UBS AG v Highland Capital Mgt. L.P.
Annotate this CaseDecided on December 1, 2010
Supreme Court, New York County
UBS AG, Plaintiff,
against
Highland Capital Management L.P. and HIGHLAND CREDIT STRATEGIES MASTER FUND, L.P., Defendants.
650094/2010
For Plaintiff:
Schindler Cohen & Hochman, LLP
100 Wall Street, 15th Floor
New York, NY 10005
(Jonathan L. Hochman, Esq.
Scott Bulcao, Esq.)
For Defendants:
Lackey Hershman, LLP
1325 Avenue of the Americas
New York, NY 10019
(Kieran M. Corcoran, Esq.)
Bernard J. Fried, J.
In this contracts action, defendants Highland Capital Management L.P. (Highland Capital) and Highland Credit Strategies Master Fund, L.P. (Highland Credit) move, pursuant to CPLR 3211 (a) (7), for an order dismissing the complaint in its entirety.
In the complaint, plaintiff UBS AG (UBS) asserts the following factual allegations:
On November 29, 2007, UBS and Highland Capital entered into an oral agreement obligating Highland Capital to purchase, as an assignment, a loan previously made to nonparty Gainey Corp. As is standard in the secondary market for distressed loans, UBS and Highland Capital verbally agreed to the material terms of the trade, over the telephone. Specifically, Highland Capital verbally agreed to purchase the loan assignment at a 65.625% discount rate off the $4.12 million outstanding principal amount, and advised that it would allocate the assignment to Highland Credit.
Subsequently, in December 2007, UBS prepared, executed, and circulated to defendants the
standard Loan Syndications and Trading Association (LSTA) forms, consisting of a distressed
trade [*2]confirmation memorializing the terms of the verbal
agreement and incorporating the standard terms and conditions for distressed trade
confirmations, a purchase and sale agreement for distressed trades, an assignment and
assumption, and a purchase price letter (the transfer documents). The trade confirmation is
addressed to Highland Credit and identifies Highland Credit as the buyer.
UBS contacted defendants in late March, August 11, September 2, and October 20,
2008 regarding the trade. By letter dated October 28, 2008, UBS advised defendants that it would
construe defendants' failure to execute the transfer documents by November 7, 2008 as a
repudiation of their agreement. In response, on November 6, 2008, defendants returned the trade
confirmation, executed on behalf of Highland Credit by nonparty Strand Advisors, Inc., the
general partner of Highland Capital, the sole member of Highland Credit.
Despite UBS' repeated attempts to persuade defendants to honor their contractual commitment, defendants failed to pay any part of the agreed upon purchase price, and, in July 2009, advised that they were ceasing any further trading with UBS. Therefore, to mitigate the loss, in August 2009, UBS sold the loan assignment to a third party for an amount approximately $2.1 million less than the purchase price set forth in the trade confirmation.
On these allegations, UBS asserts a breach of contract cause of action against both Highland Capital and Highland Credit, and seeks to recover monetary damages in an amount no less than $2.1 million.
Defendants now seek to dismiss the complaint, prior to serving an answer, contending that, among other things, Highland Capital is not bound by either the oral or written agreements, as alleged by UBS.
The contract claim asserted against Highland Capital is fatally defective on its face and, therefore, is dismissed. A basic principle of contract law is that, "[w]ithout an agreement, there can be no contract, and . . . without a contract there can be no breach" (Kleinschmidt Div. of SCM Corp. v Futuronics Corp., 41 NY2d 972, 973 [1977]).
UBS alleges in the complaint that, on November 29, 2007, Highland Capital entered into a binding oral agreement with UBS to purchase a distressed loan, and that this agreement, as revised, was memorialized in the written trade confirmation, which is binding on both defendants. However, UBS does not allege that Highland Capital executed the trade confirmation, nor could it. The express terms of the trade confirmation conclusively demonstrate that the final agreement was entered into by Highland Credit, rather than Highland Capital. The trade confirmation identifies Highland Credit as the buyer and principal contracting party, rather than an agent acting on behalf of another corporation. The confirmation was executed on behalf of Highland Credit by the general partner of Highland Capital, acting in its capacity as Highland Credit's sole member. Nothing in the trade confirmation indicates that the contracting parties or Highland Capital intended that Highland Credit be the "nominal" buyer, that Highland Capital be bound by the agreement, or that Highland Capital guaranteed payment.
UBS' contentions that Highland Capital is bound because its representatives entered into an oral agreement and participated in the negotiations of the oral and written agreements with UBS are unpersuasive. Pursuant to UBS' own allegations, it is clear that, after the initial oral agreement was reached, negotiations continued and the original agreement was modified on consent of both original parties, in order to substitute Highland Credit as the contracting party and to supersede any earlier oral agreement. "It is well settled that 'where the parties have clearly expressed or manifested their [*3]intention that a subsequent agreement supersede or substitute for an old agreement, the subsequent agreement extinguishes the old one'" (Northville Indus. Corp. v Fort Neck Oil Terms. Corp., 100 AD2d 865, 867 [2d Dept 1984], affd 64 NY2d 930 [1985] [citation omitted]). UBS alleges that, during negotiations, Highland Capital advised UBS that it intended to allocate the loan assignment to a particular fund that it managed, and, subsequently, advised that it would allocate the assignment to Highland Credit. UBS also alleges that it agreed to the changes and twice revised the written trade confirmation to reflect them. For these reasons, Highland Credit is the sole buyer bound by the contract, and Highland Capital is not bound by the transfer documents.
Therefore, that branch of the motion to dismiss the contract claim asserted against Highland Capital is granted, and the claim is dismissed, since dismissal is warranted where the documentary evidence submitted resolves all factual issues as a matter of law and definitively disposes of the plaintiff's claim (Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76, 81 [1st Dept 1999], affd 94 NY2d 659 [2000]; CPLR 3211 [a] [1]).
Defendants next contend that the branches of the claim for breach of contract by failure to timely execute the trading documents and pay the purchase priceare fatally defective on the ground that mere delay, without repudiation or demand, does not constitute a breach of the trade confirmation.
UBS has alleged facts sufficient to support a legally viable cause of action for breach of contract against Highland Credit (see Noise in the Attic Prods., Inc. v London Records, 10 AD3d 303, 307-308 [1st Dept 2004]). UBS has adequately alleged the existence of a contract with Highland Credit, and that UBS fully performed its contractual obligations by timely preparing and delivering transfer documents that accurately reflected their verbal agreement. UBS has also adequately alleged that it was, at all relevant times, ready to settle the trade, but that Highland Credit improperly refused to do so. UBS has also alleged that Highland Credit's misconduct caused it to sustain a monetary loss of not less than $2,142,988.34.
Contrary to defendants' contention, the question of whether Highland Credit's conduct was appropriate, in view of the express terms of the transfer documents and industry practice in 2007 and 2008, cannot be resolved on the pleadings. The transfer documents require Highland Credit to transfer to UBS the specified purchase amount "as soon as practicable after the Trade Date" (LSTA Standard Terms & Conditions for Distressed Trade Confirmations, ¶ 1). The trade confirmation defines the "Trade Date" as November 29, 2007. It is well settled that where a contract does not include a fixed time for performance, performance must be made within a reasonable time (Savasta v 470 Newport Assoc., 82 NY2d 763, 765 [1993]). What constitutes a "reasonable time is for the jury to determine considering the subject matter of the contract, what the parties contemplated at the time it was entered and the circumstances surrounding performance" (Young v Whitney, 111 AD2d 1013, 1014 [3d Dept 1985]). There is no dispute that Highland Credit did not execute and return the trade confirmation until November 2008, approximately one year after the initial oral agreement, and had not paid the purchase price by August 2009, when UBS sold the loan assignment to a third party.
The assertions that Highland Credit's failure to return the executed transfer documents and pay the purchase price within the two-year period following the Trade Date was reasonable and justified constitute defenses to the complaint that cannot be determined at this early stage of the litigation. Similarly, whether UBS itself improperly delayed settlement of the trade, led Highland [*4]Credit to believe that the delay was acceptable, or breached the agreement by improperly declaring the trade confirmation void and completing the trade with another buyer cannot be determined without discovery.
Last, defendants seek to dismiss that branch of the contract claim for breach by anticipatory repudiation, contending that the facts, as alleged by UBS, demonstrate that UBS itself, rather than defendants, repudiated the agreement and rendered Highland Credit's performance impossible, and that UBS has failed to allege a reasonable ground for repudiation by Highland Credit.
Although, in its opposition papers, UBS opposed this branch of the motion, during oral argument in open court, UBS withdrew the branch of the contract claim based on anticipatory repudiation (see Sept. 29, 2010 Oral Arg Tr, at 16:17-21; Complaint, ¶ 35). Therefore, this branch of the motion is granted.
For these reasons, the branches of the motion to dismiss the contract claim asserted against Highland Credit are denied.
UBS' request for leave to replead the contracts claim asserted against Highland Capital is denied. Leave to replead would serve no purpose here, where the agreement allegedly breached clearly demonstrates that Highland Capital is not bound by it. "Where a proposed defense plainly lacks merit, . . . amendment of a pleading would serve no purpose but needlessly to complicate discovery and trial, and the motion to amend" must be denied (Thomas Crimmins Contr. Co. v City of New York, 74 NY2d 166, 170 [1989]; see CPLR 3025 [b]).
Accordingly, it is
ORDERED that defendants' motion to dismiss the complaint is granted to the extent that the complaint is dismissed in its entirety as against defendant Highland Capital Management L.P., with costs and disbursements to Highland Capital as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of Highland Capital; and the branch of the contract claim based on repudiation is dismissed; and it is further
ORDERED that the remainder of the action is severed and continued against defendant Highland Credit Strategies Master Fund, L.P., the remaining defendant; and it is further
ORDERED that the caption be amended to reflect the dismissal and that all future papers filed with the court bear the amended caption; and it is further
ORDERED that defendants' counsel shall serve a copy of this order with notice of entry upon the County Clerk and the Clerk of the Trial Support Office (Room 158), who are directed to mark the court's records to reflect the change in the caption directed herein; and it is further
ORDERED that the remaining defendant is directed to serve an answer to the complaint within 20 days after service of a copy of this order with notice of entry; and it is further
ORDERED that counsel are directed to appear for a preliminary conference in Room
248, 60 Centre Street, on January 13, 2010, at 9:30 a.m.
Dated: December 1 , 2010
[*5]
ENTER:
_______________________________
J.S.C.
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