Opinion
651726/2020
10-20-2020
LARD-PT, LLC, Plaintiff, v. SEOKOH, INC., Kolmar Korea Co., Ltd., Defendant. Seokoh, Inc., Kolmar Korea Co., Ltd., Plaintiff, v. David Wormser, Alan Wormser, Defendant. Seokoh, Inc., Plaintiff, v. Lard-PT, LLC, Defendant.
For Seokoh, Inc.: Kobre & Kim LLP, 800 3rd Avenue, 6th Floor, New York NY 10022 For Lard-PT, LLC: Kagen, Caspersen & Bogart, PLLC, 757 3rd Avenue, 20th Floor, New York, NY 10017
For Seokoh, Inc.: Kobre & Kim LLP, 800 3rd Avenue, 6th Floor, New York NY 10022
For Lard-PT, LLC: Kagen, Caspersen & Bogart, PLLC, 757 3rd Avenue, 20th Floor, New York, NY 10017
Andrew Borrok, J.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 45, 46, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72 were read on this motion to/for INJUNCTION/RESTRAINING ORDER
The following e-filed documents, listed by NYSCEF document number (Motion 003) 56, 57, 58, 59, 84, 85, 88, 90, 91, 92 were read on this motion to/for DISMISS.
The following e-filed documents, listed by NYSCEF document number (Motion 004) 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 87, 93, 94, 95 were read on this motion to/for DISMISS.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 7, 8, 9, 10, 11, 12, 13, 17, 18, 19, 20 were read on this motion to/for EXTEND - TIME.
The following e-filed documents, listed by NYSCEF document number (Motion 002) 25, 26, 34, 35, 36, 37, 38 were read on this motion to/for SUMMARY JUDGMENT(AFTER JOINDER.
The following e-filed documents, listed by NYSCEF document number (Motion 003) 28, 29, 30, 31, 32, 33, 39, 40 were read on this motion to/for DISCONTINUE.
Upon the foregoing documents, and for the reasons set forth below, (i) Seokoh, Inc. (Kolmar )'s motion (Mtn. Seq. No. 002 filed in Lard-PT, LLC v. Seokoh, Inc. , Index No. 651726/2020 (the Lard Lawsuit ) which Lard Lawsuit was filed on March 16, 2020) to consolidate the lawsuit Seokoh, Inc. v. Lard-PT, LLC, Index No. 650983/2020 (the Kolmar Lawsuit ) and filed earlier on February 12, 2020 with the Lard Lawsuit and to stay the consolidated lawsuit until the still later filed (July 23, 2020) Delaware Dissolution Proceeding (hereinafter defined) is granted solely to the extent that the Lard Lawsuit is consolidated into the Kolmar Lawsuit but is otherwise denied, (ii) Lard-PT, LLC's (Lard ) motion (Mtn. Seq. No. 001 in the Kolmar Lawsuit) for an extension of time to file a responsive pleading in the Kolmar Lawsuit which was filed on February 12, 2020 is granted, (iii) Lard's motion for summary judgment on its counterclaim in the Kolmar Lawsuit (Mtn. Seq. No. 002 filed in the Kolmar Lawsuit) pursuant to CPLR § 3212 is denied, and (iv) Kolmar's motion (Mtn. Seq. No. 003 filed in the Kolmar Lawsuit) to discontinue the Kolmar Lawsuit without prejudice pursuant to CPLR § 3217(b) is granted solely to the extent that Kolmar's complaint filed in the Kolmar Lawsuit seeking specific performance is dismissed without prejudice, (v) Lard's motion (Mtn. Seq. No. 001 filed in the Lard Action) for a preliminary injunction pursuant to CPLR §§ 2214(d), 6301, and 6313(1) is denied, (vi) David Wormser and Alan Wormser's (the Wormsers ) motion to dismiss the Third-Party Complaint (Mtn. Seq. No. 003 filed in the Lard Lawsuit) pursuant to CPLR §§ 3211(a)(1) and (7) and for sanctions pursuant to 22 NYCRR § 130.1 -1 is granted to the extent that the Third-Party Complaint is dismissed but is otherwise denied, and (vii) Lard's motion (Mtn. Seq. No. 004 filed in the Lard Lawsuit) to dismiss the counterclaims filed in the Lard Lawsuit is denied.
I. THE FACTS RELEVANT TO THE MOTIONS
Reference is made to a certain Third Amended and Restated Limited Liability Company Agreement of Process Technologies and Packaging, LLC (the Operating Agreement; NYSCEF Doc. No. 11), dated October 13, 2016, by and among Process Technologies and Packaging, LLC (Process Tech ), WLM Holdings, LLC (WLM ) and Kolmar, as Members, and Kolmar Korea Co., Ltd. (Kolmar Korea ), Lard-PT, LLC, and the Wormsers, as Indirect Members. Pursuant to the terms of the Operating Agreement, originally, Kolmar owned 51% of the Class A Units and WLM owned 49% of the Class A Units, and pursuant to Section 9.6 of the Operating Agreement, WLM transferred its entire right, title, and interest in Process Tech to its affiliate, Lard (NYSCEF Doc. No. 2, ¶ 18).
Unless otherwise indicated, citations to NYSCEF refer to documents filed in Lard-PT, LLC v. Seokoh, Inc. , Index No. 651726/2020.
Pursuant to Section 1.1 of the Operating Agreement, "Members" are defined as "[a]ny Person identified in Schedule A of this Agreement as of the date hereof and shall include any additional Persons who are hereafter admitted as Members pursuant to the terms of this Agreement and who holds Units" (Operating Agreement, § 1.1). Schedule A identifies the Members as Kolmar and WLM (i.e., the predecessor-in-interest to Lard) (Operating Agreement, Sch. A-1). "Indirect Class A Members" are defined as "any Person holding a direct or indirect interest in any Class A Member," which includes Kolmar Korea and the Wormsers. In other words, Kolmar Korea and the Wormsers are not Members as defined in the Operating Agreement.
Pursuant to Section 14.5(b) of the Operating Agreement, the parties agreed that disputes would be litigated exclusively in New York:
[A]ny suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement ... shall be brought exclusively in the state or federal courts located in New York, New York
(id. , § 14.5[b] [emphasis added] ).
Section 14.5(b) further provides that each party irrevocably consents to the jurisdiction of such courts (id. ).
The parties also agreed that the Operating Agreement would be interpreted in accordance with Delaware law:
[A]ll questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the internal laws of the State of Delaware
(id. , § 14.5[a] ).
The parties set forth their agreement as to how Process Tech was to be managed in Article VII titled "Management" of the Operating Agreement. As is often the case in joint ventures, the parties agreed that half of the Board was to be chosen by one of the joint venture partners and the other half of the Board was to be chosen by the other joint venture partner (i.e., the Board was to be comprised of up to six directions, three of which were to be chosen by Kolmar and three of which were to be chosen by WLM) (id. , §§ 7.1 and 7.2). Initially, the Kolmar directors (the Kolmar Directors ) were designated by Kolmar as Sang Hyun Yoon, Henry-Joon Kim, and Byungsoo Kim and the WLM directors (the WLM Directors ) were designated as David Wormser and Alan Wormser (id. , § 7.2[a][i] and [ii] ). Inasmuch as each director had one vote, to account for the fact that WLM had only designated two directors and it could designate three directors, and to ensure equal voting on the Board, the parties further provided that where WLM has only designated two WLM Directors, each such WLM Director "shall have one and a half votes in connection with any action taken by the Board or any Committee" (id. , § 7.8[e] ).
The Chairman of the Board was to be selected from the Kolmar Directors and the day-to-day operations were to be under the supervision of the WLM directors and their designees (id. , §§ 7.2[b] and [c] ). Initially, Sang Hyun Yoon was designated as the Chairman of the Board (id. ).
The parties further set forth their agreement about the selection of officers in Section 7.10 of the Operating Agreement. Section 7.10(a) provides that:
[t]he officers approved by the Board from time to time shall be responsible for the implementation of actions taken and matters adopted by the Board and for conducting day-to-day activities
(id. , § 7.10[a] [emphasis added] ). Pursuant to Section 7.10(b), the parties provided for asymmetrical provisions as to how the Chief Executive Officer (CEO ) and how the Chief Financial Officer (CFO ) were to be selected:
(b) Chief Executive Officer. Subject to the provisions of this Agreement , the chief executive officer shall be designated by the WLM Directors
(c) Chief Financial Officers. The chief financial officer shall be a Kolmar Director designated as the chief financial officer by Kolmar with the consent of WLM, such consent not to be unreasonably withheld, conditioned or delayed
Seokoh is defined as "Kolmar" Operating Agreement.
(id. , §§ 7.10[a], [b] [emphasis added] ).
In other words, the parties did not agree that the CEO would necessarily be a WLM Director. Instead, they agreed that the CEO was to be designated by WLM, and like all officers, was subject to Board approval. The parties agreed, by contrast, that the CFO, would be a Kolmar Director designated as the CFO, but subject to the consent of WLM, which consent could not be unreasonably withheld, conditioned, or delayed.
The parties planned for and provided a mechanism for dissolution, liquidation, and termination of Process Tech in Article X of the Operating Agreement. Pursuant to Section 10.1 of the Operating Agreement, the parties provided that Process Tech would be dissolved and its affairs wound up on the earlier of (i) approval of the Members or (ii) entry of a judicial dissolution under Section 18-802 of the Delaware Limited Liability Company Act, or any event under applicable law which would cause dissolution of Process Tech. However, the parties agreed that the bankruptcy, death, dissolution, expulsion, incapacity, or withdrawal of any Member shall not cause a dissolution of Process Tech and Process Tech shall continue in existence subject to the terms of the Operating Agreement (id. , § 10.1).
Significantly, as it relates to the current dispute, and recognizing that a six person board that was split between the two joint venture partners could end up in a deadlock, the parties agreed upon a buyout procedure (the Deadlock Provision ) if any such deadlock was as a result of either (i) a significant critical decision (i.e., a so-called "Reserved Matter") or (ii) as to the resolution of a default under the Operating Agreement:
10.2 Member Deadlock.
(a) In the event (i) a Reserved Matter is not agreed upon (that, if not resolved would result in a material adverse effect to the Company) at three consecutive meetings of the Members of the Company, or (ii) either Member materially breaches the terms of this Agreement (each, a Deadlock ), the chief executive officers of Kolmar and WLM, within 20 days from such Deadlock having arisen, shall meet (either in person or via telecommunication conference) to endeavor to resolve the matters giving rise to the Deadlock in good faith.
(b) If the Deadlock is not resolved within 20 days after the first meeting of the chief executive officers of Kolmar and WLM, then either party in the case of Section 10.2(a)(i) above, or the non-defaulting Member in the case of Section 10.2(a)(ii) above (in either case, an Initiating Member ) may give notice (the Deadlock Notice ) to the other party (the Other Member ) that it intends to implement the Deadlock Procedures set forth below.
(c) The Initiating Member may serve a notice on the Other Member which requires the Other Member to either, at the price specified in the notice, (i) purchase the Initiating Member's entire Interests or (ii) sell the Other Member's entire Interests to the Initiating Member.
(d) Within thirty days from receiving such notice, the Other Member shall notify the Initiating Member in writing its decision to either purchase the Initiating Member's Interest or sell its Interest for the proportion value of the designated price in same day funds paid at closing; provided, however, if the Other Member fails to provide such notice in a timely manner, the Other Member shall be deemed to have accepted the Initiating Member's offer to sell; provided further, if the buyer is WLM, then (x) 10% of the purchase price shall be payable at the time of the transfer of the relevant Interests and (y) the remaining balance of the purchase price shall be payable in five (5) equal installments on each anniversary of the date of such transfer with interest accruing at the applicable federal rate under the Internal Revenue Code.
(e) If a Member breaches any of the provisions of Section 10.2(d) above, the non-defaulting Member shall have the option to (i) buy (if such Member was required to sell its Interests pursuant to Section 10.2(c)) the defaulting Member's Interests at a proportionate price determined in accordance with Section 10.2(c), discounted by 30% or (ii) sell (if such Member was required to buy the defaulting Member's Interests) its Interests to the defaulting Member at a proportionate price determined in accordance with Section 10.2(c), increased by 30%.
The Reserved Matters are enumerated in Section 8.6 of the Operating Agreement.
(id. , §§ 10.2[a]-[e] ).
In addition, the parties agreed that pursuant to Section 8.6(d) of the Operating Agreement, the Board shall not approve of a dissolution of Process Tech without unanimous approval of the Members and that pursuant to Section 7.8(c), "a majority of the total number of votes held by all Directors (and one WLM Director and one KLM Director) shall constitute a quorum" (id. , § 7.8[c] ).
There came a time when the parties significantly disagreed as to the strategic plan for Process Tech. The most significant dispute related to the plans for expanding Process Tech's facilities (NYSCEF Doc. No. 48, Kolmar Counterclaims, ¶ 20). Kolmar wanted to jointly purchase the land on which Process Tech's existing facilities were located as well as an adjacent property where additional facilities could be constructed (id. , ¶ 21). Lard, on the other hand, wanted to relocate Process Tech to a different facility (id. ). The parties discussed the joint purchase of the land for several months, but Lard expressed concerns regarding the structure of the proposed deal and the timing of Lard's required payment (NYSCEF Doc. No. 2, Lard Complaint, ¶¶ 55-57). Despite the parties' disagreement, however, Kolmar purchased the land on its own in November 2017 (NYSCEF Doc. No. 48, Kolmar Counterclaims, ¶ 22). Accordingly, Kolmar became Process Tech's landlord (id. , ¶ 23). On November 29, 2017, Kolmar notified Lard that it had purchased the land and assumed the lease (NYSCEF Doc. No. 2, Lard Complaint, ¶ 61).
In the months following Kolmar's acquisition, the parties continued discussing the possibility of expanding Process Tech's facilities but could not come to an agreement (id. , ¶ 24). In September 2018, Kolmar purchased two adjacent plots of land to expand Process Tech's facilities, again without Lard's approval (id. ).
For the avoidance of doubt, the court notes that Lard has not alleged that the purchase of the facilities and adjacent land by Kolmar or its affiliates required Board approval or that Lard invoked the Deadlock Provision in response to these acquisitions.
In October 2018, Process Tech was facing a severe cash shortage. To provide capital to allow Process Tech to continue to operate, Lard and Kolmar each agreed to lend $750,000 to Process Tech in December 2018, to be repaid with interest at the rate of 2.76% per annum (id. , ¶ 14).
In January 2019, Process Tech's CEO, Steve Levine, announced that he intended to resign (id. , ¶ 30). By letter, dated January 18, 2019, David Wormser, a WLM Director, designated Michael Lorelli as the "interim" CEO and further designated Alan Wormser as the successor CEO to run Process Tech (id. , ¶ 31). David Wormer did not, however, seek Board approval. Kolmar sought the advice of its outside counsel as to the proper procedure for the appointment of a new CEO under the Operating Agreement (id. , ¶ 32). Kolmar's outside counsel advised that under the Operating Agreement, the appointment of Mr. Lorelli required approval by Kolmar (id. ). Process Tech's controller, Shawna Giumento, emailed Lard and Kolmar seeking written consent for the removal of Mr. Levine and the approval of Alan Wormser as the new CEO (id. , ¶ 33). The Kolmar Directors, however, did not agree to appoint Alan Wormser as the successor CEO (id. , ¶ 34). The Kolmar Directors' primary objection to Alan Wormser serving as CEO was that the Wormsers' other company, Wormser Corp., is a competitor of Process Tech, which they perceived as a serious conflict of interest (id. ). Over Kolmar's objections, and without Board approval, the Wormsers purported to install Mr. Lorelli as the "interim" CEO starting on January 29, 2019 (id. , ¶¶ 36, 39-40).
By letter, dated February 13, 2019, Kolmar notified Lard that its purported appointment of Mr. Lorelli as "interim" CEO without Board approval constituted a material breach of the Operating Agreement (id. , ¶ 41). Lard responded by letter dated February 16, 2019, rejecting Kolmar's allegations and stating that Kolmar's failure to recognize Mr. Lorelli as "interim" CEO constituted a material breach of the Operating Agreement (NYSCEF Doc. No. 2, Lard Complaint ¶¶ 88-89).
On March 19, 2019, pursuant to Sections 10.2(b) and (c) of the Operating Agreement, Kolmar issued a Member Deadlock (the March Deadlock Notice ) (id. , ¶ 25). The March Deadlock Notice indicated that previously, by letter dated February 13, 2019, Kolmar had declared a Member Deadlock pursuant to Section 10.2(a)(ii) of the Operating Agreement based on Lard's material breach of the Operating Agreement (i.e., as opposed to Section 10.2(a)(i) based on the failure to agree as to a Reserved Matter) and that subsequently, on February 16, 2019, Lard had asserted a Member Deadlock arising out of alleged material breaches of the Agreement by Kolmar. The March Deadlock Notice further indicated that on February 27, 2019, the CEOs of Kolmar and Lard met to resolve the matters in good faith but that inasmuch as the Deadlock remained unresolved, Kolmar as the non-defaulting member invoked the Deadlock procedure in Section 10.2 of the Operating Agreement. The March Deadlock Notice also indicated that pursuant to Section 10.2(c) of the Operating Agreement, Lard could either (i) purchase Kolmar's 51% interest for $10,408,163.27 or (ii) sell its 49% interest for $10,000,000 (NYSCEF Doc. No. 4 at 2). In addition, the March Deadlock Notice provided:
These Prices are subject to the condition that regardless of whether [Lard] chooses to purchase [Kolmar]'s Interest or sell [Lard]'s interest to [Kolmar], the purchasing Member take and succeed all obligations of the selling Member and all payment guarantees relating thereto, and reliever the selling Member from any and all such obligations and benefits relating to the Company's business or other obligations (but not the obligations owed between the Members), including without limitation the collateral and/or guarantee provided by [Kolmar] with respect to any and all loans made by third-party lenders to the Company.
(id. ).
Finally, the March Deadlock Notice indicated that pursuant to Section 10.2(d) of the Operating Agreement, Lard was required to notify Kolmar on or before April 17, 2019 EST of its election (id. ).
On April 15, 2019, in response, Alan Rubin, Esq. of Cole Schotz P.C. sent a letter (NYSCEF Doc. No. 15) to Kolmar on behalf of Lard indicating that it was exercising its option to purchase Kolmar's 51% interest in Process Tech for $10,408,163.27 (the April Response ). However, in the April Response, Lard took the position that Kolmar's offer price included "additional terms" not contemplated by the Operating Agreement which Lard would accept provided that Kolmar would accept certain additional terms, including the extension of the current lease for Process Tech for up to 12 months at the current level of rent subject to a 60-day prior written notice termination right and either the immediate resignation of the Kolmar Directors or immediately causing the Kolmar Directors to vote consistently with the Lard Directors prior to closing where Kolmar would be paid:
Lard is willing to accept the [Kolmar] Additional Terms, provided that Kolmar agree to the following additional business terms, along with some mechanical provisions which are intended to provide for a smooth transition of ownership ("Lard Additional Terms"). The Lard Additional Term for business is that the current lease for the Company premises shall be extended month to month for up to twelve (12) months, at the current level of rent, subject to termination upon 60 days prior written notice by Lard.
In addition, for the benefit of both parties, the following Lard Additional Terms should also be included in the formal documentation: (i) [Kolmar] shall make customary representations in connection with the transfer of its interests (authority, title, no encumbrances, no conflicts) and will also represent that to its, and its employees' and affiliates knowledge, [Process Tech] has incurred no obligation directly or indirectly outside of the ordinary course between January 1, 2018 and the Closing and has made no distribution or payments to affiliates without prior notice to and matching proportional distributions to Lard, (ii) the purchase price shall be allocated for all tax purposes in accordance with a schedule proposed by Lard that is reasonably acceptable to [Kolmar], (iii) mutual general releases (carving out these agreements and general trade obligations shall be exchanged; (iv) the Company income for the current year shall be allocated based upon a closing method at the closing; (v) [Kolmar] shall immediately cause its Directors on the Company Board to vote consistently with the votes of the Lard designated Directors prior to their resignation at the Closing, or resign immediately (with the understanding that no fundamental change shall be implemented prior to closing); and (vi) at closing, [Kolmar] shall represent that Company working capital is consistent with the recent past levels.
(id. ).
The April Response asked that Kolmar confirm its agreement to the additional terms (id. ).
Kolmar disagreed with Lard's characterization of Kolmar's clarification of the prices set forth in its March Deadlock Notice as additional terms not consistent with the Operating Agreement, but nonetheless considered the additional terms. A term sheet (the Term Sheet ) was exchanged in July 2019 outlining an agreement in principal (NYSCEF Doc. No. 48, Kolmar Counterclaims, ¶ 59). Pursuant to the Term Sheet, Lard was required to make an initial payment of 10% of the total purchase price, relocate Process Tech's facilities, and replace Kolmar's guaranty for certain lines of credit (id. ). Kolmar alleges that the deal, however, fell through when Lard failed to meet its initial obligations under the Term Sheet (id. , ¶ 60). Lard claimed the deal was deficient in that it failed to include several material terms. Kolmar disagreed and claimed that by attempting to introduce additional "business terms" not required under the Operating Agreement as a condition of accepting the buyout transaction, Lard had breached Section 10.2(c) of the Operating Agreement (id. , ¶¶ 48-49, 51). Despite its objections, Kolmar agreed to accept all of Lard's additional conditions except initially rejecting the extension of Process Tech's lease and having Kolmar's directors resign immediately or vote the same as Lard's Directors (id. , ¶ 53).
While the parties were attempting to negotiate a resolution, one of Process Tech's lines of credit for which Kolmar was a guarantor was about to expire (id. , ¶ 56). Because Kolmar and Kolmar Korea were preparing to exit Process Tech and Lard planned to continue to operate Process Tech at a new location, and per their March Deadlock Notice, they requested that Lard replace Kolmar Korea as guarantor (id. ). Notwithstanding Lard's election to buyout Kolmar pursuant to the March Deadlock Notice, and that Kolmar would no longer own any portion of Process Tech if Lard performed its obligations pursuant to its election to buyout Kolmar, Lard refused to replace Kolmar Korea as guarantor claiming that it should not be forced to guarantee 100% of the debt of a company of which it owned only 49% (NYSCEF Doc. No. 2, Lard Complaint, ¶ 125). Process Tech failed to secure a new line of credit when the existing line of credit expired (NYSCEF Doc. No. 48, Kolmar Counterclaims, ¶ 57). In June 2019, Process Tech defaulted on numerous lines of credit totaling $20.5 million (id. , ¶ 58).
Ultimately, when the parties could not come to an agreement, on June 28, 2019, Sang Hyun Yoon, Chief Executive Officer of Kolmar wrote to Lard declaring Lard in default and offering to purchase Lard's interest by July 31, 2019 or in the alternative, if Lard did not want to sell, then offering to dissolve Process Tech in accordance with Section 10.1 of the Operating Agreement:
I write to you today on behalf of [Kolmar] and myself to express my grave concern action regarding our joint venture Process Technologies and Packaging, LLC ("PTP" or the Company), and propose an alternative means to resolve the unfortunate situation that the parties are in.
I refer to my letter dated February 13, 2019, declaring a Member Deadlock pursuant to Section 10.2(a) of the Third Amended and Restated Limited Liability Company Agreement of PTP (the "LLC Agreement"), and the letter dated March 19, 2019, providing the Deadlock Notice, implementing the Deadlock procedures set forth in Section 10.2 of the LLC Agreement, and notifying the price at which Lard-PT can either (i) purchase [Kolmar]'s 51% Interest at US $10,408,163.27 or (ii) sell its 49% Interest at US $10,000,000.00.
I further refer to Lard-PT's letter dated April 15, 2019, purportedly accepting [Kolmar]'s offer to sell its 51% Interest. As communicated in our letter, dated April 24, 2019, while your April 15 letter mischaracterized the terms of the Price [Kolmar] offered in its March 19 letter and otherwise failed to comply with Section 10.2(d) of the Agreement, we were willing to construe it as notice of Lard-PT's decision to purchase [Kolmar]'s Interest at the Price. Alternatively, it was deemed that Lard-PT had accepted [Kolmar]'s offer to sell the Interest at the Price. Accordingly, Kolmar offered to close the transaction and effectuate the transfer of the Interest by May 31, 2019.
Based on the communications, my team and I have been working in good faith to reach a further agreement with you on additional terms and conditions of the sale, but have seen no corresponding efforts on your part. For example, Lard-PT's April 15 letter contained a number of additional terms that fall outside of the LLC Agreement. We nevertheless considered these additional terms in the interest of amicable and timely resolution of the situation and provided our views on each and every one of such requests in the April 24 letter. We have not heard anything from you on these items.
We reached out to you for an update, and only then received a term sheet on May 15, 2019, one full month after you communicated to us your intention to purchase [Kolmar]'s Interest. The term sheet essentially recaptured the terms proposed in your April 14 letter without any further compromising. Further, your counsel noted that the term sheet was being sent to you simultaneously and was subject to your review. To date, we do not know whether the term sheet that we diligently reviewed, and had our external lawyers provide comments on, had even reflected your views in the first place. We nevertheless responded with a mark-up of the term sheet on May 24, 2019. We have not heard anything from you, other than your counsel's note that you are reviewing it.
We believed — and continue to believe — that swift and seamless transition of the ownership of the Company is critical not only to the Company and its business, but also to its customers and employees. We have expressed this view in our prior communications. In our letter, dated June 4, 2019, we volunteered to extend the Lease for the Company's premise in accordance with the Lease Agreement and also offered to provide a bridge loan to support PTP's financial health and help the Company avoid disruption to its business operations without any legal obligation on [Kolmar]'s part. We have not heard anything from you on these offers.
It has been almost 3 months since Lard-PT expressed its intent to purchase [Kolmar]'s Interest, and more than 4 months since the declaration of the Deadlock.
In the meantime, the Company has deteriorated in its finance, operational integrity and business prospect. For example, the office of Chief Executive Officer has been effectively vacant for over 5 months; the so called "interim CEO" resigned after allegation and investigation of certain improper behavior against PTP's own employees at workplace; Chief Financial Officer appointed by [Kolmar]; the Company failed to renew the $4 million loan from Shinhan Bank, potentially triggering cross default on its loan obligations for more than $20 million; and the Company's revenue has suffered by cancelled orders of significant contracts and inventory liability caused by the cancelled orders.
We now consider this lack of progress and your failure to communicate as yet another breach of the Deadlock provision. Your failure to respond to our request, not to mention close on the transaction that you accepted to consummate more than 2 months ago, constitutes a breach of the LLC Agreement and your legal obligation to conduct business in good faith.
Accordingly, we hereby exercise our option to buy Lard-PT's 49% ownership in the Company at US $10,000,000 in accordance with Section 10.2(e) of the LLC Agreement.
We are ready and willing to close the transaction by July 31, 2019, subject to the same conditions as previously expressed, including the selling Member (here, Lard-PT) and all such obligations and benefits relating to the Company's business or other obligations (but not the obligations owed between the Members), including without limitation the collateral and/or guarantee provided by [Kolmar]/Kolmar Korea with respect to any and all loans made by third party lenders to the Company. We have instructed our external lawyers to prepare a term sheet, and will send it to you separately within the next few days.
Please be reminded that due to Lard-PT's breach of the Deadlock provision, [Kolmar] has the right to buy Lard-PT's Interest at 30% discount under Section 10.2(e) of the LLC Agreement. At this point, however, [Kolmar] is willing to pay the full price (calculated as proportionate price determined under Section 10.2 (c)) out of good faith and in the interest of swift transition of ownership. This is on the express condition that the deal be closed by July 31, 2019 ; and we reserve our right to enforce the 30% discount under Section 10.2(e) if you do not respond and we are forced to take further actions.
Alternatively, in case you do not wish to sell Lard-PT's Interest, we are open to dissolution of the Company pursuant to Section 10.1 of the LLC Agreement. You cannot deny that it has not become impracticable — indeed impossible — to continue the joint venture between the two Members. We have fundamental and irreconcilable disagreements as to the direction of the Company and its future growth plans, hopelessly deadlocked on various operational matters.
We have given you the opportunity and time to take over the Company, but you are apparently unable to take, or otherwise not interested in taking, the steps absolutely necessary to close the deal and take ownership of the Company . The difference in our views and priority in time and resource allocations aside, it is only reasonable that we put an end to this unproductive relationship.
I ask you to please exercise sound judgment to bring an amicable and timely closure to this unfortunate situation.
(NYSCEF Doc. No. 18 [emphasis added] ).
Subsequently, Kolmar brought the Kolmar Lawsuit on March 16, 2020 (i.e., approximately a year after Kolmar served the March Deadlock Notice with the buy/sell pricing options and approximately 10 months following Kolmar's proposed closing date in the March Deadlock Notice and approximately 9 months following receipt of Mr. Yoon's letter indicating that notwithstanding Lard's failure to close, that Kolmar would nonetheless and without obligation purchase Lard's interest without discount if the deal closed by July 31, 2019). In its complaint in the Kolmar Lawsuit, Kolmar alleges that "under the express terms of the Member Deadlock provisions, Kolmar is now entitled to purchase Lard-PT's interest at the noticed $10,000,000 price discounted by 30%, i.e. , $7,000,000" (NYSCEF Doc. No. 31, Kolmar Complaint, ¶ 3).
In its complaint, Kolmar alleges that Lard breached Section 7.2 of the Operating Agreement by purporting to appoint a successor CEO and an interim CEO without Board approval (id. , ¶ 63). Kolmar further alleges that Lard's April Response constituted a breach of the Operating Agreement's Deadlock Provisions. More specifically, Kolmar alleges that Lard breached Section 10.2(d) of the Operating Agreement because Lard added improper and commercially unreasonable conditions to its election to buyout Kolmar's interest, and that its election was therefore invalid (id. , ¶¶ 46, 64). Kolmar asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing against Lard seeking specific performance requiring Lard to sell its interest to Kolmar for $7,000,000 (id. , ¶¶ 61-68).
Lard filed an answer and counterclaim in the Kolmar Lawsuit, alleging that (i) Kolmar has invoked the Member Deadlock procedures and has sued Lard seeking to compel Lard to sell its 49% interest in Process Tech to Kolmar for $7,000,000, and (ii) Lard has also invoked the Member Deadlock procedures and has sued Kolmar seeking to compel Kolmar to buy Lard's 49% interest in Process Tech for $13,000,000 and to repay the $750,000 shareholder loan, and therefore Lard is entitled to summary judgment as to liability and the only issue is whether the price should be $7,000,0000 or $13,000,000 (650983/2020, NYSCEF Doc. No. 21, ¶¶ 1-3). In other words, Lard asserts in its counterclaim that whichever party prevails, it is undisputed that Lard is entitled to an order compelling Kolmar to buy its interest for at least $7 million and to repay the shareholder loan of $750,000. In addition, Lard asserts that it did not breach Section 10.2(d) of the Operating Agreement by adding improper terms as conditions to its election to buyout Kolmar because (i) Kolmar repeatedly added its own additional terms and conditions throughout the buyout process and (ii) even if its notice of election was deficient and it therefore failed to serve notice of its acceptance of Kolmar's offer in a timely manner, Lard is nevertheless "deemed to have accepted the Initiating Member's offer to sell" automatically as set forth in Section 10.2(d) (NYSCEF Doc. No. 82 at 15-20).
Lard subsequently brought the Lard Lawsuit on March 3, 2020 seeking to compel Kolmar to purchase Lard's 49% interest in Process Tech for $13.75 million. Kolmar filed an answer and counterclaims against Lard for breach of contract and breach of the implied covenant of good faith and fair dealing in the Lard Lawsuit on August 10, 2020, alleging that Lard materially breached the Operating Agreement by (i) purporting to appoint a new CEO without Board approval and (ii) refusing to purchase Kolmar's interest in Process Tech despite accepting Kolmar's offer to sell its interest for $10.4 million unless Kolmar agreed to numerous extraneous and commercially unreasonable terms (NYSCEF Doc. No. 48, Kolmar Counterclaims, ¶¶ 2-6, 30-41, 48-51). Kolmar further alleges that, based on Lard's failure to close as buyer, Kolmar had the right to purchase Lard's interest at a discount pursuant to Section 10.2(e) of the Operating Agreement and that subsequently, Lard continued to act commercially unreasonably and otherwise frustrated and breached the Deadlock Provision by failing to close as seller. As a result, Kolmar retracted the March Deadlock Notice. Now, inasmuch as there has been a Deadlock for over one year (which caused Process Tech to lack direction) without a successful buyout of one of the joint venture partners caused by Lard's defaults (and due to other factors including the deleterious impacts of the COVID-19 pandemic), and based on Lard's continued failure to act commercially reasonably by, among other things, refusing to hold a Board meeting to consider dissolution, the value of Process Tech has decreased significantly and Lard's 49% interest is now worth substantially less than even the discounted price of $7 million (id. , ¶ 10). Accordingly, Kolmar seeks damages in the amount of $10.4 million and, in the alternative, asserts that if this court were to find that notwithstanding the foregoing, Kolmar is obligated to purchase Lard's interest in Process Tech, which it disputes, the purchase price must be discounted based on the decrease in value between April 2019 and the present (id. , ¶ 12).
Kolmar also filed a third-party complaint in the Lard Action against the Wormsers (the Third-Party Complaint ), alleging that the Wormsers knowingly and in bad faith caused Lard to breach the Operating Agreement to delay the resolution of the Deadlock and otherwise frustrate the Deadlock Provision to benefit their own line of business, Wormser Corp., at the expense of Process Tech (NYSCEF Doc. No. 54, ¶ 4). Kolmar's Third-Party Complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contract, and breach of fiduciary duty against the Wormsers (id. , ¶¶ 94-114).
Meanwhile, during the pendency of these actions, Process Tech's losses have continued to mount. Although it had operated at a loss since 2018 (NYSCEF Doc. No. 39, ¶ 66), its value plummeted as a result of the COVID-19 pandemic. Process Tech received a subsidy from the federal government of approximately $2.3 million in May 2020 to support its payroll obligations, but it recorded a $1.2 million net loss for Q1 2020 and approximately a $2.5 million net loss in Q2 2020. Because Lard continued to fail to perform its obligations, and as a result of Lard's delay, and changes in demand resulting from COVID-19, Kolmar determined that the value of Lard's interest in Process Tech had substantially diminished and retracted its offer to purchase Lard's interest for $7 million (NYSCEF Doc. No. 48, Kolmar Counterclaims, ¶¶ 8, 9 and 10).
In addition, Process Tech faces numerous potential liabilities resulting from pending litigation. In June 2018, L'Oréal USA, Inc. (L'Oreal ) filed a lawsuit against Wormser Corp. and Process Tech seeking $65 million in damages (L'Oréal USA, Inc. v. Wormser Corporation and Process Technologies and Packaging, LLC , Index No. 652572/2020). In that action, the Wormsers assert that Process Tech would be obligated to indemnify Wormser Corp. should L'Oréal obtain a judgment against it.
Kolmar has also filed an eviction proceeding in state court in Pennsylvania in which it seeks to recover possession of the land that it leased to Process Tech (Seokoh, Inc. v. Process Technologies & Packaging, LLC , Index No. MJ-45303-LT0000087-2019 [Lackawanna Cty Magis Dist Ct]), and a subrogation proceeding in the Pennsylvania Court of Common Pleas in which Kolmar seeks to recover amounts forfeited as collateral posted in favor of Process Tech's lender (Kolmar Korea Co. Ltd. v. Process Technologies & Packaging, LLC , Index No. 2020 CV 2295 [Pa Ct of Common Pleas, Lackawanna Cty] )
By email, dated July 16, 2020, Sang Yong Park of Kolmar and cc'ing Jason Lee of Kolmar, Kolmar proposed a Member resolution to dissolve Process Tech and requested a special meeting of the board to approve the dissolution (NYSCEF Doc. No. 12). Lard responded by letter, dated July 19, 2020 (NYSCEF Doc. No 69), demanding that Kolmar buy out Lard's interest in Process Tech for $13.75 million and refusing to attend a board meeting which Kolmar requested, stating:
Your newfound desire to destroy Process Tech in no way eliminates your legal obligation to buy our interest out for $13,750,000 pursuant to the terms of your own Deadlock Notice, and breach thereof. So, for our response, we demand that you do what you agreed to do and what you went to Court to demand the right to do: buy our interest out at the contractually stipulated price. That is what you demanded and what you have requested a court order to affect. Now live up to what you demand and pay to buy us out
With regard to your demand for a special board meeting, we reject it. Your demand for a meeting was made by you alone. That is defective and a nullity under the Operating Agreement. Section 7.6(a) requires two Directors to demand a special meeting. But you alone demand it. That is plainly insufficient.
In the event you continue to shirk your obligation to buy Lard out and seek a board meeting in the future, please answer the following questions first:
1. What is the new "business strategy in America" that [Kolmar] is pursuing?
2. When did [Kolmar] decide to dissolve Process Tech?
3. Who made that decision?
(NYSCEF Doc. No. 69).
On July 23, 2020, Kolmar filed a judicial dissolution proceeding to dissolve Process Tech pursuant to 6 Del. C. § 18-802 in Delaware Chancery Court captioned Seokoh, Inc. v. Lard-PT, LLC and Process Technologies and Packaging, LLC , No. 2020-0613 (the Delaware Dissolution Proceeding ).
On March 18, 2020, Lard moved by order to show cause in the Kolmar Lawsuit for an extension of time to file an answer or otherwise respond to the complaint pursuant to CPLR § 3012(d) (Mtn. Seq. No. 001 in the Kolmar Lawsuit). In the Lard Lawsuit, Lard moved (Mtn. Seq. No. 001 in the Lard Lawsuit) by order to show cause pursuant to CPLR §§ 2214(d), 6301, and 6313(1) seeking to enjoin Kolmar from taking actions to harm Process Tech, including "continuing to freeze Lard out of the day-to-day control over Process Tech"; "using Process Tech's plant as [Kolmar]'s headquarters"; "directing, allowing or assisting Jason Lee, a Kolmar director and Process Tech's CFO, to breach his Non-Competition Agreement and fiduciary duties"; and "continuing its efforts to evict Process Tech" (NYSCEF Doc. No. 9). The court, however, declined to grant injunctive relief for any of the foregoing requests, and instead issued a temporary restraining order narrowly prohibiting Kolmar from "taking any further steps to harm Process Tech [including] pursuing any dissolution of Process Tech" (NYSCEF Doc. No. 46) until the issues could be fully briefed.
On July 27, 2020, Kolmar moved pursuant to CPLR §§ 602 and 2201 to consolidate the Lard Action with the earlier-filed Kolmar Lawsuit and to stay the consolidated action pending the resolution of the Delaware Dissolution Proceeding (Mtn. Seq. No. 002). On August 20, 2020, the Wormsers moved to dismiss the Third-Party Complaint pursuant to CPLR §§ 3211(a)(1) and (7) and for sanctions against Kolmar pursuant to 22 NYCRR § 130.1 -1 (Mtn. Seq. No. 003 in the Lard Lawsuit). Kolmar filed an amended third-party complaint on September 9, 2020 (NYSCEF Doc. No. 86). The Wormsers elected to proceed with their motion to dismiss as against the amended pleading and the court permitted additional briefing on the motion.
On August 31, 2020, Lard moved to dismiss Kolmar's counterclaims in the Lard Lawsuit pursuant to CPLR §§ 3211(a)(1) and (7) (Mtn. Seq. No. 004 in the Lard Lawsuit) and moved for summary judgment on its counterclaim in the Kolmar Lawsuit pursuant to CPLR § 3212 (Mtn. Seq. No. 002 in the Kolmar Lawsuit). On September 8, 2020, Kolmar moved to voluntarily discontinue the Kolmar Lawsuit without prejudice to either party pursuant to CPLR § 3217 (b) (Mtn. Seq. No. 003).
II. DISCUSSION
Lard Lawsuit: (Mtn. Seq. No. 002) Consolidation is Granted and Stay is Denied
CPLR § 602(a) provides that when actions involve common questions of law or fact are pending before a court, the court, upon motion, may order consolidation to avoid unnecessary costs or delay ( Rhoe v. Reid , 166 AD3d 919, 921 [2d Dept 2018] ). Although Lard has not filed its opposition papers to the instant motion, both parties have uploaded letters to NYSCEF in the Kolmar Action which, among other things, indicate that neither party opposes consolidation (see Index 650983/2020, NYSCEF Doc. Nos. 30 and 31). Inasmuch as the two actions involve common questions of law and fact, consolidation is appropriate and this branch of Kolmar's motion is granted.
Kolmar argues that the consolidated action should be stayed pending resolution of the later filed Delaware Dissolution Proceeding because the later filed Delaware Dissolution Proceeding has overlapping questions of fact with the consolidated action, will focus on the parties actions resulting in the Deadlock, and will assess whether the Operating Agreement's Deadlock Provision is adequate to resolve the Deadlock and will resolve the Deadlock through dissolution. The argument fails.
CPLR § 2201 provides that "the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just." New York courts generally follow the ‘first in-time’ rule ( Syncora Guarantee Inc. v. JP Morgan Sec., LLC , 110 AD3d 87, 95 [1st Dept 2013] ). Both parties have brought lawsuits here in New York County (i.e., the Kolmar Lawsuit and the Lard Lawsuit). Ironically, the movant, Kolmar, brought the first lawsuit in New York County (re: the Kolmar Lawsuit) on February 12, 2020 — more than five months before seeking dissolution in Delaware (July 23, 2020) — and approximately four months after Lard filed the Lard Lawsuit. It is beyond question that this is the court of primary jurisdiction.
The fact that the lawsuits were first filed here of course makes sense. As discussed above, pursuant to Section 14.5 of the Operating Agreement, the parties agreed that any lawsuit arising out of the Operating Agreement should be brought exclusively in New York County. Finally, there simply is no prejudice to the parties in litigating here in New York County as the issues involved in this now consolidated lawsuit involve the potential obligations of the members vis a vis the Deadlock Provision. Accordingly, the branch of the motion seeking a stay is denied.
Kolmar Lawsuit: (Mtn. Seq. No. 001) Extension of Time Granted
Lard moved by order to show cause on March 18, 2020, two days after filing the Lard Lawsuit and over 30 days after the Kolmar Lawsuit was filed, for an extension of time to answer or otherwise respond to the complaint in the Kolmar Lawsuit. Although Kolmar acknowledges complications caused by the global COVID-19 pandemic, they oppose Lard's order to show cause arguing that it is procedural gamesmanship as nothing prevented Lard from filing the Lard Lawsuit which, as discussed above, the parties concede should be consolidated with the Kolmar Lawsuit and could easily have been fashioned as an answer and counterclaim in the Kolmar Lawsuit, which in fact was filed on July 14, 2020. Inasmuch as a responsive pleading has been filed by Lard (650983/2020, NYSCEF Doc. No. 21), Kolmar has filed an answer to the counterclaims on August 10, 2020 (650983/2020, NYSCEF Doc. No. 22), the delay did not cause any real prejudice and in deference to the strong public policy in favor of deciding cases on the merits, Lard's motion for an extension of time is granted.
Kolmar Lawsuit: (Mtn. Seq. No. 002) Summary Judgment is Denied
Summary judgment will be granted only when the movant presents evidentiary proof in admissible form that there are no triable issues of material fact and that there is either no defense to the cause of action or that the cause of action or defense has no merit ( CPLR § 3212[b] ; Alvarez v. Prospect Hosp. , 68 NY2d 320, 324 [1986] ). The proponent of a summary judgment motion carries the initial burden to make a prima facie showing of entitlement to judgment as a matter of law ( Alvarez , 68 NY2d at 324 ). Failure to make such a showing requires denial of the motion (id., citing Winegrad v. New York Univ. Med. Ctr. , 64 NY2d 851, 853 [1985] ). Once this showing is made, the burden shifts to the opposing party to produce evidence in admissible form sufficient to establish the existence of a triable issue of fact ( Alvarez , 68 NY2d at 324 ).
Lard argues that summary judgment should be granted on its counterclaim because Kolmar is required to purchase Lard's 49% interest in Process Tech for a minimum of $7.75 million if Lard breached Section 10.2(d) of the Operating Agreement as Kolmar has argued to this court or $13.75 million if Kolmar breached Section 10.2(d) as Lard argues. Either way, and even if the court were to find that Lard continued to breach the Deadlock Provision, Lard argues it is undisputed that Kolmar must purchase Lard's interest pursuant to the Deadlock Provision and repay the shareholder loan. Put simply, they are wrong.
The contract is straightforward. The fallacy behind Lard's arguments stems from their failure to perform on no less than three occasions with respect to critical contractual obligations under the Operating Agreement. First, they breached the Operating Agreement when they attempted to install a CEO without board approval as their right to designate a CEO in Section 7.10(b) was subject to the other provisions of the Operating Agreement (including, Section 7.10(a) which indicates that officers must be approved by the Board). Second, when they received the valid March Deadlock Notice, they interposed commercially unreasonable terms not required or anticipated by the Operating Agreement and then failed to ultimately close. Third, when Kolmar validly exercised its rights under Section 10.2(e) to reverse the transaction and buy Lard out due to Lard's failure to close, on the record before the court, it appears that Lard continued to stymie the operation of the Operating Agreement by failing to move forward even when Kolmar offered to buy Lard out without application of the 30% discount which they had an absolute right to do. This continued breach discharged Kolmar's obligations.
Kolmar's subsequent unilateral offers to resolve this matter including bringing the Kolmar Lawsuit were not accepted prior to Kolmar rescinding its prior offers to resolve this matter. Kolmar had a right to rescind the March Deadlock Notice because the terms contained in the Deadlock Notice were commercially reasonable (i.e., no one would expect to have to continue to guaranty loans in a business that they are exiting) and they continued to act in a commercially reasonable manner including by attempting to call a meeting to seek dissolution of Process Tech effectively rescinding its March Deadlock Notice which Lard refused. Finally, no reading of the Operating Agreement supports the notion that the Deadlock Provision is designed to have the acquiring member satisfy Process Tech's obligation to repay the member loans. Accordingly, summary judgment is denied.
The court notes that Kolmar did not cross-move for summary judgment.
Kolmar Lawsuit: (Mtn. Seq. No. 003) Discontinuance Without Prejudice is Granted in Part
Kolmar moves to discontinue the Kolmar Lawsuit without prejudice pursuant to CPLR § 3217(b) because it argues the Kolmar Lawsuit is not necessary in light of the later filed Lard Lawsuit and because it no longer seeks to enforce its action for specific performance. In its opposition papers, Lard argues that it will be prejudiced because it has a pending motion for summary judgment. It won't be.
Judicial estoppel would prevent Kolmar from taking any position inconsistent with the positions previously taken ( Kalikow 78/79 Co. v. State , 174 AD2d 7, 11 [1st Dept 1992] ). Pursuant to this decision and order, the Lard Lawsuit, as the later filed lawsuit, is consolidated with and into the Kolmar Lawsuit and Lard's pending summary judgment motion is addressed in this decision and order. The motion is accordingly granted solely to extent that Kolmar's complaint filed in the Kolmar Lawsuit which sought specific performance is dismissed without prejudice ( Tucker v. Tucker, 55 NY2d 378, 384 [1982] ).
Lard Lawsuit: (Mtn. Seq. No. 001) Preliminary Injunction Denied
CPLR § 6301 authorizes courts to grant preliminary injunctive relief to preserve the status quo pending the resolution of civil litigation. As the First Department has observed, "[a] preliminary injunction substantially limits a defendant's rights and is thus an extraordinary provisional remedy requiring a special showing" ( 1234 Broadway LLC v. West Side SRO Law Project , 86 AD3d 18, 23 [1st Dept 2011] ). Therefore, a party seeking a preliminary injunction must demonstrate: (i) a likelihood of ultimate success on the merits, (ii) irreparable harm if the preliminary injunction is denied, and (iii) a balance of the equities in favor of the moving party (id. , citing Doe v. Axelrod , 73 NY2d 748, 750 [1988] ). For the reasons set forth above in Lard's motion for summary judgment, Lard fails to demonstrate a likelihood of success on the merits. Accordingly, its motion for a preliminary injunction is denied and the temporary restraining order is immediately vacated.
Lard Lawsuit: (Mtn. Seq. No. 003) The Third-Party Complaint is Dismissed
A party may move for judgment dismissing one or more causes of action on the ground that the pleadings fail to state a cause of action for which relief may be granted ( CPLR § 3211[a][7] ). On a motion to dismiss pursuant to CPLR § 3211(a)(7), the court must afford the pleadings a liberal construction and accept the facts alleged in the complaint as true, according the plaintiff the benefit of every favorable inference ( Morone v. Morone , 50 NY2d 481, 484 [1980] ). The court's inquiry on a motion to dismiss is whether the facts alleged fit within any cognizable legal theory (id. ). Bare legal conclusions are not accorded favorable inferences, however, and need not be accepted as true ( Biondi v. Beekman Hill House Apt. Corp. , 257 AD2d 76, 81 [1st Dept 1999] ). A party may also move to dismiss based on documentary evidence pursuant to CPLR § 3211(a)(1). A motion to dismiss pursuant to CPLR § 3211(a)(1) will be granted only where the documentary evidence conclusively establishes a defense to the plaintiff's claims as a matter of law ( Goshen v. Mutual Life Ins. Co. of New York , 98 NY2d 314, 326 [2002] ).
The Wormsers argue that dismissal is required of (i) the breach of contract counterclaim because Kolmar fails to identify any provisions of the Operating Agreement that they are alleged to have breached, (ii) the breach of the implied covenant of good faith and fair dealing counterclaim because Kolmar fails to allege any specific implied contractual obligations of the Wormsers arising from the Operating Agreement, (iii) the tortious interference with contract counterclaim because the Wormsers are parties to the Operating Agreement and therefore cannot tortiously interfere with it under Delaware law, and (iv) the counterclaim for breach of fiduciary duty because it is barred under Section 6.2 of the Operating Agreement.
In its opposition papers, Kolmar argues that (i) either (a) the Wormsers are parties to the Operating Agreement, in which case they can be held liable for breaching its provisions, or (b) because Lard is a Member subject to the obligations set forth under Section 10.2 and the Wormsers are not Members, the Wormsers can be liable for inducing Lard to breach Section 10.2 by frustrating the resolution of the Deadlock, (ii) breach of the implied covenant of good faith and fair dealing is sufficiently pled as it alleges that the Wormsers were subject to the implied obligations of closing the buyout transaction without undue delay and to make reasonable efforts to cause Lard to comply with its obligations, and (iii) the breach of fiduciary duty claim is not barred because Section 6.2 does not plainly and unambiguously demonstrate an intent to eliminate liability for breach of fiduciary duty. Kolmar's arguments here fail.
The Operating Agreement does not reflect Kolmar's bargain for personal obligations or liability of the Wormers for the conduct alleged. Indeed, pursuant to Section 6.2 of the Operating Agreement, the parties agreed that fiduciary duty claims are barred. The Wormsers are not Members. Kolmar's failure to identify any specific provision which the Wormers are alleged to have breached dooms their breach of contract claim. Their claim for breach of the implied covenant of good faith and fair dealing is similarly without merit because Kolmar fails to allege any implied contractual obligation that the Wormers breached and under Delaware law, a court may not use the implied covenant of good faith and fair dealing "to rewrite or supply omitted provisions to a written contract" ( Fitzgerald v. Cantor , 1998 WL 842316 at *1 [Del Ch 1998] ). Kolmar's tortious interference counterclaim also fails because it is undisputed that the Wormsers are parties to the Operating Agreement, and therefore they cannot be held liable for allegedly inducing another contract party into breaching it ( Kuruda v. SPJS Holdings, LLC , 971 A2d 872, 884 [Del Ch 2009] [stating that to state a claim for tortious interference, a plaintiff must allege that the defendant was a stranger to both the contract and the underlying business relationship] ). Accordingly, the Third-Party Complaint is dismissed.
However, the portion of the Wormsers' motion seeking sanctions against Kolmar is denied. A court in a civil action is authorized to award the reasonable attorneys' fees and expenses incurred by a party as a result of the opposing party's frivolous conduct ( 22 NYCRR § 130-1.1 [a] ). Conduct is frivolous for the purposes of a motion for sanctions if (i) it is completely meritless, (ii) it is done to delay or prolong the litigation or to harass or injure another party, or (iii) asserts false material statements of fact (id., § 130-1.1 [c] ). It simply cannot be said that Kolmar's claims were made in bad faith, that they were frivolous or intended to harass the Wormsers, or that they assert false material statement of fact.
Lard Lawsuit: (Mtn. Seq. No. 004) The Counterclaims are Not Dismissed
Lard argues that Kolmar's breach of contract counterclaim must be dismissed because Kolmar's election to reverse the transaction and buy Lard out superseded Lard's prior defaults. Lard also argues that adding additional terms as a condition to the buyout did not constitute a breach. Finally, Lard argues that Kolmar's counterclaim for breach of the implied covenant of good faith and fair dealing must be dismissed because Kolmar does not allege any specific implied contractual provisions that Lard allegedly breached.
These arguments fail. As discussed above, Kolmar sufficiently alleges at least three breaches by Lard of the Operating Agreement — i.e., (i) installing a CEO without Board approval, (ii) purporting to elect to buy Kolmar out pursuant to the Deadlock Provision but simultaneously inserting commercially unreasonable conditions to its buyout and ultimately failing to proceed to buy Kolmar out, and (iii) failing to sell its interest to Kolmar when Kolmar elected to reverse the transaction. Therefore, the breach of contract claim is not dismissed.
To state a claim for breach of the implied covenant of good faith and fair dealing under Delaware law, a plaintiff must allege "a specific implied contractual obligation, a breach of that obligation by the defendant, and resulting damages to the plaintiff ( Kuruda , 971 A2d at 884 ). Although the implied covenant of good faith and fair dealing cannot be used to extend the parties' rights and remedies beyond those available under the express terms of the Operating Agreement ( Stewart v. BF Bolthouse Holdco, LLC , 2013 WL 5210220 at *16 [Del Ch 2013] ), Kolmar's implied covenant claim is neither duplicative of its breach of contractual obligations claim, nor is it extending the rights and remedies beyond those contemplated by the Operating Agreement.
Here, Kolmar alleges that Lard acted commercially unreasonably causing it significant damage by failing to either buy or sell in accordance with the Deadlock Provision. To wit, Kolmar alleges that Lard acted in bad faith by refusing to accept Kolmar's good faith offers to resolve the dispute including, without limitation, extending the lease in the case of the buyout as Lard had requested and extending loans to Lard, and when Lard failed to close as buyer, failing to accept Kolmar's offer to proceed to buy Lard out as seller without application of the 30% discount (which on the record before the court it had a right to do), and ultimately by refusing to go to a meeting to discuss dissolution when Lard was unable or unwilling to close either transaction contemplated by the Deadlock Provision. These allegations are sufficient to sustain the counterclaim at this stage in the proceedings (see, e.g. , Opera Solutions, LLC v. Schwan's Home Servs., Inc. , 2015 WL 4940137 at *2-3 [D Del 2015] [holding that a contractual provision requiring the parties to reach an agreement contains "an implied obligation ... to ... engage in good faith negotiations with an aim toward" reaching an agreement.] ). Therefore, the motion to dismiss the counterclaim for breach of the covenant of good faith and fair dealing must be denied.
Accordingly, it is
ORDERED that Kolmar's motion (Mtn. Seq. No. 002 filed in the Lard Lawsuit) to consolidate the Lard Lawsuit, Lard-PT, LLC v. Seokoh, Inc. , Index No. 651726/2020, with the Kolmar Lawsuit, Seokoh, Inc. v. Lard-PT, LLC, Index No. 650983/2020 and to stay the consolidated lawsuit pending the resolution of the Delaware Dissolution Proceeding is granted solely to the extent that the Lard Lawsuit is consolidated into the Kolmar Lawsuit but is otherwise denied, and it is further
ORDERED that the consolidation shall take place under Index No. 650983/2020 and the consolidated case shall bear the following caption:
SEOKOH, INC., KOLMAR KOREA CO., LTD.,
Plaintiff,
against-
LARD-PT, LLC
Defendant.
And it is further
ORDERED that the pleadings in the actions hereby consolidated shall stand as the pleadings in the consolidated action; and it is further
ORDERED that, within 30 days from entry of this order, movant shall serve a copy of this order with notice of entry on the Clerk of the Court (60 Centre Street, Room 141 B), who shall consolidate the documents in the actions hereby consolidated and shall mark his records to reflect the consolidation; and it is further
ORDERED that counsel for the movant shall contact the staff of the Clerk of the Court to arrange for the effectuation of the consolidation hereby directed; and it is further
ORDERED that service of this order upon the Clerk of the Court hall be made in accordance with the procedures set forth in the Protocol on Courthouse and County Clerk Procedures for Electronically Filed Cases (accessible at the "E-Filing" page on the court's website at the address www.nycourts.gov/supctmanh); and it is further
ORDERED that, as applicable and insofar as is practical, the Clerk of this Court shall file the documents being consolidated in the consolidated case file under the index number of the consolidated action in the New York State Courts Electronic Filing System or make appropriate notations of such documents in the e-filing records of the court so as to ensure access to the documents in the consolidated action; and it is further
ORDERED that, within 30 days from entry of this order, movant shall serve a copy of this order with notice of entry on the Clerk of the General Clerk's Office (60 Centre Street, Room 119), who is hereby directed to reflect the consolidation by appropriately marking the court's records; and it is further
ORDERED that such service upon the Clerk of the General Clerk's Office shall be made in accordance with the procedures set forth in the aforesaid Protocol ; and it is further
ORDERED that Lard's motion (Mtn Seq. No. 001 in the Kolmar Lawsuit) for an extension of time to file a responsive pleading in the Kolmar Lawsuit which was filed on February 12, 2020 is granted, and it is further
ORDERED that Lard's motion for summary judgment on its counterclaim in the Kolmar Lawsuit (Mtn. Seq. No. 002 filed in the Kolmar Lawsuit) pursuant to CPLR § 3212 is denied, and it is further
ORDERED that Kolmar's motion (Mtn. Seq. No. 003 filed in the Kolmar Lawsuit) to discontinue the Kolmar Lawsuit without prejudice pursuant to CPLR § 3217(b) is granted solely to the extent that Kolmar's complaint filed in the Kolmar Lawsuit seeking specific performance is dismissed without prejudice, and it is further
ORDERED that Lard's motion (Mtn. Seq. No. 001 filed in the Lard Action) for a preliminary injunction pursuant to CPLR §§ 2214(d), 6301, and 6313(1) is denied, and it is further
ORDERED that the Wormsers' motion to dismiss the Third-Party Complaint (Mtn. Seq. No. 003 filed in the Lard Lawsuit) pursuant to CPLR §§ 3211(a)(1) and (7) and for sanctions pursuant to 22 NYCRR § 130.1 -1 is granted to the extent that the Third-Party Complaint is dismissed but is otherwise denied, and it is further
ORDERED that Lard's motion (Mtn. Seq. No. 004 filed in the Lard Lawsuit) to dismiss the counterclaims filed in the Lard Lawsuit is denied.