| L.K. Sta. Group, LLC v Quantek Media, LLC |
| 2009 NY Slip Op 03828 [62 AD3d 487] |
| May 14, 2009 |
| Appellate Division, First Department |
| L.K. Station Group, LLC, Appellant, v Quantek Media,LLC, et al., Respondents. |
—[*1] Wilmer Cutler Pickering Hale and Dorr LLP, New York (Peter K. Vigeland of counsel), forrespondents.
Order, Supreme Court, New York County (Herman Cahn, J.), entered on or about July 31,2008, which granted defendants' motion to dismiss the amended complaint, alleging, inter alia,breach of contract and fraudulent concealment, unanimously affirmed, with costs.
Plaintiff L.K. Station Group is a Florida limited liability company in the business ofpurchasing television stations, with a focus on Hispanic markets. In 2007 it undertook topurchase two television stations in Santa Rosa, California and Bellingham, Washington, forwhich it required $30 million in financing. On or about July 31, 2007 its broker received a letterfrom codefendant Bulltick Capital Markets in which it was represented that codefendant QuantekAsset Management, LLC, with which Bulltick was affiliated, was committed to provide a loan tofund the purchase of the television stations, and expressed the hope that a "mutually satisfactoryasset purchase agreement" could be reached.
On August 20, 2007, Quantek Media and L.K. Station entered into a memorandum ofunderstanding outlining the terms for them to pursue opportunities in the United States televisionand radio markets. Except for certain specified paragraphs, it was agreed that the memorandumof understanding was a "non-binding commitment [and was] submitted for discussion purposesonly."
On August 30, 2007, codefendant Tvestments Ltd., another Bulltick-affiliated defendant (allten of the defendants are represented by the same law firm), provided L.K. Station with $2million in initial financing. It is alleged that the next day, L.K. Station, in reliance on the Julyletter, entered into an asset purchase agreement for the two television stations for the price of$26.6 million.
In an October 1, 2007 letter, Tvestments advised L.K. Station of its commitment to providethe entire principal amount of the financing, up to the amount of $30 million. In pertinent part,the commitment letter contained the following clause: "You further agree that no IndemnifiedParty [Tvestments or any of its affiliates] shall have any liability (whether in contract, tort orotherwise) to [L.K. Station] . . . for or in connection with the transactionscontemplated hereby, except for direct damages (as opposed to special, indirect, consequential orpunitive damages (including, without limitation, any loss of profits, business or anticipatedsavings) determined . . . to have resulted primarily from such Indemnified Party'sgross negligence or willful misconduct."
Section 8 of the commitment letter also stated, "You should be aware that Tvestments or oneor more of its affiliates may be providing financing or other services to parties whose interestsmay conflict with yours." Section 9 provided that the agreement was to be governed inaccordance with New York law, and recited that "[t]his Commitment Letter sets forth the entireagreement between the parties with respect to the matters addressed herein and supersedes allprior communications, written or oral, with respect hereto."
When L.K. Station sought to close the loan on March 31, 2008, it was advised thatTvestments would not provide financing, purportedly because L.K. Station had failed to closethe purchase pursuant to the deadlines set in the asset purchase agreement, and because certainanticipated collateral was impaired.
The foregoing facts form the essence of the claim for breach of contract, including a requestfor specific performance. Some additional details are necessary for resolution of the claim forfraudulent concealment. L.K. Station claims that when it first met with defendants'representatives, on July 24, 2007, they were emphatic that they had no interest in getting into themedia or television business. Yet, it is alleged that in June 28, 2007, defendants had been incommunication with representatives from a competitor of L.K. Station, CaribeVision Holdings,Inc., to acquire a competing economic interest in CaribeVision, and failed to disclose thesenegotiations, which ultimately did result in a partial acquisition in February 2008. L.K. Stationclaims that it was injured because it pursued its plans to purchase the two television stations inreliance on the belief that defendants were dealing with it alone, and that defendants' failure tolend it the money to complete the acquisition was a result of the surreptitious negotiations.
This action was filed on April 7, 2008. As amended, it alleged four causes of action, onlytwo of which are at issue on this appeal.[FN*]The first cause of action is for breach of contract, and seeks either specific performance ordamages resulting from the breach and defendants' willful misconduct. The second allegesfraudulent concealment in that some of the defendants had superior knowledge concerning theirintent to acquire a competing interest in CaribeVision which barred their obligation to L.K.Station, they deliberately failed to disclose this information, such information was material toL.K. Station's decisions, and L.K. Station reasonably relied and acted upon such mistakenknowledge to its detriment, because it would not have otherwise entered into the contracts.
Defendants moved to dismiss the amended complaint pursuant to CPLR 3211 (a) (1) and (7).They sought dismissal of the breach of contract claim on the ground that it was barred by theterms of the commitment letter, as L.K. Station failed to allege facts to show willful misconduct,and L.K. Station's remedy was limited to direct damages.
Defendants also sought to dismiss the fraud cause of action on the ground that they did [*2]not have a duty to disclose their CaribeVision dealings to L.K.Station, with whom they were engaged in an arm's length transaction, and claimed, in any event,that they disclosed their intent in the commitment letter. They asserted that the noncompeteagreement with CaribeVision did not bar the L.K. Station loan, and, regardless, any recovery forfraud was limited to out-of-pocket expenses.
In opposition, L.K. Station argued that the July letter was an enforceable contract, that theterms of the commitment letter did not expressly preclude specific performance, and that themerger clause did not extend to the prior agreements as Tvestments was not a party thereto. L.K.Station also argued that Florida law applied, as its place of injury was Florida, where it waslocated and defendants' actions occurred. L.K. Station maintained that defendants had a duty todisclose their plans with CaribeVision as (1) they undertook to disclose information; (2) theirknowledge was superior and the failure to disclose rendered the transaction inherently unfair;and (3) by negotiating to become joint venturers, the parties assumed special duties to eachother.
The court found that the commitment letter superseded all prior agreements, and held thatthe letter's terms limited liability to cases of gross negligence or willful misconduct. It reasonedthat L.K. Station's claims that defendants financed a competitor and refused to loan it funds didnot allege such tortious conduct as could be found to constitute willful misconduct. The courtfurther noted that any recovery would be limited to direct damages. In dismissing the fraudulentconcealment claim, the court found that defendants did not have any duty to disclose, and, in anyevent, defendants clearly informed plaintiff in the commitment letter that they might beproviding financing or other services to parties whose interests may conflict.
We affirm. Even according, as we must on a motion to dismiss, a liberal construction to thepleadings (Leon v Martinez, 84 NY2d 83, 87-88 [1994]), we, nevertheless, conclude thatthe allegations of the complaint fail to state a cause of action.
Initially, the only parties to the commitment letter are plaintiff L.K. Station and codefendantTvestments. Concededly, throughout the commitment letter there are indications that parts of theagreement are intended to encompass nonsignatories (e.g. reference to Tvestments "and each ofits affiliates" in the indemnification clause, and to Tvestments "or one or more of its affiliates" inthe clause advising that financing may be provided to a potential competitor of L.K. Station).The merger clause of the commitment letter, however, only provides that it "sets forth the entireagreement between the parties . . . thereto." Thus, a fair interpretation of the clauseleads to the conclusion that its preclusive effect is limited to the claims against Tvestments.Thus, if the other documents can be found to constitute an enforceable contract, the limitation ofliability language in the commitment letter will have no effect.
L.K. Station claims that the July letter and the memorandum of understanding constituteenforceable agreements. These documents, however, do not contain some of the essential termsof a loan, such as the interest rate or maturity date, and are thus too uncertain to constituteenforceable agreements. "In determining whether a contract exists, the inquiry centers upon theparties' intent to be bound, i.e., whether there was a 'meeting of the minds' regarding the materialterms of the transaction" (Central Fed. Sav. v National Westminster Bank, U.S.A., 176AD2d 131, 132 [1991]). "[B]efore the power of law can be invoked to enforce a promise, it mustbe sufficiently certain and specific so that what was promised can be ascertained" (JosephMartin, Jr., Delicatessen v Schumacher, 52 NY2d 105, 109 [1981]).
The July letter indicates that Bulltick was committed to fund the purchase "provided that[*3]we achieve a mutually satisfactory asset purchaseagreement," and expresses confidence that it can work within an expedited time frame, butmakes no firm commitment about the terms of the loan. Likewise, the memorandum ofunderstanding, executed on August 30th, makes clear that, with certain exceptions, it is "anon-binding commitment by the Parties hereto and is submitted for discussion purposes only."Consequently, neither of these documents, individually or in the aggregate, represents a bindingagreement.
L.K. Station attempts to invoke the Crabtree doctrine (see Crabtree v ElizabethArden Sales Corp., 305 NY 48, 53-54 [1953]), and claims that the July letter, thememorandum of understanding, and the commitment letter constitute integrated documents forpurposes of demonstrating the existence of an enforceable agreement. This argument runscontrary to L.K. Station's contention that only Tvestments was a party to the commitment letter.Regardless, however, of whether the three documents constituted an integrated transactionencompassing all of the defendants, or Tvestments is deemed to be the only party to thecommitment agreement, the limitation of liability clause contained in the commitment letterwarrants dismissal of the contract cause of action.
The contract provides that no indemnified party (Tvestments and its affiliates) "shall haveany liability (whether in contract, tort or otherwise) . . . except for direct damages(as opposed to special, indirect, consequential or punitive damages . . . )." Loss ofprofits or business, as well as anticipated savings, fall within the category of damages which areexcluded. L.K. Station argues that this clause does not preclude the grant of specificperformance.
The Court of Appeals held in Rubinstein v Rubinstein (23 NY2d 293 [1968]): "[T]helaw is now well settled that a liquidated damages provision will not in and of itself be construedas barring the remedy of specific performance. For there to be a complete bar to equitable reliefthere must be something more, such as explicit language in the contract that the liquidateddamages provision was to be the sole remedy." (Id. at 297-298 [citations omitted]; see also Granite Broadway Dev. LLC v1711 LLC, 44 AD3d 594, 594-595 [2007], lv denied 10 NY3d 702 [2008]; Sutton Madison, Inc. v 27 E. 65th St.Owners Corp., 8 AD3d 90, 92 [2004].)
In this case, however, the limiting language is broader than it was in Rubinstein andits progeny, since it bars relief in "contract, tort or otherwise," except for direct damagesresulting from a party's gross negligence or willful misconduct. The provision thus does morethan recite the amount of liquidated damages that may be recovered. It pointedly circumscribesthe remedies available to requests for direct damages. Consequently, the agreement manifestsexplicit language which curtails the availability of specific performance as a remedy.
The cause of action for fraudulent concealment should also be dismissed. Initially, L.K.Station maintains that Florida law, which provides recovery for lost profits (see Nordyne,Inc. v Florida Mobile Home Supply, Inc., 625 So 2d 1283, 1287 [Fla Dist Ct App, 1st Dist1993]), as well as punitive damages (see Laney v American Equity Inv. Life Ins. Co.,243 F Supp 2d 1347, 1354 [MD Fla 2003]), should apply, because it, as well as a number ofdefendants reside or have offices in Florida, and since many of the events and transactionsoccurred there.
Choice of law analysis in tort law generally requires giving controlling interest to the "law ofthe jurisdiction having the greatest interest in resolving the particular issue" (Cooney vOsgood Mach., 81 NY2d 66, 72 [1993]). The heart of the alleged misconduct here is the[*4]misleading July disclosure, which occurred in a meeting inNew York. Notwithstanding the residence of some of the parties in Florida, since New York hasa strong interest in regulating conduct occurring in its borders (id.; see also Padula vLilarn Props. Corp., 84 NY2d 519, 522 [1994]), we conclude that New York law shouldapply. In this regard it is also of note that any of the agreements which expressed a choice of lawpreference (for instance, the nondisclosure agreement and the commitment letter), recited thatNew York law would apply.
Among the circumstances under which a cause of action for fraudulent concealment mayarise is where there has been a misleading partial disclosure (see Williams v Sidley Austin Brown & Wood, L.L.P., 38 AD3d219, 220 [2007]). The only ground in this complaint upon which to find an actionable claimfor partial disclosure is based upon the failure of defendants' representatives in July 2007 toadvise of their negotiations to acquire an economic interest in another television station. Underother circumstances, the cause of action would be sustained. The allegations that defendantswere covertly negotiating with another party, and that these negotiations resulted in theacquisition of an interest in CaribeVision, as well as defendants' refusal to lend money to L.K.Station, suggest the existence of factual issues as to whether defendants were liable forfraudulent concealment.
In this case, however, even if there were a duty to disclose, L.K. Station has notdemonstrated that it has incurred legally compensable damages, i.e., actual out-of-pocket losses(see Lama Holding Co. v Smith Barney, 88 NY2d 413, 421-422 [1996]). Thus, thefraudulent concealment claim cannot be sustained.
Motion seeking leave to enlarge record denied.
Concur—Gonzalez, P.J., Tom, Nardelli, Moskowitz and Renwick, JJ. [See 20Misc 3d 1142(A), 2008 NY Slip Op 51827(U).]
Footnote *: Although L.K. Station seeksreinstatement of the entire complaint, its brief only addresses the first two causes of action forbreach of contract and fraudulent concealment.