LLC v. DOVE AVIATION LIMITED (2025)

The following e-filed documents, listed by NYSCEF document number (Motion 002) 2, 22, 24, 59, 60, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 91, 92, 93, 94, 95, 96, 97 were read on this motion to/for JUDGMENT - SUMMARY IN LIEU OF COMPLAINT.

This is one of two cases  ¹ arising from defendants Commissions Import-Export SA (CMPX) and Dove Aviation Limited's (Dove, and together with CMPX, defendants) attempts to fund litigation to enforce two international arbitration awards and the loans they took out to do so. In this action, plaintiff lender Missouri Partners Capital LLC (Missouri) moves for summary judgment in lieu of complaint to enforce a 2024 Consolidated Promissory Note and Security Agreement against both defendants. For the reasons below, the motion is denied.

Background  2

Defendant CMPX is the holder of two outstanding arbitral awards issued by the International Chamber of Commerce (ICC) against the Republic of Congo (Congo): (1) Arbitral Award Number 9899 issued in 2000 has a face value of €290 million (Award 9899); and (2) Arbitral Award Number 16257 issued in 2013 has a face value of "more than €1.5 billion" (Award 16257, and together with Award 9899, the Arbitral Awards or the Awards) (NYSCEF # 67, Hajaij SJILC Aff, ¶ 3). Both awards have been reduced to "final and unappealable judgments in multiple jurisdictions, including the United States as well as France, England and Belgium" (NYSCEF # 12, Straus PI Aff, ¶ 5).³ ,⁴ CMPX is currently pursuing enforcement actions in various jurisdictions around the world (see NYSCEF # 87, Schlesinger Vacate Aff II, ¶¶ 4-7 [listing upcoming enforcement deadlines]).

Enforcing awards against a sovereign nation is expensive, and so at various times, CMPX sought litigation funding from outside sources (NYSCEF # 67 ¶ 5). As relevant here, one litigation funder was non-party Michael Straus and his company, Montreux Partners II, LP (Montreux), a plaintiff in the related case (id.; see fn. 1 above).⁵ Montreux's general partner is the non-party Montreux Partners (GP) II LP (Montreux GP) (NYSCEF # 93, Straus SJILC Aff, ¶ 1). Montreux GP is managed by Eric Hermann and Michael Straus (id.; NYSCEF # 51, Straus Vacate Aff, ¶ 1). Straus is also an attorney certified in New York and operates a law firm in his name (NYSCEF # 93 ¶ 1; NYSCEF # 70, Invoices, at *15 [invoice from "Law Office of Michael Straus"]).

Montreux first began providing litigation funding in 2009 (NYSCEF # 33, Hajaij Vacate Aff, ¶ 5). CMPX's principal, Mohsen Hajaij, claims Montreux's "initial involvement was hidden from him by" another litigation funder although Montreux eventually began working with CMPX directly (id.). Hajaij claims that Montreux and CMPX initially had a contingent fee arrangement which apparently gave Montreux some sort of interest in the Arbitral Awards (id.).

In 2016, two important agreements were signed. First, on March 20, 2016, Montreux and defendants entered a letter agreement by which CMPX agreed to purchase Montreux's interests in the Awards for $20 million (2016 Letter Agreement or 2016 Agreement) (NYSCEF # 68, 2016 Agreement). This is one of two agreements at the center of Montreux's claims. Per this 2016 Agreement, Montreux's interests would be transferred immediately while the $20 million would be paid out of future recovery on the Awards (see id.). Specifically, Montreux would get priority interest in and 20% of the gross proceeds of future recovery under CMPX's claims against Congo (id. at 2). The agreement did not provide for any interest payments (see generally id.). The maturity date was set for nine months later on December 31, 2016 (id.).

Second, the very next day, on March 21, 2016, Straus personally entered an agreement with CMPX and its principal, Mohsen Hajaij  ⁶ (Oversight Agreement) (NYSCEF # 69, Oversight Agreement). Straus agreed to "undertake the oversight and where appropriate coordination of proceedings concerning the collection, settlement or other resolution of [CMPX's] claims of any nature against Republic of Congo" (id. ¶ 1). In exchange, CMPX agreed to make various payments to Straus including: (1) $250,000 immediately; (2) $10,000,000 total paid from future proceeds of CMPX's claims against Congo, which included (3) €250,000 if CMPX obtained €3.5 million from a claim in France; and finally (4) "Straus' reasonable transportation, accommodation and similar expenses of a kind normally incurred in connection with the continuing prosecution of such claims" (id. ¶¶ 1-4). The parties agreed that Straus would not be responsible for any attorney fees or costs (id. ¶ 5).

The Oversight Agreement is at the center of defendants' defenses in large part because the parties dispute whether it is an attorney engagement letter. Defendants believe it to be such a letter; Missouri asserts it is not. There is no dispute that Straus would have had a conflict of interests if he had been representing defendants given that his company was funding the litigation efforts. There is also no dispute that the Oversight Agreement does not include any language disclosing or waiving this conflict or otherwise advising CMPX to obtain separate New York/American counsel — language typical of engagement agreements.

Regardless, over the next several years, from 2017 through 2024, Straus and Montreux charged CMPX and Hajaij hundreds of thousands of dollars (and euros) for their services. Defendants submit a compilation of 29 invoices from Straus and Montreux over the years (see NYSCEF # 70 [compiled invoices]). One of those invoices was from Montreux requesting reimbursement for fees paid to an outside law firm (id. at *6-*11 [Montreux's invoices for services from the law firm Linklaters]). Another was on Straus's personal letterhead and stated it was for "Travel Expenses" relating to flights between the US and Europe at CMPX's request (id. at *40). The vast majority—a total of 24 out of 29—were on letterhead from the "Law Office of Michael Straus" or simply the "Office of Michael Straus" for "legal services" or "legal and consulting services" (id. at *12-13, *15, *17, *19, *21, *23, *25-27, *29, *31-34, *36, *37, *39, *42-44, *47-49). Several of those invoices were specifically for enforcement actions in New York and France (id. at *39, *42-44, *47-49).

Meanwhile, by January 2021, CMPX had paid off only a few million dollars of the $20 million owed under the 2016 Agreement, leaving an outstanding balance of $16,860,587.38 (NYSCEF # 68, Combined Montreux Agreements, at *7). Therefore, on January 14, 2021, Montreux and CMPX entered into another letter agreement (2021 Letter Agreement) (id. at **5-8). The new agreement acknowledged CMPX's default, increased the outstanding debt by $2 million, but reduced Montreux's share of certain recovered funds (id. at *7). The new agreement also fully integrated the 2016 Letter Agreement, effectively making them one (id.).

In that same period, defendants found another avenue to enforce the Arbitral Awards: defendants were able to seize a "Dassault Falcon 7X" private jet owned by the "Presidency of Congo" while it was stationed in France (Dassault Aircraft or the Aircraft) (NYSCEF # 32, Schlesinger Vacate Aff I, ¶ 10). Defendants also intended to purchase the Aircraft at auction in order to repair and sell it (see id. ¶ 10; NYSCEF # 67 ¶ 10). However, the purchase would cost money, and CMPX did not have any. CMPX therefore again sought additional financing in June 2022 (NYSCEF # 67 ¶ 10). Straus brought that financing in August 2022 by introducing CMPX to plaintiff Missouri (id.; see also NYSCEF # 71, August 12, 2022 Note and Security Agreement).

Between August 2022 and October 2023, Missouri and CMPX entered three loan agreements for various amounts (see NYSCEF # 71; NYSCEF # 72, June 2023 Note and Security Agreement; NYSCEF # 73, January 2024 Promissory Note and Security Agreement, at *40 [attaching as an exhibit an Aviation Financing Promissory Note dated October 2, 2023]). Each agreement was signed by Tyler Korn, Missouri's "attorney-in-fact" (see NYSCEF # 72 at *7; NYSCEF # 73 at *10).⁷ Each contained a nearly identical integration clause (see NYSCEF # 71 § 12 [k]; NYSCEF # 72 § 10 [k]; NYSCEF # 73 § 14 [j]; NYSCEF # 74 § 8 [k]). Each also carried a "high interest rate," which Straus claimed, "the lenders insisted on" (NYSCEF # 67 ¶ 11).

Unbeknownst to CMPX at the time, Straus was actually behind Missouri (see NYSCEF # 59, Defs SJILC Opp, at 5). Missouri was wholly owned by non-party Montreux Partners III LP (MP3), which in turn was managed by the same two managers as non-party Montreux GP—Hermann and Straus (NYSCEF # 75, MP3 Letter). Moreover, based on a public records search performed by defendants' counsel, Missouri was incorporated on August 3, 2022, nine days before the first loan agreement with defendants (compare NYSCEF # 63, Screenshot of DE State Dept Website re: Missouri ["Incorporation date/formation date: 8/3/2022"], with NYSCEF # 71 [first loan dated August 12, 2022]).

It is not clear when defendants learned that Straus (and Hermann) had an interest in Missouri. They imply that they discovered it after Hermann sent a letter on behalf of MP3 laying out Missouri and MP3's ownership structure, but the letter is undated (see NYSCEF # 75). Missouri does not offer any evidence relating to the start of Missouri's relationship with defendants.

CMPX was ultimately able to purchase the Aircraft in October 2023 and quickly transferred the Aircraft to defendant Dove, an entity created to hold it(NYSCEF # 67 ¶ 14).⁸ Hajaij avers that Dove was owned by himself, his son Rida, and Straus (id.). It is unclear whether Straus remains an owner of Dove, as he transferred 40 shares of Dove stock to Hajaij on May 25, 2024 (NYSCEF # 58 — J30 Transfer Form). Straus does not claim that this constituted all his stock in Dove.

From 2022 through early 2024, defendants entered into several more agreements with Missouri as they struggled to make repayments. As already mentioned, defendants entered three loan agreements with Missouri, along with at least two more in January and March 2024 (see NYSCEF # 74, March 2024 Agreement; NYSCEF # 73).

Defendants claim that their payment troubles came from a combination of the difficulties enforcing arbitration awards against sovereign nations and obstacles in selling the Aircraft. According to defendants, not only did they need to spend millions repairing and maintaining the Aircraft, but they also needed to change its international registration, which involved forcing Congo to de-register it first (NYSCEF # 67 ¶¶ 15-16). Defendants claim this obstacle was largely out of their control. That said, defendants were able to acquire a letter of intent for the Aircraft valuing it at $27 million, although it expired in March 2024 (Letter of Intent) (NYSCEF # 35, Letter of Intent).

In April 2024, it became clear that defendants would need more time to sell the Aircraft. In an email dated April 5, 2024, Korn (Missouri's attorney-in-fact) informed defendants' Lebanon counsel that his "client" was willing to extend the maturity date for the first Missouri agreement to September 30, 2024 "to give CMPX some additional months to refurbish the [Aircraft] and sell it" (NYSCEF # 94, Emails from Korn to Najjar, at *3). Defendants agreed and even asked to set the maturity dates for some of the other agreements to the same date (id. at * 2). The parties executed the extension on May 30, 2024 (NYSCEF # 95, Missouri Extension).

Despite the extension, by August 2024 Dove was running out of money to spend on the Aircraft, and so the parties began negotiating yet another loan (NYSCEF # 67 ¶ 18; see also NYSCEF # 52, Email from Najjar to Straus 8/6/2024 [referencing defendants' request for another loan]). Unlike the previous agreements, this time Missouri intended to consolidate the various prior loans into one. Throughout these negotiations, defendants were represented by Nicolas Najjar and Waddah El Chaer of the El Chaer law firm, a firm in Lebanon that does not practice New York law (see NYSCEF # 89, El Chaer Vacate Aff, ¶ 5).

On August 24, 2024, at Hermann and Straus's request, Thomas McDonald—an attorney for both Missouri and Montreux—emailed defendants, a draft promissory note consolidating Missouri's previous debts and parts of Montreux's debts (Consolidated Note or Note) (NYSCEF # 76, Email dated 8/24/2024 and Draft Note; see also NYSCEF # 5, Signed Consolidated Note). The Note provided that Missouri would be paid out of proceeds from the future sale of the Aircraft while Montreux would receive 10% of whatever was left and set a 25% interest rate after an event of default for Missouri only (id. §§ 6, 7, 11). Additionally, the Note included provisions allowing defendants to draw down further amounts and an integration clause that was nearly identical to the prior Missouri agreements (id. §§ 2, 13 [j]). McDonald also attached to the email a draft security agreement pledging the Aircraft as collateral for both Missouri and Montreux (NYSCEF # 76 at *17). This is significant because Montreux's debt had not been secured up to that point.

Most importantly, the Note did not extend the September 30, 2024 maturity date, which at that point was just over a month away. Instead, the Note kept the same date but allowed the parties to "agree in writing to extend the Maturity Date for up to an additional three (3) months, based on terms that are mutually agreed upon by them in writing (including, without limitation, an increase in the Facility Fee)" (3-Month Clause) (id. § 8).

The Note's terms were unacceptable to defendants, and so Hajaij responded with several demands including, most relevantly, extending the maturity date to December 31, 2024 (NYSCEF # 53, Email with Hajaij's Counter at *4; NYSCEF # 67 ¶¶ 19-20). Straus responded by asking what defendants' timeline was for repayments under the contracts in force at the time (NYSCEF # 54, Straus Response Email at *2). Hajaij avers that he also contacted Straus directly with his concerns, but before they could be addressed, CMPX's foreign counsel emailed Hermann and Straus letting them know that work would stop on the Aircraft by the end of the week unless the workers were paid (NYSCEF # 67 ¶ 20). Hajaij further avers that Missouri took advantage of the situation by sending defendants a notice of default, although that notice has not been filed here (id. ¶ 21).

On September 7, 2024, Hajaij contacted Straus directly with his concerns, and the two apparently exchanged a series of voice-messages via WhatsApp, the content of which Hajaij transcribed in his affirmations. Hajaij said to Straus:

"Always I told you, you are my partner, I am not the one, when I want to do something, always I leave something to you, even if tomorrow the settlement, not only I will give you your money. I am going to give you more. Why you are creating problem, why? You said I am your brother so what happened you are changing your mind."

(id. ¶ 21). Straus responded:

"You have not done anything, Mohsen, please don't say that. I am exactly the same—loyalty and brotherhood, just as I have always been. We are simply in a very difficult position with the lenders."

(id. ¶ 22).

The next day, on September 8, 2024, McDonald circulated new versions of both agreements (NYSCEF # 55, 9/8/2024 Emails, at **2-3). Straus also sent another version of the agreement later that day, without allowing Korn or McDonald review it first (id.). While the parties did not file versions of those drafts, they do not dispute that the maturity date remained September 30, 2024.

At some point on September 8, Straus sent Hajaij another voice message on WhatsApp:

"Mr. Mac Donald [sic] has just sent the draft to you, and Nicolas [defendants' Lebanon counsel], and Rida [Hajaij's son], and us, and we are prepared to sign and fund immediately as soon as Dassault agrees. There is truly no time to waste on this, our agreements are fine and you have every input into every stage, and this is just one of those times you have to have confidence in me to"

(NYSCEF # 67 ¶ 23).

Hajaij avers that "[d]espite [his] concerns that the repairs, registration and sale [of the Aircraft] were not likely to happen in a mere three weeks," he decided to "trust[ ] Straus and sign[ ]" the Note on September 9, 2024 (id. ¶ 24). Missouri and Montreux, however, did not sign, and instead, Korn sent Hajaij the next day, a brand new 2024 Pledge and Security Agreement that pledged Arbitral Award 9899 as collateral to the Note, not the Aircraft as had been previously agreed (Security Agreement) (see NYSCEF # 77, Korn Email & Unsigned Security Agreement; see also NYSCEF # 6, Signed Security Agreement). The Security Agreement also imposed the Note's 25% default interest rate on Montreux's 2016 and 2021 Agreements, not just Missouri's debts (id. § 4.01). This was significant because Montreux's debts previously had not contemplated interest rates.

Hajaij once again contacted Straus directly with his concerns, and avers Straus responded by telling him the Security Agreement was required by New York law (NYSCEF # 67 ¶ 26). Hajaij also avers Straus sent the following WhatsApp voice message:

"I don't know how to begin. The language that you are looking at, is standard ordinary language in New York security agreements. Yes, he added that in, but that's already part of what New York law is . . . Mohsen you have to trust me on this, If you don't want to sign it, or refuse to sign it, then we are back where we were, and there will be no money for the plane, That it is not a threat, you know me I don't talk like that, I'm saying this is something you have to trust me . . . This is one that's absolutely has to be done in accordance with New York Law, and that's all this is. . . ."

(id.). Hajaij continued to hold out against signing the Security Agreement (id. ¶ 27), and so in a final effort to mollify him, Straus sent Hajaij the following "Side Letter":

"Dear Mohsen,

This letter is my personal commitment that if the security agreements are signed today in their current form, the following will happen:

1. The lenders will immediately countersign the Consolidated Promissory Note and the New Pledge. They have not signed yet because they are waiting for the security agreements.

2. Upon full execution, the lenders will immediately pay all unpaid bills of Dassault and Pratt & Whitney as sent yesterday by Dassault and will continue to fund the necessary work until the plane is completed for purposes of airworthiness.

3. The only reason that Dassault sent that letter yesterday is that I was able to have someone speak at the highest levels to Dassault in order to get them to agree to provide invoices and payment instructions to Missouri. That was not easy.

4. While the work is being done, the lenders are relying on you to obtain a new registration or commitment to register.

5. Again, if the security agreements are signed, the maturity date in the Consolidated Promissory Note of September 30, 2024 will be extended to December 31, 2024, in accordance with the "3 month clause" that I inserted.

6. If for some reason we are not able to finally conclude the sale of the plane by the end of the year (and I believe if we start paying Dassault we will be able to do so), then I will continue to take all steps we can on our side towards enforcement of the claims against Congo.

This is my personal word and you can rely on it. If the security agreements are not signed, I will have no ability to do anything and any further steps will be out of my hands.

Sincerely,

Michael Straus"

(NYSCEF # 40, Side Letter [emphasis added]).

Hajaij avers that in reliance on this Side Letter and Straus's voice messages calling Hajaij brother and asking for trust, Hajaij signed the Security Agreement (NYSCEF # 67 — Hajaij aff ¶ 28). Missouri and Montreux signed on September 12 (NYSCEF # 6 at Signature Pages).

September 30 came and went, and defendants failed to pay (NYSCEF # 4, Korn Aff, ¶ 9). Defendants asked for the extension Straus promised under the Side Letter (NYSCEF # 67 ¶ 29). Straus responded on November 8, 2024, that he had "shared with Missouri and Montreux [defendants'] request for an extension," but that the "lenders" refused because defendants would not agree to make interest payments during the extension (NYSCEF # 13, Straus 11/8/2024 Email). Straus explained that the choice not to extend was in "their [the lenders'] sole authority" (id. [emphasis added]).

Hajaij, betrayed, spoke to Straus on December 5, 2024, to voice his feelings on the matter (see NYSCEF # 12 ¶¶ 9-10). Straus avers that Hajaij went on a "rant" accusing Straus of "playing games," "chang[ing]" and breaching trust, and reiterating that defendants could not pay without selling the Aircraft (id. ¶ 9). Straus further avers Hajaij threatened to take several specific steps to frustrate Missouri and Montreux's potential recovery by torpedoing the awards, including:

• Instructing CMPX's French counsel to stop prosecuting (1) "claims against Air France as a third-party garnishee of amounts owed by Air France to [Congo]," and (2) "claims against the major oil company Total under a guarantee issued by Total to CMPX, whereby Total had agreed to pay amounts otherwise payable to Congo to CMPX;"

• Instructing "Dassault Aviation" to stop repairing the Aircraft;

• Settling the Arbitral Awards with Congo for $100 million instead of $2 billion—roughly "5¢ on the dollar."

(id. ¶ 10).

It is unclear whether Hajaij truly meant these threats or if he was simply frustrated. Regardless, Missouri and Montreux took him at his word and responded by filing this and the companion actions. Missouri filed this action on December 9, 2024 (Missouri NYSCEF # 1, Summons). Montreux then filed the companion action three days later on December 12, 2024 (see Index No. 659610/2024, Montreux Partners II LP v CMPX, NYSCEF Dkt. No. 1, Montreux Summons and SJILC). Both Missouri and Montreux are represented by the same counsel.

The parties have now filed a total of seven motions across the two cases. Only one is addressed here: Missouri's motion for summary judgment in lieu of complaint (SJILC) for defendants' breach of the Note and Security Agreement (NYSCEF # 2, Notice of SJILC Motion). The motion is opposed.

Discussion

Missouri moves for summary judgment in lieu of complaint based on breach of the Note and Security Agreement (NYSCEF # 2). Missouri requests that interest be awarded at the default rate of 25% (NYSCEF # 3, Missouri SJILC MOL at 8). Missouri argues that this case presents a straightforward application of the rules in that there are instruments for the payment of money only (the Note) and defendants failed to pay (id. 3 at 6-7).

Defendants argue that the Note and Security Agreement are unenforceable as either unconscionable or obtained via fraud (NYSCEF # 59). Regarding fraud, defendants argue that Straus had been acting as their lawyer since 2016 per the Oversight Agreement and invoices for legal services over the years (id. at 13-15). They argue Straus took advantage of their trust by bringing in Missouri and other fictitious lenders that buried defendants in debt with the goal of eventually taking ownership of the Awards (id. at 15-16). They further argue Straus fraudulently induced them to sign the Security Agreement and Note via the Side Letter (id. at 16-18). Finally, they argue that Missouri aided and abetted the fraud and had actual knowledge of the fraud via Straus; indeed, they served as the instrument of his fraud (id.). Defendants adds that the Note and Security Agreement are unconscionable because (a) defendants only had three weeks to finish selling the Aircraft; (b) they received no due consideration under the Note; (c) there was no mutuality of obligation; and (d) the Note was negotiated in a procedurally unfair way because defendants effectively had no choice in the matter (id. at 18-20).

Missouri replies that defendants do not dispute its prima facie case and instead only bring vague and unsupported defenses (NYSCEF # 91, Pltf's SJILC Reply, at 2). Missouri argues that the fraud claims fail because Straus was never defendants' lawyer and the Side Letter makes mere statements of future intent that cannot be the basis of a fraud claim (id. at 3, citing Non-Linear Trading Co., Inc. v Braddis Assoc., Inc., 243 AD2d 107, 118 [1st Dept 1998]). Missouri next argues that the Side Letter cannot "be read to support the view that the Note would be extended no matter what" given the integration clause and text of the 3-Month Clause (id.). Missouri also argues defendants ratified the Note by making use of the drawdown provisions. Missouri notes that there is no evidence of reliance or injury (id. at 4-5). As for unconscionability, Missouri first argues that defendants clearly received consideration because the Note "consolidated amounts already owed, and cancelled prior promissory notes," as well as extending the maturity date for some (but obviously not all) of the agreements (id. at 5). Finally, Missouri argues that there is neither procedural nor substantive unconscionability (id. at 6-13).

"CPLR 3213 is intended to provide a speedy and effective means of securing a judgment on claims presumptively meritorious" (Interman Indus. Prods., Ltd. v R.S.M. Electron Power, Inc., 37 NY2d 151, 154 [1975]). To demonstrate that a written instrument qualifies for summary judgment under CPLR 3213, a plaintiff "must prove a prima facie case by the instrument and a failure to make the payments called for by its terms" (Maglich v Saxe, Bacon & Bolan, P.C., 97 AD2d 19, 21 [1st Dept 1983]; see also PDL Biopharma v Wohlstadter, 147 AD3d 494, 494-495 [1st Dept 2017]). If it is necessary to look outside the document for proof of the debt, then CPLR 3213 procedure is inapplicable (PDL, 147 AD3d at 495). In other words, the defendant must explicitly acknowledge the indebtedness, and the fact of the debt must be apparent from the agreement alone (Weissman v Sinorm Deli, Inc., 88 NY2d 437, 444 [1996]). "Once the plaintiff submits evidence establishing these elements, the burden shifts to the defendant to submit evidence establishing the existence of a triable issue with respect to a bona fide defense" (Zyskind v FaceCake Mktg. Tech., Inc., 101 AD3d 550, 551 [1st Dept 2012]).

Here, Missouri establishes its prima facie case by submitting copies of the Note and Security Agreement which establish the September 30, 2024 maturity date (see NYSCEF #s 5, 6). Missouri also submits an affirmation from Tyler B. Korn, Missouri's attorney-in-fact, establishing defendants' failure to repay the Note (NYSCEF # 4 ¶¶ 1-2, 9). This evidence is sufficient to establish a prima facie case.

However, defendants have submitted sufficient evidence to support their fraudulent inducement and aiding and abetting fraud defenses. At bottom, defendants raise a question of fact as to (1) whether Michael Straus—the manager of the entity serving as general partner of Montreux and a partner of the entity that owns Missouri (NYSCEF # 75; NYSCEF # 12 ¶ 1)—was also serving as defendants' lawyer and used defendants' trust to (2) fraudulently induce them to sign the Security Agreement. Because "[a] contract induced by fraud . . . is subject to rescission, rendering it unenforceable by the culpable party" (Merrill Lynch, Pierce, Fenner & Smith, Inc. v Wise Metals Group, LLC, 19 AD3d 273, 275 [1st Dept 2005]). Fraudulent inducement and aiding and abetting fraud are sufficient defenses to defeat Missouri's motion.

(1) Straus's Attorney-Client Relationship with Defendants

"To determine whether an attorney-client relationship exists, a court must consider the parties' actions" (Pellegrino v Oppenheimer & Co., Inc., 49 AD3d 94, 99 [1st Dept 2008] [internal citations omitted]). "An attorney-client relationship is established where there is an explicit undertaking to perform a specific task" (id.). "While the existence of the relationship is not dependent upon the payment of a fee or an explicit agreement, a party cannot create the relationship based on his or her own beliefs or actions" (id.).

Here, defendants provide enough evidence to show an "explicit undertaking to perform a specific task" by Straus, thus raising a question of fact as to their attorney-client relationship. Per the 2016 Oversight Agreement, Straus promised "to undertake the oversight and where appropriate coordination of proceedings concerning the collection, settlement or other resolution of [CMPX's] claims of any nature against Republic of Congo" (NYSCEF # 69 ¶ 1). The Agreement's use of the words "to undertake" and its description of the task track the language of Pelligrino's standard. Whether or not this truly is an engagement agreement as defendants assert, there is no doubt that Straus was agreeing to have significant input in CMPX's efforts to enforce the Arbitral Awards—functions normally performed by a lawyer.

There is other evidence that Straus was defendants' attorney. Defendants' counsel in Lebanon avers that they understood Straus "has also acted as counsel to CMPX since 2016" (NYSCEF # 89 ¶ 3). Additionally, Straus's law firm billed defendants for "legal services" or "legal and consulting services" at least twenty four times between June 2018 and May 2024 (see NYSCEF # 70 at *12-13, *15, *17, *19, *21, *23, *25-27, *29, *31-34, *36, *37, *39, *42-44, *47-49). Given that defendants received other invoices that either stated they were for "travel" or were not on Straus's letterhead, Straus appeared to expressly distinguish his legal services from other bills.

That said, defendants had reason to doubt Straus was representing them, at least for the purposes of the loan discussions. Defendants are sophisticated parties and have been litigating these Arbitral Awards for over two decades. They should know that lenders are adverse parties in any negotiation about financing. Moreover, defendants claim they first approached Straus as a litigation funder, not as a lawyer (NYSCEF # 59 at 2; see also NYSCEF # 67 ¶ 5). They had strong reason to believe that Straus was a lender first and a lawyer second. Additionally, the emails filed by parties also indicate defendants treated Straus, Missouri, and Montreux as adversaries in the relevant negotiations, making counter-offers and asking for extensions.

Yet, it is not clear that defendants knew that Straus was adverse rather than Missouri and Montreux. It is not clear as to when defendants learned that Straus had an interest in Missouri because the MP3 letter explaining the ownership structure is undated (see NYSCEF # 75). Additionally, nearly every transaction with Missouri was signed by its attorney-in-fact Korn, not Hermann or Straus, meaning that the agreements did not put them on notice of Straus's allegiances (see, e.g., NYSCEF # 72 at *7; NYSCEF # 73 at *10; NYSCEF # 5 at *10; NYSCEF # 6 at *11).

Moreover, Straus made several comments that seemed designed to convey a difference between himself and "the lenders." Straus's first WhatsApp voice message says that "we are simply in a very difficult position with the lenders," suggesting he is not one of the lenders (NYSCEF # 67 ¶ 22). Straus's later voice message on September 8 stated that McDonald sent "you [Hajaij], and Nicolas, and Rida, and us" the next draft of the Note, raising questions about who "us" is given McDonald is supposedly lawyer to his organizations (see id. ¶ 23 [emphasis added]). Straus also sent defendants a version of the Note without waiting to for McDonald or Korn (Montreux and Missouri's lawyers) to review it, an odd choice and one that obfuscate whose side he was on (see, e.g., NYSCEF # 55 at *2). Additionally, the Side Letter repeatedly refers to "the lenders" separately from Straus himself, and also uses "we" to refer to himself and CMPX rather than himself and the lenders (see NYSCEF # 40). Even Straus's November 8 email rejecting extension states that he "shared with Missouri and Montreux your request" for extension and stating that the choice is in "their [Missouri and Montreux's] sole authority," phrasing that makes it sound like he is not part of or has no power over either business.

Meanwhile there is no evidence that Straus properly obtained defendants' informed consent that he was not their representative or otherwise obtained a waiver of any conflict of interest. Straus never informed defendants that they should retain independent New York counsel to negotiate with him if he was not their lawyer. Straus's self-serving statements that he "made clear that [he] was acting on behalf of Defendants' lenders (Missouri and Montreux) in those conversations" is not enough (NYSCEF # 51, Straus Vacate Aff, ¶ 4).

In short, defendants have produced evidence creating a triable issue of fact that Straus was serving as defendants' lawyer at relevant times without ever obtaining a conflict waiver.

(2) Fraudulent Inducement

Defendants have provided sufficient evidence to raise questions of fact whether they were fraudulently induced into signing the Security Agreement, and only the Security Agreement. The attorney-client relationship directly affects whether defendants were fraudulently induced to sign the Security Agreement. Fraudulent inducement requires "misrepresentation of a material fact, which was known by the adversary to be false and intended to be relied on when made, and that there was justifiable reliance and resulting injury" (Perella Weinberg Partners LLC v Kramer, 153 AD3d 443, 449 [1st Dept 2017]). (Defendants' allegations of a long-term conspiracy by Straus to take the Awards is not supported by the evidence and will not be addressed further in this opinion.)

a. Misrepresentation

Defendants have raised adequate evidence that Missouri and Montreux either committed fraud or aided and abetted Straus in fraud. Specifically, defendants were fraudulently induced to sign the Security Agreement in reliance on Straus/the Side Letter's promise that:

"if the security agreements are signed, the maturity date in the Consolidated Promissory Note of September 30, 2024 will be extended to December 31, 2024, in accordance with the '3 month clause' that I [Straus] inserted"

(NYSCEF # 40 ¶ 5). This was a misrepresentation because Missouri and Montreux ultimately refused to extend the maturity date as promised, causing defendants to go into default, suffer the default interest rate, and risk losing Award 9899 to Missouri and Montreux. Missouri aided and abetted because Straus was a partner of the entity that owns Missouri, giving the entity actual knowledge.⁹ This logic does not extend to the Note because defendants signed the Note on September 8, 2024, two days before receiving the Side Letter.

Missouri argues that this language was not misrepresentation because it cannot "be read to support the view that the Note would be extended no matter what" (NYSCEF # 91 at 3). The opposite is true: there is simply no fair reading other than a promise that the Note would be extended no matter what. Missouri appears to read the "in accordance with the 3-month clause" language to mean that any further extension must also comply with the 3-Month Clause's terms. However, the Side Letter is written in clear language that appears geared towards non-legal readers, and so the phrasing here indicates that a guaranteed extension is in compliance with those terms. To sneak in a technicality would go against the nature of the document.

Context does not help Missouri. The Side Letter explains why the lenders have yet to sign, the parties' respective duties once the maturity date is extended and the effects of signing the Security Letter (see NYSCEF # 40 ¶¶ 1-6). Nowhere does the Side Letter imply that defendants had to do anything other than sign the Security Agreements to get an extension.

Missouri next argues that the Side Letter cannot be a misrepresentation because it is an unactionable statement of future intent. Generally, a statement regarding future acts is not considered a misrepresentation (Non-Linear Trading Co., Inc. v Braddis Assoc., Inc., 243 AD2d 107, 118 [1st Dept 1998]). There are two exceptions to this rule. First, a statement about the future is actionable if the claimant submits evidence showing the promisor "never intended to honor or act on his statement" (id.). Such "a present intention not to fulfill a promise is generally inferred from surrounding circumstances, since people do not ordinarily acknowledge that they are lying" (Braddock v Braddock, 60 AD3d 84, 89 [1st Dept 2009] [internal citations omitted]).

The second exception is constructive fraud: when the promisor making the promise of future performance is in a "confidential or fiduciary relationship" with the promisee such that they "do not stand on equal footing," the promisee relying on that promise can recover in constructive fraud even without showing scienter so long as the promise did not come true (see Brown v Lockwood, 76 AD2d 721, 733 [2d Dept 1980]). This exception "rests on the theory that, where [a party] was owed a fiduciary duty or duty of confidentiality[ ], they are warranted 'to repose their confidence in the defendant and therefore to relax the care and vigilance they would ordinarily exercise in the circumstances' " (People by Schneiderman v Credit Suisse Sec. (USA) LLC, 31 NY3d 622, 640 fn 2 [2018] [Feinman, J., concurring], quoting Brown, 76 AD2d at 731). This exception requires "a confidential or fiduciary relationship such as . . . attorney and client" (Brown, 76 AD2d at 733; see also Callahan v Callahan, 127 AD2d 298, 301 [3d Dept 1987] [upholding constructive fraud claim against attorney]).¹⁰

Here, defendants have raised triable issues of fact regarding both exceptions. Starting with constructive fraud, the evidence establishes two sources of fiduciary duties. First, Straus's (possible) attorney-client relationship with CMPX and Hajaij (see supra). Second, if Straus was still one of Dove's owners at the time, he owed Dove and Hajaij a fiduciary duty of loyalty. There is a question of fact as to whether Straus still owned Dove: Straus transferred 40 shares of Dove to Hajaij in May 2024 (NYSCEF # 58), but nowhere claims that this constituted all of his shares. Thus, there is sufficient evidence to create a triable issue of fact as to whether Straus owed defendants fiduciary duties as required for constructive fraud.

Moving on to the other exception, defendants have also produced sufficient evidence to infer Straus had "a present intention not to fulfill" the promises in the Side Letter. The relevant part of the Side Letter contains two overlapping promises. The first is a promise that if defendants sign the Security Agreements, the maturity date will be extended no matter what. Missouri is correct that this first promise is merely a statement of future intent and that defendants have not produced specific evidence that Straus did not intend to honor it.

The second promise in the Side Letter is that the 3-Month Clause itself requires the maturity date to be extended. What makes this a misrepresentation is that the 3-Month Clause did not mandate extension, but merely says the Note can be extended upon terms agreeable to the parties (see NYSCEF # 5 § 8). This is arguably a statement about present circumstances because it (inaccurately) explains a term in the Note (see MBIA Ins. Corp. v Countrywide Home Loans, Inc., 87 AD3d 287, 294 [1st Dept 2011] [misrepresentation of present facts forms basis for fraud]). To the extent it is still a statement of future intent, there is circumstantial evidence Straus never intended to honor it. Straus had to have known the 3-Month Clause did not require extension because he claims he is the one who added it to the Note. He therefore knowingly misrepresented how the clause worked and thus misrepresented present fact. He was also adverse to defendants in this negotiation and stood to benefit if they signed. Finally, Missouri and Montreux refused to extend merely three weeks after his promise. These facts indicate an intent not to honor.

b. Justifiable Reliance and Injury

Whether defendants were justified in relying on the Side Letter (under this second promise or a theory of constructive fraud) largely depends on whether Straus was their attorney. If he was not their attorney, then they are not justified in relying on his promise because this was effectively an arms-length transaction between two sophisticated parties. If he was their attorney, there is a strong basis to conclude that their reliance was justifiable. Thus, there is a question offact as to reasonable reliance dependent on whether Straus was defendants' attorney.

Defendants have shown injury by encumbering Award 9899 rather than just the Aircraft as originally contemplated. Further injury will be adduced via discovery.

c. Other Arguments

Fraudulent inducement is not defeated by the integration clause. "[A] general merger [or integration] clause . . . does not operate to bar parol evidence of fraud in the inducement" (Merrill Lynch, 19 AD3d at 275, citing Sabo v Delman, 3 NY2d 155, 161 [1957]). "[O]nly where the parties expressly disclaim reliance on the particular misrepresentations is extrinsic evidence barred" (id., citing Citibank v Plapinger, 66 NY2d 90, 95-96 [1985]; First Nationwide Bank v 965 Amsterdam, 212 AD2d 469, 471 [1995]).

Here, the integration clause in the Consolidated Note was general and boilerplate such that it does not defeat fraudulent inducement. The Note's integration clause was nearly identical to the integration clauses in the previous Missouri loan agreements save for a small addendum at the end to change accounts and/or drawdown notice forms (compare NYSCEF # 5 § 13 [j], with NYSCEF # 71 § 12 [k]; NYSCEF # 72 § 10 [k]; NYSCEF # 73 § 14 [j]; NYSCEF # 74 § 8 [k]). Moreover, "[a] contract induced by fraud . . . is subject to rescission, rendering it unenforceable by the culpable party" (Merrill Lynch 19 AD3d at 275). This rule extends to merger clauses like the one at issue here. Even if the merger clause were effective (see Great Rock Capital Partners Mgt., LLC v Wingtip Communications, Inc., 224 AD3d 442, 445 [1st Dept 2024]), the merger clause would not defeat Straus's legal advice to defendants as clients regarding what the 3-month clause means.

Finally, Missouri argues defendants cannot succeed on their fraud counterclaims because defendants ratified the agreements by drawing down funds after this case began. Regarding ratification:

"While an act ratifying a contract after the discovery of fraud in the inducement may defeat the right to challenge that contract, a plaintiff may still bring an action for damages for the fraud unless such a claim has been waived. Ratification of a contract after knowledge of fraud in the inducement thereof is no defense to an action for fraud and deceit unless there has been a waiver of the cause of action for damages itself"

(Braddock, 60 AD3d at 94 [internal citation and quotation marks omitted]). Moreover, in the similar situation of attorney-client contingent fee contracts, ratification is a high bar:

"Where a fully informed client with equal bargaining power knowingly and voluntarily affirms an existing fee arrangement that might otherwise be considered voidable as unconscionable, ratification can occur so long as the client has both a full understanding of the facts that made the agreement voidable and knowledge of his or her rights as a client."

(King v Fox, 7 NY3d 181, 193 [2006]). There is no reason this logic should not apply to other transactions between a lawyer and their purported client, and to fraud rather than unconscionability.

Here, there is no evidence defendants waived their causes of action for fraud. Moreover, if Straus was defendants' lawyer, there is no question that defendants were not "fully informed client[s] with equal bargaining power knowingly and voluntarily affirm[ing]" their arrangement with Straus given that they were never given a chance to waive the conflict of interest. Thus, there is at least a question of fact as to ratification here.

In sum, while Missouri has produced evidence establishing its prima facie entitlement to summary judgment in lieu of complaint, defendants adequately met their burden to oppose with evidence creating a triable issue of fact as to whether they had an attorney-client relationship with Straus and, more generally, whether Straus took advantage of that relationship to fraudulently induce them into signing the Security Agreement and Note. Summary judgment in lieu of complaint is denied as discovery is necessary to answer the remaining questions of fact.¹¹

Conclusion

Pursuant to the above, it is hereby

ORDERED that plaintiff Missouri Partners Capital LLC's motion for summary judgment in lieu of complaint is denied and this action is converted into a plenary action; and it is further

ORDERED that plaintiff Missouri Partners Capital LLC shall file a complaint within 20 days of the filing of this order, and defendants shall file an answer within 20 days of service thereof; and it is further

ORDERED that the defendants shall serve a copy of this Decision and Order with notice of entry on the Clerk of the Court 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 and on the court's website at the address www.nycourts.gov/supctmanh).

DATE 3/20/2025

MARGARET A. CHAN, J.S.C.

FOOTNOTES

1.   The companion case is Montreux Partners II, LP v Commissions Import-Export S.A. (Index No. 659610/2024). Many of the facts in this case and the Montreux case are interrelated.

3.   Straus integrated all his prior affirmations into his affirmation in support of summary judgment (see NYSCEF # 93, Straus SJILC Aff, ¶ 3 ["I hereby fully restate and reaffirm the contents of my prior affirmations in Missouri, Dkts. 12, 51 . . . "]).

4.   Award 9899 was recognized in Commission Import Export, S.A. v The Republic of Congo et al., 17-mc-00175 (S.D.NY) entered May 26, 2017, registering judgment granted in No. 12-cv-743 (D.D.C.) (NYSCEF # 12 ¶ 5). Award 16257 was recognized in Commissions Import Export S.A. v. Republic of the Congo, Case No. 13-cv-00713-RJL (D.D.C.), Dkt. 18, and Commissions Import Export S.A. v Republic of the Congo, Case No. 14-mc-00187-AJN (S.D.NY), Dkt. 20 (NYSCEF # 12 ¶ 5).

5.   Montreux brings a companion action that involves the same facts and conduct but different contracts (see Case No. 659610/2024, Montreux Partners II LP v CMPX).

6.   Sometimes written "Mohsin Hojeij."

7.   The court has been unable to locate a fully executed version of the August 12, 2022 Note on either docket. The versions available are signed only by CMPX (see NYSCEF # 71 at *7).

8.   It is not clear whether CMPX used Missouri's funds to pay for the Aircraft. Defendants' attorney in France, Michaël Schlesinger of the law firm Archipel, avers that CMPX "paid the price by way of set off with its claim against the Congo" (NYSCEF # 32 ¶ 11).

9.   Defendants also reference but do not specifically argue that Straus may have fraudulently induced them by claiming the Security Agreement or certain language within it was required by New York law. However, this theory has not been developed and will not be addressed here.

10.   To the extent defendants did not specifically plead constructive fraud as opposed to fraudulent inducement, "an unpleaded defense may form the basis for denial of a motion for summary judgment" (Rera v Rera, 100 Misc 2d 670, 673 [Sup Ct 1979] [collecting cases]). Moreover, the Brown court considered constructive fraud in the fraudulent inducement context apparently without regard to whether constructive fraud had been pled (see Brown, 76 AD2d at 733).

11.   The court does not reach defendants' unconscionability defense.

Margaret A. Chan, J.