Hearing Before HONORABLE JENNIFER SCHECTER

FILED: NEW YORK COUNTY CLERK 07/16/2021
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NYSCEF DOC. NO. 397
242 RECEIVED NYSCEF: 07/16/2021
02/14/2019
1 SUPREME COURT OF THE STATE OF NEW YORK
2 COUNTY OF NEW YORK : CIVIL TERM : PART 54

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3
DANCO ENTERPRISES, LLC, WANTICKETS RDM, LLC,
4 WANTMCS HOLDINGS, LLC, and JOSEPH SCHNAIER,
5
Plaintiff(s). Index
6
-against- 651538/2018
7
8 LIVEXLIVE MEDIA, INC., f/k/a LOTON CORP.,

LIVEXLIVE TICKETS, INC., ROBERT S. ELLIN,
9 ALEC ELLIN, BLAKE INDURSKY,
and COMPUTERSHARE TRUST COMPANY, N.A., CL, LLC,
10 d/b/a LIGHT NIGHTCLUB, and CDBC, LLC d/b/a
DAYLIGHT BEACH CLUB,
11
Defendant(s).
12
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13 60 Centre Street
New York, New York 10007
14 February 6, 2019
15 B E F O R E:
16 HONORABLE JENNIFER SCHECTER, Supreme Court Justice
17 APPEARANCES OF COUNSEL:
18 For the Plaintiffs

SCHLAM STONE & DOLAN LLP
19 BY: JOSHUA WURTZEL, ESQUIRE
26 Broadway
20 New York, New York 10004
21 For the Defendants

HARTMANN DOHERTY ROSA BERMAN BULBULIA
22 BY: MARK A. BERMAN, ESQUIRE
KELLY A. ZAMPINO, ESQUIRE
23 666 Fifth Avenue, 28th Floor
New York, New York 10013
24
Janelle C. London, RPR, CRR
25 Senior Court Reporter
Janelle C. London, Senior Court Reporter, RPR, CRR,
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2 THE COURT: All right. So, I have three motions in
3 front of me today, and it would make sense to do them -- to
4 take care of them sequentially. So I'll start with one in a
5 moment, but I just want to share with you a general
6 observation that I have.
7 I suspect, and it's not just because you have a
8 conference call dealing with many of these issues with
9 Mr. Rand that's discussed in the papers, but I suspect based
10 on your sophistication and my dealings with you in the past,
11 that you have a good sense of what the outcomes of what
12 these motions are. And, I also suspect that this case is
13 being overly litigated because that is what your clients
14 think they want.
15 I am here for you to address all the motions that
16 you'll ever bring in this case, but I really want you to
17 speak to your clients and urge them to think about if this
18 is really the tact that they want to take because the end
19 result is going to be the same. Everybody knows when you
20 walk out of here today, there is going to be a viable
21 complaint and there is going to be a viable counterclaim.
22 How quickly your clients resolve this is in their hands, but
23 this is spending a fortune probably to walk out in the same
24 position that you knew you were going to walk out when you
25 walked in.
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1 All right. So let's go through Motion Sequence No.
2 001, and this is defendant's motion to dismiss parts of the
3 complaint. And, actually, you whittled down what's really
4 at issue here. So I think we're left with the point of the
5 viability of a defamation claim and an implied covenant of
6 good faith and fair dealing claim, which we'll be talking
7 about a lot of today. And then there is the issue of
8 striking certain matters from the complaint.
9 All right. Who -- Mr. Berman, are you arguing?
10 MR. BERMAN: I am. And, Your Honor, based on the
11 Court's comments, I suspect the Court's familiar with the
12 papers that have been filed, and I don't want to belabor the
13 record if the Court doesn't have any specific --
14 THE COURT: I'm sorry I pointed to you because I
15 really don't have questions for you on this claim. And, in
16 fact, this motion was fairly easy for me to resolve.
17 In terms of the implied good faith and fair
18 dealing, I really didn't find there is a viable claim here
19 based on the alleged improper purported termination of
20 Schnaier for cause, which actually -- allegedly, according
21 to Schnaier, constituted a bad faith termination without
22 cause because defendants allegedly malevolently terminated
23 him and dismantled Wantickets' business that LiveXLive
24 Tickets bought, and either of these allegations are alleged
25 to support a claim based on the breach of the implied

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1 covenant contained in the employment agreement causing
2 damages to Schnaier being -- related to being unable to
3 collect the performance bonus that he otherwise allegedly
4 would have been entitled to. And nothing alleged in that
5 cause of action supports a breach of the implied covenant
6 under the circumstances pleaded. That cause of action is
7 dismissed.
8 The agreement specifically allows for termination
9 without cause explicitly which contemplates a termination
10 for any reason the employer chooses so long as it's not a
11 legal or exercise in bad faith and nothing pleaded here
12 supports a claim for any legally recognized improper
13 termination without cause based on implied covenant.
14 To the extent that Schnaier seeks damages for an
15 unpaid performance bonus, it has to be predicated on the
16 express of provisions of the agreement. And the alleged
17 dismantling of Wantickets has nothing to do with the
18 employment agreement and it can't be read into the
19 employment agreement through use -- or through improper use
20 of the implied covenant. That cause of action is dismissed.
21 Additionally, the defamation cause of action is
22 dismissed. There is nothing in the complaint that can be
23 reasonably interpreted as defamatory as a matter of law.
24 The statements: "Please contact Joe Schnaier, as he's the
25 owner of Wantickets," in response to the inquiry that was

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1 made is not untrue or susceptible of any defamatory
2 inference, and the same is true of the statement "it seems
3 you have been talking to Mr. Schnaier and he owes you the
4 funds. Not sure how we're tied into this," and "for
5 anything prior to May 5th -- and this is in quotes because
6 these are the actual statements. "For anything prior to
7 May 5th, Mr. Schnaier would be responsible, and I can share
8 with you his attorney's e-mail." Those allegations -- those
9 statements are just insufficient to support defamation.
10 They are truthful statements and there is no inference of
11 anything defamatory that can be drawn from them, especially
12 in their context. To the extent that there is -- you seek
13 to strike information from the complaint, I'm not going to
14 strike it, and that should resolve Motion Sequence No. 001.
15 Motion Sequence No. 004, I will want to hear from
16 you. We have several counterclaims that are implicated
17 here, and I will want to go through them -- some I'll have
18 more questions than others. And this -- is it Mr. Wurtzel?
19 MR. WURTZEL: Yes.
20 THE COURT: Mr. Wurtzel, this is your motion, and I
21 didn't see anything addressing -- I believe it's the eighth
22 counterclaim. Maybe it's one of the declaratory judgments.
23 There are three declaratory judgment counterclaims. Two
24 dealt with the shares, the voiding of the shares, but there
25 was one that didn't deal with the voiding of the shares. I
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1 just didn't see whether the motion addresses it at all.
2 MR. WURTZEL: Yes, Your Honor. This is a partial
3 motion to dismiss. We moved to -- we moved to dismiss
4 everything with the exception of part of the breach of
5 contract claim. And part of the breach of contract claim
6 that we didn't move against, I think this is actually in
7 footnote one of Docket 232. Sorry. That's the wrong docket
8 number. It's Docket 167, footnote one, which is on page
9 four.
10 So we didn't move against the LiveXLive's claims
11 for breach of the APA based on failure to indemnify and
12 failure to pay the Schnaier obligations. And we also did
13 not move against the related declaratory judgment claim. So
14 there were three declaratory judgment claims, so two about
15 the shares; one not about the shares. We didn't move for --
16 move to dismiss the one not about the shares.
17 THE COURT: Okay. So that one is not dismissed.
18 So let's go through this claim by claim. Instead of me
19 hearing from you on everything, we'll go back and forth
20 because I think it makes the most sense to address it that
21 way.
22 So in terms of the first count of the counterclaim
23 for breach of the APA, you're only moving to dismiss the
24 counterclaim to the extent of -- I think it's paragraph 81,
25 the alleged breach for failing to pay liabilities and

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1 obligations that were owed by Wantickets to third parties?
2 MR. WURTZEL: That's correct, Your Honor.
3 THE COURT: And that's just because it's not in
4 there?
5 MR. WURTZEL: Correct.
6 THE COURT: So, Mr. Berman, what is your response
7 to that? And, if you'd like, I don't need you to keep
8 getting up and down.
9 Mr. Berman, what's your response to that?
10 MR. BERMAN: So, my response to that is that that
11 part of the contract is that it's an inferential obligation
12 from Section 1.4. And I get the argument that it's not
13 stated clearly enough in which case we alleged it as --
14 under count two of the breach of the covenant --
15 THE COURT: We'll talk about count two in a few
16 minutes.
17 MR. BERMAN: Okay.
18 THE COURT: But I don't see that as a sustainable
19 claim. The fact is to the extent that defendants incur any
20 loss as a result of defendants having to pay those
21 liabilities, and I think you mentioned are there pending
22 arbitrations related to potential liabilities that vendors
23 went after the defendants for?
24 MR. BERMAN: So, I know that when we were drafting
25 these pleadings that there was. I'm not litigating those,

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1 so as I sit here today I'm not sure of the current status,
2 but there definitely were -- at the time there were
3 arbitrations.
4 THE COURT: So there were arbitrations and I
5 imagine there were costs incurred in those arbitrations and
6 that that's what you're seeking indemnification for;
7 correct?
8 MR. BERMAN: Correct.
9 THE COURT: So, to the extent that you do suffer
10 losses as a result of actually paying third parties, the way
11 I view this is that's collectible based on the
12 indemnification provision of the agreement, but there isn't
13 a breach just in the abstract by failing to pay those third
14 parties. So in that respect, the motion is granted as to
15 count one.
16 Count two -- I don't need to hear from you,
17 Mr. Wurtzel. How is this not completely duplicative of the
18 breach of the APA claim?
19 MR. BERMAN: Okay. So it's a pleading in the
20 alternative, particularly with respect to the aspect of the
21 breach of contract claim that the Court has found fault in.
22 So -- right, I've read the contract. It doesn't clearly say
23 in so many words you are -- that Wantickets was obligated to
24 pay these third-party allegations as a condition of the
25 asset purchase agreement. The allegations in the

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1 counterclaims is that that was the understanding of the
2 parties, that that would be done in order for LiveXLive --
3 I'll use that just generally, but Live Tickets to obtain the
4 benefit of the bargain. And that, to me, actually, is -- I
5 actually think it's a better claim than the breach of
6 contract aspect that the Court has dismissed because it is
7 not clearly stated within the asset purchase agreement, and
8 yet it was critical to my clients getting the benefit of
9 their bargain because these third parties, this is not just
10 random third parties. It's the third parties that LiveXLive
11 Tickets, the new entity, was going to need to continue to do
12 business with in order for it to continue in business.
13 And the fact that these third parties were not paid
14 and therefore no longer willing to continue to do business
15 with LiveXLive Tickets, deprived LiveXLive of the benefit of
16 the asset purchase agreement as a result of which the
17 company ended up ceasing to continue in business.
18 THE COURT: You know what sophisticated parties
19 should do when something is critical to them? They should
20 put it in the agreement. Because if they don't put it in
21 the agreement, I'm not going to read it into the agreement
22 as an obligation. So, again, to the extent that this claim
23 seeks certain damages like failing to make the required
24 payments of the Schnaier obligations, that's clearly a
25 breach of the APA. It's not the implied covenant and, yes,
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1 I am going to dismiss this claim as duplicative of the
2 breach of the APA claim. And to the extent that, again, the
3 parties didn't include certain specific provisions, they
4 should have done so because the implied covenant can't be
5 used to read provisions into the contract that the parties
6 didn't provide for.
7 So now we get to count three, which is also going
8 to be important to Motion Sequence No. 005. And this
9 changed a little when I saw the opposition in terms of once
10 again it shifted to this breach of the implied covenant
11 claim and once again I'm seeing an implied covenant being
12 read into this employment agreement, but, in essence, the
13 way I read this as pleaded and as supplemented in the
14 opposition is that essentially what defendants are trying to
15 do is read obligations imposed by the APA into the
16 employment agreement.
17 To the extent that -- again, this claim alleges
18 that there was a failure to pay the Schnaier obligations,
19 that's an obligation imposed in the APA, it's an alleged
20 breach of the APA, it's not something that can be read
21 through the implied covenant into the employment agreement
22 and therefore count three is dismissed.
23 Let's talk about count four and perhaps count six
24 together because count four deals with breach of the
25 subscription agreement and count six alleges the fraudulent

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1 inducement of that subscription agreement.
2 Upon reading the agreement, it was very clear to me
3 that the representations that were alleged to have been
4 breached in these claims were representations -- I hope I
5 get the entities right as I go through this because there
6 are so many. But there were representations I believe as to
7 WantMCS. None of the representations dealt with Schnaier
8 himself and his personal situation or whether he had any
9 liabilities. They all the dealt with WantMCS, the party to
10 the agreement, so there is no sufficient allegation of
11 breach and the same things in terms of fraudulent
12 inducement. First of all, I think the agreement even
13 contained provisions saying that there have been no reps by
14 anyone other than the company and the reps that the company
15 made were representations, again, only directed at the
16 company, not about Mr. Schnaier. So there is no basis for
17 any reasonable reliance on any other outside
18 representations. So the claims related -- the
19 counterclaims, those counts, four and six, are dismissed as
20 well.
21 Let's talk about count five.
22 Mr. Wurtzel, why does count five, the fraudulent
23 inducement of the APA, get dismissed here?
24 MR. WURTZEL: Your Honor, for a few reasons. The
25 first and foremost is that there was a duty to disclose.

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1 This is clearly an omissions claim. They're saying you
2 should have told us about these liabilities, you should have
3 told us about the state of Wantickets' business. You didn't
4 tell that to us, right? So why did the plaintiffs have to
5 make those disclosures? Well, one basis is that there was a
6 fiduciary duty, which they don't allege nor could they here.
7 The only thing that they argue is the special facts
8 doctrine. But as Your Honor knows, 3016 of the CPLR, you
9 have to allege fraud with particularity. So they just --
10 they haven't even actually alleged this. They just say in
11 their opposition, well, there are special facts, we have
12 superior knowledge and thus you had a duty to disclose. But
13 they have to actually allege what superior knowledge we
14 have, what superior knowledge the plaintiffs had, why is it
15 that they couldn't have learned of those facts, and why
16 those facts were only in the possession of the plaintiffs.
17 So, the first point, Your Honor, respectfully, is
18 there was no duty to disclose here. The second point is
19 that this is also duplicative and I think it ties into the
20 first point, but this claim is also duplicative of the
21 breach of contract claim because the only duty that they
22 allege the plaintiffs had to disclose these, you know, these
23 liabilities and these other facts, arises from the APA,
24 right? So the case law is that a fraud claim is not
25 duplicative of a contract claim when the duty to disclose

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1 arises separate and apart from the contract. And here, the
2 only allegation and duty to disclose comes from the contract
3 itself.
4 And then, Your Honor, the third point is that there
5 actually is documentary evidence here that shows that much
6 of what they're saying wasn't disclosed was in fact
7 disclosed. And I know -- I'm happy to elaborate on that
8 further if the Court would like or I'm happy to leave it
9 there as well.
10 THE COURT: I read the papers, so I saw, you know,
11 all the deferred, I think --
12 MR. WURTZEL: Deferred sales.
13 THE COURT: Deferred sales and the disclosures were
14 made and the opposition is well, we don't really know, we
15 got the disclosures, but let's -- let me hear from
16 Mr. Berman.
17 Mr. Berman, how here -- what are the damages that
18 are being sought here for the fraudulent inducement and how
19 are the damages any different from the damages being sought
20 for breach of the APA?
21 MR. BERMAN: So I don't know that ultimately the
22 damages will be different.
23 THE COURT: I agree.
24 MR. BERMAN: But, I don't think that defeats a
25 fraudulent inducement claim. In other words, I'm -- my

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1 client -- if I end up proving one or the other -- well, if I
2 end up proving both, I can't recover double damages, but I'm
3 entitled to my damages under one theory or the other and the
4 ultimate fact finder may say, well, he didn't prove a breach
5 of contract, but he did prove fraudulent inducement. I'm
6 entitled to those damages.
7 THE COURT: How would you have a situation where
8 you are successful on the fraudulent inducement but not
9 successful on the breach of contract in these -- in this
10 context?
11 MR. BERMAN: Well, so here's -- all right. So, I
12 don't know that it actually is -- so on page 27 of the
13 counterclaim, Mr. Wurtzel is focused on concealment. But on
14 page 27, there are a list of affirmative misrepresentations
15 that we allege were made. They're all incorporated by
16 reference into a fraudulent inducement claim.
17 THE COURT: Are they reps and warranty issues?
18 MR. BERMAN: Most of them are reps and warranty
19 issues, but the evidence is going to be that the -- so the
20 representations were made leading up to the execution of the
21 asset purchase agreement, and then there are reps and
22 warranties in the asset purchase agreement. So I guess a
23 rep and warranty in the asset purchase agreement that
24 allegedly was false is a breach of the --
25 THE COURT: Breach of the APA.

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1 MR. BERMAN: Breach of the APA. I get that.
2 THE COURT: And if it wasn't included in the reps
3 and warranties, then again I ask why wouldn't sophisticated
4 parties, if it was so crucial to them, include it as a rep
5 or warranty such that, you know, how is the reliance
6 reasonable if they didn't make it part of the reps and
7 warranties?
8 MR. BERMAN: So the concealment of facts that
9 Mr. Wurtzel focuses on is the other side of the coin that
10 the rep -- of these reps and warranties, right. So they
11 failed to disclose all this other information. The reps --
12 there are reps and warranties in the APA. I get that that's
13 a breach of contract issue.
14 THE COURT: Right.
15 MR. BERMAN: But the -- it ends up being a
16 misrepresentation because there is other obligations that
17 they haven't disclosed, for example, in the exhibits of the
18 APA, and I hear what Your Honor is saying.
19 THE COURT: So that is also a breach. Meaning, if
20 they were required under the contract to disclose that
21 information and they didn't disclose it by virtue of the
22 contract, that's a breach of the contract and a breach of
23 the reps and warranty.
24 So, in light of the pleadings and what I've heard
25 at argument, and the nature of the damages significantly

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1 here as well in this context, I do find that the fraudulent
2 inducement of the APA claim is going to be dismissed as
3 duplicative because the damages are duplicative. And, in
4 addition, for the reasons we just discussed, which is that
5 to the extent that there was a duty to disclose, it arises
6 solely out of the agreement and if they didn't disclose what
7 they were required to disclose under the agreement, that
8 would constitute a breach of the APA.
9 Count seven: Indemnification. My understanding is
10 that everybody appreciates that the breach of the APA
11 includes allegations that defendant wasn't -- or defendants
12 are entitled to indemnification for certain things for which
13 they haven't received indemnification regardless of what
14 section the indemnification arises out of.
15 So why, Mr. Berman, wouldn't count eight be
16 duplicative of count one? Meaning, they're all
17 contractual-based indemnification. How is dismissing this
18 case -- how is dismissing this portion of the counterclaim
19 even bad for you if it's just included in count one?
20 MR. BERMAN: So, Your Honor, the reason I pled it
21 as a separate cause of action is to the extent the argument
22 is that a right to indemnification has not yet accrued.
23 That's count seven of the right -- if it hasn't accrued,
24 then there can't be a breach. That's the way I was thinking
25 about it. But if Your Honor interprets it as I have a

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1 current right to indemnification, then --
2 THE COURT: Well, again, tell me what you're
3 seeking indemnification for. And how -- what section -- did
4 the sections limit indemnification for certain things
5 indemnification for 18 months after closing?
6 MR. BERMAN: There is -- it's Section 8.2 of the
7 asset purchase agreement. There is a time limitation.
8 THE COURT: And are we beyond that time limitation?
9 I would imagine.
10 MR. BERMAN: Are we beyond the time limitation? I
11 have to do the math in my head. I don't think so.
12 THE COURT: Okay.
13 MR. BERMAN: But --
14 THE COURT: Eighteen months after the closing date?
15 MR. BERMAN: The closing date was in -- I have it
16 -- it doesn't matter anyway. It's coming up. But I have to
17 -- I don't think so because it's May. Five plus six is 11,
18 so it would be November. So these claims predate that a
19 year plus. May of 2017 to November of 2018, so I think
20 18 months, something like that.
21 THE COURT: Okay. So --
22 MR. BERMAN: I think it's within the 18 months.
23 THE COURT: Did you say November of 2018 or '19?
24 MR. BERMAN: 2018.
25 THE COURT: So through November 2018?

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1 MR. BERMAN: Correct. Right, so my -- listen. Our
2 right to indemnification has already accrued. It accrued
3 prior to the 18 months, so the fact that we're now past it,
4 these counterclaims -- these claims predate those 18 months,
5 but even if not --
6 THE COURT: I mean, the claims that are included in
7 the complaint?
9 THE COURT: Yes. The ones for, like, the
10 arbitration costs that you've incurred, that we've
11 discussed, for example. So I understand those would be ripe
12 and you're seeking indemnification for them.
13 What else are we dealing with? And, to the extent
14 that if they haven't arisen yet, why couldn't you amend when
15 they do arise to include indemnification for those items?
16 MR. BERMAN: So, I don't know as I'm sitting here
17 today what might arise in the future. I think we're
18 probably at a point where everything that would have --
19 THE COURT: Probably.
20 MR. BERMAN: The number may change, but the type of
21 damage exists, right; third-party lawsuits, the cost and
22 expenses incurred, damages from misrepresentations, which as
23 an aside, which I was going to get to which damage arising
24 from fraud or intentional misrepresentations are excluded
25 from the 18-month limit. So, theoretically, there is no

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1 limit whatsoever.
2 THE COURT: Okay.
3 MR. BERMAN: So all the types of damage, I think,
4 have already accrued. The amount is ever changing. So I
5 don't -- I think the answer to the Court's question is I
6 can't think of a different type of damage accruing --
7 occurring in the future that I'm then going to seek
8 indemnification for.
9 THE COURT: Okay. So, again, is there any reason
10 not to dismiss eight as duplicative of one?
11 MR. BERMAN: The only reason would be -- I mean, I
12 guess it can all be litigated in the context of count one,
13 except to the extent Mr. Wurtzel's client takes the position
14 which is we haven't breached the contract. We're not
15 obligated to indemnify until a judgment is entered against
16 us and then the right to indemnification arises. So that's
17 what I was trying to have off.
18 THE COURT: Okay, but meaning that would be his
19 defense to count one anyway. However, wherever you include
20 it, I just don't see the need for an extra cause of action.
21 MR. BERMAN: Okay.
22 THE COURT: So count eight is dismissed as
23 duplicative of one. But, again, Mr. Wurtzel, you understand
24 that they're seeking -- I apologize. I got the count wrong?
25 MR. BERMAN: It's seven, not eight.

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1 THE COURT: You are correct. It is -- one moment.
2 It's seven? You are correct. I apologize. Count seven,
3 indemnification is dismissed as duplicative; eight is the
4 one I was talking about earlier, the declaratory judgment
5 you don't oppose.
6 So seven -- but, Mr. Wurtzel, you do understand
7 that count one includes indemnification under the APA?
8 MR. WURTZEL: Yes, Your Honor.
9 THE COURT: Okay. All right. So count eight there
10 is no issue with, meaning the motion doesn't address
11 dismissing count eight, so it continues. And we get to
12 count nine and count ten.
13 So Mr. Berman, your clients are not seeking
14 rescission here?
16 THE COURT: So the way I read these counterclaims
17 is that they believe they're entitled to keep the
18 1.25 million and they also received in this case, I think
19 it's Wantickets, which they valued, I believe, at 12 million
20 at the time, and yet, they still believe there is a right to
21 void the Danco shares. How is that?
22 MR. BERMAN: So, Your Honor, it's an equitable
23 remedy. So how the Court ultimately implements the remedy I
24 guess would be in the Court's discretion. But I think
25 that's a different issue as to whether my clients are

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1 entitled to plead -- have pled a claim for voiding the
2 shares.
3 THE COURT: Give me a moment. I just want to take
4 a look at your opposition. Because you cite a case in the
5 opposition -- I don't have it at my fingertips. I think
6 it's a Delaware case where there was an absolute failure of
7 consideration, a complete and utter failure. That is not
8 the case here. Here, there was the exchange for
9 1.25 million and the exchange related to Wantickets.
10 In addition, the statute that I -- that is cited,
11 Delaware General Corporation Law § 152, I don't even think
12 by its terms applies here. Even if Delaware law did apply,
13 in response to the motion to dismiss, I just do not see a
14 viable claim in terms of voiding the shares here and,
15 therefore, again, because there was no absolute failure of
16 consideration here and the issue of the applicability of the
17 law even cited counts nine and ten, the declaratory
18 judgments relating to the voiding of the shares are
19 dismissed.
20 That brings us, finally, to Motion No. 005.
21 I've reviewed all of your papers. There is no
22 basis for advancement here. Not only do the issues in the
23 claim that is raised related to the employment agreement not
24 involve conduct as a director for fiduciary responsibilities
25 to a corporation, they didn't even involve conduct as an

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1 employee under the employment agreement.
2 The whole claim as it was ever alleged at all times
3 related to the APA. It was an effort to basically backdoor
4 the APA into another cause of action guised under the
5 employment agreement. On that basis, there is absolutely no
6 basis here legally for advancement and Motion Sequence No.
7 005 is denied. So -- the motion for advancement.
8 Let's talk now about where we're going. I'm seeing
9 you again soon?
10 MR. WURTZEL: Yes, Your Honor. If Your Honor
11 doesn't -- I understand Your Honor has ruled, but I would
12 like to raise one thing regarding the covenant claim that
13 was dismissed by the Court, if that's okay?
14 THE COURT: Sure.
15 MR. WURTZEL: So in our opposition, this is Docket
16 No. 145 on page 15. So this is our opposition to the
17 defendant's motion -- partial motion to dismiss.
18 THE COURT: Okay.
19 MR. WURTZEL: So page 15, footnote two. We made a
20 point -- I take the Court's ruling that this is -- that the
21 contract governs --
22 THE COURT: Yes.
23 MR. WURTZEL: -- in this instance. The issue that
24 I have, I just wanted to raise is that under the contract it
25 says that if Mr. Schnaier is terminated without cause, he's

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1 entitled to his pro rata portion of the performance bonus,
2 right? Now, the performance bonus is only -- the reason we
3 didn't, you know, state that it was a breach of contract is
4 because there was no performance bonus that was ever earned
5 for anybody, right, so he couldn't get a pro rata share of
6 nothing because they never hit the sales milestones, right?
7 It was three million in the first year, four million in the
8 second year.
9 Now, with this footnote -- what we're trying to say
10 in this footnote was that to the extent the Court dismisses
11 the rest of the covenant claim, we actually can't rely on
12 the contract to get his pro rata share of the performance
13 bonus because there was no performance bonus. So what we
14 were saying here is that his right to the performance -- his
15 pro rata share of the performance bonus, which is probably
16 only a month or two months work, but his right to that
17 portion of the performance bonus turns on whether -- had he
18 not been wrongfully terminated without cause -- sorry.
19 Had he not been terminated without cause at all, whether the
20 company would have met those sales thresholds and thus
21 entitled him to that pro rata portion. And because they --
22 we allege that the defendants dismantled the company to,
23 among other things, prevent him from ever reaching those
24 sales threshold, I think that does state a covenant claim.
25 And I'm distinguishing it from what the Court has dismissed

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1 because if we rely on the contract, there is not actually
2 anything to get. It's not actually a breach. It's not like
3 there was a performance bonus that was paid and they didn't
4 give a damn. There was no performance bonus and the reason
5 there was no performance bonus we allege is because they
6 dismantled the company and that's actually separate from
7 anything related to his, you know, to whether he was
8 terminated for cause or what rights the company had to
9 terminate him. They certainly didn't have the right to
10 dismantle or it would violate the covenant of good faith and
11 fair dealing for them to try to defeat his right to this pro
12 rata portion by dismantling the company.
13 So if the Court -- I wanted to raise that.
14 THE COURT: I understand. I still don't think
15 dismantling the company gives any rights under the
16 employment agreement, whether it is explicit or implied in
17 terms of any damages under the -- under an implied covenant.
18 You know, in addition, how would we ever know how
19 the company would have done? How is it not completely
20 speculative what would have happened?
21 MR. WURTZEL: Well, look. That's an issue of
22 proof, right? And that's our problem down the road, but
23 that's not a motion to dismiss issue. We're saying that he
24 had a right to get a bonus if the company did really well,
25 right? And we're saying that they prevented him from --

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1 they prevented the company from doing really well such that
2 he could get his bonus by dismantling the company, and I
3 think there are cases -- I believe cases that we've cited
4 that those are the fact patterns of a covenant claim where
5 you're entitled to work for a company and get a bonus if the
6 company does well and the owner of the company prevents you
7 from getting to that point.
8 THE COURT: Did you have any cases that read an
9 implied covenant into an employment contract in this type of
10 context?
11 MR. WURTZEL: I mean, we had cases reading -- in
12 this particular context, I don't believe so.
13 THE COURT: Or in the context that there are so
14 many cases where there is the sale of a business and a
15 corresponding employment agreement where the business failed
16 and there is ensuing litigation and I haven't yet to see a
17 case where such implied covenant is read into the agreement.
18 I don't know how it could ever be proven.
19 And, in addition, again, the dismantling of
20 Wantickets is the basis of a completely different claim. I
21 just don't see how you read it into the employment
22 agreement, again, as an implied covenant, resulting in
23 bonus-related damages to Mr. Schnaier. It's too much of a
24 stretch, Mr. Wurtzel.
25 MR. WURTZEL: I understand.

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1 THE COURT: Okay. So, again, let's turn now to
2 where we go from here. I'm seeing you again when, in March?
3 MR. WURTZEL: I think March 7th or 6th.
4 THE COURT: Okay. I, again, urge you to speak to
5 your clients. Because you've spent a lot of time on these
6 motions. And, again, I really do suspect that you are not
7 surprised when you walk out of here with how they all turned
8 out. The question becomes do your clients want to continue
9 in this route which is expensive motion practices and, you
10 know, a long road ahead or do they want to think about.
11 They're already -- they're not working together anymore, do
12 they want an end and closure.
13 Have you thought about mediation here?
14 MR. BERMAN: So, Your Honor, candidly, I can say my
15 client at the moment is not in a mind of trying to get this
16 resolved quickly and part of the reason for that is there
17 are shares that were sold as a result of prior motion
18 practice and they --
19 THE COURT: I remember.
20 MR. BERMAN: -- and they make money. It's like
21 when you get -- I don't -- Mr. Wurtzel and I in the past
22 have had conversations, we talked about going to mediation.
23 The number that's being demanded is -- in my client's view,
24 doesn't take into consideration the fact that he has
25 profited from the sale of shares that if it had been up to

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1 us never would have --
2 THE COURT: Okay, so he got the shares now, meaning
3 we've he's made progress in the case. Has his view of
4 things changed at all?
5 MR. WURTZEL: So, you know, just as a threshold
6 issue, I don't actually think that WantMCS profited on the
7 shares. It wasn't a one and a quarter million dollar loss,
8 but I don't think the ultimate sales reached that amount. I
9 could be wrong, but I think there was some loss in the
10 neighborhood of the low six figures.
11 Regarding the Danco shares, and that is the subject
12 of our summary judgment motion and also the attachment
13 motion that we have made that the Court will hear next
14 month, I think those shares based on, I think -- those
15 shares based on the current value of the company will be
16 worth somewhere in the neighborhood of between two and three
17 million and those were supposed to be given in exchange for
18 assets valued at 12 million. So certainly reduced fees and
19 even with the covenant claim being dismissed, you know, we
20 do see significant value in this case because if they value
21 the assets at 12 million, let's just say they're right and,
22 you know, it wasn't really 12 million and if it wasn't what
23 it was represented and, you know, maybe it's in the high
24 seven figures rather than into the eight figures, well, the
25 stock that we get, assuming that we get the stock and

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1 assuming that the stock can be sold for a reasonable price,
2 we're still looking at, you know, well into the mid-to-high
3 seven figures in damages. And as the Court may know from
4 reading the briefing, I think 55 percent -- our shares --
5 Danco shares come due the beginning of May. I think
6 55 percent of the rest of the shares of the company come due
7 in accordance with separate lock-up agreements in June.
8 So it's hard, you know, there is a real shock --
9 and the company has disclosed this in its filings. There is
10 a real shock that people start to sell there is going to be
11 a massive sell-off. I mean, 55 percent of a public company
12 is pretty significant.
13 In terms of -- to get back to Your Honor's
14 question. In terms of where my client is, I think I would
15 certainly advise my client that -- I would never not advise
16 -- I would never advise my client not to have settlement
17 discussions if I thought it could be productive. At the
18 beginning I think we had very preliminary discussions. We
19 saw that it wasn't going to be productive. You know, I
20 think now that the Court has dismissed most of the
21 counterclaims, it also dismissed some of the, you know, some
22 of our affirmative claims that --
23 THE COURT: But to be clear, again, the
24 counterclaims that I dismissed today, many of them were
25 because they duplicate viable claims. So there never was a

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1 situation where anyone was going to walk out today with a
2 real significant victory.
3 MR. WURTZEL: Right. So, my point, actually, was
4 now that the case has been narrowed in some respects and is
5 a little bit more focused, you know, if the other side is
6 still interested, I would certainly advise the client that
7 if we -- you know, if we can have productive discussions
8 through a mediator, you know, I don't see how that would
9 ever hurt.
10 MR. BERMAN: So, Your Honor, I think I've said this
11 before. I think every business should settle. So I'm
12 certainly going to encourage my clients to do so. I know he
13 doesn't like paying me. The only other alternative is to
14 settle.
15 THE COURT: That's the route this is going. The
16 cost are just going to increase and increase. I see the
17 volume now. So, really maybe he can have an open mind in
18 terms of what's going to happen with the shares and that can
19 be taken into consideration in terms of working something
20 out, but really think about it. You have a month before you
21 see me again. So let's see what we can do.
22 All right. So, again, when you speak to your
23 clients after you leave, something to think about is we
24 talked today about the indemnification and the fact that at
25 this point the claims probably have crystallized with all

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1 the passage of time. Maybe it is time to start thinking
2 about the valuation and the reality of what the exposure
3 potentially is so that there can be a meaningful, targeted
4 discussion.
5 So if between now and when I see you again in
6 March, you can really focus on what the value of the
7 indemnification is it would help to have a more educated
8 discussion for you and for me in terms of potential
9 settlement. All right? Have a very good month.
10 MR. WURTZEL: Your Honor, would you like us to
11 order a copy of the transcript?
12 THE COURT: Yes. In accordance with my rules,
13 45 days, and you'll split it because you both have the
14 motions, so, yes. 45 days. Please e-file the transcript.
15 Thank you.
16
17
18 * * * *
19 C E R T I F I C A T E
20
21 Whereupon, the foregoing proceedings is certified to be a true

and accurate recording of the stenographic minutes taken within.
22
23
Janelle C. London, RPR, CRR
24 Senior Court Reporter
25
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Hearing Before HONORABLE JENNIFER SCHECTER

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FILED: NEW YORK COUNTY CLERK 07/16/2021

1 SUPREME COURT OF THE STATE OF NEW YORK

2 COUNTY OF NEW YORK : CIVIL TERM : PART 54

8 LIVEXLIVE MEDIA, INC., f/k/a LOTON CORP.,

16 HONORABLE JENNIFER SCHECTER, Supreme Court Justice

18 For the Plaintiffs

21 For the Defendants

2 THE COURT: All right. So, I have three motions in

3 front of me today, and it would make sense to do them -- to

4 take care of them sequentially. So I'll start with one in a

5 moment, but I just want to share with you a general

6 observation that I have.

7 I suspect, and it's not just because you have a

8 conference call dealing with many of these issues with

9 Mr. Rand that's discussed in the papers, but I suspect based

10 on your sophistication and my dealings with you in the past,

11 that you have a good sense of what the outcomes of what

12 these motions are. And, I also suspect that this case is

13 being overly litigated because that is what your clients

14 think they want.

15 I am here for you to address all the motions that

16 you'll ever bring in this case, but I really want you to

17 speak to your clients and urge them to think about if this

19 result is going to be the same. Everybody knows when you

20 walk out of here today, there is going to be a viable

21 complaint and there is going to be a viable counterclaim.

22 How quickly your clients resolve this is in their hands, but

23 this is spending a fortune probably to walk out in the same

2 001, and this is defendant's motion to dismiss parts of the

3 complaint. And, actually, you whittled down what's really

4 at issue here. So I think we're left with the point of the

5 viability of a defamation claim and an implied covenant of

6 good faith and fair dealing claim, which we'll be talking

7 about a lot of today. And then there is the issue of

8 striking certain matters from the complaint.

9 All right. Who -- Mr. Berman, are you arguing?

10 MR. BERMAN: I am. And, Your Honor, based on the

11 Court's comments, I suspect the Court's familiar with the

13 record if the Court doesn't have any specific --

14 THE COURT: I'm sorry I pointed to you because I

15 really don't have questions for you on this claim. And, in

16 fact, this motion was fairly easy for me to resolve.

17 In terms of the implied good faith and fair

18 dealing, I really didn't find there is a viable claim here

19 based on the alleged improper purported termination of

20 Schnaier for cause, which actually -- allegedly, according

21 to Schnaier, constituted a bad faith termination without

22 cause because defendants allegedly malevolently terminated

23 him and dismantled Wantickets' business that LiveXLive

24 Tickets bought, and either of these allegations are alleged

25 to support a claim based on the breach of the implied

2 damages to Schnaier being -- related to being unable to

3 collect the performance bonus that he otherwise allegedly

4 would have been entitled to. And nothing alleged in that

5 cause of action supports a breach of the implied covenant

6 under the circumstances pleaded. That cause of action is

8 The agreement specifically allows for termination

9 without cause explicitly which contemplates a termination

10 for any reason the employer chooses so long as it's not a

11 legal or exercise in bad faith and nothing pleaded here

12 supports a claim for any legally recognized improper

13 termination without cause based on implied covenant.

14 To the extent that Schnaier seeks damages for an