Atlantic St. John, LLC v Yoemans

[*1] Atlantic St. John, LLC v Yoemans 2004 NY Slip Op 51650(U) Decided on October 21, 2004 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 21, 2004
Supreme Court, New York County

ATLANTIC ST. JOHN, LLC a Delaware limited liability company; JRM NEW YORK, LLC, a Delaware limited liability company; and JRM DEVELOPMENT ENTERPRISES, INC, a Delaware corporation, Plaintiffs,

against

WILLIAM YOEMANS; BROOKLINE ATLANTIC ST. JOHN COMPANY, LLC, a Florida limited liability company; BROOKLINE DEVELOPMENT COMPANY, LLC, a New York limited liability company; and ATLANTIC ST. JOHN, LLC, a North Carolina limited liability company, Defendants



603316/03

Bernard J. Fried, J.

The present case involves the financing and purchase of a shopping center in Florida (the property). The parties dispute whether defendants breached a contract to include plaintiffs in the transaction, and whether defendants, in allegedly breaching the contract, also breached fiduciary duties which they allegedly owed to plaintiffs. Defendants move here to dismiss the complaint, pursuant to CPLR 3211, or, alternatively, for summary judgment.

Brookline Development Company, LLC (Brookline Development) entered into a contract to purchase the property in October 2002. In order to finance the purchase, Brookline Development's principal, William Yoemans, began dealing with plaintiffs and their principals, Lawrence E. Fiedler (Fiedler) and Jeffrey Lacilla (Lacilla) sometime prior to March 2003, to discuss options.

On March 3, 2003, Brookline Development entered into a Memorandum of Understanding (MOU) with non-party Safie Holdings, LLC (Safie), an affiliate of plaintiff JRM Development Inc. (JRM), to syndicate equity ownership interests in a Delaware limited liability company, to be called [*2]Atlantic St. John, LLC (Atlantic [Del]). Atlantic (Del) was to be the entity which would purchase the property. Under the proposed Operating Agreement for Atlantic (Del), Brookline Development affiliate Brookline St. John Company, LLC (BASJ) was to be Atlantic (Del)'s managing member, while Safie affiliate JRM New York, LLP. (JRMLLC) was to be the company's special member. It is undisputed that the parties never executed an operating agreement for Atlantic (Del).

Under the MOU, Safie was to privately place 25 units of equity interests in Atlantic (Del), with each unit equal to approximately $114,760.00. The funds raised were to be placed in escrow, pending the closing, which was set for May 30, 2003. Safie also contributed a non-refundable deposit of $15,000.00 at this time.

In a letter dated March 12, 2003, Brookline Development and Safie supplemented the MOU in agreeing that Safie would create and circulate a pre-Private Placement Memorandum within 14 days; complete and circulate a Private Placement Memorandum (PPM) within 30 days; and that the private placement would be at least 50% subscribed and funded within 60 days of the March 12, 2003 letter. Brookline Development provided Safie with various documents and information which would be utilized in creating the PPM.

On April 14, 2003, BASJ and Atlantic (Del) entered into a Placement Agency Agreement (PAA) with Safie, in which Safie agreed to become the exclusive placement agent in connection with the issuance and sale of 25.2527 equity interests in Atlantic (Del).[FN1]

It is undisputed that Safie failed to perform under the PAA, failed to solicit the requisite equity interests, or transfer any monies from the escrow account by May 30, 2003, as required by the PAA. Therefore, the closing did not occur on that date, as had been planned. In a letter dated June 3, 2003, Yoemans wrote to Fiedler to remind him that, under

the PAA, and owing to Safie's failure to solicit the requisite equity units, the offering had been terminated. In the letter, Yoemans stated that he had "reviewed the options" which Fiedler has suggested to keep plaintiffs in the transaction, but that he did not find any of the options "attractive" or "workable." Yoemans concluded by saying that he was "open to discussing new financing alternatives and options under different terms and conditions," "in addition to other discussions we are having with other financial sources." Plaintiffs do not dispute that the PAA terminated at that time, and that Safie forfeited the $15,000.00 deposit. Defendants maintain that Brookline Development was compelled to pay considerable additional fees in order to extend the date of the closing of the sale of the property, to June 30, 2003.

After May 30, 2003, the parties continued to discuss how Safie and JRM might still participate in the transaction, by raising part of the total equity required. The discussions were evidently conducted to a great extent through memos and e-mails between the parties. However, the parties never memorialized these discussions, or the parties' expectations, in an executed writing.

According to defendants, the parties never came to an agreement as to a new financing scheme, and, as of the new closing date, were still far apart on many issues on a proposed new operating agreement, including whether Safie and JRM would have a majority interest in the allegedly new joint venture, and whether Brookline Development would be property manager and manager of the purchasing entity. Nevertheless, the parties continued to negotiate up to the date of [*3]the closing. The final communication between the parties prior to the closing was a memorandum dated June 27, 2003, which provided a revised proposal for the operating agreement which, according to defendants, contained numerous terms on which the parties disagreed. This memorandum was never executed by Brookline Development.

On June 30, 2003, Brookline Development closed on the property, having formed a new company, a North Carolina limited liability company, also named Atlantic St. John, LLC (Atlantic (NC), for the purpose of purchasing the property. The terms of an operating agreement for Atlantic (NC) were negotiated with new equity investors, without the participation of Safie or JRM.

The crux of the action is plaintiffs' belief that the original joint venture between themselves and Brookline Development did not end on May 30, 2003, when Safie and JRM failed to turn over monies equivalent to the proposed 25% equity interests, but that the relationship continued while the parties negotiated up until the closing.

Based on this alleged joint venture relationship, plaintiffs bring claims for breach of contract, breach of fiduciary duty, unjust enrichment, and unfair competition, the last based on defendants' alleged use of the PPM in soliciting equity interests to parties which were not procured by Safie or JRM. Plaintiffs also bring a cause of action for defamation, based on an e-mail sent by Yoemans to three persons previously associated with Brookline Development.

As a preliminary matter, I decline to treat the present motion as one for summary judgment, pursuant to the discretion afforded by CPLR 3211 (c). (See Luke Industries, Inc. v Prominent Apparel (America), Inc., 248 AD2d 141 [1st Dept 1998]).

On a motion to dismiss pursuant to CPLR 3211(a), I am required to "accept as true the facts as alleged in the complaint and submissions in opposition to the motion, accord plaintiffs the benefit of every possible favorable inference and determine only whether the facts as alleged fit within any cognizable legal theory." (Sokoloff v Harriman Estates Development Corp., 96 NY2d 409, 414 [2001]); Leon v Martinez, 84 NY2d 83 ([1994]). However, where plaintiff has submitted affidavits to supplement the complaint, the issue is not whether a cause of action has been stated, but rather, whether one exists. (Leon v Martinez, 84 NY2d 83, supra; Morgenthow & Latham v Bank of New York Company, Inc., 305 AD2d 74 [1st Dept 2003]. And, where documentary evidence is presented, "dismissal 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 at 88; Arnav Industries, Inc. Retirement Trust v Brown, Raysman, Millstein, Felder & Steiner, LLP, 96 NY2d 300 ([2001]). With these principles in mind, I turn to the present case.

The documentary evidence establishes that the parties' joint venture ended on May 30, 2003, when Safie and JRM failed to procure the equity interests required under the MOU and the PAA. The indicia of the existence of a joint venture are: acts manifesting the intent of the parties to be associated as joint venturers, mutual contribution to the joint undertaking through a consideration of property, financial resources, effort, skill or knowledge, a measure of joint proprietorship and control over the enterprise, and a provision for the sharing of profits and losses.

(Richbell Information Services, Inc. v Jupiter Partners, L.P., 309 AD2d 288, 298 [1st Dept 2003]).

According to the plain language of the PAA, "[i]f by the Closing Date the closing conditions set forth in Section 6 of this Agreement have not been satisfied, the Offering will be terminated, all [*4]subscription payments will be refunded to the subscribers and all subscription agreements will be cancelled." (Aff. of Yoemans, Ex. E, at 2.) Likewise, according to the PPM, "[i]f by the Closing Date, Subscription Agreements for fewer than 22.5 Units have been accepted or the Closing Conditions have not been satisfied, the Offering will be terminated, all subscription payments will be refunded to the subscribers and all Subscription Agreements will be cancelled." (Aff. of Yoemans, Ex. F, at 5).

The purpose of the alleged joint venture between the JRM entities and the Brookline entities was to solicit approximately 25 equity units towards the purchase of the property by March 30, 2003. According to both the PAA and the PPM, the purpose of the joint venture collapsed on March 30, 2003, when Safie and JRM failed to perform under the PAA. It is clear that the joint venture also collapsed at this time. The units were never sold, and the Atlantic (Del) operating agreement was never signed. Despite plaintiffs' argument that Atlantic (Del) continued thereafter to be a vehicle for the conveyance of the joint venture's purpose, the record demonstrates otherwise.

A contract is evidenced by the existence of definiteness in its material terms. (Cobble Hill Nursing Home, Inc. v Henry and Warren Corporation, 74 NY2d 475 [1989]); see also Joseph Martin, Jr. Delicatessen, Inc. v Schumacher, 52 NY2d 105, 109 [1981]). "[U]nless a court can determine what the agreement is, it cannot know whether the contract has been breached." (Cobble Hill Nursing Home, Inc. v Henry and Warren Corporation, 74 NY2d at 483.)

Whether or not there was a joint venture prior to May 30, 2003, the documents produced after that date present a classic example of a "'mere agreement to agree' (citation omitted)" (Richbell Information Services, Inc. v Jupiter Partners, L.P., 309 AD2d at 297), rather than a definite contract. "[W]here an agreement contains open terms, calls for future approval, and expressly anticipates future preparation and execution of contract documents, there is a strong presumption against finding a binding and enforceable obligation." (Carmon v Soleh Boneh Ltd., 206 AD2d 450, 450 [1st Dept 1994]). The e-mails and memoranda which passed between the parties after May 30, 2003 establish, as a matter of law, that no final agreement existed, and that the parties were at that time no longer involved in a joint venture, with the certain expectation that a deal would result from their negotiations. No operating agreement was ever executed.

This conclusion above negates any claim for breach of contract or breach of fiduciary duty (as well as the claim for aiding and abetting the alleged breaches). Therefore, the first through fourth causes of action are dismissed.

The next three causes of action are concerned with defendants' alleged misuse of the PPM to solicit equity interests in Atlantic (NC). The fifth cause of action is for breach of contract, for allegedly revealing the contents of the PPM to potential and actual investors in Atlantic (NC). The sixth cause of action sounds in quasi-contract, on the grounds that plaintiffs prepared the PPM on the understanding that Brookline Development would assign the contract to buy the property to Atlantic (Del), and would sign the operating agreement, and that, as a result of defendants' failure to do so, plaintiffs suffered a loss, and defendants recognized a gain. The seventh cause of action is for unfair competition, based on defendants' use of the PPM, which plaintiffs consider a misappropriation of a valuable property right belonging to plaintiffs.

According to plaintiffs, the PPM expressly forbids Brookline Development from revealing or using in any way the contents of the PPM, despite the fact that much of the content of the PPM was obtained from defendants. Plaintiffs' claim rests on two provisions in the PPM. The first [*5]provides that "[a]ny distribution or reproduction of all or any part of this memorandum, or the divulgence of its contents other than as specifically set forth herein, is unauthorized." (Yoemans Aff., Ex. F, cover.) The second statement, in bold letters, states that [t]his memorandum is submitted on a confidential basis for use by prospective investors. The receipt of this memorandum constitutes the agreement on the part of the recipient hereof to maintain the confidentiality of the information contained herein. This memorandum may not be reproduced in whole or part and its use for any purpose other than to evaluate an investment in the non-managing member interests offered hereby is strictly prohibited.

These provisions do nothing to further a claim for breach of contract against defendants, for the simple reason that the PPM is not a contract between any of the defendants and plaintiffs. The language of the PPM is directed at the recipients of the document (as is clarified in the second provision set forth above). There is also nothing in the PAA, the contract between BASJ and Safie (and, purportedly, plaintiffs), which forbids defendants from divulging the contents of the PPM to any other party. It is axiomatic that without a contract, no claim for breach of contract can be made. (Franklin v Carpinello Oil Company, 84 AD2d 613 [3d Dept 1981]). Therefore, the fifth cause of action must be dismissed.

Plaintiffs' cause of action for quasi contract is based on the belief that "[i]n preparing the PPM, plaintiffs acted to their detriment at the express request of defendants Yoemans, BASJ and (Brookline Development)" (Amended Complaint, ¶ 40), because plaintiffs allegedly prepared the PPM on the understanding that the contract to solicit the property would be assigned to Atlantic (Del), and that BASJ would execute the operating agreement. The theory of an action in quasi contract "rests upon the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another. ... It is an obligation which the law creates, in the absence of any agreement, when and because the acts of the parties and others have placed in the possession of one person money, or its equivalent, under such circumstances that in equity and good conscience he ought not to retain it [citation omitted][emphasis in original]."

(State of New York v Barclays Bank of New York, N.A., 76 NY2d 533, 540 [1990]; Moreover, "[T]he general rule is that 'the plaintiff must have suffered a loss and an action not based upon loss is not restitutionary'[citation omitted][emphasis in original]." (State of New York v Barclays Bank of New York, N.A., Id. 540.)

It cannot be said that defendants were unjustly enriched by their use of the PPM. The document was not created solely by plaintiffs; it was a collaboration between both defendants, who supplied much of the information contained therein, and plaintiffs, who put the whole together. Therefore, the PPM does not constitute property belonging to plaintiffs which defendants ought not, in good conscience, retain. Also, the purpose of the PPM was to allow Safie and JRM to solicit equity interests in Atlantic (Del), a purpose in which Safie and JRM failed. Under these [*6]circumstances, defendants were not unjustly enriched by their alleged use of the PPM[FN2], any more than plaintiffs could be found to be enriched, had they been the parties making use of the document. Similarly, there can be no claim for unfair competition for defendants' alleged misappropriation of the PPM (seventh cause of action), because nothing has been alleged which would establish that defendants' use of the PPM, which belonged to them as much as it belonged to plaintiffs, was unfair.

Finally, plaintiffs have failed to state a claim for defamation. Plaintiffs claim that they were libeled in an e-mail sent by Yoemans to three former employees of Brookline Development, Dante Massaro, Chris LaMack, and Will Obeid, which read: Please be advised that we were unable to reach an agreement with JRM. Following the threatening e-mail from Dante, Will and Chris, JRM became very confrontational, presuming that we were very vulnerable, and made unreasonable demands upon us that could not be met. Therefore, I had no choice but to close with other equity with no acquisition fee, no profits, and no money refunded at closing.

According to plaintiffs, "the above-quoted words published by defendants Yoemans and [Brookline Development] were defamatory and libelous per se, in that they falsely accused [JRMLLC and JRM] of failing to deal fairly and honorably with its business partners and attempting to take undue or unethical advantage in business negotiations." (Complaint, ¶ 50.) Plaintiffs also allege that the statement in the e-mail was false and untrue, and that Yoemans and Brookline Development's conduct in publishing the statement was "malicious, deliberate and wanton, and reckless and in willful disregard of the rights of plaintiffs JRMLLC and [JRM]." (id. at ¶ 51.)

"The essence of the tort of libel is the publication of a statement about an individual that is both false and defamatory." (Brian v Richardson, 87 NY2d 46, 51 [1995].) A libel action may not be maintained where the statement is one of opinion rather than of fact. The factors which must be considered to distinguish fact from non-actionable statements of opinion are: (1) whether the specific language in issue has a precise meaning which is readily understood; (2) whether the statements are capable of being proven true or false; and (3) whether either the full context of the communication in which the statement appears or the broader social context and surrounding circumstances are such as to "signal ... readers or listeners that what is being read or heard is likely to be opinion, not fact [citation omitted]."

(Gross v New York Times Co., 82 NY2d at 146, 153 [1993]; see also Brian v Richardson, 87 NY2d 46, supra.) "The issue of distinguishing between actionable fact and non-actionable opinion is a question of law for the court." (Gjonlekaj v Sot, 308 AD2d 471, 473-474 [2d Dept 2003]).

Plaintiffs have asserted that the e-mail contains facts which are actionable per se, rather than opinions. As is relevant here, a statement which "imputes fraud, dishonesty, misconduct, or unfitness in conducting one's profession" is libelous per se. (Id. at 473-474.) Assuming, arguendo, that the statement could be considered defamatory, it is evident that it merely expresses Yoemans' [*7]opinion of plaintiffs' behavior following the receipt of a "threatening e-mail" sent to plaintiffs by the parties to whom Yoemans' e-mail had been sent.

I do not agree that the communication is actionable because it "implies a basis in facts which are not disclosed to the listener or reader," as argued by the plaintiff and citing the Gross decision. (Plaintiffs' Memorandum of Law, at 24) Gross, supra, held that an actionable statement of opinion is one which "implies a basis in facts which are not disclosed to the reader or listener" (id. at 153), as opposed to an opinion "that is accompanied by a recitation of the facts on which [the opinion] is based or one that does not imply the existence of undisclosed underlying facts." (Id. at 153) Yoemans' e-mail makes clear that his opinion is based on plaintiffs' reaction to the "threatening e-mail" which they received, and does not imply the existence of "undisclosed underlying facts." In short, Yoemans' e-mail is non-actionable opinion, insufficient to support plaintiffs' eighth cause of action for defamation. Thus, this cause of action must be dismissed.

Finally, I note that plaintiffs' demands for punitive damages, which accompany the second, third, fourth, seventh, and eighth causes of action, fall with the dismissal of these actions. It should also be noted that no factual allegations have been made against Yoemans, individually. Therefore, these claims should be dismissed as to Yoemans for this reason as well.

Accordingly, it is

ORDERED that defendants' motion is granted, to the extent that the complaint is dismissed, with costs and disbursements to defendants as taxed by the Clerk of the Court; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated: October 21, 2004

ENTER:

_____________________________

J.S.C. Footnotes

Footnote 1:Defendants claim that the MOU and PAA were entered into by Safie and JRM. However, only Safie appears to have executed the agreements, which were signed by Fiedler.

Footnote 2: Defendants actually deny making use of the PPM, a fact which cannot be resolved on a motion to dismiss.