RenerGlobe, Inc. v Northeast Biofuels, LLC

[*1] RenerGlobe, Inc. v Northeast Biofuels, LLC 2009 NY Slip Op 51430(U) [24 Misc 3d 1212(A)] Decided on June 24, 2009 Supreme Court, New York County Bransten, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 24, 2009
Supreme Court, New York County

RenerGlobe, Inc., Plaintiff,

against

Northeast Biofuels, LLC; NORTHEAST BIOFUELS, L.P.; PERMOLEX INTERNATIONAL, L.P.; CITIGROUP VENTURE CAPITAL INTERNATIONAL GROWTH PARTNERSHIP, L.P.; and DOUGLAS MACKENZIE, Defendants.



603180/06

Eileen Bransten, J.

Motion sequence numbers 001 and 002 are consolidated for disposition.

In motion sequence number 001, defendants move to dismiss the complaint pursuant to CPLR 3211 (a) (1), (3) and (7). In motion sequence number 002, defendant Douglas MacKenzie moves, pursuant to CPLR 2201, for a stay of this action pending the outcome of a lawsuit in Michigan, entitled Douglas MacKenzie v. Renerglobe, Inc. and R. Douglas Hunter, Case No. 07-657 (Cir Ct, Ingham County).

BACKGROUND

RenerGlobe, Inc. ("RenerGlobe") provides services to the biofuels and renewable fuels industry. In this action, it sues to enforce a Project Development and Management Agreement (the "PDMA") entered into with defendant Northeast Biofuels, LLC ("NE Biofuels") on July 28, 2004, which concerns the development of a facility in Fulton, New York to produce fuel ethanol and related co-products (the "Facility"). In the PDMA, the scope of the work was divided into three phases. Phase I, entitled "Project Development," consisted of the initial steps to develop the Facility. Phase II, was entitled "Construction and Initial Operations," and was to commence after financing for the facility was completed. Phase III involved the actual management of the plant.

RenerGlobe contends that it performed all of the work required under Phase I of the PDMA and that, pursuant to section 11(e), upon closing of the Facility's equity and debt financing, it was entitled to a fee equal to 2.2% of that financing. On June 30, 2006, Goldman Sachs & Co. and Jeffries & Company closed $257 million in equity and debt financing for the Facility. RenerGlobe alleges that, in material breach of the PDMA, NE Biofuels refused to paid RenerGlobe the agreed-upon 2.2% fee equal to $5.39 million. In addition, RenerGlobe alleges that, since the PDMA was never terminated, it is also entitled to receive monthly management fees pursuant to section 11(d) through the end of June 2011. Finally, RenerGlobe alleges that NE Biofuels never actually owned [*2]the real property upon which the Facility was to be developed, which was a further material breach of the PDMA

In addition to suing NE Biofuels for breach of contract (first cause of action), plaintiff asserts a claim for breach of fiduciary duty (third cause of action) against Douglas MacKenzie ("MacKenzie"), who is allegedly the former President and Chief Executive Officer ("CEO") of RenerGlobe. MacKenzie is alleged to have breached his fiduciary duty to RenerGlobe by usurping a corporate opportunity in December 2005 through introducing NE Biofuels to Douglas Brent and Hollis Brent (the "Brents"), investors in the fuel sector, and their company, Permolex International, L.P. ("Permolex"). MacKenzie and the Brents formed the Brent MacKenzie Group ("BMG"). In early February 2006, unbeknownst to RenerGlobe, BMG signed a letter of intent with NE Biofuels to provide capital to the Facility, and RenerGlobe was told in March 2006 that the financing would be completed without RenerGlobe.

The complaint alleges that prior to the July 2007 closing, Permolex made a substantial equity investment in Northeast Biofuels, L.P. ("NBLP"), a limited partnership that was only created three days prior to the closing, and which is now the owner of the Facility. In order to make the investment, Permolex received a significant equity investment from defendant Citigroup Venture Capital International Growth Partnership, L.P. ("Citigroup"), which became, after the closing, a 50% owner of Permolex, the current manager of the Facility. The complaint further alleges that NBLP is owned and controlled by Douglas Brent, and that, as part of the closing, NBLP purchased the real property upon which the Facility was to operate from Riverview Business Park LLC ("Riverview"), an entity controlled by Eric Will and Thomas Denney, the same individuals that controlled NE Biofuels. RenerGlobe alleges that although Riverview had purchased the real property in 2000 for $6 million from the Miller Brewing Company, the sale price to NBLP was only $2.9 million.

The complaint's three remaining causes of action are a claim against NBLP, Permolex and Citigroup for tortious interference with the PDMA (second cause of action); fraudulent conveyances of permits, contracts and other assets by NE Biofuels to Permolex and/or NBLP in violation of New York Debtor and Creditor Law §§ 273, 276 (fourth cause of action); and unjust enrichment against Permolex and NBLP (fifth cause of action).

Defendants move to dismiss the complaint, pursuant to CPLR 3211(a), on the grounds that defendants are entitled to judgment based on the documents and admissions in the pleadings. The motion is supported only by an affirmation of defendants' counsel, the complaint, the PDMA, corporate filings in Michigan on behalf of RenerGlobe, and a financing proposal dated April 29, 2005. Defense counsel maintains that NE Biofuels was never itself able to develop the Facility, after more than two and a half years of effort, because it was never able to obtain the requisite financing. Consequently, in December of 2005, NE Biofuels and others began discussions pertaining to the possible sale of certain assets by NE Biofuels relating to the Facility and the real property where it would be located. By June 30, 2006, financing was procured by certain investors (not NE Biofuels), enabling them to fund and complete the purchase transaction. Since RenerGlobe itself did not participate in the financing transaction, which was not by or on behalf of NE Biofuels, defendants maintain that no payments are due under the PDMA and that it was terminated, without cause and without any notice requirement, in accordance with its terms.

In opposition to defendants' motion to dismiss, RenerGlobe offered an affidavit from R. Douglas Hunter ("Hunter") in which he claimed to be the current, president, CEO, sole director and [*3]sole shareholder of RenerGlobe. Hunter avers that RenerGlobe is a "small company" which was "operated informally, between and among friends." He also claims that he is the sole shareholder and director, but that in 2003, RenerGlobe issued 65 shares of stock, and that pursuant to an oral understanding, Hunter holds in trust the shares as follows: MacKenzie - 20 shares; John McNamara - 20 shares; Hunter - 15 shares; and Michael McSweeney - 10 shares.

On May 22, 2007, MacKenzie commenced an action in the Circuit Court for the County of Ingham, State of Michigan, against RenerGlobe and Hunter (the "Michigan Shareholder Action"). In that action, MacKenzie seeks a judgment ordering Hunter to deliver the shares to the four shareholders of RenerGlobe; a judgment declaring that MacKenzie has full title and ownership of the 20 shares of RenerGlobe stock issued to him; and a judgment ordering a special meeting of the company's shareholders. MacKenzie denies that there was ever any oral understanding whereby Hunter would hold all of the shares of RenerGlobe, and claims that Hunter has usurped control of RenerGlobe and is pursuing a course of action in which the shareholders of RenerGlobe have no voice, namely this action in New York. Without holding an annual or special meeting of shareholders, and without obtaining the proper consent of shareholders, Hunter, as a minority shareholder, is alleged to have installed himself as president, CEO, and sole director of RenerGlobe.

After two separate failed attempts in 2007 and 2008 to reach a global settlement of the two lawsuits, the parties were asked to update this court on January 6, 2009 as to the status of the Michigan action. Counsel advised that motions addressed to personal jurisdiction issues had been denied, a discovery schedule put in place and that a tentative trial date has been set for Spring 2010 (Jan. 6, 2009 Tr. at 2-3). Since settlement is not in the cards and all temporary stays in this action have now been lifted, defendants' motions to dismiss must now be addressed.

ANALYSIS

Stay

A threshold issue is raised by the bankruptcy filing of defendant NBLP on January 14, 2009. A lawsuit against a debtor's co-defendant is not automatically stayed by the debtor's bankruptcy filing (Queenie, Ltd. v Nygard Intl., 321 F3d 282, 288 [2d Cir 2003]; Teachers Ins. and Annuity Assn v Butler, 803 F2d 61, 65 [2d Cir 1986] ["It is well-established that stays pursuant to § 362(a) are limited to debtors and do not encompass non-bankrupt co-defendants"]; 3 Collier on Bankruptcy § 362.03[3][d] [15th ed 2002]). The automatic stay will only apply to a non-debtor "when a claim against the non-debtor will have an immediate adverse economic consequence for the debtor's estate. Examples are a claim to establish an obligation of which the debtor is a guarantor, a claim against the debtor's insurer, and actions where there is such identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant . . .'" (Queenie, Ltd. v Nygard Intl., 321 F3d, at 287-88).

There is no basis to stay the action against NBLP's co-defendants here because NBLP is a separate legal entity and there has been no showing of any adverse effect on the debtor's estate.

Defendants also seek a stay pending resolution of the Michigan Shareholder Action. Pursuant to CPLR 2201, the court "in which an action is pending may grant a stay of proceedings [*4]in a proper case, upon such terms as may be just."[FN1] However, "[a] stay of one action pending the outcome of another is appropriate only where the decision in one will determine all the questions in the other, and where the judgment in one trial will dispose of the controversy in both actions; this requires a complete identity of parties, cause of action and the judgment sought" (Somoza v Pechnik, 3 AD3d 394 [1st Dept 2004], citing Pierre Assoc. v Citizens Cas. Co. of New York, 32 AD2d 495, 497 [1st Dept 1969]; see also Eisner v Goldberger, 28 AD3d 354 [1st Dept 2006]; Guilden v Baldwin Sec. Corp., 189 AD2d 716 [1st Dept 1993]).

Although the two actions are entirely different in terms of parties, claims and the relief sought, defendants argue that a stay is appropriate in this action because the Michigan Shareholder Action will determine who controls RenerGlobe and its authority or lack of authority to maintain this action. However, even assuming the Michigan court orders the transfer of 20 shares to MacKenzie, and a shareholder meeting takes place, it would not necessarily dispose of the claims brought here because MacKenzie allegedly only owns 31% of the company. Indeed, counsel for RenerGlobe advised this court that MacKenzie asserted a new claim in the Michigan Shareholder Action through which he seeks a percentage of any sum recovered in this case (Jan. 6, 2009 Tr. at 37). It appears that the Michigan action was commenced solely to stonewall RenerGlobe's claims for compensation for its work on developing the Facility, and that any claims between Hunter and MacKenize regarding RenerGlobe could be resolved in this action (cf. Interested Underwriters at Lloyd's v H.D.I. III Assoc., 213 AD2d 246, 246-47 [1st Dept 1995]). Because resolution of the Michigan action will not likely dispose of all of the claims here, a stay is not appropriate. This action, which was commenced earlier than the Michigan Shareholder Action, will proceed.

Dismissal [FN2] [*5]

Defendants argue that the first cause of action against NE Biofuels alleging a breach of the PDMA must be dismissed, because it was a condition precedent of the PDMA that RenerGlobe be authorized to do business in New York "at all times," and it is undisputed that authorization was not obtained until September 11, 2006. This argument is without merit. There is a fundamental difference between a representation and warranty, on the one hand, and a condition precedent, on the other. Satisfaction of the latter must occur before a duty to perform a contractual obligation arises (Merritt Hill Vineyards Inc. v Windy Heights Vineyard, Inc., 61 NY2d 106, 112 [1984], citing Restatement [Second] of Contracts § 224). A "contractual duty ordinarily will not be construed as a condition precedent absent clear language showing that the parties intended to make it a condition" (Unigard Security Ins. Co. v North Riv. Ins. Co., 79 NY2d 576, 581 [1992]). Section 4 of the PDMA is entitled "Manager's Representations and Warranties." Section 4(c) provides that "the Manager shall, at all time, required by applicable law, be duly authorized to conduct business in the State of New York." This undoubtedly is one of several "Representations and Warranties" by RenerGlobe, the breach of which was never complained about until after RenerGlobe's alleged performance under the PDMA and the commencement of this lawsuit. Accordingly, RenerGlobe's belated filing for authority and qualification to do business in New York does not prevent it from maintaining a breach of contract claim against NE Biofuels.

In support of dismissal, Defendants also argue that the PDMA was terminated without cause and without triggering any notice requirement in accordance with the provisions of Section 13, which among other things provides: "In the event of a termination without cause, Manager shall receive an additional termination fee equal to the fee earned by the Manager for the management of the Facility for the two (2) months immediately preceding the termination date"

(PDMA, Ex. A to the Complaint, at 13). RenerGlobe argues that this clause only refers to the Phase III period in which RenerGlobe would be managing the Facility and earning a $30,000 monthly management fee outlined in Section 11(d) of the PDMA. While this interpretation seems to make some sense, Section 11(c) provides for payment to RenerGlobe of a monthly $5,000 fee prior to the successful start-up and commissioning of the Facility. In the end, Section 13 is ambiguous and resort to parol evidence will be required to ascertain the parties' meaning as to this "additional termination fee."

In addition, dismissal is not warranted, because it is equally unclear whether the above-quoted language of Section 13 negates the preceding provision requiring "written notice" for termination by either party upon the happening of certain enumerated events. Plaintiff contends that the PDMA was never formally terminated, and defendants have failed to prove, as a matter of law, that written termination was either not required or given in accordance with the terms of the PDMA. Neither the April 29, 2005 US Renewables Group "proposal" letter modifying the fee RenerGlobe would receive, and/or certain oral statements made by Douglas Brent and/or NE Biofuels to Hunter in March and May 2006, constitute an acknowledgment by RenerGlobe that any contractual obligations it was owed under the PDMA had terminated.

Plaintiff sues NBLP, Permolex and Citigroup for tortious interference with the PDMA. Whether the PDMA was terminable at will, and therefore not breached by NE Biofuels, cannot be resolved on these papers. Moreover, economic justification is a defense that a defendant may raise [*6]to defeat a claim that it tortiously interfered with an existing contract, and defendant must show that it acted to protect its own legal or financial stake in the breaching party's business (White Plains Coat & Apron Co. v Cintas Corp., 8 NY3d 422, 426 [2007]; Foster v Churchill, 87 NY2d 744, 750 [1996]). Whether the defense of economic justification excuses any intentional procuring of a breach of the PDMA by NBLP, Permolex and Citigroup, which are alleged in the complaint to have deliberately structured the deal with the intention that RenerGlobe be "cut out" in order to increase their own profits (see Complaint, ¶ 85), is a question that must be explored. The defense has not been established as a matter of law on these papers such that dismissal, pursuant to CPLR 3211(a)(1) or (7), is justified.

Defendants move to dismiss the breach of fiduciary duty claim asserted against MacKenzie on the basis that documentary evidence on file with the State of Michigan establishes that he was not the President and CEO of RenerGlobe in 2004 and 2005; rather that person was Hunter, and it was Hunter that signed the PDMA on July 28, 2004 on behalf of RenerGlobe (see Marshall Affirm., Exs. C and D thereto).

When the motion is based upon documentary evidence, pursuant to CPLR 3211(a) (1), dismissal of a cause of action is warranted "only 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 Goshen v Mutual Life Ins. Co. of New York, 98 NY2d 314, 326 [2002]).

Dismissal of the third cause of action against MacKenzie is not warranted, because RenerGlobe proffers other documents indicating that MacKenzie held himself out to be the President and CEO of RenerGlobe. Defendants do not dispute that a letter of intent that preceded the PDMA was signed by MacKenzie as the President and CEO of RenerGlobe on or about July 2, 2003 (see Complaint, ¶ 10); that a investment banking memorandum prepared by Jeffries & Co. in August of 2004 identifies MacKenzie as the President and CEO of RenerGlobe, while Hunter is listed as a Vice President; and that the US Renewables Group financing proposal dated April 29, 2005 is addressed to MacKenzie as the sole representative of RenerGlobe. Thus, both men were claiming to be the chief officer of the company in the Summer of 2004, and MacKenzie was viewed as the key contact at RenerGlobe as late as April 2005. While defense counsel argued to the court that MacKenzie had terminated his relationship with RenerGlobe "in or about 2003, 2004, before the contract was signed" (Jan. 6, 2009 Tr. at 26), there is no evidentiary support for that statement and it conflicts with the documentary evidence offered by Hunter on behalf of RenerGlobe. What does appear clear, and consistent with the reported finding of the Michigan court (id., at 3), is that the company functioned very informally and more like a partnership, which if indeed the case, would not foreclose the existence of a fiduciary duty on the part of MacKenzie to the other partners of RenerGlobe. Thus, the motion to dismiss the third cause of action for breach of fiduciary duty as against MacKenzie must be denied.

The fourth cause of actionasserted against NE Biofuels, Permolex and NBLPis based on a theory of alleged fraudulent transfers in violation of sections 273 and 276 of the New York Debtor and Creditor Law. Because there are questions of fact that cannot be resolved in the context of a motion to dismiss as to whether there were transfers of assets by NE Biofuels without fair consideration that rendered it insolvent or whether the transfers were made with actual intent to defraud RenerGlobe, dismissal is denied.

In its fifth cause of action, Renerglobe contends that NBLP and Permolex received valuable [*7]permits and contracts as result of its work pursuant to Phase I of the PDMA, and that it would be unjust and inequitable for Permolex, as the new owner and operators of the Facility, to retain such services and benefits without compensating RenerGlobe. Defendants maintain that dismissal is mandated because there is no privity of contract between RenerGlobe and Permolex, and because the complaint fails to allege that RenerGlobe performed services for or bestowed benefits on Permolex.

An unjust enrichment claim is stated when a complaint asserts that a " benefit was bestowed . . . by plaintiffs and that defendants will obtain such benefit without adequately compensating plaintiffs therefor'" (Wiener v Lazard Freres & Co., 241 AD2d 114, 120 [1st Dept 1998]). The complaint adequately states a cause of action for unjust enrichment and defendants have not established that privity is required before there can be recovery on a non-contractual theory (see State v Daicel Chemical Indus., 42 AD3d 301, 304 [1st Dept. 2007] ["privity is not required for an unjust enrichment claim"]).

Accordingly, it is

ORDERED that defendants' motion to dismiss the complaint is denied; and it is further

ORDERED that the motion of defendant Douglas MacKenzie for a stay of this action pending resolution of Douglas MacKenzie v. Rennerglobe, Inc. and R. Douglas Hunter, Case No. 07-657, which was commenced in the Circuit Court of the County of Ingham, State of Michigan, is denied and that counsel for defendant Douglas MacKenzie furnish a copy of this order to the Hon. Joyce Draganchuk within 10 days of service of a copy of this order with notice of entry; and it is further

ORDERED that defendants Northeast Biofuels, LLC, Permolex International, L.P., Citigroup Venture Capital International Growth Partnership, L.P. and Douglas MacKenzie shall serve an answer to the complaint within 10 days of service of a copy of this order with notice of entry; and it is further

ORDERED that the action is stayed as to defendant Northeast Biofuels, L.P. as a result of its bankruptcy filing on January 14, 2009; and it is further

ORDERED that counsel for the parties shall appear for a status conference on July 7, 2009 at 9:30 a.m. in Part 3 to discuss an expedited discovery schedule.

Dated: June 24, 2009ENTER:

______________________________

Hon. Eileen Bransten Footnotes

Footnote 1:Notably, defendants do not invoke CPLR 3211 (a) (4), which allows a court to dismiss or stay an action where an action is pending in another state, presumably, because the statute itself requires that the two action be "between the same parties and for the same cause of action," which is clearly not the case here.

Footnote 2: This motion was served long ago before settlement efforts. Defendants argued that RenerGlobe, a foreign corporation, lacks capacity to bring this action pursuant to CPLR 1312(a). Defendants urged that RenerGlobe could not prosecute an action in this state "until such corporation has been authorized to do business in this state and paid to the state all fees and taxes imposed under the tax law or any related statute." On February 1, 2007, this court (Moskowitz, J.) temporarily stayed the action pending proof of RenerGlobe's payment of all franchise taxes owed to New York State. Subsequently, by affirmation dated May 30, 2007, plaintiff's counsel advised that all returns and taxes owed for the years 2003 through 2006 had been filed and paid and the temporary stay was lifted (see May 31, 2007 Tr. at 3). Defense counsel admits that the issue is now moot (see Jan. 6, 2009 Tr. at 11); accordingly, defendants' motion to dismiss, pursuant to CPLR 3211(a) (3), based on RenerGlobe's alleged lack of capacity to maintain this action is denied.