| Nineteen Eighty-Nine, LLC v Icahn |
| 2012 NY Slip Op 05070 [96 AD3d 603] |
| June 21, 2012 |
| Appellate Division, First Department |
| Nineteen Eighty-Nine, LLC, Appellant-Respondent, v CarlC. Icahn et al., Respondents-Appellants, and 1879 Hall, LLC, NominalDefendant-Respondent-Appellant. Nineteen Eighty-Nine, LLC, Appellant-Respondent, v Carl C.Icahn et al., Respondents-Appellants. |
—[*1] Robert R. Viducich, New York and Herbert Beigel & Associates LLC, Tucson, AZ (HerbertBeigel, of the bar of the State of Arizona, admitted pro hac vice, of counsel), forrespondents-appellants.
Order, Supreme Court, New York County (Eileen Bransten, J.), entered June 29, 2010 (index601265/07), which denied the parties' motions for summary judgment, unanimously modified, onthe law, to grant defendants' motion as to the causes of action for breach of fiduciary duty, fraud,negligent misrepresentation and aiding and abetting breach of fiduciary duty and fraud, and togrant plaintiff's motion for summary judgment on the causes of action for breach of contract, andotherwise affirmed, without costs. Order, same court and Justice, entered March 9, 2011 (index600424/08), which to the extent appealed, denied plaintiff's motion for summary judgment on thecomplaint and dismissed the counterclaim, and granted plaintiff's motion to strike evidence,unanimously modified, on the law, to declare, upon the counterclaim, that nominal defendant1879 Hall, LLC was not dissolved, and to deny plaintiff's motion to strike a portion ofdefendants' summary judgment evidence as inadmissible settlement communications, andotherwise affirmed, without costs.
In these two actions arising from a joint venture, the dispute between the parties is governedby a limited liability company (LLC) agreement which specifies that Delaware law applies.Accordingly, the motion court properly applied Delaware law.
In the action for breach of contract, breach of fiduciary duty and related business torts [*2]alleging that defendants usurped a joint venture opportunity bytrading in securities for their own account (index 601265/07), the tort causes of action shouldhave been dismissed as duplicative of the breach of contract causes of action. Plaintiff's claimthat Chelonian made false representations in its books of account by failing to disclose purchasesof $108,093,998 face amount of Federal Mogul Corporation (FMO) bonds which it had madewithout notifying plaintiff, are allegations of breach of the parties' agreement. Likewise, thefiduciary claims are based on breach of the agreement (see Solow v Aspect Resources,LLC, 2004 WL 2694916, *4, 2004 Del Ch LEXIS 151, *17-19 [Del Ch 2004] ["Because ofthe primacy of contract law over fiduciary law, if the duty sought to be enforced arises from theparties' contractual relationship, a contractual claim will preclude a fiduciary claim"]; see alsoGale v Bershad, 1998 WL 118022, 1998 Del Ch LEXIS 37 [Del Ch 1998] [if the duty soughtto be enforced arises out of the parties' contractual, as opposed to their fiduciary relationship, thatwould preclude any fiduciary claim based on the same conduct]). The remaining tort claims fornegligent representation and fraud, under the facts alleged here, amount to an unjustified breachof contract, "and should be remedied through contract law and not through tort law" (TennecoAuto. Inc. v El Paso Corp., 2007 WL 92621, *6, 2007 Del Ch LEXIS 4, *27 [Del Ch 2007];see also CPM Indus., Inc. v ICI Americas, Inc., 1990 WL 28574, 1990 Del Super LEXIS88 [1990]).
Plaintiff's motion for summary judgment on the breach of contract claims should have beengranted. The motion court found an issue of fact as to whether the agreement, which requireddefendants to issue a capital call each time it intended to purchase the bonds, had been modifiedby the parties. We find that the record demonstrates that the agreement was, to some extent,modified by the course of conduct of the parties, and that there is no triable issue of factregarding defendants' assertion that the agreement was modified by a course of conduct wherebusiness was conducted solely on a verbal basis.
In some instances, rather than using the written capital call as the form of advance notice, theparties exchanged e-mails that set forth an intention to purchase, and the other party's response asto whether it opted to participate (the LLC Agreement contained a clause requiring plaintiff toprovide written notice to defendants when it initiated an FMO trade, so that the party initiatingthe trade was to notify the other in writing). In other instances, one party would memorialize inan e-mail a discussion that occurred regarding a purchase, and the other's decision onparticipation. This conduct took place in 41 trades that are not the subject of this litigation.
There are 18 trades for which plaintiff claims it received no notice from defendants, and forwhich defendants maintain they provided verbal notice and received a verbal response. Becausedefendants assert that the agreement requiring notice by written capital call was modified by acourse of conduct of mere verbal notice and response, it is their burden to prove this modificationby clear and convincing evidence (see Eureka VIII LLC, v Niagara Falls Holding LLC,899 A2d 95, 109 [Del Ch 2006]).
However, defendants have failed to meet even the lesser burden of a preponderance of theevidence. While defendants' representative Intrieri avers that he would either call or e-mailplaintiff's representatives, and that they would respond either verbally or by e-mail, defendantshave provided no notations or other record that these conversations took place and that plaintiffprovided a verbal notification as to whether it chose to participate. In contrast, in numerousinstances not at issue here, when one party opted either to participate, or not to participate in apurchase initiated by the other, there are [*3]e-mails confirmingthat decision.[FN*]
Defendants argue that the agreement does not require them to keep any notations or recordsof verbal notification. This argument misses the point because Intrieri's conclusory statement thatthe parties agreed to conduct business verbally is insufficient to meet the burden of proof that theagreement was modified by this particular course of conduct. Notably, defendants do not point toany transaction in which plaintiff participated but for which there is no e-mailconfirmation—i.e., that mere verbal notification of participation was given. Nor canIntrieri recall the specifics of any transaction, including any of the trades for which he claims heprovided verbal notice but for which plaintiff verbally declined to participate. Thus, plaintiff hasmet its burden of proving that it did not receive notice required by either the agreement, or themodification of the agreement established by the parties' course of conduct, and is accordinglyentitled to summary judgment on its breach of contract causes of action.
In the action alleging usurpation of the limited liability company's opportunity to participatein the exercise of an option to purchase the reorganized bankrupt's stock, and an individual claimalleging denial of that opportunity to the company's minority member (index 600424/08), themotion court correctly found issues of fact, including whether defendants failed to offer plaintiffthe chance to participate in the options on the same terms as defendants and whether plaintiff waswilling and able to pursue the options, including the $100 million loan provision.
Furthermore, the court properly rejected defendants' argument that the LLC had no interest orexpectancy in the options in light of the December 2005 Consent Agreement. That agreement,while memorializing the parties' agreement that no additional trades in FMO securities andclaims would be closed in the company, also provided that "all proceeds of any kind or characterwhatsoever received related to the ownership of FMO [s]ecurities and [c]laims . . .shall be deemed to have been received by 1879 Hall, LLC" and that the parties' rights andobligations "shall continue in full force and effect as if all FMO Securities and Claims were heldby 1879 Hall, LLC." These provisions demonstrate that the parties' LLC had an economic interestin the options.
While the interpretation of the LLC Agreement is governed by Delaware law, the motion tostrike evidence is subject to New York law (see CPLR 4547). The court erred in grantingplaintiff's motion to strike from the record, as a settlement communication, an exchange ofe-mails between defendants' counsel and plaintiff's counsel regarding participation in the optionsand a draft agreement prepared by plaintiff. Neither the e-mail nor the draft presented any offer oracceptance of a "compromise."
Plaintiff's counsel's inclusion of language in the draft that it is "in the context of [*4]settlement" does not make it a settlement document. Rather, thedraft was an expression of plaintiff's position that defendants were obligated to allow plaintiff toparticipate in the options; defendants' responsive e-mail set forth defendants' position thatplaintiff's draft agreement was only preserving plaintiff's rights but not defendants', and that inorder to go forward, plaintiff would have to acknowledge its willingness to put up its share of the$100 million loan (see Alternatives Fed.Credit Union v Olbios, LLC, 14 AD3d 779, 781 [2005] [letters stating defendant'sposition without any proffer of settlement are admissible]; see also Java Enters., Inc. v Loeb, Block & Partners LLP, 48 AD3d383, 384 [2008] ["e-mail is not inadmissible under CPLR 4547, which applies only to offers'to compromise a claim which is disputed' "]).
It is undisputed that the conditions for dissolution in section 18.1.4 of the LLC agreementwere not satisfied. However, rather than dismiss defendants' counterclaim for a declaration that1879 Hall LLC was dissolved, we grant plaintiff summary judgment on this issue and declare inits favor (see Lanza v Wagner, 11 NY2d 317, 334 [1962], appeal dismissed 371US 74 [1962], cert denied 371 US 901 [1962] [error to dismiss complaint for declaratoryjudgment where one party not entitled to declaration; judgment declaring in favor of other partydirected]).
We have considered the parties' remaining contentions in support of affirmative relief andfind them unavailing. Concur—Mazzarelli, J.P., Andrias, Acosta and Abdus-Salaam, JJ.
Footnote *: For example, in an illuminatinge-mail exchange, plaintiff's representative Pacholder sent an e-mail to Intrieri, with a copy to hersupervisor, stating that pursuant to Section 8 of the LLC Agreement, plaintiff has chosen to notcontribute its share of the Capital Call for a particular FMO. The supervisor's e-mail responsewas "this is very cold . . . make sure you talk to him and give him warm and cozyfeeling," to which Pacholder responded "I did—spoke w/him in person first-just sent thee-mail (per his request) afterwards" (emphasis added).