| Credit Suisse First Boston v Utrecht-America Fin. Co. |
| 2011 NY Slip Op 00246 [80 AD3d 485] |
| January 18, 2011 |
| Appellate Division, First Department |
| Credit Suisse First Boston, Respondent, v Utrecht-AmericaFinance Co. et al., Appellants. |
—[*1] Richards Kibbe & Orbe LLP, New York (Brian S. Fraser of counsel), for respondent.
Order, Supreme Court, New York County (Eileen Bransten, J.), entered February 3, 2010,which, to the extent appealed from, partially granted plaintiff's motion for summary judgment on its firstcause of action and declined to search the record to dismiss the second and fourth causes of action,unanimously reversed, on the law, plaintiff's motion denied and the second and fourth causes of actiondismissed, with costs.
This action for breach of contract arises out of defendant Utrecht-America's oral agreement (madethrough its agent, defendant Rabobank) to sell distressed assets to plaintiff (the trade) consisting ofdefendant's interest in a May 28, 1999 loan to nonparty Choctaw Investors B.V., a Dutch limitedliability company, for 62.5 cents on the dollar. As a special financing vehicle for Enron Corporation,Choctaw included among the significant intangible assets securing the loan its rights to a letter ofindemnity provided by Enron, then involved in bankruptcy proceedings. On November 5, 2003,plaintiff sent written confirmation of the trade subject to the standard terms and conditions for distressedtrade confirmations published by the Loan Syndications and Trading Association, Inc. (LSTA), whichinclude the parties' representations that each has independently ascertained the obligor's business andfinancial condition and that, irrespective of information that may have come into possession of the otherparty, has decided to enter into the transaction notwithstanding its lack of such information. The partiesspecifically agreed that included with the loan documentation defendants were obligated to provide wasa "copy of the Credit Agreement (including all schedules, and, if requested by Buyer, exhibits, and anyother related documentation reasonably requested by Buyer)."
The confirmation specified that the trade would be subject to credit documentation, and byNovember 17, 2003, plaintiff's counsel had received the closing documents for the Choctaw loan.Several days later, plaintiff learned that Choctaw had been dissolved. Negotiations dragged on throughDecember and into January as plaintiff sought to ascertain whether the transfer of the Choctawcollateral to the collateral agent, JP Morgan Chase (Chase), was effective under Dutch law. On themorning of January 14, 2004, defendant's attorney was informed that plaintiff was "ready to moveforward on its purchase from Utrecht." However, that very afternoon, defendant sent a letter to plaintiffterminating the agreement due to plaintiff's failure to consummate the purchase, and Rabobank, asdefendant's agent, determined to terminate the [*2]trade.
On January 21, 2004, it was announced that a settlement had been reached between the variouslenders to Choctaw and the Enron bankruptcy estate, a development that had the effect of substantiallyincreasing the value of the Choctaw assets. Within the week, defendant reached an agreement withthird parties for the transfer of its interest in the Choctaw loan at a price above par, and in earlyFebruary, plaintiff bought additional Choctaw debt to effect cover of the terminated trade withUtrecht-America.
Plaintiff commenced this action for breach of contract against Utrecht-America and Rabobank,respectively (causes of action one and two), including breach of the covenant of good faith and fairdealing (causes of action three and four). Following discovery, the parties agreed that Rabobank would"satisfy and guarantee payment of any final unappealable judgment against . . .Utrecht-America" and plaintiff would not pursue a claim based on the alleged status of Rabobank asUtrecht-America's alter ego. Plaintiff thereafter brought this motion for summary judgment, excusing itsdelay in closing the trade on the need to complete documentation review, in particular, to resolve issueswith respect to the collateral and to conform the representations and warranties in connection with thetransfer to those contained in the original loan documents.
Defendants opposed the motion and moved to dismiss the complaint for failure to state a cause ofaction (CPLR 3211 [a] [7]). Although their expert agreed that nonconforming representations andwarranties would be a last resort because of the adverse effect on marketability, he stated that plaintiff'sconduct did not comply with the customs and practices of the distressed debt market in numerousmaterial respects. For instance, he noted that if plaintiff had any legitimate concerns regarding theeffectiveness of the transfer of assets from Choctaw to Chase, as collateral agent, it had only to contactChase or its counsel for clarification. Similarly, if plaintiff believed it needed further information aboutthe transfer of collateral, it would have been customary to contact both Chase and the original lendersto Choctaw, with whom plaintiff had pending trades. The expert concluded that in light of plaintiff'sreceipt of the Choctaw loan documentation in mid-November 2003, plaintiff's redundant request forsimilar information in January 2004 raised the question of whether plaintiff evinced a good faith intent toclose the trade.
There is a triable issue of fact as to whether plaintiff negotiated with Utrecht-America in good faith.This issue, "which necessitates examination of a state of mind, is not an issue which is readilydeterminable on a motion for summary judgment" (Coan v Estate of Chapin, 156 AD2d 318,319 [1989]; see also Brookfield Indus. v Goldman, 87 AD2d 752, 753 [1982]; cf. IDT Corp. v Tyco Group, S.A.R.L., 13NY3d 209, 214 [2009] [settlement agreement subject to good faith negotiation of furtheragreements]). Defendants' expert, who may be called to testify concerning the practices of an industry(see AG Capital Funding Partners, L.P. vState St. Bank & Trust Co., 5 NY3d 582, 594 [2005]), opined that plaintiff's negotiationswere inconsistent with those customary to the distressed debt market, and while the availability of amore prudent course of conduct does not preclude a party from demonstrating its good faith (seePolotti v Flemming, 277 F2d 864, 868 [2d Cir 1960]), it presents a factual issue for resolution attrial. At such time, the weight to be afforded to the expert opinion is within the province of the trier offact (see Rivera v City of New York, 212 AD2d 403, 404 [1995]).
We note that the obligation to negotiate in good faith "bar[s] a party from . . . insistingon conditions that do not conform to the preliminary agreement" (Teachers Ins. & Annuity Assn. ofAm. v Tribune Co., 670 F Supp 491, 498 [SD NY 1987]). The parties having agreed to the terms[*3]and conditions promulgated by LSTA governing the confirmation,defendants were under no obligation to supply information sought by plaintiff in regard to Choctaw'sbankruptcy, much of which defendants produced nonetheless. While documentation concerning thetransfer of Choctaw's collateral or the status of the Enron indemnity letter might fall under the categoryof "any other . . . documentation [related to the Credit Agreement] reasonably requestedby Buyer," which defendants were obligated to provide, the issue of whether plaintiff's request for thesame was reasonable presents a question of fact not amenable to summary resolution (see e.g.Wilson Trading Corp. v David Ferguson, Ltd., 23 NY2d 398, 406 [1968]).
The duty of good faith and fair dealing is an implicit obligation imposed on the parties to acommercial transaction (see Dalton v Educational Testing Serv., 87 NY2d 384, 389 [1995]).The cause of action for breach of the duty merely duplicates the cause of action for breach of contractand was properly dismissed as redundant (e.g. Levi v Utica First Ins. Co., 12 AD3d 256, 257-258 [2004])because a court, where appropriate, will enforce the obligation on contracting parties (see Murphyv American Home Prods. Corp., 58 NY2d 293, 304 [1983]).
As to plaintiff's claims based on Rabobank's status as Utrecht-America's alter ego, "[t]he partyseeking to pierce the corporate veil must establish that the owners, through their domination, abused theprivilege of doing business in the corporate form to perpetrate a wrong or injustice against that partysuch that a court in equity will intervene" (Matter of Morris v New York State Dept. of Taxation &Fin., 82 NY2d 135, 142 [1993]). "An inference of abuse does not arise . . . where acorporation was formed for legal purposes or is engaged in legitimate business" (TNS Holdings vMKI Sec. Corp., 92 NY2d 335, 339-340 [1998]). It is undisputed that Rabobank was formedfor legal purposes and was engaged in a legitimate business. Moreover, in an unappealed portion of theorder under review, the court denied plaintiff's motion for summary judgment against Rabobankbecause plaintiff failed to show that Rabobank used Utrecht-America "to commit fraud or malfeasanceor other inequity." In view of such finding, defendants' request to dismiss the alter-ego claims againstRabobank should have been granted.
Finally, defendants' contention that the motion court correctly found that the parties failed to enterinto a fully binding preliminary agreement but, instead, entered into an agreement to negotiate in goodfaith is not cognizable. Defendants' motion only sought dismissal of plaintiff's third cause of action forbreach of the covenant of good faith and fair dealing against Utrecht-America, and their contention isimpermissibly raised for the first time on appeal (see Recovery Consultants v Shih-Hsieh, 141AD2d 272, 276 [1988]). In any event, an interpretation that renders a contract illusory and thereforeunenforceable is disfavored and enforcement of a bargain is preferred (see Wood vDuff-Gordon, 222 NY 88 [1917]; Curtis Props. Corp. v Greif Cos., 212 AD2d 259,265-266 [1995]), particularly where, as here, the parties have expressed [*4]their intent to be contractually bound in a writing (see Four SeasonsHotels v Vinnik, 127 AD2d 310, 317 [1987]). To the extent the writing is equivocal, as defendantsmaintain, the issue is for the trier of fact (id.). Concur—Gonzalez, P.J., Tom, Cattersonand Richter, JJ.