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Immersive Management Holdings v. Indigo Dragon Group and others

Immersive Management Holdings LLC v. Indigo Dragon Group (UK) Ltd., Kahlil Guzi Karmenu Piscopo and Ryan Kinghorn, JAMS Case No. 1220065786
Nature of the proceedings:
International
Type of case:
Commercial Arbitration
Economic sector:
67Financial and insurance activities
Financial service activities, except insurance and pension funding
Date of introduction:
20 July 2020
Status of the case:
Concluded
Claimant’s country of origin:
United States
Respondent's country of origin:
United Kingdom
Institution:
JAMS (Judicial Arbitration and Mediation Services)
Rules of arbitration:
Seat of arbitration:
Los Angeles
Applicable law:
Delaware (United States)

Documents of the case

profile picture Barbara Reeves Sole arbitrator
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This document was contributed under the IBA x Jus Mundi Exclusive Partnership for Commercial Arbitration.

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    Jus Mundi

Lawyers, other representatives, expert(s), tribunal’s secretary

Award

THE UNDERSIGNED ARBITRATOR, having been designated in accordance with Clause 5 of the April 2, 2020 Letter Agreement ("Letter Agreement") between Immersive Management Holdings LLC, a Delaware limited liability company ("IMH"), and Indigo Dragon Group (UK) Ltd. (Reg.#: 11827975) ("IDGL"), a United Kingdom limited company, and having examined the submissions, proof and allegations of the parties, concludes and issues this Award as follows:

I. Introduction and Procedural Statement

A. Background.

1.
Claimant filed a Request for Arbitration and the Arbitration commenced on 20 July 2020.
2.
JAMS has jurisdiction over this dispute under Clause 5 of the April 2, 2020, Letter Agreement ("Letter Agreement") between Immersive Management Holdings LLC, a Delaware limited liability company ("IMH"), and Indigo Dragon Group (UK) Ltd. (Reg.#: 11827975) ("IDGL"), a United Kingdom limited company. The Arbitrator shall apply the Federal Arbitration Act ("FAA"). The applicable substantive law is the law of the State of Delaware. The JAMS International Arbitration Rules and Procedures ("Rules") shall apply to this proceeding.
3.
Named-Respondents Kahlil Guzi Karmenu Piscopo and Ryan Kinghorn are officers and/or directors of Respondent IDGL but not individual signatories to the Letter Agreement and its arbitration agreement. JAMS will only move forward with parties who are signatories to the contract, absent consent of the non-signatories or other legal reason conferring jurisdiction over a non-signatory. Accordingly, Messrs Piscopo and Kinghorn were deactivated from the service list.
4.
JAMS was informed that attorney Timothy Stein, Esq. was representing Indigo Dragon on July 30, 2020, via email by Claimant’s counsel Robert Mockler and on 21 October 2020 via email from one of the individually-named named Respondents, Kahlil Piscopo, CEO of Respondent IDGL. JAMS served Mr. Stein with all filings on behalf of Respondents. On 29 January 2021, the day of the preliminary hearing, Mr. Stein informed JAMS for the first time that he was not representing Respondent IDGL, and neither he nor any representative of Respondent IDGL appeared for the preliminary hearing.
5.
On 4 February 2021, JAMS re-served all the filings previously served on attorney Stein, on Respondent IDGL, directed to Mr. Piscopo, as Managing Director and CEO of Respondent IDGL.
6.
Respondent IDGL has not filed a Response to the Demand, nor has it submitted any response. Pursuant to Art. 5.1 of the Rules, failure to deliver a Statement of Defense will not delay the arbitration. In the event of such failure, the Respondent will be deemed to have denied the claims set forth in the Request for Arbitration.
7.
A preliminary hearing was conducted in this matter on 19 February 2021. Robert W. Mockler, Esq. appeared on behalf of Claimant IMH. There was no appearance for Respondent.
8.
The Evidentiary Hearing was calendared for 3 May 2021, and 7 May 2021, in Los Angeles, California. In light of the ongoing Covid-19 pandemic, the hearing was scheduled as a virtual hearing, conducted on the JAMS Zoom virtual hearing platform. The Evidentiary Hearing was continued for administrative reasons.
9.
By notice given 17 June 2021, the Evidentiary Hearing in this matter was set for 22 July 2021.
10.
Pursuant to the JAMS International Arbitration Rules & Procedures, the Arbitrator instructed the Parties to provide to the Arbitrator the written submissions and the documents on which they intend to rely at the Evidentiary Hearing one week in advance of the Hearing date. (Art. 24.3). The Arbitrator further requested the parties to submit written witness statements from any witness, signed by the witness, one week in advance of the hearing. (Art. 26.4). Respondents did not provide any submissions.

B. The Evidentiary Hearing.

11.
The Evidentiary Hearing was conducted via the JAMS Zoom remote platform on 22 July 2021, pursuant to Article 23.
12.
Respondent did not appear. Article 23.5 authorizes the Arbitrator to proceed with the hearing if a party, without valid excuse, fails to appear. Further, the Respondent not only failed to appear, but also failed to submit a Statement of Defense. Article 27 authorizes the Arbitrator to draw adverse inferences from a party’s failure to participate, and to make an award following a determination made upon the submission of proof by the non-defaulting party of the validity and amount of that party’s claim.
13.
Claimant IMH submitted exhibits and the declaration and testimony of Cary Granat and Robert Mockler. Respondent IDGL did not appear. At the close of the Evidentiary Hearing Claimant confirmed that it had no further evidence to produce, with the exception of evidence regarding arbitration costs and fees, which had been bifurcated pursuant to Article 20.3. Claimant provided its arbitration costs and fees submission, filed effective 9 August 2021. Respondent made no submission.
14.
Pursuant to Art. 29, the Arbitrator closed the proceedings on 9 August 2021. The Arbitrator reopened the proceedings on August 31, 2021 requesting additional submissions on Delaware law and remedies sought by September 14, 2021, at which time the Arbitrator closed the proceedings

II. Facts

15.
The following is a statement of those facts found by the Arbitrator to be true and necessary to the Award. To the extent that this recitation differs from any party’s position, that is the result of determinations as to credibility, determinations of relevance, burden of proof considerations, and the weighing of the evidence, both oral and written.
16.
Claimant IMH is a business that develops state-of-the-art entertainment parks, including Westworld style theme parks that use virtual reality and digital effects technology to give consumers realistic, immersive experiences. Claimant IMH sought to partner with funders in a joint venture in which IMH would contribute the operations, technology and creative teams of its affiliate company, Immersive Artistry, LLC, and its subsidiaries, and the funder would bring a minimum of $45 million of funding to a 50/50 venture under a new entity, Culture Fusion LLC ("Culture Fusion").
17.
Kahlil Piscopo and Ryan Kinghorn are the CEO and COO, respectively, of Respondent IDGL. Mr. Piscopo and Mr. Kinghorn expressed interest that IDGL wanted to be IMH’s partner and fund the joint venture and wished to proceed immediately. IDGL represented to IMH that it had more than sufficient capital to make a $45 million investment to launch Culture Fusion. IDGL showed IMH evidence of investments in the hundreds of millions of dollars and capital backing in the billions of dollars. Based on Respondent IDGL’s representations, Claimant IMH decided to move forward and did not seek other funding opportunities.
18.
The Parties entered into a Letter Agreement on 2 April 2020, whereby IDGL agreed to provide $45 million in funding in the form of capital contributions towards the parties’ joint venture, Culture Fusion Ltd. for the purposes of, among other things, funding and operating Culture Fusion operations containing the operations of Immersive Artistry, LLC. and its subsidiaries ("Immersive Artistry").
19.
Pursuant to the Letter Agreement, IDGL agreed to fund its capital contribution in two tranches, the first in the amount of between USD$15,000,000 to $30,000,000 on the date of the Letter Agreement (April 2, 2020) by wire, and the remainder of its capital contribution, in the aggregate amount of USD$45,000,000 on or prior to May 8, 2020.
20.
However, despite numerous representations made by Respondent IDGL that funding was being provided, Respondent IDGL did not make its capital contribution. For the next two months, Respondent IDGL continued to acknowledge, in telephone calls, emails, WhatsApp messages, and texts, and then through counsel, its obligation to fund.
21.
Mr. Piscopo and Mr. Kinghorn continued to represent that funds would be dispatched tomorrow, the next day or certainly next week. On multiple occasions they communicated those funds had already been wired. Mr. Piscopo gave details of bankers, banks, and often specified times when the funds would clear IMH’s accounts. However, these representations were false, and IDGL has not paid any amount of its capital contribution.
22.
For example, on 10 April 2020, Mr. Piscopo sent an email to IMG that blamed IDGL’s failure to make good on its funding commitments on "trading cycles." He reiterated that IDGL had in excess of $17 billion in assets under management and promised that funds would arrive by 13 April 2020. Mr. Piscopo stated that "the sum of USD $45,000,000.00 will be invested on or before 8th May 2020."
23.
IDGL continued to promise funding in written and voicemail communications on April 21, 22, 24, 27, 28, and 30. Both Mr. Piscopo and Mr. Kinghorn represented to IMH that funds would be dispatched shortly, and that some funds were already on the way.
24.
Mr. Piscopo confirmed that Citibank was preparing to wire funds and that IGDL had "funds moving within HSBC, Zurich that would be sent to IMH on May 1, 2020.
25.
On May 16, 2020, after deadlines for the capital contribution had passed, and Respondent IDGL had not made its $45 million capital contribution. Mr. Piscopo sent another email apologizing for IDGL’s delay in sending the funding, blaming the delay on IDGL and the "global economies" and IDGL "generally trying to not only kick start the global economy but sustain it."
26.
Mr. Piscopo later left voicemail messages promising that funding was coming from Credit Suisse or Royal Bank of Canada.
27.
On May 22, 2020, both Mr. Piscopo and Ryan Kinghorn also assured Claimant IMH that payment was coming, stating that Respondent IDGL was "looking forward to getting remittances from EU and HSBC and US GHD this Friday by close of business their time," but the money never arrived.
28.
After over a month of unfulfilled promises that the funds required by the Letter Agreement would be made available, IMH, through counsel, sent IDGL a demand letter informing it that IDGL was in breach of the Letter Agreement and demanding that payment be made no later than May 26, 2020. On May 29, 2020, after not receiving the funds by May 26, 2020, IMH sent a follow-up letter demanding the funds be received no later than June 1, 2020.
29.
On June 4, 2020, IDGL responded again, this time through new counsel, promising payment, but payment was never made.
30.
To date, IMH has not received any portion of the $45,000,000.00 owed by IDGL.
31.
IMH subpoenaed the banks with which IDGL had represented it did had relationships, including Arvest, Bank of Ireland, BNP, Citibank, HSBC, and Schwab. Each of those financial institutions that responded indicated that they did not have any record of accounts held by Respondent IDGL or its principals, Kahlil Piscopo and Ryan Kinghom.
32.
As a result of IDGL’s failure to provide the agreed-to funding, and the many misrepresentations made by IDGL regarding its financial status and the status of the funding, IMH was and is unable to make good on commitments it has made in furtherance of the joint venture based on IDGL’s funding commitment.
33.
IMH’s CEO, Cary Granat, testified that as IDGL was aware, Culture Fusion had a deal with an investor who was investing $30 million into the company. IDGL asked IMH not to close on that funding, in reliance on its promised funding. This $30 million investment was to pay off vendors and other debt obligations. IMH trusted the representations of IDGL, and when they did not materialize IMH was sued by vendors for damages and lack of payment, and Mr. Granat testified that resulted in a $6.8 million judgment against IMH. IMH did not introduce a copy of the judgment or evidence of payment made.
34.
Claimant IMH contends that IDGL’s failure to fund not only financially burdens IMH, but now its reputation and the reputations of its principals are at risk of being marred, as IMH has had to explain to their partners, employees and board members why their venture lacks the promised funding.
35.
Due to Respondent IDGL’s breach of contract and failure to provide the capital contribution, Claimant IMH has also been unable to pursue the joint venture in the manner that it had planned.
36.
Claimant IMH instituted this arbitration to obtain an order requiring IDGL to fund as promised and/or an award making IMH whole for the losses it has suffered. Claimant IMH requests both damages in the amount of $45,000,000 and specific performance.

III. ANALYSIS

37.
As set forth above, JAMS has jurisdiction over this dispute under Clause 5 of the April 2, 2020, Letter Agreement, in which the Parties agreed that "any dispute under or relating to the terms of this Letter Agreement or any breach thereof... shall be submitted to binding arbitration by JAMS, before a single arbitrator (who will have extensive experience arbitrating disputes in the entertainment industry), in Los Angeles, California in accordance with the rules promulgated by said association and any judgment and award rendered thereby may be confirmed by any court having jurisdiction thereof."
38.
Pursuant to the express terms of the Letter Agreement, Respondent IDGL was obligated to fund $45 million for Culture Fusion as a 50/50 joint venture between IMH and IDGL in full by May 8, 2020. IDGL failed to carry out this obligation, and, after months of promises Respondent IDGL never made payment.
39.
As a result of IDGL’s breach of the Letter Agreement, IMH was left without adequate funding.
40.
Respondent IDGL has not provided any defense for the claims asserted against it, having failed to even file an answer to IMH’s Request for Arbitration. Both Mr. Piscopo and Mr. Kinghom, as CEO and Managing Agent, and COO, respectively, submitted responses to the Demand to JAMS arguing that they as individuals should not be in the case. These responses confirm that Respondent IDGL had received notice of this arbitration, and voluntarily chose not to participate.
41.
To establish breach of contract under Delaware law, Claimant IMH must prove the existence of a contract, that one or more terms of Claimant’s contract with Respondent IDGL have not been performed, and that Claimant IMH has sustained damages as a result of Respondent IDGL’s failure to perform. VLIW Technology, LLC v. Hewlett-Packard Co. 840 A.2d 606, 612 (Del 2003).
42.
The general measure of damages for breach of contract under Delaware law is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result from the breach.
43.
The measure of compensatory damages for breach of contract is such damages as will place the non-breaching party in the same position he or she would have been if the contract had been performed. Recoverable damages are those that might have been foreseen or anticipated as being likely to arise from the breach itself, these consequences being considered to be the natural or probable consequences of the breach. Paul v. Deloitte & Touche LLP, 974 A.2d 140, 146 (Del. 2009); American Gen. Corp. v. Continental Airlines Corp., 622 A.2d 1, 8 (Del. Ch. 1992), aff’d mem., 620 A.2d 856 (Del. 1993); McClain v. Faraone, 369 A.2d 1090, 1092 (Del. Super. 1977).
44.
Delaware courts generally award "expectation damages" for a breach of contract, which "are calculated by (1) the loss to the non-breaching party (2) plus any loss, including incidental or consequential loss, caused by the breach (3) less any cost or other loss that the non-breaching party avoided by not having to perform." VICI Racing, LLC v. T-Mobile USA, Inc., 763 F.3d 273, 293 (3d Cir. 2014). When establishing the loss the non-breaching party incurred as a result of the breach, a plaintiff must '"lay a basis for a reasonable estimate of the extent of his harm, measured in money.’" Emmett S. Hickman Co. v. Emilio Capaldi Developer, Inc., 251 A.2d 571, 573 (Del. Super. Ct. 1969) (quoting 5 Corbin on Contracts, 125 Pt. 6, Ch. 56 § 1020); Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001) (citing Restatement (Second) of Contracts § 347). "[T]he question ... is what [the non-breaching party] could have reasonably expected to receive pursuant to the terms of the Asset Purchase Agreements at the time the agreements were signed." Ivize of Milwaukee, LLC v. Compex Litig. Support, LLC, Nos. 3158-VCL, 3406-VCL, 2009 WL 1111179, at *10 (Del. Ch. Apr. 27, 2009).
45.
Here, what Claimant IMH bargained for was $45 million in funding towards a joint venture with IDGL. Claimant IMH did not receive the $45 million capital contribution agreed to by IDGL.
46.
Claimant argues that IMH is entitled to the $45 million explicitly called for in the Letter Agreement, and compensation for the agreements it entered into with third parties in reasonable reliance on IDGL’s promise to fund the joint venture. However, a party cannot recover damages for breach of a contract for loss beyond the amount that the evidence permits to be established with reasonable certainty.
47.
As evidence of damages, IMH’s CEO testified that IMH trusted the representations of IDGL, and when they did not materialize IMH was sued by vendors for damages and lack of payment, resulting in a $6.8 million judgment against IMH. However, IMH did not provide any other evidence, such as a copy of the judgment and satisfaction thereof, of the $6.8 million judgment. Nor did IMH produce evidence quantifying its alleged damage to reputation. Claimant IMH cannot be indemnified for the judgment against them by reason of a lack of proof of the existence of such a judment.
48.
While it is reasonable to assume that the lack of IDGL’s funding prevented IMH from fulfilling its other debt obligations and from launching the parties’ joint venture, Culture Fusion, and for the purposes of funding and operating Culture Fusion operations and the operations of Immersive Artistry, and that IMH would be and has been damaged as a result, it is difficult to prove such damages with certainty.
49.
Where, as here, the damage remedy may be inadequate to protect the injured party's expectation interest because the loss caused by the breach is too difficult to estimate with reasonable certainty, specific performance and an injunction may be ordered to protect the expectation interest of the injured party. ALI Restatement (Second) Contracts §357.
50.
The Arbitrator finds that the evidence supports an order that the parties perform the Letter Agreement, specifically that IDG fund its full capital contribution of USD$45,000,000 for the purposes of, among other things, funding and operating Culture Fusion operations containing the operations of Immersive Artistry, LLC and its subsidiaries, in a 50%/50% joint venture.
51.
Claimant IMH is the prevailing party, and the Arbitrator finds that it is reasonable to award costs to Claimant. Respondent breached the Parties’ Letter Agreement and failed to respond to the Arbitration Demand as required in that Letter Agreement. Respondent’s failure to respond or participate required Claimant to pay the arbitration provider’s filing and administrative fees and arbitrator costs both on its own behalf and for the Respondent, which declined to make payment.
52.
Article 36.4 of the JAMS International Arbitration Rules and Procedures directs that the "Tribunal will fix the arbitration costs in its award." In doing so, the Tribunal "may apportion such costs among the parties if it determines that such apportionment is reasonable, taking into account the circumstances of the case." Under Article 36.1, "arbitration costs" includes: i) the Tribunal’s fees; ii) JAMS filing and administrative fees; and iii) the "reasonable costs for legal representation of a successful party."
53.
Claimant submitted the following fees and costs.

Claimant's Attorney Fees: $95,843.00.

Claimant’s Costs:

Filing fees and arbitrator fees paid by Claimant on behalf of itself and Respondent: $32,290.47

Legal research and postage: $158.44

Discovery/subpoenas: $2,609.05 Total Costs $35.057.96

Total Fees and Costs $130,900.96

CONCLUSION

1. Within thirty days from the date of this Award, Respondent Indigo Dragon Group (UK) Ltd. shall pay to Claimant Immersive Management Holdings LLC $45,000,000.00 in accordance with the April 2, 2020, Letter Agreement to fund its full capital contribution in a joint venture, Culture Fusion Ltd., for the purposes of, among other things, funding and operating Culture Fusion operations containing the operations of Immersive Artistry, LLC and its subsidiaries ("Immersive Artistry").

2. Respondent Indigo Dragon Group (UK) Ltd. and Claimant Immersive Management Holdings LLC will each own 50% of the equity interests of Culture Fusion and have mutual approval over the business of Culture Fusion.

3. Within thirty days from the date of this Award, Respondent Indigo Dragon Group (UK) Ltd. shall pay to Claimant Immersive Management Holdings LLC Claimant Immersive Management Holdings LLC fees and costs in the amount of $130,900.96

4. This Award resolves all issues submitted for decision in this proceeding.

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