Cellucci v. O'Leary

Background

The plaintiffs were minority shareholders and former officers of DarkPulse, Inc. They sued DarkPulse, Dennis Michael O’Leary, and other defendants. The complaint asserted derivative claims—claims brought by shareholders on behalf of the corporation—and individual claims for breach of contract. The claims against the other defendants were settled, leaving DarkPulse and O’Leary as the defendants whose motion was decided here.

The plaintiffs alleged that O’Leary breached fiduciary duties by mismanaging DarkPulse, wasting corporate assets, diverting company resources to other entities, and violating the company’s governing documents and securities rules. Four plaintiffs also alleged that DarkPulse owed them deferred compensation under oral contracts.

Subject-Matter Jurisdiction

The plaintiffs relied on diversity jurisdiction, which requires complete diversity of citizenship and an amount in controversy exceeding $75,000. The court found that the complaint adequately alleged diverse citizenship, but it did not adequately allege that the amount in controversy exceeded $75,000.

For the derivative claims, the court concluded that the plaintiffs could not rely on an alleged $20,650 transfer made before they acquired their DarkPulse shares because they lacked standing to challenge that transaction. The complaint’s broader allegations about diverted resources did not provide enough dates or information to estimate the value of the claims. The court also declined to rely on alleged Kazakhstan contracts because the complaint did not connect those contracts to the alleged diversions and the contracts were not in the record.

The individual contract claims alleged amounts below $75,000: $56,000 for Cellucci, $49,600 for Singer, $49,200 for Banash, and $45,200 for Goodman. The court held that these separate claims could not be added together to satisfy the jurisdictional amount. Because no claim supplied a basis for federal subject-matter jurisdiction, supplemental jurisdiction could not provide jurisdiction over the remaining claims.

Derivative Claims

The court also held, as an alternative basis for dismissal, that the derivative claims were not adequately pleaded. Federal Rule of Civil Procedure 23.1 requires particularized allegations about a shareholder’s ownership, any demand made on the corporation’s board, and the reasons for not obtaining the requested action.

The plaintiffs sent a demand letter to DarkPulse’s board four days before filing the Second Amended Complaint. Applying Delaware law, the court found the letter inadequate because it did not sufficiently identify the alleged wrongdoing, the resulting injury to DarkPulse, or the specific legal action the board should take. Asking for an investigation, without requesting a specific corporate remedy, was insufficient. The court therefore held that the derivative claims failed to comply with Rule 23.1 and must be dismissed.

The court further held that the derivative claims did not state plausible claims for relief. The fiduciary-duty allegations based on the certificate of incorporation, bylaws, and securities rules were conclusory and improperly combined different legal theories. The alleged corporate-waste claim did not identify specific transactions or facts showing that the transactions were so one-sided that no reasonable businessperson could have viewed DarkPulse as receiving adequate consideration. The chronic-mismanagement claim was barred by an exculpatory provision in DarkPulse’s certificate of incorporation and also lacked sufficient factual support.

Individual Contract Claims

The court held that the four individual breach-of-contract claims also failed under Rule 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. Although the complaint described the alleged compensation amounts, compensation structure, job duties, and nonpayment, it did not allege when or between whom the oral contracts were formed.

The court also found that the plaintiffs had not adequately alleged a breach. The alleged promise required payment after DarkPulse raised “sufficient working capital,” but the complaint did not define that phrase or explain when payment was due. The plaintiffs relied on two loans totaling $91,200, while alleging that they were collectively owed $200,000, and did not allege that incoming funds had to be used first for their compensation.

Disposition

The court held that it lacked subject-matter jurisdiction and that the plaintiffs had failed to state plausible claims for relief. Judge Valerie Caproni granted the defendants’ Motion to Dismiss, dismissed the case, and found that further leave to amend would be futile. The opinion does not state that the dismissal was with or without prejudice.