Cammarata v. Kelly Capital, LLC
| Decision Date | 10 September 2018 |
| Docket Number | Case No.: 3:17-cv-00346-BEN-AGS |
| Citation | 339 F.Supp.3d 1033 |
| Court | U.S. District Court — Southern District of California |
| Parties | Frank S. CAMMARATA, d/b/a Cammarata Associates, as successor to MHP II Corporation, Plaintiff, v. KELLY CAPITAL, LLC, et al., Defendants. |
David Harrison Lawton, The Gallagher Law Group PC, Los Angeles, CA, for Plaintiff.
Grant Puleo, Patricia Pichon Hollenbeck, Duane Morris LLP, Alexander J. Kessler, The Grant Law Firm, San Diego, CA, for Defendants.
ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
On February 21, 2017, Plaintiff Frank S. Cammarata, d/b/a/ Cammarata Associates, as successor to MHP II Corporation ("Plaintiff" or "Cammarata"), filed this diversity action for declaratory relief and monetary damages against Defendants Kelly Capital, LLC, Kelly Escrow Fund V, LLC, and Michael R. Kelly. (Docket No. 1.) On December 18, 2017, Defendants filed the instant motion for summary judgment. (Docket No. 28.) On January 19, 2018, this Court granted Plaintiff's Rule 56(d) motion to continue briefing on this motion until after a reasonable period for discovery. (Docket No. 43.) On July 9, 2018, this motion became fully briefed and ripe for consideration.1 As will be explained in further detail below, because each of Plaintiff's claims for relief are untimely, Defendants' motion is GRANTED .
A brief overview of the circumstances giving rise to the contracts at issue will help in understanding the underlying dispute.
The facts recited are taken directly from Plaintiff's Complaint or the findings of fact made by the United States District Court for the Eastern District of Virginia in Kelly Capital, LLC v. S & M Brands, Inc. , 873 F.Supp.2d 659 (E.D. Va. 2012), on which Plaintiff's Complaint partially relies and to which Defendants do not dispute. (See Mot. at pp. 2-8.)
In the 1990's, several states initiated class actions against tobacco manufacturers seeking compensation for expenses incurred, or to be incurred, in treating diseases associated with smoking tobacco. Those actions were settled pursuant to a 1998 Master Settlement Agreement ("MSA"). However, not all tobacco companies were parties to the class actions or the MSA. To bring the non-signing manufacturers into the fold and achieve the same result as the MSA, states passed legislation.
As a result of the MSA or the state legislation, tobacco manufacturers in Virginia and 45 other states are required either to have signed the MSA, or to contribute annually to an escrow account certain sums for each carton of cigarettes sold. The deposited funds must remain in escrow for 25 years. While in escrow, those funds may only be used to pay judgments on, or settlements of, tobacco-related claims. At the end of 25 years, the depositing company is entitled to the deposited funds then remaining in the escrow account, i.e., the portion of the principal that has not been used to pay judgments on, or settlements of, tobacco-related claims. The deposited funds may be invested, under tightly regulated circumstances, in very restricted investment vehicles that produce interest income. In essence, the deposited funds earn interest and the depositing company is entitled to that interest as it is earned.
S & M Brands, Inc. ("S & M") is a tobacco manufacturer and distributor of cigarettes and other tobacco products. S & M is not a party to this case. S & M did not sign the MSA, and thus, as required by state laws, it has established escrow accounts in each state in which it sells cigarettes. The escrow accounts are governed by an Escrow Agreement between S & M and a national banking association. S & M has a separate escrow account for each year in which it has sold cigarettes and thereafter funded the escrow accounts.
The tobacco companies that establish and fund these escrow accounts cannot sell, transfer, distribute, or use the principal funds deposited in the accounts until expiration of the 25-year period. However, they can sell or distribute what are called "escrow releases." An escrow release, inter alia, vests in the purchasing entity: (1) the right to the interest income earned from the funds that have been deposited into the escrow accounts; and/or (2) the right to receive any funds, principal or interest, that remain in the escrow account at the end of the 25-year period.
Tobacco companies that were signatories to the MSA were able to take tax deductions for their contributions to the escrow accounts because those accounts were designated as Qualified Settlement Funds ("QSF"). Conversely, tobacco companies that were not signatories to the MSA, and who created their own escrow accounts, were not entitled to the benefit of the QSF deduction.
In 2009, S & M engaged Cammarata to help locate purchasers for their escrow releases. Cammarata contacted Defendant Kelly Capital, LLC ("Kelly Capital"), a private equity venture that acquired and managed asset-based businesses, real estate debt, and other investments. Subsequently, Cammarata formed MHP II Corporation ("MHP") to assist Kelly Capital with its efforts to purchase tobacco escrow releases.
On April 12, 2010, MHP and Kelly Capital entered into a written agreement entitled, "Commission Agreement." Under the terms of the Commission Agreement, MHP agreed to introduce Kelly Capital to S & M, and Kelly Capital agreed to pay MHP a 5% commission based on the gross purchase price Kelly Capital or its assignee paid to S & M for its tobacco escrow releases. Additionally, "[Kelly Capital] and MHP agree that MHP shall be entitled to receive a commission fee paid upon close of any escrow relating solely to the [ S & M] Escrow Funds" by Kelly Capital or its assignee "in the amount of [5%] of the gross purchase price ... (the ‘Commission’)."
On April 16, 2010, Kelly Capital assigned its rights to purchase S & M's escrow releases to SEI, who purchased $30 million of S & M's escrow releases for a purchase price of $10 million (the "first tranche of escrow releases"). It is undisputed that Kelly Capital was obligated to pay (and in fact paid) MHP a commission of $500,000 (i.e., 5% of $10 million) for this purchase, and that payment of this commission is not at issue.
On July 15, 2010, although there appears to be disagreement regarding the order in which they occurred, it is undisputed that three things happened: 1) Kelly Capital assigned its remaining rights to purchase S & M's escrow releases to Kelly Escrow Fund V, LLC ("Kelly Escrow"); 2) Kelly Escrow purchased an additional $40 million of S & M's escrow releases for a purchase price of $13.6 million (the "second tranche of escrow releases"); and 3) Kelly Capital and MHP entered into the First Amendment to the Commission Agreement ("First Amendment").
In relevant part, the First Amendment modifies the timing of Kelly Capital's payment of "the Commission due to MHP," and the term "Commission" is defined in the Commission Agreement. (Docket No. 1-3, Compl., Ex. B., "First Amendment" ¶ 1.) Specifically, the First Amendment states, "[Kelly Capital] and MHP agree that [Kelly Capital] will pay the Commission due to MHP for the sale of any [Kelly Capital] Escrow Funds pursuant to the terms and conditions of the Escrow Agreement upon the sale, conveyance and/or transfer of the escrow releases for [Kelly Capital] Escrow Funds to a third party end user and/or financial institution (‘3rd Party Buyer’)." (Id. ) It is undisputed that Kelly Capital never paid a commission to MHP for Kelly Escrow's purchase of the second tranche of escrow releases. It is this commission, in the amount of $680,000 (i.e., 5% of $13.6 million), that Plaintiff seeks to recover.
Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is material if it might affect the outcome of the suit under the governing law. Anderson , 477 U.S. at 248, 106 S.Ct. 2505. "Factual disputes that are irrelevant or unnecessary will not be counted." Id. A dispute is genuine if "the evidence is such that a reasonable jury could return a verdictfor the nonmoving party." Id. In considering a summary judgment motion, the evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his or her favor. Id. at 255, 106 S.Ct. 2505.
The moving party bears the initial burden of showing there are no genuine issues of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). It can do so by negating an essential element of the non-moving party's case, or by showing that the non-moving party failed to make a showing sufficient to establish an element essential to that party's case, and on which the party will bear the burden of proof at trial. Id. The burden then shifts to the non-moving party to show that there is a genuine issue for trial. Id. As a general rule, the "mere existence of a scintilla of evidence" will be insufficient to raise a genuine issue of material fact. Anderson , 477 U.S. at 252, 106 S.Ct. 2505. There must be evidence on which the jury could reasonably find for the non-moving party. Id.
A federal district court sitting in diversity applies the conflict of law rules of the forum state to determine whether the law of the forum state, or some other law, should govern the case. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61...
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