Frommer v. MoneyLion Technologies Inc.

Background

In November 2021, Jeffrey Frommer, Lyusen (Louis) Krubich, Daniel Fried, and Pat Capra entered into a Membership Interest Purchase Agreement with MoneyLion Technologies Inc. and MoneyLion Inc. Under that agreement, the plaintiffs sold their interests in Malka Media Group LLC in exchange for cash and MoneyLion common stock. The plaintiffs later brought breach-of-contract claims and sought an order requiring MoneyLion to remove restrictive legends from the stock.

On June 6, 2023, MoneyLion issued a stop order restricting the plaintiffs’ access to the stock. MoneyLion argued that the restrictions were proper because the plaintiffs had made misrepresentations about Malka’s financial statements and practices, which MoneyLion said could affect the plaintiffs’ rights to the shares. The pending motion sought a preliminary injunction requiring MoneyLion to remove the restrictions. The requested injunction was also the principal relief sought in the lawsuit generally.

Legal standard

A preliminary injunction is an extraordinary remedy. The moving party ordinarily must show irreparable harm; either a likelihood of success on the merits or sufficiently serious questions warranting litigation together with a balance of hardships that strongly favors the movant; and that an injunction would serve the public interest. The court described irreparable harm as the most important requirement and stated that, if it is not shown, the court need not consider the other requirements.

Court’s analysis

The court held that the plaintiffs failed to establish irreparable harm. Courts in the Second Circuit have generally held that when a defendant allegedly fails to deliver publicly traded stock under a contract, money damages can adequately compensate the plaintiff. The court found that principle applicable here because the stock had a determinable market value.

The court considered two exceptions: insolvency or near-insolvency of the defendant, and deprivation of a unique benefit or item that money damages could not replace. It found no evidence that MoneyLion was insolvent or close to insolvency. The plaintiffs’ assertion that MoneyLion’s stock was in a “free fall” did not establish insolvency or an inability to pay a judgment.

The court also found that the plaintiffs had not shown that the shares were a unique item unavailable on the open market. Although the plaintiffs argued that the restrictions could strain their finances, including their ability to satisfy tax obligations, they cited no authority establishing that this type of monetary harm was irreparable. The court further noted that the plaintiffs acknowledged that MoneyLion had permitted the sale of enough shares to cover their tax obligations.

The court rejected the plaintiffs’ reliance on an older district court decision, finding that decision contrary to the weight of authority and unpersuasive because it blurred the distinction between irreparable harm and the balance of hardships. The court also noted that MoneyLion, unlike the nonmoving party in that earlier decision, asserted a colorable legal basis for restricting the stock, including alleged breaches of the agreement and fraudulent conduct.

The plaintiffs raised a further argument in their reply brief based on a contract provision stating that irreparable damage would occur if the agreement were not performed and that the parties could seek specific performance. The court declined to consider the argument because parties generally may not raise new arguments in a reply. It also stated that such a contract provision does not automatically establish irreparable harm for purposes of a preliminary injunction.

Disposition

The court denied the plaintiffs’ motion for a preliminary injunction. Because the plaintiffs failed to show irreparable harm, the court did not need to address the remaining preliminary-injunction requirements. The Clerk of Court was directed to terminate ECF No. 16.