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FILED: NEW YORK COUNTY CLERK 11/18/2016 06:12 PM INDEX NO. 650159/2010
NYSCEF DOC. NO. 414 RECEIVED NYSCEF: 11/18/2016
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
HARVEY RUDMAN and HAROLD KUPLESKY, on
Behalf of Each of Them Individually And On Behalf Of
Starrett City Preservation LLC, Derivatively,
Index No. 650159/10
Plaintiffs,
Assigned to: Kornreich, J.
- against -
CAROL GRAM DEANE, THE ESTATE OF DISQUE
ORAL ARGUMENT REQUESTED
D. DEANE by CAROL G. DEANE,
as TEMPORARY EXECUTRIX, SALT KETTLE LLC,
ST. GERVAIS LLC, STARRETT CITY
Motion Sequence No. 010
PRESERVATION LLC, DD SPRING CREEK LLC,
SK SPRING CREEK LLC, SPRING CREEK PLAZA
LLC, DD SHOPPING CENTER LLC and SK
SHOPPING CENTER LLC,
Defendants.
REPLY MEMORANDUM OF LAW IN SUPPORT
OF THE MOTION OF ALL DEFENDANTS
(EXCEPT SPRING CREEK) TO DISMISS
RICHARD A. GREENBERG KENNETH E. WARNER
STEVEN Y. YUROWITZ WARNER PARTNERS, P.C.
WILLIAM J. DOBIE Attorneys for All Defendants
NEWMAN & GREENBERG LLP Except Carol Gram Deane
Attorneys for Defendant Carol Gram Deane and Spring Creek Plaza
Individually
950 Third Avenue
950 Third Avenue New York, New York 10022
New York, New York 10022 (212) 593-8000
(212) 308-7900
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TABLE OF CONTENTS
Page
INTRODUCTION .......................................................................................................................... 1
POINT I: PLAINTIFFS HAVE NOT REBUTTED DEFENDANTS’ ARGUMENT
THAT THIS COURT’S PRIOR DETERMINATION -- THAT THE TERM
“PAYMENTS” IN SECTION 4.2 OF THE PRESERVATION AGREEMENT DOES
NOT INCLUDE NON-CASH ASSETS -- SHOULD NOT AND CANNOT BE
REVISITED .............................................................................................................................. 3
POINT II: PLAINTIFFS HAVE RECEIVED ALL OF THE CASH
DISTRIBUTIONS TO WHICH THEY WERE ENTITLED ................................................... 6
A. Monies Distributed By SCA To Spring Creek.............................................................. 7
B. SCA Partners’ Return of Capital. .................................................................................. 8
C. Expenses. ....................................................................................................................... 8
D. Damages. ....................................................................................................................... 9
POINT III: PLAINTIFFS’ ATTEMPT TO SAVE THEIR COMPLAINT DESPITE
ITS PERVASIVE AND SERIOUS PLEADING DEFECTS IS UNPERSUASIVE ............. 10
A. Plaintiffs’ Request To Re-Plead Should Be Denied. .................................................. 10
B. St. Gervais Must Be Dismissed As A Defendant. ....................................................... 11
C. The Fifth Claim Must Be Dismissed As To The Estate And SKI............................... 12
D. Plaintiffs’ Conversion Claim Must Be Dismissed. ..................................................... 12
E. The Elements Of Tortious Interference Have Not Been Pleaded, And So That
Claim Must Be Dismissed. ............................................................................................... 13
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F. The Tenth Claim Should Be Dismissed....................................................................... 14
G. Plaintiffs Do Not Oppose Defendants’ Request To Strike Their Baseless
Request for Punitive Damages. ......................................................................................... 15
CONCLUSION ............................................................................................................................. 15
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TABLE OF AUTHORITIES
Page
Cases
Abrams v. Donati, 66 N.Y.2d 951 (1985) .................................................................................... 10
Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 17 N.Y.3d 269 (2011) .......... 12
Jablonski v. County of Erie, 286 A.D.2d 927 (4th Dep’t 2001) ................................................... 10
Josephs v. Bank of New York, 302 A.D.2d 318 (1st Dep’t 2003) ................................................. 14
Thyroff v. Nationawide Mut. Ins. Co., 8 N.Y.3d 283 (2007) ........................................................ 13
Washington Ave. Assoc. v. Euclid Equip., 229 A.D.2d 486 (2d Dep’t 1996) .............................. 14
Winicki v. City of Olean, 203 A.D.2d 893 (4th Dep’t 1994) ........................................................ 14
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INTRODUCTION
According to plaintiffs, the Appellate Division rejected, albeit sub silentio, this Court’s
holding that Preservation was not required to distribute non-cash assets to its members under
Section 4.2 of the Preservation Agreement, thereby restoring plaintiffs’ extravagant claim to
sums this Court has already denied them. Thus, plaintiffs’ opposition papers might cause this
Court to wonder just who prevailed in the Appellate Division, and why on earth plaintiffs, and
not defendants, sought leave to appeal to the Court of Appeals. The answer, of course, is that
plaintiffs’ fanciful reading of the Appellate Division’s decision is completely wrong, and is
refuted by the language of the decision itself and by plaintiffs’ own subsequent actions.
For rather than celebrate their supposed appellate victory, plaintiffs tried to appeal the
Appellate Division’s decision, criticizing it as an unmitigated and legally erroneous injustice that
rejected the same arguments they now advance in opposition to defendants’ instant motion,
including their claim to non-cash assets generated by the refinancing. See, e.g., DX F at ¶77 (“by
invalidating the third sentence of Section 3.3, the [Appellate Division] Decision impacts
Plaintiffs’ argument on the other causes of action that remain to be tried. In multiple causes of
action, Plaintiffs rely in part on the last sentence of Section 3.3 to interpret the contract and
determine what Plaintiffs, as Preservation members, were entitled to receive from cash and non-
cash proceeds [of the refinancing]”) (emphasis added); ¶57 (“The Appellate Division’s Decision
imposes a substantial injustice on Plaintiffs, depriving them of the proceeds they bargained for in
exchange for services of the Management Team”).
The Appellate Division’s rejection of virtually every argument plaintiffs now advance in
opposition was explicit, i.e.,modifying this Court’s prior decision in defendants’ favor, or
implicit, i.e., “otherwise affirming” this Court’s ruling from which plaintiffs appealed. Plaintiffs
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nonetheless persist, arguing now that this Court should reconsider its prior ruling that non-cash
assets were not among the distributions required to be made pursuant to Section 4.2 (since, in
plaintiffs’ view, a “reading of the Preservation Agreement leaves no doubt that itcontemplates
that Preservation will distribute non-cash assets . . . via the waterfall provisions of Section 4.2”).
PM13.
Plaintiffs unsuccessfully made this same argument to the Appellate Division, where
plaintiffs argued that “[t]he term ‘payments’ in Section 4.2, like ‘distributions,’ is fairly read to
include both cash and non-cash items” (DX G at 36), and that “[o]ther provisions of the
Agreement also make clear that distributions of property fall under Section 4.2, so that the word
‘payments’ in that Section cannot be limited to cash payments, but must also include transfers of
property.” Id. Plaintiffs also argued in the Appellate Division that this Court “reached [its]
conclusions independently” (id. at 51), just as they argue now that this Court reached its decision
“sua sponte.” PM2 Not surprisingly, the Appellant Division rejected these arguments, and
plaintiffs’ attempt at reargument should not persuade this Court to change its mind. The time for
plaintiffs to attempt to persuade this Court of its supposed error (which was no error at all) has
long since expired. See CPLR §2221(d)(3).
In sum, plaintiffs’ arguments on this motion are unsupported by the facts and the law,
and have already been rejected by this Court and the Appellate Division. The law of the case
precludes plaintiffs’ attempt at re-litigating their losing arguments on this motion.
Finally, as defendants pointed out in their moving papers, nearly every claim plaintiffs
advance in their Second Amended Complaint is defectively pleaded. Plaintiffs have been on
notice of most of these defects for more than five years. This Court should have no patience at
this late date with plaintiffs’ request for permission to take a fourth bite of the apple.
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This Court should grant defendants’ instant motion to dismiss in its entirety.
POINT I: PLAINTIFFS HAVE NOT REBUTTED
DEFENDANTS’ ARGUMENT THAT THIS COURT’S
PRIOR DETERMINATION -- THAT THE TERM
“PAYMENTS” IN SECTION 4.2 OF THE
PRESERVATION AGREEMENT DOES NOT
INCLUDE NON-CASH ASSETS -- SHOULD NOT
AND CANNOT BE REVISITED
In their moving papers on this motion defendants argued that the prior decisions of this
Court and the Appellate Division foreclose plaintiffs’ claim to a share of non-cash distributions
flowing from the refinancing. Plaintiffs’ listing of those non-cash distributions, which plaintiffs
claimed in their Second Amended Complaint (DX E at ¶89), includes a share of (1) “the MGP’s
and SKI’s . . . ownership interest in Spring Creek”; (2) “the MGP’s and SKI’s . . . share of the
tax deductions arising from the charitable contributions of the religious site”; and (3) “the value
of the MGP’s and SKI’s . . . increased equity in SCA resulting from the cash reserves set aside
from the cash proceeds for capital improvement and other purposes.”
Plaintiffs disagree, insisting in their opposition papers that the Appellate Division’s
modification, which interpreted the third sentence of Section 3.3 as merely expressing the
parties’ non-operative intention, somehow also invalidates this Court’s ruling that Preservation is
not required to distribute non-cash assets to its members. PM7. Plaintiffs are wrong. The
Appellate Division’s modification is independent from this Court’s ruling rejecting any reading
of the Agreement that required the distribution of non-cash assets. Plaintiffs admit as much by
conceding that this Court “relied heavily” on Section 1.3 in concluding that non-cash assets are
not “payments” within the meaning of Section 4.2.1
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According to plaintiffs:
(continued on next page)
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That concession is fatal to plaintiffs’ position on this motion, because they correctly
acknowledge that this Court’s ruling on non-cash assets did not depend at all on the third
sentence of Section 3.3, the only part of the Agreement which the Appellate Division interpreted
differently from this Court. Since nothing in the Appellate Division’s decision modified the part
of this Court’s decision holding that the term “payments” in Section 4.2 excludes non-cash
assets, this Court’s earlier determination still stands.
The Appellate Division rejected all of plaintiffs’ arguments on appeal, including “the
extrinsic evidence that plaintiffs urge us [the Appellate Division] to consider, such as the
sixteenth amendment to SCA’s partnership agreement, organizational charts and tax documents,
and correspondence to SCA’s limited partners.” DX A at 2. Despite the Appellate Division’s
and this Court’s unequivocal rejections of plaintiffs’ improper attempt to inject parol evidence to
interpret the clear contract language, plaintiffs are at it again, attaching the same kind of extrinsic
documents that both the Appellate Division and this Court previously rejected. See, e.g, Veit
In reaching its conclusion that Preservation was required to
distribute only the cash it received from SCA, and not non-cash
assets, the Court also relied heavily on Section 1.3 of the
Agreement, and on the seeming difficulty that it found would arise
if the word “payments” were interpreted to include the General
Partners’ entire economic interest in Starrett City.
PM 15. As this Court noted in its prior decision (DX B at 20):
[I]t was not intended that Preservation would necessarily distribute
the entirety of these “economic interests” to its Members. Rather,
Preservation's purpose was to “provide its Members with a
beneficial interest in all payments payable by [SCA] to [Deane]
and to Salt Kettle, LLC . . . in respect of [Deane]’s . . . and [Salt
Kettle]’s economic interest in SCA” (Preservation Agreement
§1.3). In keeping with that purpose, the only distribution
Preservation was required to make to its Members was of the
‘payments received from [Deane, Salt Kettle] or any successor or
transferee’ (id. at §4.2).
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Affirmation, Exhibits 2 (Sixteenth Amendment); Exhibit 3 (correspondence with SCA limited
partners); and Exhibit 10 (Revised Expert Report of John Evanich).2
Based on this Court’s prior holding that “payments” under Section 4.2 are limited to
distributions of cash (see, e.g., DX B at 30), a holding undisturbed on appeal, the distribution to
Preservation’s members of any non-cash assets would be governed by Section 4.9A, which
provides in relevant part that, “except as otherwise provided in this Agreement, the timing and
amount of all distributions shall be determined by the Managing Member.” DX E-1 at 8
(emphasis added). In other words, while “payments” (i.e., cash) are distributed according to
Section 4.2, distributions of non-cash assets are governed by Section 4.9A, which leaves such
distributions to the discretion of the Managing Member.3 As a result, the decisions of Carol
Deane, the Managing Member of Preservation, as to whether and when to distribute to
Preservation’s members such non-cash assets as the shopping center and the charitable deduction
are within her discretion and not subject to challenge by plaintiffs.
In short, this Court should dismiss any of plaintiffs’ Claims for Relief which seek a share
of Preservation’s or SCA’s non-cash assets.
2
The conclusions in the Evanich report are based on a reading of the Agreement that both this
Court and the Appellate Division rejected. But this Court need not address this or the many
other deficiencies in the inadmissible parol evidence proffered by plaintiffs.
3
Plaintiffs argued unsuccessfully in the Appellate Division (DX G at 34-35) and again here that
the Court’s decision excluding non-cash assets from Section 4.2 is undermined by Section 4.8A.
PM13. Plaintiffs are mistaken. Section 4.9A, which addresses other distributions under the
Agreement, lets the Managing Member decide “timing and amount” for all non-cash
distributions, but does not give her discretion with respect to allocations, which are determined
under Section 4.2. As indicated by its caption (“Liquidation and Dissolution”), Section 4.8 deals
only with a liquidation of the assets of the Company, a situation totally different from anything
in this case.
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POINT II: PLAINTIFFS HAVE RECEIVED ALL OF THE
CASH DISTRIBUTIONS TO WHICH THEY WERE
ENTITLED
Plaintiffs insist that they were entitled to, but did not receive, four categories of “cash”
distributions generated by the refinancing of Starrett City:
1) “Plaintiffs’ respective shares of the Refinancing cash proceeds that were
diverted to Spring Creek”;
2) “Refinancing cash proceeds that were paid to the managing general partner as
a ‘return of capital’”;
3) “cash that was withheld from distribution by Preservation to pay disputed
‘expenses’”; and
4) “damages for Defendants’ failure to distribute cash ‘as soon as practicable’ as
required by the Agreement.” PM 8
These claims are meritless. They are premised on a misunderstanding or a willful
misreading of the Agreement and the Appellate Division’s decision. Plaintiffs’ seize on the
language of Section 4.2 requiring the distribution of “payments” to members “as soon as
practicable,” but ignore the rest of the sentence which refutes their interpretation. The balance
of Section 4.2 provides in full that “[t]he Company shall to the extent practicable make
distributions to Members as soon as practicable but at least in the same calendar year in which
Payments are received by the Company.” DX E-1 at §4.2 (emphasis added). The critical phrase
“at least” in Section 4.2 defines the maximum time allowed for required distributions to
Preservation’s members. Moreover, upon the occurrence of a “Funding Event,” which the
Appellate Division found indisputably occurred here (DX A at 3), Carol Deane as Managing
Member had the unfettered right to reduce plaintiffs’ Sharing Ratios to zero.
Based on those facts alone, plaintiffs cannot lay claim to any portion of cash received by
Preservation in 2010 which had not been distributed to Preservation’s members before plaintiffs’
Sharing Ratios were reduced to zero in November 2010. Nor can plaintiffs claim a right to a
share of cash never received by Preservation at all. Plaintiffs’ claims to the four categories of
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cash distributions they have identified are precluded by one or the other of these factors which
plaintiffs’ ignore.
A. Monies Distributed By SCA To Spring Creek. Plaintiffs claim they are entitled to
a share of the monies paid by SCA to Spring Creek. PM 9-10. Plaintiffs are mistaken. It is
undisputed that, at the time of the refinancing, a payment of approximately $3.3 million was
made by SCA directly to Spring Creek instead of being distributed either to Preservation or to
SCA’s partners. Plaintiffs have no basis to claim any portion of SCA’s payment to Spring
Creek, since this payment was not a distribution to Preservation, let alone a distribution in which
plaintiffs had any right to share. Nor can plaintiffs claim an indirect interest in the payment from
SCA to Spring Creek based on any supposed interest that Preservation had in Spring Creek.
Plaintiffs correctly concede that Preservation’s members have no ownership interest in SCA
(PM15), and therefore have no ownership interest in Spring Creek or the underlying economic
interest constituting Spring Creek. Thus, plaintiffs have no right to share in the payment from
SCA to Spring Creek.
Nor is there even a colorable claim that Deane or SKI breached their obligations under
either the Assignments or the Agreement by SCA’s payment to Spring Creek. Such a claim
would have to be based on the proposition that Preservation’s members are entitled to question
or micromanage SCA’s affairs and the MGP’s decisions, a right the Agreement and the
Assignments expressly reject. DX E-1 at §5.10; E-4 at 1; E-5 at 1. In their moving papers,
defendants explicitly pointed to and relied on the provision of the Agreement precluding
Preservation’s members from challenging decisions of the MGP like this one. DM6. Plaintiffs
now claim that they were never asked to consent to the transaction between SCA and Spring
Creek. PM10. But the supposed lack of consultation with and consent by plaintiffs is irrelevant,
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because the quoted section of the Agreement also provides that Preservation’s members can
“raise no objections” to any such decision by the MGP.4
B. SCA Partners’ Return of Capital. Plaintiffs claim they are entitled to a share of the
$307,500 returned to the MGP as part of his initial capital contribution to SCA. Plaintiffs are
again mistaken. Like the underlying equity interest in SCA, which plaintiffs now concede they
are not entitled to (PM15), plaintiffs have no right to share in the return of any partner’s initial
capital investment in SCA, since such a return of capital is not a “payment” within the meaning
of the Agreement. A return of capital simply restores to SCA’s partners, including the MGP,
their own funds which they invested in SCA. Plaintiffs’ claim to a portion of the return of
capital to the MGP is emblematic of plaintiffs’ overreaching, because plaintiffs made no real
capital investment of their own (their nominal, token contribution was returned to them with the
first distribution), yet they seek a share of the MGP’s substantial capital investment.
Plaintiffs appear to recognize that their claim to the MGP’s returned capital is untenable,
if not downright frivolous, since the Second Amended Complaint is completely silent about a
claim for these monies despite plaintiffs’ other preposterous claims for relief. Even plaintiffs’
own expert omitted the MGP’s returned capital as a source of plaintiffs’ purported damages. In
short, plaintiffs’ argument for a share of the MGP’s returned capital cannot be taken seriously.
C. Expenses. Plaintiffs claim they are entitled to share in cash withheld by Preservation
to pay for disputed “expenses.” In fact, except for a de minimus $14,000, no disputed expenses
were deducted from the initial cash distribution from the refinancing that plaintiffs claim should
4
From the approximately $3.3 million paid to Spring Creek by SCA which plaintiffs object to,
plaintiffs’ total claim would amount to about $99,000, representing plaintiffs’ share if the
payment had been made to Preservation instead of to Spring Creek, and after deducting 15% for
the bonus reserve that this Court approved on defendants’ summary judgment motion (a ruling
plaintiffs never appealed).
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have been made in 2009. Plaintiffs have no legitimate basis for disputing those expenses, and
they make no such showing. With respect to the distribution from funds received in 2010,
Section 4.2 did not require Preservation to distribute those funds, net of expenses, prior to the
end of that year. Defendants deny that any expenses were deducted improperly, but even if
plaintiffs are correct that certain expenses were improperly deducted from the distribution of
funds received in 2010, Preservation had until the end of the year to correct any such
distribution. By that time, plaintiffs’ Sharing Ratios had already been reduced to zero, and they
were therefore precluded from demanding or being entitled to any more money than they had
already received.
D. Damages. The only “damages” sought by plaintiffs in their Second Amended
Complaint for the alleged “delay” in payments purportedly owed to them are “damages based on
adverse tax consequences to Plaintiffs arising from the belated payments of amounts due to
them.” DX E at 48. Until they responded to this motion, plaintiffs appeared to have abandoned
this claim, presumably because there is no evidence of any such adverse tax consequences.
Instead, during discovery, when defendants requested copies of plaintiffs’ tax returns, plaintiffs
objected on the grounds that the returns were “not material or necessary to the prosecution or
defense of this action.” NYSECF Doc # 53 at p.19. Nor did their expert include any “adverse
[tax] consequences” in his calculation of damages. Plaintiffs should be held to their concession
and prior position. Their claim for damages for adverse tax consequences caused by an alleged
unjustifiable delay in payments should be stricken.
In sum, other than Kuplesky’s claim to an increased Sharing Ratio, there are no cash
proceeds to which plaintiffs can plausibly lay claim. The Second Amended Complaint should be
dismissed to the extent it seeks more.
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POINT III: PLAINTIFFS’ ATTEMPT TO SAVE THEIR
COMPLAINT DESPITE ITS PERVASIVE AND SERIOUS
PLEADING DEFECTS IS UNPERSUASIVE
A. Plaintiffs’ Request To Re-Plead Should Be Denied. Plaintiffs do not really
attempt to defend their impermissible commingling of individual and derivative claims in the
First and Second Claims, a fatal pleading error, as defendants pointed out in their moving papers.
DM 11-13. Instead, plaintiffs ask for permission to re-plead. PM 17-18. Their request should
be denied.
Plaintiffs have been on notice of this precise pleading defect for more than five years,
ever since Spring Creek raised the issue in March 2011 in its motion to dismiss. NYSCEF
Doc#36-1 at 10. It is therefore a little rich for plaintiffs to complain about the perfectly proper
timing of defendants’ first and only motion to dismiss (PM at 17) while asking this Court’s
indulgence to cure an inexcusable and fatal pleading defect about which plaintiffs had notice for
the same length of time.
Second, plaintiffs have wantonly mischaracterized the authority defendants rely on. For
example, plaintiffs erroneously assert that “every case cited by Defendants was a dismissal
without prejudice on this ground and/or with leave to replead.” PM18. In fact, defendants
prominently cited Abrams v. Donati, 66 N.Y.2d 951, 953 (1985) (DM12-13), a case in which
the Court of Appeals upheld the denial of leave to re-plead.
Finally, plaintiffs have already twice amended their complaint, thereby losing their right
to re-plead, and requiring plaintiffs to appeal to this Court’s discretion for permission to do so.
Plaintiffs have offered no good reason why this Court should exercise its discretion to give
plaintiffs an extraordinary fourth bite of the apple. See Jablonski v. County of Erie, 286 A.D.2d
927, 928 (4th Dep’t 2001) (“Judicial discretion to grant an amendment of a pleading should be
exercised with caution where a case has been certified as ready for trial. Where there has been
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an extended delay in moving to amend, the party seeking leave to amend must establish a
reasonable excuse for the delay”) (citations omitted). This Court should be particularly loath to
permit plaintiffs to re-plead since any re-pleading is likely to fail again in view of the waiver of
liability in Section 7.5 of the Agreement. See, infra, Point III.B.
B. St. Gervais Must Be Dismissed As A Defendant. Defendants have asserted an
independent basis to dismiss the First Claim as to St. Gervais, i.e., St. Gervais had no fiduciary
duty to breach. In opposing defendants’ argument, plaintiffs claim to find a fiduciary duty in
Section 7.2 (plaintiffs actually mean Section 7.5) which provides that “the Members of the Board
shall discharge their duties as managers in good faith.” Plaintiffs’ reliance on the Agreement is
unpersuasive. The duties of Preservation’s members are limited to “taking such actions and
making such decisions as required by this Operating Agreement and as the Managing Member
shall delegate to the Board from time to time.” Id. Because the Second Amended Complaint
does not allege which fiduciary duties, if any, were imposed on or delegated to St. Gervais by the
Managing Member, plaintiffs cannot state a cause of action against St. Gervais for breach of
fiduciary duty.
Moreover, even if St. Gervais owed a fiduciary duty as a member of Preservation to other
members, the same provision of the Agreement on which plaintiffs rely in finding the duty also
includes a waiver of any liability resulting from a breach of such duties: “The Managing Member
and Members of the Board shall not be liable for any monetary damages to the Company or to
the Members for any breach of such duties except for receipt of a financial benefit to which the
Managing Member and Members of the Board are not entitled or a knowing violation of the
law.” DX E-1 at §7.5. The meaning of the quoted language is clear: St. Gervais cannot be held
liable by other Members for the kind of garden variety breach of fiduciary duty plaintiffs allege.
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See Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011)
(“a release may encompass unknown claims, including unknown fraud claims, if the parties so
intend and the agreement is ‘fairly and knowingly made’”). Since the Second Amended
Complaint fails to allege that St. Gervais received any financial benefit to which it was not
otherwise entitled, the First Claim must be dismissed as to St. Gervais.
C. The Fifth Claim Must Be Dismissed As To The Estate And SKI. According to
plaintiffs, “this Court never stated that non-cash assets that were in fact distributed to the General
Partners did not have to be delivered to Preservation.” PM20. But that is precisely what this
Court did say when it held that “Preservation’s stake in SCA and Spring Creek and a fair
allocation of SCA’s charitable deductions” were not “payments,” as used in Section 4.2. DX B
at 23. Plaintiffs also continue to insist that there is still cash that the MGP failed to deliver to
Preservation. This Court must reject plaintiffs’ claim because plaintiffs do not identify any such
cash. Certainly the provisions cited by plaintiffs (DX E at ¶¶82, 86-88, 92, 144) fail to reveal or
allege undistributed cash. On the contrary, those provisions reveal that of the $190 million in
refinancing proceeds paid to SCA, 19.9% or $38 million was distributed to Preservation, as
required by the Agreement and the Assignments. Thus, the Fifth Claim should be dismissed as
to the Deane Estate and SKI.
D. Plaintiffs’ Conversion Claim Must Be Dismissed. This Court previously dismissed
plaintiffs’ conversation claim against Spring Creek. DX D. Plaintiffs strain to distinguish this
Court’s prior decision from defendants’ present motion to dismiss. Plaintiffs’ attempt is
unavailing. Contrary to plaintiffs’ contention (PM 20-21), the identity of the particular
defendant named in the Sixth Claim was irrelevant to this Court’s earlier decision in favor of
Spring Creek. This Court’s problem with the derivative conversion claim against Spring Creek
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was that the Assignments could not give plaintiffs “a possessory right in the underlying assets
because the assignors never had any such right themselves.” DX D at 13 (emphasis added). If
the assignors did not have a possessory right, defendants, like Spring Creek before them, could
not have converted the underlying assets.
Plaintiffs’ reliance on Thyroff v. Nationwide Mut. Ins. Co., 8 N.Y.3d 283 (2007), is
misplaced. Contrary to plaintiffs’ suggestion, Thyroff did not hold that shares of stock can be
converted. The issue in Thyroff was whether “conversion applies to certain electronic computer
records and data.” Id. at 284. To the extent that Thyroff did discuss cases in which an action for
conversion was found for converting shares of stock, the conversion claims in those cases were
only permitted because the stock certificates themselves could be physically possessed. 8
N.Y.3d at 289 (“the shares of stock are so completely merged in the certificate that conversion of
the certificate may be treated as a conversion of the shares of stock represented by the
certificate”). Thyroff nowhere approved a claim for conversion of a non-possessory interest in a
partnership or an LLC. The Sixth Claim must be dismissed.
E. The Elements Of Tortious Interference Have Not Been Pleaded, And So That
Claim Must Be Dismissed. The Seventh and Eighth claims allege that certain of the defendants
tortiously interfered with plaintiffs’ rights under the Agreement (Seventh Claim) and the
Assignments (Eighth Claim). As defendants argued in their moving papers, the allegations of
plaintiffs’ own Second Amended Complaint completely undermine plaintiffs’ tortious
interference claims, particularly with respect to the essential elements of “intentional
procurement” and causation. Plaintiffs acknowledge that a number of federal courts (applying
New York law) have held that a breaching party’s “predisposition” to breach is fatal to a tortious
interference claim. PM23. Yet plaintiffs somehow find that concept irrelevant despite the fact
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that causation is an element of a tortious interference claim. See, e.g., Washington Ave. Assoc.
v. Euclid Equip., 229 A.D.2d 486, 487 (2d Dep’t 1996) (“In order to state a cause of action for
tortious interference with a contract a plaintiff must allege, inter alia, that . . . the contract would
not have been breached ‘but for’ the defendant's conduct”).
Plaintiffs also ignore the fact that the defendants alleged to have induced the breaches are
either parties to the contracts or entities that are owned by parties, excluding them as tortious
interference defendants. Winicki v. City of Olean, 203 A.D.2d 893, 894 (4th Dep’t 1994) (“only
a stranger to a contract, such as a third party, can be liable for tortious interference with a
contract”). For example, plaintiffs allege that Deane and SKI interfered with and procured a
breach of the Agreement, even though Deane and SKI were both signatories to the Agreement
with which they purportedly interfered. Similarly, plaintiffs allege that Carol Deane interfered
with and procured breaches of the Assignments despite the fact that she signed one on behalf of
SKI, and her husband signed the other on behalf of himself. Deane’s and SKI’s rights and
obligations were assigned to DD/SCA and SK/SCA as part of the refinancing, and DD/Shopping
and SK/Shopping are owned solely by Deane and SKI. None of these defendants can be
considered “strangers” to any of the contracts. As a result, the Seventh and Eighth claims must
be dismissed as to all of these defendants.
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FILED: NEW YORK COUNTY CLERK 11/18/2016 06:12 PM INDEX NO. 650159/2010 NYSCEF DOC. NO. 414 RECEIVED NYSCEF: 11/18/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK HARVEY RUDMAN and HAROLD KUPLESKY, on Behalf of Each of Them Individually And On Behalf Of Starrett City Preservation LLC, Derivatively, Index No. 650159/10 Plaintiffs, Assigned to: Kornreich, J. - against - CAROL GRAM DEANE, THE ESTATE OF DISQUE ORAL ARGUMENT REQUESTED D. DEANE by CAROL G. DEANE, as TEMPORARY EXECUTRIX, SALT KETTLE LLC, ST. GERVAIS LLC, STARRETT CITY Motion Sequence No. 010 PRESERVATION LLC, DD SPRING CREEK LLC, SK SPRING CREEK LLC, SPRING CREEK PLAZA LLC, DD SHOPPING CENTER LLC and SK SHOPPING CENTER LLC, Defendants. REPLY MEMORANDUM OF LAW IN SUPPORT OF THE MOTION OF ALL DEFENDANTS (EXCEPT SPRING CREEK) TO DISMISS RICHARD A. GREENBERG KENNETH E. WARNER STEVEN Y. YUROWITZ WARNER PARTNERS, P.C. WILLIAM J. DOBIE Attorneys for All Defendants NEWMAN & GREENBERG LLP Except Carol Gram Deane Attorneys for Defendant Carol Gram Deane and Spring Creek Plaza Individually 950 Third Avenue 950 Third Avenue New York, New York 10022 New York, New York 10022 (212) 593-8000 (212) 308-7900 1 of 19 TABLE OF CONTENTS Page INTRODUCTION .......................................................................................................................... 1 POINT I: PLAINTIFFS HAVE NOT REBUTTED DEFENDANTS’ ARGUMENT THAT THIS COURT’S PRIOR DETERMINATION -- THAT THE TERM “PAYMENTS” IN SECTION 4.2 OF THE PRESERVATION AGREEMENT DOES NOT INCLUDE NON-CASH ASSETS -- SHOULD NOT AND CANNOT BE REVISITED .............................................................................................................................. 3 POINT II: PLAINTIFFS HAVE RECEIVED ALL OF THE CASH DISTRIBUTIONS TO WHICH THEY WERE ENTITLED ................................................... 6 A. Monies Distributed By SCA To Spring Creek.............................................................. 7 B. SCA Partners’ Return of Capital. .................................................................................. 8 C. Expenses. ....................................................................................................................... 8 D. Damages. ....................................................................................................................... 9 POINT III: PLAINTIFFS’ ATTEMPT TO SAVE THEIR COMPLAINT DESPITE ITS PERVASIVE AND SERIOUS PLEADING DEFECTS IS UNPERSUASIVE ............. 10 A. Plaintiffs’ Request To Re-Plead Should Be Denied. .................................................. 10 B. St. Gervais Must Be Dismissed As A Defendant. ....................................................... 11 C. The Fifth Claim Must Be Dismissed As To The Estate And SKI............................... 12 D. Plaintiffs’ Conversion Claim Must Be Dismissed. ..................................................... 12 E. The Elements Of Tortious Interference Have Not Been Pleaded, And So That Claim Must Be Dismissed. ............................................................................................... 13 i 2 of 19 F. The Tenth Claim Should Be Dismissed....................................................................... 14 G. Plaintiffs Do Not Oppose Defendants’ Request To Strike Their Baseless Request for Punitive Damages. ......................................................................................... 15 CONCLUSION ............................................................................................................................. 15 ii 3 of 19 TABLE OF AUTHORITIES Page Cases Abrams v. Donati, 66 N.Y.2d 951 (1985) .................................................................................... 10 Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 17 N.Y.3d 269 (2011) .......... 12 Jablonski v. County of Erie, 286 A.D.2d 927 (4th Dep’t 2001) ................................................... 10 Josephs v. Bank of New York, 302 A.D.2d 318 (1st Dep’t 2003) ................................................. 14 Thyroff v. Nationawide Mut. Ins. Co., 8 N.Y.3d 283 (2007) ........................................................ 13 Washington Ave. Assoc. v. Euclid Equip., 229 A.D.2d 486 (2d Dep’t 1996) .............................. 14 Winicki v. City of Olean, 203 A.D.2d 893 (4th Dep’t 1994) ........................................................ 14 iii 4 of 19 INTRODUCTION According to plaintiffs, the Appellate Division rejected, albeit sub silentio, this Court’s holding that Preservation was not required to distribute non-cash assets to its members under Section 4.2 of the Preservation Agreement, thereby restoring plaintiffs’ extravagant claim to sums this Court has already denied them. Thus, plaintiffs’ opposition papers might cause this Court to wonder just who prevailed in the Appellate Division, and why on earth plaintiffs, and not defendants, sought leave to appeal to the Court of Appeals. The answer, of course, is that plaintiffs’ fanciful reading of the Appellate Division’s decision is completely wrong, and is refuted by the language of the decision itself and by plaintiffs’ own subsequent actions. For rather than celebrate their supposed appellate victory, plaintiffs tried to appeal the Appellate Division’s decision, criticizing it as an unmitigated and legally erroneous injustice that rejected the same arguments they now advance in opposition to defendants’ instant motion, including their claim to non-cash assets generated by the refinancing. See, e.g., DX F at ¶77 (“by invalidating the third sentence of Section 3.3, the [Appellate Division] Decision impacts Plaintiffs’ argument on the other causes of action that remain to be tried. In multiple causes of action, Plaintiffs rely in part on the last sentence of Section 3.3 to interpret the contract and determine what Plaintiffs, as Preservation members, were entitled to receive from cash and non- cash proceeds [of the refinancing]”) (emphasis added); ¶57 (“The Appellate Division’s Decision imposes a substantial injustice on Plaintiffs, depriving them of the proceeds they bargained for in exchange for services of the Management Team”). The Appellate Division’s rejection of virtually every argument plaintiffs now advance in opposition was explicit, i.e.,modifying this Court’s prior decision in defendants’ favor, or implicit, i.e., “otherwise affirming” this Court’s ruling from which plaintiffs appealed. Plaintiffs 1 5 of 19 nonetheless persist, arguing now that this Court should reconsider its prior ruling that non-cash assets were not among the distributions required to be made pursuant to Section 4.2 (since, in plaintiffs’ view, a “reading of the Preservation Agreement leaves no doubt that itcontemplates that Preservation will distribute non-cash assets . . . via the waterfall provisions of Section 4.2”). PM13. Plaintiffs unsuccessfully made this same argument to the Appellate Division, where plaintiffs argued that “[t]he term ‘payments’ in Section 4.2, like ‘distributions,’ is fairly read to include both cash and non-cash items” (DX G at 36), and that “[o]ther provisions of the Agreement also make clear that distributions of property fall under Section 4.2, so that the word ‘payments’ in that Section cannot be limited to cash payments, but must also include transfers of property.” Id. Plaintiffs also argued in the Appellate Division that this Court “reached [its] conclusions independently” (id. at 51), just as they argue now that this Court reached its decision “sua sponte.” PM2 Not surprisingly, the Appellant Division rejected these arguments, and plaintiffs’ attempt at reargument should not persuade this Court to change its mind. The time for plaintiffs to attempt to persuade this Court of its supposed error (which was no error at all) has long since expired. See CPLR §2221(d)(3). In sum, plaintiffs’ arguments on this motion are unsupported by the facts and the law, and have already been rejected by this Court and the Appellate Division. The law of the case precludes plaintiffs’ attempt at re-litigating their losing arguments on this motion. Finally, as defendants pointed out in their moving papers, nearly every claim plaintiffs advance in their Second Amended Complaint is defectively pleaded. Plaintiffs have been on notice of most of these defects for more than five years. This Court should have no patience at this late date with plaintiffs’ request for permission to take a fourth bite of the apple. 2 6 of 19 This Court should grant defendants’ instant motion to dismiss in its entirety. POINT I: PLAINTIFFS HAVE NOT REBUTTED DEFENDANTS’ ARGUMENT THAT THIS COURT’S PRIOR DETERMINATION -- THAT THE TERM “PAYMENTS” IN SECTION 4.2 OF THE PRESERVATION AGREEMENT DOES NOT INCLUDE NON-CASH ASSETS -- SHOULD NOT AND CANNOT BE REVISITED In their moving papers on this motion defendants argued that the prior decisions of this Court and the Appellate Division foreclose plaintiffs’ claim to a share of non-cash distributions flowing from the refinancing. Plaintiffs’ listing of those non-cash distributions, which plaintiffs claimed in their Second Amended Complaint (DX E at ¶89), includes a share of (1) “the MGP’s and SKI’s . . . ownership interest in Spring Creek”; (2) “the MGP’s and SKI’s . . . share of the tax deductions arising from the charitable contributions of the religious site”; and (3) “the value of the MGP’s and SKI’s . . . increased equity in SCA resulting from the cash reserves set aside from the cash proceeds for capital improvement and other purposes.” Plaintiffs disagree, insisting in their opposition papers that the Appellate Division’s modification, which interpreted the third sentence of Section 3.3 as merely expressing the parties’ non-operative intention, somehow also invalidates this Court’s ruling that Preservation is not required to distribute non-cash assets to its members. PM7. Plaintiffs are wrong. The Appellate Division’s modification is independent from this Court’s ruling rejecting any reading of the Agreement that required the distribution of non-cash assets. Plaintiffs admit as much by conceding that this Court “relied heavily” on Section 1.3 in concluding that non-cash assets are not “payments” within the meaning of Section 4.2.1 1 According to plaintiffs: (continued on next page) 3 7 of 19 That concession is fatal to plaintiffs’ position on this motion, because they correctly acknowledge that this Court’s ruling on non-cash assets did not depend at all on the third sentence of Section 3.3, the only part of the Agreement which the Appellate Division interpreted differently from this Court. Since nothing in the Appellate Division’s decision modified the part of this Court’s decision holding that the term “payments” in Section 4.2 excludes non-cash assets, this Court’s earlier determination still stands. The Appellate Division rejected all of plaintiffs’ arguments on appeal, including “the extrinsic evidence that plaintiffs urge us [the Appellate Division] to consider, such as the sixteenth amendment to SCA’s partnership agreement, organizational charts and tax documents, and correspondence to SCA’s limited partners.” DX A at 2. Despite the Appellate Division’s and this Court’s unequivocal rejections of plaintiffs’ improper attempt to inject parol evidence to interpret the clear contract language, plaintiffs are at it again, attaching the same kind of extrinsic documents that both the Appellate Division and this Court previously rejected. See, e.g, Veit In reaching its conclusion that Preservation was required to distribute only the cash it received from SCA, and not non-cash assets, the Court also relied heavily on Section 1.3 of the Agreement, and on the seeming difficulty that it found would arise if the word “payments” were interpreted to include the General Partners’ entire economic interest in Starrett City. PM 15. As this Court noted in its prior decision (DX B at 20): [I]t was not intended that Preservation would necessarily distribute the entirety of these “economic interests” to its Members. Rather, Preservation's purpose was to “provide its Members with a beneficial interest in all payments payable by [SCA] to [Deane] and to Salt Kettle, LLC . . . in respect of [Deane]’s . . . and [Salt Kettle]’s economic interest in SCA” (Preservation Agreement §1.3). In keeping with that purpose, the only distribution Preservation was required to make to its Members was of the ‘payments received from [Deane, Salt Kettle] or any successor or transferee’ (id. at §4.2). 4 8 of 19 Affirmation, Exhibits 2 (Sixteenth Amendment); Exhibit 3 (correspondence with SCA limited partners); and Exhibit 10 (Revised Expert Report of John Evanich).2 Based on this Court’s prior holding that “payments” under Section 4.2 are limited to distributions of cash (see, e.g., DX B at 30), a holding undisturbed on appeal, the distribution to Preservation’s members of any non-cash assets would be governed by Section 4.9A, which provides in relevant part that, “except as otherwise provided in this Agreement, the timing and amount of all distributions shall be determined by the Managing Member.” DX E-1 at 8 (emphasis added). In other words, while “payments” (i.e., cash) are distributed according to Section 4.2, distributions of non-cash assets are governed by Section 4.9A, which leaves such distributions to the discretion of the Managing Member.3 As a result, the decisions of Carol Deane, the Managing Member of Preservation, as to whether and when to distribute to Preservation’s members such non-cash assets as the shopping center and the charitable deduction are within her discretion and not subject to challenge by plaintiffs. In short, this Court should dismiss any of plaintiffs’ Claims for Relief which seek a share of Preservation’s or SCA’s non-cash assets. 2 The conclusions in the Evanich report are based on a reading of the Agreement that both this Court and the Appellate Division rejected. But this Court need not address this or the many other deficiencies in the inadmissible parol evidence proffered by plaintiffs. 3 Plaintiffs argued unsuccessfully in the Appellate Division (DX G at 34-35) and again here that the Court’s decision excluding non-cash assets from Section 4.2 is undermined by Section 4.8A. PM13. Plaintiffs are mistaken. Section 4.9A, which addresses other distributions under the Agreement, lets the Managing Member decide “timing and amount” for all non-cash distributions, but does not give her discretion with respect to allocations, which are determined under Section 4.2. As indicated by its caption (“Liquidation and Dissolution”), Section 4.8 deals only with a liquidation of the assets of the Company, a situation totally different from anything in this case. 5 9 of 19 POINT II: PLAINTIFFS HAVE RECEIVED ALL OF THE CASH DISTRIBUTIONS TO WHICH THEY WERE ENTITLED Plaintiffs insist that they were entitled to, but did not receive, four categories of “cash” distributions generated by the refinancing of Starrett City: 1) “Plaintiffs’ respective shares of the Refinancing cash proceeds that were diverted to Spring Creek”; 2) “Refinancing cash proceeds that were paid to the managing general partner as a ‘return of capital’”; 3) “cash that was withheld from distribution by Preservation to pay disputed ‘expenses’”; and 4) “damages for Defendants’ failure to distribute cash ‘as soon as practicable’ as required by the Agreement.” PM 8 These claims are meritless. They are premised on a misunderstanding or a willful misreading of the Agreement and the Appellate Division’s decision. Plaintiffs’ seize on the language of Section 4.2 requiring the distribution of “payments” to members “as soon as practicable,” but ignore the rest of the sentence which refutes their interpretation. The balance of Section 4.2 provides in full that “[t]he Company shall to the extent practicable make distributions to Members as soon as practicable but at least in the same calendar year in which Payments are received by the Company.” DX E-1 at §4.2 (emphasis added). The critical phrase “at least” in Section 4.2 defines the maximum time allowed for required distributions to Preservation’s members. Moreover, upon the occurrence of a “Funding Event,” which the Appellate Division found indisputably occurred here (DX A at 3), Carol Deane as Managing Member had the unfettered right to reduce plaintiffs’ Sharing Ratios to zero. Based on those facts alone, plaintiffs cannot lay claim to any portion of cash received by Preservation in 2010 which had not been distributed to Preservation’s members before plaintiffs’ Sharing Ratios were reduced to zero in November 2010. Nor can plaintiffs claim a right to a share of cash never received by Preservation at all. Plaintiffs’ claims to the four categories of 6 10 of 19 cash distributions they have identified are precluded by one or the other of these factors which plaintiffs’ ignore. A. Monies Distributed By SCA To Spring Creek. Plaintiffs claim they are entitled to a share of the monies paid by SCA to Spring Creek. PM 9-10. Plaintiffs are mistaken. It is undisputed that, at the time of the refinancing, a payment of approximately $3.3 million was made by SCA directly to Spring Creek instead of being distributed either to Preservation or to SCA’s partners. Plaintiffs have no basis to claim any portion of SCA’s payment to Spring Creek, since this payment was not a distribution to Preservation, let alone a distribution in which plaintiffs had any right to share. Nor can plaintiffs claim an indirect interest in the payment from SCA to Spring Creek based on any supposed interest that Preservation had in Spring Creek. Plaintiffs correctly concede that Preservation’s members have no ownership interest in SCA (PM15), and therefore have no ownership interest in Spring Creek or the underlying economic interest constituting Spring Creek. Thus, plaintiffs have no right to share in the payment from SCA to Spring Creek. Nor is there even a colorable claim that Deane or SKI breached their obligations under either the Assignments or the Agreement by SCA’s payment to Spring Creek. Such a claim would have to be based on the proposition that Preservation’s members are entitled to question or micromanage SCA’s affairs and the MGP’s decisions, a right the Agreement and the Assignments expressly reject. DX E-1 at §5.10; E-4 at 1; E-5 at 1. In their moving papers, defendants explicitly pointed to and relied on the provision of the Agreement precluding Preservation’s members from challenging decisions of the MGP like this one. DM6. Plaintiffs now claim that they were never asked to consent to the transaction between SCA and Spring Creek. PM10. But the supposed lack of consultation with and consent by plaintiffs is irrelevant, 7 11 of 19 because the quoted section of the Agreement also provides that Preservation’s members can “raise no objections” to any such decision by the MGP.4 B. SCA Partners’ Return of Capital. Plaintiffs claim they are entitled to a share of the $307,500 returned to the MGP as part of his initial capital contribution to SCA. Plaintiffs are again mistaken. Like the underlying equity interest in SCA, which plaintiffs now concede they are not entitled to (PM15), plaintiffs have no right to share in the return of any partner’s initial capital investment in SCA, since such a return of capital is not a “payment” within the meaning of the Agreement. A return of capital simply restores to SCA’s partners, including the MGP, their own funds which they invested in SCA. Plaintiffs’ claim to a portion of the return of capital to the MGP is emblematic of plaintiffs’ overreaching, because plaintiffs made no real capital investment of their own (their nominal, token contribution was returned to them with the first distribution), yet they seek a share of the MGP’s substantial capital investment. Plaintiffs appear to recognize that their claim to the MGP’s returned capital is untenable, if not downright frivolous, since the Second Amended Complaint is completely silent about a claim for these monies despite plaintiffs’ other preposterous claims for relief. Even plaintiffs’ own expert omitted the MGP’s returned capital as a source of plaintiffs’ purported damages. In short, plaintiffs’ argument for a share of the MGP’s returned capital cannot be taken seriously. C. Expenses. Plaintiffs claim they are entitled to share in cash withheld by Preservation to pay for disputed “expenses.” In fact, except for a de minimus $14,000, no disputed expenses were deducted from the initial cash distribution from the refinancing that plaintiffs claim should 4 From the approximately $3.3 million paid to Spring Creek by SCA which plaintiffs object to, plaintiffs’ total claim would amount to about $99,000, representing plaintiffs’ share if the payment had been made to Preservation instead of to Spring Creek, and after deducting 15% for the bonus reserve that this Court approved on defendants’ summary judgment motion (a ruling plaintiffs never appealed). 8 12 of 19 have been made in 2009. Plaintiffs have no legitimate basis for disputing those expenses, and they make no such showing. With respect to the distribution from funds received in 2010, Section 4.2 did not require Preservation to distribute those funds, net of expenses, prior to the end of that year. Defendants deny that any expenses were deducted improperly, but even if plaintiffs are correct that certain expenses were improperly deducted from the distribution of funds received in 2010, Preservation had until the end of the year to correct any such distribution. By that time, plaintiffs’ Sharing Ratios had already been reduced to zero, and they were therefore precluded from demanding or being entitled to any more money than they had already received. D. Damages. The only “damages” sought by plaintiffs in their Second Amended Complaint for the alleged “delay” in payments purportedly owed to them are “damages based on adverse tax consequences to Plaintiffs arising from the belated payments of amounts due to them.” DX E at 48. Until they responded to this motion, plaintiffs appeared to have abandoned this claim, presumably because there is no evidence of any such adverse tax consequences. Instead, during discovery, when defendants requested copies of plaintiffs’ tax returns, plaintiffs objected on the grounds that the returns were “not material or necessary to the prosecution or defense of this action.” NYSECF Doc # 53 at p.19. Nor did their expert include any “adverse [tax] consequences” in his calculation of damages. Plaintiffs should be held to their concession and prior position. Their claim for damages for adverse tax consequences caused by an alleged unjustifiable delay in payments should be stricken. In sum, other than Kuplesky’s claim to an increased Sharing Ratio, there are no cash proceeds to which plaintiffs can plausibly lay claim. The Second Amended Complaint should be dismissed to the extent it seeks more. 9 13 of 19 POINT III: PLAINTIFFS’ ATTEMPT TO SAVE THEIR COMPLAINT DESPITE ITS PERVASIVE AND SERIOUS PLEADING DEFECTS IS UNPERSUASIVE A. Plaintiffs’ Request To Re-Plead Should Be Denied. Plaintiffs do not really attempt to defend their impermissible commingling of individual and derivative claims in the First and Second Claims, a fatal pleading error, as defendants pointed out in their moving papers. DM 11-13. Instead, plaintiffs ask for permission to re-plead. PM 17-18. Their request should be denied. Plaintiffs have been on notice of this precise pleading defect for more than five years, ever since Spring Creek raised the issue in March 2011 in its motion to dismiss. NYSCEF Doc#36-1 at 10. It is therefore a little rich for plaintiffs to complain about the perfectly proper timing of defendants’ first and only motion to dismiss (PM at 17) while asking this Court’s indulgence to cure an inexcusable and fatal pleading defect about which plaintiffs had notice for the same length of time. Second, plaintiffs have wantonly mischaracterized the authority defendants rely on. For example, plaintiffs erroneously assert that “every case cited by Defendants was a dismissal without prejudice on this ground and/or with leave to replead.” PM18. In fact, defendants prominently cited Abrams v. Donati, 66 N.Y.2d 951, 953 (1985) (DM12-13), a case in which the Court of Appeals upheld the denial of leave to re-plead. Finally, plaintiffs have already twice amended their complaint, thereby losing their right to re-plead, and requiring plaintiffs to appeal to this Court’s discretion for permission to do so. Plaintiffs have offered no good reason why this Court should exercise its discretion to give plaintiffs an extraordinary fourth bite of the apple. See Jablonski v. County of Erie, 286 A.D.2d 927, 928 (4th Dep’t 2001) (“Judicial discretion to grant an amendment of a pleading should be exercised with caution where a case has been certified as ready for trial. Where there has been 10 14 of 19 an extended delay in moving to amend, the party seeking leave to amend must establish a reasonable excuse for the delay”) (citations omitted). This Court should be particularly loath to permit plaintiffs to re-plead since any re-pleading is likely to fail again in view of the waiver of liability in Section 7.5 of the Agreement. See, infra, Point III.B. B. St. Gervais Must Be Dismissed As A Defendant. Defendants have asserted an independent basis to dismiss the First Claim as to St. Gervais, i.e., St. Gervais had no fiduciary duty to breach. In opposing defendants’ argument, plaintiffs claim to find a fiduciary duty in Section 7.2 (plaintiffs actually mean Section 7.5) which provides that “the Members of the Board shall discharge their duties as managers in good faith.” Plaintiffs’ reliance on the Agreement is unpersuasive. The duties of Preservation’s members are limited to “taking such actions and making such decisions as required by this Operating Agreement and as the Managing Member shall delegate to the Board from time to time.” Id. Because the Second Amended Complaint does not allege which fiduciary duties, if any, were imposed on or delegated to St. Gervais by the Managing Member, plaintiffs cannot state a cause of action against St. Gervais for breach of fiduciary duty. Moreover, even if St. Gervais owed a fiduciary duty as a member of Preservation to other members, the same provision of the Agreement on which plaintiffs rely in finding the duty also includes a waiver of any liability resulting from a breach of such duties: “The Managing Member and Members of the Board shall not be liable for any monetary damages to the Company or to the Members for any breach of such duties except for receipt of a financial benefit to which the Managing Member and Members of the Board are not entitled or a knowing violation of the law.” DX E-1 at §7.5. The meaning of the quoted language is clear: St. Gervais cannot be held liable by other Members for the kind of garden variety breach of fiduciary duty plaintiffs allege. 11 15 of 19 See Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011) (“a release may encompass unknown claims, including unknown fraud claims, if the parties so intend and the agreement is ‘fairly and knowingly made’”). Since the Second Amended Complaint fails to allege that St. Gervais received any financial benefit to which it was not otherwise entitled, the First Claim must be dismissed as to St. Gervais. C. The Fifth Claim Must Be Dismissed As To The Estate And SKI. According to plaintiffs, “this Court never stated that non-cash assets that were in fact distributed to the General Partners did not have to be delivered to Preservation.” PM20. But that is precisely what this Court did say when it held that “Preservation’s stake in SCA and Spring Creek and a fair allocation of SCA’s charitable deductions” were not “payments,” as used in Section 4.2. DX B at 23. Plaintiffs also continue to insist that there is still cash that the MGP failed to deliver to Preservation. This Court must reject plaintiffs’ claim because plaintiffs do not identify any such cash. Certainly the provisions cited by plaintiffs (DX E at ¶¶82, 86-88, 92, 144) fail to reveal or allege undistributed cash. On the contrary, those provisions reveal that of the $190 million in refinancing proceeds paid to SCA, 19.9% or $38 million was distributed to Preservation, as required by the Agreement and the Assignments. Thus, the Fifth Claim should be dismissed as to the Deane Estate and SKI. D. Plaintiffs’ Conversion Claim Must Be Dismissed. This Court previously dismissed plaintiffs’ conversation claim against Spring Creek. DX D. Plaintiffs strain to distinguish this Court’s prior decision from defendants’ present motion to dismiss. Plaintiffs’ attempt is unavailing. Contrary to plaintiffs’ contention (PM 20-21), the identity of the particular defendant named in the Sixth Claim was irrelevant to this Court’s earlier decision in favor of Spring Creek. This Court’s problem with the derivative conversion claim against Spring Creek 12 16 of 19 was that the Assignments could not give plaintiffs “a possessory right in the underlying assets because the assignors never had any such right themselves.” DX D at 13 (emphasis added). If the assignors did not have a possessory right, defendants, like Spring Creek before them, could not have converted the underlying assets. Plaintiffs’ reliance on Thyroff v. Nationwide Mut. Ins. Co., 8 N.Y.3d 283 (2007), is misplaced. Contrary to plaintiffs’ suggestion, Thyroff did not hold that shares of stock can be converted. The issue in Thyroff was whether “conversion applies to certain electronic computer records and data.” Id. at 284. To the extent that Thyroff did discuss cases in which an action for conversion was found for converting shares of stock, the conversion claims in those cases were only permitted because the stock certificates themselves could be physically possessed. 8 N.Y.3d at 289 (“the shares of stock are so completely merged in the certificate that conversion of the certificate may be treated as a conversion of the shares of stock represented by the certificate”). Thyroff nowhere approved a claim for conversion of a non-possessory interest in a partnership or an LLC. The Sixth Claim must be dismissed. E. The Elements Of Tortious Interference Have Not Been Pleaded, And So That Claim Must Be Dismissed. The Seventh and Eighth claims allege that certain of the defendants tortiously interfered with plaintiffs’ rights under the Agreement (Seventh Claim) and the Assignments (Eighth Claim). As defendants argued in their moving papers, the allegations of plaintiffs’ own Second Amended Complaint completely undermine plaintiffs’ tortious interference claims, particularly with respect to the essential elements of “intentional procurement” and causation. Plaintiffs acknowledge that a number of federal courts (applying New York law) have held that a breaching party’s “predisposition” to breach is fatal to a tortious interference claim. PM23. Yet plaintiffs somehow find that concept irrelevant despite the fact 13 17 of 19 that causation is an element of a tortious interference claim. See, e.g., Washington Ave. Assoc. v. Euclid Equip., 229 A.D.2d 486, 487 (2d Dep’t 1996) (“In order to state a cause of action for tortious interference with a contract a plaintiff must allege, inter alia, that . . . the contract would not have been breached ‘but for’ the defendant's conduct”). Plaintiffs also ignore the fact that the defendants alleged to have induced the breaches are either parties to the contracts or entities that are owned by parties, excluding them as tortious interference defendants. Winicki v. City of Olean, 203 A.D.2d 893, 894 (4th Dep’t 1994) (“only a stranger to a contract, such as a third party, can be liable for tortious interference with a contract”). For example, plaintiffs allege that Deane and SKI interfered with and procured a breach of the Agreement, even though Deane and SKI were both signatories to the Agreement with which they purportedly interfered. Similarly, plaintiffs allege that Carol Deane interfered with and procured breaches of the Assignments despite the fact that she signed one on behalf of SKI, and her husband signed the other on behalf of himself. Deane’s and SKI’s rights and obligations were assigned to DD/SCA and SK/SCA as part of the refinancing, and DD/Shopping and SK/Shopping are owned solely by Deane and SKI. None of these defendants can be considered “strangers” to any of the contracts. As a result, the Seventh and Eighth claims must be dismissed as to all of these defendants.