Salamone v EIP Global Fund LLC,

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Salamone v EIP Global Fund LLC, 2020 NY Slip Op 32295(U) July 13, 2020 Supreme Court, New York County Docket Number: 650374/2020 Judge: O. Peter Sherwood Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: 1] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 49 ------------------------------------------ x KENNETH SALAMONE, DECISION AND ORDER Index No.: 650374/2020 Plaintiff, -against- Motion Sequence No.: 001 EIP GLOBAL FUND LLC, SRIDHAR CHITYALA, SHREYAS CHITYALA, VEDAS GROUP, LLC and CKL PARTNERS, LLC, Defendants. --------------------------------- ---------- x 0. PETER SHERWOOD, J.: The complaint (NYSCEF Doc. No. 002) relates to a 1 an by plaintiff Kenneth Salamone to defendants Sridhar Ch ityala (Sridhar) and EIP Global Fun , LLC (EIP) for $2,000,000. As this is a motion to dismiss, the following facts are taken from the complaint (NYSCEF Doc. No. 2) and assumed to be true. I. FACTS EIP and the other defendant entities, Vedas Group, Ll C (Vedas), and CKL Partners, LLC (CKL) have only two managing members, officers, man gers and/or partners, Sridhar and defendant Shreyas Chityala (Shreyas). Salamone, Sridhar, a Shrcyas are involved in a variety of personal and business ventures. On October 10, 2019, Sridhar and EIP asked Salamon for an emergency loan of $5M. Salamone offered a $2M loan, if he got certain information a d assurances. Salamone made the loan on October 11, 2019, pursuant to a thirty-day demand n e (the Demand Note) which was signed by Sridhar for EIP and personally. The Demand Note rovided for 10% interest, with the principal to be paid back either on November l 0, 2019, or on demand. The Demand Note was not paid. On November 11, 2019, Salamone made a written emand for repayment. Sridhar and EIP asked Salamone to forebear from tak· g further action, promising payment on November 21, 2019. Over the next weeks, paym nt was not tendered but promises were made about the availability of funds. On November 2 7, 2019, Salamone, Sridhar, and EIP entered into a Forbearance and Security Agreement (the Forb arance Agreement) by which 1 2 of 11 [*FILED: 2] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 Sridhar and EIP agreed to pay Salamone $2,369,918.50 plus i tcrcst on or before December 17, 2019, in exchange for Salamone forbearing from exercising h s rights under the Demand Note. Sridhar signed the Forbearance Agreement for EIP and indivi ually. Salamone also received a security interest in Sridhar's interests in EIP, Vedas, and CK (the Membership Interests) pursuant to a Pledge Agreement dated November 22, 2019 (t e Pledge Agreement). Sridhar and EIP did not pay the money required by the Forbearance Agre ment on December 17, 2019. On December 18, 2019, Salamone notified Sridhar and EIP of th default and demanded payment and delivery of the Membership Interests. Neither was done. Plaintiff asserts claims for: Claim 1- Declaratory Judgment- that Salamone is enti led to certain financial disclosure pursuant to the Forbearance Agreement. Claim 2- P eclaratory Judgment- that Salamone is enti led to delivery of the Membership Interests and an order instructing Sridhar to turn over the Me bership Interests. Claim 3- fraudulent Inducement- Sridhar and Shrcya fraudulently induced Salamone to enter into the Demand Note and the Forbearance J\.greement y making false statements about their need for the loan, the ability of funds to repay it, and the r intent to do so. Claim 4- Breach of Contract- against Sridhar and EIP or breach of the Demand Note and Forbearance Agreement by failing to repay the loan and the a ount required by the Forbearance Agreement and by failing to deliver the Membership Interests Claim 5- Attorneys' Fees- against Sridhar and EIP for fees, costs, and expenses, pursuant to the Forbearance Agreement. Claim 6- Permanent Injunction- against Sridhar and S reyas regarding future obligations for which plaintiff lacks a remedy at law, enjoining them fron "taking any action, including but not limited to any financial decision concerning di stributions nd loan repayment, borrowing, or lending" (Complaint at 13). Defendants move to dismiss. Plaintiff opposes and er ss-moves to convert the motion to a partial motion for summary judgment on the contract claim . II. DISCUSSION To succeed on a motion to dismiss pursuant to CPLR 32 11 (a)( !), the documentary evidence submitted that forms the basis of a defense must res Ive all factual issues and definitively dispose of the plaintiffs claims (see 511 W. 232n Owners Corp. v Jennffer Realty Co., 98 NY2d 144, 152 [2002]; Blonder & Co. , Inc. v Citiban , NA., 28 J\.D3d 180, 182 [l51 2 3 of 11 [*FILED: 3] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 Dept 2006 J). A motion to dismiss pursuant to CPLR § 3211 ( ) ( 1) "may be appropriately granted only where the documentary evidence utterly refutes laintiffs factual allegations, conclusively establishing a defense as a matter of law" (McC l/y v. Jersey Partners, Inc. , 60 AD3d 562, 562 1151 Dept. 2009]). The facts as alleged in the om plaint are regarded as true, and the plaintiff is afforded the benefit of every favorable inferen e (see Leon v Martinez, 84 NY2d 83, 87-88 [1994]). Allegations consisting of bare legal concl sions as well as factual claims flatly contradicted by documentary evidence arc not entitled t any such consideration (see e.g. Nisari v Ramjohn, 85 AD3d 987, 989 [2nd Dept 201 lJ). CPLR § 321 1 (a) (1) does not explicitly define "docu1 cntary evidence." As used in this statutory provision, "'documentary evidence' is a 'fuzzy term , and what is documentary evidence for one purpose, might not be documentary evidenc for another" (Fontanella v John Doe I , 73 A03d 78, 84 L2nd Dept 2010]). "[T]o be consider ' documentary,' evidence must be unambiguous and of undisputed authenticity" (id at 86, citin Siegel, Practice Commentaries, McKinney's Cons. Laws of N.Y., Book 7B, CPLR 3211: 10, 2 1-22). Typically that means "judicial records, as well as documents reflecting out-of-cou transactions such as mortgages, deeds, contracts, and any other papers, the contents of which re 'essentially undeniable,'" (id. at 84-85). Here, the documentary evidence is the Demand N e, the Forbearance Agreement and the Pledge Agreement. The authenticity of these documents i undisputed. They are proper documentary evidence. On a motion to dism iss a plaintiff's claim pursuant to PLR § 32 11 (a) (7) for failure to state a cause of action, the court is not called upon to determi e the truth of the allegations (see. Campaign for Fiscal Equity v State, 86 NY2d 307, 317 [ 1995 ; 219 Broadway Corp. v Alexander 's, Inc., 46 NY2d 506, 509 [1979]). Rather, the cou tis required to "afford the pleadings a liberal construction, take the allegations of the co plaint as true and provide plaintiff the benefit of every possible inference Lcitation omitted]. Wh ther a plaintiff can ultimately establish its allegations is not part of the calculus in determini g a motion to dismiss" (EBC Iv Goldman, Sachs & Co., 5 N Y3d 11, 19 [20051). The court's le is limited to determining whether the pleading states a cause of action, not whether the is evidcntiary support to establish a meritorious cause of action (see Guggenheimer v Ginzhurg, 3 NY2d 268, 275 r1977]; Sokol v Leader, 74 AD3d 1180 [2d Dept 2010)). 3 4 of 11 [*FILED: 4] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 A. Breach of Contract Claims 1. Motion to Dismiss To sustain a breach of contract cause of action, plainti 'must show: (1) an agreement; (2) plaintiff's performance; (3) defendant's breach of that agreem nt; and (4) damages (see Furia v Furia, 116 AD2d 694, 695 [2d Dept 1986]). "The fundament· I rule of contract interpretation is that agreements are construed in accord with the parties' inte t ... and '[t]he best evidence of what parties to a written agreement intend is what they say in heir writing' .... Thus, a written agreement that is clear and unambiguous on its face must be forced according to the plain terms, and extrinsic evidence of the parties' intent may be co sidered only if the agreement is ambiguous [internal citations omittedl" (Riverside South Pia ing Corp. v CRP/Extell Riverside LP, 60 AD3d 61, 66 [1st Dept 2008), a:ffd 13 NY3d 398 [200 ]). Whether a contract is ambiguous presents a question of law for resolution by the co rts (id. at 67). Courts should adopt an interpretation of a contract which gives meaning to every ovision of the contract, with no provision left without force and effect (see RM 14 FK Corp. Bank One Trust Co., NA., 37 AD3d 272 [1st Dept 2007]). As far as defendants argue Shreyas, Vegas Group, an CKL Partners arc not proper defendants for any contract-based claims because they are no party to any of the agreements at issue (Memo at 12), plaintiff agrees that the contract claims e only pied against EIP and Sridhar (Opp at 13). Defendants argue the breach of contract claims (four d five) against EIP and Sridhar should be dismissed because the interest rate charged is usuri us, making the agreement void (Memo, NYSCEF Doc. No. 21, at 9). Plaintiff claims it loan d $2 million on October 11, 2019 and defendants owed plaintiff $2,369,918.50 on November 2 , 2019, constituting 143.6% interest per annum. Interest is deemed criminal usury when i exceeds 25% (id. at 10). Defendants also argue the Demand Note is superseded by the ubsequent agreements, so a breach of the Demand Note is no longer actionable (id. at 11- 2). Plaintiff opposes the motion to dismiss and asks this p rtion of the motion be converted to a motion for summary judgment pursuant to CPLR 3211 (c . Plaintiff argues neither EIP nor Sridhar may assert a civil usury defense because of the value f the loan (see General 4 5 of 11 [*FILED: 5] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 Obligations Law§ INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 5~501 [6.aJ L"No law regulating the maxi m rate of interest which may be charged, taken or received ... shall apply to any loan or forbe ranee in the amount of two hundred fifty thousand dollars or morc"l). Further, "[n]o cor oration shall hereafter interpose the defense of usury in any action. The term corporation, as u ed in this section, shall be construed to include all associations, and joint-stock compani shaving any of the powers and privileges of corporations not possessed by individuals or par erships" (General Obligations Law § 5-521 ). Plaintiff also argues the criminal usury law do s not apply because the Demand Note and the Forbearance Agreement do not charge a crimina ly usurious rate of interest (Opp at 8, citing NY. Penal Law§ 190.40). The interest charged on t c face of the Demand Note is merely 10% (Opp at 9). The Forbearance Agreement charges 20% interest (id. at 10). The Forbearance Fee is additional principal in the Forbearance A eement, not interest. Defendants bear the burden of establishing any additional fees, such as th Forbearance Fee, should be considered "a ruse to collect additional interest in excess oft tallowed by law" (Sur-reply at 9, citing Freitas v Geddes Sav. and Loan Ass'n, 63 NY2d 254, 2 4 [I 984]). According to the plaintiff, even if the Forbearance Ag eement were void as usurious, the Demand Note would still stand and should be enforced (id. at 11-12, Sur-reply, NYSCEF Doc. No. 57, at 7). The Demand Note is not superseded by the For earance Agreement and the subsequent agreement does not extinguish the underlying obi ation (Sur-reply at 7, citing ' Eikenberry v Adirondack Spring Water Co., Inc., 65 NY2d I 5, 129 [1985] ["[w]hen a contract for money, legal and innocent in itself, is once made and con mmated, it cannot be made usurious and illegal by any subsequent transactions of the p· ies. These subsequent transactions may of themselves be illegal, and forbidden by law, but they annot impart the taint and the consequences of usury to an antecedent agreement, fair, and j st, and upright in itself. If the obligation under it is to pay a debt, the obligation, with the le al rights resulting from it, remain in all their force, and cannot be discharged by ingrafting upo it some subsequent agreement obnoxious to the charge ofusury".l lquoting Lesley vJohnson 41 Barb 359, 362, 1864 WL 3856 [NY Gen Term 1864'1). As the amount of the loan is too large to permit a civi usury defense, the court must consider whether the Forbearance Fee should be considered i terest for the purpose of determining the rate of interest charged on the loan. 5 6 of 11 [*FILED: 6] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 Plaintiff takes the position that the Forbearance Fee is roper consideration for its forbearing to seek payment of the original Demand Note, and relics on Halliwell v Gordon for the premise that "forbearance to do an act that a person has a egal right to do constitutes consideration" (61 AD3d 932, 934 [2d Dept 2009] [discussin that plaintiffs forbearance from leaving his employment in exchange for the promise of mone ]). However, it is longstanding law that "where money is owing upon a contract for the repay ent of a loan, and forbearance is given for such debt upon the condition of receiving more than the legal rate of interest, such forbearance is as much usury as if the sum of money had bee absolutely loaned upon a contract to pay more than legal interest, has been established so long a to render further discussion wholly unnecessary" (Gantz v Lancaster, 169 NY 357, 365 [l 02J) "The amount charged, taken or received as interest includes any and all amounts paid or p able, directly or indirectly, by any person to or for the account of the lender in consi deration for aking the loan or forbearance, excepting certain costs and fees" (Rubin v George, 136 AD3d 44 7, 448 [I st Dept 2016], citing General Obligation Law§ 5-501 f2]). Accordingly, the Forbearance Fee constitutes interest or the purpose of usury law, and the Forbearance Agreement is void as usurious. Therefore, cl im five, for attorneys' fees pursuant to that agreement, fails. Nonetheless, plaintiff's fou h cause of action, for breach of both the Forbearance Agreement and the underlying Demand otc, survives as far as it relates to the Demand Note because "lt Jhe validity of an indebtedness, riginally val id, is not affected by the fact that it forms a part of the consideration for a subseque t usurious security which was substituted therefor, or by the fact that the subsequent transact on is a mere cover for a usurious contract of forbearance" 0'Stitz v Stevens, 70 AD2d 588, 589 [ d Dept 1979], ajfd, 48 NY2d 957 [1979] quoting 32 NY Jur, Interest and Usury,§ 38, p. 71). 2. Motion for Summary Judgment Plaintiff also seeks to transform the contract claims po ion of the motion to one for summary judgment on the ground that there are no issues of aterial fact that the Demand Note and Forbearance Agreement are valid and enforceable, that pl intiff performed under those agreements, that defendants EIP and Sridhar breached thei r o igations under those agreements by failing to make payments, and that defendants' breach inju ed plaintiff (Opp at 15-17). Upon 6 7 of 11 [*FILED: 7] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 a motion to dismiss, '°either party may submit any evidence t t could properly be considered on a motion for summary judgment. Whether or not issue has be n joined, the court, after adequate notice to the parties, may treat the motion as a motion for su mary judgment" (CPLR 32 l l ). Defendants note the court has not yet infom1ed the parties of· s intention to convert the motion, so they have not laid bare their proof, and they object to such decision, as they need discovery (Reply at 7-8). The portion of this claim which survives this otion, the claim for breach of the Demand Note, is converted to a Motion for Summary Judgm t pursuant to CPLR 321 l(c). Plaintiff may file an opposition to this portion of the motion, long with its proofs, if any, within 30 days of the date of this decision and order. B. Declaratory Judgment Claims Claims I and 2 are presented as seeking declaratory j gment that (I) Salamone is entitled to certain financial disclosure pursuant to the Forbear nee Agreement, and (2) Salamone is entitled to delivery of the Membership Interests and an ord r instructing Sridhar to turn over the Membership Interests, pursuant to the Forbearance Agree ent and Pledge Agreement. Defendants assert the declaratory judgment claims sh uld be dismissed because the contracts are void and because plaintiff has a contract remedy based on the same facts (Memo, NYSCEF Doc. No. 21, at 13-14). Plaintiff argues the declara ory j udgment claims are intended to "establish[] the parties' right to a contract [sic] to prevent I efendants from taking any actions contrary to Plaintiff's interest in the pledged membership inte ests of EIP, Vedas Group and CKL Partners as requested as part of Plaintiffs Fifth Cause o Action (Permanent Injunction)" (Opp, NYSCEF Doc. No. 52 at 18). "The supreme court may render a declaratory judgme t having the effect of a final judgment as to the rights and other legal relations of the parti s to a justiciable controversy whether or not further relief is or could be claimed" (Civil Pr ctice Law and Rules 300 I). A court "may decline to hear the matter if there are other adequ te remedies available" (Morgenthau v Erlbaum, 59 NY2d 143, 148 [ 1983]). The fir t claim relies upon the Forbearance Agreement, which is unenforceable, as discussed above. Ace rdingly, Claim 1 fails, and is dismissed. As to the second claim, there are adequate remedi s available in damages for breach of contract and in injunctive relief, should plaintiff amend the complaint to seek the injunctive 7 8 of 11 [*FILED: 8] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 relief to which it claims it is entitled. Accordingly, the court eclines to hear the declaratory judgment claims. C. Fraud Claim Defendants argue Claim 3, for fraudulent inducement, fails because it is duplicative of the contract claim, fails to allege facts with the required parti ularity, and fails to plead a misrepresentation of present fact, since the alleged misrepres ntation was about the intent to repay plaintiff in the future (Memo at 15-17). Nor has plainti specified what duty defendants are alleged to have breached (Reply at 12). Particularly, plai tiff fails to allege any specific statements by Shreyas which could have induced plaintiff to nter into either the original loan or the Forbearance Agreement (id. at 12). Plaintiff points out that a fraud claim can survive alon with a contract claim where the fraud alleged is independent of the obligations in the contract (Opp at 18-19). Plaintiff claims the "then present and undisclosed intent not to perform under he Demand Note and Forbearance Agreement" was collateral to the contracts at issue, along wit various false statements that the money was being sent (id. at 19-20). Plaintiff argues it has al eged each of those statements with the required specificity regarding who said what to whom (id. at 20). ·'In a fraudu lent inducement claim, the alleged misrcp esentation should be one of thenpresent fact, which would be extraneous to the contract and i volve a duty separate from or in addition to that imposed by the contract ... and not merely a isrepresented intent to perform'' (Hawthorne Group v RRH Ventures. 7 AD3d 320, 323-24 (Is Dept 2004] (citations omitted); see a/so.!Jvf Bldrs. & Assoc., Inc. v Lindner, 67 AD3d 738, 741 2d Dept 20071 r"ralpresent intent to deceive must be alleged and a mere misrepresentation of a intention to perfonn under the contract is insufficient to allege fraud"]). As this claim is bas d on an undisclosed intent not to perform, this claim is also dismissed. D. Injunctive Relief Defendants argue the claim for a permanent injunctio should be dismissed because an injunction is not a cause of action but a form of relief (Memo at 17). Further, the relief sought is extreme, to prevent the Chityalas from taking any action at al concerning the loan, which would 8 9 of 11 [*FILED: 9] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 include repaying it (Reply at 10-11 ). Further, plaintiff lacks e clean hands required for the equitable relief he seeks, since plaintiff has charged such higl interest (id. at 11 ). Nor has plaintiff shown a present or imminent violation without reme y at law (id.). Plaintiff correctly contends New York law allows a cl ·m for permanent injunction (id. at 21-22, citing cases). However, there must be an underlying c use of action giving rise to the relief. Here, the and this claim appears to be a breach of cont act claim requesting injunctive relief as a remedy. The relief requested is described as "a de laration of [plaintiffs] rights under the relevant agreements, including but not limited to, the Ope ating Agreements and Membership Agreements of EIP Global Fund LLC, Vedas Group, LLC, a d CKL Partners, LLC," and plaintiff also demands an injunction preventing Shreyas and ridhar from "taking any action, including but not limited to any financial decision concernin distributions and loan repayment, borrowing, or lending" (Complaint, 12-13). "To establish, prima facie, entitlement to a permanent injunction, a plaintiff must demonstrate: (a) that there was a violation of a right present! occurring, or threatened and imminent; (b) that he or she has no adequate remedy at Jaw; ( ) that serious and irreparable harm will result absent the inj unction; and (d) that the equities are alanced in his or her favor" (Intl. Shoppes v At the Aitport, 131 AD3d 926, 938 [2d Dept 2015] . Plaintiff has only alleged in vague and conclusory fashion that he would be irreparably h ed without the requested injunctive relief. He has failed to allege facts to show an aw· d of damages could not fully compensate him (see Zodkevitch v Feibush, 49 AD3d 424, 42 [1st Dept 2008]). Accordingly, this claim also fails. E. Sanctions Defendants also seek sanctions for improper joinder a d harassment, since the complaint asserts no viable claims, and makes only conclusory allegatio s against defendants Shreyas Chityala, Vegas Group, and CKL Partners (Memo at 18). Th y are included in this action only to harass them, and defendants claim sanctions should be gra ted . Plaintiff argues sanctions are inappropriate because 9 10 of 11 [*FILED: 10] NEW YORK COUNTY CLERK 07/13/2020 04:56 PM NYSCEF DOC. NO. 61 INDEX NO. 650374/2020 RECEIVED NYSCEF: 07/13/2020 "Shreyas was an instrumental figure in the negotiatio of, and agreement to, the Forbearance Agreement. Shreyas made numerous fals representations to induce Plaintiff to enter into the Forbearance Agreement. Ye as Group and CKL Partners arc managed solely by Sridhar and their member inter sts are the subject of the Pledge Agreement and for which affirmative relief is ought as part of the Contract Claims" (Opp at 23). Since the complaint contains valid claims, as di cussed above, and the Membership Interests are at issue, this portion of the motion is denied. Accordingly, it is hereby: ORDERED that the motion to dismiss is granted in p and denied in part. Claims 1 and 2, for declaratory judgment, are dismissed. Claim 3, for frau ulent inducement, is dismissed. Claim 4, for breach of contract, is dismissed as far as it seeks amages for breach of the Forbearance Agreement and survives as far as it alleges brea of the Demand Note. Claim 5, seeking attorneys' fees pursuant to the Forbearance Agreeme tis dismissed and Claim 6, for an injunction or declaratory judgment related to the Demand Noe and the LLC Membership Pledge also fails. And it is further: ORDERED that the plaintiffs request to convert the efcndants' motion to a Motion for Summary Judgment is granted. Defendants may file their op osition and proofs within 30 days of the date of this order. And it is further: ORDERED that counsel shall appear for a conference at 9:30am on August 25, 2020. Counsel shall reach out to chambers the week before the con rcnce to determine if the conference will be in person or by Skype for Business. This constitutes the decision and order of the court. DATED: .July 13, 2020 10 11 of 11

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