| Coventry Real Estate Advisors, L.L.C. v Developers Diversified RealtyCorp. |
| 2011 NY Slip Op 04097 [84 AD3d 583] |
| May 17, 2011 |
| Appellate Division, First Department |
| Coventry Real Estate Advisors, L.L.C., et al.,Appellants, v Developers Diversified Realty Corporation et al.,Respondents. |
—[*1] Jones Day, Chicago, Illinois (Brian J. Murray, of the Illinois bar, admitted pro hac vice, ofcounsel), for respondents.
Order, Supreme Court, New York County (Shirley Werner Kornreich, J.), entered June 25,2010 (the June 2010 order), which, insofar as appealed from as limited by the briefs, granteddefendants' motion to dismiss plaintiffs' fifth cause of action for breach of fiduciary duty,unanimously affirmed, with costs. Order, same court and Justice, entered December 9, 2010,which granted plaintiffs' motion for reargument of the June 2010 order and, upon reargument,adhered to its prior decision, unanimously affirmed, with costs.
Pursuant to a coinvestment agreement, the parties entered into a series of substantiallysimilar limited liability company agreements (the LLC agreements). Each of the LLC agreementsdesignated plaintiff Coventry Real Estate Fund II, L.L.C. (Coventry), as the sole managingmember. The LLC agreements, in turn, provided for, but did not mandate, delegation of mostday-to-day management to defendant Developers Diversified Realty Corporation (DDR).
Under Delaware law (which the parties agree applies here), absent a provision to the contraryin the governing LLC agreement, an LLC's "managers and controlling members owe thetraditional fiduciary duties that directors and controlling shareholders in a corporation would(including the traditional duties of loyalty and care)" (In re South Canaan Cellular Invs.,LLC, 2010 WL 3306907, *7, 2010 US Dist LEXIS 85420, *21-22 [ED Pa 2010] [applyingDelaware law]; see Kuroda v SPJS Holdings, L.L.C., 2010 WL 925853, *7 n 28, 2010Del Ch LEXIS 57, *25-26 n 28 [Del Ch 2010]). Plaintiffs' contrary contentions notwithstanding,under Delaware law, fiduciary duties are imposed "only on managers and thosedesignated as controlling members of an LLC," and not on nonmanaging minority members, suchas DDR (South Canaan, 2010 WL 3306907, *7, 2010 US Dist LEXIS 85420, *22; seeKuroda, 2010 WL 925853, *7 n 28, 2010 Del Ch LEXIS 57, *25-26 n 28).
We reject plaintiffs' contention that, regardless of its designation under the LLC agreements,DDR was the LLCs' de facto managing member by virtue of its control over LLC [*2]operations. Notwithstanding the extensive powers accorded to DDRunder the management agreements, the LLC agreements do not mandate that the LLCs enter intoany management agreements with DDR. Instead, the decision of whether to enter into thoseagreements is left up to each LLC's "Investment Committee," which is not controlled by DDR.Hence, the LLC agreement's "default setting" leaves principal management responsibility withthe managing member, not DDR. Since DDR is not a majority or controlling member of theLLCs under the LLC agreements, it has no fiduciary duties thereunder (see Kuroda, 2010WL 925853, *7, 2010 Del Ch LEXIS 57, *25).
Plaintiffs argue that the management agreements impose fiduciary duties on DDR, pointingto a provision contained in the managing and leasing agreement, entitled "Execution ofContracts," which provides that DDR, as property manager, "shall respect its fiduciary duty toOwner in the execution of such contracts or orders." It is doubtful whether a single, isolatedreference to fiduciary duty amidst multiple contracts totaling hundreds of pages in length can besaid to vest DDR with broad fiduciary duties, as asserted by plaintiffs. Nor are we persuaded thatplaintiffs have alleged such a relationship of "special trust" as to give rise to fiduciary duties onthe part of DDR (Forsythe v ESC Fund Mgt. Co. [U.S.], Inc., 2007 WL 2982247, *10,2007 Del Ch LEXIS 140, *33 [Del Ch 2007]). Even assuming that DDR was in fact a fiduciaryunder the management agreements, however, plaintiffs' fiduciary duty claim still would not lie.
In assessing whether a contractual claim will preclude a claim of breach of fiduciary duty, thequestion is "whether there exists an independent basis for the fiduciary duty claims apart from thecontractual claims, even if both are related to the same or similar conduct" (PT China LLC vPT Korea LLC, 2010 WL 761145, *7, 2010 Del Ch LEXIS 38, *26 [Del Ch 2010]). Here,plaintiffs suggest that the LLC agreements constituted an independent source of fiduciary dutiesfor DDR, thus rendering the fiduciary duty claim nonduplicative of the breach of contract claimunder the development and managing agreements. As noted, however, the LLC agreements donot ascribe any fiduciary duties to DDR. Since plaintiffs do not posit any other independentsource of fiduciary duty for DDR, any fiduciary duty claim arising under the managementagreements must be dismissed as duplicative of plaintiffs' contractual claims for breach of thoseagreements.
Finally, plaintiffs contend that, in considering the motion to dismiss, the motion courtapplied an insufficiently liberal standard of review to the complaint. This contention lacks merit.In considering the motion, the court correctly considered only the allegations of the complaint, aswell as the plain meaning of the documents appended to the complaint itself (the LLC agreementand the management agreements) (see Bello v Cablevision Sys. Corp., 185 AD2d 262,263 [1992], lv denied 80 NY2d 761 [1992]).
The court also properly denied plaintiffs' motion for leave to replead. In this regard, plaintiffspoint to the affidavit of Loren Henry, one of Coventry's vice-presidents (the Henry affidavit),submitted in support of their request for leave to replead. The Henry affidavit, however, merelyprovided additional details relating to the magnitude of DDR's alleged breaches; it provided noadditional support for plaintiffs' fiduciary duty claim. In particular, the Henry affidavit identifiedno additional language in the LLC or management agreements to support plaintiffs' claim of afiduciary duty owed by DDR. As such, plaintiffs did not establish [*3]any basis for granting their request for leave to replead (see Sanford v Colgate Univ., 36 AD3d1060, 1062 [2007]).
We have considered plaintiffs' remaining contentions and find them unavailing.Concur—Mazzarelli, J.P., Sweeny, Acosta, Renwick and DeGrasse, JJ.