Aeolus Down, Inc. v. Credit Suisse International, No. 1:2010cv08293 - Document 33 (S.D.N.Y. 2011)
Court Description: OPINION AND ORDER:#101014 Defendant Credit Suisse's motion (Dkt. No. 26) to dismiss the amended complaint is granted in part and denied in part. The claims for tortious breach of insurance contract and declaratory relief are dismissed. Credit Suisse's motion is denied with respect to the claim for breach of contract. So ordered. (Signed by Judge Louis L. Stanton on 11/15/2011) (jmi) Modified on 11/16/2011 (jab).
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U ORIGINAL UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -x AEOLUS DOWN, INC., Plaintiff, 10 Civ. 8293 (LLS) OPINION AND ORDER against - CREDIT SUISSE INTERNATIONAL, Defendant. -x Plaintiff for breach of and Down, contract, Inc. alleging ("Credit Suisse") mitigation arrangement Linens 'N Things, Inc. sse Credit ("Aeolus") tortious breach of relief, decl International risk Aeolus that this insurance defendant action contract, Credit Suisse owes $2.3 million under a designed to protect Aeolus trade from a ("LNT") bankruptcy. moves under Fed. R. smiss the amended complaint for fai which relief may be granted. motion is brings Civ. P. to state a For the reasons that in part and grant 12(b) (6) cl to upon follow, the in part. BACKGROUND Aeol us, contracted credit a bedding wi th Credit risk. receivable, manufacturer Suisse LNT owed Aeolus i.e. to and hedge millions former its of vendor exposure dollars to to LNT { LNT' s accounts payments for goods sold to LNT on credit. The arrangement gives Aeolus a right to sell (a "Put") some of Aeol us's claims against LNT to Credit Suisse in the event LNT went bankrupt. Three agreements fix rights and obligations A master agreement an. parties under the the separately "confirmation") . through Master letter a Agreemene covers certain accounts amount, period and premium, § receivable, the ("Master Agreement") establishes the form for individual put transactions, effected of 2. agreement Each specifies and identif ies a which are (a confirmation the coverage triggering event. Should the triggering event occur, Aeolus exercises its Put by transferring to the covered assignment agreement. assignment agreement however, it must be claims rd. if § and executed 8(c) The when Aeolus rd. § Suisse parties in the under prepare exercises substantially e attached to the Master Agreement Agreement") . Credit the form an the Puti of a (the "Form of Assignment 8 (a) Between October 8, 2007 and February 7, 2008, the parties entered into the Master Agreement and two confirmations giving Aeolus the right to sell up to $2.3 million event of a May 2008 bankruptcy. On May 2, affiliates filed for bankruptcy. On July 15, schedule of assets and liabilities, 1 2008, 2008, LNT and its LNT filed a which was supposed to list Annexed as Exhibit 1 to the amended complaint. 2 its claims in the its creditors and the amounts of their claims. However, none of appeared they Aeolus's claims erroneously listed on the on LNT's schedule schedulei of an LNT were affiliate, LNT Merchandising, LLC. Aeolus nonetheless Suisse it us' received argued owed sought nothing to request in exercise to return trans its r because Put. its "The claims, 'N Things, LNT 11. LLC. prepared an assignment "Proposed counsel Assignment for provision agreement was first not schedule "canceled, or the Compl. agreement Ex. Credit and sent it to Aeol us decl ined to sign it, Master Agreement by August 9, if that executed within 25 days (i.e., Inc., and Purchaser further obligation to Seller Master Agreement §§ On ember claims, prompting Suisse an the [Credit [Aeolus] Suisse] Aeolus's assignment after LNT 2008), (the despite a filed Put its would discharged and terminated and will not rewritten, not expressing that posi tion Agreementll), signature. in Am. II but protection was sold with respect to claims against Linens Merchandising Credit be reinstated shall in respect of have no that Put. II 5(a), 8. 12, 2008, Aeolus to LNT corrected reattempt to its schedule exercise its Put. Credit Suisse refused on the grounds that the 2S-day period for time execution of the assignment agreement had passed. 5 (b) . 3 Id. § In September of 2010, Aeolus Aeolus pay the trustee estate" trustee in exchange for dismissal of "any for against Aeolus breach of aims. among other Adversary the transfers, preferential ement provided waive commenced had enrichment, and settlement and all -petition or post petition claims against scheduled or filed the $75,000 a The agreement with LNT's bankruptcy trustee. that o entered Proceeding Against an the recovery and contract Mot. action unjust to Approve Settlement of Aeolus ~ Down 13, No. 08-10832 (Bankr. D. Del. Sept. 23, 2010). DISCUSSION "When reviewing a motion to dismiss, true all complaint light of the draw I most must a inferences to plaintiff, set out those and e sufficient claim to factual relief construe Inc., 129 S. I matter, that Ct. is 1937 550 U.S. breach of an of contract, agreement, 1 544, - 4 plaintiff's the complaint 562 F.3d 123, smiss accepted ausible on I a 127 complaint as its true, to face.'" 1949 (2009), quoting Bell 570 (2007). To state a Aeolus (2) in allegations \\To survive a motion to 2009). Atl. existence from Rescuecom Ashcroft v. claim allegations ~------------~~--------~~------- contain 'state all favorable liberally.JJ (2d Cir. factual a court must accept as must adequate allege rformance "(I) the of the contract fendant, 337, 348 aintiff, by and (2d (4) damages. breach (3 ) of contract by 91 Harsco II the F. 3d (applying New York law) . r. 1996) 1. Credit Suisse argues that Ae performance because it f agreement. Because the parties language of condition" us to led ead cannot an execute "employed the adequate assignment unmistakable imer in the Master Agreement, ..C~~~~~~~~~_ _~._~~_ _, _ _ _~_~_~_ _~~_ 86 N.Y.2d 685, N.E.2d an assignment 1 415, 418 (1995) Dixon Co., & execution of 691, & 660 agreement within 25 days of LNT's initial filing of its schedule of assets and liabilities Suisse's is an express condition obligation to purchase the LNT precedent claims. 2 to An Credit express In relevant part, Section 8 of the Master Agreement reads: 8. tions Precedent to Claims. The to purchase the Account obligation of Purchaser [Credit Claims under a Put is subject to the satisfaction of the following conditions precedent: (a) Seller [Aeolus] shall have executed the Assignment of Claim Agreement, substantially in the form of B hereto, selling, transferring and assigning the Account Claims to Purchaser (the "Ass H) in an amount equal to the Net Account Value of the Account Claims; Section 5(b) provides that: In the event Seller [Aeolus] does not satis the conditions set forth in ion 8 to the expiration of the twenty five (25) day period set forth in Section 5 a the Put shall be automatically canceled, discharged and terminated and will not be reinstated or rewritten, and Purchaser [Credit Suisse] shall have no further obligation to Seller [Aeolus] in respect of that Put. Under Section 5(a), the 25 day period begins at "the initial filing of 5 condition "must be literally performed," id. at 418, unless it is "excused by waiver, at 690, 660 N.E.2d breach or forfeiture." Id. One cannot at this point that ~he Suisse waived the 25-day to deadl 2008 execute the August 9, continued discussions after it passed. ~om, of the excuses an assignment Credit Suisse sent the Proposed Assignment Agreement to Aeolus just four days be ~ravis none complaint supports a plausible inference that credit apply. agreement. 3 say counsel for Aeolus, from Adam Feinmesser I 2008 deadline and Indeed, a response from to a message dated August 11, counsel for Credit Suisse, suggests that Credit Suisse was still trying to secure Aeolus's signature after the 25 day period had already expired. 4 the Company's Nonetheless Credit [LNT's] Schedule of Assets and Liabilities." The no-waiver clause in the Master Agreement does not preclude such a finding because that clause does not unambiguously apply to a waiver of the 25-day period: a violation of the 25-day period does not trigger a right that Credit Suisse may exercise at its discretion, but rather automatically cancels the Put. Master Agreement § 15 (b) ("No failure on the part of any party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof by such party, nor shall any or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right."). Moreover, under New York law, "it has long been the rule that parties may waive a 'no-waiVer' clause." See Lee v. 485 N.Y.S.2d 543, 544, 108 A.D.2d 678, 680 (App. Div. 1985). 3 4 The full text of Mr. Tom's email reads: "Mr. Feinmesser, am in trial at the current time. As a result, I passed along to our transactional department for a second opinion. I IHthout having the contract in front of me, my concern is that Credit Suisse is arguing that the payment of the limit of the transferred claim does not need to occur until finalization of the Case because Linens N' Things scheduled the amount due to - 6 Suisse did not October 14, 2008, assignment Compl. ~~ advise Aeolus and only agreement after the deadline See Gen. Motors LNT's was amended might be had pas found an updated schedule. Am. ilure to act to be a waiver. Cent. Acc Dist., 85 N.Y.2d 232, 236, 647 N.E.2d 1329, 1331 may canceled until requested firmative conduct and Such 20 21. Put after Aeolus on bas the t (1995) Sch. ("Waiver established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage."). Anticipatory breach may apply if Credit Suisse "insisted on an untenable interpretation of a key contractual provision," IBM Credit 989, Fin. 989, found v. 706 where commercial 1186, 1186 conditioned c ing on N.Y.2d (anticipatory (1998) 92 breach the unreasonable terms that belied agreement s) Credit N.E.2d party ., Mazda Motor Suisse A jury might proposed find that transgressed parties had already agreed, the the acceptance language assignment terms to the agreement which see Section 2 quoted at fn. However, this was based on a preliminary and very cursory review. Please confirm your client's position with respect to this matter and whether I am in error. If I am not in error, please reference the language of the original agreement which would form the basis for Credit Suisse's position on that matter." - 7 the 5 on p. Aeolus Down under Linens N' Thing Merchandising as opposed to Linens N' proper. If this is the case, I fail to see the point of transferring the claim or the relationship to the original purpose of the Put Agreement. Am. Compl. Ex. 11. of 10, infra, and asserted a position no reasonable businessperson could accept: $2.3 under its terms, million antic potential ory See Real W.I.M. Inc., Div. party will relieved not Salad where the it of return. from An further & Seafood, Inc. v. 135 A.D.2d 891, 293, contract, performance in Aeolus 522 N.Y.S.2d 292, live up to a from nothing Steak, ("Further, 1987) for excuse Sunshine ~~----------~~----- (App. value would breach performance. Aeolus would transfer claims of 892 becomes the futile clear that one aggrieved party is acts or conditions precedent.") Strict application precedent may also 86 extent at the of part mat million N.E.2d of a forfeiture, that of N.E.2d at a court condition the that dollars unless it if § at its would LNT condition forfeiture. 419 condition may a ("'To would excuse cause the occurrence the non was a Restatement 229 (1981). receive went ("Forf it id an ture is the $651,500 indemnity bankrupt. that results when the obligee loses [it] as agreed exchange.' ") , iture: 419 n.2 exchange after avoid 660 faces expectation od to excusable pe 691, (Second) of Contracts Aeolus 25-day non occurrence disproportionate occurrence the be N.Y.2d Oppenheimer, that of Id. 'denial [its] the of over two 692 n.2, 660 of compensation rights to the agreed has relied substantially, 8 at on as by preparation or performance on the expectation of that exchange.''') in Restatement Oppenheimer), (Second) of (brackets Contracts § 229, cmt. b (1981). The od facts was support not a a plausible material part inference of the that agreed the 25 day exchange. No clause states that time is of the essence in execution of the assignment agreement, and that meaning cannot be inferred from the mere presence of the condition in the contract. ___ ______ Archaeol ~ 12 ~L- A.D.3d assure a those, Ltd. v. __________________ 96, 103 finding or (App. that ~ Inv. ____ Div. 'time equivalent ~ Inc., 783 N.Y.S.2d 330,335, _______ ("While 2004) is of words, See Urban the the parties essence' within by their can including agreement, specification of a particular time frame within the language of the contract by itself is not determinat would constitute (ci tations omitted) breach material a of whether a delay of the agreement. ") Nor is there evidence that a lay would prejudice Credit Suisse. Credit Suisse argues that the 25 day period was material as a matter of contracts: law because "A Court the agreements at issue are option 'may not decide that the non occurrence is excused to the extent of one day because that would give [the other which the Restatement side] a move extensive (sic) parties agreed.'ff Def. (Second) of Contracts § 9 option Rep. Mem. 229 cmt. c il than that on quoting 7, 5 (1981) The general rule that "time is of the memorandum) . (brackets 783 N.Y.S.2d at 335, essence of an option," Urban Archaeol 12 A.D.3d alleged, at 103 4, does not apply Under here. the the purpose of the agreements was not to of the choice of coverage if LNT went bankrupt, unquestionably, once that typical option contract, event facts r Aeolus but to cover it, Thus, transpired. unlike a both the benefit to Aeolus and Credit Suisse's exposure were determined before the 25-day period began to accrue. Whether it was mat al to the bargain therefore a question of fact. 2. Credi t Aeolus Suisse amount the contends in schedule September pursuant claims LNT's 12, to ("Section 2") 2008 Section 5 that listed schedule amendment 2 0 it as was only required on LNT's ti it correcting the Forn: of existed the to ly filed before listing Assignrr.ent pay the error) Agreement Because that schedule mistakenly omitted Aeolus 5 Section 2 of the Form of Assignment Agreement provides that the consideration paid in exchange for the claims transferred to Credit Suisse is the "Scheduled Claim Amount," or "the amount of the Claim listed on the Schedules, as defined below, as undisputed, noncontingent and liquidated as of the Effective Date./I Form of Assignment Agreement § 2. "Schedules," in turn, are defined in Section 4 of the Form Assignment Agreement as "the Debtor's schedules of creditors holding unsecured claims filed or to be filed with the Bankruptcy Court, as the same may be amended from time to time (the "Schedules") ," and "Effective Date" is defined in Section 2 as "The date on which Purchaser [Credit Suisse] pays the Schedule Purchase Price, if applicable, to Seller [Aeolus]." Id. §§ 2, 4. After incorporating al referenced terms, the purchase price is The amount of the Claim listed on the Debtor's schedules of creditors holding unsecured claims filed or to be filed with the 10 and its claims, Credit Suisse argues that it did not have to pay Aeolus anything, and hence never breached. Credit for Suisse cannot rely on that provision to provisions interpretation reasonable in the to language expectat Inc., ---~--~~----~----- contracts be given 759 N.Y.S.2d 149, LLC a and employed AFBT-II II must the v. a al condition iture any more than it can rely on an immat precedent: effect "practical parties' Count ViII. on 150-51, 305 A.D.2d 340, 342 (App. Div. 2003). Section 2 functions as a source of definition of term in the Form of Assignment Agreement, for errors in the from to time list time except until price but makes no allowance to allow that Credit a Suisse it may be amended pays the Scheduled Purchase Price. Such a provision does not require a ruling, as a matter of law, that the first valuation placed on the list be accepted as decis , even when the entry is known to be wrong. it raises issues of intent and understanding which, like questions about purpose and scope the materiality of terms, of the agreements, waiver, require and the factual development. Bankruptcy Court, as the same may be amended from time to time, as undisputed, noncontingent and liquidated as of the date on which Purchaser (Credit Suisse] pays the Schedule Purchase Price, if applicable, to Seller [Aeolus]. 11 The Settlement with LNT's Chapter 7 Trustee Does Not Require Dismissal of the Complaint Credit Suisse argues that Aeolus annulled the agreements by waiving its agreement with settlement LNT's agreement after Credit that nst claims LNT Chapter in 7 as part trustee. September Aeol us 2010, or Suisse allegedly breached. transaction are its insufficiently settlement entered roughly The two years ramifications developed to the low of any ruling about its effect. The Claim for Tortious Breach of Insurance Contract Is Dismissed New York tortious law does breach of Cont'l Ins.~, (1995) (an action "amounts to an 87 not insurance N. Y . 2d for nothing recognize bad more a cause contract. 3 C8, 319 20, than a of aim N.E.2d 763, insurance based breach of the implied covenant of good action New York lJniv. 662 i th denial of on the ith and fa for v. 770 coverage alleged dealing, and the use of familiar tort language in the pleading does not change the cause of action to a tort cl in the absence of an underlying tort duty sufficient to support a claim for punitive damages" ) Nor has Aeolus olated any duty contracts. adequately independent alleged of its that Credit obligat ons Suisse under Aeolus claims that the Master Agreement and Form 12 the Assignment Agreement are "intentionally contradictory/If and that the contradictions tween choose are the "designed contradictory to permit terms CREDIT of to contracts its SUISSE to reduce or completely deny the amounts it has agreed to pay under the Master Agreement through deceit and subterfuge," ~ However, 36. Am. Compl. the agreements offer consistent expressions of the bargain struck by the parties: the Master Agreement provides a determining method the transfer to Credit Suisse, at fn. 2 on p. provides one exchange, amount in claims see Master Agreement 5, --=- , while the Form would 8 (a) / quoted § Assignment Agreement for the consideration Suisse would pay in see Form of Assignment Agreement on p. 10, Aeolus § 2, quoted at fn. Aeolus's tort claim is there 5 dismissed. The Claim for Declaratory Relief is Dismissed Aeolus requests determination that "that the this notice of Court claim make judicial a requirements in the Insurance Policy have been fully and/or substantially complied with by AEOLUS DOWN thereby entitling AEOLUS DOWN to the herein." Am. CampI. ~ the rights will same breach of as 44. In short, it seeks a "declaration of be determined" under claim its action for contract. Inc., 137 A.D.2d 50, 54, 529 N.Y.S.2d 279, 281 Its ief for declaratory relief 13 is there (App. Div. 1988). dismissed as rd. duplicative. is unnecessary ("A cause of action for declaratory judgment and inappropriate when the plaintiff ternative remedy in another form of action, contract."); N.Y.S.2d see 218, Alizio 219 (App. inappropriate since t remedy in t form malpractice.") v. Feldman, Div. 82 2011) a cause A.D.3d 804, 805, ("Declaratory of an such as breach of action 918 reI plaintiffs have an adequate of has is ternative alleging legal tations omitted) . CONCLUSION Defendant Credit Suisse's motion the The amended complaint claims declaratory for relief is granted tortious are breach dismissed. denied with respect to the claim (Dkt. in part of No. and 26) denied insurance Credit to dismiss in part. contract Suisse's and motion breach of contract. So ordered. Dated: New York, New York November 15, 2011 LOUIS L. STANTON U.S.D.J. - 14 is
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