Opinion
650917/2018
12-03-2018
JONES LANG LASALLE BROKERAGE, INC., Plaintiff, v. EPIX ENTERTAINMENT LLC f/k/a Studio 3 Partners LLC and Metro-Goldwyn-Mayer Studios Inc., Defendants.
FOR plaintiff: Menachem J Kastner & Ally Hack, COZEN O'CONNOR, Cozen O'Connor, 45 Broadway, 16th Floor, New York, NY 10006 FOR defendants:Robert E Malchman, Allegaert Berger & Vogel LLP, 111 Broadway, 20th Floor, New York, NY 10006
FOR plaintiff: Menachem J Kastner & Ally Hack, COZEN O'CONNOR, Cozen O'Connor, 45 Broadway, 16th Floor, New York, NY 10006
FOR defendants:Robert E Malchman, Allegaert Berger & Vogel LLP, 111 Broadway, 20th Floor, New York, NY 10006
Carmen Victoria St. George, J.
In this action, plaintiff, a real estate brokerage firm, sues Epix Entertainment LLC f/k/a Studio 3 Partners LLC (Epix) and its parent company Metro-Goldwyn-Mayer Studios Inc. (MGM) to recover the commission defendants purportedly owe to plaintiff under an exclusive services agreement. Plaintiff argues that Epix improperly wrote that the contract was effective from May 1, 2016 to May 1, 2017, when the contract should have stated it was in effect from May 1, 2017 to May 1, 2018. According to plaintiff, its representative signed the agreement without realizing the error, and the Court should construe the document in conformance with plaintiff's intent. Plaintiff stresses that the agreement states that is "dated as of May 1, 2016" instead of "May 1, 2017," and it argues this supports its position that the year on the contract is incorrect.
In addition, plaintiff states that the May 2017 expiration date clearly is wrong because the negotiations for the contract continued beyond that date. The verified amended complaint (VAC) points out that plaintiff forwarded the service agreement to Epix on December 12, 2016, but Epix did not provide its red-line copy of the agreement to plaintiff until April 28, 2017, only a few days before Epix alleges that the contract expired. The final version, including the May 1, 2017 expiration date, was executed by Epix on June 2, 2017 and by plaintiff on June 5, 2017. Plaintiff also points to other negotiations, relating to a partial rebate of the broker fee, which took place after the purported expiration date, and it argues that in this and other respects defendants treated plaintiff as its broker.
Plaintiff contends that it continued to communicate with both defendants with respect to the contract terms and with respect to office space located at 902 Broadway until around July 11, 2017, and that defendants did not indicate that the exclusive services agreement had expired. On July 11, however, MGM representative Bill Lopatto bypassed plaintiff and sent an email directly to the building's landlord; the email broke off negotiations for the office space. In addition, defendants began pursuing other options without plaintiff's assistance. Instead, plaintiff states, defendants used Colliers International, another brokerage house, to show them these other properties, including space located in 260 Madison Avenue. Plaintiff emailed employees of Colliers and Epix on July 14, 2017, reminding these individuals of its exclusive services agreement and stating that it would take over the negotiations for 260 Madison Avenue and it would seek its commission.
In response, plaintiff states, defendants sent a letter to plaintiff, which is dated July 21, 2017 and was signed by Daniel M. Flores, who identified himself as the in-house attorney at MGM "and its affiliated companies (‘MGM’), including Epix Entertainment LLC (‘Epix’)" (Flores letter, NYSCEF Doc. No. 99). The letter further declared that "[t]he May 1, 2016 Services Agreement ... expired on May 1, 2017" and that, therefore, "MGM or Epix" had no further obligation to use plaintiff as broker or to pay a broker's fee to plaintiff (id. ). Plaintiff states that this was the first time that defendants claimed that the agreement had expired. The letter added, "[i]ndeed, MGM was not shown the 260 Madison space until June 2017. Accordingly, MGM has no obligation to negotiate through [plaintiff]" (id. ). The letter concluded that it was not "a complete statement of MGM's position regarding this matter. Nothing contained herein shall be deemed a waiver of any of MGM's rights, claims, defenses or remedies...." (id. ).
Due to the failure of the parties to resolve their dispute through subsequent communications, plaintiff commenced this action for the recovery of its commission. The VAC sets forth causes of action against MGM for declaratory relief, stating the contract was in effect from May 1, 2017 to May 1, 2018; for reformation of the contract to include the purportedly proper dates; for breach of contract; and, for tortious interference with contract against MGM, on the ground that it directed that the negotiations for Epix's office space at 260 Madison be conducted without plaintiff and that there was no justification for its conduct. The fifth cause of action, which seeks documents from Epix enabling plaintiff to determine the appropriate commission, is against Epix only and is not part of this motion.
At oral argument, plaintiff estimated that the commission for the 260 Madison Avenue space would have been around $500,000.
The VAC asserts that MGM is a proper party to this action because MGM exercised total dominion and control over Epix in all ways that are relevant to this matter, and thus plaintiff can pierce the corporate veil. According to plaintiff, this occurred when "MGM came onto the scene" in April 2017 (VAC, ¶ 32), prior to the effective date of the agreement but while plaintiff already was scouting possible locations for Epix's offices. Around April 24, 2017, according to the VAC, Epix told plaintiff that MGM's consent was required for the services agreement (see, e.g., id. , ¶ 40 [citing email annexed as exhibit T, NYSCEF Doc. No. 106). The VAC also states that Bill Lopatto, the contact person who negotiated the lease on behalf of Epix, is MGM's vice president of administrative services and head of real estate; that MGM required Epix to include its "preferred outside leasing counsel" in the negotiations (VAC, ¶ 3) and to consult with MGM's senior leadership as well; and that MGM was the ultimate decisionmaker and the party which argued that the exclusive services agreement had expired. The VAC states that MGM directed Epix to convert the commission rebate agreement so that Epix would receive a rent credit instead of a direct rebate and that these negotiations continued until "at least July 7, 2017" (id. , ¶ 35). The VAC notes that MGM sent plaintiff emails relating to the negotiations for the 902 Broadway lease, and annexed are several emails supporting this contention (see id. , ¶¶ 42, 43, 45, 49, among others). It asserts that MGM representatives participated in conference calls and meetings, visited office spaces, and in other ways inserted itself into the process.
On April 3, 2017, MGM, previously one of the parties to a joint venture which owned Epix, announced that it had purchased the other parties' interests and now fully owned Epix.
In addition, the VAC suggests that after MGM assumed full ownership of Epix, the negotiations for 902 Broadway began to stall. The VAC indicates that these delays were at the behest of Epix and MGM, and states that "Epix was powerless to sign-off on its own sublease for its own space unless and until MGM approved it" (id. , ¶ 60). The VAC stresses that throughout their communications to plaintiff following the execution of the exclusive services agreement, MGM and Epix treated the agreement as if it were in effect and they did not tell plaintiff that the agreement had expired. The perception that plaintiff was defendants' representative was shared by the landlord of 902 Broadway and others connected to the building and the lease negotiations.
According to the VAC, there was something nefarious about these goings-on. "Unbeknownst to Plaintiff, MGM and Epix were, behind Plaintiff's back, secretly touring the space at 260 Madison and discussing a potential leasing transaction with [Colliers]" (id. , ¶ 69). The VAC states that MGM's July 11 email to the 902 Broadway landlord, in which plaintiff was not included, was another deceptive action. Furthermore, the VAC says, "given the course of Plaintiff's communications with Epix over the duration of the negotiations and the subsequent silence of Epix with respect to 260 Madison in late June 2017 ..., it is clear that MGM did not want Plaintiff to know that it and Epix were covertly reviewing other options with a different broker and, on information and belief, because no other conclusion can be drawn, instructed its and Epix's personnel to avoid disclosing that fact to Plaintiff" (id. , ¶ 71). The VAC accuses defendants of breaching the services agreement when it commenced "clandestine negotiations" to lease 260 Madison, and of "stringing Plaintiff along while it concluded the 260 Madison Avenue negotiations and ultimate execution of a sublease" (id. , ¶ 81). The failure to pay plaintiff a commission, the VAC states, is another breach.
Currently, MGM brings a pre-answer for dismissal of the VAC under CPLR § 3211 (a) (7). According to MGM, the VAC does not sufficiently plead the causes of action against them (see Grasshoff v. Etra , 114 AD3d 429, 429 [1st Dept 2014] [affirming denial of motion to dismiss]; Cangro v. Reitano , 92 AD3d 483, 483 [1st Dept 2012] [affirming order which granted motion] ). As this is an amended complaint and therefore plaintiff has had two opportunities to articulate valid bases for its claims against MGM, MGM states that the dismissal of the VAC as against it should be with prejudice.
Epix does not move for dismissal as against it and has answered the VAC.
First, MGM argues that plaintiff has not set forth the legal elements necessary to justify piercing the corporate veil. It cites to East Hampton Union Free School Dist. v. Sandpebble Builders, Inc. (16 NY3d 775 [2011] [East Hampton].) and Walnut Housing Assoc. 2003 L.P. v. MCAP Walnut Housing LLC (136 AD3d 403, 404 [1st Dept 2017] [Walnut Housing].) for support — East Hampton , for the proposition that a plaintiff must allege that a sole stockholder abused or perverted the corporate form; and Walnut Housing for the position that courts should dismiss a cause of action for piercing the corporate veil if the allegations in the complaint are conclusory. Under Delaware law, which both parties agree is applicable here, a claim for piercing the corporate veil " ‘must plead facts supporting an inference that the corporation, through its alter-ego, has created a sham entity designed to defraud ... creditors’ " (MGM's Mem. of Law, at p 9 [quoting Crosse v. BCBSD, Inc. , 836 A2d 492, 497 (Del 2003) ] ). MGM singles out Doberstein v. G-P Indus., Inc. (C.A. No. 9995-VCP, 2015 WL 6606484 [Del Chancery Ct Oct. 30, 2015] ), among several cited cases, for this principle. Here, MGM argues, there is no claim that MGM fraudulently used Epix's corporate form. Instead, MGM contends, the VAC contains nothing more than a conclusory and insufficient claim that MGM and Epix have an alter ego relationship. MGM also states that its involvement in the 902 Broadway lease negotiations is insufficient to show complete domination and control, and that, even if it had exercised dominion and control over Epix, this would be insufficient absent evidence of fraud or injustice.
Epix is a Delaware entity.
Second, MGM argues, the tortious interference with contract claims must be dismissed. Under New York law, MGM states, "[a] parent cannot interfere with a subsidiary's contract where, as here, the New York Court of Appeals' ... Economic Interest Doctrine applies" (MGM's Mem. of Law, at p 13] ). Under this doctrine, MGM states, it cannot be held liable for tortious interference because the purpose of its purported interference was to protect its own financial interests. The only exception to this doctrine, MGM argues, is where the complaint alleges either malice or the use of fraudulent or illegal means. The complaint, moreover, must contain more than " ‘bare allegations of malice’ " (MGM's Mem. of Law, at p 8 [citing Rather v. CBS Corp. , 68 AD3d 49, 60 (1st Dept 2009) ] ). Here, MGM claims, the VAC does not allege malice or use the word "malice" in its pleading. Although the VAC does allege bad faith, according to MGM this is insufficient to justify an exception to the economic interest doctrine. MGM stresses that the VAC does not use the words "fraudulently, illegally, criminally or maliciously in connection with Epix's alleged breach" (MGM's Mem. of Law, at p 14).
In addition to the dismissal of the claims against it, MGM seeks sanctions against plaintiff. MGM states that plaintiff's claims against it are frivolous. MGM annexes a copy of correspondence relating to plaintiff's failure to oppose its original motion for dismissal of the original complaint as against it. MGM states that because plaintiff had not shown that the default was due to excusable neglect, MGM refused to stipulate to vacate plaintiff's default. Nonetheless, plaintiff sought and received an adjournment of the motion, and during the ensuing period plaintiff filed the VAC. This rendered the first motion moot, so MGM withdrew it. On May 10, 2018, defendants' counsel wrote to plaintiff asking plaintiff to dismiss the claims against MGM without prejudice. The letter stated that the bases of plaintiff's allegations against MGM — that plaintiff can pierce the corporate veil and that MGM tortuously interfered with plaintiff's contract with Epix — were frivolous within the meaning of 22 NYCRR § 130-1.1. Currently, MGM seeks sanctions against plaintiff based on its refusal to discontinue these claims.
In opposition, plaintiff argues that, contrary to MGM's position, the VAC contains "specific, particularized allegations" which show "that MGM engaged in its own misconduct, thereby orchestrating its newly acquired subsidiary's breach and giving rise to JLL's damages" (Plaintiff's Mem. of Law, at p 1). Plaintiff emphasizes that here, where MGM moves to dismiss for failure to state a claim, this Court must determine only whether, if the allegations are true, they state viable (see id. , at p 13 [citing Kolchins v. Evolution Markets, Inc. , 31 NY3d 100, 105-06 [2018] ). Utilizing this standard, plaintiff argues, the Court must deny the motion.
Plaintiff states that MGM's motion misstates Delaware's law on alter ego liability. It cites NetJets Aviation Inc. v. LHC Communications, LLC (537 F3d 168, 177 [2nd Cir 2008] [NetJets] [under Delaware law] ) for the proposition that a more nuanced and fact-specific evaluation is necessary. Under Delaware law, plaintiff states, alter ego liability may exist where the parent corporation completely controlled the subsidiary with respect to the relevant transaction. Plaintiff notes that the VAC repeatedly and in detail sets forth a valid claim under this standard. It cites to its allegations that Epix did not observe every corporate formality in that Epix and MGM shared employees and commingled their operations (VAC, ¶ 104). Plaintiff notes that the VAC refers to the involvement of MGM senior executive Mr. Lopatto in the transactions in dispute, providing input on the services agreement and directly contacting the landlord of 902 Broadway to state that Epix would not rent office space in the building (citing VAC ¶¶ 39-75, 104 [g], and exhibits U, K, AA, BB, and CC). Among other things, plaintiff states, the VAC alleges that MGM's chief security officer flew in from Los Angeles to conduct a walk-through of 902 Broadway, that MGM's real estate attorney participated in the negotiations, and its senior management reviewed the transaction and provided directions to Epix concerning it (see VAC, ¶¶ 3, 32, 50, 104 [i], 60-71, and exhibit J). These allegations, plaintiff urges, along with those showing that MGM's approval was required for all matters relating to the office lease, sufficiently show Epix was a façade for MGM. As further support, plaintiff cites allegations in the VAC and supporting exhibits showing that MGM and Epix referred to themselves collectively when discussing the offices, even going so far as stating, with respect to Epix's office space, that "MGM facilities are, as a matter of policy, alcohol free zones" (Plaintiff's Mem. of Law, at p 19 [citing exhibit CC] ). Plaintiff points to numerous other allegations in the complaint, all of which the Court has read and considered, in support of its position that "MGM controlled and dominated every aspect of the transaction at issue ... such that Epix had no independent corporate significance ‘in respect to the transaction attacked’ (Plaintiff's Mem. of Law, at p 21 [citing Union Carbide Corp. v. Montell N.V. , 944 F Supp 1119, 1144 [SDNY 1996] ). It distinguishes the cases on which MGM relies by stating that, in those actions, the plaintiffs alleged no facts in support of critical components of the cause of action. MGM's true intent and its true role, plaintiff argues, can only be determined through discovery.
In addition, plaintiff states, contrary to MGM's argument, fraud is not necessary for a claim based on alter ego liability. Instead, a party "need only plead that there was an overall element of ‘injustice’ or ‘unfairness’ " (Plaintiff's Mem. of Law, at p 2; id. at 15 [citing NetJets , 537 F3d at 177 ] ), and plaintiff argues that the VAC sufficiently alleges such misconduct. According to plaintiff, moreover, an inquiry into a defendant's alter ego status is rarely resolvable on a motion to dismiss (see Plaintiff's Mem. of Law, at p 15 [citing, inter alia, In re Buckhead American Corp. , 178 BR 956, 974-75 [D Del 1994] [under Deladware law] ). Plaintiff also states that Epix need not be a sham entity for the alter ego doctrine to apply. The focus is not on the motive behind the creation of Epix, but on whether MGM hid behind Epix, hoping to absolve itself of legal liability, while MGM negotiates terms that benefitted it financially (see Plaintiff's Mem. of Law, at p 16 [citing, inter alia, Soroof Trading Development Co. v. GE Microgen, Inc. , 283 FRD 142, 146 (SDNY 2012) (under Delaware law) ] ).
For similar reasons as above, plaintiff argues that MGM is liable under the exclusive services agreement, which it negotiated by articulating its demands to Epix, which Epix then relayed to plaintiff. Furthermore, plaintiff argues that Epix and MGM's arguments -- that the exclusive services agreement expired before it was signed and that, notwithstanding the expiration of the agreement the parties continued to negotiate its terms and to act as if it were still in effect — justify the imposition of alter ego liability if, as plaintiff alleges, defendants operated behind plaintiff's back to defeat the agreement and have its own agent negotiate a lease.
Plaintiff additionally challenges MGM's interpretation of the law governing tortious interference with contract. Contrary to MGM's position, plaintiff states, the economic interest doctrine does not justify MGM's purported interference with the exclusive service agreement. Plaintiff states that, instead of exempting parent corporations whenever it seeks a more profitable course of action, the economic interest doctrine refers to a parent's intervention to protect its subsidiary or itself from extreme financial risk such as insolvency (Plaintiff's Mem. of Law, at p 26 [citing, inter alia, White Plains Coat & Apron Co. v. Cintas Corp. , 8 NY3d 422, 426 [ (2007) ] ). Even if this is the case, plaintiff states, given plaintiff's allegation of malice the VAC sets forth a viable cause of action (see Plaintiff's Mem. of Law, at p 26 [citing, inter alia, Foster v. Churchill , 87 NY2d 744 (1996) ] ). Fraud, plaintiff states, is not a requirement. Plaintiff points to its allegations including in paragraphs 83-86, 96-98, 100, 102-104, 128, 130, and 131 of the VAC to show that it sufficiently alleges malice, and that MGM's arguments are better raised after discovery and/or trial. Furthermore, plaintiff states, the argument that MGM's economic interest gave MGM the right to step in and control the lease negotiations runs counter to MGM's statements that it recognized Epix's corporate independence and that Epix was and remains financially sound.
Plaintiff also notes that, as Epix is wholly owned by MGM, its finances are not a matter of public record and MGM's statement lacks evidentiary support.
In addition, plaintiff opposes the request for sanctions. It notes that it had the right to file the VAC, that it did so immediately in response to MGM's motion to dismiss, and that MGM ignored plaintiff's notifications that MGM should withdraw the motion as moot. Although plaintiff does not cross-move for sanctions it argues that MGM's request for sanctions is itself sanctionable within the meaning of 22 § NYCRR 130-1.1.
The Court has read MGM's reply papers but need not detail the arguments in this decision. Essentially, the papers attempt to distinguish the cases on which plaintiff relies, reiterate that plaintiff's allegation of the breach of the services agreement is insufficient to state a cause of action for veil-piercing absent fraud, illegality, or injustice, argue that plaintiff has not alleged actual or apparent agency because MGM acted on the subsidiary's behalf, and allege that plaintiff has not stated facts sufficient to show malice.
DISCUSSION
Under CPLR 3211, a court must accept the facts as plaintiff has alleged them as true (see Dorfman v. Reffkin , 144 AD3d 10, 11 [1st Dept 2016] ), and it should dismiss the action only if the assertions fail as a matter of law (see Alden Global Value Recovery Master Fund, L.P. v. KeyBank N.A. , 159 AD3d 618, 621 [1st Dept 2018] ). In addition, the court must view the complaint liberally and favorably to plaintiff, drawing all reasonable inferences in favor of the party against whom such relief is sought ( id. at 621-22 ). If a plaintiff is "entitled to relief on any reasonable view of the facts stated, [the court's] inquiry is complete and [the court] must declare the complaint legally sufficient" ( Aristy-Farer v. State of New York , 29 NY3d 501, 509 [2017] [citation and internal quotation marks omitted] ). Applying this standard, the Court denies the motion in its entirety.
To pierce the corporate veil under Delaware law and impose liability on MGM as owner, "a plaintiff must show (1) that the business entity and its owner ‘operated as a single economic entity’ and (2) that [there was] an overall element of injustice or unfairness" ( Cohen v. Schroeder , 248 F Supp 3d 511, 518 [SDNY 2017] [deciding summary judgment motion] [citations and internal quotation marks omitted] ). A plaintiff need not allege fraud when the complaint relies on the alter ego theory ( Acciai Speciali Terni USA, Inc. v. Momene , 202 F Supp 2d 203, 207 [SDNY 2002] [applying Delaware law in partial summary judgment motion] ). Instead, the complaint must allege acts indicating "that the corporate structure cause[s] fraud or similar injustice" (id. [citation and internal quotation marks omitted] ). Moreover, though a multipart analysis is required, and thus no one factor is dispositive, "an overall element of injustice or unfairness must always be present" ( id. at 208 [citation and internal quotation marks omitted] ).
Plaintiff has alleged these elements sufficiently to state a cause of action. Plaintiff details MGM's complete dominion and control over Epix with respect to the leasing of the offices and the exclusive services agreement with plaintiff. The VAC notes the marked differences in its business relationship following MGM's buyout of its partners in the joint venture and emphasizes that Epix handed over control of the decision-making process to MGM, stating that MGM's consent was necessary for any lease, allowing MGM rather than Epix officers to do the inspection, and ultimately using MGM's broker rather than the one with whom Epix contracted. As for injustice, the VAC alleges that MGM secretly asserted its power to breach the services agreement, and that as a result plaintiff was unable to collect the significant commission that was due to it. The VAC asserts that for the purposes of this transaction MGM and Epix acted as a single economic entity with overlapping employees and a single goal. MGM's repeated references to the requirement of fraud is misplaced, as there is no fraud requirement in the context of plaintiff's theory of liability on this issue. Instead, a claim that one entity "dominated and controlled" the other and "used that domination and control to commit wrongdoing" is sufficient ( New Media Holding Co., LLC v. Kagalovsky , 118 AD3d 68, 79 [1st Dept 2014] [New Media] [affirming trial court's determination] ). Its argument that the VAC is conclusory lacks merit, as the VAC is detailed with respect to MGM's purported role in the transactions and MGM and Epix's purported motives.
In addition, plaintiff has set forth a claim of tortious interference with the contract between plaintiff and Epix. MGM correctly notes that a defendant in a case alleging tortious interference "may raise the economic interest defense -- that it acted to protect its own legal or financial stake in the breaching party's business" ( White Plains Coat , 8 NY3d at 426 ). Plaintiff is correct, however, "that economic interest is a defense to an action for tortious interference ... unless there is a showing of malice or illegality " ( Foster , 87 NY2d at 750 [emphasis supplied] ). Here, plaintiff asserts more than the bare allegations of malice deemed insufficient in Rather (68 AD3d at 59-60 ). Instead, MGM's arguments against the claim raise factual disputes not properly before the court at this juncture (see CPLR § 3211 [a] [7] ). Although MGM is correct that it "cannot be simultaneously alter egos and tortious intervenors" (New Media, 188 AD3d at 80 [dismissing tortious interference claim following trial court determination's that alter ego liability existed] ), MGM denies that an alter ego relationship exists, and for the reasons above the issue of alter ego liability remains unresolved. Therefore, plaintiff may plead these arguments in the alternative (see Lemle v. Lemle , 92 AD3d 494, 500 [1st Dept 2012] ).
The Court denies MGM's request for sanctions. For the reasons above, the Court has determined that the causes of action are not frivolous. Therefore, no sanctions are appropriate.
Finally, the Court notes that it has considered all the parties' arguments and reviewed the argument transcript thoroughly. For all the above reasons and under the case and statutory law that the parties have cited and that the Court has located independently, plaintiff has set forth a prima facie case against MGM. That is all that is required at this stage of the litigation. Furthermore, as plaintiff notes, much of the evidence, including the financial and other relationships between defendants, is not available as Epix is not a publicly held corporation. A court should never penalize a plaintiff "for failure to make an evidentiary showing in support of a complaint that states a claim on its face" ( Miglino v. Bally Total Fitness of Greater NY, Inc. , 20 NY3d 342, 351 [2013] ). Even if a plaintiff cannot withstand a motion to dismiss, the court may deny the motion if it appears that facts may exist which would justify opposition, but discovery is necessary to unearth them] ). Accordingly, it is
ORDERED that the motion is denied; and it is further
ORDERED that MGM has 30 days from entry of this order to serve and file its answer; and it is further
ORDERED that all parties shall appear for a preliminary discovery conference on Thursday, March 7, 2019, at 2:15 pm in Part 34, room 308, 80 Centre Street.
The parties should confirm the conference information through e-courts in the weeks prior to the conference date.