AMBASE CORPORATION v. Liberty Mutual Insurance Company et al., Defendants. (2023)

Order, Supreme Court, New York County (Joel M. Cohen, J.), entered on or about May 10, 2022, which, to the extent appealed from as limited by the briefs, granted the motion of defendants 111 West 57th Sponsor LLC, 111 West 57th Control LLC, 111 West 57th Developer LLC, Kevin Maloney, Matthew Phillips, Michael Stern, Ned White, JDS Construction Group LLC, JDS Development LLC, PMG Construction Group LLC, Property Markets Group, Inc., 111 Construction Manager LLC, and Manager Member 111 W57 LLC to dismiss, from the fourth amended complaint, the claims for breach of contract (third cause of action) and fraud (fifth cause of action), and dismissed the veil-piercing allegations in the third, fourth, fifth, and ninth causes of action, unanimously modified, on the law, to reinstate so much of the breach of contract claim as is based on section 7.5 of the joint venture agreement as alleged in paragraph 321(m) of the fourth amended complaint, and so much of the fraud claim as against defendant Matthew Phillips as alleged in paragraph 76 of the fourth amended complaint, and otherwise affirmed, without costs.

Plaintiffs’ fourth amended complaint fails to state a breach of section 2.8(a)(2) of the joint venture agreement.  Contrary to plaintiffs’ position otherwise, that section does not bar “indirect” capital contributions;  rather, it simply prohibits defendant 111 West 57th Sponsor from making capital contributions with third-party money.  Therefore, the contribution of capital to a parent entity of 111 West 57th Sponsor did not violate 2.8(a)(2) even where that contribution involved a transfer to a third party of equity in the parent.  This conclusion is supported not only by the plain language of section 2.8(a)(2), but also by the fact that indirect funding is specifically referred to in section 2.8(a)(1), suggesting that the term “indirect” was intentionally omitted from section 2.8(a)(2) (see MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *7, 2010 Del. Ch. LEXIS 254, *29 [Del. Ch., Dec. 30, 2010, Civil Action No. 5735–VCP]).

Plaintiffs’ claims under the joint venture agreement section 2.8(a)(3), which requires disclosure of changes in the equity ownership of the entities in the project, fail because they have not pleaded facts showing the damages on which the action is based (see AmBase Corp. v. 111 W. 57th Sponsor LLC, 193 A.D.3d 627, 628, 148 N.Y.S.3d 61 [1st Dept. 2021];  ERE LLP v. Spanierman Gallery, LLC, 94 A.D.3d 492, 493, 942 N.Y.S.2d 472 [1st Dept. 2012]).

However, we reinstate so much of the breach of contract claim as alleges breach of the joint venture agreement section 7.5.  Plaintiffs allege that 111 West 57th Sponsor breached the agreement by “refusing to cooperate and share information with AmBase's construction consultant.”  Under the plain language of section 7.5, this allegation is sufficient to support a cause of action for breach of the section.  We disagree with Supreme Court that under that section, 111 West 57th Sponsor's only obligation was to “use commercially reasonable efforts” to “meet, consult[,] and otherwise coordinate with” plaintiff's construction consultant.  Despite Supreme Court's reading of the clause, the language of section 7.5 makes clear that 111 West 57th Sponsor itself has the affirmative obligation to cooperate and consult with the construction consultant (“shall ․ meet, consult and otherwise cooperate with all such construction consultants”);  the “use commercially reasonable efforts” language refers only to 111 West 58th Sponsor's obligations with respect to whether third parties would meet with the consultant.

As to the fraud claims, Supreme Court correctly dismissed those claims as duplicative of the breach of contract claims with respect to all defendants except Matthew Phillips (see Cronos Group Ltd. v. XComIP, LLC, 156 A.D.3d 54, 62–63, 64 N.Y.S.3d 180 [2017]).  Phillips is not a signatory to the joint venture agreement and there are sufficient allegations against him to suggest that his role was not merely accessorial (see Allenby, LLC v. Credit Suisse, AG, 134 A.D.3d 577, 581, 25 N.Y.S.3d 1 [1st Dept. 2015];  cf.  Richbell Info. Servs., Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288, 305–306, 765 N.Y.S.2d 575 [1st Dept. 2003]).  However, we reinstate the fraud claim as against Phillips only insofar as he is alleged to have made the affirmative misrepresentation alleged in paragraph 76 of the fourth amended complaint.  As to defendant Ned White, he also is not a signatory to the joint venture agreement, and thus, the fraud claims as to him are not duplicative of the breach of contract claims.  Nevertheless, we do not reinstate the fraud claims as against him, as his allegedly fraudulent conduct is not pleaded with sufficient particularity.

The remaining fraud claims were properly dismissed as to all defendants, as none of those claims were pleaded with sufficient particularity (see INTL FCStone Mkts., LLC v. Corrib Oil Co. Ltd., 172 A.D.3d 492, 493, 101 N.Y.S.3d 18 [1st Dept. 2019]).  As to the fraudulent omission claims, those claims were also properly dismissed as against all defendants, as plaintiffs concede that they have not alleged any duty to disclose.

Finally, plaintiffs failed to plead sufficient facts to pierce the corporate veil, as they do not plead that the corporate entities were “a sham and exist for no other purpose than as a vehicle for fraud” (EBG Holdings LLC v. Vredezicht's Gravenhage 109 B.V., 2008 WL 4057745, *12, 2008 Del. Ch. LEXIS 127, *52 [Del. Ch., Sept. 2, 2008, Civil Action No. 3184–VCP]).  While the fourth amended complaint contains allegations that the defendant entities engaged in fraud, those allegations are not sufficient to pierce the corporate veil, as they do not assert that the corporate defendants made an inequitable use of the corporate form itself in order to perpetrate a fraud (see South Coll. St., LLC v. Ares Capital Corp., 199 A.D.3d 431, 432, 156 N.Y.S.3d 194 [1st Dept. 2021]).

In light of our decision in the related litigation (111 W. 57th Inv. LLC v. 111 W57 Mezz Inv. LLC, 220 A.D.3d 435, ––– N.Y.S.3d ––––, 2023 N.Y. Slip Op. 05029 [1st Dept. 2023]), plaintiffs concede that their claims under section 7.2(a) and 8.5 of the joint venture agreement are barred, subject to a successful appeal or reargument in that action.