Opinion
No. 16785/08.
2008-12-17
Joseph SARACHEK, Indivdually and on Behalf of Triax Capital Advisors, LLC, Plaintiffs, v. Chaim FORTGANG, Galvex Capital, LLC, Galvex Holdings Limited, Galvex Estonia OU, Galvex Intertrade OU, Galvex Trade Limited, Galvex Services OU, Alvarez & Marsal Europe Ltd., Silver Point Capital, L.P., Silver Point Europe LLP and Silver Point Group, LLP, Defendants.
MARK I. PARTNOW, J.
The following papers numbered 1 to 9 read on this motion:
+-----------------------------------------------------------------------------+ ¦Papers ¦Numbered ¦ +--------------------------------------------------------------+--------------¦ ¦Notice of Motion/Order to Show Cause/ Petition/Cross Motion ¦1–5, 6–8 ¦ ¦and Affidavits (Affirmations) Annexed ¦ ¦ +--------------------------------------------------------------+--------------¦ ¦Opposing Affidavits (Affirmations) ¦9 ¦ +--------------------------------------------------------------+--------------¦ ¦Reply Affidavits (Affirmations) ¦ ¦ +--------------------------------------------------------------+--------------¦ ¦Affidavit (Affirmation) ¦ ¦ +--------------------------------------------------------------+--------------¦ ¦Other Papers ¦ ¦ +-----------------------------------------------------------------------------+
Upon the foregoing papers, the motion by defendants Silver Point Capital, L.P. (SPC), Sliver Point Europe, LLP (SPE), and Silver Point Group, LLP (SPG) (together, Silver Point), Alvarez & Marsal Europe, Ltd (A & M), and Chaim Fortgang (Fortgang) (collectively, the Silver Point Defendants) for an order, pursuant to CPLR 3211(a)(7) and (8), dismissing the complaint insofar as asserted against them is granted and the cross motion by plaintiffs Joseph Sarachek, individually and on behalf of Triax Capital Advisors, LLC for an order granting summary judgment in their favor pursuant to CPLR 3212 is denied.
Plaintiffs allege that, on October 7, 2005, they entered into an oral agreement with David Bain, the President and Chief Executive Officer of the Galvex Defendants (Galvex),
to find a lender within 72 hours that would provide $12–15 million in financing for those companies so that they could stave off creditors. In exchange for this service, plaintiffs allege that Galvex agreed to pay them 10% of the money financed, but in no event less than $1.5 million. Plaintiffs assert that they fulfilled their obligations under this “finder's agreement” by introducing Galvex to Silver Point and/or Fortgang which agreed to furnish such financing to Galvex. In the first cause of action of their complaint and in accordance with the alleged oral contract, plaintiffs seek a $1.5 million finder's fee from Galvex, as well as from Silver Point, A & M and Fortgang. In ten additional causes of action,
Plaintiffs define the Galvex Defendants as Galvex Capital, LLC, Galvex Holdings Limited, Galvex Estonia OU, Galvex Intertrade OU and Galvex Trade Limited.
plaintiff's seek a $14.4 million finder's fee in connection with a subsequent $144 million debt purchase by Silver Point.
The causes of action include breach of fiduciary duty, imposition of a constructive trust, conversion, and breach of the covenant of good faith and fair dealing, among others.
In their motion, the Silver Point Defendants assert that plaintiffs' first cause of action against them for breach of contract is not legally cognizable because Silver Point was not a party to the agreement with Galvex, nor is Silver Point liable for the obligation of Galvex to pay such a fee pursuant to Galvex's contract with plaintiffs. With respect to the additional finder's fee sought by plaintiffs, Silver Point contends that plaintiffs have not alleged the existence of any agreement to pay an amount beyond the original engagement to find financing in exchange for $1.5 million. Silver Point adds that, in any event, the complaint against SPE, A & M and SPG should be dismissed because the court lacks jurisdiction over SPE and A & M and because SPG does not exist.
Silver Point notes the following:
1.Plaintiffs do not allege that they entered into an agreement for the payment of the $1.5 million finder's fee with anyone other than Galvex;
2.Insofar as plaintiffs allege any claim against A & M, they assert only that A & M “was retained by Deutsche Bank, the primary creditor of the Galvex Defendants, to report the internal and financial affairs of the Galvex Defendants and to be responsible for the payment of all liabilities of the Galvex Defendants.”
3.With respect to Silver Point and Fortgang, plaintiffs only allege that they “purchase[d] the debt of the Galvex Defendants held and/or controlled by Deutsche Bank and Goldman Sachs and became responsible for the payment of the liabilities of Galvex” and
4.Plaintiffs assert that they also “have earned fees which are customarily paid within the debt financing industry on any additional monies secured over and above the original amount secured which fees are calculated at three percent of the additional sums thus financed.”
More specifically, as to each of the causes of action, the parties' contentions are, as follows:
Breach of Contract (First Cause of Action)
The Silver Point Defendants fault plaintiffs for failing to allege that there was ever any contract entered into with Silver Point, A & M or Fortgang. They further assert that an alleged oral finder's fee agreement is void under the Statute of Frauds. Although Joseph Sarachek is an attorney and oral agreements to pay compensation to an attorney fall outside the Statute of Frauds, the Silver Point Defendants maintain that the exception does not apply here since the alleged contract was not to pay an attorney (Sarachek), but a corporation (Triax Capital Advisors, LLC) whose president is an attorney.
Plaintiffs concede that there was no written contract for them to act as a liaison between Galvex and Silver Point, but they assert that the oral agreement is enforceable because Sarachek is excluded from the requirements of a writing by virtue of GOL § 5–701(a)(10), even if he was not acting as an attorney in the transaction at issue. Plaintiffs further argue that it is unnecessary to allege any privity between Silver Point and Fortgang, on the one hand, and plaintiffs on the other “once they undertook control and ownership of the Galvex Defendants.”
In reply, the Silver Point Defendants point out that the complaint does not allege that Silver Point or Fortgang exercised any form of control over Galvex, only that they loaned it money, and, therefore, a breach of contract cause of action against them is not viable. They also note that it has never been their suggestion that the Statute of Frauds bars Sarachek's breach of contract claims, only those of Triax Capital Advisors, LLC.
According to the allegations of the complaint, the Silver Point Defendants are liable to plaintiffs under a breach of contract theory because said defendants “purchase[d] the debt of the Galvex Defendants ... and became responsible for the payment of the liabilities of Galvex”. Although one entity may be held liable for the obligations of another where those in control of the corporate enterprise have not treated it as a distinct legal entity, in this case, the Silver Point Defendants merely loaned money to the separately incorporated Galvex Defendants. Nowhere in the complaint is there an allegation that the Silver Point Defendants exercised any form of control over Galvex. ( see Almonte v. Western Beef, Inc ., 21 AD3d 514 [2005] ). Accordingly, the first cause of action is dismissed.
Breach of Contract (Second Cause of Action)
In arguing that plaintiffs are not entitled to $14.4 million as fees “customarily paid within the debt financing industry or any additional monies secured over and above the original amount [of $12–15 million],” the Silver Point Defendants fault plaintiffs for failing to assert that a contract exists with anyone with respect to that claim.
Insofar as they seek additional sums as a result of an alleged breach of contract, plaintiffs rely upon “[t]he custom and usage within the business and profession ... that, where an introduction is made, all monies generated from that introduction, whether in a single or multiple transactions, are subject to payment of the fees originally agreed upon with the person or company who obtains the financing or makes the introduction.”
In reply, Silver Point asserts that no legal support exists for plaintiffs' position that “custom and usage” entitles them to a $14.4 million finder's fee; rather, according to Silver Point, custom and usage may only be admitted to assist a fact finder in construing a contractual ambiguity.
If ambiguities exist in a contract in either the language employed or the intent and circumstances surrounding its execution, extrinsic evidence may be offered by the contracting parties ( see Wing Ming Properties [U.S.A.] Ltd. v. Mott Operating Corp., 148 Misc.2d 680, 684 [1990] ). Evidence may be considered concerning the actions of the parties which reflect their understanding of the agreement, as well as concerning the prevalent custom and usage of an industry as incorporated in the choice of certain terms within the document, in order to ascertain the intent of the parties at the time of the contract's execution ( see generally,22 N.Y. Jur2d, Contracts, §§ 187–209). In this case, plaintiffs are not merely seeking to clarify the terms of a contract based upon custom and usage within the debt financing industry; rather, they argue that a contract to pay fees in addition to the original $1.5 million arose out of such custom and usage. This they may not do. Therefore, the second cause of action is dismissed.
Unjust Enrichment (Third Cause of Action)
The Silver Point Defendants contend that plaintiffs have not set forth what performance they rendered in connection with the $144 million financing or how said defendants were enriched by it. They also note that the cause of action “is duplicative of plaintiffs' unavailing contract claim and barred by the Statue of Frauds.”
Plaintiffs contend that defendants received a “tremendous” benefit from plaintiffs' services—Galvex being salvaged from insolvency and Silver Point having taken over the Galvez Defendants.
In their reply papers, the Silver Point Defendants counter that plaintiffs have not shown how the purchase of $144 million of the existing debt of Galvex from third parties enriched said defendant or what plaintiffs did in connection with the $144 million financing.
“To state a cause of action for unjust enrichment, a plaintiff must allege that it conferred a benefit upon the defendant and that the defendant will obtain such benefit without adequately compensating plaintiff therefor” ( Smith v. Chase Manhattan Bank, U.S.A., N.A., 239 A.D.2d 598, 600 [2002] ). Here, plaintiffs have not demonstrated that they rendered any service to the Silver Point Defendants in connection with the $144 million financing and that they are, therefore, entitled to compensation. As such, the third cause of action is dismissed.
Tortious Interference with Contract (Fourth Cause of Action)
Since plaintiffs have not allegedly pled the existence of a valid, enforceable contract, the Silver Point Defendants suggest that the fourth cause of action is not viable. They also point out that the claim is duplicative of a claim for breach of contract.
According to plaintiffs, they were the liaison between Silver Point and Galvex and, when Silver Point entered into a relationship with Galvex, “without recognition of the plaintiffs' efforts and the monies earned by them, this constituted a classic case of tortious interference with a business and contractual relationship.”
The elements of a cause of action for tortious interference with contractual relations are “(1) the existence of a contract between plaintiff and a third party; (2) defendants' knowledge of the contract; (3) defendant's intentional inducement of the third party to breach or otherwise render performance impossible; and (4) damages to plaintiff” (M.J. & K. Co. v. Matthew Bender & Co., 220 A.D.2d 488, 490 [1985] ). Since plaintiffs' fourth cause of action relates to the $144 million in additional financing and they have not demonstrated that there was a valid and enforceable agreement with respect thereto, plaintiffs' claim for tortious interference with contractual affairs must likewise fail.
Breach of Fiduciary Duty (Fifth Cause of Action)
The Silver Point Defendants note that there was never a fiduciary relationship between them and plaintiffs.
Because plaintiffs allegedly acted as agents for Silver Point, they assert that there was “a fiduciary relationship that went beyond a simple contractual arrangement.” Plaintiffs also rely upon Silver Point's assumption of the management of Galvex as further support for a finding of a fiduciary relationship.
In reply, Silver Point notes that although plaintiffs assert that they acted as agents for Silver Point, the complaint does not make such allegations, but, even if it did, it is the agent who owes a fiduciary duty to his or her principal, rather than there being a duty to the agent by the principal.
“To state a claim for breach of a fiduciary duty, plaintiff must plead: (1) the existence of a fiduciary duty between the parties; (2) breach of that duty; and (3) damages suffered as a result of that breach” (Kurtzman v. Bergstol, 40 AD3d 588, 590 [2007] ). Even if the allegations of the complaint can be construed to infer that plaintiffs acted as agents for the Silver Point Defendants in the underlying transactions, a fiduciary relationship between agent and a principal signifies a relationship of trust and confidence whereby the agent is bound to exercise the utmost good faith toward the principal throughout the relationship ( see, e.g., Sokoloff v. Harriman Estate Development Corp., 96 N.Y.2d 409 [2001] and not vice versa. Therefore, the fifth cause of action is dismissed.
Constructive Trust (Sixth Cause of Action)
Silver Point asserts that a constructive trust may not be imposed where, as here, there was no confidential relationship between themselves and plaintiffs and no promise by said defendants in connection with the $144 million debt purchase.
Because of the alleged confidential relationship between plaintiffs and Silver Point and the unjust enrichment of Silver Point based upon plaintiffs' efforts, plaintiffs maintain that a claim for a constructive trust of the fees earned has been properly pleaded and is sustainable as a matter of law.
As has been held previously, since there was no unjust enrichment of the Silver Point Defendants and no confidential relationship between them and plaintiffs, the sixth cause of action is without merit and is likewise dismissed.
Conversion (Seventh Cause of Action)
Since a right to be paid a sum of money (the $14.4 million finder's fee) cannot support a claim for conversion, Silver Point argues that the eighth cause of action should be dismissed.
Because specific monies due to plaintiffs have allegedly been misappropriated by Silver Point, plaintiffs contend that a conversion took place.
Conversion is the unauthorized exercise of dominion or control over specifically identified property which interferes with the owner's rights ( see Gilman v. Abagnale, 235 A.D.2d 989, 991 [1997]. Money may be the subject of conversion if it is specifically identifiable and there is an obligation to return it or treat it in a particular manner ( see Republid of Haiti v. Duvalier, 211 A.D.2d 379, 384 [1995] ). For example, the funds of a specific named bank account are sufficiently identifiable ( see Payne v. White, 101 A.D.2d 975 [1984] ). However, where, as here, damages are sought merely for breach of contract, a claim for conversion cannot be maintained ( seeYeterian v. Heather Mills N.V. Inc., 183 A.D.2d 493, 494 [1992]. Consequently, the seventh cause of action is dismissed.
Declaratory Relief (Eighth Cause of Action)
Plaintiffs seek a declaration that they “have fulfilled their obligations to the defendants for which the plaintiffs have earned the moneys demanded by them.” Silver Point characterizes this claim as duplicative of plaintiffs' contract claims and it asserts that declaratory relief is inappropriate when the plaintiff has an adequate, alternate remedy in another form of action, such as breach of contract.
It is well settled that “[a] cause of action for a declaratory judgment is unnecessary and inappropriate when the plaintiff has an adequate, alternative remedy in another form of action” (BGW Dev. Corp. v. Mt. Kisco Lodge No. 1552, 247 A.D.2d 565, 568 [1998], lv. denied 92 N.Y.2d 813 [1998] ). Since plaintiffs have pled a cause of action for breach of contract with respect to their claim for a fee of $1.5 million, no separate cause of action for a declaratory judgment will lie and the eighth cause of action is dismissed.
Conspiracy to Breach a Contract (Ninth Cause of Action)
According to Silver Point, there is no legally cognizable cause of action in New York for conspiracy to breach a contract or for aiding or abetting a breach of contract.
“The allegation of a civil conspiracy, without more, does not in and of itself give rise to a cause of action. The actionable wrong lies in the commission of a tortuous act, or a legal one by wrongful means, but never upon the agreement to commit the prohibited act standing alone” (Cuker Indus. v. Crow Constr. Co., 6 A.D.2d 415, 417 [1958] ). Accordingly, the ninth cause of action is dismissed.
Promissory Estoppel (Tenth Cause of Action)
Silver Point argues that plaintiffs have not stated a claim for promissory estoppel because there is no allegation of a clear and unambiguous promise upon which plaintiffs relied. Silver Point also characterizes the cause of action as an attempt “to resuscitate a contract claim deemed invalid under the Statue of Frauds.”
Plaintiffs note that a promissory estoppel claim is pleaded as an alternative to a breach of contract claim. Plaintiffs assert that there was “a clear and unambiguous promise with reasonable and foreseeable reliance upon the promise by the plaintiffs,” the original promise by Galvex having become an obligation of Silver Point when they assumed control of Galvex.
In reply, the Silver Point Defendants assert that there is no support for plaintiffs' contention that they are responsible for Galvex's promise to plaintiff, nor is there an allegation that there was a promise by anyone to pay a $14.4 million fee.
“The elements of a cause of action based upon promissory estoppel are a clear and unambiguous promise, reasonable and foreseeable reliance by the party to whom the promise is made and an injury sustained in reliance on that promise” ( Williams v. Eason, 49 AD3d 866,868 [2008] ). Here, plaintiffs concededly relied upon industry custom as the basis for the additional fees sought, not an explicit promise to pay such fees. Their claim based upon promissory estoppel, whether pleaded in the alternative or not, cannot stand.
Breach of the Covenant of Good Faith and Fair Dealing (Eleventh Cause of Action)
Since there can be no covenant of good faith and fair dealing implied where there is no contract, Silver Point contends that the eleventh cause of action should be dismissed.
Plaintiffs argue that defendants failed to honor their obligations to plaintiffs, notwithstanding that they reaped the benefits of plaintiffs' services.
In reply, the Silver Point Defendants point out that the eleventh cause of action is duplicative of plaintiffs' breach of contract claim.
A breach of the implied covenant of good faith is merely an element of the damages for the breach of contract alleged in plaintiffs' first cause of action ( see Casalino Interior Demolition Corp. v. Custom Design Data, Inc., 235 A.D.2d 514 [1997]. To the extent that the breach of the covenant of good faith relates to the additional fees allegedly owed, such claim presupposes the existence of a valid contract ( see, e.g., Taylor Bldg. Management, Inc. v. Global Payments Direct, Inc., 19 Misc.3d 1133[A] [2008], which is not the case here. Accordingly, the Silver Point Defendants are entitled to dismissal of the eleventh cause of action.
Jurisdictional Issues
Insofar as claims have been asserted against SPE and A & M, two non-domiciliaries of the United States, the Silver Point Defendants contend that all such claims must be dismissed because this court does not have personal jurisdiction over them. Silver Point denies that A & M or SPE ever conducted any business in New York out of which plaintiffs' claims arise and adds that SPG is a nonexistent entity.*
In opposition to defendants' jurisdictional objection, plaintiffs accuse defendants of failing to disclose a prior decision in an action brought against SPE which upheld jurisdiction against “the Silver Point entities.
In an action against SPE and an entity named as SPCP Group LLP, the court found that plaintiff therein (Daniel Bain, a principal of Galvex) had sufficiently pled jurisdiction over the defendants. Although defendants “never set foot in New York,” the court concluded that “[n]umerous telephone calls, faxes, emails and other correspondence that Silver Point Entities exchanged ... are sufficient to find that they projected themselves into New York.”
In their reply papers, the Silver Point Defendants address the cross motion by plaintiff for summary judgment which is based upon “a nonfinal decision of another court in another case examining another contract between SPE and another party.” Initially, the Silver Point Defendants note that the cross motion is premature because they have not served an answer to the complaint. They add that the determination on a motion made in another case involving SPE was not a final judgment on the merits but, rather, a motion to dismiss at the pleading stage. Moreover, they assert that the prior decision is not dispositive of the merits of this action since it did not address the terms of any alleged agreement regarding the services provided by plaintiffs to anyone.
Where defendants have moved to dismiss the complaint and assert that the court lacks personal jurisdiction over them (or, in this case, over SPE, A & M and SPG), the plaintiff bears the burden of proof ( see Chen v. Shi, 1.9 AD3d 407 [2005] ). In their opposition papers, plaintiff rely solely upon a prior decision in a related action to challenge the affidavits submitted herein by the Silver Point Defendants—those of Shepard Spink (the managing director of A & M), Gay Bronson (the in-house counsel of SPE) and Marc Diagonale (the Global Director of Entity Management and Accounting of Silver Point Capital, L.P.). Initially, the court notes that neither A & M, nor SPG, were parties to the prior action. Moreover, even if the prior decision were somehow binding on this court, it does not establish a “substantial relationship” between SPE's transactions in New York and the claims by plaintiffs, as opposed to those of Galvex ( see Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 [1988] ). Therefore, even if plaintffs' complaint were not dismissed pursuant to CPLR 3211(a)(7) for failure to state a cause of action, it would be dismissed on jurisdictional grounds as against A & M, SPE and SPG.
The foregoing constitutes the decision and order of the court.