Basel v Traders Commercial Capital, LLC
Annotate this CaseDecided on May 2, 2006
Supreme Court, New York County
Robert Basel, Plaintiff,
against
Traders Commercial Capital, LLC and Fred J. Miller, Defendants.
602861/05
Bernard J. Fried, J.
This action arises out of plaintiff Robert Basel's acquisition of a membership interest in defendant Traders Commercial Capital, LLC (TCC), a limited liability company which provides funds to private day-traders for investment. Plaintiff seeks to withdraw from TCC, and to obtain a full refund of his initial investment. Defendants TCC and Fred J. Miller, a principal of Traders Resource Capital, LLC, TCC's managing member, now move for dismissal of the complaint. Because the plain language of the governing documents, which plaintiff received, signed, read and understood, demonstrate that no such rights of withdrawal or refund exist, the motion to dismiss is granted.
On June 13, 2003, plaintiff subscribed to one Class A Membership Interest in TCC. The documents memorializing this subscription consist of a Confidential Private Placement Memorandum (CPPM [Aff. of Thomas G. Aljian, Jr., Exh A]), TCC's Operating Agreement (id., Exh B), plaintiff's Subscription Agreement (id., Exh C), and plaintiff's Subscription Questionnaire (id., Exh D).
On June 3, 2002, plaintiff executed the Subscription Agreement, and acknowledged receipt of a copy of the CPPM, dated December 31, 2001, and TCC's Operating Agreement, dated November 15, 2000 (Subscription Agreement, § 1.02). On the same date, plaintiff also executed the Operating Agreement.
In the Subscription Agreement, plaintiff represented and warranted that he was an Accredited Investor as defined by the Securities Act of 1933 (as amended). In particular, plaintiff represented that:
The Subscriber is an Accredited Investor and has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits [*2]and risks of investing in [TCC], and all information that the Subscriber has provided concerning the Subscriber, the Subscriber's financial position and knowledge of financial and business matters is true, correct and complete.
Subscription Agreement, § 2.04 (d). On June 3, 2002, plaintiff completed and signed the Subscriber Questionnaire. In the Subscriber Questionnaire, plaintiff represented that his net worth exceeded $1,000,000, and that his occupation was that of "Managing Director, Listed Equity Trading," for Salomon Smith Barney.
With respect to defendants' representations to plaintiff, plaintiff acknowledged that he did not rely upon "any representation made by any person," except as contained in the CPPM and Operating Agreement. Indeed, the Subscription Agreement provided, on its first page:
THE SUBSCRIBER FURTHER ACKNOWLEDGES THAT THE SUBSCRIBER IS NOT RELYING UPON ANY REPRESENTATION MADE BY ANY PERSON EXCEPT AS CONTAINED IN THE [CPPM] AND THE OPERATING AGREEMENT.
Subscription Agreement, § 1.02. Plaintiff further represented and warranted that:
The Subscriber has been furnished, has carefully read, and has relied solely ... on the information contained in the [CPPM] and the Operating Agreement and the Subscriber has not received any other offering literature or prospectus and no representations or warranties have been made to the Subscriber by the Managing Member or [TCC], other than the representations set forth in the [CPPM], the Operating Agreement and this Agreement. Id., § 2.04 (b).
In signing the Operating Agreement, plaintiff represented and warranted that:
In making such Member's decision to acquire such Member's interest, such Member has relied solely upon independent investigations made by such Member and has taken cognizance of all risk factors related to such Member's investment in the Company, and no representations and warranties have been made to such Member concerning [TCC] or the Interests other than as set forth in the [CPPM].
Operating Agreement, § 131 (d). Moreover, in completing and signing the Subscription Questionnaire, plaintiff acknowledged that:
no statement, printed material or inducement has been given or made by the Company or its representatives which is contrary to the information contained in the [CPPM] and related Exhibits. Subscription Questionnaire, at 3.
Most importantly, the Subscription Agreement contains an integration clause,
which provides:
This Agreement, together with the Operating Agreement, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes and replaces all prior and contemporaneous agreements and understandings, whether written or oral, pertaining thereto. No covenant, representation, or condition not expressed in this Agreement shall affect or be deemed to interpret, change or restrict the express provisions hereof.
Id., ¶ 3.09. The Operating Agreement contains a similar integration clause (see Operating Agreement, § 15.12).
With respect to the restrictions on a subscriber's right to withdraw capital from TCC, [*3]plaintiff represented and warranted that:
The Subscriber understands further that withdrawals from [his] capital account with [TCC] are subject to significant restrictions under the Operating Agreement, as summarized under "DESCRIPTION OF INTERESTS" in the [CPPM].
Subscription Agreement, § 2.04 (h). Likewise, the CPPM notified plaintiff that "[a]s a Class A Member, you will be subject to significant restrictions on your ability to withdraw funds from your capital account with [TCC]" (CPPM, at 15), and that "no Member may withdraw from TCC as a Member without the consent of the Managing Member, which consent may be withheld by the Managing Member in its sole discretion" (id. at 38).
The Operating Agreement provides that no Class A Member is entitled to a return of the member's Capital Contribution, or any portion thereof, except as provided for by Article 7 of the Operating Agreement (Operating Agreement, § 6.3; see also CPPM, at 16 ["Other than as set forth [in Article 7 of the Operating Agreement] ... you will not be entitled to withdraw funds from the Company"]).
Pursuant to Article 7 of the Operating Agreement, plaintiff, as a Class A Member, was entitled to seek an annual withdrawal from his capital account of up to 8.4% of his original contribution of $100,000, or $8,400, commencing on February 15, 2003, for a period of three years, if plaintiff provided 30 days prior written notice (id., § 7.2 [a]). After June 30, 2007, plaintiff was entitled to seek to withdraw all amounts in his capital account in excess of $100,000, his original subscription amount (id., ¶ 7.2 [b]).
However, plaintiff was not entitled to make a complete withdrawal of the funds in his capital account. With respect to "Complete Withdrawals," the Operating Agreement provides that only the first nine Class A Members may make a complete withdrawal:
With respect to Class A Members who purchase the first nine Class A Interests in the Offering (the "Initial Investors"), on the third anniversary of the closing of the Minimum Offering ... such Initial Investors may withdraw up to all of the value of their Capital Accounts and completely withdraw as a Member of the Company"
id., ¶ 7.2 (c). Plaintiff did not purchase one of the first nine Class A Interests. Plaintiff purchased his Class A Membership on June 3, 2002. According to the CPPM, more than 11 Interests had already been subscribed to prior to December 31, 2001 (see CPPM, at 5 ["As of December 31, 2001, subscriptions have been accepted by TCC for 11.783 Interests .... [which] exceeds a minimum offering size of nine Interests"]). Thus, plaintiff does not qualify as an "Initial Investor," and is not entitled to a complete withdrawal of his capital account.
Nonetheless, despite the clear language contained in the Operating Agreement, all of plaintiff's claims in this action stem from one allegation: "it was further represented and agreed that at any time, plaintiff, ROBERT BASEL, upon written notice, could demand a full redemption of his initial investment of $100,000" (Complaint, ¶ 14). Specifically, plaintiff asserts that he qualified as an "Initial Investor" under the Operating Agreement, because he was repeatedly assured by defendants, prior to the execution of that agreement, that he was one of the first nine purchasers of Interest, and that, upon written notice, he could withdraw the full amount of his capital investment (Aff. of Steven W. Epstein, ¶¶ 4, 8; Basel Aff., ¶¶ 6, 7). Plaintiff claims that he sought full redemption of his Interest on April 25, 2005, and that TCC's failure to refund his initial investment amounted to (1) fraud (first cause of action); (2) breach of contract (second cause of action); and (3) conversion/co-mingling (third cause of action). [*4]
Defendants move to dismiss the complaint, pursuant to CPLR 3211 (a) (7) and (a) (1), on the ground that plaintiff's claim that he could withdraw all of the money in his capital account at any time upon written notice is completely contradicted by the express terms of the written documents.
Although on a motion to dismiss pursuant to CPLR 3211 (a) (7), the facts pleaded are presumed to be true, "factual claims ... flatly contradicted by documentary evidence are not entitled to such consideration" (Mark Hampton, Inc. v Bergreen, 173 AD2d 220, 220 [1st Dept 1991], appeal denied 80 NY2d 788 [1992] [citations omitted]; see also CIBC Bank & Trust Co. (Cayman) Ltd. v Credit Lyonnais, 270 AD2d 138 [1st Dept 2000]). Likewise, pursuant to CPLR 3211 (a) (1), dismissal is warranted "if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law" (Leon v Martinez, 84 NY2d 83, 88 [1994]; see also Fast Track Funding Corp. v Perrone, 19 AD3d 362 [2d Dept 2005]).
Here, the plain and unambiguous terms of the documents at issue, which plaintiff acknowledged were the only representations on which he relied in purchasing his membership interest, clearly demonstrate that plaintiff does not have the right to complete withdrawal of his capital account, and that thus, the complaint must be dismissed.
Thus, plaintiff's claim that he was one of the first nine purchasers of the subject Interest, and as such, is presently entitled to the full withdrawal of his capital investment, is completely contradicted by the terms of the CPPM, which provides:
"As of December 31, 2001, subscriptions have been accepted by TCC for 11.783 Interests.... This exceeds a minimum offering size of nine Interests"
(CPPM, at 5). As plaintiff himself acknowledges (Opp Aff, ¶ 3), he acquired his interest in TCC on June 3, 2002, well after the sale of the eleventh interest in TCC. Accordingly, pursuant to the express terms of the Operating Agreement, since plaintiff was not one of the first nine Initial Investors, he is not entitled to a complete withdrawal of his capital account (see Operating Agreement, § 7.2 [c]).
In addition, although plaintiff alleges that his claim must still succeed because defendants consistently represented that he was one of the Initial Investors, and that thus, it was his understanding that "the full value of my capital investment would be returned to me upon request, three years following execution of the agreement" (Basel Aff., ¶ 6), this claim completely ignores the fact that plaintiff repeatedly acknowledged his exclusive reliance on the representations contained within the governing documents.
In deciding to invest in a membership interest in TCC, plaintiff represented that he relied solely on the representations contained within the CPPM, the Operating Agreement and the Subscription Agreement. Furthermore, both the Subscription Agreement and the Operating Agreement contained explicit integration clauses, providing that the written terms constituted the entire agreement between plaintiff and TCC. Such a provision makes the written documents themselves the "exclusive evidence of the parties' intent" (Unisys Corp. v Hercules Inc., 224 AD2d 365, 368 [1st Dept 1996], appeal withdrawn 89 NY2d 1031 [1997] [citation omitted]). Given the integration clauses contained in the governing agreements, plaintiff is precluded from claiming that he relied on defendants' oral and written representations with respect to his right to completely withdraw his capital investment (see Pine Equity NY, Inc. v Manhattan Real Estate Equities Group LLC, 2 AD3d 248 [1st Dept 2003]; Richbell Information Services, Inc. v Jupiter Partners, L.P., 309 AD2d 288 [1st Dept 2003]). [*5]
Moreover, given the documentary evidence showing that plaintiff was an Accredited Investor within the meaning of the Securities Laws, and his acknowledgment that he "is capable of evaluating the merits and risks of investing in [TCC]" (Subscription Agreement, § 2.04 [d]), he cannot establish reliance on defendants' representations (see Longo v Butler Equities II, L.P., 278 AD2d 97 [1st Dept 2000]).
Plaintiff's principal allegation that defendants represented to him that he had a contractual right to completely withdraw the funds in his capital account upon demand is flatly contradicted by the express terms of the Operating Agreement, the Subscription Agreement and the CPPM, and his claims for breach of contract, fraud and conversion, which are each dependent upon this allegation, must thus be dismissed (see L & S Motors, Inc. v Broadview Networks, Inc., 25 AD3d 767 [2d Dept 2006] [trial court properly granted motion to dismiss the complaint pursuant to CPLR 3211 [a] [1] where defendant demonstrated that the causes of action alleged in the complaint were barred by the provision of the contract which absolved the defendant from liability for the very damages sought by the plaintiff]; Longo v Butler Equities II, L.P., 278 AD2d 97, supra [court rejected plaintiff's claim that he had received prior oral representations that contradicted the express written terms of the limited partnership agreement, and granted defendant's motion to dismiss]; see also Goldfarb v Schwartz, 26 AD3d 462 [2d Dept 2006] [documentary proof submitted by defendant conclusively established, as a matter of law, that he did not breach his fiduciary duties to plaintiff]).
I have considered the remaining claims, and I find them to be without merit.
Accordingly, it is
ORDERED that the motion to dismiss is granted, and the complaint is dismissed with costs and disbursements to defendants as taxed by the Clerk of the Court; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.
Dated: May 2, 2006ENTER:
_______________________
J.S.C.
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