Court Grants Motion to Dismiss Based On Documentary Evidence

In a Decision and Order on Motion, dated April 4, 2023, in Directional Capital LLC v. Butterfly Equity L.P., Index No. 653741/2022, Justice Andrea Masley granted defendant’s motion to dismiss based on documentary evidence. Plaintiff alleged that defendant violated a non-circumvention provision in the parties’ agreement, claiming it introduced defendant to Qdoba, which defendant subsequently announced it was buying. The Court explained:

Directional alleges that it "introduced Butterfly to Qdoba with respect to the Transaction," and "provided Butterfly with Directional's Qdoba Management Presentation, which contained an overview of Qdoba's business, finances, property, and potential for new development." (NYSCEF 1, Complaint ¶¶ 3, 37.) However, the documentary evidence shows Butterfly's independent contemplation of the merger and its dealings with Qdoba, Qdoba's holding company, Quidditch Topco Inc. (Quidditch), and King Street, years prior to meeting Directional. On November 20, 2019, Butterfly entered into a confidentiality agreement with Quidditch to explore purchasing Qdoba. (NYSCEF 11,2019 Confidentiality Agreement; NYSCEF 13, February 19, 2022 Extension Agreement.) Indeed, King Street introduced Directional to Butterfly.

Accordingly, because plaintiff had not introduced Butterfly to the Qdoba transaction or its participants, a requirement of the applicable non-circumvention provision, the motion to dismiss was granted.

While it can be a high hurdle, this case demonstrates that, even at the pleading stage, where documentary evidence contradicts the pleadings, a court may dispose of the action even at an early stage.

The attorneys at Schlam Stone & Dolan frequently litigate disputes concerning non-circumvention agreements and what constitutes documentary evidence at the motion to dismiss stage. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.