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 chronocal of how an investment can be completely undermined by mergers and sales of assets so that the investment is completely lost. Were the attorneys a cause, is a derivitive claim possible and are they liable?

“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) owned a 50% interest in nonparty NYCANNA LLC. (NYSCEF 1, Complaint 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 Daino 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.) Daino 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.)”

“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,There is a dispute whether the three- or six-year statute of limitations applies.”

“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)].):”

“Here, there is one alleged tortious actScheer’s delay in transferring the stock to Dixie – which first occurred at the end of the lockup on May 15, 2019. “The doctrine is inapplicable where there is one tortious act complained of since the cause of action accrues in those cases at the time that the wrongful act first injured plaintiff and it does not change as a result of ‘continuing consequential damages.”‘ (Id. [citations omitted].) Although the single alleged action of delay may have caused a continuing increase in damages, the continuing wrong doctrine does not apply. (Id. at 601-602 [“where a plaintiff asserts a single breach-with damages increasing as the breach continued-the continuing wrong theory does not apply” (citations omitted)].) The claim to the extent it is based on defendants’ alleged failure “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” is dismissed. (NYSCEF 1, Complaint ,i 65)
Scheer and BSK do not address the timeliness of this claim to the extent it is based on their alleged “erroneous tax advice regarding the purported tax consequences of transferring the Acreage stock into their own individual names.” (NYSCEF 1, Complaint ,i 66.) Thus, the claim to the extent it is based on this alleged conduct is sustained.”