HSM Holdings, LLC v. Mantu I.M. Mobile LTD.

Background

HSM Holdings, LLC sued Mantu I.M. Mobile Ltd., Beezz Communications Solutions, Ltd., and seven individuals over HSM’s 2015 investment in Mantu. HSM alleged that it invested $4 million for 4,414 Mantu shares, representing 8 percent ownership, after defendants described Mantu as a promising technology company with an encrypted communications platform and potential international customers. HSM alleged that at least $3 million of its investment was transferred to or used for Beezz, which defendants had presented as a separate company.

HSM asserted claims under California and New York law for conversion, fraud, fraudulent concealment, fraudulent inducement, negligent misrepresentation, unlawful or deceptive business practices, breach of contract, breach of fiduciary duty, alter-ego status, money had and received, quasi-contract, voidable transfer, and restitution or unjust enrichment. HSM sought repayment of $4 million with interest or an ownership interest in Beezz.

Personal Jurisdiction

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(2), which concerns personal jurisdiction, as well as under Rules 9(b) and 12(b)(6), which concern particularity in fraud allegations and failure to state a legally sufficient claim.

The court found personal jurisdiction over Mantu because Mantu had agreed to a mandatory forum-selection clause requiring actions related to the investment agreement to be brought in a state or federal court in Manhattan. The court also found jurisdiction over Cayre and Moyal because they were New York residents. It rejected Mantu’s arguments that the forum was unreasonable because of foreign witnesses, Hebrew-language documents, possible application of Israeli law, or difficulty enforcing a judgment.

The court found no personal jurisdiction over Eliezer and Niryaev. Although they signed the agreement as Mantu’s co-CEOs, they signed only in their corporate capacities, not individually. The court also found that HSM had not adequately alleged that they were Mantu’s alter egos or that their communications through Cayre showed purposeful activity in New York. The court likewise found no jurisdiction over Jdanov, Hamo, and Raskansky, who did not sign the agreement and were not specifically alleged to have taken acts establishing jurisdiction. The court found no jurisdiction over Beezz because HSM’s allegations that Beezz and Mantu shared ownership, disregarded corporate formalities, and commingled funds were conclusory and did not adequately establish an alter-ego relationship.

Claims Against Mantu, Cayre, and Moyal

The court declined to dismiss the claims against these defendants on forum non conveniens grounds because they did not object to litigating in New York.

The court dismissed the conversion claim because HSM voluntarily paid the money under an agreement and received the promised Mantu shares. The agreement did not restrict how Mantu used the funds or require repayment, so HSM had not plausibly alleged an unauthorized exercise of control over its property.

The court dismissed the fraud claims under Rule 9(b) because HSM generally grouped defendants together instead of identifying, for each defendant, the specific statement, speaker, time, place, and reason the statement was fraudulent. The court found that some later emails were pleaded with enough detail, but HSM did not plausibly allege that it relied on those emails because they were sent after HSM had already requested the return of its investment. The fraud claims against Moyal, Jdanov, Hamo, and Raskansky were dismissed without prejudice. Fraud claims against Mantu and Cayre based on statements made before HSM requested its money were dismissed without prejudice, while claims based on statements made afterward were dismissed with prejudice for failure to allege reliance.

The court dismissed the negligent-misrepresentation claims because they sounded in fraud and therefore had to meet Rule 9(b)’s heightened pleading standard. The court also found that HSM failed to allege reasonable reliance and did not identify specific misrepresentations by Moyal.

The court dismissed HSM’s California unfair-competition claim because the alleged conduct involved a private investment dispute, not conduct affecting the public or consumers generally. It dismissed the New York deceptive-practices claim because HSM did not allege consumer-oriented conduct or a loss independent of the alleged contract injury.

The court dismissed both breach-of-contract claims because Mantu delivered the shares required by the agreement, which imposed no additional obligation concerning use of the investment funds. The court also declined to consider HSM’s newly raised implied-covenant theory because HSM had not pleaded it in the complaint.

The court dismissed both breach-of-fiduciary-duty claims. It held that the internal-affairs doctrine generally applies the law of the country where the corporation is incorporated, and that HSM had not shown a basis to apply California or New York law. It also held that the alleged diversion of Mantu’s funds injured Mantu and therefore could be pursued, if at all, through a shareholder derivative action rather than HSM’s direct claims.

The court dismissed the requested declaratory judgments concerning alter-ego status because piercing the corporate veil is not an independent claim and because HSM had not pleaded sufficient facts showing that Mantu and Beezz lacked separate identities.

The court dismissed the money-had-and-received and New York quasi-contract claims because the written investment agreement governed the parties’ relationship. It dismissed the voidable-transfer claim because HSM was an equity investor, not a creditor protected by the cited California statute. It dismissed the restitution claim because restitution is a remedy rather than a separate cause of action and, even if treated as unjust enrichment, the written agreement precluded that theory.

Disposition

The court granted the motion to dismiss as to Mantu, Cayre, and Moyal, without prejudice to HSM filing an amended complaint within 30 days containing more particularized fraud allegations only. The court determined that it lacked personal jurisdiction over Beezz, Eliezer, Niryaev, Jdanov, Hamo, and Raskansky, but deferred deciding whether to dismiss or return the claims against them to the Northern District of California. The court invited simultaneous briefing on that issue and stated that, if no briefing were filed, it would dismiss all claims against those six defendants. The court directed the Clerk to close the pending motion.