CMI II, LLC v Interactive Brand Dev., Inc.

[*1] CMI II, LLC v Interactive Brand Dev., Inc. 2006 NY Slip Op 51818(U) [13 Misc 3d 1214(A)] Decided on September 26, 2006 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 26, 2006
Supreme Court, New York County

CMI II, LLC, on its own behalf and as Collateral Agent under a Security Agreement dated as of September 29, 2004, Plaintiff,

against

Interactive Brand Development, Inc., f/k/a CARE CONCEPTS I, INC., MEDIA BILLING COMPANY, LLC, INTERNET BILLING COMPANY, LLC, ELLIOT BRUCE WEINER, as Trustee of the H. ROBERT WEINER TRUST OF 1983, STANLEY B. WEINER, as Trustee of the BLANCHE WEINER TRUST of 1982, GERALD HORST, EDWARD ARNOLD, SHALVA MORRIS, STEVEN NOEL, GREG MUDWILDER, HAL COOK, ANTON PARISI, JAMES SANCHEZ, ROBERT HENDERSON, DAN SELZNICK, GULALAI MAYAR, CHRIS WOODRUFF, GEORGE MORRIS, and IIG CAPITAL LLC, Defendants.



600589/05



APPEARANCES:

For Plaintiff:

Kleinberg, Kaplan, Wolff & Cohen, P.C.

551 Fifth Avenue, 18th Floor

New York, NY 10176

(David Parker, Edward P. Grosz)

For Defendants:

Shulman, Rogers, Gandal, Pordy & Ecker, P.A.

11921 Rockville Pike, Suite 300

Rockville, MD 20852

(Jeremy W. Shulman)

Kaye Scholer LLP

425 Park Avenue

New York, NY 10022

(Michael A. Lynn)

Bernard J. Fried, J.

In this action which seeks damages for breach of contract and conversion, as well as an accounting and foreclosure on certain collateral, plaintiff CMI II, LLC, on its own behalf and as Collateral Agent under a Security Agreement dated as of September 29, 2004, moves for an order, pursuant to CPLR 3212, granting it partial summary judgment as to the first through tenth and fourteenth causes of action asserted in the second amended complaint. Plaintiff also moves for summary judgment dismissing all of the affirmative defenses asserted by defendants Interactive Brand Development, Inc., f/ka Care Concepts I, Inc. (IBD), Media Billing Company, LLC (Media Billing) and Internet Billing Company, LLC (iBill), and the first, second, fourth and fifth affirmative defenses asserted by defendant IIG Capital LLC (IIG)[FN1].

The following factual background is comprised of facts taken from plaintiff's Rule 19-A Statement,[FN2] and the affidavits submitted by the parties. In September 2004, defendant IBD raised substantial capital by selling 10% convertible secured preferred stock (the Series F Stock). The Series F Stock was issued and sold in conjunction with IBD's efforts to acquire securities in Penthouse Media Group Inc., and defendants Media Billing and iBill. Pursuant to a Subscription Agreement dated September 28, 2004 (the Subscription Agreement), IBD issued and sold 34,500 shares of Series F Stock, in exchange for $3,450,000 (3/23/06 Aff. of Alex Mazier; Exh A). Castlerigg Master Investment Limited (Castlerigg), plaintiff's predecessor-in-interest, paid $3,250,000 and received 32,500 shares of Series F Stock, which were later transferred to plaintiff. The remaining $200,000 was contributed by another investor (Mazier Aff., ¶¶ 2, 4; 3/27/06 Aff. of Edward P. Grosz, ¶¶ 14, 21).

Castlerigg's rights as an owner of Series F Stock are set forth in the IBD Certificate of Designation of Preferences and Rights of Series F Convertible Redeemable Preferred Stock (the Series F Certificate) (Mazier Aff., Exh B), which is part of IBD's Certificate of Incorporation, and was annexed as Exhibit A to the Subscription Agreement. Castlerigg's rights as an owner of Series F Stock are also governed by the following documents (collectively, with the Series F Certificate, the Operative Documents):

(1) the Subscription Agreement (id., Exh A);

(2) a Registration Rights Agreement dated September 2004 (the Registration Rights Agreement) (id., Exh C), pursuant to which IBD agreed, among other things, to file a registration [*2]statement with the United States Securities and Exchange Commission to register the resale of any shares of IBD common stock issuable upon conversion of any Series F Stock;

(3) a Pledge Agreement dated September 19, 2004 (the Pledge Agreement) (id., Exh D), pursuant to which IBD and Media Billing agreed to pledge certain securities to holders of Series F Stock as security;

(4) an Unconditional and Irrevocable Guaranty dated September 23, 2004 (the Guaranty) (id., Exh E), pursuant to which Media Billing and iBill guaranteed both the payment and performance of all of IBD's obligations to holders of Series F Stock; and

(5) a Security Agreement dated September 29, 2004 (the Security Agreement) (id., Exh F), pursuant to which Media Billing and iBill granted a security interest in all their assets (the Collateral) to a collateral agent (the Security Agreement Collateral Agent) to secure the payment and performance of all of IBD's obligations to holders of Series F Stock under the Subscription Agreement, the Series F Certificate, the Registration Rights Agreement and the Pledge Agreement, and the payment and performance of all of the obligations of Media Billing and iBill under the Guaranty.

Castlerigg perfected its security interest in the Collateral by the filing of UCC financing statements on September 29, 2004 and September 30, 2004 (Grosz Aff., ¶ 22; Exh S). By consent dated February 2005, IBD consented to Castlerigg's assignment of all of its rights and obligations under the Operative Documents to plaintiff (id., ¶ 25; Exh V). Subsequently, Castlerigg assigned its Series F Stock to plaintiff (id.). On February 18, 2005, plaintiff removed the Security Agreement Collateral Agent, and named itself Security Agreement Collateral Agent (id., ¶ 26; Exh W).

Pursuant to Section 1 (A) of the Subscription Agreement, Castlerigg had the right, within one year from the Closing Date, to exchange its shares of Penthouse International, Inc. (Penthouse) common stock for an additional 20,000 shares of Series F Stock (the Exchange Option) (Grosz Aff., ¶ 21). On June 20, 2005, plaintiff exercised its rights under the Exchange Option by exchanging 14,794,460 shares of Penthouse common stock previously purchased by Castlerigg for $2 million and then assigned to plaintiff for 20,000 shares of Series F Stock (the Exchange Series F Stock) (id., ¶¶ 29-30; Exhs Z; AA]).

As a result of the foregoing transactions, plaintiff became the owner of 52,500 shares of Series F Stock (id., ¶¶ 14, 21, 25; Mazier Aff., ¶ 2).

The Subscription Agreement and the Series F Certificate both require IBD to pay semi-annual dividends to plaintiff:

The Series F Senior Preferred Stock being offered and sold by [IBD] shall ... pay an annual dividend ... at the rate of 10% per annum, payable semi-annually on June 30th and December 31st, based on a 360 day calendar year . . . .

Subscription Agreement, § 1 (A) (a) (i); Series F Certificate, § 4.

Section 9 (b) of the Series F Certificate provides that holders of the Series F Stock are [*3]entitled to require mandatory redemption of their Series F Stock by IBD in the event that IBD fails to pay any dividend when due, or if IBD breaches any material covenant or other term of the Series F Certificate or Subscription Agreement; and IBD must redeem the Series F Stock within 10 business days after written demand from a holder of Series F Senior Preferred Stock:

(b) Mandatory Redemption Event. Upon the occurrence and continuance of one of the following redemption events (each, a "Mandatory Redemption Event"), beyond any applicable grace period, the Holder, at its sole and absolute discretion, may require a mandatory redemption by the Corporation of the Per Share Redemption Price payable within ten (10) Business Days after written notice from Holder to Corporation (each occurrence being a "Redemption Notice Period") . . . .

***

(i) Failure to Pay Dividends. The Corporation fails to pay when due any dividend in accordance herewith.

(ii) Material Breach of Covenant. The Corporation breaches any material covenant or other term of this Certificate, the Subscription Agreement, or in any Transaction Document executed in connection with the Subscription Agreement, in any material respect and such breach, if subject to cure, continues for a period of thirty (30) calendar days after notice of such breach is given by the Holder.

Series F Certificate, § 9 (b).

Plaintiff contends that IBD failed to pay the semi-annual dividend payments owed to it pursuant to the Subscription Agreement and Series F Certificate, payable on June 30, 2005 and December 31, 2005 and that, because of these missed payments, plaintiff had the right, pursuant to Section 9 (b) of the Series F Certificate, to demand redemption of its Series F Stock (Grosz Aff., ¶ 31). Plaintiff asserts that it has tendered various written demands and notices to IBD in which it demanded redemption of its Series F Stock as a result of the failure to pay semi-annual dividends and that, to date, IBD has failed to honor plaintiff's redemption demands (id., Exh BB). Plaintiff also contends that, IBD breached several covenants contained in the Operative Documents, which were made by IBD to the holders of Series F Stock, and has failed to honor its valid redemption demands based upon these breaches (Mazier Aff., ¶ 6). Plaintiff also seeks to enforce the Guaranty under which defendants Media Billing and iBill guaranteed the payment and performance of all of IBD's obligations, and to foreclose on the Collateral securing the obligations of IBD, Media Billing and iBill under the Security Agreement. Plaintiff contends that IBD currently owes it damages of almost $6 million, plus accruing interest.

PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT DISMISSING

THE FIRST THROUGH FOURTEENTH AND TENTH CAUSES OF ACTION

A.IBD's Failure to Pay Dividends (Sixth Cause of Action)

In its sixth cause of action, plaintiff asserts that IBD breached its obligations under [*4]Section 1 (A) (a) (i) of the Subscription Agreement and Section 4 of the Series F Certificate by failing to make the semi-annual dividend payments, as well as Section 9 (b) of the Series F Certificate by failing to honor plaintiff's redemption demands.

To establish a right to recover for breach of contract, a party must prove (1) the existence of a contract; (2) performance of the contract by the injured party; (3) breach by the other party; and (4) damages (Rexnard Holdings, Inc. v Bidermann, 21 F3d 522 [2d Cir 1994]; Noise In Attic Productions, Inc. v London Records, 10 AD3d 303 [1st Dept 2004]; accord J&L American Enterprises, Ltd. v DSA Direct, LLC, 10 Misc 3d 1076(A) [Sup Ct, NY County 2006]).The New York Court of Appeals has consistently held that "when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms" (W.W.W. Assocs., Inc. v Giancontieri, 77 NY2d 157, 162 [1990]; accord R/S Associates v New York Job Devel. Auth., 98 NY2d 29 [2002]). Thus, "[w]here the intent of the parties can be determined from the face of the agreement, interpretation is a matter of law and the case is ripe for summary judgment" (American Express Bank Ltd. v Uniroyal, Inc., 164 AD2d 275, 277 [1st Dept 1990], appeal denied 77 NY2d 807 [1991] [citations omitted]). Accordingly, where, as here, evidence of the terms of a contract and of one party's breach is clear, summary judgment is appropriate (Baby Togs, Inc. v IMI Systems, Inc., 205 AD2d 335 [1st Dept 1994], lv dismissed 84 NY2d 1026 [1995]; Benjamin Elec. Eng. Works, Inc. v Rampart Constr. Assocs., Inc., 173 AD2d 370 [1st Dept], appeal dismissed 78 NY2d 1006 [1991]).

Pursuant to the unambiguous terms of both the Subscription Agreement and the Series F Certificate, IBD was required to pay dividends to plaintiff "semi-annually on June 30th and December 31st" (Subscription Agreement, § 1 [A] [a] [i]; Series F Certificate, § 4). The plain terms of Section 9 (b) (i) of the Series F Certificate provide that the holder of Series F Stock are entitled to require "mandatory redemption" of their Series F Stock if IBD "fails to pay when due any dividend in accordance herewith."

IBD does not dispute that it failed to pay dividends due to plaintiff on June 30, 2005 and December 31, 2005, and that, as a result, plaintiff had the absolute right to demand a "mandatory redemption" of its 52,500 shares of Series F Stock. IBD also does not dispute that plaintiff exercised its option to demand redemption of its Series F Stock (see Grosz Aff., Exh BB), and that IBD did not honor that demand. IBD does not contend that any of the documents at issue are ambiguous. Thus, in light of the unambiguous agreements between plaintiff and IBD, and defendants' failure to make the dividend payments or honor plaintiff's redemption demand pursuant to those agreements, plaintiff has clearly established a breach of contract by IBD.

In contrast, in its submissions in response to the summary judgment motion, IBD fails to raise any triable issues of fact. IBD's central defense is that, during the negotiation phase, plaintiff "committed" to invest $6.5 million in IBD, but only invested $3.25 million, and that it is not liable to plaintiff because it reasonably believed plaintiff's allegedly false representation that it would invest the $6.5 million amount. This defense, however, is completely contradicted by the Subscription Agreement, which contains an integration clause providing that it supersedes all prior agreements among the parties, and that the only contractual obligations are those set forth in the Operative Documents:

This Agreement, together with Transaction Documents, constitutes the entire agreement among the parties hereto and supersedes all prior agreements, understandings and arrangements, [*5]oral or written, among the parties hereto with respect to the subject matter hereof and thereof. In the event of any inconsistency or conflict between the terms and conditions of the Transaction Documents and the description of the terms of the applicable Transaction Document contained herein, then the terms and conditions contained in such Transaction Document shall control.

Subscription Agreement, § 15.

According to the parol evidence rule, the terms of an integrated written contract cannot be altered, varied or added to by evidence of a prior or contemporaneous oral agreement (Braten v Bankers Trust Co., 60 NY2d 155 [1983]; Jiang v Tan, 11 AD3d 373 [1st Dept 2004]). Indeed, an integration clause makes the written documents themselves the "exclusive evidence of the parties' intent," and renders extrinsic agreements unenforceable as a matter of law (Unisys Corp. v Hercules Inc., 224 AD2d 365, 368 [1st Dept 1996], appeal withdrawn 89 NY2d 1031 [1997]). Here, the Operative Documents unambiguously require Castlerigg, plaintiff's predecessor, to invest only $3.25 million in IBD (see e.g. Subscription Agreement, § 1 [A]; Registration Rights Agreement at 1). Accordingly, in view of the integration clause contained in the Subscription Agreement, IBD is precluded from claiming that it relied on plaintiff's oral representations that it would invest $6.5 million in IBD (see Jarecki v Shung Moo Louie, 95 NY2d 665 [2001] [citing integration clause to prevent extrinsic evidence from altering contract terms]; Longo v Butler Equities II, L.P., 278 AD2d 97 [1st Dept 2000] [rejecting plaintiff's claim that he had received prior oral representations that contradicted the express written terms of the limited partnership agreement]).

IBD also contends that the motion must be denied because only limited discovery has occurred. However, it is clear that further discovery will not likely shed any light on the matters addressed in the motion papers. IBD has not identified any information which is exclusively in plaintiff's control which is material to the case. Moreover, the terms of the contracts at issue are not in dispute, and IBD does not allege any ambiguity in their provisions. Mere speculation that additional discovery will uncover a question of fact is insufficient to defeat a summary judgment motion (Rogan v Giannotto, 151 AD2d 655 [2d Dept 1989]). Although IBD also makes the unsupported contention that it had no obligation to pay dividends once plaintiff decided to commence this action, IBD fails to cite any case law in support of this position.

Thus, in light of IBD's failure to make the dividend payments owed to plaintiff, plaintiff's motion for summary judgment on its sixth cause of action must be granted (see Daiichi Seihan USA, Inc. v Infinity USA, Inc., 214 AD2d 487 [1st Dept 1995] [where a contract unambiguously requires the defendant to make payments pursuant to its terms, and the defendant fails to make such payments, judgment must issue in favor of the plaintiff]). However, summary judgment is granted as to liability only, and the issue of the amount of damages to which plaintiff is entitled will be referred to a Special Referee to hear and report.

B.Breach of the Guaranty (Seventh, Eighth and Ninth Causes of Action)

Pursuant to the Guaranty, Media Billing and iBill agreed to guarantee both the payment and performance of all of IBD's obligations to plaintiff:

[Media Billing and iBill] hereby, jointly and severally, unconditionally and irrevocably guarantees the full payment and performance, when due, of all obligations (the "Obligations") of [IBD] to the holders of [the Series F Stock]" [*6]

Guaranty at 1. Plaintiff contends that Media Billing and iBill have failed to perform their obligations to it under the Guaranty by failing to pay any of the damages due to plaintiff as a result of IBD's failure to pay the semi-annual dividends (Grosz Aff., ¶ 45).

Pursuant to Section 9 (b) (viii) of the Series F Certificate, plaintiff is entitled to require a mandatory redemption of its Series F Stock by IBD if Media Billing and iBill "repudiate, purport to revoke or fail to perform any of [their] obligations under [the Guaranty]." In such event, IBD must redeem the Series F Stock within ten business days after written demand from a holder of Series F Stock. Plaintiff contends that, by written demand dated February 14, 2005 (id., Exh QQ), it exercised its right to demand redemption of its Series F Shares as a result of Media Billing's and iBill's repudiation of their obligations under the Guaranty, and failure to perform their obligations under the Guaranty, but that IBD failed to honor plaintiff's redemption demand (id., ¶ 45).

In its eighth cause of action, plaintiff seeks damages from Media Billing and iBill for their breach of their obligations under the Guaranty, and seeks full payment from those entities of all amounts owed to plaintiff by IBD. In their response to the summary judgment motion, Media Billing and iBill do not dispute that they have failed to perform their obligations under the Guaranty.

In its seventh cause of action, plaintiff seeks damages from IBD for its failure to redeem plaintiff's Series F Stock as a consequence of Media Billing's and iBill's repudiation of their obligations under the Guaranty. IBD does not dispute that it failed to redeem plaintiff's stock, despite plaintiff's demand.

Plaintiff's motion for summary judgment on the seventh and eighth causes of action is granted. It is undisputed that Media Billing and iBill have failed to perform their obligations to plaintiff under the Guaranty by failing to pay any of the damages due plaintiff as a result of IBD's breach. It is also undisputed that, pursuant to the unambiguous terms of Section 9 (b) (viii) of the Series F Certificate, plaintiff has validly exercised its right to demand redemption, and that IBD has failed to redeem plaintiff's Series F Stock, and that Media Billing and iBill, as guarantors, have failed to pay plaintiff the redemption price owed. However, summary judgment is granted as to liability only, and the issue of the amount of damages to which plaintiff is entitled will be referred to a Special Referee to hear and report.

In its ninth cause of action, plaintiff seeks reimbursement from Media Billing and iBill for the costs and expenses it has incurred in enforcing its rights. Plaintiff's motion for summary judgment on its ninth cause of action is granted. The Guaranty provides that plaintiff has a contractual right to reimbursement of its fees and expenses, including attorneys' fees, in connection with the enforcement of its rights:

If any legal action or actions are instituted by a holder of shares of Series F Preferred Stock to enforce any of its rights hereunder, each of the undersigned covenants to pay for all expenses incurred relative to such legal action or actions, including, but not limited to, court costs and attorneys' fees and expenses.

Guaranty at 2. Where, as here, a guaranty includes language such as this, that guaranty "is broad enough to encompass liability for the plaintiff's attorney's fees" (Chase Manhattan Bank, N.A. v Marcovitz, 56 AD2d 763, 763 [1st Dept], appeal denied 42 NY2d 807 [1977]; accord [*7]International Business Machines Corp. v Murphy & O'Connell, 183 AD2d 681 [1st Dept 1992], appeal dismissed 81 NY2d 783 [1993]). Thus, the issue of the amount of plaintiff's attorneys' fees is referred to a Special Referee to hear and report.

C.Breach of the Security Agreement (Tenth and Fourteenth Causes of Action)

Plaintiff's security interest in the Collateral was perfected by the filing of UCC Filing Statements on September 29, 2004 and September 30, 2004 in accordance with New York law (Grosz Aff., Exh S). In its tenth cause of action, plaintiff seeks foreclosure of the Collateral on account of IBD's Media Billing's and iBill's numerous breaches of their obligations to plaintiff.

Section 6 (a) of the Security Agreement provides that IBD, Media Billing and iBill "shall be in default under this Agreement" (defined therein as an Event of Default) if IBD fails or refuses "to pay periodic dividends with respect to any then outstanding shares of Series F Senior Preferred Stock." Section 6 (c) provides that IBD, Media Billing and iBill are in default under the Security Agreement if they repudiate any of their obligations under the Guaranty.

Pursuant to Section 7 of the Security Agreement, plaintiff, as Collateral Agent under the Security Agreement, has the right to exercise all the rights and remedies of a secured party under the Uniform Commercial Code:

Upon the occurrence and during the continuation of any Event of Default, the Collateral Agent, acting on behalf of the Secured Parties may accelerate all the obligations and shall have, in addition to all other rights and remedies provided herein or by applicable law, all the rights and remedies of a secured party under the Code, including but not limited to, the right to take possession of the Collateral, and the right, without further notice to the Debtors, to take the Collateral in satisfaction in full of all of the Obligations.

Plaintiff's motion for summary judgment on the tenth cause of action is granted. Under the plain terms of Section 6 (a) and (c) of the Security Agreement, IBD, Media Billing and iBill are in default as a result of IBD's failure to pay the dividends due plaintiff with respect to the Series F Stock, as well as defendants' failure to honor their obligations under the Guaranty. As a result of this default, and pursuant to the unambiguous terms of Section 7 of the Security Agreement, plaintiff, as the Security Agreement Collateral Agent, is entitled to foreclose on its security interest in the Collateral in conformity with the Uniform Commercial Code.

In its fourteenth cause of action, plaintiff seeks reimbursement of the costs and expenses it has incurred in seeking to protect and enforce its rights as both a secured party and Security Agreement Collateral Agent, including, without limitation, the reasonable fees and disbursements of counsel in this action.

Plaintiff's motion for summary judgment on the fourteenth cause of action is granted. Pursuant to Section 8 of the Security Agreement, plaintiff has the right, both in its own right as a secured party and as Security Agreement collateral agent, to indemnification of all its reasonable costs and expenses incurred in connection with the enforcement of its rights:

The Debtors agree to indemnify the Collateral Agent and the Secured Parties from and against all claims, losses and liabilities arising out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement or any actions taken by the Collateral Agent and the Secured Parties pursuant to Section 9 of this Agreement) except claims, losses or liabilities resulting from the Secured Parties' own negligence or willful misconduct. [*8]The Debtors will, on demand, pay to the Collateral Agent or the Secured Parties the amount of any and all reasonable costs and expenses, including, but not limited, to the reasonable fees and disbursements of their counsel and of any experts or agents, which the Secured Parties may incur in connection with (i) the exercise or enforcement by the Secured Parties of any of their rights or remedies hereunder, or (ii) any failure by the Debtors to perform any of the Obligations.

However, summary judgment is granted as to liability only, and the issue of the amount of costs and expenses incurred by plaintiff in seeking to protect and enforce its rights as both a secured party and Security Agreement Collateral Agent, including, without limitation, the reasonable fees and disbursements of counsel in this action, will be referred to a Special Referee to hear and report. D.Breaches of the Covenants Contained in the

Operative Documents (First Through Fifth Causes of Action)

Pursuant to Section 9 (b) (ii) of the Series F Certificate, plaintiff is also entitled to mandatory redemption of the Series F Stock under the following circumstances:

(ii) Material Breach of Covenant. The Corporation breaches any material covenant or other term of this Certificate, the Subscription Agreement, or in any Transaction Document executed in connection with the Subscription Agreement, in any material respect and such breach, if subject to cure, continues for a period of thirty (30) calendar days after notice of such breach is given by the Holder.

Series F Certificate, § 9 (b) (ii). Plaintiff contends that, pursuant to the Operative Documents, IBD made several covenants to holders of Series F Stock, which were designed to make sure that there would be sufficient capital to finance ongoing activities, that IBD would be able to issue common stock if any of the holders of Series F Stock exercised their right to convert any of their Stock into shares of IBD common stock, and that any shares of common stock issued upon conversion could be traded on a national securities exchange. Plaintiff seeks summary judgment on its first through fifth causes, on the ground that IBD has breached many of these covenants, and has failed to honor its valid redemption demands based upon these breaches.

In its first cause of action, plaintiff contends that IBD breached Section 4(q) of the Subscription Agreement by failing to obtain a commitment for up to $10,000,000 for iBill on or before October 15, 2004. In its second cause of action, plaintiff alleges that IBD breached Section 1 (B) (h) of the Subscription Agreement by failing to withdraw from the AMEX, and to seek to re-list its common stock on another National Securities Exchange by January 1, 2005. In its third cause of action, plaintiff asserts that IBD breached Section 4 (j) of the Registration Rights Agreement by failing to maintain a listing of the shares set forth in that provision on a National Securities Exchange. In its fourth cause of action, plaintiff alleges that IBD breached Section 1 (B) (g) of the Subscription Agreement by failing to amend its Certificate of Incorporation by December 31, 2004 to increase the number of authorized shares of IBD common stock to 250 million. In its fifth cause of action, plaintiff asserts that IBD breached Section 3 (a) of the Pledge Agreement by failing to deliver the membership interest to in iBill to the Pledge Agreement Collateral Agent.

Plaintiff's motion for summary judgment on its first through fifth causes of action is [*9]denied. While plaintiff was entitled to demand redemption with respect to IBD's breaches of the Operative Documents, under the clear terms of the Series F Certificate, such breach must be "material." In most cases, however, "the question of materiality of breach is a mixed question of fact and law usually more of the former and less of the latter and thus is not properly disposed of by summary judgment" (Bears, Stearns Funding, Inc. v Interface Group-Nevada, Inc., 361 F Supp 283, 295 [SD NY 2005]; see Bank of New Zealand v Peer Holdings, Inc., 1991 WL 221122, *3 [SD NY 1991] ["[T]he parties hotly dispute whether plaintiffs' alleged breach was material, a question that usually presents an issue of fact inappropriate for resolution on summary judgment"]; Magi Comm., Inc. v Jac-Lu Assocs., 65 AD2d 727, 729 [1st Dept 1978] ["Materiality of a breach is for trial"]).

Indeed, the parties here sharply dispute the materiality of the breaches. Plaintiff asserts that IBD's various breaches of the Operative Documents substantially defeated the purpose for which it purchased the Series F Stock (see Mazier Aff., ¶¶ 7-8), while defendants contend that none the alleged breaches of the Operative Documents "constitutes an actionable, material breach of a material provision of the agreements" (Def Mem at 27). Thus, summary judgment cannot be granted as to these causes of action.

PLAINTIFF'S MOTION FOR SUMMARY

JUDGMENT DISMISSING THE AFFIRMATIVE DEFENSES

A.Affirmative Defenses Asserted by IBD, Media Billing and iBill

Plaintiff moves for summary judgment dismissing each of the thirteenth affirmative defenses raised by IBD, Media Billing and iBill. This branch of the motion is granted.

In their first affirmative defense, defendants interpose the boilerplate defense that plaintiff's second amended complaint "fails to state any claim upon which relief may be granted" (Grosz Aff., Exh M at 14). This affirmative defense must be dismissed, as the failure to state a claim upon which relief can be granted is not properly pleaded as an affirmative defense (see CPLR 3018 (b); Salerno v Leica, Inc., 258 AD2d 896 [4th Dept 1999]; Torres v Southside Hosp., 84 AD2d 836 [2d Dept 1981]).

Likewise, defendants' second through thirteenth affirmative defenses must also be dismissed. These defenses are as follows: failure to mitigate damages; unclean hands; waiver and release; estoppel; plaintiff's claims are not ripe; plaintiff's claims are barred by its own breach; fraud and/or duress; breach of the implied covenant of good faith and fair dealing; plaintiff materially breached each of the various agreements with defendants; failure of consideration; plaintiff's claims are barred because of their fraudulent conduct and misrepresentations; and plaintiff fraudulently or negligently induced defendants to enter into each of the agreements.

On May 19, 2005, plaintiff served a Demand for Verified Bill of Particulars on IBD, Media Billing and iBill with respect to their affirmative defenses. IBD, Media Billing and iBill served their Bill of Particulars on October 14, 2005 (Grosz Aff., Exh N). A bill of particulars is supposed to provide a more detailed picture of the claims that have been asserted by the party in the litigation (Laukaitis v Ski Stop, Inc., 202 AD2d 554 [2d Dept 1994]). The second through thirteenth affirmative defenses interposed by IBD, Media Billing and iBill, as amplified by their Bill of Particulars, are insufficient to defeat any of plaintiff's claims. With respect to each of [*10]these affirmative defenses, IBD, Media Billing and iBill make the exact same response in their Bill of Particulars. Specifically, IBD, Media Billing and iBill claim that each of these affirmative defenses "is principally based upon (i) their contention that Plaintiff falsely represented and deposited escrow monies reflecting that it would make an investment in IBD of $6.5 million when it only intended to and did in fact invest $3.25 million," and (ii) Defendants' reasonable reliance on such misrepresentation to their substantial detriment" (Grosz Aff., Exh N at 5, 7, 9-10, 14, 15-16, 18, 21-22, 23-24, 26, 27).

However, as previously discussed, this contention is completely contradicted by the Subscription Agreement, which specifically provided that it "constitute[d] the entire agreement among the parties hereto" and that it "supersede[d] all prior agreements, understandings and arrangements, oral or written, among the parties hereto" (Subscription Agreement, § 15). Thus, defendants' attempt to alter the terms of the written contract is precluded by the parol evidence rule. Accordingly, because defendants' second through thirteenth affirmative defenses are based upon an unenforceable, extra-contractual obligation, they must be dismissed.

B.IIG's Affirmative Defenses

IIG has interposed five affirmative defenses to plaintiff's causes of action [FN3]. Plaintiff seeks summary judgment dismissing IIG's first, second, fourth and fifth affirmative defenses. Plaintiff does not seek to dismiss IIG's third affirmative defense.

Plaintiff's motion for summary judgment dismissing these affirmative defenses is granted, as none of them have any merit [FN4].

In its first affirmative defense, IIG contends that plaintiff is not the Collateral Agent under the Security Agreement, and does not have standing to bring this suit. Plaintiff presents evidence, however, that it removed the Collateral Agent on February 18, 2005 and, on the same date, appointed itself as the new Collateral Agent (see Grosz Aff., Exh W). Accordingly, plaintiff is the Security Agreement Collateral Agent and has standing to bring this action seeking foreclosure on the collateral.

In its second affirmative defense, IIG claims that the Security Agreement, Pledge Agreement and Guaranty are each ultra vires, invalid and unenforceable as to Media Billing and IIG. However, the defense of ultra vires has no application to plaintiff's claims against iBill, a [*11]Georgia limited liability company, because the defense of ultra vires has essentially been abolished in Georgia. Section 14-11-202 of Georgia's Official Code defines the powers of limited liability companies broadly: "Each limited liability company formed in this state shall have the same powers as any person has to do all things necessary to carry out its purpose, business, and affairs" (GA Code Ann, § 14-11-202 [2005]). This language is consistent with the laws governing Georgia corporations, which do not recognize the defense in most actions (Ga Code Ann, § 14-2-304 [2005], official comment [the purpose of this provision "is to eliminate all vestiges of the doctrine of "ultra vires"]; see also Corbin Supply Co. v Loftis, 50 Ga App 309, 311 [1934] ["the doctrine of ultra vires has no proper place in the law of private corporations ... except in respect of contacts which are bad in themselves"] [citation omitted]).

With respect to Media Billing, a New York limited liability company, the defense of ultra vires is equally unavailing. First, as a New York limited liability company, Media Billing had the broad power, without limitation, to "mortgage, pledge ... or otherwise dispose of all or part of its property or assets" (LLC Law § 202 [c]). Second, as a New York limited liability company, Media Billing also had the power to enter into contracts, including contracts of guaranty, to secure by mortgage, pledge, or other encumbrance, any of its obligations and to make contracts of guaranty "that are necessary or convenient to the conduct, promotion or attainment of the business of ... a limited liability company" (LLC Law § 202 [e]). In this case, Media Billing entered into the Security Agreement, Pledge Agreement and Guaranty in order to facilitate the business of IBD, which was in the process of acquiring 100% of the membership interest of Media Billing. Accordingly, Media Billing had the capacity to enter into those agreements.

Furthermore, Media Billing and iBill cannot claim that the Security Agreement, Guaranty and Pledge Agreement were ultra vires since, in each of the agreements, Media Billing and iBill affirmatively represented to plaintiff that they had the authority to enter into the agreements (see Security Agreement, § 5.1; Guaranty, § 5 [e]; Pledge Agreement at 2).

IIG also asserts, in its second affirmative defense, that the Security Agreement, Pledge Agreement and Guaranty are unenforceable, because Media Billing and iBill received no consideration. It is axiomatic that the consideration which supports a principal obligation is sufficient to support a guaranty of that obligation (The Erie County Savings Bank v Coit, 104 NY 532 [1887]; Beacon Hotel Corp. v Springer, 256 App Div 606 [1st Dept 1939]; accord Consumers Union of U.S., Inc., 1989 WL 304762 [SD NY 1989]). In this case, plaintiff contributed $3.25 million to IBD at the same time that Media Billing and iBill entered into the Security Agreement, Pledge Agreement and Guaranty. Accordingly, these agreements were supported by the same $3.25 million consideration that went to IBD from plaintiff.

In its fourth affirmative defense, IIG alleges that the Security Agreement does not secure Media Billing's obligations under the Pledge Agreement. Although this statement is correct, it is completely irrelevant. Plaintiff has not brought a claim against Media Billing for breach of the Pledge Agreement. Instead, plaintiff brings claims against Media Billing only under the Guaranty and the Security Agreement (Second Amended Complaint, ¶¶ 136-163]). Accordingly, IIG's fourth affirmative defense does not form a basis for denial of plaintiff's summary judgment motion, and must be dismissed.

In its fifth affirmative defense, IIG alleges that plaintiff cannot foreclose on the Collateral because IIG has a more senior security interest. However, the fact that plaintiff's security interest [*12]is subordinated does not preclude plaintiff from seeking and obtaining foreclosure. As part of the foreclosure process, plaintiff is entitled to have the amount secured by IIG's senior security interest judicially determined, and to have that amount satisfied out of the sale of the Collateral (The Tax Lien Co. of New York v Schultze, 213 NY 9 [1914]; Solomon v Abato, 20 Misc 2d 591 [Sup Ct, Kings County 1959]; Dot Mot Holding Corp. v Larpeg Realty Corp., 167 Misc 242 [Sup Ct, Westchester County 1938]).

Accordingly, plaintiff's motion for summary judgment dismissing IIG's first, second, fourth and fifth affirmative defenses is granted.

I have considered the remaining claims, and find them to be without merit.

Accordingly, it is

ORDERED that the motion of plaintiff CMI II, LLC for summary judgment on its sixth, seventh, eighth, ninth and fourteenth causes of action is granted as to liability only; and it is further

ORDERED that the issues of the amount of damages to which plaintiff is entitled (sixth, seventh and eighth causes of action), the amount of plaintiff's attorney's fees (ninth cause of action), and the amount of costs and expenses incurred by plaintiff in seeking to protect and enforce its rights as both a secured party and Security Agreement Collateral Agent, including, without limitation, the reasonable fees and disbursements of counsel in this action (fourteenth cause of action), is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further

ORDERED that plaintiff's motion for summary judgment on its tenth cause of action is granted; and it is further

ORDERED that plaintiff's motion for summary judgment on its first through fifth causes of action is denied; and it is further

ORDERED that plaintiff's motion for summary judgment dismissing the affirmative defenses of defendants Interactive Brand Development, Inc., f/ka Care Concepts I, Inc., Media Billing Company, LLC, Internet Billing Company, LLC (iBill) is granted, and defendants' affirmative defenses are severed and dismissed; and it is further

ORDERED that plaintiff's motion for summary judgment dismissing the first, second, fourth and fifth affirmative defenses asserted by defendant IIG Capital LLC is granted, and IGG's affirmative defenses are severed and dismissed; and it is further

ORDERED that the remainder of the action shall continue.

Dated: September 26, 2006

ENTER:

_______________________

J.S.C. [*13] Footnotes

Footnote 1:Plaintiff is not seeking summary judgment as to its eleventh through thirteenth causes of action, or with respect to IIG's third affirmative defense.

Footnote 2:Defendants apparently do not contest the facts set forth in plaintiff's Rule 19-A Statement, as they have failed to submit either a response, or their own Rule 19-A Statement. Thus, for purposes of this motion, the facts set forth in plaintiff's Rule 19-A Statement are deemed to be true (see Rules of the Justices of the Commercial Division, Supreme Court, NY County, Rule 19-a [c]).

Footnote 3:Defendants Elliot Bruce Weiner, Stanley B. Weiner, Gerald Horst, Edward Arnold, Shalva Morris, Steven Noel, Greg Mudwilder, Hal Cook, Anton Parisi, James Sanchez, Robert Henderson, Dan Selznick, Gulalai Mayar, Chris Woodruff, George Morris and IIG are parties claiming a security interest in the Collateral, having filed UCC Filing Statements after the date on which the Filing Statements securing plaintiff's security interest were filed (Grosz Aff.¶¶ 23-24; Exhs T and U). Plaintiff has named them as parties with an interest in the disposition of the Collateral. Of these parties, only IIG has filed an answer to the second amended complaint. The other defendants have defaulted.

Footnote 4:Indeed, IIG asserts that it "does not object to Plaintiff's motion to strike IIG's Affirmative Defenses to the extent that IIG's position as the senior lien holder is not impaired" (Aff. of Lee Henig-Elona, ¶ 4).