Capricorn Invs. III, L.P. v Coolbrands Intl., Inc.

[*1] Capricorn Invs. III, L.P. v Coolbrands Intl., Inc. 2009 NY Slip Op 51608(U) [24 Misc 3d 1224(A)] Decided on July 14, 2009 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 14, 2009
Supreme Court, New York County

Capricorn Investors III, L.P., Plaintiff,

against

Coolbrands International, Inc., INTEGRATED BRANDS INC., CBA FOODS LLC, CB AMERICANA, LLC, GARY P. STEVENS, SUSAN J. SMITH, Executrix of the Will of RICHARD E. SMITH, deceased, DAVID J. STEIN, FRANCIS X. ORFANELLO, and ROBERT E. BAKER, Defendants.



603795/06



For Plaintiff

SKADDEN, ARPS, SLATE, MEAGER

& FLOM, LLP

Four Times Square

New York, NY 10036-6522

By: George A. Zimmerman

Sharon Garb

Joseph A. Matteo

Victoria Shin

Colm P. McInerney

For Defendants

STEPTOE & JOHNSON

750 7th Avenue - Ste 199

New York, NY 10019

By: Michael C. Miller

Evan Glassman

Christopher J. Marino

Bernard J. Fried, J.

Plaintiff, Capricorn Investors III, L.P. (Capricorn), seeks to recover for alleged breaches [*2]of a limited partnership agreement (the Partnership Agreement) of a now-bankrupt, non-party, Texas limited partnership that manufactured frozen desserts (Americana). Defendants move, pursuant to CPLR 3211 (a) (1), (7), to dismiss the Third Amended Complaint (the Complaint).

Capricorn claims that in 2002, Herbert S. Winokur, the head of its managing partner, was approached by David Stein and Richard Smith, the then-officers and directors of defendant CoolBrands International, Inc. (CoolBrands), a publically-traded Canadian corporation, about entering into a partnership to run Americana. Plaintiff contends that its interest in, and decision to partner with, CoolBrands was based on CoolBrands' expertise, experience and reputation in the frozen desserts industry.

Plaintiff further contends that at a meeting in October 2002, Stein explained that CoolBrands' wholly-owned subsidiary, defendant Integrated Brands Inc. (Integrated), a New Jersey corporation, was the holder of CoolBrands' U.S. assets and would be the vehicle through which CoolBrands would purchase a 50.1% partnership interest in Americana. In discussions and negotiations, Stein allegedly stressed that Integrated was CoolBrands' U.S.-based arm, holding CoolBrands' U.S. assets, bank accounts and loans, and Stein and Smith represented that CoolBrands would install its own handpicked management team to run Americana, make all strategic decisions concerning its operations, and be plaintiff's partner. Plaintiff alleges that CoolBrands was listed as the partner on the parties' term sheet.[FN1] At this time, defendants CBA Foods LLC (CBA) and CB Americana, LLC (CB) (together, The LLCs), both Delaware limited liability companies, organized on or about December 20, 2002, did not exist.

On January 10, 2003, through a purchase agreement, Integrated bought a 9% limited partnership interest in Americana from Capricorn, with an option to purchase a greater interest. In addition, CBA executed the Partnership Agreement by its managing member, Integrated. Americana and plaintiff's affiliates, Americana Foods Corp (AFC) and AF Sub Corp. (AF Sub),[FN2] are also signatories to the Partnership Agreement. CoolBrands and Integrated are not.

The parties signed a third agreement on January 10, 2003, which provided that Integrated would assume substantial management and decision-making obligations for Americana (the Management Agreement) (Winokur Aff. of Merit, Exh. 6).[FN3] The Management Agreement provides that Integrated was to make all decisions with respect to the operations of Americana, including, among other things, those decisions regarding Americana's: (i) business operations; (ii) appointment of officers and hiring, firing, staffing and personnel management; and (iii) vendor and customer agreements and relationships (id., at 3-4).

In July 2003, Integrated exercised its purchase option, and CBA acquired from AFC an additional interest in Americana. In addition, CB acquired a 1% general partnership interest from [*3]AF Sub, giving The LLCs a controlling collective interest of 50.1%. Thereafter, Capricorn owned a 49.9% limited partnership interest in Americana, and allegedly, over the next several years, invested millions of dollars in that business. The LLCs are wholly owned by Integrated, and plaintiff alleges that they are the vehicles through which CoolBrands, through Integrated, owned its interests in Americana.

In October 2006, CB filed a Chapter 7 bankruptcy proceeding against Americana. Plaintiff alleges that the Bankruptcy Court approved the sale of Americana's property in December 2006.

In the first cause of action, plaintiff alleges that defendants breached the Partnership Agreement by failing to pay plaintiff pursuant to a change-of-control provision (the Change of Control Provision). According to plaintiff, the Change of Control Provision provides that in the event of a change of control prior to a specifically defined period, CoolBrands was required to either: (1) acquire all of Capricorn's partnership interest in exchange for the return of Capricorn's investment plus an amount that will provide a 30% annualized internal rate of return to Capricorn (the Payment), or (2) transfer to Capricorn all of CoolBrands' interest in Americana on an unencumbered basis, pay plaintiff $8,000,000 and transfer title to Americana's equipment to Capricorn (Complaint, ¶ 64; see Partnership Agreement § 12). "Change of Control" is defined as: "the occurrence of any of the following events: (i) any "person" . . . becomes the beneficial owner' directly or indirectly, of more than 50% of the total voting power of the capital stock of CoolBrands International Inc. outstanding immediately prior to such transaction; (ii) a merger or consolidation or similar transactions involving CoolBrands International Inc. after which the holders of CoolBrands International Inc. capital stock do not own at least 50% of the total voting power represented by the capital stock of the surviving entity of such transaction; or (iii) the adoption of a plan of complete liquidation or the sale or disposition by CoolBrands International Inc. of all or substantially all of its assets"

(Partnership Agreement, at 4-5).

Plaintiff alleges that the Change of Control Provision has been triggered because CoolBrands has conducted a de facto asset liquidation by selling all or substantially all of its core revenue-producing assets, including its three manufacturing facilities, which have been sold or are no longer used, and is out of the frozen dessert manufacturing business. Plaintiff contends that CoolBrands can no longer transfer to Capricorn its Americana interest on an unencumbered basis, because it caused the Americana Chapter 7 liquidation filing, and seeks the Payment here.

In the second cause of action, plaintiff alleges that CoolBrands, through its subsidiaries, failed to provide plaintiff with certain information. Plaintiff contends that this failure was a breach of the Partnership Agreement.

While Integrated and CoolBrands are not signatories to the Partnership Agreement, plaintiff claims that it is entitled to recover from them for both causes of action. Plaintiff claims that The LLCs were shells created solely to execute agreements on behalf of CoolBrands, and did not make decisions or exercise independent business discretion concerning Americana. Plaintiff [*4]further claims that The LLCs did not observe corporate formalities as they: (1) had no officers, directors or employees; (2) never held a board of directors or executive committee meeting; and (3) had no letterhead or email address, and did not send or receive emails, with all communications to The LLCs sent to their sole member, Integrated. Plaintiff also alleges that The LLCs did not engage in business operations, and also were not entities in good standing after 2004, because they did not pay Delaware statutory fees.

Plaintiff contends that The LLCs' parent, Integrated, was a corporate shell for CoolBrands, and the vehicle through which CoolBrands conducted its U.S. operations, with both companies operating out of the same New York office, with their employees intermingled, such that it was virtually impossible to distinguish between the businesses. Plaintiff further contends that CoolBrands and Integrated commingled funds and banks accounts, as demonstrated by CoolBrands' use of the proceeds of the sales of Integrated's assets to pay CoolBrands' debts and fund its working capital needs, and CoolBrands' payment of its employees with funds drawn on Integrated's bank accounts. In addition, plaintiff alleges that Integrated did not have its own email address, and that its staff communicated regarding Americana using CoolBrands' address. Plaintiff claims that Integrated's board members were CoolBrands' officers, and that CoolBrands placed its executives at Integrated to control operations. Plaintiff also claims that Integrated did not follow corporate formalities, as it did not record board or executive committee meeting minutes, or corporate resolutions for five years.

Plaintiff also alleges that CoolBrands' executives negotiated and drafted the Partnership Agreement, and made representations to plaintiff that CoolBrands would be plaintiff's partner in the Americana venture. Plaintiff contends that CoolBrands' officers dominated and controlled the operations of, and made the day-to-day decisions regarding, Americana, sending its own hand-picked team to run the facility, and instructing a plant manager that all communications between the partnership and plaintiff go through CoolBrands. Plaintiff contends that presentations concerning Americana were made by CoolBrands' officers and employees with CoolBrands' work product, and that CoolBrands made disclosures in its annual reports in which it stated that it had acquired the Americana general and majority partnership interest.

For purposes of this motion, it is presumed that the allegations of the Complaint are true and to be accorded "every favorable inference," except insofar as they "consist of bare legal conclusions" or are "inherently incredible or flatly contradicted by documentary evidence" (Beattie v Brown & Wood, 243 AD2d 395, 395 [1st Dept 1997]). "Dismissal pursuant to CPLR 3211 (a) (1) is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law" (Ladenburg Thalmann & Co. v Tim's Amusements, 275 AD2d 243, 246 [1st Dept 2000]).

It is well settled that piercing the corporate veil generally "requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury" (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]; Spectra Sec. Software v MuniBEX.com, Inc., 307 AD2d 835, 836 [1st Dept 2003]). Parent and subsidiary entities are generally considered and treated as separate legal [*5]entities, so that the contract of one does not bind the other (Billy v Consolidated Mach. Tool Corp., 51 NY2d 152, 163 [1980]). As the First Department has stated: "Parent and subsidiary or affiliated corporations are, as a rule, treated separately and independently so that one will not be held liable for the contractual obligations of the other absent a demonstration that there was an exercise of complete dominion and control, but [e]vidence of domination alone does not suffice without an additional showing that it led to inequity, fraud or malfeasance"

(Sheridan Broadcasting Corp. v Small, 19 AD3d 331 [2005] [internal quotation marks and citation omitted]). Thus, courts have disregarded the corporate veil where a parent corporation causes a subsidiary to breach an agreement, or renders the subsidiary unable to meet contractual obligations (see Ventresca Realty Corp. v Houlihan, 41 AD3d 707, 709 [2d Dept 2007] [principals exercised control of the lessee to "commit a wrong against the plaintiff in vacating the premises and causing the breach of the lease"]; Simplicity Pattern Co. v Miami Tru-Color Off-Set Serv., 210 AD2d 24, 25 [1st Dept 1994] [funds shifted between involved corporations leaving contracting party insolvent]; Teachers Ins. Annity Assn. of Am. v Cohen's Fashion Opt. of 485 Lexington Ave., Inc., 45 AD3d 317, 317-318 [1st Dept 2007] [parent held self out as real party in interest and stripped subsidiary's assets]).

Plaintiff has made particularized allegations of commingling between CoolBrands and Integrated, and of Integrated's disregard of corporate formalities. Defendants characterize plaintiff's production of a single check from Integrated to pay a CoolBrands officer as inadequate to demonstrate commingling, but plaintiff is not required to submit evidence at this juncture. Defendants' assertion, in a footnote, that the press release submitted by plaintiff is ambiguous as to whether CoolBrands or its subsidiaries would be using sales proceeds from the asset sales of Integrated or its subsidiaries' as working capital, must also be viewed in plaintiff's favor.

Furthermore, moving party affidavits are not considered documentary evidence for purposes of a motion to dismiss (Berger v Temple Beth-El of Great Neck, 303 AD2d 346, 347 [2d Dept 2003]), but may only be considered for limited purposes (see Rovello v Orofino Realty Co., 40 NY2d 633, 635-636 [1976]; e.g. Standard Chartered Bank v D. Chabbott, Inc., 178 AD2d 112, 112 [1st Dept 1991]). Consequently, to the extent that defendants submit Stein's affidavit as documentary evidence that, among other things, CoolBrands and Integrated are distinct entities which have at all times maintained separate bank accounts, books and records, and boards of directors, and that CoolBrands was based in Ontario, it will not be considered. In any event, plaintiff submits documents that it contends contradict Stein's assertions, including an affidavit from a former CoolBrands' officer stating that he was paid from an Integrated account, and that CoolBrands and Integrated's operations were centered in the same office in New York. Defendants have, however, submitted a document that demonstrates that Integrated's board took a formal action.[FN4] [*6]

Concerning the LLCs, one of the purposes of a limited liability company (LLC) is to provide members the opportunity to participate in management without risk of personal liability for the entity's obligations. LLCs generally have operating agreements, which may include meeting requirements, or other such formalities. Plaintiff's assertion that The LLCs have no officers or directors, and did not hold board or executive committee meetings are not persuasive veil piercing factors for an LLC, where plaintiff does not argue that management was required to be centralized in a board.

While plaintiff points to CBA's lack of operations and business discretion as supporting piercing, CBA was a limited partner, an investor in Americana. Such interests are generally analogized to shareholder interests. Indeed, in order to maintain the limited liability status afforded a limited partner, and to comply with its obligations pursuant to the Partnership Agreement, CBA was relegated to a passive role (see Partnership Agreement § 8.1 ["No Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership"), and, by the parties' design, did not operate Americana on a day-to-day basis, with its purpose being, according to plaintiff, "to hold CoolBrands and Integrated's interest in" Americana (Complaint, ¶ 39; see generally the Management Agreement]). Thus, that CBA did not manage Americana's business merely fulfilled the parties' expectations.

Plaintiff argues that The LLCs were inadequately capitalized, because they did not pay Delaware LLC taxes. While there are instances in which courts have disregarded the corporate or business entity form where an entity has been purposefully underfunded by its principals, and certainly they have done so where owners have drained an entity in order to evade an obligation, generally undercapitalization alone does not support veil piercing (see Walkovszky v Carlton, 18 NY2d 414 [1966]; Bartle v Home Owners Coop., 309 NY 103, 106 [1955]). The failure to pay an LLC tax or fee is not "undercapitalization" of the entity. In addition, to the extent that plaintiff makes "denuding" arguments, those argument involve only Integrated and its other subsidiaries, not The LLCs. Plaintiff's failure or oversight concerning the LLC tax may suggest a lack of concern with formalities. Plaintiff's also alleges that the LLCs had no email address or letterhead, and that communications with them was sent to Integrated, their managing member. Plaintiff further alleges ownership overlap.While ownership alone does not constitute a basis for piercing, plaintiff has sufficiently pleaded domination factors concerning Integrated and the LLCs, and CoolBrands and Integrated.

I turn now to the argument that the Complaint should be dismissed as to CoolBrands and Integrated because plaintiff has not adequately alleged that CoolBrands and Integrated used their domination and control over The LLCs to perpetrate a wrong against plaintiff. In opposition, plaintiff asserts that an allegation that a party used its control to cause another to breach an agreement suffices as a wrong for veil piercing. In the Complaint, plaintiff alleges that "CoolBrands caused Integrated and CBA to breach their contractual obligation under the Partnership Agreement to pay Capricorn its contractually negotiated fair return which has [*7]resulted in significant damages to Capricorn" (Complaint, ¶ 78; see Pl. Op. Memo., at 14).[FN5]

The burden is on the party seeking to pierce the corporate veil to "establish that the [corporation], through [its] domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene" (Morris, 82 NY2d at 142). "[A]n inference of abuse does not arise . . . where a corporation was formed for legal purposes or is engaged in legitimate business" (Sheridan Broadcasting Corp.,19 AD3d at 333, quoting TNS Holdings, 92 NY2d at 339-340). As stated, generally domination alone does not suffice for veil piercing without the demonstration that there are facts at least suggesting fraud, inequity, or some sort of malfeasance (Sheridan Broadcasting Corp., 19 AD3d at 332; TNS Holdings, 92 NY2d at 339), and such allegations must be particularized (see Albstein v Elany Contr. Corp., 30 AD3d 210 [1st Dept 2006]; Sheridan Broadcasting Corp., 19 AD3d at 332; Sheinberg v 177 E. 77, 248 AD2d 176, 177 [1st Dept 1998]; Feigen v Advance Capital Mgt. Corp., 150 AD2d 281 [1st Dept 1989]).

Plaintiff's allegation of wronging is conclusory, and plaintiff does not plead allegations from which may be derived the nature of CoolBrands' alleged wrongdoing. Although the movant specifically argued that the Complaint should be dismissed because plaintiff failed to allege that CoolBrands or Integrated used domination to commit a fraud or wrong (Def. Memo. of Law, at 2), plaintiff does not address how CoolBrands or Integrated caused CBA to breach the Partnership Agreement, or otherwise abused the corporate, or in this case, LLC, form, or any details as to a relationship between such abuse and the wrong. In that it is legal to incorporate or use the limited liability company form for the express purpose of limiting the liability of entity owners (see Morris, 82 NY2d at 140), plaintiff must " sufficiently allege that the corporate form was used to commit a fraud against" it (Albstein, 30 AD3d at 210), but does not do so here. Plaintiff has demonstrated no more than that CBA has not paid out on the Partnership Agreement. Thus, plaintiff does not plead particularized facts sufficient to sustain a piercing claim against CoolBrands or Integrated.[FN6]

As an alternative theory to veil piercing, plaintiff argues that CoolBrands should be bound to the Partnership Agreement, based on the representations and conduct of Stein, and others at CoolBrands, which, plaintiff asserts, manifested CoolBrands' intention to be bound by the Partnership Agreement. Plaintiff notes that Stein does not deny plaintiff's allegations about his representations to plaintiff.

In response to these contentions, defendants submit two letter agreements (the Letter [*8]Agreements), executed by plaintiff and dated the same day the Partnership Agreement was signed. Defendants characterize the Letter Agreements as imposing upon plaintiff the obligation to guarantee AFC and AF Sub's financial obligations under the Partnership Agreement.[FN7] Defendants also assert that Winokur's financial sophistication and use of limited liability entities demonstrate that plaintiff had the opportunity to negotiate to oblige CoolBrands and Integrated to fulfill The LLCs' contract obligations, but did not do so.

In addition, defendants label plaintiff's allegations about Stein and Smith's representations, the term sheet, and the formation date of The LLCs, as diversions, stating that plaintiff acknowledges in the Complaint that Stein and Smith disclosed that the interest in the partnership would be acquired ultimately through Integrated. Defendants contend that plaintiff's knowledge that it entered into the Partnership Agreement with The LLCs alone is further demonstrated by the agreement's plain language, which entitled plaintiff to exercise rights against CBA in the event that CoolBrands underwent a change of control, and is demonstrated as well by the numerous other agreements into which the parties entered. Defendants also point to Americana's purchase price, and the requirement that AFC and AF Sub invest millions of dollars in the plant, which they state show Americana's poor financial condition, and that plaintiff, unable to make a better deal, accepted the liability limitations inherent in contracting with The LLCs alone.

Plaintiff relies on Horsehead Indus. v Metallgesellschaft AG (239 AD2d 171 [1st Dept 1997]) and Rus, Inc. v Bay Industries, Inc. (322 F Supp 2d 302 [SD NY 2003]), to support its contention that a parent company will be held liable as a party to its subsidiary's contract if the parent, through its conduct, manifests an intent to be bound to the contract. Defendants argue that this case is distinguishable from Horsehead and Rus, because in those cases the intention of the non-signatory parent to be bound to the contract, as demonstrated by the parent's participation in contract negotiations, was not negated by other facts, such as those here, including the language of the Partnership Agreement and that Capricorn provided security for its subsidiaries' performance with the Letter Agreements as part of the transaction, while CoolBrands and Integrated did not do the same.

Defendants contend that this case is similar to Spectra (307 AD2d 835, supra), in which the plaintiff was informed, approximately one week before the execution of the parties' definitive agreement, that the party it would be contracting with was not the party with which it had entered into a letter of intent, but another corporation, MuniBEX.com. MuniBEX.com was formed a few months before the parties' execution of their definitive agreement. When MuniBEX.com later defaulted on the agreement, plaintiff sought to recover against defendant, from whom it had previously unsuccessfully sought a guaranty. The Court found that the definitive agreement [*9]entered into "was the product of substantial negotiations, which included discussions on the very issue of [the contract signatory] executing [the agreement]," and, consequently, that plaintiff failed to show the use of domination and control "to commit a fraud or wrong against plaintiff warranting equitable intervention" (id. at 836 [emphasis supplied]). Defendants argue that plaintiff agreed to contract with CBA, and should not be permitted to escape the Partnership Agreement's terms by suggesting that it was misled as to the true parties with which it contracted. Defendants further argue that plaintiff should not be permitted to recover for a failed business venture by rewriting the heavily-negotiated agreement entered into with The LLCs.

Generally, a party that is not a signatory to an executed agreement is not bound to the agreement (see Black Car & Livery Ins., Inc. v H & W Brokerage, Inc., 28 AD3d 595, 2006 [2d Dept 2006]). The transaction and the agreements submitted here are complex, and the agreements selective in imposing specific obligations on specific entities. It is undisputed that plaintiff is sophisticated and was represented in the transaction.[FN8] Plaintiff was also undoubtedly aware that CBA was a limited investor in Americana, holding a passive ownership interest in Americana, throughout the parties' relationship. Furthermore, the parties were undeniably capable of wording the Partnership Agreement to make CoolBrands liable to plaintiff in the event of a change of control, or of CBA's failure to fulfill its obligations under the Change of Control Provision. Yet, despite specifically referring to CoolBrands in the Partnership Agreement, the parties did not therein, or in any of the many writings submitted, impose such obligations on CoolBrands. The parties also chose not to enter into a separate letter agreement, in which CoolBrands or Integrated secured CBA's performance under the Change of Control Provision, despite plaintiff having entered into agreements to secure certain of its subsidiaries' obligations. Thus, the documentary evidence, including the Partnership Agreement itself, negates plaintiff's allegation that CoolBrands manifested an intent to be bound to the Partnership Agreement.

In Horsehead Indus. (239 AD2d at 171-172, supra), cited by plaintiff, the Court stated that:

"a parent company can be held liable as a party to its subsidiary's contract if the parent's conduct manifests an intent to be bound by the contract, which intent is inferable from the parent's participation in the negotiation of the contract, or if the subsidiary is a dummy for the parent, or if the subsidiary is controlled by the parent for the parent's own purposes."

The Court also found that the cause of action for breach of a shareholder's agreement was properly sustained against the parent because the parent manifested an intent to be bound to the agreement through its negotiations on behalf of its then wholly-owned subsidiary and then later performed the act that allegedly breached the involved agreement. However, here, plaintiff makes only a conclusory assertion that CoolBrands caused CBA to breach its agreement to tender the Payment, followed up by its contention that CoolBrands should be required to pay (see [*10]Complaint, ¶ 78-80). Indeed, plaintiff knowingly agreed to look to CBA, the subsidiary, for the performance of a contractual obligation, and, overall, the facts of this case are much like those in Spectra (307 AD2d 835, supra) .

In addition, the Change of Control Provision provides that it is triggered by, among other things, "the adoption of a plan of complete liquidation or the sale or disposition by CoolBrands International Inc. of all or substantially all of its assets" (Partnership Agreement, at 4-5). The written agreements concerning the various sales transactions alleged in the Complaint demonstrate that the seller in each was not CoolBrands, but Integrated, or an Integrated subsidiary.

Plaintiff contends that the Change of Control Provision reflects the parties' intentions that plaintiff receive the benefit of synergies from combining CoolBrands' frozen desserts business with Americana's production business, and that it has been triggered because CoolBrands has sold virtually all of its core business assets, and is no longer in the business of manufacturing, selling or distributing frozen yogurt products. Plaintiff argues that defendants do not dispute that Coolbrands' is no longer in the frozen desserts business, that its operations have been sold, and that it caused the asset sales to occur, obtained the proceeds therefrom, and used some of them to fund its own working capital needs.

Plaintiff does not dispute that the sales transactions involved here were of sales made by Integrated, or Integrated's subsidiaries, but argues that, for the purposes of this motion, those actions are attributable to CoolBrands, and that CoolBrands' position must be rejected because of its public filings, stating that it sold its U.S. assets and engaged in other sales, as a result of which, "the majority of the Company's operations were disposed of during the year" (Pl. Op. Memo., at 20 [citing to Zimmerman Aff., Exh. E, at 16, quoting "CoolBrands International Inc. 2007 Annual Report"]), and its press releases indicating that the proceeds of certain sales would be used by CoolBrands' as working capital. Relying on Data Probe v 575 Computer Servs., (72 Misc 2d 602 [Civ Ct, NY County 1972]), in which a parent disposed of its subsidiary's assets, leaving the plaintiff with an empty judgment in its contract claim against the subsidiary, plaintiff objects to what it deems is CoolBrands' position that it can denude itself of all of its operations and assets, and receive the proceeds therefrom, while escaping payment obligations to plaintiff.[FN9]

In reply, defendants argue that the Change of Control Provision is clear and plaintiff should not be permitted to rewrite it to read the sale or disposition by CoolBrands "and all its subsidiaries" (Def. Reply Memo., at 14). Defendants further argue that CoolBrands could engage in a direct change of control by selling its own interests in its subsidiaries.

The language of the Partnership Agreement is carefully crafted, with the parties agreeing that a change of control occurred upon the happening of certain specific events. One of those events was CoolBrands' adoption of a plan of complete liquidation, or its disposition of all or substantially all of its assets. The Partnership Agreement contains a definition of affiliates (see [*11]Partnership Agreement, at 2) and references to Integrated (id. at 6). The parties' definition of what constitutes a change of control event, however, does not include the sale or disposition of assets by Integrated, or Integrated's subsidiaries, and a court "may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing . . . ." Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475 [2004] [internal quotation marks and citation omitted]). Plaintiff's argument that CoolBrands breached its duty of good faith and fair dealing is not persuasive as it necessarily presumes that CoolBrands was a party to the Partnership Agreement, which it was not. Consequently, defendants' motion to dismiss the first cause of action is granted.

In the second cause of action, plaintiff alleges that defendants have breached various provisions of the Partnership Agreement, including sections §§ 7.5(a), 7.5(b), 7.5 (c) and 7.5(d), which mostly concern financial information to be provided to plaintiff (Complaint, ¶¶ 82-83).[FN10] Defendants argue that the claim should be dismissed because: (1) plaintiff's complaint is about the quality of information provided; (2) the complaint is vague; (3) only Americana was obligated to provide information pursuant to Partnership Agreement §§ 7.5(a), 7.5(b) and 7.5(d); and (4) the parties shifted CB's obligations under Partnership Agreement 7.5(c) to Integrated, under the Management Agreement, which has an arbitration clause. Plaintiff disputes defendants' first contention, and also argues that Americana could only act through its general partner, CB, which retained control of Americana's operations.

Defendants' argument that the Complaint is too vague because it does not state how plaintiff was damaged ignores that particularity is not required in pleading a breach of contract claim (CPLR 3013). The gravamen of the claim, however, is that defendants did not provide information to plaintiff. Pursuant to Partnership Agreement §§ 7.5(a), 7.5(b) and 7.5(d), Americana alone was obligated to furnish plaintiff with information. Partnership Agreement § 7.5(d) obliges Americana to provide projections to the partners, with 7.5(c) providing only that the "General Partner shall develop a statement of monthly cash flow projections for the Partnership for the upcoming Fiscal Year." Plaintiff does not allege that CB did not develop a statement of monthly cash flow projections for the Partnership. Furthermore, while, as plaintiff argues, general partners are liable for partnership debts, plaintiff's recourse for the alleged breach of the Partnership Agreement is first with the entity with the contractual duty, Americana, and thus was for adjudication in the Chapter 7 liquidation proceeding.

Accordingly, it is

ORDERED that the motion to dismiss the complaint is granted and the Third Amended Complaint is dismissed; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated: [*12]

ENTER:

_________________________

J.S.C. Footnotes

Footnote 1:The term sheet is also on CoolBrands' letterhead (Winokur Aff. of Merit, Exh. 2).

Footnote 2:Generally, no distinction will be made between Capricorn and its subsidiaries, which may be referred to herein as "Capricorn" or "plaintiff."

Footnote 3: CBA is designated as "Integrated" in the Partnership Agreement, and Integrated is designated as "IBI." In the Management Agreement, Integrated is designated as "Integrated."

Footnote 4:That plaintiff sent correspondence to The LLCs, "c/o" Integrated, concerning plaintiff's transfer of AFC's interest in Americana to plaintiff, is not dispositive as there is no dispute that The LLCs were Americana's general and limited partners, and Integrated signed the Partnership Agreement as CBA's managing member.

Footnote 5:While plaintiff alleges that CoolBrands caused Integrated to breach its contractual obligations under the Partnership Agreement, Section 12.6 of the Partnership Agreement does not provide that Integrated (denominated as "IBI" in the Partnership Agreement) had a contractual obligation to make the Payment in the event of a change of control.

Footnote 6:Plaintiff argues that CoolBrands is liable under the Partnership Agreement because Integrated, CB and CBA were CoolBrands' alter egos. Plaintiff does not allege this in the Complaint and, in any event, the plaintiff's allegations of control and commingling to support its alter ego claim are considered here as allegations of dominance.

Footnote 7:In one of the Letter Agreements, Capricorn agreed to cause AFC and AF Sub to fully perform their financial obligations pursuant to certain provisions of the Partnership Agreement, and to provide the subsidiaries with sufficient capital to do so (Stein Aff., Exh. B). In another, Capricorn agreed, among other things, to provide to AFC and AF Sub capital to fulfill certain of Americana's financial obligations under an agreement with a bank (id., Exh. C).

Footnote 8:While I am ignoring defendants' comments about Winokur's business/financial sophistication and their citation to a website that they contend supports these contentions (see e.g. Def. Reply Memo. of Law, at 2-4), the nature of the many agreements submitted, and of the transaction itself, speaks to the high level of sophistication involved.

Footnote 9:Unlike Data Probe, there is no judgment here, and no allegation that the LLCs have been stripped of assets. Plaintiff alleges that CB commenced an involuntary bankruptcy proceeding against Americana, and to the extent that plaintiff may be implicitly stating that the bankruptcy proceeding was wrongly commenced such an objection was for the Bankruptcy Court.

Footnote 10:Plaintiff is required to indicate the provisions of an agreement allegedly breached, and its claim is limited to those provisions listed above. Plaintiff mentions Partnership Agreement § 8.2(a), but does not allege that the section was breached.