FILED: NEW YORK COUNTY CLERK 11/11/ :11 PM INDEX NO /2016 NYSCEF DOC. NO. 45 RECEIVED NYSCEF: 11/11/2016. Exhibit A

Transcription

1 FILED: NEW YORK COUNTY CLERK 11/11/ :11 PM INDEX NO /2016 NYSCEF DOC. NO. 45 RECEIVED NYSCEF: 11/11/2016 Exhibit A

2 1 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x 3 TAKE-TWO INTERACTIVE SOFTWARE INC. and ROCKSTAR GAMES, INC., 4 Plaintiffs, 5 v. 16 Civ (VSB) 6 16 Civ (VSB) LESLIE BENZIES, 7 Order to Show Cause Defendant x 9 New York, N.Y. 10 May 13, :30 p.m. 11 Before: 12 HON. VERNON S. BRODERICK 13 District Judge APPEARANCES 17 DONTZIN NAGY FLEISSIG LLP Attorneys for Plaintiffs 18 BY: TIBOR L. NAGY MATTHEW S. DONTZIN KELLEY DRYE & WARREN LLP Attorneys for Plaintiffs 21 BY: MICHAEL C. LYNCH 22 LOCKE LORD BISSELL & LIDDELL LLP 23 Attorneys for Defendant BY: ALLEN C. WASSERMAN 24 CHRISTOPHER J. BAKES CASEY B. HOWARD 25 JEFFREY KRAMER

3 2 1 (Case called) 2 THE COURT: Let me review for the parties what I have 3 in connection with today's conference. I have the Take-Two 4 letter dated April 19th, which is docket number 5, related to 5 the motion to stay the Benzies action. I have the response 6 letter from Benzies dated April 22nd. I have the Benzies 7 motion to remand that was filed in connection with the New York 8 State supreme court action that was removed. The prior April 9 22nd letter was docket number 16. And I have the memorandum of 10 law. So it's docket numbers 6 and 7 in connection with the 11 motion. 12 I have the pre-motion letter dated April 27th from 13 Benzies with regard to the anticipated motion to dismiss the 14 Take-Two action. I have Take-Two's letter dated May 2nd, which 15 is docket number 18, in response to the Benzies pre-motion 16 letter. I have Take-Two's letter dated May 2nd just seeking an 17 extension of time with regard to the response to the remand 18 motion. Finally, I have a May 3rd letter from Benzies which is 19 docket number 11 which is opposing the extension of the 20 deadlines. 21 Is there anything else I should have in connection 22 with today's conference? From the plaintiffs? 23 MR. NAGY: No, your Honor, that's all of it. 24 THE COURT: That's going to be confusing. Anything 25 else from the defendants? Back table I'll say.

4 3 1 MR. BAKES: No, your Honor. 2 THE COURT: First, I know that Take-Two takes the 3 position that the motion to stay should be briefed before or at 4 least simultaneously with the motion to remand. My question 5 is, why? 6 MR. NAGY: Your Honor, Tibor Nagy. I'm happy to 7 address that. It really stems, your Honor, from efficiency. 8 Both of these cases concern the same dispute, which is whether 9 Mr. Benzies is entitled to demand more royalties under the 10 terms of this document. The parties refer to it as the royalty 11 plan. 12 The parties' dispute on that issue concerns really one 13 provision within it. It's section 2.1, and it goes right to 14 the heart of whether he can bring a claim at all. The 15 provision at issue concerns the allocation of royalties amongst 16 three parties to this agreement. The parties to this agreement 17 are signed in total. They are all parties to this litigation. 18 There is Take-Two and Rockstar Games on the one hand, and then 19 three individuals referred to as the Rockstar principals on the 20 other: Mr. Sam Houser, Mr. Dan Houser, and Mr. Benzies himself. 21 The provision at issue provides that once royalties 22 are allocated to any of those Rockstar principals, the decision 23 to allocate is final and binding on the Rockstar principals and 24 the Rockstar principals shall not have or any make any claims 25 against the company or any other party on account of its

5 4 1 eligibility or ineligibility to receive royalties or his 2 allocable share of any royalties, if any, because there may not 3 be any, except as provided in section Mr. Benzies concedes this is a valid and binding 5 contract. That is not an issue. He says so in his own 6 complaint at part 149. He has actually invoked the penalty 7 under Section We got a letter about it just last week. 8 What he doesn't want is he doesn't want 2.1 to be enforced. He 9 doesn't like that provision. That's the dispute between the 10 parties. It also goes to whether Mr. Benzies, as it says right 11 here, can bring a claim against the company, the company being 12 Take-Two. 13 We believe you should address the remand motion and 14 the stay motions at the same time because they all concern this 15 provision. The stay motions go to whether he can bring an 16 action against us at all. That issue goes to whether all 17 claims can be addressed in one case or another at all. 18 The remand motion raises the same issue. The remand 19 motion is going to essentially involve the royalty plan 20 because, among other things, Rockstar North, the party that was 21 added here for the sole purpose of defeating jurisdiction, is 22 not a party THE COURT: Back up. When you say added here, what 24 are you talking about? I thought there was a state court case 25 that was brought.

6 5 1 MR. NAGY: Yes, your Honor. 2 THE COURT: With whatever the party's name. Was there 3 a party named after? I understand what you may be saying is 4 they only included that so that removal wouldn't be 5 appropriate. But the bottom line is they filed it. What you 6 are asking me to do is reach a legal issue when I haven't even 7 determined -- I can understand you would like to brief it. To 8 be quite frank, if I determine I don't have jurisdiction with 9 regard to the state action, I'm not reaching that issue. Then 10 he's going to go back to the state court, and the state court 11 can review it and figure out what the issue is. 12 I want to focus right now on the remand issue. You 13 would have to show me case law that says that when you have a 14 motion to remand and there is a question about whether or not 15 the court has jurisdiction, I can then rule on a matter prior 16 to determining -- if I don't have jurisdiction, I don't have 17 jurisdiction. You tell me. Do I have any business ruling on 18 something when I don't have jurisdiction, if that's the 19 ultimate conclusion? 20 MR. NAGY: Two things, your Honor. You absolutely 21 have jurisdiction. There is no authority before you that says 22 you can't address another issue at the same time. In fact 23 here, your Honor, we are not asking you to rule on something 24 else first. We are saying it makes a lot of sense to hear 25 these issues together.

7 6 1 Mr. Benzies has already stated no matter what you do 2 on the remand motion, he is going to bring a motion to stay 3 this case. Because those issues, the stay issues and the 4 remand issues, are related, it makes sense to hear them 5 together. 6 Regarding if his case goes back to state court, we 7 don't believe it will. This is not the first time an employee 8 who wanted to avoid federal court improperly added a party. 9 The Second Circuit has addressed that exact issue. 10 THE COURT: Let's hear about that. You are saying 11 added. Let's make a distinction between cases that were 12 initially filed. Once the mediation concluded, the parties 13 decided to file lawsuits basically on the same day. First, the 14 factual basis for it being not a proper party to the action. 15 MR. NAGY: I'm happy to address that. Mr. Benzies 16 doesn't have any real dispute with Rockstar North. If you look 17 at his complaint, he's got 15 counts. Before those counts, 18 he's got 107 paragraphs. All of it relates to his demand for 19 royalties, again under this agreement. Rockstar North is not 20 even a party to this agreement. 21 There is a case in the Second Circuit similar to this 22 one called Pompeyano, where an employee had a dispute with his 23 employer and added on a related entity, the parent of the 24 employer, who happened to have a contractual relationship with 25 him as well, but there was no fight, no real fight, between the

8 7 1 employee and the parent. That is exactly what is going on 2 here. 3 All of the conduct alleged in Mr. Benzies' complaint 4 concerns his demand for royalties. He says you should reform 5 the contract so I don't have to abide by 2.1. He says, I was 6 defrauded into agreeing to this, all kinds of claims, all of 7 which is untimely. All this happened back in 2008, but 8 nonetheless they concern Rockstar and Take-Two, not Rockstar 9 North. 10 Rockstar North is listed as his employer in his 11 employment agreement but doesn't have any of the features of 12 your typical employer. It didn't hire him. It didn't fire 13 him. Only Take-Two can do that. It has nothing to do with 14 royalties, which is what he is asking about. And of the counts, only 3 even pertain to Rockstar North. 16 THE COURT: Was Rockstar North a signatory to the 17 employment agreement? 18 MR. NAGY: It is a signatory to the employment agree- 19 ment with Take-Two. And Take-Two, importantly, it's in the 20 agreement, is the only entity that has the power to fire him 21 and the power to change his compensation. Here he is real 22 specific about what he wants. He wants additional royalties. 23 You have had the opportunity perhaps to see his 24 motion. Because this wasn't a pre-motion letter motion, you 25 haven't seen our side of it, your Honor. But when we brief it,

9 8 1 we think this falls right into the fact pattern of the 2 Pompeyano case, where that was properly removed and it was 3 deemed the entity that was added had no controversy with the 4 employee. We think that is exactly what you will find here 5 when you consider this, your Honor, and the evidence, which of 6 course you are allowed to do in a fraudulent joinder context. 7 When we brief that, your Honor, we don't say don't 8 determine that; you should. But when you do, you should also 9 consider the competing stay applications. Our case was filed 10 first. We are properly here. Our case is not going to go 11 away. 12 There is some reference to abstention doctrines. They 13 don't even remotely apply here. Critically, because of that 14 fact, Mr. Benzies in his letter to this Court, when we moved 15 for a stay, his response letter says the following. This is 16 docket entry 16 at page 2. He says, "The Take-Two letter 17 persuasively argues that it would be insufficient for both the 18 state action and the Take-Two action to proceed simultaneously. 19 While we expect this does not happen very often in response to 20 a pre-motion conference letter, Mr. Benzies agrees. For all 21 the reasons stated by counsel for Take-Two, one of the actions 22 should be stayed so as to promote judicial economy and 23 conservation of the parties' resources and to avoid the 24 potential for inconsistent verdicts." 25 When you consider the remand issue, your Honor,

10 9 1 whether Rockstar North really has anything to do with these 2 royalties that Mr. Benzies wants despite what he agreed to 3 eight years ago, you should consider which cases are moving 4 forward and consider what both sides say you shouldn't allow 5 happen, which is piecemeal litigation. If his case goes back 6 to state court, that's what we have, piecemeal litigation. 7 He shouldn't even be bringing these claims according 8 to the contract language. Whether you reach that or the state 9 court reaches that, if remand is granted, we have piecemeal 10 litigation as a result. We don't think that needs to happen 11 because we think this case absolutely is properly here. What's 12 more, the determination of whether our case or his case is more 13 efficient is something you should reach now and you can reach 14 now conveniently with the remand motion 15 THE COURT: Do you agree that regardless, one of the 16 cases should be stayed? 17 MR. NAGY: That's an interesting point, your Honor. 18 THE COURT: No, it's a question. 19 MR. NAGY: Yes. We don't. We agree absolutely for 20 all the reasons we cited his case should not proceed. But 21 unlike Mr. Benzies, I read his letter, the language I just 22 read, to say: I don't want piecemeal litigation; one of them, 23 the more efficient one, should go forward. 24 We feel the same way, but our case doesn't go away, 25 your Honor. Unlike Mr. Benzies, that language I read to you

11 10 1 that says very clearly you cannot bring a claim, that applies 2 to Mr. Benzies, it does not apply to us. We were not 3 contractually barred from coming to this courthouse and making 4 this claim to put an end to this dispute. In stark contrast, 5 he was. 6 While we don't want another action going forward, our 7 case would go forward. The abstention doctrines they mention 8 are not even close here, so we don't believe there is a basis 9 to stay our action even if the state action proceeds. 10 THE COURT: What about the argument concerning the 11 forum defendant rule? 12 MR. NAGY: Happy to address that, your Honor. There 13 is a split on the forum defendant rule. You will see our 14 papers. You haven't had a chance to see them yet. The split 15 comes down to one issue. Do we look at the language of 1441(b) 16 and enforce it based on what it says or not. 17 There is, frankly, a split. Some courts, like the 18 ones that are mentioned in the motion to remand, say even 19 though the language says you have to be properly served, we are 20 going to ignore that because technology has changed and now 21 things are filed online. 22 But there is also a number of judges, for example, 23 Judge Lynch now in the Second Circuit, Judge Keenan, Judge 24 Karas, who sits up in White Plains, they have all come out the 25 other way because they say this is what the language says, you

12 11 1 have to be properly served, we are not going to imply some 2 exception. The Second Circuit hasn't reached it yet, your 3 Honor. We believe when they do, they will follow the plain 4 language. 5 THE COURT: Have other circuit courts reached the 6 issue? 7 MR. NAGY: Not to my knowledge, your Honor. I have 8 researched the Second Circuit. I don't know one way or the 9 other what the other circuits have done. For the same reason, 10 I think the plain language of the statute is what it is. 11 THE COURT: As I understand it, with regard to the 12 diversity issue, you are going to argue that they improperly 13 added this. I apologize, I don't have it here. What are the 14 causes of action -- I will address this to your adversaries that relate to the Rockstar North entity? 16 MR. NAGY: I'm happy to deal with that. There are causes of action in total. Causes of action 10, 11, and 12 are 18 the only ones as to Rockstar North. The reason I say added is 19 because chronologically what happened here is we filed our 20 complaint, Mr. Benzies filed a notice with summons. You may be 21 familiar with it. It's a one-and-a-half-page document. 22 THE COURT: Yes, state court. 23 MR. NAGY: Then the next day filed a complaint. These 24 three causes of action, your Honor, are interesting because 25 they mention Rockstar North. The first is for breach of a

13 12 1 sabbatical agreement, which I will come to in a moment. The 2 next is constructive charge, and the next is declaration of 3 rights. 4 The reason I say they are interesting is they all ask 5 for the same relief, which is I want my royalties. That just 6 doesn't follow. It's exactly what the plaintiff did in the 7 Pompeyano case that the Second Circuit said was improperly 8 fraudulently joined. 9 The sabbatical agreement has nothing to do with 10 royalties. It's an agreement, a two-page document between Mr. 11 Benzies and Rockstar North that acknowledged that for a lot of 12 reasons the parties dispute -- I won't get into the details. 13 Our view of it, suffice it to say, is he checked out in a lot 14 of ways. 15 He took an eight-month sabbatical. There was an 16 agreement between him and Rockstar North acknowledging he 17 didn't have to come to work for eight months. That was it. It 18 has nothing to do with royalties. There is no plausible, 19 reasonable way to say somehow Rockstar North even reached it, 20 but if it did, it has nothing to do with royalties. But there 21 is a claim because they needed something, that's our view, that 22 was breached and he is owed royalties. 23 The second one, constructive charge, also relates to 24 his sabbatical and his coming back from the sabbatical. The 25 claim is Rockstar North constructively discharged him. The

14 13 1 problem with that claim is, like the prior claim, this is not 2 something within Rockstar North's power to do. His employment 3 agreement expressly says how he can be discharged. 4 The only entity that can discharge him is the board, 5 with a capital B, which is defined as the Take-Two board, not 6 Rockstar North. Rockstar North, frankly, your Honor, was just 7 the entity created to be a label that he was supposed to run. 8 It doesn't have these vestiges of a normal employer. For that 9 cause of action we see this bizarre claim for relief, which is 10 give me my royalties. It has nothing to do with Rockstar 11 North. That is the fight here, but it has nothing to do with 12 Rockstar North. 13 Finally, declaration of rights. It's a declaratory 14 judgment count, in essence. What is interesting about it is 15 while it is a count against Rockstar North, it mentions people 16 other than people who work for Rockstar North. It talks about 17 Sam Houser. He doesn't work for Rockstar North. Again, the 18 ask, the ask is I want a declaration that I'm entitled to my 19 royalties, and 2.1 is not enforceable in the royalty plan, 20 which is a document, a contract, to which Rockstar North is not 21 even a party. 22 So, while I'm sure we will disagree here, this is from 23 our perspective, your Honor, a clear add-on by Mr. Benzies to 24 avoid this court, which we believe is improper. 25 THE COURT: Let me hear from Mr. Benzies' counsel.

15 14 1 MR. WASSERMAN: Good afternoon, your Honor. I would 2 not have thought that that argument was possible given that the 3 threshold issue is whether this Court has jurisdiction. This 4 case is fascinating, and it would make a great case study for a 5 civil procedure class first year law school, but it is not 6 complicated when it comes to the procedural issues. 7 Let's start with a few things. First of all, if an 8 issue has been raised with respect to whether or not this Court 9 of limited jurisdiction has jurisdiction over a dispute, that 10 issue needs to be determined. This Court cannot and certainly 11 should not determine factual issues and issues on the merits 12 that are encompassed within the state court action which was 13 removed. The first order of business is for this Court to 14 determine if it has jurisdiction. 15 Your Honor I surmised correctly what happened here. 16 There was a mediation between the parties. We had asked that 17 the mediation be terminated because we didn't see that it was 18 making progress. The mediators felt compelled to speak to what 19 I will call the Take-Two parties, and probably simultaneously 20 they were filing in this court and we were filing in state 21 court. The suggestion that we added Rockstar North, we didn't 22 know they had filed until after we had filed, when we started 23 to get the electronic notifications. There was no adding of 24 Rockstar North. Here's why. 25 Who is Rockstar North? By the way, these are all

16 15 1 factual issues. I tried to count the factual issues that they 2 are asking you to decide in a case that you may not have 3 jurisdiction. 4 In any event, they described Rockstar North as a 5 label. If you ever have an opportunity to go to Edinburgh 6 Scotland you will see an impressive office building with 7 hundreds, at least hundreds, of employees. It's Rockstar 8 North. It's a company that is incorporated in the UK. It has 9 a separate facility that is its own facility. 10 Secondly, Mr. Benzies was the president of Rockstar 11 North. This wasn't an add-on. That's who he worked for. If 12 you ask Mr. Benzies who do you work for, his answer is Rockstar 13 North. 14 The dispute between the parties is not as narrow as 15 counsel would have you believe. They have tailored it down to 16 a simple dispute over the 2009 royalty plan. All you have to 17 do is look at Mr. Benzies' complaint and you will see, first of 18 all, he names parties that are not parties in the Take-Two 19 action in this court. He names Sam Houser, Dan Houser. He 20 names Rockstar North. He alleges a breach of the sabbatical 21 agreement. 22 The sabbatical agreement is an agreement which was 23 between Mr. Benzies and Rockstar North. Take-Two was not a 24 party to that agreement. If you stay the state court action 25 and you go forward with the declaratory judgment action, you

17 16 1 will never reach that issue because it is not a part of their 2 complaint. 3 In addition, Mr. Benzies alleges breaches of his 4 employment agreement, which is separate and distinct from the royalty plan. Rockstar North is a direct party to the 6 employment agreement. In fact, they are a party to the 7 employment agreement, the amendment of the employment agreement 8 in '03, the amended and restated employment agreement in '08, 9 and then another employment agreement. 10 If you look at the last employment agreement that Mr. 11 Benzies was a party to, which I think is as of December 12, , Mr. Benzies is a party, Rockstar North is a party. When 13 you go to the signature line of that document, Take-Two 14 Interactive Software, Inc. is only a signatory in a limited 15 capacity. That's what it says on the signature line. 16 THE COURT: Before you go on, so I don't forget, is 17 that defined in the agreement and/or in the actual signature 18 line? In other words, what is the limited capacity? 19 MR. WASSERMAN: It is a little ambiguous, Judge, but 20 it says agreed to and accepted by with respect to Article VIII 21 of the agreement as well as any provision that refers to the 22 company, whether as obligor, beneficiary, or otherwise. So you 23 have Take-Two Interactive signing subject to that 24 qualification. But you have a separate signature line for 25 Rockstar North. In fact, in all of the agreements that Mr.

18 17 1 Benzies had with Rockstar North, either an officer or director 2 of Rockstar North signed that agreement on behalf of Rockstar 3 North. 4 The question, by the way, why don't we want to be in 5 federal court -- 6 THE COURT: I was wondering about that. You have a 7 dispute. Apparently, you can't agree upon where to resolve 8 whatever the dispute is. One side believes it is broader than 9 the other side. The other side, it seems like, has cabined it 10 to this idea of royalties. I'll decide whatever I need to 11 decide here. I'm just not sure why you can't agree as to where 12 you want to litigate this. Clearly you want to litigate. 13 MR. WASSERMAN: Here is the problem we were confronted 14 with. It goes to a case that I litigated probably more years 15 ago than I care to remember. A party came in very late in the 16 proceedings with new counsel. New counsel discovered that 17 there wasn't diversity jurisdiction. There had been a mistake, 18 an assumption, as to the citizenship of one of the parties. It 19 destroyed diversity jurisdiction in the case. Parties can't 20 waive that objection; they can't create diversity where none 21 exists. 22 We don't want Take-Two having two bites at the apple. 23 It has happened, judge. If down the road prior to the entry of 24 a judgment they were to decide they didn't quite like the way 25 things were going here, they could make the motion, and we

19 18 1 could not argue, well, we are here because you removed. It 2 doesn't work that way. The parties cannot create jurisdiction 3 where there is none. 4 To me, there is a logic here, a logical way to 5 proceed. By the way, we have no objection in general to 6 federal court. It just so happens we felt that Rockstar North 7 was an essential party and that's why we felt we needed to 8 commence the action in state court. It was not in any way, 9 shape, or form in reaction to what they did or what we thought 10 they might do. 11 This is, to us, the logical order of this. I think it 12 would be the logical order of this to almost anybody. The 13 first task is whether or not this Court has jurisdiction over 14 the state court action. We brought our motion for remand. We 15 had hoped it would be fully briefed before we appeared before 16 you. They asked for additional time. So we have heard what 17 they might argue down the road. Ultimately, that's the first 18 issue this Court should decide, and it's a relatively narrow 19 and focused issue. 20 As we see it, there are two fundamental issues. One 21 is the citizenship of the parties involved. We believe that 22 alone immediately knocks this suit out. But they will argue 23 otherwise. 24 There is also the forum defendant rule. The more 25 recent cases, the cases from 2013 and 2014 by Judges Stanton,

20 19 1 McMahon, Crotty, Daniels, Sweet, Griesa, the recent cases all 2 move in the direction of recognizing the realities of modern 3 filing and the modern courtroom. When the rule was originally 4 drafted, no one envisioned that it would be anything other than 5 sending somebody out to serve in person or file in person. 6 They didn't think we had these electronic means or didn't 7 anticipate that those would be available. 8 As far as they filed first, when an action is filed in 9 state court and another action is filed in federal court, the 10 first-filed rule does not apply. I don't believe that changes 11 when you wrongfully remove the state action to federal court. 12 Moreover, the courts have repeatedly said that the difference 13 of a few minutes -- courts have gone further and said the 14 difference of a few days -- the difference of a few minutes, 15 your Honor, is not worthy of the Court's consideration. 16 Here is what I believe is important to the Court or 17 should be. That's presumptuous of me. Things are only 18 important if you believe they are. But here is a proposition I 19 will put out there. 20 THE COURT: The tree falling in the forest or 21 something. 22 MR. WASSERMAN: Why do we have the diversity rule? 23 It's to protect people from local biases. Here you have Sam 24 Houser who is a defendant. He is a New Yorker. He lives in 25 New York, he works in New York. Dan Houser is a defendant. He

21 20 1 lives in New York, he works in New York. Take-Two is a 2 defendant. Their offices are in New York. When people come to 3 work at Take-Two, they come to New York. Rockstar Games, Inc. 4 is also in New York. Most of the defendants align as New 5 Yorkers. They do not need the benefit of the diversity rule to 6 protect them from a biased local jury or judge. 7 What's interesting is if anybody might need that 8 protection, it might be Mr. Benzies. He's a UK citizen. He 9 lives in Los Angeles. He's got two strikes against him there. 10 And he has a heavy Scottish accent. Mr. Benzies might have a 11 concern about whether a New York court would view him favorably 12 or favor companies and individuals who are based in New York. 13 But Mr. Benzies has made the choice that he will be in state 14 court, that's where he wants to be. So, there is no public 15 policy reason for this Court of limited jurisdiction to step 16 any further than it is required to. There are no protections 17 that this Court would be providing. 18 To wrap up, our proposal is you decide the motion for 19 remand, two discrete issues there. It doesn't go to the 20 merits. All the remand decisions say that you shouldn't go to 21 the merits of the case unless you have determined that you have 22 jurisdiction. There will be two discrete issues that will be 23 briefed. Hopefully, it will be resolved. Everything else 24 should be stayed. 25 If your Honor determines that the case should be

22 21 1 remanded to state court, which we believe it should, we have 2 another conference. At that point, and hopefully the parties 3 will speak before that conference, we will try to determine is 4 there one forum we can agree to. Will they agree to have their 5 claims heard in state court? Will they bring claims that they 6 don't believe are already covered by our complaint? They can 7 bring them as counterclaims. 8 If you grant the remand motion, it is possible the 9 parties will come to a resolution because the money that we are 10 spending on these procedural issues does not advance a 11 resolution on the parties. It's a waste of resources and time 12 of the Court, the lawyers, and the parties. If your Honor does 13 not remand, then my client has a difficult question, which is 14 should we remain in federal court. We would broach that issue 15 at that time. 16 There is an orderly way to proceed here. Get any book 17 on civil procedure, walk through the chapters on this, and it 18 provides the roadmap. The wrong thing to do here is to decide 19 issues, decide merits, to take a declaratory judgment 20 complaint, which is the tail wagging the dog. 21 Our complaint, which counsel pointed out is very 22 lengthy, probably longer than it should be, covers a broad 23 array of activity, all arising from Mr. Benzies' employment. 24 It is all encompassing. That complaint, if that's the vehicle 25 we use to go forward, would address every issue in their

23 22 1 declaratory judgment action. The opposite isn't true: the 2 declaratory judgment action only addresses a small subset. 3 I would be lying to you, Judge, which I don't do, I'd 4 be lying if I said -- 5 THE COURT: I hope not. 6 MR. WASSERMAN: -- the 2009 royalty plan is the issue 7 with respect to what Mr. Benzies is entitled to. That's a very 8 important issue, no doubt about it, but it's not the only 9 issue. All you need to do is read our complaint to see that. 10 The last thing is -- and my goal is not to argue the 11 merits on every single point that counsel raised -- their 12 interpretation of the royalty plan is essentially as follows. 13 Sam Houser could do whatever he wanted to Mr. Benzies, he could 14 pay him a hundred million dollars or nothing, it was at his 15 whim. That's their interpretation of the agreement. 16 Based on that interpretation, if Sam Houser or Dan 17 Houser, or the allocation committee if there was one, actually 18 determined that Mr. Benzies should be receive zero, and if they 19 did it in violation of the terms of agreement, in violation of 20 New York law, exercising discretion they didn't have or abusing 21 the discretion that the law gives them, their argument: too 22 bad, too bad, you don't get the question now. 23 To decide that issue they would like this Court to 24 decide, we have to look at the meaning of the language in the royalty plan, whether or not it gave Take-Two -- excuse

24 23 1 me -- the allocation committee, which determined the 2 distribution of royalties, it gave them discretion. 3 Here is where it gets interesting, Judge. We'll get 4 further into this later on in the case. An earlier version of 5 the plan, I believe the 2006 version of the plan, did give 6 discretion. It said there would be sole discretion. That 7 language was removed from the 2009 plan. You cannot find the 8 word "discretion" anywhere in the relevant provision. 9 There is a long line of cases, I think Judge Sand 10 coined the phrase "the magic words," where courts look to the 11 magic words to see whether or not it is clear and unambiguous 12 from the agreement that the parties intended to vest another 13 party with absolute and total discretion. Here it would be 14 impossible for the Court to reach that conclusion, we 15 respectfully submit, because the word "discretion" doesn't 16 appear. They removed it. 17 The final and binding language he points to, yes, if 18 they follow all of the procedures and they exercise in 19 accordance with the terms of the contract, and Mr. Benzies 20 simply disagrees and believes I should have gotten a little 21 more. But if they dotted the "i"s and crossed the "t"s and did 22 everything they are supposed to, then that might not be subject 23 to appeal, but it would always be subject to appeal for abuse 24 of discretion. 25 THE COURT: You are referring to 2.1 there I assume?

25 24 1 MR. WASSERMAN: Yes. 2 THE COURT: Yes. 3 MR. NAGY: Your Honor, briefly. Thank you. Let me 4 come back to what we are actually asking. We are not asking 5 you not to address remand. You should. We are asking you for 6 efficiency sake to also address the stay issues. I didn't hear 7 counsel say, because I don't think he can say it -- he doesn't 8 lie to you, neither will I, your Honor -- he doesn't dispute 9 and couldn't dispute that the stay issues and the remand issues 10 both centrally involve section 2.1 and the royalty plan 11 generally. He doesn't dispute, your Honor, that no matter what 12 happens THE COURT: Let me ask this. If I decide the case 14 should be remanded, what legal authority do I have? I 15 understand that there may be an issue with regard to this 16 proceeding, assuming I remand, and whether or not I stay this 17 proceeding. But if I don't have jurisdiction, which it is my 18 view is something I need to determine before I start making 19 substantive rulings on a case that could go back to state 20 court MR. NAGY: I think I know where you're going, your 22 Honor. This happens all the time. The argument you just 23 heard, you can't do anything, anything, because you have a 24 pending remand motion, that happens in federal court more than 25 anything else on a daily basis because of MDLs. In MDLs you

26 25 1 frequently get remand motions, and often they involved 2 fraudulent joinder questions. You always hear from the 3 plaintiffs, I was one of them in a lot of cases, saying please 4 remand, please remand. 5 But it is absolutely within your discretion to say I 6 want to hear other issues together or I'll hear remand later. 7 Judge Hellerstein did that with frequency in his MDL recently 8 on the World Trade Center cases. In fact, in the Federal 9 Judicial Center Manual for Complex Litigation there is a 10 section, section , on this exact issue, remand motions. 11 THE COURT: But we are not talking MDL. We are not 12 talking multiple parties. For an MDL, you are thinking about 13 managing the bucket of cases. I don't know what Judge 14 Hellerstein's rationale was, but I could imagine that he wanted 15 to say what are we going to do with this bucket of cases? It 16 wasn't about two parties -- obviously there are more than two 17 parties here -- but in essence two parties going head-to-head 18 in litigation. While I understand your argument. I will have 19 to say I'm extremely skeptical about proceeding with both. 20 MR. NAGY: I understand. There are two reasons why we 21 thought these should be briefed now. One was efficiency's 22 sake. They do involve the same issues. Rather than give you a 23 set of briefs now and another set of briefs later, we thought 24 one set of briefs, since they all involve the same issues. The 25 other thing counsel couldn't say is even if you grant remand,

27 26 1 we don't think you will, you are going to get a motion from 2 them on the stay issue, and you should consider that now for 3 efficiency's sake. 4 Second, your Honor, we took seriously what they said 5 in their letter. They themselves said it in language 6 indicating it was surprising. 7 THE COURT: Let me ask this. With regard to 2.1, is 8 it your argument that 2.1 prohibits any lawsuits or lawsuits 9 relating to relates? 10 MR. NAGY: It's the latter, your Honor. 2.1 is very 11 specific. While you heard arguments about why they don't like 12 it, why it shouldn't apply, the language is clear. It's not 13 ambiguous. It's Mr. Benzies' "shall not have or make any claim 14 against the company," Take-Two, "or any other party on account 15 of his or its eligibility or ineligibility to receive royalties 16 or his allocable share of any royalties, if any, except as 17 provided in " 18 As I mentioned, he has invoked Now he is doing 19 exactly what he promised more than eight years ago he wouldn't 20 do. In a very real sense you have a party saying please let me 21 go and bring a claim against the company and others for these 22 very reasons, I want you to approve that. 23 Here, because they are tied together, your Honor you could enforce. If this were purely a covenant not to sue, 25 you could enforce it. You wouldn't have to sent it back to

28 27 1 state court. If it is removed here, before you even address 2 remand, you could say he's promised not to bring this claim, 3 I'm going to stay that case and here this one because I don't 4 think he can even bring that claim. You have that discretion, 5 your Honor. 6 THE COURT: By "the latter" were you referring to it 7 relates -- 8 MR. NAGY: To royalties. 9 THE COURT: To royalties. What I understood Mr. 10 Wasserman to be saying is his case or the state case that has 11 been removed involves more than just royalties. If I was in a 12 perfect world and I'm going to decide everything at once, the 13 only thing I could stay or the only thing you're arguing for me 14 to stay would be the portion of the case that Mr. Benzies has 15 brought with regard to royalties. The other parts of the case 16 could go forward, right? 17 MR. NAGY: That's right, your Honor, with respect to 18 royalties. Our position, though, is this is really all about 19 royalties. With respect to Rockstar North in particular, we 20 don't believe there is anything else. 21 THE COURT: Why do you say that? They clearly have 22 brought causes of action other than royalties. Mr. Wasserman 23 conceded that it is a very important part of the lawsuit, I 24 assume because there is a lot of money at stake. But there are 25 other parts to their lawsuit. Even in a perfect world, what

29 28 1 you would have is -- well, I don't know what you would have. 2 You would like me to move forward on the issue of 2.1 as it 3 relates to the case that you filed here for declaratory 4 judgment. If I kept the other case, we would stay that one 5 portion but the other parts of the case would go on. 6 MR. NAGY: They would, your Honor, if you deemed they 7 were real claims. And they could absolutely happen here. 8 That's another point I think you ought to consider. You heard 9 from Mr. Benzies he is concerned that perhaps there won't be 10 federal jurisdiction down the road. We can solve that problem 11 really quickly. He absolutely could and should have asserted 12 all of his claims here, including as to Rockstar North. There 13 would clearly be federal jurisdiction under 1367(b). 14 There is no question he could bring, and I'm sure he 15 would bring, all of his counterclaims. And if he wanted to add 16 Rockstar North, we don't think he has any colorable basis to do 17 so, Mr. Benzies as a defendant bringing in Rockstar North, but 18 there is clearly federal jurisdiction to do that. The notion 19 that there may not be is just flat wrong. 20 We cite the Second Circuit's decision on this very 21 issue, it's call Viacom. There is no response to that. There 22 is absolutely federal jurisdiction for him to do everything he 23 wants right here in this courthouse. He has chosen, he said, 24 state court, despite all the prejudices. It's strange why, 25 because it is not because of a lack of federal jurisdiction.

30 29 1 With respect to whether you can hear other issues, you 2 can. We cited a case to that effect in our letter. There was 3 no authority to the contrary. You should consider it here, 4 your Honor, because he, again, doesn't have the right to even 5 be bringing these claims, and that's an issue squarely before 6 you. 7 You are going to address it in our action we believe 8 relatively quickly. And when you do, that other case, your 9 Honor, one of two things can happen to it. If you reach on 10 fraudulent joinder the conclusion that it doesn't belong in 11 state court, and it will either be consolidated into our case 12 or he'll bring the claims in our case and nonsuit that case 13 voluntarily. One way or the other, all of those claims could 14 stay here. 15 The alternative is you send it back to state court. 16 Even though we've got language saying he can't bring those 17 claims, you then quickly reach the conclusion that he can't 18 bring those claims just based on the language here, now what 19 happens? Now we have a state court action where there is a 20 federal order saying he shouldn't be bringing that claim. That 21 is something, your Honor, both sides have said they don't want 22 to happen. 23 When we read his letter, we were a little surprised. 24 The language he used says, I expect you're going to be 25 surprised when you hear this. What he says, and we can take

31 30 1 him seriously, is while we expect this doesn't happen very 2 often, I agree, Mr. Benzies agrees, one of the two should be 3 stayed. And the determination for doing that is which one can 4 hear all of the claims. 5 If you make the determination that our case can hear 6 all these claims and his can't, you could then stay his action 7 with his agreement. He may not agree with your reasoning, he 8 might think his is the more efficient, but he says right here, 9 I don't want piecemeal litigation. I just accepted that as 10 true. For that reason, your Honor, I think you can and should 11 hear the issues together, and there is really no prejudice. 12 If you get one set of briefs instead of two or three 13 and you decide the remand issue makes the stay issue moot, 14 there is really very limited down side. But it is absolutely 15 more efficient, your Honor, to do it that way because of how 16 related those issues are and because we know they are going to 17 raise the stay issue again later one way or another. 18 THE COURT: From what you are saying, are you agreeing 19 that I can hear both issues together, but if I decide to remand 20 it, I don't need to reach the other or I don't reach the other 21 issue with regard to the state court action? That other is the 22 issue about royalties and 2.1 and the like and the argument 23 that the lawsuit in connection with that is improper. 24 MR. NAGY: Yes, your Honor. In fact I would go 25 further and say when you have all the issues before you, there

32 31 1 are there are various permutations. You could decide remand, 2 and that controls everything. You could decide stay issues, 3 that controls everything. Or you could do something in 4 between. But you ought to have them all before you so you can 5 consider them at the same time. 6 If I may make one more point, your Honor. I don't 7 want to be accused of conceding anything by silence. I heard 8 Mr. Wasserman say a couple of times you can't reach merits, you 9 can't reach merits. We don't disagree that you are not 10 supposed to reach merits. But there are issues before you that 11 you can and should reach with respect to fraudulent joinder 12 where you go outside the pleadings. The cases all say that. 13 You don't have a letter from us setting forth our 14 positions here, but the Second Circuit case I mentioned 15 involves something very similar where there was a fraudulent 16 joinder and there were facts. I don't dispute Rockstar has a 17 building. Of course it does. But you should consider in real 18 life whether Rockstar North has the power to fire or hire or 19 pay. Those are issues I don't believe will be in dispute, but 20 if you needed to, you could and should actually look at 21 documents even if they are outside the pleadings to reach that. 22 THE COURT: I thought you initially were starting out 23 that I could look beyond the pleadings with regard to 24 jurisdiction. 25 MR. NAGY: Yes, exactly.

33 32 1 THE COURT: Connect for me to what you just said about 2 the power to fire and the like. What does that have to do with 3 jurisdiction? 4 MR. NAGY: Because the fraudulent joinder argument -- 5 THE COURT: That's the argument? 6 MR. NAGY: Exactly. 7 THE COURT: Thank you. 8 Yes, Mr. Wasserman? 9 MR. WASSERMAN: Briefly. Counsel keeps saying that 10 the issues on the two motions would be the same. They aren't 11 the same at all. On the remand motion the issue is the forum 12 defendant rule and the citizenship of the parties. That's it. 13 Those are the only two issues you would need to consider, 14 nothing else. 15 THE COURT: Would you concede that if they are going 16 to make an argument of fraudulent joinder, there may be other 17 information? It addresses still the parties, but it is the 18 issue of whether a party is legitimately part of the lawsuit. 19 MR. WASSERMAN: It would be interesting to see the 20 cases which support the proposition that when you name your 21 employer as a defendant in connection with an agreement that 22 they are a party to and they are a party to, that that somehow 23 is a fraudulent joinder. It would also be interesting to see 24 the cases which involve the crystal ball, which I do not 25 possess, which is I knew what they were going to do so I

34 33 1 fraudulently joined Rockstar North and Sam and Dan Houser to 2 avoid jurisdiction in this court. It is thin beyond belief. 3 What they are asking you to do, Judge, is they would 4 have briefed this issue, the remand motion, it would have been 5 fully briefed and before you today and you would have had all 6 of the facts and all of the law necessary to reach the 7 determination. They want to muddy the waters. They want to 8 distract you with other issues which are not relevant to that 9 motion in the hopes that you will somehow reach and go beyond 10 your limited jurisdiction and do more. 11 There is a simple and direct path here. It turns 12 civil procedure on its head to say you can wrongfully remove an 13 action from state court and then hold it hostage there to suit 14 the needs of a different action. If the action doesn't belong 15 in this court, make that decision now, respectfully, and 16 everything else will fall into place. 17 As far as the more efficient action, the declaratory 18 judgment action is without doubt the least efficient action of 19 any of the actions. It doesn't address all of the issues. It 20 simply doesn't. Yes, there are procedural mechanisms where we 21 can reconstruct this case in this court. My question is, why? 22 What public policy are you promoting by doing so? Who are you 23 protecting? Why is it necessary? Judicial efficiency starts 24 with putting cases in the courts they belong, and then 25 everything flows from that.

35 34 1 THE COURT: This is what we are going to do. I'm 2 going to hear the remand motion. I'm not going to take 3 briefing on the state issue. I recognize that I am going to 4 hear it eventually anyway, apparently. Whether I send the case 5 back or keep it, it's going to be an issue that eventually I'm 6 going to need to decide. 7 But on the remand issue, and both parties I think 8 concede this, depending upon what I do on that, one side or the 9 other may consider that maybe I will decide it to be all in 10 state court or all in federal court. Whatever the parties 11 decide on that. Or they might decide to try and slug it out in 12 both places. 13 Mr. Nagy, how much time do you need? 14 MR. NAGY: Your Honor, I believe we have two weeks, 15 and I think we can stick to that. There are a couple of 16 affidavits that I expect I'm going to put in. I know your 17 Honor's local rules. I'm not going to exceed your page limits. 18 But it may be that I need a little more time. I'll try to find 19 that out quickly. If I do, I'll ask. But I expect to live 20 with the two weeks. 21 THE COURT: We had a reply built into that? I don't 22 remember. 23 MR. NAGY: I don't believe so, your Honor. 24 THE COURT: Mr. Wasserman? 25 MR. WASSERMAN: Two weeks would be sufficient, Judge.

36 35 1 THE COURT: Is it two weeks from today? 2 MR. NAGY: Yes, your Honor, the 27th. 3 THE COURT: Two weeks from then is the 10th. Once I 4 see all the briefs, I'll decide whether or not I need to have 5 the parties in. 6 MR. NAGY: May I ask, your Honor, because both I and 7 my partner here, Mr. Dontzin, just booked a lot of travel in 8 another matter, can we put on the calendar just now, even if we 9 don't use it ultimately, an oral argument date? 10 THE COURT: You have booked your travel. I don't know 11 what that is. When are you actually available after we get the 12 replies? 13 MR. NAGY: I think I'll know dates. If you could 14 propose a date. I don't have my iphone, which is what I would 15 use for a calendar. If we could pick a date in June now, I 16 will try and work around it. 17 THE COURT: June 10th are the replies. Maybe a week 18 or two after that, Mr. Lee. Why don't we say two weeks after. 19 THE CLERK: June 24 at 2: THE COURT: The 24th at 2: MR. NAGY: Could we do the week after? 22 THE CLERK: The 1st. 23 MR. NAGY: That works on our end, your Honor. 24 MR. WASSERMAN: July 1st? 25 THE COURT: Yes.

37 36 1 THE CLERK: At 2:30. 2 MR. WASSERMAN: It's not the most ideal day. We'll 3 make it work. 4 MR. NAGY: July 1 at 2:30? I'm sorry. 5 MR. WASSERMAN: Can we do June 30th? That's Thursday. 6 MR. NAGY: Okay, June THE COURT: I could actually inquire, Mr. Wasserman, 8 do you already have plans to leave July 1st? I'm just kidding. 9 I don't really want to know that. So June 30th at 3:15. Once 10 I get all the papers, I'll let all the parties know. You can 11 put it in your calendars and let any other judges know that you 12 are occupied on that day at that time if it turns out we need 13 to have oral argument. 14 MR. NAGY: I appreciate it, your Honor. Thank you. 15 THE COURT: With regard to the case as it currently 16 stands, I'll ask the parties, with regard to the declaratory 17 judgment action -- I won't ask the parties. We are not going 18 to forward with regard to discovery or anything like that until 19 we decide the remand motion. I think there are a lot of things 20 that will fall out from that and hopefully will result in 21 figuring out that all of the claims will be decided in one 22 court rather than two, if I decide to remand. 23 Is there anything else we need to deal with, Mr. Nagy? 24 MR. NAGY: Your Honor, yes. I want some clarification 25 on what you just said. We certainly agree on the second