Lard-PT, LLC v Seokoh, Inc.
Annotate this CaseDecided on October 20, 2020
Supreme Court, New York County
Lard-PT, LLC, Plaintiff,
against
Seokoh, Inc.,KOLMAR KOREA CO., LTD., Defendant.
SEOKOH, INC., KOLMAR KOREA CO., LTD., Plaintiff,
against
DAVID WORMSER, ALAN WORMSER, Defendant.
SEOKOH, INC., Plaintiff,
against
LARD-PT, LLC, Defendant.
651726/2020
For Seokoh, Inc.: Kobre & Kim LLP, 800 3rd Avenue, 6th Floor, New York NY 10022
For Lard-PT, LL" target="_blank">Rhoe v Reid, 166 AD3d 919, 921 [2d Dept 2018]). Although Lard has not filed its opposition papers to the instant motion, both parties have uploaded letters to NYSCEF in the Kolmar Action which, among other things, indicate that neither party opposes consolidation (see Index 650983/2020, NYSCEF Doc. Nos. 30 and 31). Inasmuch as the two actions involve [*11]common questions of law and fact, consolidation is appropriate and this branch of Kolmar's motion is granted.
Kolmar argues that the consolidated action should be stayed pending resolution of the later filed Delaware Dissolution Proceeding because the later filed Delaware Dissolution Proceeding has overlapping questions of fact with the consolidated action, will focus on the parties actions resulting in the Deadlock, and will assess whether the Operating Agreement's Deadlock Provision is adequate to resolve the Deadlock and will resolve the Deadlock through dissolution. The argument fails.
CPLR § 2201 provides that "the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just." New York courts generally follow the 'first in-time' rule (Syncora Guarantee Inc. v JP Morgan Sec., LLC, 110 AD3d 87, 95 [1st Dept 2013]). Both parties have brought lawsuits here in New York County (i.e., the Kolmar Lawsuit and the Lard Lawsuit). Ironically, the movant, Kolmar, brought the first lawsuit in New York County (re: the Kolmar Lawsuit) on February 12, 2020 — more than five months before seeking dissolution in Delaware (July 23, 2020) — and approximately four months after Lard filed the Lard Lawsuit. It is beyond question that this is the court of primary jurisdiction.
The fact that the lawsuits were first filed here of course makes sense. As discussed above, pursuant to Section 14.5 of the Operating Agreement, the parties agreed that any lawsuit arising out of the Operating Agreement should be brought exclusively in New York County. Finally, there simply is no prejudice to the parties in litigating here in New York County as the issues involved in this now consolidated lawsuit involve the potential obligations of the members vis a vis the Deadlock Provision. Accordingly, the branch of the motion seeking a stay is denied.
Kolmar Lawsuit: (Mtn. Seq. No. 001) Extension of Time Granted
Lard moved by order to show cause on March 18, 2020, two days after filing the Lard Lawsuit and over 30 days after the Kolmar Lawsuit was filed, for an extension of time to answer or otherwise respond to the complaint in the Kolmar Lawsuit. Although Kolmar acknowledges complications caused by the global COVID-19 pandemic, they oppose Lard's order to show cause arguing that it is procedural gamesmanship as nothing prevented Lard from filing the Lard Lawsuit which, as discussed above, the parties concede should be consolidated with the Kolmar Lawsuit and could easily have been fashioned as an answer and counterclaim in the Kolmar Lawsuit, which in fact was filed on July 14, 2020. Inasmuch as a responsive pleading has been filed by Lard (650983/2020, NYSCEF Doc. No. 21), Kolmar has filed an answer to the counterclaims on August 10, 2020 (650983/2020, NYSCEF Doc. No. 22), the delay did not cause any real prejudice and in deference to the strong public policy in favor of deciding cases on the merits, Lard's motion for an extension of time is granted.
Kolmar Lawsuit: (Mtn. Seq. No. 002) Summary Judgment is Denied
Summary judgment will be granted only when the movant presents evidentiary proof in admissible form that there are no triable issues of material fact and that there is either no defense to the cause of action or that the cause of action or defense has no merit (CPLR § 3212[b]; Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). The proponent of a summary judgment motion carries the initial burden to make a prima facie showing of entitlement to judgment as a matter of law (Alvarez, 68 NY2d at 324). Failure to make such a showing requires denial of the [*12]motion (id., citing Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). Once this showing is made, the burden shifts to the opposing party to produce evidence in admissible form sufficient to establish the existence of a triable issue of fact (Alvarez, 68 NY2d at 324).
Lard argues that summary judgment should be granted on its counterclaim because Kolmar is required to purchase Lard's 49% interest in Process Tech for a minimum of $7.75 million if Lard breached Section 10.2(d) of the Operating Agreement as Kolmar has argued to this court or $13.75 million if Kolmar breached Section 10.2(d) as Lard argues. Either way, and even if the court were to find that Lard continued to breach the Deadlock Provision, Lard argues it is undisputed that Kolmar must purchase Lard's interest pursuant to the Deadlock Provision and repay the shareholder loan. Put simply, they are wrong.
The contract is straightforward. The fallacy behind Lard's arguments stems from their failure to perform on no less than three occasions with respect to critical contractual obligations under the Operating Agreement. First, they breached the Operating Agreement when they attempted to install a CEO without board approval as their right to designate a CEO in Section 7.10(b) was subject to the other provisions of the Operating Agreement (including, Section 7.10(a) which indicates that officers must be approved by the Board). Second, when they received the valid March Deadlock Notice, they interposed commercially unreasonable terms not required or anticipated by the Operating Agreement and then failed to ultimately close. Third, when Kolmar validly exercised its rights under Section 10.2(e) to reverse the transaction and buy Lard out due to Lard's failure to close, on the record before the court, it appears that Lard continued to stymie the operation of the Operating Agreement by failing to move forward even when Kolmar offered to buy Lard out without application of the 30% discount which they had an absolute right to do. This continued breach discharged Kolmar's obligations.
Kolmar's subsequent unilateral offers to resolve this matter including bringing the Kolmar Lawsuit were not accepted prior to Kolmar rescinding its prior offers to resolve this matter. Kolmar had a right to rescind the March Deadlock Notice because the terms contained in the Deadlock Notice were commercially reasonable (i.e., no one would expect to have to continue to guaranty loans in a business that they are exiting) and they continued to act in a commercially reasonable manner including by attempting to call a meeting to seek dissolution of Process Tech effectively rescinding its March Deadlock Notice which Lard refused. Finally, no reading of the Operating Agreement supports the notion that the Deadlock Provision is designed to have the acquiring member satisfy Process Tech's obligation to repay the member loans. Accordingly, summary judgment is denied.[FN5]
Kolmar Lawsuit: (Mtn. Seq. No. 003) Discontinuance Without Prejudice is Granted in Part
Kolmar moves to discontinue the Kolmar Lawsuit without prejudice pursuant to CPLR § 3217(b) because it argues the Kolmar Lawsuit is not necessary in light of the later filed Lard Lawsuit and because it no longer seeks to enforce its action for specific performance. In its opposition papers, Lard argues that it will be prejudiced because it has a pending motion for summary judgment. It won't be.
Judicial estoppel would prevent Kolmar from taking any position inconsistent with the [*13]positions previously taken (Kalikow 78/79 Co. v State, 174 AD2d 7, 11 [1st Dept 1992]). Pursuant to this decision and order, the Lard Lawsuit, as the later filed lawsuit, is consolidated with and into the Kolmar Lawsuit and Lard's pending summary judgment motion is addressed in this decision and order. The motion is accordingly granted solely to extent that Kolmar's complaint filed in the Kolmar Lawsuit which sought specific performance is dismissed without prejudice (Tucker v Tucker, 55 NY2d 378, 384 [1982]).
Lard Lawsuit: (Mtn. Seq. No. 001) Preliminary Injunction Denied
CPLR § 6301 authorizes courts to grant preliminary injunctive relief to preserve the status quo pending the resolution of civil litigation. As the First Department has observed, "[a] preliminary injunction substantially limits a defendant's rights and is thus an extraordinary provisional remedy requiring a special showing" (1234 Broadway LLC v West Side SRO Law Project, 86 AD3d 18, 23 [1st Dept 2011]). Therefore, a party seeking a preliminary injunction must demonstrate: (i) a likelihood of ultimate success on the merits, (ii) irreparable harm if the preliminary injunction is denied, and (iii) a balance of the equities in favor of the moving party (id., citing Doe v Axelrod, 73 NY2d 748, 750 [1988]). For the reasons set forth above in Lard's motion for summary judgment, Lard fails to demonstrate a likelihood of success on the merits. Accordingly, its motion for a preliminary injunction is denied and the temporary restraining order is immediately vacated.
Lard Lawsuit: (Mtn. Seq. No. 003) The Third-Party Complaint is Dismissed
A party may move for judgment dismissing one or more causes of action on the ground that the pleadings fail to state a cause of action for which relief may be granted (CPLR § 3211[a][7]). On a motion to dismiss pursuant to CPLR § 3211(a)(7), the court must afford the pleadings a liberal construction and accept the facts alleged in the complaint as true, according the plaintiff the benefit of every favorable inference (Morone v Morone, 50 NY2d 481, 484 [1980]). The court's inquiry on a motion to dismiss is whether the facts alleged fit within any cognizable legal theory (id.). Bare legal conclusions are not accorded favorable inferences, however, and need not be accepted as true (Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76, 81 [1st Dept 1999]). A party may also move to dismiss based on documentary evidence pursuant to CPLR § 3211(a)(1). A motion to dismiss pursuant to CPLR § 3211(a)(1) will be granted only where the documentary evidence conclusively establishes a defense to the plaintiff's claims as a matter of law (Goshen v Mutual Life Ins. Co. of New York, 98 NY2d 314, 326 [2002]).
The Wormsers argue that dismissal is required of (i) the breach of contract counterclaim because Kolmar fails to identify any provisions of the Operating Agreement that they are alleged to have breached, (ii) the breach of the implied covenant of good faith and fair dealing counterclaim because Kolmar fails to allege any specific implied contractual obligations of the Wormsers arising from the Operating Agreement, (iii) the tortious interference with contract counterclaim because the Wormsers are parties to the Operating Agreement and therefore cannot tortiously interfere with it under Delaware law, and (iv) the counterclaim for breach of fiduciary duty because it is barred under Section 6.2 of the Operating Agreement.
In its opposition papers, Kolmar argues that (i) either (a) the Wormsers are parties to the [*14]Operating Agreement, in which case they can be held liable for breaching its provisions, or (b) because Lard is a Member subject to the obligations set forth under Section 10.2 and the Wormsers are not Members, the Wormsers can be liable for inducing Lard to breach Section 10.2 by frustrating the resolution of the Deadlock, (ii) breach of the implied covenant of good faith and fair dealing is sufficiently pled as it alleges that the Wormsers were subject to the implied obligations of closing the buyout transaction without undue delay and to make reasonable efforts to cause Lard to comply with its obligations, and (iii) the breach of fiduciary duty claim is not barred because Section 6.2 does not plainly and unambiguously demonstrate an intent to eliminate liability for breach of fiduciary duty. Kolmar's arguments here fail.
The Operating Agreement does not reflect Kolmar's bargain for personal obligations or liability of the Wormers for the conduct alleged. Indeed, pursuant to Section 6.2 of the Operating Agreement, the parties agreed that fiduciary duty claims are barred. The Wormsers are not Members. Kolmar's failure to identify any specific provision which the Wormers are alleged to have breached dooms their breach of contract claim. Their claim for breach of the implied covenant of good faith and fair dealing is similarly without merit because Kolmar fails to allege any implied contractual obligation that the Wormers breached and under Delaware law, a court may not use the implied covenant of good faith and fair dealing "to rewrite or supply omitted provisions to a written contract" (Fitzgerald v Cantor, 1998 WL 842316 at *1 [Del Ch 1998]). Kolmar's tortious interference counterclaim also fails because it is undisputed that the Wormsers are parties to the Operating Agreement, and therefore they cannot be held liable for allegedly inducing another contract party into breaching it (Kuruda v SPJS Holdings, LLC, 971 A2d 872, 884 [Del Ch 2009] [stating that to state a claim for tortious interference, a plaintiff must allege that the defendant was a stranger to both the contract and the underlying business relationship]). Accordingly, the Third-Party Complaint is dismissed.
However, the portion of the Wormsers' motion seeking sanctions against Kolmar is denied. A court in a civil action is authorized to award the reasonable attorneys' fees and expenses incurred by a party as a result of the opposing party's frivolous conduct (22 NYCRR § 130-1.1[a]). Conduct is frivolous for the purposes of a motion for sanctions if (i) it is completely meritless, (ii) it is done to delay or prolong the litigation or to harass or injure another party, or (iii) asserts false material statements of fact (id., § 130-1.1 [c]). It simply cannot be said that Kolmar's claims were made in bad faith, that they were frivolous or intended to harass the Wormsers, or that they assert false material statement of fact.
Lard Lawsuit: (Mtn. Seq. No. 004) The Counterclaims are Not Dismissed
Lard argues that Kolmar's breach of contract counterclaim must be dismissed because Kolmar's election to reverse the transaction and buy Lard out superseded Lard's prior defaults. Lard also argues that adding additional terms as a condition to the buyout did not constitute a breach. Finally, Lard argues that Kolmar's counterclaim for breach of the implied covenant of good faith and fair dealing must be dismissed because Kolmar does not allege any specific implied contractual provisions that Lard allegedly breached.
These arguments fail. As discussed above, Kolmar sufficiently alleges at least three breaches by Lard of the Operating Agreement — i.e., (i) installing a CEO without Board approval, (ii) purporting to elect to buy Kolmar out pursuant to the Deadlock Provision but simultaneously inserting commercially unreasonable conditions to its buyout and ultimately [*15]failing to proceed to buy Kolmar out, and (iii) failing to sell its interest to Kolmar when Kolmar elected to reverse the transaction. Therefore, the breach of contract claim is not dismissed.
To state a claim for breach of the implied covenant of good faith and fair dealing under Delaware law, a plaintiff must allege "a specific implied contractual obligation, a breach of that obligation by the defendant, and resulting damages to the plaintiff (Kuruda, 971 A2d at 884). Although the implied covenant of good faith and fair dealing cannot be used to extend the parties' rights and remedies beyond those available under the express terms of the Operating Agreement (Stewart v BF Bolthouse Holdco, LLC, 2013 WL 5210220 at *16 [Del Ch 2013]), Kolmar's implied covenant claim is neither duplicative of its breach of contractual obligations claim, nor is it extending the rights and remedies beyond those contemplated by the Operating Agreement.
Here, Kolmar alleges that Lard acted commercially unreasonably causing it significant damage by failing to either buy or sell in accordance with the Deadlock Provision. To wit, Kolmar alleges that Lard acted in bad faith by refusing to accept Kolmar's good faith offers to resolve the dispute including, without limitation, extending the lease in the case of the buyout as Lard had requested and extending loans to Lard, and when Lard failed to close as buyer, failing to accept Kolmar's offer to proceed to buy Lard out as seller without application of the 30% discount (which on the record before the court it had a right to do), and ultimately by refusing to go to a meeting to discuss dissolution when Lard was unable or unwilling to close either transaction contemplated by the Deadlock Provision. These allegations are sufficient to sustain the counterclaim at this stage in the proceedings (see, e.g., Opera Solutions, LLC v Schwan's Home Servs., Inc., 2015 WL 4940137 at *2-3 [D Del 2015] [holding that a contractual provision requiring the parties to reach an agreement contains "an implied obligation . . . to . . . engage in good faith negotiations with an aim toward" reaching an agreement.]). Therefore, the motion to dismiss the counterclaim for breach of the covenant of good faith and fair dealing must be denied.
Accordingly, it is
ORDERED that Kolmar's motion (Mtn. Seq. No. 002 filed in the Lard Lawsuit) to consolidate the Lard Lawsuit, Lard-PT, LLC v Seokoh, Inc., Index No. 651726/2020, with the Kolmar Lawsuit, Seokoh, Inc. v. Lard-PT, LLC, Index No. 650983/2020 and to stay the consolidated lawsuit pending the resolution of the Delaware Dissolution Proceeding is granted solely to the extent that the Lard Lawsuit is consolidated into the Kolmar Lawsuit but is otherwise denied, and it is further
ORDERED that the consolidation shall take place under Index No. 650983/2020 and the consolidated case shall bear the following caption:
SEOKOH, INC., KOLMAR KOREA CO., LTD.,
Plaintiff,
against-
LARD-PT, LLC
Defendant.
And it is further
ORDERED that the pleadings in the actions hereby consolidated shall stand as the pleadings in the consolidated action; and it is further
ORDERED that, within 30 days from entry of this order, movant shall serve a copy of this order with notice of entry on the Clerk of the Court (60 Centre Street, Room 141 B), who shall consolidate the documents in the actions hereby consolidated and shall mark his records to reflect the consolidation; and it is further
ORDERED that counsel for the movant shall contact the staff of the Clerk of the Court to arrange for the effectuation of the consolidation hereby directed; and it is further
ORDERED that service of this order upon the Clerk of the Court hall be made in accordance with the procedures set forth in the Protocol on Courthouse and County Clerk Procedures for Electronically Filed Cases (accessible at the "E-Filing" page on the court's website at the address www.nycourts.gov/supctmanh); and it is further
ORDERED that, as applicable and insofar as is practical, the Clerk of this Court shall file the documents being consolidated in the consolidated case file under the index number of the consolidated action in the New York State Courts Electronic Filing System or make appropriate notations of such documents in the e-filing records of the court so as to ensure access to the documents in the consolidated action; and it is further
ORDERED that, within 30 days from entry of this order, movant shall serve a copy of this order with notice of entry on the Clerk of the General Clerk's Office (60 Centre Street, Room 119), who is hereby directed to reflect the consolidation by appropriately marking the court's records; and it is further
ORDERED that such service upon the Clerk of the General Clerk's Office shall be made in accordance with the procedures set forth in the aforesaid Protocol; and it is further
ORDERED that Lard's motion (Mtn Seq. No. 001 in the Kolmar Lawsuit) for an extension of time to file a responsive pleading in the Kolmar Lawsuit which was filed on February 12, 2020 is granted, and it is further
ORDERED that Lard's motion for summary judgment on its counterclaim in the Kolmar Lawsuit (Mtn. Seq. No. 002 filed in the Kolmar Lawsuit) pursuant to CPLR § 3212 is denied, and it is further
ORDERED that Kolmar's motion (Mtn. Seq. No. 003 filed in the Kolmar Lawsuit) to discontinue the Kolmar Lawsuit without prejudice pursuant to CPLR § 3217(b) is granted solely to the extent that Kolmar's complaint filed in the Kolmar Lawsuit seeking specific performance is dismissed without prejudice, and it is further
ORDERED that Lard's motion (Mtn. Seq. No. 001 filed in the Lard Action) for a preliminary injunction pursuant to CPLR §§ 2214(d), 6301, and 6313(1) is denied, and it is further
ORDERED that the Wormsers' motion to dismiss the Third-Party Complaint (Mtn. Seq. No. 003 filed in the Lard Lawsuit) pursuant to CPLR §§ 3211(a)(1) and (7) and for sanctions pursuant to 22 NYCRR § 130.1-1 is granted to the extent that the Third-Party Complaint is dismissed but is otherwise denied, and it is further
ORDERED that Lard's motion (Mtn. Seq. No. 004 filed in the Lard Lawsuit) to dismiss the counterclaims filed in the Lard Lawsuit is denied.
DATE 10/20/2020
ANDREW BORROK, J.S.C. Footnotes
Footnote 1:Unless otherwise indicated, citations to NYSCEF refer to documents filed in Lard-PT, LLC v Seokoh, Inc., Index No. 651726/2020.
Footnote 2:Seokoh is defined as "Kolmar" Operating Agreement.
Footnote 3:The Reserved Matters are enumerated in Section 8.6 of the Operating Agreement.
Footnote 4:For the avoidance of doubt, the court notes that Lard has not alleged that the purchase of the facilities and adjacent land by Kolmar or its affiliates required Board approval or that Lard invoked the Deadlock Provision in response to these acquisitions.
Footnote 5:The court notes that Kolmar did not cross-move for summary judgment.
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