendants' alleged violations of the Agreements. Defendants' do not contest the Agreements' existence or validity and therefore a quasi-contract cause of action is unnecessary. See Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 NY2d 382, 388-389 (1987). The cause of action for unjust enrichment is therefore dismissed.
C. Breach of the Implied Covenant of Good Faith and Fair Dealing Cause of Action
Defendants argue that Plaintiffs' implied covenant cause of action is duplicative of their breach of contract cause of action. Plaintiffs' counter that implied covenant claims may be brought with breach of contract claims when a defendant fails to uphold a plaintiff's reasonable expectations or to exercise its discretion under the contract in a reasonable manner.
"The implied covenant of good faith and fair dealing inheres in every contract and requires a party to the contract to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits' of the bargain." Kuroda, 971 A.2d at 888 (internal quotations and citations omitted). General allegations of bad faith actions will not suffice to state a claim for breach of the implied covenant but instead a plaintiff needs to allege both a specific implied contractual obligation and how a defendant's violation of that obligation denied the plaintiff "the fruits of the contract." Id. Claims for breach of the implied covenant of good faith and fair dealing are rarely successful in Delaware as the courts in that state view the implied covenant as narrow in purpose. Id.
Plaintiffs allege that Defendants breached the implied covenant of good faith and fair dealing by undermining the Qualifying Valuation Process. There are express terms in the Agreements, however, that address this process and therefore the breach of breach of the implied covenant of good faith and fair dealing claim is duplicative of the breach of contract claim. See Fitzgerald v. Cantor, No. C.A. 16297-NC, 1998 WL 842316 at *1 (Del. Ch. Nov. 10, 1998) (finding that the "express terms of a contract and not an implied covenant of good faith and fair dealing, however, will govern the parties' relations when the terms expressly address the dispute"). Thus, Defendants' motion to dismiss is granted as to the cause of action for breach of the implied covenant of good faith and fair dealing.
D. Tortious Interference Causes of Action
Plaintiffs assert causes of action for tortious interference with contract against Match and tortious interference with prospective economic advantage against both IAC and Match.
As a threshold matter, because all but one of the Plaintiffs are domiciled in California and Defendants are Delaware corporations, I must determine which state's law applies to this tort claim. Under New York law, when the plaintiff and defendant "are domiciled in different states, the applicable law in an action where civil remedies are sought for tortious conduct is that of the situs of the injury." Sondik v. Kimmel, 131 AD3d 1041, 1041 (2d Dept. 2015). Here, the situs of the injury is California as that is the locale of Tinder's principal place of business and where the allegedly improper valuation process transpired. Thus, California law governs these two causes of action.
Plaintiff J. Mateen resides in Las Vegas, Nevada. --------
Under California law, "the elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1126 (1990).
A claim for interference with prospective economic advantage "protects the same interest in stable economic relationships as does the tort of interference with contract, though interference with prospective advantage does not require proof of a legally binding contract." Id. In fact, the main distinction between the two claims is that "a broader range of privilege to interfere is recognized when the relationship or economic advantage interfered with is only prospective." Id.
Defendants first state that Plaintiffs' cause of action for tortious interference must be dismissed because there was no breach of contract and therefore that element of the claim cannot be satisfied. As I have determined that Plaintiffs' breach of contract cause of action was adequately plead, Defendants' first argument in favor of dismissal fails.
Next, Defendants argue that "a parent company with a financial interest in its subsidiary is entitled to protect that interest, including by interfering with the subsidiary's contracts." Whether a defendant may assert a financial interest privilege as a grounds to dismiss a plaintiff's tortious interference claim "cannot normally be satisfactorily determined on the basis of pleadings alone." CulCal Systlco, Inc. v. Vornado, Inc., 26 Cal.App.3d 879, 883 (Ct. App. 1972). Indeed, the "question on the issue of privilege is whether the actor's conduct was fair and reasonable under the circumstances, which is a question for determination by the trier of fact." Sade Shoe Co. v. Oschin & Snyder, 162 Cal.App.3d 1174, 1180 (Ct. App. 1984).
Based on the California law, at this stage of the litigation I decline to find, as a matter of law, that financial privilege obviates any tortious interference claims.
Lastly, Defendants argue that any alleged interference was not malicious as a matter of law. This argument however, is flatly contradicted by Plaintiffs' complaint allegations, which I must accept as true on this pre-answer motion to dismiss.
For the foregoing reasons, I deny that part of Defendants' motion in which they seek to dismiss Plaintiffs' claims for tortious interference. In accordance with the foregoing, it is
ORDERED that the motion by defendants IAC/InterActiveCorp and Match Group, Inc. to dismiss Plaintiffs' complaint is denied as to: (1) the first cause of action for breach of contract, except as to the merger-related breach of contract claims brought by Alexa Mateen and Justin Mateen; (2) the fourth cause of action for tortious interference with contractual relations; and (3) the fifth cause of action for tortious interference with prospective economic advantage; and it is further
ORDERED that the motion by defendants IAC/InterActiveCorp and Match Group, Inc. to dismiss Plaintiffs' complaint is granted as to: (1) the second cause of action for breach of the implied covenant of good faith and fair dealing; (2) the third cause of action for unjust enrichment; and (3) the first cause of action for breach of contract, but only as to the merger-related breach of contract claim brought by Alexa Mateen and Justin Mateen; and it is further
ORDERED that defendants IAC/InterActiveCorp and Match Group, Inc. are directed to serve an answer to the complaint within thirty (30) days of the date of this decision and order; and it is
ORDERED that counsel are directed to appear for a status conference at 60 Centre Street, Room 208 on August 7, 2019 at 2:15pm.
This constitutes the decision and order of the Court. DATE 6/5/2019 SALIANN SCARPULLA, J.S.C.