| Logan Advisors, LLC v Patriarch Partners, LLC |
| 2009 NY Slip Op 04350 [63 AD3d 440] |
| June 4, 2009 |
| Appellate Division, First Department |
| Logan Advisors, LLC, Appellant, v Patriarch Partners,LLC, et al., Respondents. |
—[*1] Brune & Richard LLP, New York (Hillary Richard of counsel), for respondents.
Order, Supreme Court, New York County (Eileen Bransten, J.), entered July 11, 2008, whichgranted defendants' motions for summary judgment dismissing the complaint, unanimouslyaffirmed, without costs.
In December 2000, defendant Ark CLO 2000-1 purchased a portfolio of distressed loans,known as collateral debt obligations (CDOs), and bundled them into a collateralized loanobligation which it financed by issuing investment-grade notes and preference shares to outsideinvestors. Pursuant to the governing indenture, Ark appointed JP Morgan Chase, a whollyindependent entity, to serve as the trustee responsible for handling all cash for Ark's investors.On a quarterly basis, the trustee would distribute payments made by the underlying debtors to theinvestors.
Ark hired codefendant Patriarch Partners to manage the loan portfolio. For its services,Patriarch was to receive, inter alia, a supplemental collateral management fee (Patriarch'sSuccess Fee), which would become payable following the sale of substantially all of Ark's assetsand only to the extent funds were available after Ark fully satisfied its other obligations.Patriarch hired plaintiff to assist in managing a portion of Ark's portfolio. Under their agreement,plaintiff was entitled to receive its own Success Fee equal to 10% of Patriarch's Success Fee, ifany.
In October 2002, Patriarch terminated plaintiff's services as financial advisor, and plaintiffsubsequently brought an action against Patriarch. That lawsuit was resolved by a settlementagreement which provided, in pertinent part, that if Patriarch sold Ark's assets to an affiliate, thesale would be conducted on arm's length terms. The agreement also ended the contract betweenthe parties but required Patriarch to pay plaintiff its Success Fee if one became due.
In January 2005, Ark sold substantially all of its assets to Zohar II 2005-1 Limited, aPatriarch affiliate. The sale of Ark's assets triggered a final application of the payments by thetrustee to Ark's investors and other obligees, after which a percentage of the remaining monies, ifany, was to be used to pay Patriarch's Success Fee. The trustee determined, however, that Arkdid not have sufficient funds with which to pay its obligations in full, and thus no Success Feewas paid to Patriarch or to plaintiff.[*2]
In the instant breach of contract action, plaintiff allegesthat Patriarch breached the settlement agreement by engaging in a nonarm's length transactionwith Zohar and by undervaluing remaining assets left in Ark so as to deprive plaintiff of itsSuccess Fee. Plaintiff's claim that Patriarch undervalued Ark's remaining assets is barred by thewaivers contained in the settlement agreement. Plaintiff explicitly agreed not to contest itsSuccess Fee "in any way" unless the amount of such fee was less than 10% of Patriarch's SuccessFee as determined and reported by the trustee. Since it is undisputed that the trustee paid noSuccess Fee to Patriarch, plaintiff was not entitled to a Success Fee and is precluded by the broadwaivers from challenging Patriarch's failure to pay such a fee based on Ark's retained assets.
Regardless of whether or not plaintiff waived its right to challenge the arm's length nature ofthe Ark-Zohar sale, we find no triable issue of fact underlying that claim. The motion courtcorrectly found plaintiff was precluded from using Ark's financial statements to establish that thesale was not conducted at arm's length. Plaintiff's agreement as part of the settlement of the priorlawsuit to "disclaim any reliance" on the statements "for any purpose" must logically precludeusing them in opposition to defendants' motions for summary judgment. Allowing plaintiff tochallenge the Ark-Zohar sale based on the financial statements would render meaningless thephrase "for any purpose" and deprive Patriarch the benefit of its bargain. Plaintiff unpersuasivelyargues that the term "disclaim reliance" is typically used only in the context of a fraud claim andthus cannot be construed to preclude use of the statements here. Plaintiff cites no authority, norhas this Court found any, to support its strained construction of the challenged phrase. Courtsmay not, under the guise of contract interpretation, distort the meaning of the terms used (Vermont Teddy Bear Co. v 538 MadisonRealty Co., 1 NY3d 470, 475 [2004]).
Plaintiff's contention that the Ark-Zohar sale was not an arm's length transaction is based onunsupported assumptions and speculation that are insufficient to defeat summary judgment (see Estee Lauder Inc. v OneBeacon Ins.Group, LLC, 62 AD3d 33, 40 [2009]). Although certain equity securities weretransferred to Zohar for no consideration, under the indenture these assets were deemed to beworth "zero" "for all purposes." Moreover, plaintiff has offered no proof that these securities hadany value at the time they were transferred to Zohar. With respect to the CDOs sold to Zohar,there is no dispute that all but two of these assets were priced near, at or above par value. Nor isthere any question that Patriarch and LoanX/Markit Partners, an independent valuation firmhired by Patriarch to value the CDOs, followed the pricing mechanism in the indenture for arm'slength sales to an affiliate. More importantly, plaintiff points to no evidence that the valuesassigned by Patriarch and LoanX were below fair market value, nor provides any proof as towhat the fair market value of the transferred assets should have been. As to the discounted priceof two of the CDOs, plaintiff does not challenge Patriarch's assertions that the underlying debtorcompany went into bankruptcy, and that the loans had been subordinated and were scheduled tobe liquidated at a deep discount. Nor does plaintiff submit any alternative value for these assetsthat would lend credence to its claim that they were sold at prices below fair market value.
The claim that defendants breached the implied covenant of good faith and fair dealing wasproperly dismissed as duplicative of the breach of contract claim because both claims arise fromthe same facts (see Cerberus Intl., Ltd. vBancTec, Inc., 16 AD3d 126, 127 [2005]). In light of the dismissal of the complaint asagainst Patriarch, Ark's motion for summary judgment was correctly granted. Finally, plaintiffwas not entitled to a denial of the summary judgment motions [*3]as premature. Plaintiff has failed to offer anything other than merehope that evidence favorable to its claim might be obtained if additional discovery is had (see Waverly Corp. v City of NewYork, 48 AD3d 261, 265 [2008]).
We have considered plaintiff's remaining contentions and find them unavailing.
Motion seeking leave to strike reply brief denied. Concur—Saxe, J.P., Friedman,Freedman and Richter, JJ.