Dixie v Scheer 2025 NY Slip Op 30167(U) January 11, 2025 Supreme Court, New York County Docket Number: Index No. 654690/2022 Judge: Andrea Masley is a primer on how one corporate entity can take over another. Candidly, the level of detail is greater than can be summarized in this blog. Here are some of the details.
“Plaintiff Dino Dixie brings this action individually and derivatively on behalf of New Amsterdam Distributors, LLC (NAO) and Terriodiol Ohio LLC (TO). Dixie alleges that he was a founding member of NAO, which through NYCI Holding, LLC (NYCI) ,m 2, 20, 28.) NAO is the sole shareholder of NYCI. (Id. ,i 28.) Dixie’s ownership interest in NAO is 13%. (Id. ,i 2.) In May 2015, NAO and nonparty EPMMNY, LLC discussed the formation of a partnership to jointly pursue a medical cannabis license.2 (Id. ,i 9.) NAO retained defendants Sheer and BSK to provide legal services, including the formation of NYCANNA for the purpose of pursuing the license. (Id. ,i 10.) Upon NYCANNA’s formation, Scheer and BSK “simultaneously became attorneys for NAO, NYCI, and NYCANNA.” (Id.)
On November 20, 2016, Scheer sent NAD’s principals notice that NYCANNA was merging with nonparty NY Medicinal Research and Caring, LLC (NYMRC) to assist with financing. (Id. ,i 13.) NYMRC was owned by nonparty High Street Capital Partners (High Street). (Id.) High Street is Acreage’s predecessor.3 This merger allegedly diluted Dixie’s equity interest as it substantially divested NAD’s members of their ownership interests. (Id. ,i 14.) Specifically, Dixie alleges that Scheer and BSK conspired with the incoming investors, including NYMRC, NYCI, and Acreage, to divest NAO of its interest in NYCANNA. (Id.)
In May 2017, the New York State Department of Health awarded a medical marijuana license to NY CAN NA. (Id. ,i 16.) Thereafter, Scheer introduced Dixie to Dai no, who had an existing relationship with Scheer. (Id. ,i 17.) At Scheer’s recommendation, Daina became a member and manager of NAO despite not having experience in the industry. (Id.) Dixie alleges he was sidelined as Scheer and Dai no essentially took over NAO. (Id. ,i 19.)
“In May 2018, NYCI sold its fifty percent interest in NYCANNA to High Street.” (Id. ,i 20.) Dixie alleges that Scheer structured the transaction so that High Street/Acreage acquired all of NYCANNA’s equity. (Id.) NAD’s officers, including Dixie were removed as NYCANNA’s management, leaving it a mere shell company. (Id.) This transaction came about after Daina met with representatives from High Street. After this meeting, Daina informed Dixie “that there was going to be a $2 million cash call, and that if he did not meet the call by investing the necessary cash, his percentage ownership in NYCANNA would be reduced.” (Id. ,i 22.) Daina then presented an alternative to the cash call – selling NYCANNA to High Street/Acreage Holdings. (Id. ,i 23.) “Daina said that the transaction needed to be approved by the NYCANNA shareholders within 8 hours” and represented that the value of the “transaction would be approximately $40 million based on the stock valuation.” (Id.) The consideration for the sale of NYCl’s interest in NYCANNA to High Street/Acreage was cash and stock in Acreage. (Id. ,i 20 [NYCI sold its in interest “in exchange for cash and class D units of High Street”].)
Dixie alleges that Scheer violated his fiduciary duty to the NAO members by falsely advising that the transaction was favorable to NYCANNA, NYCI and NAO, and immediate approval was necessary, depriving them “of the opportunity to conduct a proper due diligence investigation of the proposed transaction.” (Id. ,I 25.) Dixie and the other NAO members approved the transaction based upon Daina and Scheer’s representations. (Id.) On September 25, 2018, High Street/Acreage announced it would go public in Canada by performing a reverse takeover of a publicly traded entity, nonparty Applied Inventions Management Corp. (Id. ,I 27.) “As a part of the transaction, a 6-month lockup period governed High Street/Acreage shares.” (Id.) On November 15, 2018, High Street/Acreage went public, starting the lockup period. (Id. ,I 28.) The lockup period had three phases, “ending on May 15, 2019, as follows: (a) First 2 months (until January 15, 2019): all Acreage shares were to be locked up; (b) Next 2 months ( January 15, 2019 to March 14, 2019): 5% of Acreage shares could be transferred; and (c) Next 2 months (March 15, 2019 to May 14, 2019): Another 15% of Acreage shares could be transferred.” (Id. ,I 34.) Scheer estimated Acreage’s stock “would be worth about $24 per share during the course of this redemption period.” (Id. ,I 35.) However, right before the first tranche of stock was eligible for release, Scheer informed the NAO members that their shares were not going to be released, blaming such on the failure by some NAO members to sign additional necessary paperwork. (Id. ,I 36.) Those members signed the additional documents but delays still occurred. (Id. ,I,I 37-38.) On March 25, 2019, NYCl’s board of managers held a special meeting to authorize the transfer of 20% of Acreage’s shares from NYCI to NAO. (Id. ,I 39.) They also “authorized the transfer of all Acreage shares due to Daina (through an entity) from NYCI to the entity’s name.” (Id.) After further delay, on April 16, 2019, Scheer emailed Acreage, seeking transfer of the Acreage shares to the NAO members. (Id. ,I 39.) Acreage responded that “more than a letter was needed before a transfer of shares could be approved.” (Id. ,I 43.) On April 25, 2019, Scheer sent an email to NYCl’s board of managers “stating that the initial NYCI authorization to transfer shares did not meet Acreage’s requirements, and that that the NYCI Board of Directors needed to specifically approve the distribution directly from NYCI to the NAO members.” (Id. ,I 44.) Dixie alleges further delay in the transfer, which caused him to miss the opportunity to sell his shares during an Acreage stock rally in April 2019. (Id. ,I,I 45-48.) The stock reached a high of $24.13 per share, but it was not until September 2019 that Dixie received 50% of his shares; the stock value at that point was around $2 a share. (Id. ,I,I 48, 50.) “Only in March 2022 did Dixie receive the balance of his stock transfer at barely over penny stock value.” (Id. ,I 55.)”
“Breach of Fiduciary Duty
Dixie alleges that Scheer and BSK owed a fiduciary duty to Dixie and NAD’s other members and breached that duty by (1) “failing to diligently pursue the necessary process for transferring Acreage shares from NYCI to Dixie and other individual members of NAO once the NYCI Board of Managers authorized it” and (2) giving Acreage stock into their own individual names.” (NYSCEF 1, Complaint “erroneous tax advice regarding the purported tax consequences of transferring the ,m 65-66.) Scheer and BSK assert that this cause of action is time barred as any claim in connection with the alleged delay in the transfer of Acreage stock accrued on May 15, 2019. There is a dispute whether the three- or six-year statute of limitations applies. “New York law does not provide a single statute of limitations for breach of fiduciary duty claims. Rather, the choice of the applicable limitations period depends on the substantive remedy that the plaintiff seeks. Where the remedy sought is purely monetary in nature, courts construe the suit as alleging “injury to property” within the meaning of CPLR 214 (4), which has a three-year limitations period. Where, however, the relief sought is equitable in nature, the six-year limitations period of CPLR 213 (1) applies. Moreover, where an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213 (8).” (IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 139 [2009] [ citations omitted].)
Dixie asserts that the six-year limitations period applies, because his claim for unjust enrichment is equitable. However, the only relief sought in the complaint is monetary. (See NYSCEF 1, Complaint at 23.) Dixie argues that he will be seeking disgorgement of profits and legal fees as the result of the breach, but he has not amended his complaint to include such relief. A three-year statute of limitations applies where a plaintiff “seeks purely monetary relief, not equitable relief for which an award of monetary damages would not be adequate.” (VA Mgt., LP v Estate of Valvani, 192 AD3d 615, 615 [1st Dept 2021 ]. ) Where a plaintiff uses “the term ‘disgorgement’ instead of other equally applicable terms such as repayment, recoupment, refund, or reimbursement,” it “should not be permitted to distort the nature of the claim so as to expand the applicable limitations period from three years to six.” (Access Point Med., LLC v Mandell, 106 AD3d 40, 44 [1st Dept 2013]; see also VA Mgt., LP, 192 AD3d at 615 [stating that “[p]laintiff’s characterization of that relief as ‘disgorgement’ of [defendant’s] compensation does not convert it into a claim for equitable relief to which the six-year statute of limitations would apply” (citations omitted)].) Also unavailing is Dixie’s assertion that the breach of fiduciary claim is rooted in fraud. The breach of fiduciary duty claim is based on two alleged actions – “failing to diligently pursue the necessary process for transferring the Acreage shares” and giving “erroneous tax advice.” (NYSCEF 1, Complaint ,m 65-66.) Although Dixie argues in his opposition brief that Scheer and BSK induced Dixie to authorize and sign off on the mergers without informing him of the terms or conditions of such, that conduct is not alleged in connection with the breach of fiduciary duty claim. The conduct that is alleged involves “allegedly impaired professional judgment;” this claim as plead is not essentially a fraud claim. (See Access Point Med., LLC, 106 AD3d at 44 [citation omitted].) Nevertheless, despite alleging a separate cause of action for fraud, the complaint is devoid of any allegation that Dixie “justifiably relied on any misrepresentation.” (VA Mgt., LP, 192 AD3d at 616 [citation omitted] [declining to apply the six-year limitations period where plaintiff failed to allege justifiable reliance]; see also Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 421 [1996] [stating elements of fraud cause of action are “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” (citations omitted)].) Thus, the three-year statute of limitations applies.”
