Aspire v CM - UMG MTD reply brief (FINAL) 232797648 10 (2)

SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK

ASPIRE MUSIC GROUP, LLC, Index No. 652029/2017

Plaintiff, Hon. Barry R. Ostrager

- against -

CASH MONEY RECORDS, INC., BRYAN Motion Sequence No. 004"BABY"

WILLIAMS, RONALD "SLIM"

WILLIAMS, YOUNG MONEYENTERTAINMENT LLC, UMGRECORDINGS, INC., and REPUBLIC

RECORDS INC.,

Defendants.

REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF DEFENDANTUMG RECORDINGS, INC.'S MOTION TO DISMISS THE AMENDED COMPLAINT

June 20, 2018

SIDLEY AUSTIN LLP

John G. Hutchinson

Benjamin F. BurryRobert M. Garsson

787 Seventh Avenue

New York, New York 10019

Telephone: (212) 839-5300

Facsimile: (212) 839-5599

Rollin A. Ransom

555 West Fifth Street, Suite 4000

Los Angeles, California 90013

Telephone: (213) 896-6000

Facsimile: (213) 896-6600

FILED: NEW YORK COUNTY CLERK 06/20/2018 09:31 PM INDEX NO. 652029/2017

NYSCEF DOC. NO. 105 RECEIVED NYSCEF: 06/20/2018

1 of 21

TABLEOFCONTENTS

Page

PRELIMINARY STATEMENT .....................................................................................................1

ARGUMENT...................................................................................................................................2D~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I. LEGAL STANDARD..............................................................................................2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

A. Louisiana Law Governs the Alter Ego Analysis..........................................2

B. Alter Ego Liability is Disfavored and Motions to Dismiss are

Routinely Granted to Address the Threat that such Claims Pose to

the Corporate Form......................................................................................4

II. PLAINTIFF FAILS TO PLEAD A LEGALLY VIABLE THEORY OF

"ALTER EGO"LIABILITY AND THEREFORE ITS CLAIMS

AGAINST UNIVERSAL MUST BE DISMISSED................................................5

A. Plaintiff's Improper"Two-Step"

Veil-Piercing Theory is Not

Saved by Its Untimely, Revised Claim that Aspire Contracted with

the Non-Party JV..........................................................................................5

B. The Law Does Not Permit Aspire to Use Alter Ego Liability to

Evade the Limitations on Its Contract Rights in the Aspire/YME

Agreement....................................................................................................7

C. Aspire's Reliance on Limited Contract Rights Held by a Third-

Party that has Never Been an Owner, Officer, or Director of Cash

Money Fails to Satisfy as a Matter of Law the Domination

Required for Alter Ego Liability..................................................................9

D. Aspire Fails to Plead the Kind of Fraud or Malfeasance Necessaryto Hold Universal Liable as an Alter Ego..................................................14

CONCLUSION..............................................................................................................................16

..11



2 of 21

TABLE OF AUTHORITIES

Page(s)

Cases

A.V.E.L.A., Inc. v. Estate of Marilyn Monroe, LLC,

131 F. Supp. 3d 196 (S.D.N.Y. 2015)........................................................................................3

Andejo Corp. v. S. St. Seaport Ltd. P'ship,

40 A.D.3d 407 (1st Dep't 2007)................................................................................................4................................................................................................

Andretti Sports Mktg. Louisiana, LLC v. Nola Motorsports Host Comm., Inc.,

147 F. Supp. 3d 537 (E.D. La. 2015).......................................................................................11.......................................................................................11

Aymond v. Citizens Progressive Bank,

50,825 (La. App. 2 Cir. 9/16/16), 206 So. 3d 330.....................................................................6.....................................................................

Bd. of Managers of 325 Fifth Ave. Condo. v. Cont'l Residential Holdings LLC,

149 A.D.3d 472 (1st Dep't 2017)..............................................................................................5..............................................................................................5

Brackley & Voelkel Const., Inc. v. 3421 Causeway, Ltd.,

98-134 (La. App. 5 Cir. 5/27/98), 712 So. 2d 716.....................................................................6.....................................................................

Brown v. Benton Creosoting Co.,

147 So. 2d 89 (La. Ct. App. 1962).....................................................................................10, 11

Camp Dresser & McKee Inc. v. Benetech, LLC,

2011 WL 1100499 (E.D. La. Mar. 22, 2011) ..........................................................................14 I

Cornwall Mgmt. Ltd. v. Kambolin,

140 A.D.3d 507 (1st Dep't 2016)............................................................................................14............................................................................................

Cornwall Mgmt. Ltd v. Kambolin,

2015 WL 2090371 (N.Y. Sup. Ct. Apr. 29, 2015) (Singh, J.)...........................................12,...........................................12, 13

Deutsche Bank, AG v. Vik,

142 A.D.3d 829 (1st Dep't 2016)..............................................................................................3..............................................................................................3

E. Concrete Materials, Inc. v. DeRosa Tennis Contractors, Inc.,

139 A.D.3d 510 (1st Dep't 2016)............................................................................................11............................................................................................11

E. Hampton Union Free Sch. Dist. v. Sandpebble Builders, Inc.,

16 N.Y.3d~ ~ 775 (2011)..............................................................................................................14~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

E. Hampton Union Free Sch. Dist. v. Sandpebble Builders, Inc.,

66 A.D.3d 122 (2d Dep't 2009), aff'd, 16 N.Y.3d 775 (2011)..................................................5..................................................5

...111



3 of 21

................................................................................................

............................................................................................1

.......................................................................

Ferro Fabricators, Inc. v. 1807-1811 Park Ave. Dev. Corp.,

127 A.D.3d 479 (1st Dep't 2015)..............................................................................................4..............................................................................................

Fletcher v. Atex, Inc.,

68 F.3d 1451 (2d Cir. 1995).......................................................................................................2

Harrogate House Ltd. v. Jovine,

2 A.D.3d 108 (1st Dep't 2003)..................................................................................................4..................................................................................................

Helmsley v. Cohen,

56 A.D.2d 519 (1st Dep't 1977)................................................................................................6

Herzog v. Town of Thompson,

216 A.D. 2d 801 (3d Dep't 1995)............................................................................................15

Joyner v. Liprie,

44,852 (La. App. 2 Cir. 1/29/10), 33 So. 3d 242.......................................................................6

Korea Commercial Bank of New York v. Ianos,

236 A.D.2d 249 (1st Dep't 1997)............................................................................................12............................................................................................1

Lantau Holdings, Ltd. v. Orient Equal Intern. Grp.,

2017 N.Y. Slip Op. 30464(U), 2017 WL 914636

(N.Y. Sup. Ct. Mar. 8, 2017) (Singh, J.)..................................................................................14

Lore v. New York Racing Ass'n. Inc.,

819 N.Y.S.2d 210 (N.Y. Sup. Ct. 2006)....................................................................................3....................................................................................3

Nat'l Gear & Piston, Inc. v. Cummins Power Sys., LLC,

975 F. Supp. 2d 392 (S.D.N.Y. 2013)........................................................................................3

New Orleans Jazz & Heritage Found., Inc. v. Kirksey,

2009-1433 (La. App. 4 Cir. 5/26/10), 40 So. 3d 394.................................................................4.................................................................

Nussli US, LLC v. Nola Motorsports Host Comm., Inc.,

2016 WL 4063823 (E.D. La. July 29, 2016) ...........................................................................11

Ragto, Inc. v. Schneiderman,

69 A.D.2d 815 (2d Dep't 1979)...............................................................................................15...............................................................................................15

Serio v. Ardra Ins. Co.,

304 A.D.2d 362 (1st Dep't 2003)..............................................................................................3..............................................................................................3

Skanska USA Bldg. Inc. v. Atl. Yards B2 Owner, LLC,

146 A.D.3d 1 (1st Dep't 2016), aff'd, 31 N.Y.3d 1002 (2018)...........................................4,...........................................4, 15

Taberna Preferred Funding II, Ltd. v. Advance Realty Grp. LLC,

5 N.Y.S.3d 330, 2014 WL 4974959 (N.Y. Sup. Ct. 2014)........................................................3.1V



4 of 21

.................................................................................................

Time Equities, Inc. v. Naeringsbygg 1 Norge III AS,

50 Misc. 3d 1221(A), 2016 WL 730411 (N.Y. Sup. Ct. 2016) .................................................4

TNS Holdings, Inc. v. MKI Sec. Corp.,

92 N.Y.2d~ ~ 335 (1998)................................................................................................................4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Trans Int'l Corp. v. Clear View Techs., Ltd.,,I.td..,

278 A.D.2d 1 (1st Dep't 2000) ................................................................................................12

Triemer v. Bobsan Corp.,

70 F. Supp. 21 375 (S.D.N.Y. 1999)..........................................................................................5

Withers v. Timber Products, Inc.,

574 So. 21 1291 (La. App. 3d Cir. 1991) ..........................................................................10, 11

Young Money Entm't LLC v. Cash Money Records, Inc.,

15-5166, Div. A-15 (La. Civ. Dist. Ct., Orleans Parish) ...........................................................3

Statutes

LA. CODE CIV. PROC. ANN. art. 737.................................................................................................6

LA. CODE CIV. PROC. ANN. art. 2817...............................................................................................6...............................................................................................

Other Authorities

S ed. ..............................................................1Ownership, BLACK LAW DICTIONARY (10th 2014)

V



5 of 21

PRELIMINARY STATEMENT

Faced with dismissal, Aspire uses its opposition brief(" Opposition"

or "Opp.") to once

again revise its story. (See Br. 1-2 (recounting Aspire s shifting theory of liability in its first

three complaints).) Remarkably, Aspire claims that only now, a year and a half after filing its

first complaint and nine years after entering into the Agreement, it has learned that its contract

partner was never YME, but instead, a joint venture (the "JointVenture"

or "JV") comprised of

Dwayne Carter a/k/a "LilWayne"

and Cash Money. (Opp. 13.) Aspire's attempt to amend its

pleading through its Opposition is both improper and legally irrelevant, as there are multiple

legal grounds compelling the dismissal of Aspire's claims against Universal.

First, Aspire improperly attempts to use "alterego"

claims to evade the limits of its own

contract rights with the JV. Aspire expressly agreed that the JV and Cash Money would

separately contract with Universal for distribution of Drake's albums, and the Agreement put no

contractual limitations on what the JV or Cash Money could agree to in that regard. The law

does not allow Aspire to use alter ego liability to give itself contract rights that it previously

agreed and expressly understood it would not have.

Separately, Aspire s effort to extend alter ego liability outside of the shareholder/director

context violates both Louisiana and New York law, and its invocation of "equitableownership"

has no application here. To allege completedomination"

over Cash Money, Aspire merely

claims that Cash Money's financial mismanagement propelled Universal and Cash Money to

' Capitalized terms not defined herein have the meanings in Universal's opening brief ("Br."), and "Ex. A" refers tothe Aspire/YME Agreement attached to the Affidavit of John G. Hutchinson. (See NYSCEF Nos. 61, 62.)~ Aspire has the temerity to tell this Court that "the distinction between the two entities... was not clear to Aspireuntil Young Money's [May 22, 2018] Answer to the Amended Complaint" in which YME clarified that it is aDelaware LLC, and not itself a joint venture. (Opp. 13-14 n.9.) But YME stated exactly the same thing in its firstanswer filed a year ago on June 27, 2017. (NYSCEF No. 29 tt 13 (answering that YME "is a limited liabilitycompany organized and existing under the laws of Delaware" and "this answering defendant YME is a joint venturerwith Cash Money"

).) For clarity, this Reply Brief treats "the JV" as Aspire's counterparty in the Agreement.



6 of 21

enter into amended contracts providing for Universal to take greater responsibility in producing

and marketing albums by one JV artist (Drake) to ensure they were brought to market, and Cash

Money paid Universal a higher distribution fee in exchange. Aspire's attempt to turn sensible

arm's length commercial contracts between sophisticated parties into a basis to impose alter ego

liability is legally impermissible under both Louisiana or New York law.

Likewise, Aspire has failed to allege any fraud or misconduct by Universal against

Aspire, although such allegations are the sine qua non of alter ego liability. Indeed, Aspire

cannot even allege that Cash Money's agreements with Universal breached any obligation that

Cash Money or the JV owed to Aspire, let alone constituted the kind of fraud required to impose

alter ego liability. For all of these reasons, Aspire's claims against Universal must be dismissed.

ARGUMENT

L LEGAL STANDARD

A. Louisiana Law Governs the Alter Ego Analysis.

Louisiana law governs Aspire's alter ego claim against Universal. Under New York

choice of law principles, the general rule is that "[t]he law of the state of incorporation

determines when the corporate form will be disregarded and liability will be imposed on

shareholders."Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995). Here, Cash Money is

incorporated in Louisiana (AC ¶ 18), so Louisiana law presumptively governs Aspire's claim

seeking to pierce Cash Money's corporate veil. Louisiana's interest is significant because

Aspire's misguided theory would, first, impose individual liability on the partners of a Louisiana

joint venture, and then cast aside the corporate veil of a Louisiana corporation to impose liability

on a party that has never been an owner, officer, or director of that corporation, a result that is

roundly held to be contrary to Louisiana law. (See Part II.C, infra.)

Aspire fails to rebut the presumption that Louisiana law governs the alter ego analysis.



7 of 21

,819

(See Opp. 11 n.7.) The two cases that Aspire cites are inapposite, because both involved a

choice of law analysis between New York and a foreign country to which the corporation had no

discernible connection other than as a place of incorporation. See Serio v. Ardra Ins. Co., 304

A.D.2d 362 (1st Dep't 2003) (Bermuda); Deutsche Bank, AG v. Vik, 142 A.D.3d 829 (1st Dep't

2016) (Turks and Caicos). Here, Louisiana is not merely Cash Money's state of incorporation,

but the relationship between Lil Wayne and Cash Money is also centered in Louisiana. Aspire

ignores the fact that the JV agreements are governed by Louisiana law and provide that

Louisiana is the exclusive forum for resolution of disputes thereunder.3thereunder. Indeed, Lil Wayne and

Cash Money's recent dispute concerning the JV was adjudicated in a Louisiana state court,

applying Louisianalaw.4law. In all events, the overwhelming majority of New York courts simply

apply the law of the state of incorporation to alter ego claims. See, e.g., Nat'l Gear & Piston,

Inc. v. Cummins Power Sys., LLC, 975 F. Supp. 2d 392, 401 (S.D.N.Y. 2013) (applying the law

of the state of incorporation to alter ego claim, explaining that, under New York law, "choice-of-

law analysis is straightforward"); A.V.E.L.A., Inc. v. Estate of.of Marilyn Monroe, LLC, 131 F.

Supp. 3d 196, 218 (S.D.N.Y. 2015) (same). This is true even where the transaction bears a

significant relationship to New York. See Taberna Preferred Funding II, Ltd. v. Advance Realty

Grp. LLC, 5 N.Y.S.3d 330, 2014 WL 4974959, at *10, *15 (N.Y. Sup. Ct. 2014) (applying

Delaware law to alter ego claim because the entity in question was a Delaware LLC, even though

New York law governed plaintiff's related claims). Louisiana law must therefore govern the

outcome of Aspire's motion.

3 See accompanying Affirmation of Cynthia S. Arato and exhibits A and B attached thereto. The JV's governingdocuments are properly considered on Universal's motion to dismiss, as Aspire now attempts to allege alter ego

liability with respect to the JV and places in issue whether the JV is in fact governed by Louisiana or New York law.

See, e.g., Opp. 11 n.7; Lore v. New York Racing Ass'n. Inc., 819 N.Y.S.2d 210 (N.Y. Sup. Ct. 2006) ("In("assessing

the legal sufficiency of a claim, the Court may consider . . . documents that are integral to the plaintiff's claims, evenif not explicitly incorporated by reference.").4

Young Money Entm't LLC v. Cash Money Records, Inc., 15-5166,,15-5166, Div. A-15 (La. Civ. Dist. Ct., Orleans Parish).



8 of 21

B. Alter Ego Liability is Disfavored and Motions to Dismiss are RoutinelyGranted to Address the Threat that such Claims Pose to the Corporate

Form.

Under Louisiana law, alter ego liability is a "radical remedy only employed in

exceptionalcircumstances"

that can be imposed only against a corporation's directors and

shareholders. New Orleans Jazz & Heritage Found., Inc. v. Kirksey, 2009-1433 (La. App. 4 Cir.

5/26/10), 40 So. 3d 394, 407. New York law is in accord: piercing the corporate veil is an

"extraordinarymeasure,"

Harrogate House Ltd. v. Jovine, 2 A.D.3d 108, 108 (1st Dep't 2003),

that is "narrowlyconstrued"

under New York law, Skanska USA Bldg. Inc. v. Atl. Yards B2

Owner, LLC, 146 A.D.3d 1, 12 (1st Dep't 2016), aff'd, 31 N.Y.3d 1002 (2018), and "[t]hose

seeking to pierce a corporate veil of course bear a heavyburden."

TNS Holdings, Inc. v. MKI

Sec. Corp., 92 N.Y.2d 335, 339 (1998). Thus, to survive a motion to dismiss, plaintiff must

plead particularized facts setting forth a legal basis to establish alter ego liability. The First

Department has dismissed alter ego claims on a motion to dismiss where the plaintiff fails to

allege particularized facts that warrant piercing the corporate veil. See, e.g., Ferro Fabricators,

Inc. v. 1807-1811 Park Ave. Dev. Corp., 127 A.D.3d 479, 480 (1st Dep't 2015) (affirming

dismissal on motion to dismiss because plaintiff "fails to plead any particularized facts"); Andejo

Corp. v. S. St. Seaport Ltd. P'ship, 40 A.D.3d 407, 407 (1st Dep't 2007) plaintiffs("

failed to

allege particularized facts to warrant piercing the corporate veil.").

In its Opposition, ignoring Louisiana law and mistakenly arguing only New York law,

Plaintiff makes the surprising claim that "because alter ego requires a highly fact-specific

inquiry,"courts should

"disfavor[]"a motion to dismiss an alter ego claim. Plaintiff fails to cite

a single case referring to dismissal of alter ego claims as disfavored, and for good reason - in

reality, it is the alter ego remedy itselfthat is"disfavored."

See Time Equities, Inc. v.

Naeringsbygg 1 Norge III AS, 50 Misc. 3d 1221(A), 2016 WL 730411, at *3-5 (N.Y. Sup. Ct.



9 of 21

burden"

2016) ("New("

York law disfavors disregard of the corporateform,"

and those seeking this remedy

bear a "heavy burden"); Triemer v. Bobsan Corp., 70 F. Supp. 2d 375, 377 (S.D.N.Y. 1999)

("("Disregard of the corporate form is highly disfavored under New York law.").

For this reason, when Plaintiff argues alter ego is "a highly fact-specificinquiry"

it

actually reinforces the propriety of dismissal here. (Opp. 10, citing 9 E. 38th St. Assocs., L.P. v.

George Feher Assocs., Inc., 226 A.D.2d 167, 168 (1st Dep't 1996) (to plead veil-piercing a claim

must be "sufficiently particularized").)particularized"

Fact-specific inquiry can occur only if plaintiff pleads

particularized facts setting forth alter ego liability. Where, as here, plaintiff fails to do so and

what it pleads demonstrates the legal insufficiency of its claims, courts do not hesitate to dismiss

alter ego claims. See Bd. of Managers of 325 Fifth Ave. Condo. v. Cont'l Residential Holdings

LLC, 149 A.D.3d 472, 475 (1st Dep't 2017)("Plaintiffs'

contention that it was improper to

dismiss their alter ego claims without giving them an opportunity to conduct discovery is

unavailing."); E. Hampton Union Free Sch. Dist. v. Sandpebble Builders, Inc., 66 A.D.3d 122,

128-29 (2d Dep't 2009), aff'd, 16 N.Y.3d 775 (2011) (veil-piercing claims are decided on a

motion to dismiss because "[t]he policy inherent in allowing individuals to conduct business in

the corporate form so as to shield themselves from personal liability would be seriously

threatened were we to allow an insufficient cause of action to survive").

II. PLAINTIFF FAILS TO PLEAD A LEGALLY VIABLE THEORY OF "ALTEREGO" LIABILITY AND THEREFORE ITS CLAIMS AGAINST UNIVERSAL

MUST BE DISMISSED.

A. Plaintiff's Improper "Two-Step"Veil-Piercing Theory is Not Saved by Its

Untimely, Revised Claim that Aspire Contracted with the Non-Party JV.

In its Amended Complaint, Aspire focuses on Cash Money and never alleges that

Universal is the alter ego of YME, the Delaware LLC that Aspire alleges is the counterparty to

the Agreement. (AC ¶¶ 32, 73.) This is a separate and independent ground to dismiss Aspire's



10 of 21

claim because New York and Delaware law do not permit Aspire to pierce YME's corporate veil

simply by alleging Cash Money is "managingpartner"

of YME. (See Br. 11-12.)

Even if the Court permits Aspire's shifting argument that the JV, not YME, is its real

counterparty, Aspire alleges only that Universal is the alter ego of yet another entity, Cash

Money, one of the alleged JV partners. However, to hold Universal liable for any breach of the

Agreement, Aspire must plead that Universal is the alter ego of the JV. Aspire fails to posit any

such allegation, which alone requires dismissal of its claims against Universal.5Universal.

Aspire's newfound JV theory also fails because Aspire fails to name the JV as a

defendant in this Action, and does not (and cannot) allege that the JV is insolvent. Under

Louisiana law, a joint venture is governed by partnership law, Joyner v. Liprie, 44,852 (La. App.

2 Cir. 1/29/10), 33 So. 3d 242, 251, and to bring a claim against a partner (i.e., Cash Money),

plaintiff must join the partnership to the action and show the partnership is insolvent. See LA.

CODE CIV. PROC. ANN. art. 737 ("The("

partners of an existing partnership may not be sued on a

partnership obligation unless the partnership is joined as a defendant."); LA. CODE CIV. PROC.

ANN. art. 2817 ("A partnership as principal obligor is primarily liable for its debts."); Brackley &

Voelkel Const., Inc. v. 3421 Causeway, Ltd., 98-134 (La. App. 5 Cir. 5/27/98), 712 So. 2d 716,

719 ("[A] partnership creditor must first exhaust his rights against the partnership before he

proceeds against the individual partners."); Aymond v. Citizens Progressive Bank, 50,825 (La.

App. 2 Cir. 9/16/16), 206 So. 3d 330, 336 (individual partners not liable for partnership debts as

"there was no evidentiary showing by the plaintiffs that the partnerships were insolvent").6 ).

5 Nor does Aspire save itself from dismissal by now claiming that it could have direct claims against Cash Moneybecause the "Agreement contains multiple provisions directly binding Cash Money separately from the YME JointVenture." (Opp. 15.) First, the Agreement is not directly binding on Cash Money because Cash Money is not a

party to it. (see Ex. A at 1, 51). Second, Aspire only claims two provisions impose direct obligations on Cash

Money, and does not claim either provision was breached, let alone has any relevance to this Action. (Opp. 15.)6 New York is similar. Helmsley v. Cohen, 56 A.D.2d 519, 519-20 (1st Dep't 1977) ("absent an allegation that the

partnership is insolvent or otherwise unable to pay its obligations, no action lies against the partners individually").individually"



11 of 21

distributor"

("

B. The Law Does Not Permit Aspire to Use Alter Ego Liability to Evade the

Limitations on Its Contract Rights in the Aspire/YME Agreement.

Separately, Aspire's alter ego claim against Universal is independently precluded as a

matter of law by the Agreement. The law does not permit Aspire to use alleged "alterego"

liability to evade the limitations of its own contractual rights with the JV, and here, Aspire

expressly agreed that Cash Money and the JV, not Aspire, would contract with Universal as the

distributor of Drake's albums, and placed no contractual limitations on any such agreement.

Aspire entered into the Agreement with the JV specifically contemplating that the JV

would separately contract with a distributor for the distribution of Drake's albums. (See, e.g.,

Article 6A of the Agreement, discussed infra, repeatedly deferring to YME's terms with "YME's

distributor").) In fact, Aspire knew that the JV's distributor at the time was Universal. (See, e.g.,

Ex. A § 6A.01 ("'NetProfits'

shall mean Gross Revenue received by YME from U.M.R.G [sic]

less Deductions.") (emphasis added); § 10.11 ("Artist's solo recordings Delivered hereunder

shall be distributed through Universal").)Universal"

Tellingly, Aspire did sign a direct distribution

agreement with a different Universal affiliate, solely for certain Drake recordings in Canada.

(See, e.g., Ex. A § 8.07(a) (referencing the separate "distribution agreement between Universal

Music Canada, Inc. . . . and [Aspire] . . . for the music performances of [Drake] dated November

2, 2009").) Aspire could have negotiated a similar direct distribution deal with Universal for the

rights to Drake albums in the Aspire/YME Agreement. Instead, Aspire signed with the JV under

an agreement whereby the JV granted Aspire an extremely generous one-third interest in its Net

Profits, provided that Aspire would also be subject to whatever distribution deal the JV elected to

enter into, in its sole discretion, with Universal or some other distribution company. (Ex. A §

9.02 ("YME and any Person authorized by YME has the unlimited and exclusive rights . . . to

manufacture and/or distributeRecords"

under the Agreement) (emphasis added).)



12 of 21

Money'

Aspire also expressly agreed it would be subject to the full range of costs and expenses

assessed against the JV by the JV's distributor, including (i) a "distribution and label services fee

. . . equal to the . . . [fee] charged to YME by itsdistributor"

(Ex. A § 6A.02(a)(1)(A)(ii)); (ii)

"all other distribution company charges as would apply to YME'sRecords"

(id. §

6A.02(a)(1)(A)(v)); (iii) "chargebacks by YME's distributor for the actual advertising costs paid

by YME'sdistributor"

(id. § 6A.03(b)(4)); and (iv) "[a]ll costs of manufacturing Records,

pursuant to YME's distributor's custom manufacturingprice"

(id. § 6A.03(b)(6)). Under the

Agreement, Aspire and the JV both take shares of the "NetProfit."

(Ex. A § 6A.01.) Aspire did

not negotiate with the JV any limitations on the foregoing pass-through expenses and costs, let

alone negotiate with Universal what distribution fee Universal could charge Cash Money.

Instead, Aspire agreed it would be subject to the same rates applied to the JV by its distributor -

whatever they may be. Now, nearly a decade later Aspire improperly raises a baseless alter ego

argument to effectively obtain veto rights over what agreements Cash Money is permitted to

make with its distributor. Aspire knew that Cash Money had contracted directly with Universal

and Aspire never bargained for the right to have any say over the terms of those agreements, nor

the ability to second-guess any amendments thereto.

Aspire cannot now argue that the five contracts signed between 2015 and 2017 give

Universal the complete domination over Cash Money required for alter ego liability. (See Opp.

4-7 & Opp. Exs. A-E.) These newly raised contracts have nothing to do with Cash Money's

corporate form, management, or ownership. Instead, they are straightforward, commercial

contracts that allocate certain responsibilities incident to Universal's role and responsibility as a

distributor of Drake's albums. To the extent that Cash Money's alleged financial

mismanagement required Universal take on a greater role in producing and marketingDrake'



13 of 21

albums to ensure they were brought to market, and Universal required a higher distribution fee in

exchange, that is a commercial decision Cash Money had every right to make and Aspire has no

right to challenge.

Finally, Aspire attempts to brush aside binding precedent that rejects alter ego liability

against a third party whose identity and role were known at the time of contracting (see Br. 13-

15), claiming that the plaintiffs in those cases were "onnotice"

of the alter ego nature of the

relationship (Opp. 17). Aspire is simply wrong. None of the cases mentions a"notice"

concept

for alter ego liability, and there is no basis for it. Aspire claims it could not have known "that

Universal might be an alter ego of CashMoney"

because Universal does not"sign[]"

contracts

on behalf of Cash Money and was not its"affiliate,"

(Opp. 17), but these facts merely highlight

reasons why Universal is in fact not the alter ego of Cash Money. In all events, Aspire has the

law backwards. Aspire asserts that "Aspire has not made any allegation that it was tricked into

signing a contract with Cash Money rather thanUniversal."

(Opp. 17.) But that is exactly the

point. Aspire was not tricked. It was aware of the role that Universal, as the JV's distributor,

would have under the Agreement and made the informed choice to leave the wide range of costs

imposed by the distributor (supra, p.8) to the discretion of the JV, provided that whatever rates

the JV obtained for itself also apply to Aspire. As the cases cited in the Opening Brief make

clear (Br. 13-15), the law does not permit Aspire to use alter ego liability to undo this bargain.

C. Aspire's Reliance on Limited Contract Rights Held by a Third-Party that

has Never Been an Owner, Officer, or Director of Cash Money Fails to

Satisfy as a Matter of Law the Domination Required for Alter Ego Liability.

Separately, Aspire's attempt to establish alter ego liability also fails because its

allegations of "domination andcontrol"

arise not out of any purported ownership interest or

director or officer position held by Universal in Cash Money- as is required under the law - but

solely from the exercise of contract rights negotiated between Universal and Cash Money.



14 of 21

Louisiana law strictly prohibits the imposition of alter ego liability upon anyone that has

never been an officer, director, or shareholder of a Louisiana corporation. (See Br. 16-17

(collecting cases).) In its Opposition, Aspire wrongly claims otherwise, contending that

Louisiana law permits "finding alter ego liability even in the absence of an

owner/shareholder/officer/director relationship where the defendant exercises control over the

company such that it is, in effect, the company'sowner."

(Opp. 19 n.12.) In putative support,

Aspire cites just two cases, Withers v. Timber Products, Inc., 574 So. 2d 1291 (La. App. 3d Cir.

1991), and Brown v. Benton Creosoting Co., 147 So. 2d 89 (La. Ct. App. 1962). (See Opp. 19

n.12.) In fact, neither case supports Aspire's argument. Both are insurance cases where the sole

director, who held the entire financial interest in the corporation, tried to use sham ownership to

avoid liability for workers compensation claims by injured employees.

In Withers, defendant formed the corporation and was "the sole stockholder andofficer."

574 So. 2d at 1295. When there were injuries at the mill, defendant tried to avoid liability by

claiming that he had transferred 100% of the corporation's stock to his friend, a judgment-proof

"two time felonyoffender"

who "had never been to the mill site, had never met or talked to the

millsuperintendent,"

and knew nothing about the business. Id. The record "established that

[defendant] had authority to sign Timber Products checks, but [the felon] did not"; there was "no

evidence of the alleged transfer [of ownership] from [defendant] to [the felon]"; and the trial

judge had found that the alleged transfer of stock was "nothing more than a sham transfer in an

attempt by Makar to avoid exposure for worker's compensationliability."

Id. at 1295-96.

Needless to say, imposing alter ego liability against an owner pretending not to be an owner has

no applicability to this case.7

7 In Brown, defendant had "exclusive votingprivileges" for all company stock; all stock was pledged to defendant;

none of the nominal owners "was ever consulted about the operation of the business"; and the nominal 50% owner

1



15 of 21

Moreover, at least two Louisiana courts have rejected the very argument Aspire advances

here, and held that Withers and other prior cases do not permit alter ego liability to be imposed

on a person or entity that has never been a shareholder or officer of the company whose veil the

plaintiff seeks to pierce. See Andretti Sports Mktg. Louisiana, LLC v. Nola Motorsports Host

Comm., Inc., 147 F. Supp. 3d 537, 563 (E.D. La. 2015) (neither Withers nor the other "cases

cited by [plaintiff] support[s] its contention that the alter ego doctrine may be applied to an

individual or entity who, as the facts here present, has never been a shareholder or officer of the

company whose veil the plaintiff seeks to pierce. The Court will not extend the alter ego doctrine

beyond its application in Louisiana courts."); Nussli US, LLC v. Nola Motorsports Host Comm.,

Inc., 2016 WL 4063823, at *17 (E.D. La. July 29, 2016) (similarly rejecting Withers and holding

that because plaintiff "does not now allege that any of the [defendants] were officers, directors,

members, or shareholders of NMHC . . . the Court concludes that [plaintiff] has failed to plead

sufficient facts to demonstrate that the alter ego doctrine may be applied").applied"

Even though New York law does not apply, courts in the First Department also refuse to

impose alter ego liability on a non-owner, non-officer or non-director, based solely on that third-

party's contract rights. (See Br. 18-20 (collecting cases).) As noted, the First Department has

never adopted the "equitableownership"

concept that Aspire invokes for alter ego liability, and

has not permitted an alter ego claim to survive against someone, or some entity, that has never

held an ownership interest or been director or officer for the corporation at issue. (Br. 18 & n.6);

see, e.g., E. Concrete Materials, Inc. v. DeRosa Tennis Contractors, Inc., 139 A.D.3d 510, 512

("(1st Dep't 2016) ("Insofar as plaintiffs claim against DeRosa Sports is based on alter ego

"did not consider that he had an interest in it." 147 So. 2d at 93. Universal does not allege, nor could it, thatUniversal holds all rights to Cash Money stock or ability to vote Cash Money's shares; that Universal has controlledall Cash Money operations without ever consulting the Williams Brothers; or that the Williams Brothers do notconsider themselves the owners of Cash Money.

11



16 of 21

liability . . . the claim should be dismissed. DeRosa Sports is not even a shareholder of DeRosa

Tennis."). In its Opposition, Aspire claims there is one exception, Trans Int'l Corp. v. Clear

View Techs., Ltd., 278 A.D.2d 1 (1st Dep't 2000), but Aspire's characterization of that case is

wrong. (Opp. 18). In Trans International, the First Department indeed found that "plaintiff has

stated a claim for piercing the corporate veil and holding the individual defendants personally

liable for Clear View's debts on thatbasis,"

but plaintiff in that case plainly alleged that each

individual defendant "is and at all relevant times, was an officer, director and shareholder of

ClearView."

278 A.D.2d at 2; Compl. ¶¶ 3-5, No. 602471l99 (N.Y. Sup. Ct.) (emphasis added).

In any event, Aspire misrepresents the concept of "equitableownership" - or more

accurately, it makes no discernible effort to explain or define the concept other than to imply that

whatever contract rights were agreed-upon between Universal and Cash Money are sufficient to

meet this definition. In the alter ego context, equitable ownership refers to a beneficial interest

in, or legal right to the financial interest of, a corporation; it does not encompass commercial

contract rights.8 The only trial court decision within the First Department cited by Aspire also

supports Universal. (See Opp. 18-19 (citing Cornwall Mgmt. Ltd v. Kambolin, 2015 WL

2090371 (N.Y. Sup. Ct. Apr. 29, 2015) (Singh, J.).) First, in Cornwall, plaintiffs pled, in detail,

a massive fraud by three defendants, involving numerous shell companies, so deliberate and

pervasive that it was unclear which co-conspirator was the legal"owner"

or"director"

of some

of the companies involved. The"ringleader"

of the fraud claimed he could not be personally

liable because, even though he owned the company that took theinvestors'

money and ultimately

8 The equitable owner of a corporation may also be a shareholder, such as in Trans International, where defendantswere each an alleged "officer, director and shareholder of Clear View" (Trans Int'l Corp., Compl.,Compl. ¶¶ 3-5), and theFirst Department found that "plaintiff alleged that the individual defendants are Clear View's equitable owners,"

278 A.D.2d at 1; see also Korea Commercial Bank of New York v. Ianos, 236 A.D.2d 249, 250 (1st Dep't 1997)(defendant obtained "equitable ownership of the property of the corporation" upon becoming its sole shareholder);Ownership, BLACK'S LAW DICTIONARY (10th ed. 2014) (defining "equitable ownership" as a "beneficiary's interestin trust property").

1



17 of 21

alleged"

paid the proceeds to himself, during the fraud he had transferred the funds through shell

companies he now claimed were solely owned by one of his co-conspirators. Cornwall, 2015

WL 2090371, at *7. The court's holding that he could not evade personal liability is supportable

for a number of reasons, including that he signed "a personalguarantee"

pledging to repay

plaintiffs their money. Id. at *5. The Cornwall decision is completely distinguishable because,

unlike the defendant in that case, Universal is not alleged, nor could it be, to have guaranteed

payments to Aspire, or to have dissolved Cash Money, liquidated its assets, and distributed the

proceeds to itself.

Moreover, while Aspire is correct that, in its 2015 decision, the lower court in Cornwall

did also appear to view "equitableownership"

as a basis for liability "even if [defendant] were

not an owner or director of all or some of the corporatedefendants,"

id. at *5, *8, that decision

has effectively been overruled. Justice Singh simply followed his prior decisions in the case

denying a similar motion to dismiss by other co-conspirators who, similarly, may have had

ownership in only some companies used to defraud plaintiffs. See, e.g., id. at *9 ("[i]n deciding

two prior motions to dismiss on some of the same grounds, the court has already determined that

the alter ego/veil piercing claim is properly and sufficiently alleged"). Critically, after the 2015

Cornwall decision cited by Aspire, the First Department unanimously reversed Justice Singh's

prior 2014 Cornwall decision, effectively rejecting Aspire's claim that alter ego liability may be

imposed on persons or entities that have never been a shareholder or director of a corporation.

The First Department held that the trial court should have granted the co-conspirator's motion to

dismiss because imposing alter ego liability for actions "after relinquishing his interest in [the

company]"ran afoul of First Department precedent, which permitted such claims where "unlike

here,"defendants were "the owners of the entity whose veil the plaintiff sought to

pierce."

1



18 of 21

Cornwall Mgmt. Ltd. v. Kambolin, 140 A.D.3d 507, 507 (1st Dep't 2016). Indeed, Justice Singh

thereafter summarily dismissed alter ego claims, like Aspire's, against non-owners/directors. See

Lantau Holdings, Ltd. v. Orient Equal Intern. Grp., 2017 N.Y. Slip Op. 30464(U), 2017 WL

914636, at *18 (N.Y. Sup. Ct. Mar. 8, 2017) (Singh, J.) ("Here("

it is undisputed that Haitong is

not the owner of the Defendant Borrowers who signed the loan documents. Therefore, plaintiff

has not adequately pled a jurisdictional basis for alter ego liability.").

In sum, the law does not support Aspire's effort to fashion so-called "equitable

ownership"as an independent basis to impose alter ego liability against Universal, which has

never been an officer, director, or shareholder of Cash Money.

D. Aspire Fails to Plead the Kind of Fraud or Malfeasance Necessary to Hold

Universal Liable as an Alter Ego.

Finally, Aspire fails to allege fraud or misconduct by Universal against Aspire; indeed,

and dispositively, Aspire does not (and cannot) even allege that any contract between Universal

and Cash Money constitutes breach of any duty owed by Cash Money or the JV to Aspire.

As explained, the Louisiana analysis is straightforward. (Br. 21 n.8.) Aspire does not

allege fraud by Universal, and thus bears the "heavy burden of proving that the shareholders

disregarded the corporate entity to such an extent that it became indistinguishable from

themselves."Camp Dresser & McKee Inc. v. Benetech, LLC, 2011 WL 1100499, at *2 (E.D. La.

Mar. 22, 2011). Aspire cannot possibly satisfy this standard as, among other reasons, this would

only establish alter ego liability against its shareholders, the Williams Brothers - not Universal.

Although Louisiana law applies, Plaintiff also fails to satisfy the New York requirement

that Aspire plead that Universal used complete domination over Cash Money to commit a fraud

or similar wrong against Aspire that resulted in Aspire's injury. New York law is clear that

breach of contract or even "badfaith"

is insufficient. E. Hampton Union Free Sch. Dist. v.

1



19 of 21

veil"

Sandpebble Builders, Inc., 16 N.Y.3d 775, 776 (2011) plaintiff("

must do more than merely

allege that the individual engaged in improper acts or acted in 'badfaith'

while representing the

corporation"); Skanska USA Bldg. Inc., 146 A.D.3d at 12 ("a simple breach of contract, without

more, does not constitute a fraud or wrong warranting the piercing of the corporate veil").

The purported"scheme"

alleged by Aspire is nonsensical. Aspire insists that Universal

sought to injure Aspire simply by improving its own contract rights against Cash Money (see,

e.g., Opp. 23), but it is undisputed that Universal does not pay Aspire or owe it any duties; YME

(or the JV)does.9does. While Universal benefits from a higher distribution fee, Universal's benefit is

vis-à-vis Cash Money. Aspire was, and is, free to negotiate whatever contract terms it wants.

Indeed, Aspire concedes that Universal had nothing to do with the negotiation or signing of the

Agreement. (Opp. 17.) There is no inherent reason that Aspire's payments from the JV must

mirror Cash Money's payments from Universal. Aspire is a downstream player that apparently

elected to have its share of Net Profits be subject to the costs and expenses (including

distribution fee) that the JV's distributor assessed against the JV. Aspire cannot now complain

that Universal should be precluded from negotiating the best distribution rate for its services

merely because, for reasons outside Universal's control, that happens to have an indirect effect

on Aspire's share of profits under the Agreement. In any event, Aspire's misguided arguments

to the contrary in no way support imposition of alter ego liabilityhere.10

9 Aspire complains that under the recent amendments, "Universal undertook to pay millions of dollars in advances toDrake 'on Cash Money's behalf."' (Opp. 6.) But, if anything, Universal's funding made it easier for both Drakeand Cash Money to pay Aspire whatever money they might owe. Universal is not alleged to have prevented Cash

Money or anyone else from paying Aspire.' All of Aspire's claims should be dismissed with prejudice because leave to replead would be futile. See Ragto,Inc. v. Schneiderman, 69 A.D.2d 815, 816 (2d Dep't 1979) (affirming dismissal with prejudice where "there is noreason to believe that [plaintiff] could buttress its pleadings with facts sufficient to make out a prima facie case").

Here, all of Aspire's claims are facially defective because they rely on a perverse and unsupportable theory of alterego liability, and there are no facts that can be alleged to save them. See, e.g., Herzog v. Town of Thompson, 216A.D. 2d 801, 802-03 (3d Dep't 1995) ("if the complaint fails to state a cause of action as a matter of law and noamount of discovery can salvage the claim, it must be dismissed and no discovery is warranted").

1



20 of 21

CONCLUSION

For the foregoing reasons, Universal's Motion to Dismiss the Amended Complaint

should be granted in its entirety and with prejudice.

Dated: New York, New York Respectfully submitted,

June 20, 2018

SIDLEY AUSTIN LLP

By: /s/ John G. Hutchinson

John G. Hutchinson

Benjamin F. BurryRobert M. Garsson

787 Seventh Avenue

New York, New York 10019

Telephone: (212) 839-5300

Facsimile: (212) 839-5599

Rollin A. Ransom

555 West Fifth Street, Suite 4000

Los Angeles, California 90013

Telephone: (213) 896-6000

Facsimile: (213) 896-6600

Counsel for UMG Recordings, Inc.

1



21 of 21

Aspire v CM - UMG MTD reply brief (FINAL) 232797648 10 (2)

Documents

Transcript of Aspire v CM - UMG MTD reply brief (FINAL) 232797648 10 (2)