Frommer v. MoneyLion Technologies Inc.

Background

Jeffrey Frommer, Lyusen (Louis) Krubich, Daniel Fried, and Pat Capra, referred to as the Sellers, founded and co-owned Malka Media Group LLC. MoneyLion Technologies Inc. acquired Malka in November 2021. The Sellers later sued MoneyLion Technologies Inc. for breach of contract, alleging that it blocked their access to MoneyLion Inc. shares issued under the acquisition agreement.

MoneyLion Technologies Inc. and MoneyLion Inc. responded with counterclaims and a third-party complaint. They alleged that the Sellers had overstated Malka’s financial condition and accounting results before and after the acquisition, including by misrepresenting compliance with generally accepted accounting principles and revenue-recognition standards. The claims also concerned the acquisition agreement’s earnout payments, alleged misuse of company funds, alleged disclosure of confidential information, alleged competition with MoneyLion, and alleged removal of company property.

The Sellers moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when pleaded facts do not state a legally sufficient claim. On such a motion, the court generally accepts the complaint’s factual allegations as true and asks whether they plausibly support relief. Claims alleging fraud also had to satisfy heightened pleading requirements requiring particular details about the alleged fraudulent statements and the defendants’ state of mind.

Rulings on the Claims

The court granted the motion as to Count I, which sought a declaration concerning the meaning of the acquisition agreement’s accounting principles, because it duplicated the fraud and misrepresentation claims. The court also granted the motion as to Count VII, which alleged conversion of shares, and Count XVIII, which alleged unjust enrichment, because those claims sought relief based on the same alleged financial misrepresentations and would resolve the same issues as the fraud claims.

The court granted the motion as to Counts VIII, XIII, and XV because the claims were untimely under the acquisition agreement’s 18-month survival period. The court held that the principle allowing intentional-fraud claims to proceed despite contractual time limits did not apply to these breach-of-contract claims. The court also granted the motion as to Count II because MoneyLion withdrew that claim in its opposition, and the court stated that the motion was granted on consent as to that count.

The court denied the motion as to Counts III and IV, which alleged securities fraud under Section 10(b) of the Securities Exchange Act and Rule 10b-5, and common-law fraud. The court held that the acquisition agreement’s non-reliance provision did not bar the claims at the pleading stage. It also found that MoneyLion adequately alleged reliance, fraudulent conduct, scienter—the required state of mind for fraud—and loss.

The court denied the motion as to Count V, negligent misrepresentation, holding that MoneyLion adequately alleged a special relationship based on the parties’ contractual relationship and the alleged conduct connected to the acquisition agreement. The court also denied the motion as to Counts VI, XVI, XVII, and XIX. The Sellers had argued that employment agreements required arbitration, but they did not ask the court to compel arbitration, and the employment agreements were not properly considered on this motion to dismiss.

The court denied the motion as to Counts IX, X, XI, XII, XIV, XVI, and XVII as stated in the final disposition. It explained that several of the Sellers’ arguments concerning Counts IX, X, XI, XII, and XIV were presented only in a cursory manner and therefore did not provide a basis for dismissal. The court also rejected the request to dismiss MoneyLion Inc.’s third-party complaint in its entirety, finding that the Sellers had not offered a sufficient substantive argument for doing so.

Disposition

The court concluded that the Sellers’ motion to dismiss was granted in part and denied in part. The motion was granted as to Counts I, II, VII, VIII, XIII, XV, and XVIII. It was denied as to Counts III, IV, V, VI, IX, X, XI, XII, XIV, XVI, XVII, and XIX. The court declined to grant MoneyLion leave to amend the dismissed claims, citing the substantive nature of the defects, MoneyLion’s failure to request amendment, and its previous amendment of the pleadings. Judge Jesse M. Furman directed the Sellers to answer the remaining counterclaims within two weeks and directed the clerk to terminate the pending motion.