Opinion
600244/2010.
Decided December 1, 2010.
HOWARD B. LEVI, RICHARD F. LUBARSKY, MARY ANN DOYLE, Levi Lubarksy Feigenbaum LLP, New York, NY, Attorneys for Plaintiff.
MICHAEL E. PERELLA, SEAN F. O'SHEA, O'Shea Partners LLP, New York, NY, Attorney for Defendants.
In this breach of contract claim, Plaintiff and Counter-Defendants, J.P. Morgan Securities Inc. ("JPMSI"), move pursuant to CPLR 3211(a)(1), (a)(5), and (a)(7) to dismiss all of the counterclaims filed by Defendants/ Counterclaim-Plaintiffs, Corinthian Capital Group LLC and Corinthian Equity Partners L.P. ("Corinthian").
According to the complaint, Bear Stearns Company, Inc. ("BSCI"), which is now a part of JPMSI, entered into an agreement in 2005 (the "Agreement") with Corinthian to facilitate the private placement of limited partnership interests in a private equity fund organized and managed by Corinthian ("The Fund"). (Comp ¶ 8). In addition, the Agreement provided that BSCI would provide financial services to Corinthian including developing The Fund's marketing strategies, offering advice in preparation for marketing presentations, and facilitating communications with prospective investors in the Fund. (Comp. ¶ 11). Corinthian claims in its Answer that other conditions were necessary to the transaction, contending that BSCI represented prior to the execution of the Agreement that it possessed "expertise in raising capital for funds such as Corinthian" and that it had "credibility with qualified investors seeking to invest in leveraged buyouts." (Answer ¶ 4). According to the complaint, in exchange for these services, Corinthian agreed to pay BSCI a cash retainer of $150,000, as well as a fee for the seeking of investors. (Comp. ¶¶ 13, 14). Likewise, the Agreement allegedly provided that Corinthian had the option to terminate the Agreement, but that if it did terminate, Corinthian's obligations to pay fees were to "survive termination ." (Comp ¶ 21; Agreement ¶ 10). In September 2007, Corinthian purportedly terminated the Agreement, claiming that none of the fees were due because all of the aggregate investments did not exceed the $60 million threshold in order for fees for those investments to be triggered. JPMSI filed a complaint, alleging a breach of contract.
In response, Corinthian has pled four counterclaims. In the First Cause of Action (Breach of Contract), Corinthian contends that the Agreement required BSCI to use " reasonable best efforts in its role as exclusive financial advisor and placement agent for the fund." (Plaintiff's Compl. Ex A, pgs 1-2) (emphasis added). BSCI purportedly breached this provision by "abandoning Corinthian in private placement efforts and failing to raise any capital for the fund." (Counterclaims ¶ 33). Specifically, Corinthian alleges that Paragraph 10 of the Agreement stated that Corinthian shall have the right to terminate the Agreement "if any three or more of Earl Hedin, Paul Delaney, John Koren, or Scott Richter shall cease to be employed by [BSCI]." (Counterclaims ¶ 12).
In the Second Cause of Action (Fraud), Corinthian alleges that BSCI made material misrepresentations, including that the company had expertise in raising capital and that the company could ensure that Corinthian's fund-raising efforts were successful. (Answer ¶ 36). Corinthian further alleges that BSCI "knew but failed to disclose that the unit that would be responsible for working on Corinthian's account was in utter turmoil" and that they did not disclose that the key employees assigned to Corinthian's account were planning to leave BSCI. (Answer ¶ 36). Corinthian maintains that they relied on these purported misrepresentations to their detriment and as a result, Corinthian claims it suffered damages. (Answer ¶¶ 37-39).
In the Third Cause of Action (Breach of Fiduciary Duty), Corinthian argues that BSCI owed a fiduciary duty to Corinthian by virtue of its role as "exclusive financial advisor and placement agent to the Fund." (Answer ¶ 41). BSCI purportedly breached this fiduciary duty by "abandoning its obligations to Corinthian; leaving Corinthian to raise all capital for the Fund on its own; failing to withdraw from the relationship when it knew that it was incapable of fulfilling its obligations to Corinthian; and claiming fees for work it never performed and funds it never raised." (Counterclaims ¶ 42). The fourth counterclaim, for attorney's fees, was dismissed during oral argument.
JPMSI seeks to dismiss all of Corinthian's counterclaims. First, JPMSI contends that the First Cause of Action (Breach of Contract) should be dismissed pursuant to CPLR 3211(a)(1) because the allegations are purportedly flatly contradicted by documentary evidence. (Plaintiff's M.O.L., p. 20). The bases for this argument are two letters from Corinthian, which allegedly demonstrate that Corinthian was pleased with BSCI's performance. (Plaintiff's M.O.L., p. 21).
In addition, JPMSI moves to dismiss the Second (Fraud) and Third (Breach of Fiduciary Duty) Causes of Action pursuant to CPLR 3211(a)(7) and (a)(5). JPMSI asserts that both of these counterclaims are duplicative of the breach of contract claim. In addition, concerning the Second Cause of Action (Fraud), JPMSI also contends that Corinthian waived the fraud claim by failing to terminate the agreement for two years after learning about the purported misrepresentations. Furthermore, JPMSI claims that the Fraud counterclaim is puffery because the allegations are too vague. Regarding the Third Cause of Action (Breach of Fiduciary Duty), JPMSI asserts that BSCI did not owe a fiduciary duty to Corinthian because both parties were in an arm's length relationship. Furthermore, JPMSI claims that pursuant to Section 3211(a)(5), the Third Cause of Action is barred by the statute of limitations.
When a motion to dismiss is based on documentary evidence, pursuant to CPLR 3211(a)(1), dismissal of a cause of action is warranted "only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." Peter Lampack Agency, Inc. v. Grimes, 29 Misc 3d 1208(A), at *1 (Sup. Ct., NY County 2010). Under CPLR § 3211(a)(7), a party may move for dismissal of certain claims if the claims do not "state a cause of action." On a motion to dismiss under Section 3211(a)(7), "the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law ." Guggenheimer v. Ginsburg, 43 NY2d 268, 275 (1976). Every factual allegation must be accepted as true and the allegations are to be liberally construed in a light most favorable to the pleading party. See Leon v. Martinez, 84 NY2d 83, 97-88 (1994).
Turning to the First Cause of Action (Breach of Contract), JPMSI argues that this counterclaim should be dismissed because two letters from Corinthian allegedly demonstrate that Corinthian was pleased with BSCI's performance as financial advisor. To obtain a dismissal pursuant to CPLR 3211(a)(1), "the defendant must establish that the documentary evidence," which forms the basis of the defense be such that it "resolves all factual issues as a matter of law" and conclusively disposes of the plaintiff's claim. Leon v. Martinez, 84 NY2d 83, 97-88 (1994); Symbol Tech., Inc. v. Deloitte Touche, LLP, 69 A.D. 191, 193 (2d Dept 2009).
Here, the letters do not dispose plaintiff's claim, nor are they conclusive. The first letter, for example, dated January 25, 2007, deals only with the departure of two key employees: Earl Hedin and John Koren. (Levi Aff., Exhib. C). Both letters do not deal with the subsequent departure of Paul Delaney or Scott Richter, nor did they foreclose Corinthian's right to terminate the Agreement if three or more key employees left BSCI (Counterclaims ¶ 12). Furthermore, the letters do not deal with Corinthian's argument under the best efforts clause of the Agreement, which deals with BSCI's alleged failures to raise sufficient capital. (Counterclaims ¶ 32). See Kroboth v. Brent, 625 NYS2d 748,750 (3d Dept. 1995) (holding that a best efforts clause requires more than good faith and ordinary care). Because the letters are not dispositive, the motion to dismiss the First Counterclaim is denied.
Turning to the Second Cause of Action (Fraud), Corinthian's claim must be dismissed if the claim is duplicative of the breach of contract claim. See New York University v. Continental Ins. Co., 87 NY2d 308, 319-20 (1995). When a claim does not "allege fraud extraneous and collateral to the contract [and] simply alleges that plaintiff failed to fulfill its contractual obligations," then the claim will be rejected as duplicative of the breach of contract claim. Intern. Plaza Assoc., L.P. v. Lacher , 63 AD3d 527 , 528 (1st Dept. 2009). Here, Corinthian alleges that BSCI "knew but did not disclose" that the unit working on Corinthian's account "was in utter turmoil" and that key employees were planning to leave BSCI. (Compl. ¶ 36). Corinthian further alleges that the failure to disclose this information meant that BSCI abandoned "their efforts to assist in raising capital in the fund." (Compl. ¶ 36). In near identical language, Corinthian alleges in their First Cause of Action (Breach of Contract) that BSCI failed to perform its obligations by "abandoning Corinthian in private placement efforts and failing to raise any capital for the Fund." (Compl. ¶ 33). Therefore, Corinthian did not plead a fraud cause of action that is collateral to the Agreement.
In addition, a fraud claim cannot be based upon mere expressions of "puffery" and trade talk about the superiority of one's services. See, e.g., Northern Valley Partners, LLC v. Jenkins, 23 Misc 3d 1112(A), at *7 (Sup. Ct., NY County 2009). Statements that the "company and its management were strong" cannot form the basis of a fraud claim because "opinions of value or future expectations are little more than mere puffery." See id. Here, Corinthian alleges that BSCI represented that it had " unmatched credibility" with qualified investors seeking to invest in leveraged buy-out funds, and that they had " industry clout and expertise to ensure to bear to ensure that Corinthian's fundraising efforts were successful." (Compl. ¶ 36) (emphasis added). The alleged misrepresentations are connected to trade talk about the superiority of BSCI's services and are puffery. Accordingly, the Second Cause of Action must be dismissed.
Finally, turning to the Third Cause of Action (Breach of Fiduciary Duty), JPMSI argues that it should be dismissed because a fiduciary duty cannot exist in an arm's length transaction. A relation of "confidence or trust" does not arise "when parties deal in arm's length transactions." AJW Partners, LLC v. Cyberlux Corp. , 21 Misc 3d 1109(A), at *3 (Sup. Ct., NY County 2008). Here, Paragraph 14 of the Agreement provided that the parties agreed to the provisions "after negotiations and consultations with their respective counsel" and that the "Agreement shall not be construed more strictly against one or more parties than against any other party." (Compl., Exhib. A, p. 9). This indicates that the transaction was at arm's length. Furthermore, unquestionably both parties in this transaction are sophisticated business entities. Thus, the parties were not in a relationship of trust, and accordingly, the Third Cause of Action must be dismissed.
Accordingly, it is
ORDERED that Plaintiff's motion to dismiss the second, third and fourth counterclaims is granted.
ORDERED that Plaintiff's motion to dismiss the first counterclaim is denied. ORDERED that defendant shall serve and file an answer to the remaining claims within twenty (20) days of service of a copy of this order with notice of entry.