CITIGROUP GLOBAL MARKETS INC v. SCIP CAPITAL MANAGEMENT LLC (2024)

Order, Supreme Court, New York County (Margaret A. Chan, J.), entered July 19, 2023, which, to the extent appealed from as limited by the briefs, denied plaintiffs/counterclaim defendants’ (Citi) motion for summary judgment dismissing the counterclaim but held that defendants/counterclaim plaintiffs (Silverfern) were not entitled to consequential damages, unanimously affirmed, without costs.

Contrary to Citi's argument, its obligation under the parties’ Distribution Agreement to use its best efforts to offer interests in Silverfern's investment partnerships to the equity club investors is enforceable.  Section 1(a)(ii) of the Distribution Agreement, which contains that obligation, should be read in conjunction with section 1(c), which lists specific tasks Citi is supposed to perform.  The cases Citi relies on involve best efforts clauses that more vague than the one here (see e.g. Timberline Dev. v. Kronman, 263 A.D.2d 175, 176, 702 N.Y.S.2d 237 [1st Dept. 2000]).

Silverfern raised triable issues of fact as to whether Citi failed to use its best efforts.  Contrary to Citi's contention, Silverfern submitted other evidence in addition to its expert's report and its expert did more than simply look at the number of emails sent by Citi bankers.  Further, as to causation of damages, the fact that an equity club member would have no claim against Citi if an investment resulted in losses, since members confirmed that “[a]ny decision the Equity Club Member makes regarding a Transaction will be based solely upon [its] independent due diligence,” does not mean that Citi's April 11, 2016 letter to the equity club, or other actions it took, had no influence on equity club members.  On the contrary, there is evidence that Citi's endorsement of Silverfern was important to at least some members.

Citi, however, demonstrated prima facie that Silverfern is not entitled to consequential damages (see Datalot, Inc. v. Winum Enters., LLC, 146 A.D.3d 653, 46 N.Y.S.3d 39 [1st Dept. 2017]).  The Distribution Agreement does not mention consequential damages (see Digital Broadcast Corp. v. Ladenburg, Thalmann & Co., Inc., 63 A.D.3d 647, 647, 883 N.Y.S.2d 186 [1st Dept. 2009], lv denied 14 N.Y.3d 737, 898 N.Y.S.2d 75, 925 N.E.2d 75 [2010]), nor is there evidence in the record that liability for lost profits was discussed during contract negotiations (Digital Broadcast Corp. v. Ladenburg, Thalmann & Co., Inc., 2008 N.Y. Slip Op. 33451[U], *14 [Sup. Ct., N.Y. County 2008], affd 63 A.D.3d 647, 883 N.Y.S.2d 186 [1st Dept. 2009], lv denied 14 N.Y.3d 737, 898 N.Y.S.2d 75, 925 N.E.2d 75 [2010]).  Further, section 7(c) of the Distribution Agreement — concerning the parties’ rights and obligations upon complete termination of the agreement — does not provide for such a “heavy responsibility” on the part of Citi (ERC 16W L.P. v. Xanadu Mezz Holdings LLC, 133 A.D.3d 444, 444, 18 N.Y.S.3d 853 [1st Dept. 2015] [internal quotation marks omitted]), even though it is not an exclusive remedy (see id.).  In addition, Silverfern's claim for consequential damages “is out of proportion to any liability contemplated by the contract” (id. [internal quotation marks omitted]).

In opposition, Silverfern failed to raise an issue of fact.  While the parties to the Distribution Agreement foresaw future clubs, there is no indication that successor clubs or future funds formed the basis for the original equity club (see Kenford Co. v. County of Erie, 73 N.Y.2d 312, 320, 540 N.Y.S.2d 1, 537 N.E.2d 176 [1989]).  In addition, Silverfern's damages expert's estimate of losses from successor clubs and future funds failed to meet “the requirement of reasonable certainty,” as “it rested on a host of speculative assumptions and few known factors” (Ashland Mgt. v. Janien, 82 N.Y.2d 395, 405, 604 N.Y.S.2d 912, 624 N.E.2d 1007 [1993], citing Kenford Co. v. County of Erie, 67 N.Y.2d 257, 262, 502 N.Y.S.2d 131, 493 N.E.2d 234 [1986];  see also PIA Invs. v. UBS Sec., 211 A.D.2d 599, 622 N.Y.S.2d 239 [1st Dept. 1995], affd 86 N.Y.2d 812, 634 N.Y.S.2d 432, 658 N.E.2d 209 [1995]).

We have considered the parties’ remaining contentions and find them unavailing.