Long Side Ventures LLC v. Hempacco Co., Inc.

Background

The plaintiffs alleged that they loaned between $25,000 and $100,000 to Vidbox Mexico under securities purchase agreements and promissory notes. After Vidbox defaulted, the plaintiffs obtained a New York state-court judgment for $827,821.23 plus post-judgment interest against Vidbox Mexico and its guarantor. The judgment debtors had made no payments.

The plaintiffs alleged that Hempacco Co., Inc., Mexico Franchise Opportunity Fund, LP (MFOF), and the individual defendants transferred Vidbox Mexico’s kiosks and other assets to frustrate enforcement of the judgment and fund Hempacco’s business. They asserted six causes of action, including enforcement of the judgment under alter-ego and successor theories, fraudulent transfer, interference with enforcement of a judgment, and conversion.

The plaintiffs asserted personal jurisdiction—the court’s authority over the defendants—based on four theories: a New York forum-selection clause in the securities purchase agreements, New York’s long-arm statute, alter-ego jurisdiction, and successor-liability jurisdiction. The defendants moved to dismiss under Federal Rules of Civil Procedure 12(b)(2), for lack of personal jurisdiction, and 12(b)(6), for failure to state a claim.

Forum-Selection Clause

Section 9.13 of the securities purchase agreements required disputes connected with the agreements or contemplated transactions to be brought in state or federal courts sitting in Manhattan. The court applied the “closely related” standard for determining whether a person or entity that did not sign a contract may be bound by its forum-selection clause.

The court held that the plaintiffs had not shown Hempacco, MFOF, Pearson, Titus, or Halamuda were closely related enough to Vidbox Mexico for enforcement of the clause to be foreseeable. The plaintiffs had not alleged that those defendants were involved in the securities purchase agreements. The court therefore granted the motion under Rule 12(b)(2) as to the plaintiffs’ claims against those defendants under the forum-selection-clause theory.

The court reached a different conclusion for Sandro Piancone and Jorge Olson. Piancone was Vidbox Mexico’s president, owned approximately 25% of its outstanding shares, and signed the agreements for the company. Olson was a controlling officer of Vidbox Mexico. The court concluded that their corporate leadership positions made it foreseeable that the forum-selection clause could apply to disputes involving them. The court therefore denied the motion as to the claims against Piancone and Olson under that theory.

Other Jurisdictional Theories

The court rejected jurisdiction under New York’s long-arm statute because the complaint did not specifically describe the defendants’ contacts with New York. The court also disregarded the plaintiffs’ argument under another long-arm provision because the complaint had not pleaded that jurisdictional basis or supporting facts.

The court found the alter-ego allegations too conclusory. The plaintiffs alleged common ownership, overlapping officers, commingling of assets, and fraudulent transfers, but did not provide sufficient facts showing domination, disregard of corporate formalities, undercapitalization, or commingling of corporate and personal funds. The court also noted that the defendants disputed whether the kiosk transfers were for no consideration, asserting that earlier transactions involved payments and that MFOF received Hempacco preferred shares.

The court likewise found insufficient allegations for successor-liability jurisdiction. It concluded that the complaint did not adequately establish a fraudulent transaction, a merger in substance, or a continuation of Vidbox Mexico. The court emphasized that Vidbox Mexico remained a legal entity with assets, that Hempacco operated a hemp and cannabidiol-products business rather than continuing Vidbox Mexico’s DVD-rental business, and that the complaint did not allege that Hempacco or MFOF assumed Vidbox Mexico’s liabilities. The court also stated that successor liability could not be imposed on the individual defendants merely because they were officers or shareholders.

Disposition

The court granted the defendants’ motion under Rule 12(b)(2) for lack of personal jurisdiction against all defendants under the New York long-arm, alter-ego, and successor-liability theories. It also granted the motion under Rule 12(b)(2) as to MFOF, Hempacco, Pearson, Titus, and Halamuda under the forum-selection-clause theory. It denied the motion as to the plaintiffs’ claims against Piancone and Olson under that theory.

The court granted the plaintiffs leave to file a First Amended Complaint at the conclusion of jurisdictional discovery. It found that the plaintiffs had made a sufficient start toward establishing personal jurisdiction but needed additional facts, including information allegedly within the defendants’ knowledge and control. The opinion does not state a disposition on the defendants’ separate Rule 12(b)(6) request.