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CVC Claims Litigation LLC v. Citicorp Venture Capital LTD

United States District Court, S.D. New York
May 18, 2006
03 Civ. 7936 (DAB) (S.D.N.Y. May. 18, 2006)

Summary

holding that the plaintiff failed to state a claim for breach of contract where plaintiff "failed to allege, even generally, that the conditions precedent were performed or had occurred"

Summary of this case from LeChase Constr. Servs., LLC v. Escobar Constr., Inc.

Opinion

03 Civ. 7936 (DAB).

May 18, 2006


MEMORANDUM ORDER


Plaintiff CVC Claims Litigation LLC ("CVC Claims") brings this action against Defendants Citicorp Venture Capital Ltd. ("Citicorp Venture") and Citicorp Mezzanine III, L.P. ("Citicorp Mezzanine") for breach of contract, breach of fiduciary duty, and aiding and abetting a breach of fiduciary duty. Against Individual Defendants Saleem Muqaddam, Joseph M. Silvestri, and John Mowbray O'Mara, Plaintiff claims breach of fiduciary duty and aiding and abetting a breach of fiduciary duty.

Defendants have moved to dismiss all claims against Defendants Citicorp Venture, Muqaddam, Silvestri and O'Mara. Defendants have moved to dismiss the claims of breach of fiduciary duty and aiding and abetting a breach of fiduciary duty against Citicorp Mezzanine. Defendants assert as grounds for dismissal Rules 12(b) (6), 8(a) and 9 of the Federal Rules of Civil Procedure. For the reasons that follow, Defendants' Motion to Dismiss is GRANTED.

I. BACKGROUND

The following facts, taken from Plaintiff's Complaint and documents incorporated by reference into the Complaint, are assumed to be true for the purposes of this Motion.

Plaintiff CVC Claims is a Delaware limited liability company with its principal place of business in New York. CVC Claims was created solely for the purpose of acting as a creditor's litigation trust pursuant to a confirmed Chapter 11 plan in a bankruptcy case, In Re Glenoit Corporation, (Bankr. D. Del.), involving Glenoit Corporation ("Glenoit"), a garment manufacturing company. The need for the litigation trust arose from agreements concerning funding of a pre-packaged plan of reorganization for debtor Glenoit. The beneficiaries of Plaintiff CVC Claims are Glenoit Corporation's institutional bondholders ("Bondholders") and Glenoit's primary secured lender, a banking syndicate ("Banking Syndicate") led by Banque National de Paris. (Compl. ¶¶ 9-11.)

Defendant Citicorp Venture is a Delaware corporation with its principal place of business in New York. Citicorp Venture finances leveraged buyouts and maintains controlling equity interests in various portfolio companies. (Id. ¶ 12.)

Defendant Citicorp Mezzanine is a Delaware corporation with its principal place of business in New York. Citicorp Mezzanine is a corporate affiliate of Citicorp Venture. Defendants Citicorp Venture and Citicorp Mezzanine are indirect subsidiaries of Citicorp. (Id. ¶ 13.)

Plaintiff refers to both Defendants Citicorp Venture and Citicorp Mezzanine as "CVC" in its Complaint. However, it has alleged separate claims against each subsidiary.

Defendant Muqaddam served as a Vice President of Citicorp Venture from 1989 and was Citicorp Venture's senior representative on Glenoit's Board of Directors. Defendant Silvestri was employed by Citicorp Venture from 1990 and served as a Vice President of Citicorp Venture from 1995. Silvestri also served as a Citicorp Venture designee on Glenoit's Board of Directors. Defendant O'Mara served on Glenoit's Board of Directors. O'Mara "maintained a consulting relationship" with Citicorp Venture and kept an office in Citicorp Venture's place of business. (Id. ¶¶ 14-16.)

In December, 1995, Citicorp Venture purchased Glenoit in a leveraged recapitalization, in order to conduct an industry-wide "roll up" of certain garment and fabric manufacturing companies. (Id. ¶¶ 19-20.) Subsequently, in light of its financial condition, Glenoit began making arrangements to file a voluntary petition for bankruptcy, which included entering into agreements with CVC, Glenoit's primary secured lender, and Glenoit's Bondholders. (Id. ¶ 25.)

On June 30, 2000, Citicorp Mezzanine issued a Commitment Letter to Glenoit stating that it would provide a senior subordinated loan to Glenoit in the amount of $15,000,000.00. (Id. ¶ 29.)

Also on June 30, 2000, Citicorp Venture issued a Commitment Letter to Glenoit, stating that it would provide approximately $16,000,000.00 in equity financing in exchange for substantially all of the equity in the reorganized company. (Compl. ¶¶ 25, 26.) The Commitment Letter provided, in part:

This letter confirms the commitment of Citicorp Venture Capital, Ltd. . . . to provide or cause others to provide up to $16,150,000 of preferred and common equity financing . . . to Glenoit Corporation on terms and conditions [that] are reasonably acceptable to [Glenoit] and [Citicorp Venture] subject to the conditions set forth herein.

(Id. ¶ 27.) The five conditions precedent were: (1) approval of the Tender Offer and the Plan by the Company's board of directors; (2) tender of Subordinated Notes in the Tender Offer of the holders of at least 95% of the aggregate principal amount of the outstanding Notes and associated consent, or consent by the holders of 67% of the holders of the aggregated principal amount of the outstanding Notes, representing at least 50% in number of the holders by the close of business on August 3, 2002, provided that the satisfaction of this condition does not preclude CVC from approving the plan; (3) the receipt of $15,000,000.00 by Glenoit of subordinated debt from Citicorp Mezzanine on the terms and conditions of the Commitment Letter of Citicorp Mezzanine; (4) the receipt of all available proceeds of a commitment from Glenoit's existing bank group; and (5) that CVC's common equity ownership of Glenoit or Glenoit's parent company, after taking into account any participations by other persons in the Financing pursuant to the Plan, but disregarding any warrant issued to Mezzanine immediately following consummation of the Financing, shall not be less than 90%. (Id. at Ex. 1 ¶ 2(a)-(e).) The condition at issue here is the completion of a debt financing by which Citicorp Mezzanine would provide Glenoit with $15,000,000.00 in "senior subordinated debt." (Id. Ex. 1 ¶ 2 (c).)

On July 25, 2000, both Citicorp Venture and Citicorp Mezzanine issued letters to Glenoit confirming the commitments expressed in their respective Commitment Letters of June 30, 2000.

On August 8, 2000, Glenoit entered into bankruptcy by filing a petition for relief pursuant to Chapter 11, Title 11, United States Code, in the United States Bankruptcy Court for the District of Delaware ("Bankruptcy Court"). (Id. ¶ 32.) Pursuant to efforts to solicit its creditors to accept a proposed pre-packaged plan of reorganization, Glenoit made certain "first day" motions to the Bankruptcy Court. One such motion requested, in part, an Order authorizing "(I) Payment Or Satisfaction Of Pre-Petition Unsecured Claims And Other Ordinary Course Obligations." By this motion, Glenoit sought and obtained authority to pay in full the undisputed, unsecured pre-petition claims of its unsecured creditors. (Id. ¶ 35.)

In reliance upon CVC's commitments, Glenoit was able to obtain an agreement from the Banking Syndicate to provide $15,000,000.00 in debtor-in-possession ("DIP") financing, and an agreement from Glenoit's Bondholders to accept a distribution of approximately $16,000,000.00.

Glenoit filed a prepackaged plan of reorganization simultaneously with its bankruptcy petition. (Id. ¶ 37.) Glenoit took these actions in reliance upon CVC's commitments to fund the pre-packaged plan of reorganization. (Id. ¶ 36.) The Bankruptcy Court approved the Banking Syndicate's $15,000,000.00 DIP and granted Glenoit's motion, authorizing Glenoiot to pay out $15,000,000.00-$20,000,000.00 in unsecured trade and other claims. Glenoit then made payments of millions of dollars in pre-petition unsecured trade and other claims. (Id. ¶ 38.)

In October, 2000, Plaintiff alleges that "CVC" advised Glenoit that it would not provide the equity financing or any funds discussed in the June 30, 2000 Commitment Letters. (Id. ¶ 39.) Plaintiff defines "CVC" as Citicorp Venture and Citicorp Mezzanine collectively. (Id. ¶ 2.) "CVC" had, upon information and belief, decided to abandon its plan of an industry "roll up" of garment manufacturers. (Id. ¶ 40.) Although Glenoit managed to confirm its prepackaged plan, the plan resulted in no distribution to Glenoit, a de minimus distribution to Glenoit's bondholders, and no distribution to Glenoit's other unsecured creditors with the exception of Glenoit's trade creditors, who had been paid off earlier. (Id. ¶ 41.) Additionally, the Banking Syndicate, who had to fund operations during the bankruptcy to preserve the debtors' going concern value, was damaged by at least $20,000,000.00 due to losses suffered as a result of a collateral shortfall following the sale of certain of the debtors' assets. (Id. ¶ 42.)

Plaintiff, established for the benefit of the Banking Syndicate and the Bondholders, has brought this action against Defendants.

II. DISCUSSION

Defendants have moved to dismiss the Second, Third and Fourth Claims for Relief for failure to state a claim pursuant to Fed.R.Civ.P. 8 (a), 9 (c) and 12(b) (6).

A. Legal Standard

In deciding a motion to dismiss for failure to state a claim, the Court "must accept the allegations contained therein as true and draw all reasonable inferences therefrom in favor of the plaintiff." Gryl ex rel. Shire Pharms. Group PLC v. Shire Pharms., 298 F.3d 136, 140 (2d Cir. 2002). The Court's task "is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Sims v. Artuz, 230 F.3d 14, 20 (2d Cir. 2000) (quoting Ryder Energy Distribution Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 779 (2d Cir. 1984)). Thus, the Court should dismiss the complaint for failure to state a claim only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." ICOM Holding, Inc. v. MCI Worldcom, Inc., 238 F.3d 219, 221 (2d Cir. 2001).

For purposes of a motion to dismiss, a complaint is deemed to include "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference . . . as well as public disclosure documents required by law to be, and that have been, filed with the SEC, . . . and documents that the plaintiffs either possessed or knew about and upon which they relied in bringing the lawsuit." Rothman v. Gregor, 220 F.3d 81, 88-89 (2d Cir. 2000) (citations omitted).

B. Breach of Contract Claim Against Citicorp Venture

Defendants state that dismissal of the Second Claim for Relief is warranted because Plaintiff has failed to state a claim for breach of contract by Citicorp Venture.

Citicorp Venture's commitment under its Commitment Letter to Glenoit was subject to the satisfaction of five conditions precedent, set out previously. (Compl. at Ex. 1.) According to Defendants, Plaintiff's Complaint insufficiently alleges a breach of contract claim because it states that one of the conditions precedent, namely that Glenoit must receive the proceeds of the commitment from Citicorp Mezzanine did not occur, and thus did not and could not plead the occurrence of all conditions precedent. (Defs.' Mem. Law at 12.)

To state a claim for breach of contract in New York, a plaintiff must allege the following elements: (1) the existence of a contract; (2) performance of the contract by one party; (3) breach by the other party; and (3) damages as a result of the breach. See First Investors Corp. v. Liberty Mut. Ins. Corp., 152 F.3d 162, 168 (2d Cir. 1998). Rule 9 of the Federal Rules of Civil Procedure provides that "In pleading the performance or occurrence of conditions precedent, it is sufficient to aver generally that all conditions precedent have been performed or have occurred. A denial of performance or occurrence shall be made specifically and with particularity." See also Internet Law Library, Inc. v. Southridge Capital Management, LLC, 223 F.Supp. 2d 474, 490 (S.D.N.Y. 2002). However, if the condition precedent could not be fulfilled because the defendant prevented or hindered its occurrence, defendant must still perform. See Lindenbaum v. Royco Prop. Corp. 164 A.D.2d 254, 260 (1st Dept. 1991); Lieberman Props, Inc. v. Braunstein, 134 A.D.2d 55, 60 (2d Dept. 1987).

Plaintiff and Defendants cite New York law in support of their arguments concerning the breach of contract claim against Citicorp Venture. Such "implied consent is sufficient to establish choice of law." Krumme v. West Point Stevens, Inc., 238 F.3d 133, 138 (2d Cir. 2000); Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d Cir. 1997). In addition, the Commitment Letter at issue contained a choice of law provision, providing that New York state law governs the provisions of the Commitment Letter. (Compl. at Ex. 2, p. 3.)
Similarly, the Parties have both assumed that Delaware law controls the claims of breach of fiduciary duty and aiding and abetting breach of fiduciary duty, thus concluding the choice of law inquiry for those claims.

In its Complaint, Plaintiff has failed to allege, even generally, that the conditions precedent were performed or had occurred. Plaintiff only states that Citicorp Venture participated in Citicorp Mezzanine's breach, which amounted to a breach of its own obligation to provided financing. (Compl. ¶ 58.) Accordingly, Plaintiff has failed to state a claim for breach of contract against Citicorp Venture in its Second Claim for Relief.

Both Parties discuss the doctrine of prevention, which, "excuses a condition precedent when a party wrongfully prevents that condition from occurring." Cauff, Lippman Co. v. Apogee Finance Group, Inc., 807 F.Supp. 1007, 1022 (S.D.N.Y. 1992). Plaintiff argues that Defendant Citicorp Venture and Muqaddam wrongfully prevented the condition precedent of Citicorp Mezzanine financial obligation from occuring. The doctrine of prevention, however, does not cure Plaintiff's pleading defect. Even if Defendants' conduct excuses one condition precedent, Plaintiff is still required to plead the performance or occurrence of all remaining conditions precedent, which it has not.

C. Breach of Implied Covenant of Fair Dealing and Good Faith

Plaintiff includes a claim for breach of implied covenant of fair dealing and good faith in the Second Claim for Relief, alleging that Citicorp Venture wrongfully participated in the Citicorp Mezzanine's decision to breach its financing commitment to Glenoit, which was a condition precedent of Citicorp Venture's financing commitment to Glenoit.

Defendants argue that this claim should be dismissed because by alleging a breach of this covenant, Plaintiff is seeking to impose obligations upon Citicorp Venture that go beyond those stated in the Citicorp Venture Commitment Letter, which obliged Citicorp Venture only upon funding by Citicorp Mezzanine.

New York law implies a covenant of fair dealing and good faith in all contracts. See Global Intellicom, Inc. v. Thomson Kernaghan Co., No. 99 Civ. 342, 1999 WL 544708, at *18 (S.D.N.Y. July 27, 1999) (citing Carvel Corp. v. Diversified Management Group, Inc., 930 F.2d 228, 230 (2d Cir. 1991). In most circumstances, claims for breach of contract and the covenant of good faith and fair dealing are duplicative; however, in some cases "a party may be in breach of its implied duty of good faith and fair dealing even if it is not in breach of its express contractual obligations." Chase Manhattan Bank v. Keystone Distributors, Inc., 873 F.Supp. 808, 815 (S.D.N.Y. 1994). The covenant "precludes each party from engaging in conduct that will deprive the other party of the benefits of their agreement." Leberman v. John Blair Co., 880 F.2d 1555, 1560 (2d Cir. 1989). Hence, the covenant is violated "when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other of the right to receive the benefits under the agreement." Don King Productions, Inc. v. Douglas, 742 F.Supp. 741, 767 (S.D.N.Y. 1990). "The implied covenant does not . . . operate to create new contractual rights; it simply ensures that parties to a contract perform the substantive, bargained-for terms of their agreement and that parties are not unfairly denied express, explicitly bargained-for benefits." Id. (citations and internal quotations omitted).

Plaintiff's claim of breach of the implied covenant of good faith and fair dealing is based on the conduct of Defendant Muqaddam, who is alleged to have acted on behalf of both Citicorp Mezzanine and Citicorp Venture in discussions with Glenoit about the financing commitment letters. This is separate and apart from the contractual obligation Plaintiff claims Citicorp Venture had to Plaintiff based on its commitment letter. Plaintiff, however, fails to sufficiently allege facts supporting the claim that Muqaddam, as a representative of Citicorp Venture, frustrated the condition precedent, namely Citicorp Mezzazine's financing commitment. The Complaint states that it is "[u]pon information and belief [that] the conduct of [Muqaddam] contributed to and resulted in Citicorp's Mezzanine's decision to breach its financing commitment." (Compl. ¶ 58.) Other than this one sentence, nothing in the Complaint indicates that Defendants Muqaddam and Citicorp Venture participated in Citicorp Mezzanine's decision not to fulfill its financial commitment to Glenoit.

Accordingly, Plaintiff has failed to state a claim for breach of the implied covenant of good faith and fair dealing.

D. Breach of Fiduciary Duty

Defendants move to dismiss the breach of fiduciary duty claim against all Defendants.

1. Citicorp Mezzanine

Defendant argues that the claim of breach of fiduciary duty against Citicorp Mezzanine must be dismissed with prejudice because no allegation of a fiduciary relationship has been alleged between Citicorp Mezzanine and Glenoit.

"[U]nder established Delaware law, a breach of fiduciary duty claim must be based on an actual, existing fiduciary relationship between the plaintiff and the defendants at the time of the alleged breach." Omnicare, Inc. v. NCS Healthcare, Inc., 809 A.2d 1163, 1169 (Del.Ch. 2002).

The Complaint alleges that upon information and belief, Citicorp Mezzanine is a corporate affiliate of Citicorp Venture. (Compl. ¶ 13.) Citicorp Mezzanine was not a majority shareholder of Glenoit, as was Citicorp Venture. The Complaint fails to allege any facts of a fiduciary relationship between Citicorp Mezzanine and Glenoit. Accordingly, the breach of fiduciary claim against Citicorp Mezzanine is DISMISSED.

Plaintiff argues that the breach of fiduciary duty claim against Citicorp Mezzanine withstands Defendants' Motion to Dismiss because "it is well settled that a third party who knowingly participates in the breach of a fiduciary duty becomes liable to the beneficiaries of the trust relationship." Gilbert v. El Paso Co., 490 A.2d 1050, 1057 (Del.Ch. 1984), aff'd 474 A.2d 1131 (Del. 1990). Plaintiff is correct in stating that a non-fiduciary may be liable for participating in the breach of a fiduciary duty by a fiduciary; however the proper cause of action is not a breach of fiduciary duty claim, but aiding and abetting breach of fiduciary duty, which is Plaintiff's Fourth Claim for Relief.

2. Citicorp Venture

According to Delaware law "a shareholder owes a fiduciary duty only if it owns a majority interest in or exercises control over the business affairs of the corporation." Kahn v. Lynch Communications Systems, Inc., 638 A.2d 1110, 1113 (Del. 1994) (quoting Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334, 1344 (Del. 1987).

The Complaint states that Citicorp Venture owned a majority interest over Glenoit, holding at least 80% of Glenoit's outstanding stock. (Compl. ¶ 6.) Thus, it is clear that Citicorp Venture owed a fiduciary duty to Glenoit as a majority shareholder. Defendants, however, move to dismiss the breach of fiduciary claim against Citicorp Venture because they claim that it is redundant of the breach of contract claim against Citicorp Venture. Plaintiff disagrees, and states that Citicorp Venture's contractual obligations, arising from the Commitment Letter it gave to Glenoit, are distinct from its fiduciary duties which arose from the pre-existing legal relationship between Citicorp Venture and Glenoit. (Pl.'s Mem. Law at 17-18.)

"[C]laims sounding in fiduciary duty that cannot be brought independently of claims based on breach of contract will not survive a motion to dismiss." Bae Systems North America Inc. v. Lockheed Martin Corp., No. Civ. A. 20456, 2004 WL 1739522, at *7 (Del.Ch. Aug. 3, 2004). "To allow a fiduciary duty claim to coexist in parallel with an implied contractual claim, would undermine the primacy of contract law over fiduciary law in matters involving essentially contractual rights and obligations of preferred stockholders." Gale v. Bershad, No. Civ. A. 15714, 1998 WL 118022, at *5 (Del.Ch. Mar. 4, 1988).

Plaintiff's claim of breach of fiduciary duty against Citicorp Venture is based on the same operative facts as Plaintiff's claims of breach of contract and implied covenant of good faith and fair dealing. Both the fiduciary duty and contractual claims concern the Citicorp Venture's underlying contractual obligations. According to Plaintiff, Citicorp Venture breached both its fiduciary and contractual obligations to Glenoit when it "participated" in the breach of contract by Citicorp Mezzanine.

Plaintiff's argument that the two claims are distinct is unavailing. Although the legal relationship between Citicorp Venture and Glenoit pre-existed the covenant between the two, the two claims of breach of implied covenant and breach of fiduciary duty are based on the same operative facts. Therefore, because the breach of fiduciary claim cannot exist independently from a breach of contract claim, the Court, mindful of the primacy of contract law, grants Defendants' Motion to Dismiss the breach of fiduciary claim.

Plaintiff cites one case, Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002) in support of its argument. The Parfi case is factually inapposite to the case before this Court. In that case, the Delaware Supreme Court reversed a lower court's dismissal of plaintiff's breach of fiduciary duty claims. The lower court had dismissed the breach of fiduciary duty claims on the ground that those claims should have been submitted to the arbitration of the parties dispute pursuant to the Underwriting Agreement. The Parfi court was not faced with the issue of whether a breach of contract claim could coexist in parallel with a breach of fiduciary claim in the lower court.

Although the Court has dismissed the breach of contract and implied covenant claims, it has done so for pleading deficiencies and has granted Plaintiff's leave to replead those claims.

3. Muqaddam, Silvestri and O'Mara

Defendants move to dismiss the breach of fiduciary duty claims against Individual Defendants Muqaddam, Silvestri and O'Mara.

The Complaint states that in the breach of their fiduciary duties, the Individual Defendants "acted solely in the interests of CVC, to the detriment of the rights and interests of Glenoit and its creditors." (Compl. ¶ 63.) It is Plaintiff's belief that the Individual Defendants, as officers of "CVC," participated in the decision by CVC not to fund Glenoit's plan of reorganization."

Directors of a corporation are charged with "an unyielding fiduciary duty to protect the interests of the corporation and to act in the best interests of its shareholders." Cede Co. v. Technicolor, Inc., 634 A.2d 345, 360 (Del.Ch. 1993). The business judgment rule is a standard by which a director's conduct is judged. The business judgment rule creates a "presumption that in making a business decision, the directors of a corporation acted on an informed basis [i.e., with due care], in good faith and in the honest belief that the action taken was in the best interest of the company." MM Cos v. Liquid Audio, 813 A.2d 1118, 1127-28 (Del. 2003). Directors are bound to protect the interests of the corporation through the exercise of the duties of due care, good faith, and loyalty. Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998). This obligation has been described as a duty "not only affirmatively to protect the interests of the corporation committed to [an officer's] charge, but also to refrain from doing anything that would work injury to the corporation. Cede Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (subsequent history omitted).

The Complaint appears to conflate Citicorp Venture and Citicorp Mezzanine. Hence, it is not clear what actions were taken by Individual Defendants on behalf of which Citicorp subsidiary, which resulted in a breach of their fiduciary duties. Accordingly, the breach of fiduciary claims against Individual Defendants are DISMISSED for failure to state a claim.

E. Aiding and Abetting Breach of Fiduciary Duty

Under Delaware law, a claim for aiding and abetting a breach of fiduciary duty requires plaintiff to plead: (1) the existence of a fiduciary relationship; (2) a breach of that relationship; (3) knowing participation in the breach by the defendant who is not a fiduciary; and (4) damages proximately caused by the breach."McGowan v. Ferro, 859 A.2d 1012, 1041 (Del.Ch. 2004); see also Malpiede v. Townson, 780 A.2d 1075, 1097 (Del. 2001); Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 989 (Del.Ch. 2000).

Because Citicorp Venture and Individual Defendants, as majority shareholder and officers of Glenoit, were fiduciaries of Glenoit, they cannot be held liable for aiding and abetting breach of fiduciary duty, which requires that they be non-fiduciaries. The aiding and abetting claims against them are thereby DISMISSED.

Citicorp Mezzanine is the only Defendant who did not owe a fiduciary duty to Glenoit. In addition to the fact that Plaintiff has failed to plead a breach of a fiduciary duty claim against any of the Defendants, Plaintiff has failed to allege facts, other than conclusory statements, that Citicorp Mezzanine knowingly participated in any breach of fiduciary duty by Citicorp Venture and Individual Defendants. Accordingly, the aiding and abetting claim against Citicorp Mezzanine is also DISMISSED.

F. Leave to Replead

Rule 15(a) of the Federal Rules of Civil Procedure requires that courts freely grant leave to amend "when justice so requires." Fed.R.Civ.P. 15(a). "[I]t is the usual practice upon granting a motion to dismiss to allow leave to replead." Cohen v. Citibank, No. 95 Civ. 4826, 1997 WL 88378, at *2 (S.D.N.Y. Feb. 28, 1997). Absent a showing of undue delay, bad faith or dilatory motive on the part of the movant, undue prejudice to the opposing party, or the futility of the amendment, a plaintiff should be granted leave to replead. See Protter v. Nathan's Famous Sys., Inc., 904 F.Supp. 101, 111 (E.D.N.Y. 1995) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).

If an amendment would be futile, courts can deny leave to amend. See Oneida Indian Nation of N.Y. v. City of Sherrill, 337 F.3d 139, 168 (2d Cir. 2003) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). "A proposed amendment to a pleading would be futile if it could not withstand a motion to dismiss pursuant to Rule 12(b) (6)." Id. (citing Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991)).

Although the Court has found that Plaintiff has failed to allege breach of contract and breach of implied covenant claims against Citicorp Venture, "the Court cannot determine that the plaintiff could not, under any circumstances, sufficiently allege [these claims]." Protter v. Nathan's Famous Sys., Inc., 904 F.Supp. 101, 111 (E.D.N.Y. 1995) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). Similarly, the Court recognizes that it may be possible for Plaintiff to allege breach of fiduciary duty claims against Individual Defendants, and aiding and abetting breach of fiduciary duty claim against Citicorp Mezzanine.

Accordingly, the Court GRANTS Defendants' Motion to Dismiss the Complaint. The breach of fiduciary duty claims against Defendants Citicorp Venture and Citicorp Mezzanine, and the aiding and abetting breach of fiduciary duty claims against Individual Defendants and Citicorp Venture are DISMISSED with prejudice. The Court GRANTS Plaintiff leave to file an Amended Complaint alleging breach of contract and implied covenant against Citicorp Venture, breach of fiduciary duty against Individual Defendants, and aiding and abetting breach of fiduciary duty against Defendant Citicorp Mezzanine within forty (40) days of the date of this Order. Failure to file within this time period shall be a waiver of the right to replead. With regard to any amendment, Plaintiff is cautioned against perfunctory nonsubstantive or cosmetic changes, and against making conclusory allegations which are contradicted by written documents relied upon in the Amended Complaint. Lastly, Plaintiff must be mindful of the constraints imposed by Fed.R.Civ.P. 11.

III. CONCLUSION

For the foregoing reasons, Defendants' Motion to Dismiss the Complaint is GRANTED. Plaintiff is GRANTED Leave to Replead the breach of contract and implied covenant claims against Citicorp Venture, breach of fiduciary duty claim against Individual Defendants, and the claim of aiding and abetting breach of fiduciary duty against Citicorp Mezzanine. Plaintiff shall file the Amended Complaint within forty (40) days of the date of this Order.


Summaries of

CVC Claims Litigation LLC v. Citicorp Venture Capital LTD

United States District Court, S.D. New York
May 18, 2006
03 Civ. 7936 (DAB) (S.D.N.Y. May. 18, 2006)

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Case details for

CVC Claims Litigation LLC v. Citicorp Venture Capital LTD

Case Details

Full title:CVC CLAIMS LITIGATION LLC, Plaintiff, v. CITICORP VENTURE CAPITAL LTD.…

Court:United States District Court, S.D. New York

Date published: May 18, 2006

Citations

03 Civ. 7936 (DAB) (S.D.N.Y. May. 18, 2006)

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