Opinion
Civil Action 17 Civ. 8308 (PGG) (SLC)
08-04-2022
LOKESH MELWANI and CANTAL TRADE LTD, Plaintiffs, v. HUNTER LIPTON, EAGLE POINT FINANCIAL LLC, and MDF HOLDINGS LLC, Defendants.
REPORT AND RECOMMENDATION
SARAH L. CAVE, UNITED STATES MAGISTRATE JUDGE
TO THE HONORABLE PAUL G. GARDEPHE, United States District Judge:
I. INTRODUCTION
In this action, Plaintiffs Lokesh Melwani (“Melwani”) and Cantal Trade Ltd. (“Cantal”) (together, “Plaintiffs”) allege that, in 2010, they invested $300,000 in Defendant Eagle Point Financial LLC (“Eagle Point”) in exchange for a 32.5 percent equity stake in the company. (ECF No. 111 ¶ 18). According to Plaintiffs, Defendant Hunter Lipton (“Lipton”), Eagle Point's managing and majority member, later sold Eagle Point and misappropriated the proceeds of the sale so that Defendant MDF Holdings LLC (“MDF,” together with Eagle Point and Lipton, “Defendants”) could complete the purchase of a telecommunications company. (Id. ¶¶ 17, 2223). After the sale of Eagle Point, Lipton “repeatedly promised” to pay Plaintiffs their share of the Eagle Point sale, but never did so. (Id. ¶ 24). Plaintiffs assert three causes of action: (i) breach of contract against Eagle Point and Lipton; (ii) fraud against Lipton; and (iii) aiding and abetting a breach of fiduciary duty against MDF. (Id. ¶¶ 30-35, 41-68).
Eagle Point and MDF (the “Moving Defendants”) now move pursuant to Federal Rule of Civil Procedure 56 for summary judgment. (ECF No. 163 (the “Motion”)). Melwani, now proceeding pro se, opposes the Motion. (ECF No. 168).For the reasons set forth below, the Court respectfully recommends that the Motion be GRANTED IN PART and DENIED IN PART.
On August 20, 2019, Judge Gardephe entered a stay as to Lipton, who filed a petition for bankruptcy after Plaintiffs commenced this action. (ECF No. 82).
On January 18, 2022, Judge Gardephe granted Plaintiffs' counsel's motion to withdraw and explained that Cantal “cannot appear in this lawsuit other than through counsel.” (ECF No. 158). On February 10, 2022, no new counsel having appeared, the Moving Defendants filed a motion to dismiss Cantal's claims for failure to prosecute. (ECF No. 160). That motion remains sub judice before Judge Gardephe.
II. BACKGROUND
A. Factual Background
The following facts are undisputed unless otherwise indicated and are taken from the Moving Defendants' statement pursuant to Local Civil Rule 56.1 (ECF No. 167 (the “56.1 Statement”)), documents the Moving Defendants submitted in support of the Motion (ECF Nos. 164, 165), and Melwani's submission in response to the Motion (ECF Nos. 168-70 (together, the “Response”)). The Court construes the facts “in the light most favorable to” Melwani, the non-movant. Wandering Dago, Inc. v. Destito, 879 F.3d 20, 30 (2d Cir. 2018) (citation omitted).
Local Civil Rule 56.1 requires a party moving for summary judgment to submit a “short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried.” Loc. Civ. R. 56.1(a). In response, the nonmoving party must submit “a correspondingly numbered paragraph responding to each numbered paragraph in the statement of the moving party, and if necessary, additional paragraphs containing a separate, short and concise statement of additional material facts as to which it is contended that there exists a genuine issue to be tried.” Loc. Civ. R. 56.1(b). “Each numbered paragraph in the statement of material facts . . . will be deemed to be admitted for purposes of the motion unless specifically controverted by a correspondingly numbered paragraph in the statement required to be served by the opposing party.” Loc. Civ. R. 56.1(c). “A pro se litigant is not excused from” complying with Local Civil Rule 56.1, Brandever v. Port Imperial Ferry Corp., No. 13 Civ. 2813 (KBF), 2014 WL 1053774, at *3 (S.D.N.Y. Mar. 13, 2014), and “[a] nonmoving party's failure to respond to a Rule 56.1 statement permits the court to conclude that the facts asserted in the statement are uncontested and admissible.” T.Y. v. N.Y.C. Dep't of Educ., 584 F.3d 412, 418 (2d Cir. 2009).
In this case, the Moving Defendants filed their 56.1 Statement (ECF No. 167), but Melwani did not file a responsive 56.1 statement. Nonetheless, “special solicitude” should be afforded pro se litigants, Graham v. Lewinski, 848 F.2d 342, 344 (2d Cir. 1988), and the Court exercises its discretion “to conduct an assiduous review of the record,” including Melwani's Response, in deciding the Motion. Holtz v. Rockefeller & Co., 258 F.3d 62, 73 (2d Cir. 2001); see Vasquez v. Reilly, No. 15 Civ. 9528 (KMK), 2018 WL 2768648, at *1 n.1 (S.D.N.Y. June 8, 2018) (collecting cases in which courts conducted independent review of the record where pro se plaintiff failed to submit a proper Rule 56.1 statement).
To the extent that Melwani, in his Response, makes factual allegations without citations to the record or that contradict his sworn testimony, the Court disregards those allegations. See Holtz, 258 F.3d at 73 (explaining that the court is not required to search the record to find genuine issues of material fact that a non-moving party failed to raise); Vasquez, 2018 WL 2768648, at *1 n.1 (disregarding plaintiff's factual assertions in opposition papers that lacked citation or contradicted his sworn testimony); Berry v. Marchinkowski, 137 F.Supp.3d 495, 502 n.1 (S.D.N.Y. 2015) (same). Moreover, Melwani's Response does not dispute many of the factual assertions in the Moving Defendants' 56.1 statement, and the Court therefore, “considers any uncontroverted [and properly supported] portions of [the Moving Defendants'] 56.1 statement admitted.” Moore v. Shahine, No. 18 Civ. 463 (AT) (KNF), 2021 WL 827694, at *4 (S.D.N.Y. Mar. 4, 2021) (citing Smith v. Planas, 975 F.Supp. 303, 305 n.2 (S.D.N.Y. 1997)).
1. The Parties
Melwani is a resident of London, England, and Cantal “is a British Virgin Islands company wholly owned and operated by Melwani.” (ECF No. 111 ¶¶ 3, 4, 13).
Eagle Point is a New York limited liability company (“LLC”) with its principal place of business in New York. (Id. ¶ 15). At all relevant times, Lipton was the managing and majority member of Eagle Point. (Id. ¶ 17). Plaintiffs allege that MDF is a Nevada LLC. (Id. ¶ 16). As discussed below, however, the record indicates that MDF is in fact a Delaware LLC. (See § III.B.1.b.i infra).
2. The 2010 Agreement
Eagle Point concedes that, in 2010, “Plaintiffs purchased a 32.5 percent equity stake in Eagle Point [] for equitable consideration in the amount of $300,000.00” (the “2010 Agreement”). (ECF Nos. 111 ¶ 18; 112 ¶ 18; 167 ¶ 1). In the 56.1 Statement, however, Eagle Point provides no facts regarding the history of the 2010 Agreement. (See ECF No. 167). Plaintiffs allege that the 2010 Agreement “was memorialized, inter alia, in series of e-mails between Mr. Melwani, Mr. Lipton, and Eagle Point [] in March, April, May, and June of 2010” (the “2010 Emails”). (ECF No. 111 ¶ 18). The following is a summary of the 2010 Emails, which the Moving Defendants submitted with the Motion. (ECF No. 164-2).
In January 2010, Lipton “approached [Melwani] for an investment into” Eagle Point. (ECF No. 168 at 4). Between January 21, 2010 and February 21, 2010, Melwani and Lipton emailed each other regarding, inter alia, Melwani's potential involvement in Lipton's “business.” (ECF No. 164-2 at 3-13). On February 24, 2010, Melwani traveled to New York to meet with Lipton. (Id. at 10-11). According to Melwani, “the deal [was] concluded” during this trip. (ECF No. 168 at 4).
On March 2, 2010, at Melwani's direction, Cantal transferred $200,000 to Eagle Point. (ECF Nos. 164-2 at 14; 164-5 at 1, 5). On March 3, 2010, Melwani asked Lipton to confirm Eagle Point's corporate classification and for a copy of Eagle Point's most recent tax return, which Melwani needed to “figur[e] out [his] tax position.” (ECF No. 164-2 at 17). Lipton confirmed Eagle Point's status as an LLC, and advised that he was “finalizing [the] tax return[.]” (Id.)
On June 30, 2010, Melwani sent the following email to Lipton:
Hunter,
Hope all is well.
Just wanted to outline the deal we had discussed on the phone and the terms I am willing to proceed with.
1. $100,000 USD (One hundred thousand usd) for an additional 12.5% of the company.
2. The funds will be sent in two tranches, of $50,000 each. The first will be sent tomorrow, July 1st. The second at date to be determined.
3. If the company feels It does not need the second $50,000, the company has the right to do so and my equity will be diluted accordingly.
4. The company and myself will work towards figuring out the most efficient method for repayment of the above, either through consultancy, and or dividend payments.
6. During my next visit to New York we work towards putting together a shareholders agreement.
6. That you keep kicking ass in the sales department, ad [sic] bringing in the big deals.
7. That we continue to work together with complete integrity, honesty, positive energy and love in order to build a brilliant business.
Let me know If you agree,
Lokesh
(ECF No. 164-2 at 19). That same day, Lipton responded “Agreed.” (Id.)
Between July 7, 2010 and December 14, 2010, Cantal transferred an additional $100,000.00 to Eagle Point. (ECF Nos. 164-5 at 1, 3, 4; 168 at 30).
3. Lipton's Alleged Solicitation for Financing Relating to MDF's Purchase of Telecomica
Plaintiffs allege that, in or about February 2011, Lipton began soliciting them to invest in a company called GLS, LLC (“GLS”), “the entity that was later renamed [MDF].” (ECF No. 111 ¶ 19). According to Plaintiffs, Lipton told them that “he had recently created GLS for the purpose of acquiring a series of telecommunications companies operating under the name” Telecomica, “and sought for Plaintiffs to provide the $1 Million in financing he required in order [to] complete the acquisition and provide sufficient working capital to make the venture profitable.” (Id. ¶ 20). “Plaintiffs refused to make the requested investment.” (Id. ¶ 21).
4. The Formation and Funding of MDF
The following facts are taken from the declaration of Harvey Berg (“Berg”), MDF's chief executive officer and chief operating officer. (ECF No. 165).
MDF was formed in 2011, when, at Lipton's suggestion, Herb Feinberg (“Feinberg”), Lipton's father-in-law, purchased “certain designated assets from an existing operation” in exchange for a majority ownership interest in the new company that would be created, i.e., MDF. (ECF No. 165 ¶ 8, 9, 21). Feinberg made the purchase through Gotham Enterprises & Affiliated, LLC (“Gotham”), of which Feinberg was the managing member. (Id. ¶ 9). “From inception, Feinberg had ultimate control of MDF as he and Gotham owned all of MDF's member units that had voting or approval rights.” (Id. ¶ 14)
On April 18, 2011, Lipton and his wife “paid $750.00 in multiple payments to GLS,” which was an “early moniker for the company that ultimately came to be renamed MDF.” (ECF No. 165 ¶ 16; see ECF No. 165-1 at 2-3). These payments were “the only payments made by Lipton to fund the formation and/or capitalization of MDF.” (ECF No. 165 ¶ 18).
5. The Funding of MDF's Purchase of Telecomica
“Between April and May of 2011, Gotham loaned MDF a total of $5,425,631 . . . for the purchase of several telecommunications companies operating under the name Telecomica . . ., and designated Telecomica assets.” (ECF No. 165 ¶ 22; see id ¶¶ 24-30; ECF Nos. 165-1 at 4-18; 165-2). Specifically, on April 20, 2011, “Gotham initiated nineteen (19) electronic transfers totaling $4,975,631.00 directly to various creditors of or entities related to Telecomica[,]” which were done “in lieu of transferring the capital contribution to MDF for redistribution to each of the Telecomica-related entities/creditors.” (ECF No. 165 ¶ 24). On April 21, 2011 and May 10, 2011, Gotham wired a total of $450,000 to MDF “for working capital.” (Id. ¶¶ 28-29).
“On May 10, 2011, MDF and Gotham formalized the terms of their loan arrangement by entering into a Loan and Security Agreement” (the “Loan Agreement”). (ECF No. 165 ¶ 30). “The Loan Agreement was executed by Lipton as the Associate Managing Member of MDF and Feinberg as the Managing Member of Gotham.” (Id.) “The $5,425,631 loan from Gotham to MDF represented the entire amount of the purchase of Telecomica's assets as well as the $450,000 of working capital[.]” (Id. ¶ 32). “MDF did not utilize funds from any other source . . . for the asset purchase.” (Id.)
6. The Sale of Eagle Point's Assets
In July 2011, Eagle Point's assets were sold to Blue Pay Processing for $1.2 million (the “Sale”). (ECF Nos. 167 ¶ 53; 164-2 at 21; 165-3 at 2-6). In a schedule of proposed payouts and a balance sheet, both dated July 20, 2011, Eagle Point listed a total of $1,069,628 in liabilities, including a $300,000 “loan” from Cantal. (ECF No. 165-3 at 2-3). According to the schedule of proposed payouts, after payment of those liabilities, the Sale proceeds totaled $130,372, which was to be split between Lipton and another individual, Dean Landis (“Landis”). (Id. at 2). Lipton was to receive 90 percent, or $117,335, and Landis was to receive ten percent, or $13,037. (Id.)
On July 26, 2011, $1,097,365.96 of the Sale proceeds were deposited into a client trust account maintained by Eagle Point's attorneys, Stubbs Alderton & Markiles LLP (“Stubbs Alderton”). (ECF No. 165-3 at 12). The fate of the remaining $102,634.04 from the $1.2 million Sale is not clear from the record.
Between July 26, 2011 and October 6, 2911, Stubbs Alderton disbursed the Sale proceeds. (ECF No. 165-3 at 12). Lipton and his wife received $480,000, and $236,901.50 was disbursed to other individuals and entities, none of which were Plaintiffs. (Id.; see ECF No. 165 ¶ 50; ECF No. 167 ¶ 64). A company called RAP Sales & Marketing Inc. (“RAP Sales”) received $97,650.00. (ECF Nos. 165 ¶ 50; 167 ¶ 64). In his Response, Melwani argues, without evidence, that RAP Sales is “in the same business as MDF[,]” and that “[t]his is a further issue for determination as to whether this company was purchased on behalf of MDF using” funds from Sale. (ECF No. 168 at 5). As of October 6, 2011, $380,464.46 remained in Stubbs Alderton's client trust account, but the status of those funds is not clear from the record. (ECF No. 165-3 at 12).
7. Lipton and Melwani's Post-Sale Communications
On July 27, 2011, Melwani sent the following email to Lipton:
So what you are telling me is you sold a company that I bailed out with 300 thousand dollars and own 32.5 percent of without discussing it with me? I have not received a single text or email regarding [Eagle Point] since I stated my position on the business, the potential sale of it and our agreement, despite various requests for an update. I can assure you we have a lot to talk about.
(ECF No. 76-2). That same day, Lipton responded:
I told you my feelings and what I wanted to do. You wanted feedback on why I had a change of feelings on the direction of the company. Frankly, I told you how I felt. I am happy to spend time speaking with you but I told you all my feelings regarding this issue. I have your money in escrow and need to work out some details with you.(Id.)
On December 1, 2011, Lipton sent Melwani the following email, which had the subject line “For settlement purposes only[:]”
Lokesh:
Please accept the formal nature of this email and please understand that based on United States legal system, limiting language in this email is necessary to assure that this proposal is non binding until a formal written agreement signed by the parties is executed.
Confirming that and one of your entities and you sent total funds of $300,000 to [Eagle Point]. [Eagle Point] and you have never established an agreement as to the purpose of the $300,000 and/or about how to structure a deal. Absent of an agreement, [Eagle Point]'s position and proposal is that your funds were and are a loan and [Eagle Point] desires to repay this loan.
At this time [Eagle Point] and what remains after the sale, [Eagle Point] is able to pay $50,000 today and is willing to work out a mutually acceptable payment plan to repay the remaining $250,000. We would like to set up time to discuss this proposal. This is a proposal and not an offer and is non binding until [Eagle Point] and you and your entity have all entered into a written agreement signed by all of the parties.
(ECF No. 76-3). Melwani disputed Lipton's characterization of the 2010 Agreement as a loan. (ECF Nos. 76-4; 76-5).
On August 21, 2012, Lipton sent Melwani the following email, which had the subject line “For use for settlement purposes only, [Eagle Point]-Cantal Payout[:]”
Lokesh,
Attached please find the computation for the payout based on a 33% ownership position of [Eagle Point]. I hope you are well, please call me with any questions.
(ECF No. 164-2 at 20-21). Attached to the email was a revised schedule of proposed payouts for the Sale proceeds. (ECF No. 164-2 at 21). The revised schedule listed a total of $782,665 in liabilities, which no longer included the “loan” from Cantal, and provided for $139,098 to be distributed to Cantal. (Id.)
B. Procedural Background
On July 26, 2017, Melwani commenced this action in New York State Supreme Court, New York County. (ECF No. 1 at 6-8). On October 27, 2017, Eagle Point removed the action to this Court. (ECF No. 1). On March 14, 2018, Melwani filed a first amended complaint, which, inter alia, added Cantal as a Plaintiff. (ECF No. 26). On October 5, 2018, Plaintiffs filed a second amended complaint, which asserted the following claims: (i) breach of contract against Lipton and Eagle Point (the “Breach of Contract Claim”); (ii) unjust enrichment against MDF; (iii) fraud against Lipton; and (iv) conversion against all Defendants. (ECF No. 51 (the “SAC”)).
On December 10, 2018, discovery commenced when Judge Gardephe entered a case management plan. (ECF No. 58).
On February 5, 2019, Defendants moved to dismiss the SAC. (ECF No. 72 (the “MTD”)). Defendants argued, inter alia, that: (i) Melwani lacks standing to bring this action because he did not personally invest in Eagle Point; and (ii) Plaintiffs' unjust enrichment claim against MDF should be dismissed because Defendants “conceded that Cantal had, and has, a contract with Eagle Point[.]” (ECF No. 73 at 6, 12-16). On August 20, 2019, Judge Gardephe stayed this case as to Lipton, who filed a petition for bankruptcy protection on June 20, 2019. (ECF No. 82).
On September 20, 2019, Judge Gardephe granted the MTD in part and denied it in part. (ECF No. 86 (the “MTD Decision”)). With respect to Melwani's standing, Judge Gardephe ruled that, “based on the allegations in the SAC and the 2010 [E]mails, Melwani appears to be asserting his own legal rights and interests in this lawsuit” and, thus, “has standing to bring his claims.” (Id. at 9 (citation and alterations omitted)). Judge Gardephe also denied the MTD as to Plaintiffs' unjust enrichment claim against MDF, finding that, “although both sides contend that an enforceable contract exists, it is not entirely clear to the Court that a valid contract exists.” (Id. at 14). Specifically, Judge Gardephe determined that the “2010 [E]mails are vague and unspecific as to a variety of points[,]” and, thus, did not establish “a ‘manifestation of mutual assent' that reflected true agreement on ‘all material terms.'” (Id.) Judge Gardephe noted “the SAC asserts that the 2010 [E]mails do not reflect the entirety of the parties' agreement[,]” and that, as a result, it was “possible that an enforceable contract exists.” (Id.) “It is also possible, however, that this Court may conclude - based on a more complete record - that there is no enforceable contract.” (Id.)
On May 7, 2020, Plaintiffs filed a motion for leave to amend the SAC (the “MTA”), specifically seeking leave to assert: (i) allegations that Lipton breached his fiduciary duties to Plaintiffs by misappropriating the $1.2 million Sale proceeds in order to capitalize MDF's purchase of Telecomica; and (ii) a claim against MDF for aiding and abetting Lipton's breach of fiduciary duty by serving as the vehicle for Lipton's improper conduct as the recipient of those funds (the “Aiding and Abetting Claim”). (ECF Nos. 98, 99). The Moving Defendants opposed the MTA, arguing, inter alia, that “the [three-year] statute of limitations preclude[d] the [A]iding and [A]betting [C]laim against MDF under Nevada law, where MDF is incorporated.” (ECF No. 101 at 5 (citing SAC ¶ 16)). In their reply in further support of the MTA, Plaintiffs argued that New York law governs their Aiding and Abetting claim. (ECF No. 100 at 8-10).
On August 12, 2020, Judge Gardephe granted the MTA. (ECF No. 109). With respect to the statute of limitations applicable to the Aiding and Abetting Claim, Judge Gardephe found that, “[w]hile the claim is clearly not be time-barred under New York's six-year statute of limitations, the Court need not resolve the conflict of law issue, because Plaintiffs' proposed [A]iding and [A]betting [C]laim is also not time-barred under Nevada law.” (Id. at 6). Specifically, Judge Gardephe determined that “the pleadings do not establish” Plaintiffs knew or should have known of the facts giving rise to the Aiding and Abetting Claim-i.e., that Lipton did not intend to fulfill his obligation to return Plaintiffs' investment-by July 26, 2014, three years before Plaintiffs filed the Complaint. (Id.)
On August 20, 2020, Plaintiffs filed the Third Amended Complaint. (ECF No. 111 (the “TAC”)). On October 9, 2020, the Moving Defendants filed their answer to the TAC. (ECF No. 112 (the “Answer)). In the Answer, MDF denied that it is a Nevada LLC. (Id. ¶ 16; see ECF 111 ¶ 16).
On July 9, 2021, the parties certified the completion of all discovery except as to Lipton. (ECF No. 145). On August 27, 2021, Plaintiffs voluntarily dismissed with prejudice their unjust enrichment claim against MDF. (ECF No. 148). On November 1, 2021, Plaintiffs' counsel requested to withdraw “due to a breakdown in communication and nonpayment of fees.” (ECF No. 152). On January 18, 2022, Judge Gardephe granted Plaintiffs' counsel's motion to withdraw. (ECF No. 158). On February 10, 2022, no new counsel having appeared for Cantal, the Moving Defendants moved pursuant to Fed.R.Civ.P. 41 to dismiss Cantal's claims for failure to prosecute. (ECF No. 160).
On February 28, 2022, the Moving Defendants filed the Motion. (ECF No. 163). On March 29, 2022 and March 31, 2022, Melwani filed his Response. (ECF Nos. 168-70). On April 4, 2022, the Moving Defendants filed their reply. (ECF No. 171). On May 6, 2022, Judge Gardephe referred the Motion for a report and recommendation. (ECF No. 172).
III. DISCUSSION
A. Legal Standard
Summary judgment must be granted when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). No genuine issue of material fact exists when “the record taken as a whole could not lead a rational trier of fact to find for the non-moving party[.]” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The Court must “construe the evidence in the light most favorable to the non-moving party and to draw all reasonable inferences in its favor.” Trammell v. Keane, 338 F.3d 155, 161 (2d Cir. 2003). “The party seeking summary judgment bears the burden of demonstrating the absence of any genuine factual dispute.” Astorga v. Allstate Oil Recovery, Co., No. 16 Civ. 5068 (SN), 2018 WL 1441377, at *1 (S.D.N.Y. Mar. 22, 2018) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).
If the non-moving party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial[,]” summary judgment will be granted. Celotex, 477 U.S. at 322-23. To defeat summary judgment, the non-moving party must do more than demonstrate “some metaphysical doubt as to the material facts,” Matsushita, 475 U.S. at 586, and may not rely on “[c]onclusory allegations.” Twin Labs., Inc. v. Weider Health & Fitness, 900 F.2d 566, 568 (2d Cir. 1990). Similarly, “[t]he fact that opposing parties assert competing versions of the same event is not in itself sufficient to preclude summary judgment.” Krynski v. Chase, 707 F.Supp.2d 318, 322 (E.D.N.Y. 2009). Rather, “[c]ontradictory testimony establishes a ‘genuine' issue for trial only where the conflicting testimony, if credited, would lead to a different legal outcome.” Id.
B. Application
MDF requests summary judgment on the Aiding and Abetting Claim (i.e., the only remaining claim against it), arguing that: (i) the claim is barred by the statute of limitations; (ii) Lipton's actions cannot be imputed to MDF because Lipton was never the sole owner or controller of the company; and (iii) there is no evidence suggesting MDF substantially assisted Eagle Point or Lipton's alleged breach of their fiduciary duty to Plaintiffs. (ECF No. 166 at 11-20, 23-25). Eagle Point requests summary judgment on the Breach of Contract Claim (i.e., the only claim asserted against it), arguing that: (i) Melwani lacks standing to bring the claim; and (ii) the claim fails because the 2010 Emails do not constitute an enforceable contract. (ECF No. 166 at 20-23). The Court addresses each claim in turn.
1. Aiding and Abetting Claim
Plaintiffs allege that Lipton owed them “fiduciary duties as a fellow member of Eagle Point” and “in his role as the managing member of Eagle Point[,]” and that Lipton “breached those fiduciary duties by self-dealing, namely, by misappropriating the proceeds of the [S]ale of Eagle Point . . . for his personal benefit to the exclusion of Plaintiffs by using those proceeds to allow GLS (i.e., [MDF]) to complete its purchase of Telecomica.” (ECF No. 111 ¶¶ 61, 62). Plaintiffs further allege that MDF “had knowledge of [] Lipton's breach of fiduciary duty by virtue of [] Lipton being the owner of MDF[,]” and that MDF “substantially assisted [] Lipton in his breach of fiduciary duty by, inter alia, serving as the vehicle through which [] Lipton was able to breach his fiduciary duties.” (Id. ¶¶ 63, 64). Finally, Plaintiffs allege that MDF “compounded its assistance by helping to conceal [] Lipton's breach by falsely assuring Plaintiffs that they would be repaid for their investment, and advising [] Lipton as to how best forestall any need to make such repayment.” (Id. ¶ 66).
In the Motion, MDF makes two primary arguments. First, it argues that the Aiding and Abetting Claim is barred by Nevada's three-year statute of limitations because Plaintiffs were aware of the facts giving rise to the claim by July 27, 2011, i.e., the date that Plaintiffs learned Lipton had breached the 2010 Agreement. (ECF No. 166 at 23-25). MDF argues that Nevada law applies because “MDF is incorporated” in Nevada. (Id. at 23 (citing ECF No. 111 ¶ 16). MDF also claims that “its primary place of business is likewise in Nevada[,]” but it cites no evidence supporting that proposition. (Id.)
Second, MDF argues that the Aiding and Abetting Claim fails on the merits under New York law for two reasons. First, MDF argues that “Lipton was never the sole owner or controller at MDF” and, as a result, his knowledge of the alleged breach of the 2010 Agreement “should not be imputed to MDF.” (ECF No. 166 at 11-17). Second, MDF argues that Plaintiffs “fail to point to any MDF participation or aid, substantial or otherwise, given to Mr. Lipton in his alleged breach of [his] fiduciary duty.” (Id. at 17-20).
In his Response, Melwani argues that “MDF is not entitled to summary judgment because there exists at minimum an issue of material fact as to Lipton's control over MDF, his authority to bind MDF, whether MDF was used as a vehicle to shield family funds, as stated in the sworn declaration of Feinberg, and whether Feinberg and MDF coached Lipton on avoiding his payment obligations, as testified by Mr. Melwani.” (ECF No. 168 at 4). In support of this argument, Melwani notes that, in a declaration filed in Lipton's bankruptcy proceeding, Feinberg attested that “MDF is intended to serve as a legacy company for [his] grandchildren.” (Id. at 2). Melwani also notes that, in connection with the bankruptcy proceeding, MDF claimed that Lipton hired accountants for MDF without Feinberg's knowledge or consent, and that Lipton used MDF funds for his personal use. (Id. at 2-3).
a. Legal standards
i. Choice of law
As a threshold issue, the Court notes that neither party has addressed which law applies to the merits of Plaintiffs' Aiding and Abetting Claim, and instead have assumed that New York law applies. (See ECF Nos. 166 at 11-20; 168 at 1-4; 171 at 3-5; see also ECF No. 100 at 8-10). MDF argues that the Nevada statute of limitations should apply, claiming that MDF is incorporated in that state. (ECF No. 166 at 23-25). As discussed below (see § III.B.l.b.i infra), however, that argument lacks factual support. Moreover, “[a]lthough the Second Circuit has not directly addressed which New York choice of law rule governs a claim of aiding and abetting a breach of fiduciary duty,” several district courts in this Circuit have determined “that the law of the jurisdiction having the greatest interest should apply[,]” not the law of the state of incorporation. Okimoto v. Yougjun Cai, No. 13 Civ. 4494 (RMB), 2015 WL 3404334, at *4 (S.D.N.Y. May 21, 2015) (collecting cases). MDF does not analyze which state has the greatest interest in this dispute.
Where “the parties do not dispute that New York law applies, and, where the parties assume, in their briefs, that the law of a particular state governs, that is ‘sufficient to establish the applicable choice of law.'” Horowitz v. Spark Energy, Inc., No. 19 Civ. 7534 (PGG) (DF), 2020 WL 6561600, at *7 n.5 (S.D.N.Y. July 31, 2020), adopted by, 2020 WL 4917180 (S.D.N.Y. Aug. 21, 2020) (quoting Arch Ins. Co. v. Precision Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009)); see also Walker v. Thompson, 404 F.Supp.3d 819, 823 n.3 (S.D.N.Y. 2019) (“Declining to engage in a choice of law analysis is especially appropriate here, where the parties have failed to brief the question and applied New York law without analysis.”). Accordingly, for purposes of deciding the Motion, the Court applies New York law to the merits of Plaintiffs' Aiding and Abetting Claim.
ii. Aiding and abetting breach of fiduciary duty
“[B]eyond direct liability for one's own actions, New York law recognizes a cause of action for aiding and abetting another's breach of fiduciary duty.” Krys v. Butt, 486 Fed.Appx. 153, 157 (2d Cir. 2012). “To sustain a claim for aiding and abetting breach of fiduciary duty, a plaintiff must allege: (1) a breach of fiduciary duty; (2) knowledge of the breach by the aider and abettor; (3) substantial assistance by the aider and abettor in achieving the breach; and (4) that plaintiff suffered damage as a result of the breach.” Howe v. Bank of New York Mellon, 783 F.Supp.2d 466, 485 (S.D.N.Y. 2011) (citing Design Strategy, Inc. v. Davis, 469 F.3d 284, 303 (2d Cir.2006)); see Lerner v. Fleet Bank, 459 F.3d 273, 294 (2d Cir. 2006)). “Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur.” Howe, 783 F.Supp.2d at 485 (citing Kaufman v. Cohen, 307 A.D.2d 113, 126, 760 N.Y.S.2d 157 (1st Dep't 2003)).
“Although a plaintiff is not required to allege that the aider and abettor had an intent to harm, there must be an allegation that such defendant had actual knowledge of the breach of duty.” Krys, 486 Fed.Appx. at 157 (2d Cir. 2012) (citation omitted). “Constructive knowledge of the breach of fiduciary duty by another is legally insufficient to impose aiding and abetting liability.” Kaufman, 760 N.Y.S.2d at 169; see Kolbeck v. LIT Am., Inc., 939 F.Supp. 240, 246 (S.D.N.Y.1996) (“New York common law . . . has not adopted a constructive knowledge standard for imposing aiding and abetting liability. Rather, New York courts and federal courts in this district, have required actual knowledge.”). “[T]he inaction of an aider and abettor is actionable when the aider and abettor has an affirmative duty to act or has a fiduciary duty to [the] plaintiff[.]” In re Platinum-Beechwood Litig., No. 18 Civ. 10936 (JSR), 2020 WL 1932601, at *12 (S.D.N.Y. Apr. 21, 2020) (citing Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 446 F.Supp.2d 163, 203 (S.D.N.Y. 2006)).
b. Application
i. Statute of limitations
MDF's statute of limitations argument lacks merit. MDF claims that Nevada law should govern the limitations period because MDF is incorporated there. (ECF No. 166 at 23-25). To support this argument, MDF relies solely on Plaintiffs' allegation in the TAC that MDF is incorporated in Nevada. (See id. 23 (citing ECF No. 111 ¶ 16)).In its Answer to the TAC, however, MDF denied this allegation. (ECF No. 112 ¶ 16). Moreover, in several public filings in other matters, MDF has represented that it “is a Delaware limited liability company[.]” (See MDF Holdings, LLC v. Lipton, Adversary No. 19-1095-ABL (D. Nev. Oct. 21, 2020), Motion to Approve Settlement Under Rule 9019, ECF No. 150 ¶ 1; MDF Holdings, LLC v. Kaplan & Assocs., Index No. 615990/2019 (N.Y. Sup. Ct., Nassau Cnty, Nov. 15, 2019), Complaint, NYSCEF No. 1 at 2 ¶ 3). Accordingly, because MDF offers no factual support for the application of Nevada law, and because it invokes New York law (see ECF Nos. 166 at 11-20; 171 at 3-5), the Court applies New York law to the statute of limitations issue.
MDF also falsely claims that Judge Gardephe “already held” that “Nevada law should apply on the statute of limitations issue[.]” (ECF No. 166 at 23 (citing ECF No. 86 at 9 n. 9)). Initially, in the cited decision, Judge Gardephe analyzed the issue of successor-in-interest liability under Nevada and New York law, not the statute of limitations. (ECF No. 86 at 9. n. 9). Moreover, Judge Gardephe expressly determined that “the Court need not decide which state's law applies” because “there is no conflict between Nevada and New York law” on the issue of successor liability. (Id.) Further, when Judge Gardephe did analyze the statute of limitations issues in deciding the MTA, he determined that “the Court need not resolve the conflict of law issue, because Plaintiffs' proposed aiding and abetting claim is also not time barred under Nevada law.” (ECF No. 109 at 6).
As Judge Gardephe previously noted, New York applies a six-year statute of limitations to claims for aiding and abetting the breach of a fiduciary duty. (ECF No. 109 at 6); see Frand v. Woldiger, No. 18 Civ. 4816 (VB), 2019 WL 1897453, at *3 (S.D.N.Y. Apr. 29, 2019). As MDF concedes, Plaintiffs were aware of the facts giving rise to the Aiding and Abetting Claim by July 27, 2011, i.e., the date that Plaintiffs learned Lipton had breached the 2010 Agreement. (ECF No. 166 at 23-25). Accordingly, Plaintiffs had six years from that date, until July 27, 2017, to bring their Aiding and Abetting Claim. Plaintiffs commenced this action on July 26, 2017 (ECF No. 1 at 6-8), and were granted leave to amend to assert the Aiding and Abetting Claim on August 12, 2020. (ECF No. 109). Accordingly, the Court finds that the Aiding and Abetting Claim is not time-barred.
ii. Merits
The Court agrees with MDF, however, that Plaintiffs' Aiding and Abetting Claim fails on the merits. As discussed above, Plaintiffs premise this claim on the allegation that “Lipton diverted the proceeds of the [S]ale of Eagle Point [] into [MDF]'s control, an entity in which Plaintiffs were not members, in order to allow MDF [] to acquire Telecomica, rendering the sale proceeds unrecoverable.” (ECF No. 111 ¶ 65). Even assuming Melwani established Lipton's breach of a fiduciary duty, he has presented no evidence to suggest that MDF knew of that breach, much less that it provided substantial assistance. Indeed, contrary to Plaintiffs' allegations, the record reflects that: (i) Gotham-not Lipton-loaned MDF the funds for the purchase of Telecomica (ECF No. 165 ¶ 22; see id ¶¶ 24-30; see also ECF Nos. 165-1 at 4-18; 1652); (ii) this loan “represented the entire amount of the purchase of Telecomica's assets as well as the $450,000 of working capital” (ECF No. 165 ¶ 32); (iii) “MDF did not utilize funds from any other source . . . for the asset purchase” (id.); Lipton paid a total of $750 to GLS in connection with the creation of MDF (id. ¶ 16; see ECF No. 165-1 at 2-3); and (iv) these payments were “the only payments made by Lipton to fund the formation and/or capitalization of MDF.” (ECF No. 165 ¶ 18).
Melwani has presented no evidence to contradict these facts or to otherwise suggest MDF substantially assisted Eagle Point's breach of their fiduciary duty. While Melwani claims that “Lipton exercised de facto control over [MDF's] operations and finances[,]” (ECF No. 168 at 3), he offers no evidence indicating that Lipton wielded that alleged authority to implicate MDF in the alleged breach of fiduciary duty, i.e., the misappropriation of the Sale proceeds. Melwani notes that RAP Sales received $97,650.00 of the Sale proceeds, and argues that, because it is “in the same business as MDF[,]” there “is a further issue for determination as to whether this company was purchased on behalf of MDF using” funds from Sale. (ECF No. 168 at 5; see (ECF Nos. 165 ¶ 50; 167 ¶ 64)). Melwani, however, offers no evidence connecting MDF to RAP Sales at all, much less to RAP Sales' receipt of the Sale proceeds. With no evidence connecting MDF to Lipton's breach of a fiduciary duty, Plaintiffs' Aiding and Abetting Claim cannot withstand dismissal. See In re Platinum-Beechwood Litig., 2020 WL 1932601, at *12 (granting summary judgment on certain aiding and abetting breach of fiduciary duty claims where the plaintiffs presented “no evidence tying [the defendant] to any specific transactions at issue, whether in terms of actual knowledge or substantial assistance”).
Accordingly, the Court respectfully recommends that the Motion be GRANTED as to Plaintiffs' Aiding and Abetting Claim.
2. Breach of Contract Claim
Plaintiffs allege that they “entered into a binding and [sic] enforceable contract with [] Lipton and Eagle Point[,]” and that they “fully performed their obligations under the agreement by paying $300,000,00 to [Lipton and Eagle Point] for a 32.5 percent equity stake in” Eagle Point. (ECF No. 111 ¶ 31-32). Plaintiffs allege that the “contract was breached at the earliest on or about December 1, 2011, when [Lipton], acting independently and as an agent of Eagle Point [], asserted that Plaintiffs' equity purchase would be considered a loan (interest free) to Eagle Point[].” (Id. ¶ 34).
Eagle Point makes two arguments why it is entitled to summary judgment. First, it argues that Melwani lacks standing to bring the Breach of Contract Claim. (ECF No. 166 at 20-21). Eagle Point notes that it “has previously stipulated that it had a contract concerning” Plaintiffs' $300,000 investment, but argues that “[i]t is undisputed that Cantal invested all of the disputed funds into Eagle Point.” (Id. at 21 (emphasis added)). Eagle Point claims that “[n]o assignments of rights or ownership of shares or membership interests has been executed by Cantal in Melwani's favor.” (Id.) Thus, Eagle Point argues, Melwani is improperly attempting to “assert Cantal's legal rights as if they were his.” (Id. at 20).
Second, Eagle Point argues that the 2010 Emails do not constitute an enforceable contract. (ECF No. 166 at 21-23). Relying on Judge Gardephe's MTD Decision regarding Plaintiffs' former unjust enrichment claim, Eagle Point argues that the 2010 emails do not reflect a “‘manifestation of mutual assent' that reflected a true agreement on ‘all material terms.'” (Id. at 21-22 (citing ECF No. 86 at 14)).
In his Response, Melwani claims it is “undisputed” that he “invested funds through [Cantal] in the Eagle Point venture[,]” and that “Plaintiffs thereby acquired a 32.5% stake in Eagle Point.” (ECF No. 168 at 2). Melwani also claims that, “[t]hroughout the years from the sale of [Eagle Point,] Lipton constantly assured [him] that [he] would be paid in full for [his] capital contribution at the very least.” (Id. at 5). Regarding his standing to bring his claims, Melwani argues that “the agreement made was between [himself] and [Eagle Point,]” and that “Cantal was simply a vehicle that I used to transfer the funds.” (Id. at 6). The Response include an April 1, 2021 letter from Primeway S.A. to Melwani, attesting that Melwani “is the ultimate beneficial owner” of Cantal and the “source of Cantal's funds[.]” (Id. at 26).
a. Legal standard
“Under New York law, there are four elements to a breach of contract claim: (1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of contract by the defendant, and (4) damages.” Mindspirit, LLC v. Evalueserve Ltd., 346 F.Supp.3d 552, 573-74 (S.D.N.Y. 2018) (citation omitted). As Judge Gardephe noted in the MTD Decision, “a contract is defined under New York law [as] ‘an offer, acceptance of the offer, consideration, mutual assent, and an intent to be bound.'” Fisher v. Int'l Student Exch., Inc., 38 F.Supp.3d 276, 282 (E.D.N.Y.2014) (quoting Kowalchuk v. Stroup, 61 A.D.3d 118, 121 (1st Dep't 2009)). “‘To create a binding contract, there must be a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms.'” Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 95 (2d Cir. 2007) (quoting Express Indus. & Terminal Corp. v. N.Y. State Dep't of Transp., 93 N.Y.2d 584, 589 (1999)).
“As the Second Circuit has explained, ‘[u]nder New York law, parties are free to enter into a binding contract without memorializing their agreement in a fully executed document .... In any given case it is the intent of the parties that will determine the time of contract formation.'” Menlo v. Friends of Tzeirei Chabad in Israel, Inc., No. 11 Civ. 1978 (JPO), 2013 WL 1387057, at *2 (S.D.N.Y. Apr. 5, 2013) (quoting Winston v. Mediafare Ent. Corp., 777 F.2d 78, 80 (2d Cir. 1985)). “Therefore, ‘[a]n oral agreement is binding except where the parties have explicitly made reference to an intention to be bound only by an executed written document.'”
Id. (quoting IBS Ketel, Ltd. v. Korea Telecom Am., Inc., No. 98 Civ. 4856, 2000 WL 821013, at *3 (S.D.N.Y. June 22, 2000) (citation omitted)).
“[Q]uestions of a party's intent are ultimately questions of fact, requiring credibility determinations and inferences[.]” Rus, Inc. v. Bay Indus., Inc., 322 F.Supp.2d 302, 317 (S.D.N.Y. 2003). Similarly, “[w]hen a contract is ambiguous and there is relevant extrinsic evidence as to the parties' intent, the proper interpretation of the disputed language becomes a question of fact for the jury.” Summit Health, Inc. v. APS Healthcare Bethesda, Inc., 993 F.Supp.2d 379, 391 (S.D.N.Y. 2014), aff'd sub nom. APEX Emp. Wellness Servs., Inc. v. APS Healthcare Bethesda, Inc., 725 Fed.Appx. 4 (2d Cir. 2018)).
b. Application
The Court agrees with Eagle Point, following Judge Gardephe's reasoning in the MTD Decision, that, “based on the 2010 [E]mails, the Court cannot conclude that there was a ‘manifestation of mutual assent' that reflected true agreement on ‘all material terms.'” (ECF No. 86 at 14). As Judge Gardephe previously noted, “[t]he 2010 [E]mails are vague and unspecific as to a variety of points.” (Id.) For example, they “do not explicitly state that Melwani is investing in Eagle Point, and they contain no mention of Cantal - an entity that both Plaintiffs and Defendants agree was a party to the contract.” (Id.) Accordingly, Melwani has not established that the 2010 Emails constitute an enforceable contract.
The Court disagrees, however, that this entitles Eagle Point to summary judgment on Plaintiffs' Breach of Contract Claim. Indeed, the fact that the 2010 Emails may not constitute an unenforceable contract does not mean that no enforceable contract exists. As Judge Gardephe noted in the MTD Decision, Plaintiffs allege that the 2010 Emails do not reflect the entirety of the parties' agreement. (ECF No. 86 at 14; see ECF No. 111 ¶ (alleging that the parties' “agreement was memorialized, inter alia, in a series of e-mails between [] Melwani, [] Lipton, and Eagle Point [] in March, April, May, and June of 2010”)). In addition, Eagle Point acknowledges in the Motion that it has previously and repeatedly “stipulated that it had a contract concerning” Plaintiffs' investment in Eagle Point. (ECF No. 166 at 21; see ECF No. 167 ¶ 1). Moreover, when deciding the MTD, Judge Gardephe did not consider Lipton's December 1, 2011 and August 21, 2012 emails, in which Lipton appears to acknowledge the existence of an agreement between the parties. (ECF Nos. 76-3; ECF No. 164-2 at 20-21). Thus, based on the current record and Eagle Point's own recitation of the undisputed facts, the Court cannot conclude that “the record taken as a whole could not lead a rational trier of fact to find” that no contract exists. Matsushita, 475 U.S. at 587.
If discovery were complete as to all parties, the Court might agree with Eagle Point that Melwani's failure to establish the existence of an enforceable contract warrants dismissal of his Breach of Contract Claim. Discovery, however, is not complete with respect to Lipton, who remains subject to a stay. (ECF No. 82). Given Lipton's role in the negotiation and formation of the 2010 Agreement, and his status as the managing and majority member of Eagle Point at all relevant times, it is possible that, following discovery from Lipton, Melwani may be able to establish that Lipton manifested an intent to bind himself and Eagle Point to an agreement. For example, Melwani will be able to seek discovery regarding Lipton's understanding of, and records reflecting, the parties' 2010 Agreement. Accordingly, at this stage in the litigation, the Court cannot conclude that Eagle Point has established “the absence of any genuine factual dispute” with respect to the Breach of Contract Claim. Astorga, 2018 WL 1441377, at *1; see Doe v. Trustees of Columbia Univ. in City of N.Y., No. 21 Civ. 5839 (ER), 2021 WL 4267638, at *1 (S.D.N.Y. Sept. 16, 2021) (noting that “courts routinely deny motions for summary judgment as premature when discovery over relevant matters is incomplete”).
Eagle Point argues that Lipton's December 1, 2011 and August 21, 2012 emails (see ECF Nos. 76-3; ECF No. 164-2 at 20-21) “constitute settlement discussions” and, thus, “are inadmissible” under Fed.R.Evid. 408. (ECF Nos. 166 at 17; see ECF No. 171 at 5). While Eagle Point is correct that Rule 408 prohibits the use of compromise offers or negotiations “to prove or disprove the validity or amount of a disputed claim[,]” the Court cannot, at this stage, conclude that Plaintiffs are offering these emails to prove the existence of a contract, instead of “another purpose” that would be permissible. Fed.R.Evid. 408(a); cf. Faulkner v. Arista Recs. LLC, 797 F.Supp.2d 299, 317 (S.D.N.Y. 2011) (considering settlement communications in breach of contract case where “the parties [were] not litigating the validity of the underlying claims arising from the [contracts], and though the parties . . . vigorously dispute[d] the amount of the claims at issue, that dispute [was] . . . not addressed on [the plaintiff's] summary judgment motion, and the evidence [was] not offered for that purpose”).
In light of these questions of fact relating to the existence of a contract, Eagle Point's argument concerning Melwani's standing to assert the Breach of Contract Claim is similarly unpersuasive at this time. Until these questions of fact are resolved, the Court cannot conclude that Melwani is not “assert[ing] his own legal rights and interests” in this lawsuit such that he would lack standing to bring his claims. Digizip.com, Inc. v. Verizon Servs. Corp., 139 F.Supp.3d 670, 675 (S.D.N.Y. 2015).
Accordingly, the Court respectfully recommends that the Motion be DENIED as to Plaintiffs' Breach of Contract Claim.
IV.CONCLUSION
For the reasons set forth above, I respectfully recommend that the Motion be GRANTED IN PART and DENIED IN PART as follows:
1. Plaintiffs' Aiding and Abetting Claim against MDF be DISMISSED; and
2. Plaintiffs' Breach of Contract Claim against Eagle Point be allowed to proceed.
The Moving Defendants shall promptly serve a copy of this Report and Recommendation on Melwani, and file proof of service on the docket.
The Clerk of the Court is respectfully directed to mail a copy of this Report and Recommendation to Melwani.