FILED: NEW YORK COUNTY CLERK 07/16/2021 11:43 AM INDEX NO.

651538/2018
NYSCEF DOC. NO. 407 RECEIVED NYSCEF: 07/16/2021

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DANCO ENTERPRISES, LLC, WANTICKETS :
RDM, LLC, WANTMCS HOLDINGS, LLC and :
JOSEPH SCHNAIER, :
:
Plaintiffs, : Index No.: 651538/18
:
- against - : Motion Seq. No. 12
:
LIVEXLIVE MEDIA, INC., f/k/a LOTON CORP., :
LIVEXLIVE TICKETS, INC., ROBERT S. ELLIN, :
ALEC ELLIN, BLAKE INDURSKY, :
COMPUTERSHARE TRUST COMPANY, N.A., CL, :
LLC, d/b/a LIGHT NIGHTCLUB, and CDBC, LLC :
d/b/a DAYLIGHT BEACH CLUV, :
:
Defendants. :
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DEFENDANTS’ MEMORANDUM OF LAW

IN SUPPORT OF MOTION FOR PARTIAL SUMMARY JUDGMENT

Dated: March 9, 2021

New York, New York

Law Offices of Steven D. Isser

424 Madison Avenue, Third Floor
New York, New York 10017
(212) 812-5096
Attorneys for Defendants LiveXLive Media,
Inc., LiveXLive Tickets, Inc. and Robert S.
Ellin

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TABLE OF CONTENTS

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

SUMMARY OF THE FACTS ............................................................................................3

Background ..............................................................................................................4

Schnaier is a Sophisticated Investor ........................................................................4

Plaintiffs’ Failure to Conduct Ordinary Due Diligence ...........................................5

Plaintiffs’ Lack of Due Diligence Concerning LXL................................................7

Plaintiffs’ Lack of Due Diligence Concerning Music Festivals ..............................9

Plaintiffs’ Lack of Due Diligence Concerning Acquisitions .................................13

Plaintiffs Ignored Other Hints ................................................................................14

ARGUMENT .....................................................................................................................16

POINT I

PLAINTFFS’ FRAUD CLAIMS SHOULD BE DISMISSED .............................16

A. Plaintiffs’ Fraud Claims Are Precluded .....................................................16

B. Plaintiffs’ Reliance on the Claimed

Misrepresentations Was Not Justified .......................................................18

C. Plaintiffs Have Failed to Establish their Damages ....................................21

POINT II

DISMISSAL OF THE FOURTH

CAUSE OF ACTION AS AGAINST LXL IS REQUIRED .................................23

CONCLUSION ..................................................................................................................24

WORD COUNT CERTIFICATION .................................................................................25

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TABLE OF AUTHORITIES

Cases
ACA Financial Guaranty Corp. v. Goldman, Sachs & Co.,
25 N.Y.3d 1043, 1044-1045, 10 N.Y.S.3d 486, 487 (2015) ..........................................................20

Barnaba Realty Group, LLC v. Solomon,

121 A.D.3d 730, 731, 994 N.Y.S.2s 356, 358 (2d Dep’t 2014) ....................................................18

Connaughton v. Chipotle Mexican Grill, Inc.,

135 A.D.3d 535, 538, 23 N.Y.S.3d 216, 218-19 (1sr Dep’t 2016) ................................................21

Danann Realty Corp. v. Harris,

5 N.Y.2d 317, 184 N.Y.S.2d 599 (1959) .......................................................................................16

DDJ Management, LLC v. Rhone Group L.L.C.,

15 N.Y.3d 147, 154, 905 N.Y.S.2d 118, 122 (2010) .....................................................................19

Dubow v. Century Realty, Inc.

172 A.D.3d 622, 98 N.Y.S.3d 844 (1st Dep’t 2019) ......................................................................17

Global Minerals and Metals Corp. v. Holme,

35 A.D.3d 93, 98, 824 N.Y.S.2d 210, 214 (1st Dep’t 2006) ........................................18. 19, 20, 21

Kumiva Group, LLC v. Garda USA Inc.,

146 A.D.3d 504, 506, 45 N.Y.S.3d 410, 413 (1st Dep’t 2017) ................................................21, 22

Pate v. BNY Mellon-Alcentra Mezzanine III,

LP, 163 A.D.3e 429, 430, 81 N.Y.S.3d 29, 30 (1st Dep’t 2018) ....................................................18

Starr Foundation v. American International Group, Inc.,

76 A.D.3d 25, 28, 901 N.Y.S.2d 246, 249 (1sr Dep’t 2010) .........................................................21

United Natural Foods, Inc. v. Goldman Sachs Group, Inc.,

_ N.Y.S.3d _, 2021 WL 189161 (1st Dep’t) ..................................................................................20

UST Private Equity Investors Fund, Inc. v. Salomon Smith Barney,

288 A.D.2d 87, 88, 733 N.Y.S.2d 385, 386 (1st Dep’t 2001) ........................................................19

WT Holdings Incorporated v. Argonaut Group, Inc.,

127 A.D.3d 544, 5 N.Y.S.3d 731 (1st Dep’t 2015) ..................................................................16, 17

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Statutes

CPLR R 3212 ...................................................................................................................................1

Other

Rule 501 of Regulation D of the Securities Act ..............................................................................5

Form 8-K promulgated by the SEC pursuant to

Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended ......................................5

ii

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PRELIMINARY STATEMENT

The causes of action for fraudulent inducement asserted against Defendants LiveXLive

Media, Inc. (“LXL”), LiveXLive Tickets, Inc. (“LXL Tickets”) and Robert Ellin (collectively,

“Defendants”) in the First Amended Complaint filed by Plaintiffs Danco Enterprises, LLC

(“Danco”), Wantickets RDM, LLC (“Wantickets”), Wantmcs Holdings, LLC (“Wantmcs

Holdings”) and Joseph Schnaier (collectively, “Plaintiffs”) should be dismissed pursuant to Rule

3212 of the CPLR because there are no genuine issues of material fact.

Defendant LXL, inter alia, live streams music festivals and events to its paid subscribers.

In June 2016, Plaintiff Wantmcs Holdings invested $1.25 million in LXL, pursuant to two

Subscription Agreements between Wantmcs Holdings and Loton Corp., which is LXL’s former

name (collectively, the “Subscription Agreements”). Subsequently, pursuant to an Asset Purchase

Agreement, dated as of May 5, 2017 (the “APA”), LXL Tickets acquired Wantickets’ assets in

exchange for 2,000,000 shares of LXL stock. Plaintiffs Schnaier alleges that Defendants made

misrepresentations concerning LXL to fraudulently induce Plaintiffs to enter into these

agreements.

Dismissal of Plaintiffs’ fraud claims as a matter of law is warranted because the Subscription

Agreements and the APA (collectively, the “Agreements”) each contain sufficiently specific

disclaimers of representations outside of the Agreements to preclude parol evidence. Section 2.11

of the APA provides that any representations made by LXL which are not contained in the APA

“are hereby expressly disclaimed.” Each of the Subscription Agreements also provides that no

representations have been made by LXL to Plaintiffs not contained in the Subscription

Agreements and that Plaintiffs are not relying upon any such representations. Accordingly,

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Plaintiffs are precluded from submitting evidence of representations outside of the Agreements,

requiring dismissal of the fraud claims.

Dismissal of Plaintiffs’ fraud claims is further warranted because there is no genuine issue

of material fact that Plaintiffs cannot establish that their reliance on any claimed misrepresentation

of material existing fact was justified. To establish that their reliance was justified, Plaintiffs must

demonstrate that they performed sufficient due diligence. Schnaier, the principal of the corporate

Plaintiffs and a savvy investor with over 20 years investment experience, admitted that “I didn’t

do enough due diligence.”

Indeed, Plaintiffs allege that beginning in 2015, LXL, primarily through its CEO,

Defendant Robert Ellin, misrepresented that LXL had obtained or was in the process of obtaining

streaming rights to various music festivals and/or had closed or would soon close on certain

acquisitions. Schnaier, however, concedes that he did not take any steps to investigate the accuracy

of these alleged representations, other than having “detailed” conversations with Robert Ellin and

others at LXL.

Had LXL obtained the rights to stream any major music festivals, such festivals not only

would have been listed on LXL’s website so its subscribers could pay LXL to view the festivals,

but there would have been press releases and/or disclosures of such streaming rights in LXL’s

public filings with the Securities and Exchange Commission (“SEC”). Similarly, any acquisitions

by LXL would be disclosed in SEC filings and press releases. Yet, Schnaier testified, at times,

that before entering into the Agreements he did not review LXL’s website or SEC filings to obtain

such information. If he had, he would have been well aware that the claimed representations were

not accurate.

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Plaintiffs also ignored numerous “hints” of inaccuracy in relying on the claimed

misrepresentations. For example, Schnaier admitted that a document sent by Defendants

containing allegedly false statements which he claimed to rely upon, also contained statements he

knew to be “misleading.” Yet, Schnaier took no further steps to investigate, other than discussing

the potential transactions listed in that document with Ellin. Another “hint” Plaintiffs ignored

concerned Ellin’s alleged refusal to provide Schnaier with documentation of the alleged deals

closed by LXL. Schnaier claims that Ellin verbally disclosed all of the terms of such agreements,

but refused to show him the actual agreements because they were “proprietary.” As Ellin allegedly

provided all of the “proprietary” information to Schnaier verbally, it should have raised a red flag

that he would not even show Schnaier the executed agreements.

In addition to the parol evidence rule and failure to demonstrate justifiable reliance,

Plaintiffs’ fraud claims fail because Plaintiff have not submitted evidence establishing their

damages. Further, Schnaier’s claim for breach of the Employment Agreement should be dismissed

as against LXL because it is not a party to the Employment Agreement.

SUMMARY OF THE FACTS

To avoid undue repetition, only certain facts will be discussed herein. For a fuller

discussion of the facts and/or allegations, the Court is respectfully referred to the Affidavit of

Robert Ellin, sworn to on March 8, 2021 (“EllinAff”) and/or Plaintiffs’ First Amended Complaint

(“Complaint” or “Compl.”), which is attached as Exhibit (“Ex.”) 1 to the Affirmation of Steven

Isser, affirmed on March 9, 2021 (“IsserAff”).

Defendants deny making any misrepresentations and if a trial is necessary, will

demonstrate that Plaintiffs were fully and accurately informed of all relevant events. For purposes

of this motion, however, it will be assumed that the alleged misrepresentations were made and/or

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that no further updates were provided to Plaintiffs, which was not the case.

Background

Plaintiff Schnaier was the President, CEO and sole owner of Danco, the President, CEO

and 90% owner of Wantickets and the Managing Member of Wantmcs Holdings. Compl., ¶¶12-

15. Wantickets was an online ticketing company, which sold tickets for events. Compl., ¶31.

Defendant Ellin was the CEO of LXL. EllinAff at ¶1. LXL has been a publicly traded

company since 2014 which, inter alia, live streams musical events and festivals for its subscribers

to view at home. EllinAff, ¶2.

On June 8 and 17, 2016, Schnaier, on behalf of Wantmcs Holdings, executed the

Subscription Agreements. EllinAff, Ex. 1. Pursuant to the Subscription Agreement, Wantmcs

acquired 250,000 shares of LXL, and warrants, in exchange for $1.25 million. EllinAff, Ex. 1.

On May 5, 2017, the APA was executed and LXL Tickets acquired the assets of Wantickets in

exchange for 2 million shares of LXL stock. EllinAff, Ex. 2.

Schnaier is a Sophisticated Investor

Schnaier is a savvy and experienced investor. He obtained a Series 7 land a Series 63

license and worked as a licensed securities broker for over twenty years, from 1995 to 2008.

IsserAff, Ex. 8 at 11-12, 21-23, 41-47. As a broker, Schnaier researched and evaluated companies

to make investment recommendations to his clients. IsserAff, Ex. 8 at 14, 37-40. In addition,

Schnaier was a part owner of three branch offices of brokerage companies. IsserAff, Ex. 8 at 223-

224. He stopped working as a broker in 2008, because he was permanently barred by FINRA from

associating with any member of FINRA, due to misconduct. IsserAff, Ex. 16; Ex. 8 at 41-43, 47-

48.

After FINRA barred him, Schnaier began “private equity stuff,” in which he makes private

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investments, and is still currently doing so. IsserAff, Ex. 8 at 19, 43-44. He has made private

equity investments in several companies and has invested as an accredited investor, directly or

through a company, more than five times. IsserAff, Ex. 8 at 44; Ex. 9 at 328-29. In addition,

Schnaier has been involved in “quite a few” reverse mergers, such as the Wantickets/LXL

transaction. IsserAff, Ex. 8 at 63-64; Ex. 9 at 466. In the Subscription Agreements, Schnaier

represented and warranted that Wantmcs Holdings, which he controlled, was an “accredited

investor” within the meaning of Rule 501 of Regulation D of the Securities Act. EllinAff, Ex. 1

at Ex. B thereto.

Plaintiffs’ Failure to Conduct Ordinary Due Diligence

Schnaier, a sophisticated investor, had a duty to investigate the accuracy of the

representations he claims to have relied on, which he did not do. Schnaier admits that the

information concerning the truth (or falsity) of the claimed representations was obtainable, as he

testified that he discovered the “truth” in order to file this lawsuit, which is when he “started to dig

deeper.” IsserAff, Ex. 8 at 254. The time to “dig deeper,” however, was during due diligence.

Indeed, Schnaier admitted that “[w]e did some due diligence … and, obviously it wasn’t enough,

probably.” IsserAff, Ex. 8 at 256. Schnaier also conceded “I didn’t do enough due diligence.”

IsserAff, Ex. 8 at 257.

Since 2014, as a publicly traded company, LXL has been required to disclose certain

material events in its public filings with the SEC within 4 business days of the occurrence of the

event. See the requirements of the Form 8-K promulgated by the SEC pursuant to Section 13 or

15(d) of the Securities Exchange Act of 1934, as amended. Such material events include, among

others, executions of binding letters of intent concerning material transactions, executions of

material agreements to acquire another company or its assets and agreements for LXL to live steam

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major events or festivals that would be deemed material.

Schnaier was aware that publically traded companies, such as LXL, are required to disclose

such information in SEC filings, and when he was a broker, Schnaier reviewed SEC filings to

evaluate whether a company would be a good investment for his clients. IsserAff, Ex. 8 at 15, 17-

18, 25. Schnaier also read press releases to evaluate potential investments, both for his clients

when he was a broker and for his own investments, and he acknowledges that press releases “are

important.” IsserAff, Ex. 8 at 31-32. Yet, Schnaier does not recall whether he reviewed LXL’s

SEC filings before executing the Agreements (although he changed his testimony in this regard)

and could not remember whether he reviewed LXL’s press releases as part of his due diligence.

IsserAff, Ex. 8 at 220-21; Ex. 9 at 691.

Schnaier testified on several occasions that his due diligence of LXL solely consisted of

reading LXL’s management teams’ biographies on LXL’s website and other websites and having

“detailed” conversations with Ellin and others at LXL. IsserAff, Ex. 8 at 80-81, 209-210, 213-

221; Ex. 9 at 638-639. Schnaier could not recall any other specific acts of due diligence he took

before signing the Agreements. Id.

When asked “[w]hat steps, if any, did you take to confirm the accuracy of anything Rob

told you that you claim you relied on,” Schnaier testified that “I take it as gospel because he is a

chairman and CEO of a publically-traded company.” IsserAff, Ex. 8 at 158. Yet, Schnaier also

claims that Ellin called him a “real dirtbag,” a “cockroach” and a “jerkoff.” Compl., ¶¶11 and 72.

Unexplained is why, when encountering such behavior, Schnaier continued to take what Ellin told

him as “gospel,” without any due diligence beyond speaking with Ellin.

Even in solely relying on the gospel of Robert Ellin, Schnaier was required to perform

ordinary due diligence concerning Ellin, which he did not do. Schnaier admits that although he

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“only knew him from a distance,” he did not even ask anyone about Ellin before entering into the

Agreements. IsserAff, Ex. 8 at 71, 75-76, 81-82.

In an attempt to prejudice the Court against Ellin, and “buttress” their allegations that he is

a “fraudster,” Plaintiffs attached to the Complaint: 1) a September 2015 article which accuses

Ellin of fraud and stock manipulation; 2) Ellin’s Broker Check Report from FINRA, which reflects

disciplinary action taken against Ellin in the early 1990s when he was a young man; and 3) a

lawsuit alleging fraud against Ellin which was filed in 2013. Compl. at Exs. A,B,C.

Schnaier admitted that when preparing to file this lawsuit it “was easy” to find all of these

documents. IsserAff, Ex. 8 at 187, 218-19. Yet, Schnaier, who was represented by counsel in

negotiating the APA, was unable to explain why he had not located these three documents before

executing the Subscriptions Agreements in 2016 and/or the APA in 2017, or explain any steps he

had taken to investigate Ellin’s background. IsserAff, Ex. 8 at 187, 190-95, 218-19; EllinAff, Ex.2

at Section 9.7. Although Schnaier testified that for “many years” he has known how to obtain a

FINRA report, he does not remember if he obtained one concerning Ellin before executing the

APA. IsserAff, Ex. 8 at 188-190.

Incredibly, Schnaier described the 2015 article attached as Exhibit A to the Complaint,

which appeared in a well-known financial publication, as “a really bad article” about Ellin.

IsserAff, Ex. 8 at 194-95. Schnaier was sure he had not seen this article before entering into the

Agreements because “I wouldn’t have gotten involved in it” if he had. IsserAff, Ex. 8 at 194-95.

He could not recall, however, how he was able to locate the article for this lawsuit, but not before

executing the Agreements. IsserAff, Ex. 8 at 194-95.

Plaintiffs’ Lack of Due Diligence Concerning LXL

Plaintiffs lack of due diligence is even more evident concerning their specific allegations.

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For example, Plaintiffs allege that they were unaware that LXL was just a shell company with no

real assets. Compl., ¶¶4-6. Simply reviewing LXL’s SEC filings, however, would have revealed

this fact, as Schnaier was well aware, having reviewed SEC filings when he was a broker. IsserAff,

Ex. 8 at 15, 17-18; EllinAff at ¶22. Indeed, Richard Blakeley, Wantickets’ CFO, did just that

before the APA was signed, and was aware that LXL did not have many assets or much revenue

and was a shell company, which knowledge is attributable to Wantickets and Schnaier. IsserAff,

Ex. 10 at 35, 150-152, 265.

Plaintiffs further allege that Ellin told Schnaier that if there was a sale or merger between

Wantickets and LXL, Wantickets would receive the ticketing rights for the events streamed by

LXL. Compl., ¶41. As Schnaier admits that he did not know whether LXL had the right to choose

the ticketing agent for the festivals it streamed, Plaintiffs could not have relied on this statement.

IsserAff, Ex. 8 at 232.

Plaintiffs also allege that Ellin informed Schnaier that LXL was raising money from other

investors at $5 a share and that he had invested in LXL. Compl., ¶51. As for the $5 a share price,

other than discussing it with Ellin and other LXL employees, Schnaier admits that he did not do

any due diligence to determine the value of the LXL shares Plaintiffs received because that was

the market price. IsserAff, Ex. 8 at 208-10, 263; Ex. 9 at 333. Similarly deficient, he could not

recall whether he asked Ellin to see documents concerning Ellin’s investment in LXL. IsserAff,

Ex. 9 at 667-668. If these alleged representation were not true, any reliance upon them was not

justified because all shares issued by LXL, including to Ellin, and the price per share, were

disclosed in LXL’s SEC filings, which were available to Schnaier at the SEC website, which

Schnaier, in contradiction, testified that he did not review, does not recall reviewing and did

review. IsserAff, Ex. 8 at 232-33; Ex. 9 at 464, 691; EllinAff, ¶23.

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Plaintiffs further claim that Ellin told Schnaier that Bank of Montreal (“BMO”) had

committed to raising $75 million to $100 million in an initial public offering as LXL’s underwriter,

as opposed to using its “best efforts” to raise this amount, and they relied on this statement. To

the extent such a statement was made, Plaintiffs could not possibly have justifiably relied on it.

As an experienced investor and broker, Schnaier is well aware that rarely are IPOs guaranteed.

EllinAff, ¶27.

Further, Schnaier claimed Ellin would not let him speak with BMO. IsserAff, Ex. 8 at 278-

79. If true, this should have raised a red flag, as there would be no reason Schnaier would not be

permitted to speak with BMO. EllinAff at ¶28. Indeed, Gary Winnick, Qello’s principal, testified

that he spoke to BMO about the IPO when Qello was considering entering into a transaction in

exchange for LXL stock. IsserAff, Ex. 12.

The APA makes numerous references to the IPO and Schnaier was obligated to pay for

certain of LXL Tickets’ losses until the IPO. EllinAff at Ex.2 at Section 7.4. Yet he claims it did

not raise a red flag that Ellin would not permit him to speak to BMO about the IPO. IsserAff, Ex.

9 at 447. This is not credible and in light of the circumstances it was not reasonable for Plaintiffs

to rely on any statements they believed meant that BMO had guaranteed it would raise at least $75

million in the LXL IPO.

Plaintiffs’ Lack of Due Diligence Concerning Music Festivals

Plaintiffs allege that “beginning in the second half of 2015,” Ellin stated to Schnaier on

multiple occasions that he had arranged, or was in the process of arranging, for LXL to obtain the

exclusive rights to live stream major music festivals, which he specifically identified. Compl., ¶41.

During his deposition, Schnaier testified that before the APA was signed, Ellin told him that LXL

had secured the streaming rights for these festivals. IsserAff, Ex. 9 at 402, 407-415.

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Obviously, if LXL had obtained such streaming rights, there would have been press

releases and the festivals would be listed on LXL’s website, as well as the websites for the festivals.

EllinAff, ¶24. The absence of these festivals on LXL’s website and the festivals’ websites, as well

as the absence of press releases, would have demonstrated to Plaintiffs that LXL had not obtained

such streaming rights. EllinAff, ¶¶24-25.

Indeed, Jim Sabo, Wantickets’ Chief Technology Officer, was aware that LXL had not

obtained certain streaming rights because they were not listed on LXL’s website. IsserAff, Ex. 11

at 96-97. Asked how he figured this out, Mr. Sabo replied “common sense.” IsserAff, Ex. 11 at

124. So too, Wantickets’ CFO reviewed LXL’s SEC filings after the letter of intent was signed in

July 2016 to see if these rights had been obtained. IsserAff, Ex. 10 at 35, 146.

Schnaier repeatedly changed his testimony concerning whether he reviewed LXL’s website

to determine whether LXL had obtained streaming rights for the events. At first, he admitted that

he was aware that if LXL had obtained streaming rights, such festivals or events would be on

LXL’s “platform.” IsserAff, Ex. 8 at 226-27. In an attempt to cover up his lack of due diligence,

he then testified he did not know if such events would be on LXL’s website or how subscribers

would access the platform. IsserAff, Ex. 8 at 226-27. That he claims not to know the rudimentary

basics of LXL’s business speaks volumes concerning Schnaier’s lack of due diligence.

Again changing his testimony, Schnaier admitted that he went to LXL’s website to see if

the events were listed, which would have demonstrated to him that the rights were not obtained.

IsserAff, Ex. 8 at 226- 227. He then claimed not to have visited LXL’s website before signing the

APA to determine if LXL was streaming such events. IsserAff, Ex. 8 at 228.

Whether Schnaier checked the website as part of due diligence or not, Plaintiffs’ reliance

was not justified. If Schnaier did not check the website, he failed to conduct ordinary due

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diligence. Had he simply checked the website, he would have discovered that the streaming rights

he alleges Ellin told him LXL had obtained, were not obtained. Indeed, Schnaier testified that

after executing the APA he discovered that LXL did not obtain the streaming rights for such

festivals because the festivals were not on LXL’s “stream site.” IsserAff, Ex. 8 at 232-33. This

demonstrates that such information was easily obtainable by ordinary due diligence.

Further, Schnaier admitted that if the festivals had been secured, LXL “would have made

some kind of announcement or it would have been on the site, it would have been done.” IsserAff,

Ex. 8 at 245. The absence of any such announcements was more than “hint” warranting further

investigation.

In Exhibit D to the Amended Complaint, a document LXL sent to Schnaier titled Overall

update/Pipeline, dated November 17, 2015 (the “Pipeline”), the fourth bullet point under the

heading “LAUNCH” states “6-8 festivals to be secured for May 2016-May 2017.” Compl, Ex. D.

That Schnaier did not take any steps to verify the accuracy of the statements in the Pipeline, other

than speaking with LXL, is even more shocking because he admitted that the Pipeline contained a

red flag. Schnaier testified that the statement in the fifth bullet point under the heading

“LAUNCH,” concerning obtaining streaming rights for 6-8 venues/clubs, was incorrect. IsserAff,

Ex. 8 at 250. According to Schnaier, this could only occur if the acquisition of Wantickets closed

and “that deal wasn’t done yet.” IsserAff, Ex. 8 at 250.

Schnaier testified that this statement and others in the Pipeline, which was sent to other

people in addition to Schnaier, was “obviously misleading.” IsserAff, Ex. 8 at 250-251. Yet,

although he claims that statements in the Pipeline concerning Wantickets were “misleading,” he

made no further effort to verify the accuracy of the other statements, ignoring in 2015 what should

have been an obvious red flag in his mind.

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Plaintiffs allege that in July 2016, Ellin and Blake Indursky, a LXL employee, told Mr.

Schnaier that LXL was in the proves of securing the exclusive streaming rights for major music

festivals, including Coachella, Tomorrow Land, Glastonbury Festival, Lollapalooza, and

Bonnaroo. Compl., ¶61. During his deposition, Schnaier testified that before the APA was signed,

Ellin told him that LXL had secured the streaming rights for these festivals. IsserAff, Ex. 9 at 402,

408-415. Plaintiffs however, did not take any steps to confirm that such rights had been obtained,

other than discussions with LXL.

Schnaier does not recall whether he looked to see if a press release had been issued by LXL

announcing that it had obtained streaming right for Coachella. IsserAff, Ex. 9 at 403-404.

Schnaier further testified that he does not believe he looked at Coachella’s website to see if LXL

had the streaming rights, but also testified that he did look at LXL’s website and Coachella was

not there because “they never had that deal.” IsserAff, Ex. 9 at 403-404. So too, concerning

Tomorrow Land, Glastonbury, Lollapalooza and Bonnaroo, Schnaier does not recall whether he

checked LXL’s website for these festivals (except for Bonnaroo, which was not there), he did not

see a press release announcing these deals and did not go to Tomorrow Land’s or Bonnaroo’s

website to see if LXL was mentioned. IsserAff, Ex. 9 at 408-015.

Another hint that further due diligence was necessary is the China Brands allegations. On

January 22, 2016, Ellin emailed Schnaier stating that LXL had a “signed deal” with China Brands,

and a few days later emailed that the deal “will be announced tomm.” Compl., ¶47-48. Schnaier

does not recall whether at the time of the emails he followed up to see if an announcement was

made. IsserAff, Ex. 8 at 253.

Any argument by Plaintiffs that they did not know when the events would be listed on

LXL’s website, or announcement made, because they did not know the dates of the festivals, or

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that they believed LXL was waiting for the agreements to be signed before announcing them, is

absurd. According to the Complaint, Ellin told Schnaier in 2015 that LXL had obtained the

streaming rights or soon would – which is a year before the Subscription Agreements were

executed and two years before the execution of the APA. Compl., ¶41. Further, during his

“detailed” conversations about the agreements with Ellin, Schnaier could have simply asked when

the events were, or gone to the events’ websites for this information. As for not knowing if the

agreement were signed, Schnaier testified that before the APA was signed, Ellin told him that LXL

had secured the streaming rights for these festivals. IsserAff, Ex. 9 at 402 and 408-415.

Plaintiffs’ Lack of Due Diligence Concerning Acquisitions

Schnaier claims that Ellin represented to him that LXL had closed transactions to acquire

Qello and SFX. Concerning Qello, Schnaier admits that he was aware when he executed the APA

that such a deal had not closed. IsserAff, Ex. 9 at 436, 438. His claim to have believed that the

Qello acquisition would close soon after the APA was not justified.

Plaintiffs allege that in July 2016, Ellin represented to Schnaier that LXL “had already

closed on a deal to buy Quello.” Compl., ¶61. Plaintiffs further allege that on December 26, 2016,

Ellin sent Schnaier a “LiveXLive December Update,” which stated that “[w]e are in negotiations

with all-star Gary Winnick for an all-stock acquisition of Quello.” Compl., ¶69. On April 2, 2017,

Ellin texted Schnaier "Hurry closing quello than sfx." Compl., ¶72.

That Plaintiffs claim they were informed in July 2016 that LXL “had already closed on a

deal to buy Quello,” then informed in December that LXL was negotiating with Qello and then

informed in April that a Qello deal was “closing” should have raised red flags as to the Qello

transaction and in general. In light of the many times Plaintiffs claimed to have been told that

Qello “closed” or would soon be closing, it was not reasonable to rely on any claimed statements

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by Ellin that a Qello deal would soon close after the APA.

As for an acquisition of SFX by LXL, Plaintiffs claim that Ellin “made it sound like it was

an imminent deal.” IsserAff, Ex. 9 at 424. Yet, Plaintiffs allege that on December 20, 2016, LXL

stated that concerning SFX, LXL is “commencing full due diligence with eyes on acquisition.”

Compl., ¶69. Plaintiffs further allege that on February 8, 2017, Ellin stated to Schnaier “Sfx loi

going out shortly!" Compl., ¶71. This is three months before the APA. Had a letter of intent been

executed, it would have been announced and disclosed in SEC filings. EllinAff, ¶¶18-19. Again

on April 2, 2017, Ellin wrote to Schnaier, "Hurry closing quello than sfx." Compl., ¶72. Schnaier

admits he was aware that any deal to acquire SFX had not closed when the APA was executed.

IsserAff, Ex. 9 at 424-427

As Plaintiffs claim they were lead to believe that an acquisition of SFX was imminent since

December 20, 2016, and there was no announcement of a letter of intent or deal, it was not

reasonable for Plaintiffs to rely on any representation that a deal with SFX would close. It should

be noted that LXL eventually did acquire part of SFX. EllinAff, ¶29.

Plaintiffs Ignored Other Hints

Initially, during the first day of his deposition, on several occasions Schnaier did not recall

whether he had asked Ellin for documents to verify the representations made. IsserAff, Ex. 8 at

221-22, 229. After he spoke three times with his attorney between the first and second day of his

deposition, he remembered asking for many documents which were not provided to him. IsserAff,

Ex. 9 at 374-76. Such documents included contracts for deals Ellin told him LXL had closed or

would soon close, which Ellin said he could not provide because such documents were

“proprietary.” IsserAff, Ex. 9 at 374-77.

Schnaier, however, claims that he asked “specific questions” about all of the agreements

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he believed LXL had closed to stream festivals and that he was given “detailed answers.” IsserAff,

Ex. 9 at 650. Such questions included “the terms of the deal” and “what exactly the deal entailed.”

IsserAff, Ex. 9 at 654. Schnaier claims to have “had extensive conversations Rob Ellin and his

team” and that Ellin “was very specific in the answers he gave me,” IsserAff, Ex. 9 at 668-69.

Schnaier claims to have asked Ellin “very detailed specifics and he would answer them” and to

have had “really detailed conversations” with Ellin and other LXL employees. IsserAff, Ex. 9 at

408, 412.

Concerning the SFX acquisition, Schnaier also claims to have had “many, many, many

conversations, extensive conversations” concerning the deal terms and he received “detailed

answers” concerning the terms of the deal. IsserAff, Ex. 9 at 669-70, 679. Similarly, concerning

the Qello deal, “I had some really, really in-depth conversations with Rob Ellin asking him some

really, you know, specific questions about it.” IsserAff, Ex. 9 at 675.

That Schnaier claims that Ellin verbally told him all of the details of the agreements and

negotiations, but would not even show him the signed agreements, term sheets, drafts or emails

was more than a hint that additional due diligence was required. Even Schnaier admitted that

this raised a “red flag,” but then attempted to back track. IsserAff, Ex. 9 at 656. Whether he

admits it or not, a claim that Ellin told him all of the “proprietary” details of the claimed agreements

and negotiations, but would not show him any documents containing the information verbally

disclosed because they are “proprietary,” is more than a hint that further investigation was required

(such as demanding to see the documents). Simply put, Ellin disclosed the information Schnaier

claims Ellin told him was proprietary.

Further demonstrating Plaintiffs’ failure to perform ordinary due diligence, although he

was represented by counsel, Schnaier took no steps to determine whether LXL was prohibited

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from showing him the documents he asked to see. IsserAff, Ex. 9 at 685-86, 696-97, 708-710.

ARGUMENT

POINT I

PLAINTFFS’ FRAUD CLAIMS SHOULD BE DISMISSED

For their First Cause of Action, Schnaier and Danco assert a claim for fraudulent

inducement based on the Subscription Agreements. For the Second Cause of Action, Schnaier

asserts a claim for fraudulent inducement concerning the APA. Dismissal of these claims is

warranted because: 1) the claims are precluded due to the disclaimers of representations contained

in the Agreements; 2) Plaintiffs cannot established that any reliance on the alleged

misrepresentations was justified; and/or 3) Plaintiffs have failed to demonstrate their alleged

damages and/or that they suffered damages.

A. Plaintiffs’ Fraud Claims Are Precluded

When an agreement contains a specific disclaimer that a party is not making any

representations outside of the agreement, the parol evidence rule excludes evidence demonstrating

a claim of fraudulent inducement, requiring dismissal of the claim. Danann Realty Corp. v. Harris,

5 N.Y.2d 317, 184 N.Y.S.2d 599 (1959). Although there is language in Danann which seems to

require a disclaimer of representations and a disclaimer of reliance on representations, since

Danann was decided in 1957, courts have held that a disclaimer of representations by one party is

sufficient. See e.g., WT Holdings Incorporated v. Argonaut Group, Inc., 127 A.D.3d 544, 5

N.Y.S.3d 731 (1st Dep’t 2015).

There is no dispute that the alleged misrepresentations are not contained in Agreements.

After listing the representations made by LXL, Section 2.11 of the APA provides that:

No Other Representations. Except as expressly set forth in this

Agreement, none of the Buyer or Loton [LXL] make any further

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representations or warranties, express or implied, and any such

representations and warranties are hereby expressly
disclaimed.

EllinAff, Ex. 2 at Section 2.11 (emphasis added). Similarly, Section 9.3 of the APA contains a

general merger clause, which provides that the APA “supersedes” any representations not

contained in the APA. EllinAff, Ex. 2 at Section 9.3.

Each of the Subscription Agreements provides that the subscriber to the shares is “not

relying on the Company, or its affiliates or agents with respect to economic considerations

involved in this investment.” EllinAff, Ex. 1 at Section 9.3. The Subscription Agreements

further provide that “[n]o representations or warranties have been made to the Undersigned by

the Company, or any officer, employee, agent, affiliate or subsidiary of the Company, and in

subscribing for Shares or the Warrant, the Undersigned is not relying upon any other

representations or warranties of the Company.” EllinAff, Ex. 1 at Section 9.3.

These disclaimers are sufficiently specific to preclude Plaintiffs’ fraudulent inducement

claims. In WT Holdings Incorporated., 127 A.D.3d 544, 5 N.Y.S.3d 731, in granting summary

judgment, the court held that a “No Additional Representation” clause in the agreement “that

disclaims liability and responsibility for any extra-contractual representation, render[s] the fraud

claim not viable ... We reject plaintiff's contention that the ‘No Additional Representation’

provision is not sufficiently specific to bar the proposed fraudulent inducement claim.” Id.

Accordingly, the “No Other Representations” clause in the APA, which expressly

disclaims any representations outside of the APA and is substantially similar to the clause as

described in WT Holdings Incorporated, and the clauses discussed above in the Subscription

Agreements, are sufficiently specific. See also Dubow v. Century Realty, Inc., 172 A.D.3d 622,

98 N.Y.S.3d 844 (1st Dep’t 2019) (dismissing fraud claim due to “’no representations’ clause.”);

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Pate v. BNY Mellon-Alcentra Mezzanine III, LP, 163 A.D.3e 429, 430, 81 N.Y.S.3d 29, 30 (1st

Dep’t 2018) (fraudulent inducement claim precluded because agreement contains a “’No Other

Representations’ clause.”)

In Barnaba Realty Group, LLC v. Solomon, 121 A.D.3d 730, 731, 994 N.Y.S.2s 356, 358

(2d Dep’t 2014), the court held that “a specific disclaimer defeats any allegation that the contract

was executed in reliance upon contrary oral representations ... Here, the lease specifically provided

that the plaintiff made no representations, warranties, or promises with respect to the leased

property (other than those expressly set forth in the lease) and that Avalon had thoroughly reviewed

‘the facts, circumstances, and the physical condition of the Building.’ Those clauses are

sufficiently specific to bar Solomon's allegations that Avalon was induced to enter into the lease

based upon certain oral misrepresentations.” Here too, LXL specifically disclaimed any

representations and Plaintiffs had an opportunity to conduct due diligence.

In dismissing LXL’s Counterclaim for fraudulent inducement of the Subscription

Agreements, this Court held that “I think the agreement even contained provisions saying that

there have been no reps by anyone other than the company and the reps that the company made

were representations, again, only directed at the company, not about Schnaier. So there is no basis

for any reasonable reliance on any other outside representations.” IsserAff, Ex. 7 at 11.

Accordingly, due to the specific disclaimers in the Agreements, Plaintiffs’ fraud claims are

precluded as a matter of law, requiring dismissal.

B. Plaintiffs’ Reliance on the Claimed Misrepresentations Was Not Justified

Plaintiffs’ failure to demonstrate justifiable reliance is a separate ground for dismissal. A

required element of a fraudulent inducement claim is that the plaintiff’s reliance on the claimed

misrepresentations of existing fact was justified. Global Minerals and Metals Corp. v. Holme, 35

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A.D.3d 93, 98, 824 N.Y.S.2d 210, 214 (1st Dep’t 2006). A claim for fraud may be dismissed on

summary judgement if reliance on the alleged misrepresentations was unreasonable because the

plaintiff “failed to fulfill its duty to investigate.” Global Minerals and Metals Corp., 35 A.D.3d

at 99, 824 N.Y.S.2d at 215. “New York law imposes an affirmative duty on sophisticated investors

to protect themselves from misrepresentations made during business acquisitions by investigating

the details of the transactions and the business they are acquiring.” Global Minerals and Metals

Corp., 35 A.D.3d at 100, 824 N.Y.S.2d at 215.

As held in UST Private Equity Investors Fund, Inc. v. Salomon Smith Barney, 288 A.D.2d

87, 88, 733 N.Y.S.2d 385, 386 (1st Dep’t 2001), “[a]s a matter of law, a sophisticated plaintiff

cannot establish that it entered into an arm's length transaction in justifiable reliance on alleged

misrepresentations if that plaintiff failed to make use of the means of verification that were

available to it.” Further, “there are many cases in which the plaintiff's failure to obtain a specific,

written representation [in the agreement] is given as a reason for finding reliance to be unjustified.”

DDJ Management, LLC v. Rhone Group L.L.C., 15 N.Y.3d 147, 154, 905 N.Y.S.2d 118, 122

(2010).

Here, Plaintiffs completely failed to conduct sufficient due diligence or make use of the

means of verification available. Schnaier conceded “I didn’t do enough due diligence.” IsserAff,

Ex. 8 at 257. As discussed above, although review of LXL’s website, SEC filings and/or press

releases would have demonstrated the inaccuracy of the claimed misrepresentations, this was not

done. Schnaier merely trusted whatever Ellin told him as “gospel.” As a matter of law, relying

on such trust is not justified. In Global Minerals and Metals Corp, the plaintiff “claimed to have

trusted, without verifying, the [defendant’s] assurances as to the innocent nature of a particular

transaction. The Appellate Division held such trust to be unjustified.” DDJ Management, LLC,

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15 N.Y.3d at 154, 905 N.Y.S.2d at 122.

“Moreover, ‘when the party to whom a misrepresentation is made has hints of its falsity, a

heightened degree of diligence is required of it. It cannot reasonably rely on such representations

without making additional inquiry to determine their accuracy.’” ACA Financial Guaranty Corp.

v. Goldman, Sachs & Co., 25 N.Y.3d 1043, 1044-1045, 10 N.Y.S.3d 486, 487 (2015) (citation

omitted). See also Global Minerals and Metals Corp., 35 A.D.3d at 100, 824 N.Y.S.2d at 215

(“[w]hen a party fails to make further inquiry or insert appropriate language in the agreement for

its protection [after a hint], it has willingly assumed the business risk that the facts may not be as

represented.”)

Numerous “hints” were present, but ignored by Schnaier. Schnaier’s claim that LXL

refused to show him requested agreements and documents (after describing the agreements “in

extensive detail”) was such a hint. See e.g., United Natural Foods, Inc. v. Goldman Sachs Group,

Inc., _ N.Y.S.3d _, 2021 WL 189161 (1st Dep’t) (refusal to provide a document was “a red-flag

that triggered a need to make additional inquiries.”)

That Schnaier believed documents provided to him contained “misleading” statements

concerning the Wantickets transaction was another hint. In addition, as Schnaier was told

beginning in 2015 that LXL had closed deals or would soon close them, and such deals were not

disclosed in press releases, on LXL’s website or its SEC filings was another hint. That Schnaier

claims Ellin told him in July 2016 that LXL “had already closed on a deal to buy Quello,” but then

Ellin later made several statements concerning the progress of negotiations concerning a deal he

had allegedly claimed “already closed,” was another hint.

For any and all of the reasons discussed above, there is no genuine issue of material fact

and dismissal of the fraud claims is warranted because Plaintiffs cannot establish that their reliance

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on any statement of material existing fact was justified.

C. Plaintiffs Have Failed to Establish their Damages

The establishment of damages is a required element of a fraud claim, which Plaintiffs have

failed to satisfy. Global Minerals and Metals Corp., 35 A.D.3d at 99, 824 N.Y.S.2d at 215.

Plaintiffs allege that their damages for their fraud claims is the difference between the value of

what they provided to LXL ($1.25 million for Subscription Agreements and Wantickets’ assets for

the APA) and the amount they obtained when they sold the LXL shares which they had received

in exchange. IsserAff, Ex. 14 at Response 4. This, however, is not the proper measure of damages.

“[A] plaintiff alleging fraudulent inducement is limited to ‘out of pocket’ damages.”

Kumiva Group, LLC v. Garda USA Inc., 146 A.D.3d 504, 506, 45 N.Y.S.3d 410, 413 (1st Dep’t

2017). “’Out of pocket’ damages are calculated in three steps. First, the plaintiff must show the

actual value of the consideration it received. Second, the plaintiff must prove that the defendant's

fraudulent inducement directly caused the plaintiff to agree to deliver consideration that was

greater than the value of the received consideration. Finally, the difference between the value of

the received consideration and the delivered consideration constitutes ‘out of pocket’ damages.”

Id. See also Starr Foundation v. American International Group, Inc., 76 A.D.3d 25, 28, 901

N.Y.S.2d 246, 249 (1sr Dep’t 2010).

“In other words, damages are calculated to compensate plaintiffs for what they lost because

of the fraud, not for what they might have gained in the absence of fraud.” Connaughton v.

Chipotle Mexican Grill, Inc., 135 A.D.3d 535, 538, 23 N.Y.S.3d 216, 218-19 (1sr Dep’t 2016).

Accordingly, Plaintiffs must establish the value of the LXL shares received at the time of the

Agreements. Plaintiffs, however, have not submitted any evidence concerning the value of the

LXL shares they received at the time of the Agreements. As Plaintiffs cannot demonstrate the

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value of the consideration they received (the LXL shares), dismissal of the fraud claims is required.

See e.g., Kumiva Group, LLC, 146 A.D.3d 504, 45 N.Y.S.3d 410 (dismissing fraud claim on

summary judgment due to failure to establish amount of damages due to lack of evidence

demonstrating the value of the consideration received). This in and of itself requires dismissal of

the fraud claims.

Not only would it be impermissible to base any damages on the amount Plaintiffs received

when they sold their shares of LXL, it also would be an inaccurate and inappropriate measure of

damages. Plaintiffs sold the overwhelming majority of their shares over a ten month period

between August 2018 and June 2019. Isser Aff. at Exs. 14 and 15; Ex. 9 at 501. Clearly, the value

of LXL’s shares over 3-4 years after the Subscription Agreements and 15-25 months after the

APA, when the shares were sold, was not necessarily the same value as when the Agreements were

executed. Further, Plaintiffs’ shares were sold at varying prices, between $2.82 a share (10/19/18)

and $5.517 a share (9/7/19). IsserAff, Ex. 14.

Accordingly, there is no factual basis to use the sale proceeds to measure damages, as there

were many changes to LXL’s business during the multi-year gap and Plaintiffs could have sold all

of the shares for the highest price, but did not. In addition, Plaintiffs transferred many of the shares

privately, not on the market, and have not submitted any evidence concerning the value of these

shares. See e.g., IsserAff, Ex. 9 at 506-507

Dismissal of the fraud claims also is required because the Plaintiffs asserting these claims

did not suffer any damages, even if they could prove damages. Concerning the claim for fraudulent

inducement of the Subscription Agreement, the parties to the agreements are LXL and Wantickets

Holdings, and the LXL shares were acquired by Wantickets Holdings. EllinAff, Ex. 1. Yet, this

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claim is not asserted by Wantickets Holdings, as it is asserted by Schnaier and Danco, who lack

privity of contract and did not suffer any damages. Compl., ¶145.

Similarly, Schnaier asserts the fraud claim concerning the APA. Compl., ¶145. Schnaier,

however, did not receive any shares of LXL pursuant to the APA. EllinAff, Ex. 2 at Schedule 1.

Accordingly, he could not have suffered any damages.

For any and all of the reasons discussed above, because Plaintiffs cannot establish their

damages, there is no genuine issue of material fact and the fraud claims should be dismissed.

POINT II

DISMISSAL OF THE FOURTH

CAUSE OF ACTION AS AGAINST LXL IS REQUIRED

For the Fourth Cause of Action, Schnaier asserts a claim for breach of his Employment

Agreement against LXL Tickets and LXL, alleging he was terminated without cause. Compl.,

¶161. The Employment Agreement, however, is only between Schnaier and LXL Tickets.

Compl., Ex. O. LXL is not a party to the Employment Agreement and Schnaier alleges he was

terminated by LXL Tickets, not by LXL. Compl., ¶174, Ex. O. Plaintiffs have not provided any

justification to pierce the corporate veil and assert this claim for breach against LXL, a non-party

to the Employment Agreement. Accordingly, this claim as against LXL should be dismissed.

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CONCLUSION

For any and all of the reasons discussed, Defendants’ motion should be granted in its

entirety.

Dated: New York, New York

March 9, 2021

Law Offices of Steven D. Isser

By:_________________________
Steven D. Isser. Esq.
424 Madison Avenue, Third Floor
New York, New York 10017
(212) 812-5096
Attorneys for Defendants LiveXLive Media,
Inc., LiveXLive Tickets, Inc. and Robert S.
Ellin

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WORD COUNT CERTIFICATION

Pursuant to Commercial Division Rule 17, I certify that the total number of words in the

Memorandum of Law, excluding caption, table of contents, table of authorities and signature is 7,149.

By:_______________________
Steven D. Isser

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